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People often overlook the cost of healthcare in retirement. While you may be in excellent health when you first retire, it’s essential to plan for additional healthcare costs as you age. That’s where long-term care insurance comes into plan. Long-term care insurance can be a critical component of your retirement planning. Since the costs for long-term care continue to climb, you must have a plan to cover these costs in retirement in case you need them. But, long-term care insurance is not for everyone and many individuals may be better off self-insuring instead of paying expensive premiums. So, what is long-term care insurance, and do you actually need it? Here’s what you need to know. What is Long-Term Care (and How Much Does It Cost)? Long-term care is a specific type of care designed to help people who cannot perform certain routine functions and daily activities like, Eating Dressing Bathing Toileting Continence Transferring themselves (for example, safely moving from the bed to the floor). Collectively, these tasks are called activities of daily living, or ADLs. It may seem like an outlier, but the likelihood that you'll need long-term care services as you age is relatively high. The Center for Retirement Research at Boston College found that 1 in 4 people over 65 will have severe long-term care needs . So, what defines “severe”? In this case, researchers identified severe needs as requiring assistance with at least one ADL for more than three years. This could be the case if you begin to develop Alzheimer's disease or another cognitive impairment. Apart from the odds of needing long-term care being higher than you may have imagined, the care itself isn't cheap. According to Genworth Cost of Care, nursing home care can run about $100,000 a year, and even opting for home care options will only cut your costs by about half. Long-term care is a considerable risk. You need a plan to help pay for it, especially because the typical retirement health insurance like Medicare and supplemental policies often don't cover long-term care costs. While Medicaid does offer financial support for long-term care, many families must exhaust most of their resources before having a chance to qualify for aid, making it a better option for low-income households. Understanding Long-Term Care Insurance Long-term care insurance is one way you can protect yourself from unmanageable long-term care expenses. Long-term care insurance is a separate insurance policy specifically designed to cover long-term care costs. Policies can be written to cover care in various settings such as in-home, nursing homes, assisted living facilities, a home health aide, or adult daycare. Your finances, desires and living situation will determine the best type for you. How does long-term care insurance work? First, you’ll fill out an application. The insurance company will also want to check your medical records and may require an "interview" to get an idea of your health and assess the risk they face by insuring you. Here, they'll determine your eligibility for coverage. Sometimes if you're in poor health or have a pre-existing health condition, you may not qualify for coverage. If you’re approved, you’ll decide the type and level of coverage you want. Most long-term care policies provide coverage in terms of a daily benefit amount and a lifetime benefit cap (or time period). For example, you may choose a policy with a $300 daily benefit and a $100,000-lifetime cap. Your policy would cover $300 in costs per day that you required long-term care but would stop paying once it paid out a total of $100,000. The policy may also state the lifetime cap as a number of years rather than a dollar amount— such as a $300 a day policy for 5 years. Once you have a policy in effect, you're usually eligible to receive benefits when you can't perform at least 2 of 6 activities of daily living. You'll need to notify the insurance company by sending in a form, and you may need a doctor's note or evaluation to verify your condition. You won’t start receiving your benefit immediately, however. There’s also an elimination period, or waiting period, that must pass after your need arises but before the insurance company starts paying. You get to choose our elimination period when you buy the policy—30, 60, or 90 days. Of course, a policy with a shorter elimination period will have a higher premium. The cost of a long-term care policy (premium, deductibles, etc.) depends on your age, gender, marital status, coverage amount, and insurance company, but could range from just a few thousand per year to well over $1,000 per month. The sweet spot for buying a policy is usually in your mid-50s to early 60s. Why Consider A Long-Term Care Policy? The central benefit of all insurance is giving up a known amount of money today (the premium) to protect yourself from an even greater but unknown loss later. Ltc insurance does the same. Buying a policy may give you more certainty with your retirement savings, and at the same time, provides you with options and flexibility for care. But purchasing a policy might not just be for your own benefit. It can also alleviate financial and caregiving stress for family members since they will likely be providing home health care services regardless of your ability to cover the costs of that care. In fact, 63% of caregivers use their own retirement savings to pay for care for their relatives. Your long-term care insurance may very well protect your kids and grandkids from draining their savings. A long-term care insurance policy can provide you and your loved ones with peace of mind knowing that you have protected your future health. Should You Self Insure Against Long-Term Care Costs? One of the biggest problems with long-term care coverage is that the policies are expensive. Even worse, premiums continue to rise. At Covenant Wealth Advisors, we’ve had dozens of clients receive annual premium rate increase notices from their long-term care insurance providers. Rising premiums can pose a big risk to your cash flow. That’s why we recommend that you ask the following questions before you purchase a long-term care policy: Do I have enough assets to cover the potential costs of long-term care? Is it better to use the equity in my home to self-insure against long-term care costs? Do I have other assets that I can sell in the event I will need to pay for long-term care costs in the future? Does it make sense to add a long-term care rider to my life insurance policy instead? The truth is that we’ve advised more clients not to get a long-term care policy than to get one. But everyone is different and the answer depends on your personal situation. Make A Plan To Get The Care You Need Long-term care insurance isn’t the only way to handle the expense of prolonged care, but it’s an excellent area to explore, and you may find that it’s the ideal approach for you. It’s also just one item to address in retirement. For a quick reference on other key retirement issues, see our checklists here . Don’t hesitate to contact us with any questions. We’d love to help you get started on developing a comprehensive financial plan for retirement today! About Mark Fonville, CFP® Mark is a personal financial advisor and the President of Covenant Wealth Advisors. He advises individuals age 50 plus on retirement income planning, investing, and tax planning strategies for a successful retirement. He has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Schedule a call. Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. We provide investment advisory, financial planning, and tax planning services to individuals. Investments involve risk and does not guarantee that investments will appreciate. Past performance is not indicative of future results. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.

At this stage in your life, you’re likely used to the idea of a cash flow plan, budget, spending plan, whatever your preferred term. But what makes a retirement cash flow plan so different? Your income sources change. Now you have to rely on social security, a pension if you’re lucky, potential part-time work, and your retirement savings and investments instead of a traditional paycheck. That can be a stressful feeling. Making this transition to retirement is challenging for many people because they are afraid of running out of money. In fact, that’s been a top fear among retirees for years! Cash flow in retirement planning is a careful science and creative art. It’s not easy because there are so many assumptions that need to be made. But, if done right, you or your financial advisor can help you create a personalized retirement cash flow plan that helps you visualize your sources of income and clearly identify what expenses your cash flow will help cover for the rest of your life. You will also get a feel for how much money you need to withdraw from your portfolio each year. The end result of a well-designed retirement cash flow plan is that you’ll have the clarity you need to enjoy life without stressing over the dollars and cents. Here’s how to make a retirement cash flow plan…that actually works! You can also download our checklist to use as a guide for getting your entire retirement in order! 1. Get A Clear Idea Of How Much You "Want" To Spend Try to come up with an estimate of how much you want to spend per month. If you’re having trouble, take a look at your current cash flow plan—what’s coming in vs. what’s going out each month. It’s beneficial to have a spending target to help guide your savings and investment decisions. That way, you can have a more straightforward plan to reach your goals and a benchmark to let you know if you’re on track. Many financial planning experts say a strong retirement savings plan attempts to replace anywhere from 80-90% of your pre-retirement income to maintain your current lifestyle. That’s a good rule of thumb to keep in mind, but the reality is that the closer you get to retirement, the less you need to rely on estimates. Now’s the time to start putting real numbers and scenarios in the mix. For example, several people believe they will spend significantly less in retirement, but that's not always true. Most end up spending about the same in the first few years as they did before retirement. That could be the case for you, too! One way to divide up your retirement spending needs is to divide them into three different buckets: Needs Wants Wishes Needs are the bare essentials that you’ll need to pay for in retirement. This includes fixed retirement living expenses including your mortgage, electricity, clothing, groceries, utilities, real estate taxes, and home maintenance. The needs category of cash flow planning should also include sound estimates for medical expenses in retirement. If you want to plan for early retirement prior to your Medicare eligibility, then you’ll want to account for private healthcare insurance premiums and out-of-pocket expenses. A private healthcare plan can be expensive, so plan accordingly! Wants include the items that start to make life a little more enjoyable. This category may include retirement goals, like new car purchases, travel, gifts to family and charity, home improvement projects, and hobbies. Don’t forget that if you have a significant other, you’ll want to plan for car purchases for each of you. Also, we find that individuals tend to spend more on travel in the first 10-15 years of retirement. Travel expenses tend to decline after that so your retirement cash flow plan should reflect that. Wishes are just that. This final bucket of expenses is focused on the quality of life expenses that you don’t need to have, but they sure would add a whole new element to your retirement lifestyle. Maybe you want a new boat in retirement. Or perhaps you have your eyes set on purchasing a vacation home or camper. Or maybe you have grand plans to move to a high-end retirement community. Why should you divide your retirement cash flow expenses into three categories? For the most part, the wants and wishes items can always be delayed or removed from your expenses in retirement if the economy suddenly gets hit by a recession. Cash flow buckets also allow you to easily identify how much you need to cover the essentials vs some of the finer things in life. Other adjustments may be necessary depending on whether your overall lifestyle changes, if at all, as you transition into retirement. Ask yourself, Do you plan to move? If so, what's the cost of living in the new area? What are your travel goals? How will you spend your time? Do you still want to work? Start listing out the non-negotiables that you’ve been dreaming about, like traveling to see your grandkids every few months, and remember, those things have a cost associated with them. If you weren’t spending on those items before, add them to your current budget to help you arrive at your retirement budget. 2. Know How Much You "Have" To Spend Once you know what you plan to spend, compare that to what you have available to spend. Just like your spending plan now, creating a retirement cash flow plan that works is all about balancing what you have coming in versus what's going out. The key difference is that your income sources will change. Instead of a regular paycheck, you’ll be spending your Social Security benefits and pension plan (if you have one) or taking withdrawals from an annuity, savings account, or another bank account, individual retirement account (IRA), 401(k), or other investment options. You may also have passive income sources like a rental property. You need to know how these cash flow sources can work for you and how they interact with each other. 3. Create A Strategic Withdrawal Plan A retirement spending plan is more than just deciding how much you can withdraw from your nest egg; you also need to think about how you will withdraw. A sure-fire way to extend the longevity of your investments is by creating a solid plan for drawing from them. A withdrawal strategy notates which investment accounts you draw from, how much you take, and when you take them. Doing so maximizes your investments and minimizes your taxes. Some techniques you can use may include: Have a predetermined plan for when and how you will adjust your withdrawal based on fluctuations in your investments. Not all market movements will impact your withdrawals, so where will you draw the dividing line, and by how much will you reduce or increase your withdrawal when you cross it? Create an income “floor" of stable investments that you can withdraw from no matter what happens to the rest of your portfolio. Take a portion of your total withdrawal for the year from each account type to blend your taxes and keep the lowest average rate possible over multiple years. 4. Make The Most of Your Tax Opportunities Retirement accounts are excellent tools for saving and deferring taxes, but too much tax deferral isn’t always the most opportune way to save. Don’t pass up an opportunity to fill up lower brackets now while deferring income into later years when you may be in a higher tax bracket. If you are in a lower bracket now than you will be later, especially once you start taking required minimum distributions (RMDs), it could be a great time to leverage a Roth IRA and look into a Roth conversion. Tax-free Roth dollars can bring more flexibility to your spending plan. You can also plan your regular donations tax-efficiently. Cash is the most expensive way to give from a tax perspective, so some more efficient ways to give are: Appreciated assets . You can deduct the market value of your gift instead of selling it and paying capital gain taxes. Qualified Charitable Distributions (QCDs) . You can have your RMD sent directly to a charity, and it will bypass your taxable income altogether. Donor-Advised Funds (DAF) . These are especially helpful if you don’t always get to itemize your deductions. You can bunch multiple years' worth of donation into a single year and claim the deduction, then pay benefits out of the DAF over time. Whether it’s withdrawals, charitable donations, or investments, maximizing your tax situation keeps more money working for you. That's why it's critical to work with an advisor who does tax planning. A tax advisor can help you make the most strategic decisions with your money long-term, and it just happens to be one of our specialties! 5. Use Proper Assumptions in Your Retirement Cash Flow Plan Now that you have itemized your income and expenses, you’ll need to make sure that you integrate the right assumptions into your retirement cash flow plan. What assumptions should you consider within your plan? Investment returns. Investment rates of returns are notoriously difficult to predict in the short-term and long-term but they are paramount to a successful cash flow plan. We often use conservative assumptions between 3-5% per year depending upon a client’s risk tolerance and personal situation. While returns can be higher or lower, we think it’s prudent to be conservative. Inflation rate. Inflation rates have skyrocketed but the federal reserve is targeting long-term inflation rates of between 2-2.5% for standard expenses. Other types of expenses such as healthcare may experience more volatility and see much higher inflation rates. Inflation also plays a role in interest rates. The Fed has a plan to raise interest rates to curb current high inflation levels. Federal tax rates. Federal tax rates depend upon your taxable income and this can change dramatically depending on how you draw down your assets in retirement. State tax rates. If you are lucky enough to live in a state without state income taxes, then this will be zero. However, for the rest of us, you’ll want to account for your respective state income tax rates. Long Term Capital Gains tax rates. Long-term capital gains rates can fluctuate from 0% to 23.8% depending upon your personal circumstances. Every situation is different, and each requires a unique plan. We would be happy to show you how to have the best retirement possible. You can also download our free checklists to use to help you get started thinking about your path forward. Set up some time to meet with our team of dedicated financial planners today! About Mark Fonville, CFP® Mark is a personal financial advisor and the President of Covenant Wealth Advisors. He manages investment portfolio and provides retirement income planning for individuals age 50 plus who have over $1 million in investments. He has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Schedule a call. Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. We provide investment advisory, financial planning, and tax planning services to individuals. Investments involve risk and does not guarantee that investments will appreciate. Past performance is not indicative of future results. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.

It’s tax time! Are you ready to file your 2021 federal tax return? Before you do, make sure you’ve checked everything off your list so that your return is both complete and accurate. Here’s a checklist of key tax numbers for 2022 that will help you make sure you’re on the right track, and we will highlight some last-minute tips here. 1. File On Time The easiest thing taxpayers can do to make their tax filing go as smoothly as possible is simply filing on time. The standard filing deadline is April 15th each year, but for the 2021 tax year, it falls on April 18th, 2022, due to the Emancipation Day holiday. If you need to file an extension, doing so will extend your deadline to October 17th, 2022. It isn’t automatic, though. Make sure you properly request the extension if you need one. Filing an extension may give you more time to file your return, but it won’t lengthen the clock for estimated payments. If you owe the IRS money in April, be sure you pay it in April, so you don’t get stuck with late fees and penalties. Bonus: Gather and organize all of your critical tax forms such as social security numbers, W-2s, 1099s, receipts, and more. 2. Increased Tax Brackets for 2021 and 2022 Federal income tax rates are the same for 2021 and 2022, and those are: 0% 12% 22% 24% 32% 35% 37%. However, the income levels where you enter the next higher bracket have changed due to inflation. Remember that your filing status (single, married filing jointly, head of household, etc.) determines the income level for each bracket, so be sure to check the correct table if you are doing some last-minute planning. Even though you’ll file your state tax return separately, don’t forget to account for Virginia’s state income tax (or your state income tax) in your planning. 3. Standard Deduction The most exciting part of tax time for most people is figuring out what they can deduct from their income before calculating their final tax bill. You can either take the standard deduction or the total of your itemized deductions, whichever is more. The vast majority of filers— about 90%— will end up taking the standard deduction. Again, that amount depends on your filing status. $12,550 for single or married filing separate $25,100 for married jointly $18,800 for the head of household 4. Should You Itemize? If you can deduct the greater of your standard deduction or itemized deductions, then, of course, you’ll want to know what your itemized deductions are. Popular tax deductions include: Healthcare expenses . Although healthcare expenses are a common deduction, only your healthcare expenses in excess of 7.5% of your adjusted gross income (AGI) can be counted as an itemized deduction. That may seem technical, so we’ll give a simple example with round numbers. Suppose your AGI is $100,000, and you have $10,000 in qualified medical expenses. Since 7.5% of $100,000 is $7,500, you can itemize $2,500 in excess medical expenses. Charitable contributions . To maximize the value of your donations, consider ways to take full advantage of the tax benefits of doing so. Consider giving more significant gifts every few years rather than smaller gifts each year to bunch your donation to take advantage of the higher itemized deduction. You can use a donor-advised fund to accomplish that, which is a prevalent tax reduction strategy for higher-income earners . Also, if you have appreciated assets, you can donate them directly without having to incur the capital gain tax liability you would owe if you sold them first then donated the cash. Mortgage interest . The Tax Cuts and Jobs Act decreased the mortgage interest deduction from $1 million to $750,000. So any home purchased after December 16, 2017, abides by the lower limit. You may also be able to deduct private mortgage insurance (PMI) or other insurance premiums if it applies. Keep in mind that you can no longer take a deduction for the interest paid on a home equity loan if you don’t use it to substantially improve your house. State and local taxes . You can deduct up to $10,000 in SALT taxes, and typical examples include property taxes, income, and sales tax. You may have other unique tax deductions available depending on how many qualified dependents you have, if you're self-employed, own a small business, etc. Our team is a fountain of tax tips and advice, and we love offering strategic tax advice for our clients. 5. Contribute Extra To Your Retirement Accounts You also have time to make last-minute contributions to retirement accounts and your HSA. You have until your tax filing deadline to contribute for the previous calendar year, and this is a great time to add additional savings and reduce your overall tax liability. Here’s a quick reminder of the annual contribution limits for your 2021 accounts: HSA : $3,600 for self-only coverage and $7,000 for family coverage with an extra $1,000 in catch-up contributions when 55 or older. IRA : $6,000 with an extra $1,000 in catch-up contributions when 50 or older. Don’t forget to think about how this will affect you in retirement later. If you are near retirement, consider how your deduction now may mean a deferral that impacts your taxable income in retirement . 6. Organize Your Documents and Set Up Direct Deposit Getting organized before you file will help ensure you don’t miss something. Gather your income reporting documents such as W-2s and 1099s and do your best not to leave any out. Then, locate verification for your itemized deductions and double-check the amounts. Lastly, set up a direct deposit to expedite your refund. Most of the time, you’ll receive direct deposit weeks, if not months, sooner than having the IRS mail you a paper check. This may be especially important this year, with the IRS already announcing that we should expect a slow tax season. 7. Prepare for A Refund Are you expecting a tax refund? First, be sure to file early, as the IRS already anticipates massive delays this filing season. One way to speed up the filing process is to e-file online, whether you're filing your own taxes, working with a tax professional, or using a tax software. Doing so will ensure the IRS gets your documents faster and allows you to correct any errors in a timely fashion. You can also set up direct deposit so the refund check can funnel directly into your bank account. 8. We Help With Tax Planning and Tax Preparation Be mindful that proactive tax planning and tax preparation are two different things. Both are important, and together they can be a critical value-add that saves you time and money. Ready to file your income tax return this year? Our helpful tax cheat sheet can help you make sure you get the most out of your tax preparation efforts, and we would be happy to help you as well. Call today to get started! About Scott Hurt, CFP®, CPA Scott is a personal financial advisor with Covenant Wealth Advisors, a fee-only financial planning firm. He advises individuals age 50 plus on retirement income planning, investing, and tax planning strategies for a successful retirement. Schedule a call. Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. We provide investment management, financial planning, and tax planning services to individuals age 50 plus with over $1 million in investments. Investments involve risk and does not guarantee that investments will appreciate. Past performance is not indicative of future results. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.

The financial world doesn’t always paint annuities in the most flattering light. The reason is that many annuity contracts have historically been very expensive and very difficult to understand. Even worse, there are countless horror stories of financial advisors pocketing big commissions by selling annuities to their clients, even when another investment strategy could have made a lot more sense. But, when used appropriately, specific types of annuities can be a strategic addition to your retirement income stream. It’s always important to keep in mind that no annuity is great for everyone and many investors may not benefit from an annuity at all. Should an annuity be part of your retirement plan? Let’s take a look at how an annuity works and the reasons why one may or may not be good for you. 1. What's An Annuity? We explore several types of annuities next, but for our purposes, think of an annuity as a financial product that provides a guaranteed stream of income over a set period of time. It's a contract between you and the insurance company. You pay the insurance company premiums in exchange for a specified amount of income. Those incomes can be regular monthly or annual payments over time, or all at once in a single lump-sum payment. 2. Types Of Annuities You must understand the different types of annuities before deciding if one may be a good fit for you. Each annuity differs from insurer to insurer depending on the terms of the contract, but there are some basic categories that all annuities fall into. Fixed vs. Variable . Fixed annuities offer guaranteed income at a fixed interest rate over a period. Variable annuities have an investment component to them. You can select how you want your annuity invested from a set of options, from conservative to more aggressive, and your account grows accordingly. The payments you receive will fluctuate depending on investment performance. Sales of variable annuities are regulated by the SEC and FINRA. Immediate vs. Deferred . This distinction describes when your payments start. With an immediate annuity, your payments begin right away. Of course, that means you need to fund it in one lump sum. Immediate annuities are the simplest to understand, and a deferred annuity will start paying you later. You can fund a deferred annuity with a single lump sum, but you can also make gradual payments over time until the payouts start. 3. What Annuities Can Bring To The Table The most noteworthy benefit of annuities is that they can provide you with a stable source of guaranteed income, which can be helpful for a portion of your retirement income . Exactly how your annuity works will depend on what’s in the contract, so make sure you shop around for the features you want (and want to pay for!). Many products can be adjusted for inflation , which means the value of your payments won’t decline over time. They can also provide long-term financial security since most provide an income “for life,” meaning you reduce the financial risk of outliving your retirement savings . They can even offer death benefits to beneficiaries. Deferred annuities grow tax-deferred, but the IRS considers them as ordinary income tax once you start taking withdrawals. 4. Why You Should Be Careful With Annuities While lifetime income is a compelling story, perhaps the most significant piece of advice about annuities is, Read the fine print! A large part of why annuities get bad press is that aggressive salespeople often promote them to people who don’t fully understand what they are buying. Don't buy insurance products you don't understand. It's important to work with financial professionals whose recommendations have your best interests at heart. Variable annuities can have complex formulas to determine how much growth the insurance carrier credits to your account and what your future payments end up being, aka the annuitization process. Then there are the fees. The fees you pay directly cut into the returns you receive, which the company often buries in long, confusing paragraphs. Additionally, annuities are a rather illiquid investment—at least until you start receiving annuity payments. If you need access to the principal investment via an early withdrawal or selling it during the "surrender" period, you'll likely get stuck with hefty surrender charges. Quite often the surrender period is substantial, around 6-10 years depending on the product, so you have to be okay tying your money up for a decade or so. However, all annuities aren’t the same, and some can be great solutions to the right problem. 5. Why Immediate Annuities Could Be Worth It While most annuity products are expensive, complex, and frankly don't yield the type of returns you could if invested elsewhere—that isn’t the case for all annuities. When applied to the right situation, an immediate annuity, also known as an income annuity, could be an excellent addition to your retirement income plan. What makes an immediate annuity different? For starters, they are simple. That makes immediate annuities pretty easy to understand. You buy an annuity for a flat amount and immediately receive a specified payment for the rest of your life. Here, there’s very little chance of confusion. That’s good because it lets you make a well-informed decision about whether the trade-off is good for you. They also provide you with a way of establishing a fixed income floor that never runs out. Since they pay for life, you don’t have to worry about what the stock market will do or how long you will live. It can be very comforting to know that you will receive at least a certain amount of income regardless of what happens. Pro tip: Don’t confuse the payout rate on an immediate annuity with a rate of return on investment. They are not the same thing. Our free guide details several opportunities for pre-retirees to build their nest eggs. Curious if an annuity makes sense for you or are you wondering how it compares to other investment options? We’d love to help you figure it out. Annuities require a lot of financial planning considerations, like your cash flow, current investments, financial goals, and more. C all us today to get personalized guidance on your own retirement. About Broderick Mullins, MBA Broderick is a personal financial advisor and fee-only financial planner with Covenant Wealth Advisors. He manages investment portfolios for individuals age 50 plus with over $1 million in investments. Schedule a call. Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. We provide investment management, financial planning, and tax planning services to individuals age 50 plus with over $1 million in investments. Investments involve risk and does not guarantee that investments will appreciate. Past performance is not indicative of future results. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.

Disclosures Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.

If you are age 50 plus, you might be thinking about how to create tax free income in retirement. Get your Retirement Checklist of over 30 things that you need to think about for your retirement. Well, there are a lot of strategies to help you get there. Finding out how to maximize your Roth IRA contributions can be a great start. Get in Touch With Us Mark Fonville, CFP® Mark has over 18 years of experience helping individuals and families invest and plan for retirement. He is a CERTIFIED FINANCIAL PLANNER™ and President of Covenant Wealth Advisors . Schedule a free intro call with Mark

While market downturns can be unnerving for any investor, they can be devastating for retirees who have begun spending down investments and must sell depleted shares of stock. If the market rebounds, those shares are no longer there. A string of bad years early in retirement, called sequence-of-return risk, can devastate a portfolio. So how to help protect against sequence of return risk? Barron's magazine, Neil Templin, interviewed Mark Fonville to help contribute to this article: How a Cash Stash Can Help Retirees Keep Peace of Mind, if Not Portfolio

Outliving a retirement nest egg is retirees’ #1 fear. That’s understandable. You have saved your entire working life to build it, and you know that the idea of going back to work in your golden years could be undesirable, or even impossible. That makes withdrawal planning a critical aspect of your retirement portfolio. Perhaps the most well-known withdrawal strategy is the 4% rule. Download Now: Master List of Retirement Goals to Consider [New for 2021] In this article, we will look at how the 4% rule works and provide some guidance for you to consider if it is the best strategy to optimize your retirement savings. We want to help make sure you enjoy retirement without outliving your money. What's The 4% Rule? An inherent problem in retirement planning is that you don’t know exactly how long you will live after you retire. If you did, planning your retirement spending would be significantly easier because you’d know how many years your money needed to last. But since that isn’t the case, we must incorporate that uncertainty into our withdrawal plans. The 4% rule is one way of approaching this variable. It is based on a comprehensive retirement withdrawal study conducted by William Bengen in 1994 . Bengen wanted to know was how much a retiree could plan to withdraw each year, as a percentage of their portfolio, without running out of money (regardless of the unknown future performance of markets or the economy). We’ll spare you the gritty details, but essentially what Mr. Bengen discovered was that historically, there was not a single 30-year period in which a retiree would have depleted their portfolio (if managed prudently) if they withdrew 4% in the first year of retirement and adjusted their withdrawal for inflation every year after. Thus, the “4% rule” has become a staple of retirement income planning as a safe withdrawal rate, and many retirees use it as a starting point. As an example, suppose a retiree has a $1,000,000 nest egg. In the first year of retirement, their initial withdrawal is $40,000. If the inflation rate for the year is 3%, then the next year’s withdrawal would be $41,200. Critical Limitations of the 4% Rule Now that you’re familiar with the basics of the 4% rule, it’s time to dig a little deeper to point out where the study falls short in practice. While the study is valid, it's just a rule of thumb based on a specific set of factors. It’s important to be aware of these parameters because you may need or want to adjust your own withdrawal plan and planned withdrawal rate based on how your situation differs from the study’s assumptions. The 4% rule doesn't consider other sources of income Most people will have several retirement accounts as well as other income sources. Social Security benefits are the most common, but you may also have IRAs, real estate, part-time employment, annuity, or another pension. With these other sources of income, do you need to withdraw 4%? In some years you may need to withdraw much more and in others much less. The 4% rule is based on a 30-year retirement horizon. Perhaps the most glaring aspect of the study is that it assumes a 30-year retirement. Your family history, personal health, life expectancy, and age at which you retire weigh heavily on how long you will live in retirement and should be considered in your withdrawal plan. This also doesn't account for early retirement. Someone retiring in their early 50s will likely be in retirement longer than someone who waits until their mid-70s. The 4% rule assumes a specific portfolio mix of stocks and bonds. The study was conducted on portfolios whose asset allocations ranged from 50-80% in equities. You should build your own allocation that is best for you considering your risk tolerance, time horizon, and tax considerations. If your ideal allocation doesn’t fall within that range, your safe withdrawal rate would likely change. The 4% rule is based upon consistent spending. The rule assumed that retirees withdrew a consistent inflation-adjusted amount each year. But many retirees spend differently from year to year. I know our clients do. It’s typical for retirees to spend more in the early years, usually for travel or other big-ticket items like a move, than they do in later years. It's also important to note that cost of living increases each year, and that number isn't always consistent with inflation. You may get more out of retirement by planning for higher withdrawals in your first years rather than getting to your later years and realizing you’ve been too frugal. The 4% rule is based on historical market returns. Past returns can’t predict future investment returns. It's tricky to create a plan based on historical assumptions—especially considering market volatility. Market conditions change all the time—just take a look at the past year. Different downturns and high-points will impact your portfolio value, which should be considered when determining the appropriate withdrawal amount. Additionally, current interest rates are much lower than in Bergen’s study. Lower interest rates could mean lower withdrawal rates long-term. The 4% rule is rigid. Since the rule calls for a fixed inflation-adjusted annual withdrawal, there is no room for flexibility or creativity, especially with tax planning. A Customized Withdrawal Strategy Can Suit Your Retirement Plan The 4% rule is likely not a perfect fit for you, so what do you do if it doesn’t align with your situation? You can modify the rule or start from scratch to create a customized withdrawal strategy that incorporates all of your list of goals for retirement. A huge piece missing from the 4% rule is tax planning. Proactive tax planning is an integral component of our financial planning practice. Reducing taxes in retirement is key to making sure you get the most out of your retirement nest egg. You can do this by coordinating your savings withdrawals with Social Security or taking advantage of low tax years with Roth conversions. Is the 4% Rule Right For You? While the 4% rule contributed a great deal to retirement planning, its limitations signal that a custom plan could be better suited to meet your unique and changing needs throughout your golden years. A customized plan is often better than a rule of thumb. Our team is skilled and highly trained to craft customized retirement withdrawal strategies that are built to complement your needs and circumstances. Call us today to find out more about how we can help you. About Mark Fonville, CFP® Mark is the President of Covenant Wealth Advisors and a Certified Financial Planner ™ professional specializing in retirement income planning, tax planning, and investment management. He has been featured in the New York Times, Barron's, Kiplinger Magazine, and the Chicago Tribune. Learn more Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.