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At this moment, Americans who are 65 and older make up 15% of America. By 2030, that number is going to jump to 21%. By 2060? 25%. These are huge shifts in the age of our population, and that means that more and more Americans will be retiring and looking for the best place to retire to.

If you are 65 and older, then the odds are good that, like many other Americans, you are looking for the best place to retire in the U.S. There are many financial factors to keep in mind as you ask yourself this question, including:

• How the state treats retirement income, including rebates for seniors and their overall property tax burden
• The state’s overall quality of life, including transportation and recreational amenities
• The healthcare amenities that each state offers

There is no “silver bullet” in determining the best states to retire in the U.S., and no one answer will fit everyone’s situation. However, some general statements can be made, as there is no question that some states are better for seniors, retirees, and people on fixed incomes. As such, here’s a look at some of the best states for retirement.

What is a Qualified Retirement Plan, and How Does it Interact with State Taxes?

Proper retirement planning means that you can save up as much as you can to plan for your eventual retirement. More often than not, this involves extensive use of a qualified retirement plan. A qualified retirement plan is an employee-sponsored retirement plan that contains certain tax benefits for the recipients. They are often used as benefits to attract high-level and qualified talent. An employer will administer the plan, but most plans have customizability options with the employee, providing them with options to make certain investments.

There are many examples of qualified retirement plans, including a 401(k), 403(b), pensions, and more.

While qualified retirement plans can be very useful tools for retirement planning and supporting your income in your retirement, not every state treats qualified retirement plans the same way. As such, the benefits that you receive at retirement from federal taxation perspectives may not carry over into the world of state taxes. This depends on various factors, including the specific qualified retirement plan that you are using and what state you live in. This, in turn, can have a major impact on the best states to retire in the U.S.

Which States do Not Tax Retirement Income?

This question can get confusing, as it isn’t straightforward.

Nine states have no state income tax, meaning that they do not levy a tax on any personal income, including retirement accounts or pensions. Those nine states are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

Two more states do tax income and distributions from an IRA or 401(k): Hawaii and Alabama. These states do tax pensions.

Three more states tax income but don’t tax pensions, IRA, or 401(k): Illinois, Mississippi, or Pennsylvania.

From a purely financial perspective, these states may have huge financial advantages for seniors. Furthermore, their status as a tax haven of sorts creates natural markets for seniors. This means – in theory – that these states should have plenty of businesses and services that are specifically geared towards recruiting seniors.

It’s essential to keep in mind that, although state taxes can take up a chunk of your financial resources, they are not the be-all, end-all of determining the best states to retire in the U.S. Federal taxes can be much more impactful on your bottom line than state taxes. Furthermore, other financial factors – like the overall cost of living in a state – can significantly affect your bottom line. A state with a high cost of living and low taxes will still be more expensive to live in than a state with a low cost of living and high taxes.

In other words: Develop a more comprehensive view of what a state’s overall financial picture is like when deciding the best states to retire in the U.S. Don’t make a final determination based on just one tax rate.

What are the Best States to Retire in the U.S.?

If the answer to this question was as simple as gauging state income taxes, the answer would be easy: You’d pick one of the fourteen states above. However, it isn’t that simple. A variety of other factors come into play when making this decision, including other types of taxes.

You should also examine if your state taxes social security, something that is received by almost every senior.

According to the AARP, 12 states tax some or all social security benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. Living in a state that doesn’t tax your social security will leave more money in your pocket.

Property taxes can play a major role when learning about the best states to retire in the U.S. Most states levy property tax, which can be critical for funding local and school-related functions. Some states have higher property taxes than others, including many on this list: Alaska, Illinois, New Hampshire, and Pennsylvania, for example, have property taxes that are higher than the national average.

For seniors, the role of property taxes can be particularly problematic, as these taxes will increase regardless of your level of wealth since they are tied to the value of your home, not your income levels. Furthermore, renters pay property taxes, too, in the form of higher rents. As such, the role of property taxes must be taken into account when considering the best states to retire in the U.S.

Sales taxes are also important factors, particularly for seniors who are on fixed incomes. Only five states (Alaska, Delaware, Montana, New Hampshire, and Oregon) don’t levy a sales tax. States that do have such a tax vary from a low of 2.9% to a high of 7.25%. However, some local units of government also charge a sales tax, and this can add to your sales tax burden.

There are other taxes to consider, depending on your personal tax situation. This includes sales and use taxes, estate tax, inheritance tax, excise taxes, water fees, and more.

All of these factors must be considered before making a determination about the best states to retire in the U.S. Everyone will have a different answer. However, different studies have found that different states are more beneficial than others for retirement.

For example, SmartAsset lists Alaska, Florida, Georgia, Mississippi, Nevada, South Dakota, and Wyoming as the best states to retire in from a financial perspective, noting their low tax burden and/or lack of taxes on retirement income.

U.S. News also has a list. It notes that Alabama, Alaska, Florida, Illinois, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington State, and Wyoming are all relatively tax-friendly for retirees. These rankings were given for different reasons, but all generally related to a combination of low tax rates or a lack of taxes for retirees. Some taxes provide an exemption for low-income individuals who have retirement savings, thus giving them an additional financial benefit if they do not make as much as wealthier individuals.

Kiplinger also made its list of the most tax-friendly states for retirees. 10th on the list was Tennessee, followed by Arizona, Alabama, Colorado, South Carolina, Nevada, Washington D.C., Wyoming, Hawaii, and Delaware. Unlike the previous two lists, Kiplinger took a broader look at the various circumstances that led to a state being considered tax-friendly, including all of the taxes that the state levies.

As noted above, simply determining the cheapest state to live in may not give you the full, complete picture that you are looking for, and it certainly won’t help you figure out the best states to retire in the U.S. There are a variety of other important factors to keep in mind when deciding where to retire. Keep in mind that other important factors – one’s not directly related to money – can impact any decision about the best states to retire in the U.S. This includes the following:

Quality Health Care

Perhaps nothing is as important to select a state to move to when you are 65 and older than the quality of health care that is offered by a state. This means that you need to investigate if a state will have doctors, nurses, physical therapy, and hospital systems. Even if you are blessed to be in good health, this is an issue you should pay attention to, as you don’t know what the future will bring.

Crime

Property crime and violent crime are essential metrics, particularly for seniors, who may find themselves targets of scams. As such, you want to live in a state with low-risk factors, low crime rates, and a robust police presence that can deter any criminals and address your needs if you are the victim of a crime.

You will also want to make sure that you pay attention to related services, including fire protection, EMS capabilities, and more. The ability of a community to care for itself can help show how they will be able to care for you as someone who is 65 and older, and this is unquestionably something that you will want to pay attention to as you get older.

Weather

Many seniors prefer states with mild winters or high air quality to ensure that they can live a healthier retirement. If this is important to you, make sure to examine the weather patterns of a state. Warmer states tend to attract more seniors, which helps explain why some states – like Florida or Arizona – tend to have the highest percentage of seniors living in it.

At the same time, there are other weather-related factors that you should keep in mind. As strange as this might sound, climate change is one of them. This impact is being felt throughout the United States, altering traditional weather patterns across the country. This is making extreme weather more likely and devastating places that typically see more difficult weather. No one likes dealing with weather extremes, of course, but these issues are even worse for seniors, who may not be able to evacuate as easily as younger families. As such, make sure to check out weather scores for extreme weather before making relocation decisions.

Transportation

Getting around gets more challenging for seniors, who may need access to high-quality transportation services. Ideally, you will be able to drive yourself and your loved ones well into your old age. However, many seniors come to rely on public transportation to ensure that they can manage errands, see friends, and get to doctor’s appointments. Larger cities, like New York and San Francisco, offer robust transportation networks, and many also have customized transportation options for seniors who may need to get to medical appointments. These programs often come with income restrictions, so you’ll need to examine if you qualify before making any final decisions.

Fortunately, not everyone will have to deal with these issues, and many seniors have family or friends who can manage their transportation needs well into the future. If this is you, transportation is one less thing to worry about.

Access to high-quality healthcare

Growing older means health challenges. As such, you must have access to high-quality healthcare in your retirement years. This means making sure that you will have access to private or public health care to ensure your health needs are protected. Again, this can be a challenge: As shown by the most recent data, doctor shortages are becoming a real problem in the United States, particularly in certain areas of the country.

Transportation and transportation network

There is no question that people who are 65 and older have a harder time moving and getting from point A to point B. As such, you will want to get a good understanding of the transportation network of a state before you move to it.

Keep in mind that transportation is so much more than just roads and bridges. It also means walking paths, availability of public transportation, and the availability of services that are specifically geared to help seniors travel.

What are the Worst States to Retire in?

There are a variety of states that have very heavy tax burdens, and in some cases, those tax burdens can fall disproportionately on seniors or retirees.

For example, SmartAsset notes that California, Connecticut, Maine, Minnesota, Nebraska, Rhode Island, and Vermont are “not tax-friendly” for retirees.

Other rankings, like this one from Bankrate, take a more holistic view, looking not only at taxes but at overall affordability, wellness, and culture. This broader view results in Maryland having the worst rank, followed by Minnesota, Kansas, Montana, Alaska, Main/Arkansas, Alabama, Connecticut/Idaho, and Washington State.

There’s no question about it: Making a list of what state is the worst to retire in can be a challenge. There are some objective metrics – such as taxes, cost of living, and health care – but some things matter more to some individuals than others. If you’re someone who hopes to hike well into your old age, you’re going to want a state with a climate for hiking or other outdoor activities. If you want a state where you will have many other seniors nearby, states like Florida and Pennsylvania, may be more appropriate for you. As such, there are other metrics to keep in mind besides taxes.

One such example is the overall cost of living.

What is the Cheapest State to Retire in?

Remember, one dollar in one state won’t get you as far in another state, and you have to keep in mind the cost of living. This is particularly important for seniors, who usually live on some sort of fixed income, including social security and retirement savings. As such, finding states with lower taxes may not give you the comprehensive view that you need, and several factors should be considered when making retirement decisions – including just how inexpensive it can be to live in a state. This is why you need to keep an eye out for a state with a low cost of living. When combined with low taxes, you can find states that protect your financial future.

As always, decisions like this are customized based on what is best for your financial health, and a low cost of living for one person may not be as impactful for another. This is why it is so vital that you engage in comprehensive retirement planning throughout your life: Doing so can steer your investment and financial decisions, ultimately increasing your financial health as you get older.

For various reasons, some states are cheaper to live in than others. This specific item refers to a state’s cost of living. This usually involves several factors, including access to a high-quality labor pool, local taxes, transportation costs, local wages, and more. As a result, some things are naturally cheaper in some states as opposed to others. For various reasons, the cost of living is greater in some states than in others. Hawaii, California, New Your, Oregon, and Massachusetts all have the highest cost of living. Mississippi, Alabama, Oklahoma, Missouri, and New Mexico all have the lowest.

Conclusion

As you can see, various factors go into finding the best states to retire in the U.S., like choosing a state to live in during your retirement. This can be a complicated decision involving years of planning to get it right. It is in your interest to contact wealth professionals like Churchill Management Group. At Churchill, we can help you plan for your retirement and get you access to the high-quality financial planning services you deserve.

Financial Planning Services Disclosure; Churchill provides financial planning services to Clients that specifically engage Churchill for that service. The planning can include defining goals, designing a plan, assisting with implementing the plan, and evaluating and adjusting the plan over time, at the request of the client. The financial planning includes advice regarding securities investing and may include discussions of a client’s tax, insurance, employee benefits, estate planning, and other issues. Churchill, however, does not provide legal, insurance, employee benefit, estate planning, tax, or accounting advice, and the client must rely on legal, insurance, and accounting professionals for that advice and documentation.

Medicare is more than a fancy government term: It is a vitally important insurance product. The state and federal governments fund the program, with participation from private insurance companies.

At the moment, more than 62 million Americansare on Medicare, and that number is expected to rise every year. Medicare is a federal government program, and it is one of the largest operated by the United States government.

If you are approaching retirement age or getting close to 65, you must be investigating your health care options and ensuring that you will have medical insurance that can take care of your health needs for the rest of your life.

That almost certainly means checking out what Medicare plan may work best for you. Of course, everyone has a different financial situation, and what works for one person may not work for another. That’s why you must engage in retirement planning throughout your life, ensuring that you are ready for retirement.

How Do I Sign Up for Medicare?

Thankfully, the process of signing up for Medicare is relatively straightforward: You can just visit theMedicare website and answer a few basic questions.

Fortunately, this only applies to specific Medicare plans. The Social Security Administration will automatically enroll you in other Medicare plans as soon as you turn 65. These plans include Medicare Part A (Hospital Insurance) and Part B (Medical Insurance). There are other parts of Medicare for which you have to sign up. This includes Part C (Medicare Advantage Plans) and Part D (Prescription Drug Coverage). These two Medicare plans will provide insurance coverage for many services, including regular check-ups, preventative care, emergency care, and much more. Most Americans will also need a prescription drug plan.

If you do choose to sign up for optional parts of Medicare — like Part C and D — you can do sothree months before you turn 65. Signing up this way will not only allow you to enroll in optional programs but will enable you to identify potential cost-savings options and find the least expensive plan possible.

When Does Medicare Start?

As long as you enroll at the right time, Medicare starts at age 65. The specifics of your Medicare coverage are determined bywhen you sign up:

• If you sign up the month before you turn 65, your coverage begins the month you turn 65 — even if you turn 65 on the last day of the month.
• If you sign up the month you turn 65, your coverage begins the next month.
• If you sign up one month after you turn 65, your coverage begins two months after you sign up.
• If you sign up 2-3 months after you turn 65, your coverage will begin three months after yo
• Enrolling in Medicare is something you must do to protect yourself and guarantee your health care in retirement. Furthermore, you will need to consider Medicare and health care coverage in the event that you are consideringretiring early, even if you are ahigh net-worth individual.

When Do I Apply For Medicare?

As noted above, you can enroll in Medicare three months before you turn 65. You have anInitial Enrollment Period that runs from three months before you turn 65 to three months after the month in which you turn 65. This leaves you with a roughly seven-month period to sign up. If you are going to sign up for Medicare, you must do it during this time. The specifics of when your coverage starts depends on what plan you sign up for — more information can be found at thegovernment’s Medicare webpage.

Of course, there are a variety of circumstances in which you may not need Medicare coverage right away, such as if you are still working. If that’s the case, you still have to sign up, as doing so will enable you to access Medicare when you stop working and ensure that you can access health coverage without paying a fee.

Once you sign up for Medicare, you will receive various pieces of information, including your coverage specifics, out-of-pocket costs, services covered, and more. You will have to pay a monthly premium, and the particulars of that premium depend on the plan you take.

How Much Does Medicare Part B Cost?

Premium costs are adjusted every year for inflation and other factors. The cost of the Medicare premium varies, depending on the income you reported on your tax return. You can find this information on theMedicare website. At its least expensive — meaning you file with less than $91,000 a year — the monthly premium is $170.10. At its most expensive — meaning if you file with more than $500,000 in income — you will be paying $578.30 every month.

Since the program is administered by the federal government, your Medicare premium costs are deducted automatically from your Social Security payments. Furthermore, like any insurance program, Medicare will not cover every cost. You will still have to meet a deductible and make sure that your coverage handles a variety of other medical-related items. Generally speaking, you may still have to pay up to 20% for certain services. These out-of-pocket costs can get prohibitive.

What is the Medicare Tax?

Medicare taxes are thetaxes paid that support the program. If you have ever worked on a job that has tax withholding, you’ve probably seen a Medicare deduction on your paystub. Like Social Security and federal tax, Medicare is paid for by automatic withholdings on your paycheck. If you are self-employed, you may have to pay a self-employed tax to fund your Medicare contributions. This tax is 2.9%. You pay 1.45%, and your employer pays the other half. Other taxes were enacted by the passage of the Affordable Care Act. These taxes helped to fund the expansion of Medicare into the states.

The need for this tax is likely obvious: Medicare is an extremely expensive program. The cost of the entire program was $829.5 billionin 2020, and as America gets older, the costs of the program will continue to rise. Unfortunately, the program faces real challenges in the future, withreports saying that the Hospital Insurance Trust Fund — the financial location for Medicare deposits — may run out of money by 2026. This is obviously a huge problem. In the long run, it may threaten the ability of the federal government and states to fund health care for the elderly well into the future. This would mean that the federal government would have to develop other ways to fund Medicare.

Why Do I Need Medicare Part C?

Medicare Part C is also known as aMedicare Advantage plan. It is called Medicare Advantage because it is an all-encompassing plan offered by a private insurance company. It usually covers Part A, Part B, and prescription drug plans (part D). In addition, many Medicare Advantage Plans will also offer additional services that are not covered by a base Medicare plan. This includes dental, vision, and more.

You don’t necessarily need Medicare Part C, but it can make your life much easier by simplifying coverage questions, offering additional benefits, and potentially offering a lower rate. Furthermore, the government limits Medicare Advantage plans in what they must cover and what they can charge. Companies will receive a fixed reimbursement for offering such a plan. However, they may have various requirements for referrals, inpatient care, outpatient care, medical equipment, and more. As such, there are trade-offs with any Medicare Advantage plan.

Like any other aspect of your healthcare and retirement, deciding what plan to enroll in requires an extensive amount of time and planning. It is well worth consulting with an insurance expert before finalizing the best plan to enroll.

When Did Medicare Start?

Medicare was signed into law by then-President Lyndon Johnsonin 1965. He formally signed the bill into law in Independence, Missouri, the hometown of former President Harry S Truman, who championed the idea of a national health insurance policy.

Medicare is considered a cornerstone of Johnson’s “Great Society,” which sought a significant expansion of the role of the federal (and state) governments into providing a social safety net for ordinary Americans. Before the advent of Medicare, many older Americans were forced into poverty as they attempted to cover their health expenses. Furthermore, Medicare covers various services needed by elder Americans at the end of their life, including nursing homes. As such, the advent of Medicare made massive investments into the health of older Americans.

In total, Medicare is believed to have made amajor, positive difference in the lives of ordinary Americans. Medicare is responsible for a major drop in a variety of illnesses. It also caused an increase in hospital admissions (seen as a positive, as it indicated that elder Americans could have illnesses addressed), an increase in the amount of elder Americans who had connected with physicians, and an increase in life expectancy for Americans as a whole.

What Countries Accept US Medicare?

This can be a real challenge: Medicare is available only in the United States in an extremely limited set of circumstances. For example, if you travel in France and need hospitalization, Medicare will not cover your care. This includes prescription drugs or emergency care. As such, you would be responsible for paying for the cost of any health care received outside of the United States.

However, if you have aMedigap plan, you may be covered. Medigap is a supplemental Medicare plan covering costs that other Medicare insurance plans may not cover. Examples include copayments, deductibles, and more. If you travel to foreign countries regularly, you may want to consider applying for a Medigap plan. Keep in mind that Medigap is different than an Advantage plan. You also have to have Medicare Part A and Medicare Part B to qualify for a Medigap plan. Furthermore, just like any other insurance plan, you will have to pay a monthly premium for your Medigap plan. Such added expenses will add to what you pay for insurance.

How Do I File A Medicare Claim?

There’s good news here: Generally speaking,except in “very rare circumstances,” you will not have to file a claim. Most of the time, your doctors, health care professionals, or hospitals will manage that for you, taking care of any of the paperwork and removing one more stressor from your life. If you do have to file a Medicare claim, you have to do so within 12 months of the date that the claim was incurred. You can file a claimon this page.

Keep in mind that every insurance company operates slightly differently. Different Medicare Advantage plans may have various regulations surrounding when you need to file a claim and what you need in order to file a claim. As such, it is always best to directly contact your insurance provider if you have any specific questions about if you need to file a claim for reimbursement.

Conclusion

There is no question that Medicare is complicated, but fear not: Hundreds of millions of Americans have successfully used this program to care for their health needs in their old age. If you are in need of high-quality retirement planning services, consider reaching out to Churchill Management Group. We offer an array of financial planning services that can fit the needs of a variety of clients, and we’re happy to discuss your financial situation and help you learn more about how we can help you retire with security. Contact us today for more information on how we can help you retire in comfort.

Financial Planning Services Disclosure; Churchill provides financial planning services to Clients that specifically engage Churchill for that service. The planning can include defining goals, designing a plan, assisting with implementing the plan, and evaluating and adjusting the plan over time, at the request of the client. The financial planning includes advice regarding securities investing and may include discussions of a client’s tax, insurance, employee benefits, estate planning, and other issues. Churchill, however, does not provide legal, insurance, employee benefit, estate planning, tax, or accounting advice, and the client must rely on legal, insurance, and accounting professionals for that advice and documentation.

Whether you watched the ball drop at midnight or were fast asleep in your bed, the calendar finally made it to 2022. On the heels of the history-making 2020 and the ongoing pandemic concerns in 2021, 2022 brings its own share of uncertainty.

In fact, more than half of Americans say they are concerned about what might happen in 2022. And while some of those fears may be pandemic related, much of the breath-holding revolves around the financial sector.

Keep reading to learn more about what 2022 might have in store for your personal finances and to get some financial planning tips that will help you be prepared.

Financial Planning for 2022

2022 brings an uncertain future, but that doesn’t mean you can’t take steps to protect and improve your financial future. Understanding what financial challenges this year might have in store can ensure that you’re prepared with a realistic mindset and specific action steps that keep you on the path to achieving your financial goals. Below, we’ve covered some of the most common financial concerns going into 2022.

Inflation Rising

Many people have already noted that the price of groceries and other goods has been rising since the pandemic began, and there are concerns that inflation could continue to rise as we go through 2022. The overall cost of goods increased by 7.5% over the last 12 months. But energy costs are seeing the largest changes, with inflation rates coming in at more than 33% from that same time period.

With inflation rates increasing the cost of goods and ongoing supply chain issues making those goods more difficult to access, it’s normal to be worried about what inflation may mean for your budget in 2022.

Tax Debate Shifting

2022 may also bring some significant changes to taxes. One example of this was the child tax credit being partially refunded in advance through the monthly payments that ran from July to December in 2021. While those payments were suspended as of January 2022, they are still being proposed possibly as a permanent option at some point. Other changes to taxes for 2022 include increased standard deductions, changes to marginal tax rates, and changes to how itemized deductions are handled. Top-ranked advisors present a full-service client experience including service model, investing process, and fee structure. Community involvement is also considered.

Post COVID-19

While the world is still dealing with concerns about vaccination rates and new COVID-19 variants, a post-pandemic America is starting to rise, and many people are concerned about what that might bring. You may already be dealing with a lighter emergency fund or lower credit score as we come out of the height of the pandemic. Interest rates, including mortgage rates, are also expected to continue their rise since they potentiallybottomed out in 2020-2021.

This is only a basic overview of just a few financial changes that could come — or are already in progress — in 2022. If you have specific concerns or questions about your accounts may be affected, it’s important to talk to a wealth advisor.

Plan for Success in 2022

So, those are just some of the things that the financial sector is preparing for in the year 2022. Now that you know what might be coming, you’re ready to take action. Implement these financial planning tips to help you navigate the year ahead.

Get Started With First Steps

The first step in any plan is to know where you’re going and where you’re starting. The same is true when it comes to finances. Get started by spending some time thinking about what your financial goals are for the year. Some of the questions you might ask yourself may include:

• What is my highest priority financially?
• What do I want my retirement to look like?
• What legacy do I want to leave behind?
• What goals from 2021 did I not achieve that I want to carry forward into 2022?
• How can I balance protecting my financial health and the other areas of my life?

Max Out Your Retirement Plan Contribution

You already know that compound interest is king when it comes to investments, and that’s why maxing out your retirement plan contributions is one strategy you should consider going into 2022. Contributing to your retirement account with pretax dollars helps you get a little more for your money, and many employers have 401(k) matching programs that can get your account balance moving upward even faster.

Review and Adjust Your Budget

The new year is a good time to take a look at your budget and make sure it’s still serving your needs and corresponds with your future goals. Make sure that your income is still correct and that your budget categories are still accurate. For example, if you were saving for a beach vacation last year but this year you’re focusing on paying down debt, your categories may need some tweaking.

If you’re using a budgeting program that syncs with your bank account, take the time to ensure everything is working properly and that your expenses are getting categorized properly when they are imported. Otherwise, this is a good time to go through your checking account statements for the past couple of months and make sure you don’t need to adjust anything, such as increasing your food budget to keep up with rising costs.

Think About Your Healthcare Costs

Healthcare is something that a lot of us don’t think about until we actually need it, but it’s an important line item for your budget. Your expected healthcare costs depend on many factors, including:

• Your age
• Your current health status, such as if you have any chronic conditions
• Health insurance coverage

When you’re determining how much you need to set aside for healthcare, it’s important to consider your policy premiums, deductible, copays, and out-of-pocket maximum. You can also expect that your healthcare will cost more the older you are. If you qualify for Medicare, this can take care of some costs, but there are still copays you may need to be prepared for. Some people prefer to have multiple bank accounts, with one dedicated to savings just for your part of healthcare costs.

Mentally Prepare for Tides to Shift

There have been a lot of changes to, well, just about everything in the past two years. And while some things may be stabilizing as we head into 2022, the old saying, “The only constant is change” still applies. You can prepare for whatever 2022 brings by accepting that there’s no predicting the future and that things are almost guaranteed to change.

For example, federal student loan forgiveness is still on the table as a possibility in the maybe-not-so-distant future, which could make a big difference in many people’s financial health. If you’re concerned about how some changes may impact your investments and quality of life, talking with a wealth advisor can help you feel more informed and help you decide if you need to make any changes to your financial plan.

Meet With a Wealth Manager to Go Over Your Plan

We’ve already mentioned talking to a wealth manager a couple of times, and for good reason. Even if you consider yourself financially savvy, it’s still important to have a professional look over your financial plan, including any debts, investment accounts, life insurance needs and retirement goals. A financial advisor can help relieve anxieties you have about your future, give you advice on future investments and make tweaks to your plan to ensure you’re prepared for your best financial life

How Can Churchill Help?
At Churchill Management Group, we know that your financial future is important. Our team has the experience you need to ensure that your personal finances are in the best shape they can be. We can help guide you through making initial investments or making changes that reflect how you want to handle your finances in 2022.

Being proactive about your personal finances can help you feel more secure and confident in your investments and financial future. And it can also help you better weather the ups and downs that may come with 2022. Contact us to help guide you.

FAQs

What is the first step in financial planning?

The first step in financial planning is to gather all the information on what your current personal finances look like and consider your goals for your financial future. Once you have this, you can set up a meeting with a financial advisor to create a financial plan that helps you achieve those goals.

Why is financial planning important?

Financial planning is an important part of personal finance because if you don’t have a plan for your monthly income, it’s harder to achieve your goals. Whether those goals may be padding your savings account, paying down credit card debt, saving for a down payment, or leaving your children with more money as part of their inheritance, talking with a financial advisor can help.

What is financial planning and analysis?

Financial planning and analysis involve several things that help you assess risks, evaluate investment opportunities and make the best decisions possible for your financial health. Talking with someone who can walk you through financial planning and analysis can help you get expert financial advice and ensure you’re on the right track for your financial goals.

Financial Planning Services Disclosure; Churchill provides financial planning services to Clients that specifically engage Churchill for that service. The planning can include defining goals, designing a plan, assisting with implementing the plan, and evaluating and adjusting the plan over time, at the request of the client. The financial planning includes advice regarding securities investing and may include discussions of a client’s tax, insurance, employee benefits, estate planning, and other issues. Churchill, however, does not provide legal, insurance, employee benefit, estate planning, tax, or accounting advice, and the client must rely on legal, insurance, and accounting professionals for that advice and documentation.

There is no question about it: Your dollar doesn’t go as far as it used to. The inflation rate has increased steadily throughout the United States, holding steady or rising every month of 2021.

As of February 2022, inflation had risen by 7.9%—the highest increase in decades. This means that everything costs more. Of course, this begs an obvious question: Why are prices going up?

Inflation is real, and it can make a variety of financial decisions—like financial planning—far more challenging.

While there is widespread agreement on the current state of inflation, there is less agreement about what this means or why this is happening. As such, this article will look at what inflation is, why it is occurring and how to protect yourself from its ills.

What Is Inflation?

Inflation means that your money doesn’t go as far. Prices rise across the board for a variety of goods and services. It occurs for a variety of reasons, but the result is that your money lacks the same value as it did before inflation occurred. Inflation is a normal economic process and the federal reserve usually targets a two percent inflation rate. In instances like the current economy, inflation is occurring faster than wage growth. This means that the average person will find that it costs more to buy things than any wage increase.

How Is Inflation Measured?

Inflation is more likely to occur in a few different instances, including times of low unemployment, supply disruption or excessive government intervention. As such, if you are looking to answer the question of, “Why are prices going up,” you are likely to find the answers here.
Inflation is generally measured by tracking price increases across a variety of metrics. Inflation does not always occur smoothly, impacting the same goods and services in the same way. Instead, it typically hits different regions, services, and products differently. This is why there are a variety of metrics used to measure inflation. This includes:

• Increases in the Consumer Price Index (CPI), which measures price changes in a slew of goods and services.
• The primary CPI (CPI-U), specifically measures price changes for urban residents.
• Personal Consumption Expenditures (PCE), which measures price changes for items that are consumed. This includes items like groceries.
• Core Inflation is inflation that excludes food and energy prices.

As you can see, there are a variety of different metrics that are used to determine inflation. This allows individuals to get a more customized view of what inflation is and what specific sectors it is impacting.

Why Are Prices Going Up?

First, it is important to understand that there is no “one answer” to the question of “Why are prices going up.” An economic occurrence like inflation is almost always highly complex and multi-faceted. It is occurring for many reasons and it is occurring throughout the world. There are many reasons for the current state of inflation, including:

• Federal policy: Interest rates were already very low before the pandemic. In the aftermath of COVID-19, they were lowered even further as part of an effort to stimulate the economy and maintain job growth. That was successful: Unemployment is at record lows and seven million new jobs were created. However, low-interest rates also stimulate inflation, as it becomes easier to borrow money. As such, the federal reserve is forecasted to raise interest rates multiple times this year.
• COVID-19-related disruptions: COVID-19 brought about significant stress to the supply chain, causing labor shortages and shortages of all sorts of goods and services. Those shortages will work themselves out as the pandemic continues to abate, but for now, they are causing price increases.
• Pent-up demand: Demand for goods and services was artificially suppressed by the sudden COVID-19 pandemic. Thanks to a more robust-than-expected economy, federal stimulus and vaccines, demand for goods and services is hitting (and exceeding) pre-pandemic levels. As a result, vendors are charging more for services that were previously much cheaper.
• Full employment: The so-called “Great Resignation” has led to more and more people walking away from their jobs and leaving the employment field. Indeed, over 38 million people quit their jobs in 2021. As a result, businesses have been desperate for employees and this has boosted wages in a big way. This, in turn, has contributed to rising inflation.

It is important to realize that inflation is not just an isolated phenomenon to the United States but something that is occurring worldwide. While governmental policy unquestionably influenced the current state of inflation, it is important to recognize that it has its roots in causes that extend well beyond the borders of the United States.

What Is the Difference Between Inflation and Deflation?

Inflation is the process by which money becomes less valuable. In deflation, prices stagnate or shrink entirely, resulting in the value of the dollar increasing and allowing people to buy more with the money that they have. People on fixed incomes tend to do better during deflation.

Deflation is considered a bad thing for the economy at large. It typically means that jobs and the economy are shrinking and merchants are responding by trying to stimulate demand with lower prices. This can have a large impact on the entire economy. It can occur for a variety of reasons, including a shrinking economy, decreasing activity or technological advances that make goods and services less expensive.

How Should I Invest During Inflation?

Here’s the truth: This is an extremely difficult question to answer, as there is no set answer. Everyone has their own individualized goals, investment strategies, needs and risk tolerances. Some people may be willing to take a chance on a growth stock that is poised to take off, despite inflationary pressures. Others may be more cautious and have a shorter timeframe to make up for some potential losses. Furthermore, as noted above, not all inflation is created equal. Some inflation hits certain areas or sectors harder than others. As a result, you may not be able to make broad conclusions on your own.

There is no question that you should reevaluate your current investment strategy in light of inflation. Shifting towards more inflation-proof stocks and other financial instruments, such as real estate, may be a good move, but you also have to evaluate how these changes may impact your overall financial strategy.

In other words: Talk with the experts.

Navigating Inflation with a Financial Advisor

This is a difficult moment for investors, one that can severely complicate a variety of important financial goals. That means that you may need help and expert guidance in deciding how to invest your funds and grow your resources—even in these inflationary times. For more information on how to do just that, contact Churchill Management Group. At Churchill Management Group, we pride ourselves on building strong relationships with our clients, learning their financial goals, and providing them with the expert advice and counsel they need to be able to grow their bottom line and retire more comfortably.

My message to the American people is this:
The past few years have brought many changes to just about every aspect of life, and that includes retirement trends.

According to data from the Pew Research Center, 3.2 million people identified as part of the Baby Boomer generation — which runs from 1946 to 1964 — retired in 2020 alone. This was 1.7 million more people than in 2019, and this upward trend is expected to continue. While retirement has many positives, including the opportunity to spend more time with your children and grandchildren and the chance to travel and mark off some bucket list items, it’s also a pretty drastic lifestyle change that often takes some getting used to.

One of the biggest changes comes in the financial sector. While you may be used to working for a paycheck, retirement means it’s time to start leveraging your investments and retirement accounts as your income instead of that 40 hours week job. Let’s take a look at a few money management tips for retirees that can help you make your money last and continue to grow your wealth.

Stick to Your Financial Priorities

If you don’t know where you’re going, you won’t know how to get there — and it will probably take you a lot longer. The same is true for your financial future. Know what your priorities are when it comes to money, and make sure that you’re making choices that support those priorities. What’s most important varies by person, but some common financial priorities include:

• Saving money
• Paying down debt (when appropriate)
• Increasing retirement contributions
• Paying for your children’s college
• Buying a house

Write down your priorities and put them somewhere you can be reminded of them regularly. Seeing your goals can help cement them in your mind and give you that extra push of motivation if you start to waver.

Stay Within Your Monthly Income

Spending less than you’re bringing in on a monthly basis is one of the main principles of money management. You’ve probably heard this before as being described as living below your means. The truth is that a lot of money management is simple math. If you’re spending more than you’re bringing in each month, it’s going to be very hard to even pay your normal bills and buy necessities and probably near impossible to make progress toward other goals like saving money.

If you’re not sure how your spending and income match up, keep track of all of your transactions for at least one month (doing this for three months can help you get a better average). If your transactions are adding up to more than your monthly income, it’s a sign that something needs to change.

Keep Track of Where Your Money Is Going

Heading into retirement often means moving to a fixed income. And while the amount of that income depends on the value of your retirement accounts and how you decide to take your withdrawals, it’s important to know exactly where your money is going. If you’re not already using a budget, this is the time to start. A budget is a plan for your money so that when the money comes in, you know exactly what to do with it. Having a budget also ensures that you’re able to prioritize your expenses so that your bills and necessities are covered before you start buying things that are more wants than needs.

If you’re already using a budget, that’s great! But it’s a good idea to periodically go through it and make sure it’s still serving your needs. Maybe you are paying for subscriptions you no longer use that you could cancel. Or maybe you need to plan for an increase in your electric bill due to seasonal usage. Make sure to leave some room in your budget for unexpected expenses like medical bills that can throw your budget off if you don’t have some money already set aside.

Make the Most of Your Savings

While it may be comforting to have your savings sitting in an account at the bank, it’s not the best use of it — or at least not for all of it. Regular savings and even money market accounts at banks offer very low interest rates. Investing your money is probably how you got to retirement in the first place, but crossing the finish line doesn’t mean that it’s time to stop.

Continuing to invest your money once you’re in retirement can aim to protect your wealth and continue to expand it. However, your investment strategy may need to be different because your financial needs and goals have also likely changed. Talking to an experienced professional about your personal finances and how you can make the most of your retirement funds is important. And that leads us to our next trip.

Determine Your Risk Tolerance

Any investment involves some form of risk. Balancing this risk with the possible reward is how good investment choices are made. However, every person has a different level of risk they are willing to accept, also known as your risk tolerance.

For example, someone who is younger, single, and far away from retirement is likely going to have a higher risk tolerance than someone nearing retirement wanting to protect the wealth they have already grown. A wealth advisor can work with you to determine your ideal risk tolerance and create a plan that matches.

Find a Tax Strategist

Accounting for taxes in your personal financial plan is important. But with tax codes that change on a yearly basis and literal volumes of tax laws, it can be daunting to take on by yourself. This is especially true if your taxes are more complicated, such as if you own your own business.

A tax strategist is someone who is very familiar with all of the current tax laws and who knows how to make them work for your personal financial situation. They can help you find relevant tax breaks and credits, and they can work directly with the IRS for you if you’re ever audited.

Work With a Wealth Management Advisor

While there are lots of self-proclaimed personal finance experts out there, when it comes to managing your retirement funds successfully, it’s critical to talk with a wealth management advisor. The wealth advisors at Churchill Management Group can assess your unique financial situation, talk to you about your goals and what you want your retirement to look like, and help you create a plan to aim to preserve and grow your wealth for a happy and secure retirement.

Before your appointment, take some time to gather all of your financial information. You’ll need a list of your accounts and balances, as well as an overview of your current investments and retirement accounts. It’s also a good idea to spend some time thinking about what your financial goals are so that you can work with the wealth advisor to develop a strategy that keeps you moving toward those goals — even in retirement.

Conclusion

Retirement can be a wonderful time of life where you get to spend more time on what you actually want to do, but it comes with its own set of financial challenges. Implementing these money management tips can help you protect your wealth and make your money last as long as you need it to. If you’re not sure what you need to do or want to better leverage your investments, the team at Churchill Management Group can help.

FAQs

What are the 5 principles of money management?
The five principles of money management are consistency, timeliness, justification, documentation, and certification. Consistency means that you apply uniform rules and procedures to your personal finances. This could mean always using the same budget app or using one checking account for bills and another one for discretionary spending money. Timeliness means ensuring that all money management tasks, such as balancing your monthly budget or saving money out of each check, are performed in a timely manner. Justification refers to any financial transactions being reasonably justified. This can help you rein in your spending habits or tackle financial goals like paying off credit card debt. Documentation means having the paperwork — or digital receipts — for all transactions. Certification means having all of the required parties, such as a spouse or wealth advisor, onboard for each decision.

What is the 50/30/20 budget rule?
The 50/30/20 budget rule is an easy way to manage your money. It has you put 50% of your income toward your actual needs, such as housing and food, and 20% into savings accounts. The remaining 30% is for whatever you want. This money can be used for nonessentials such as vacations or be put toward an emergency fund or retirement account.

What is the 70/20/10 rule for money?
The 70/20/10 rule for money is a way to divide your income into different categories. With this rule, 70% of your money goes to spending. This includes all types of spending, from necessities like utility bills and debt obligations to clothing and eating out. Another 20% of income is put into a savings account or invested in your financial future, and the last 10% is for donation.

What are the 3 basic steps to better money management?
The three basic principles of personal finance are living below your means, which means ensuring that your spending is less than your income, having a dedicated savings plan that you are regularly contributing to, and leveraging compound interest and investments to help your money grow. Using these three principles can help ensure you have a healthy financial future.

Financial Planning Services Disclosure; Churchill provides financial planning services to Clients that specifically engage Churchill for that service. The planning can include defining goals, designing a plan, assisting with implementing the plan, and evaluating and adjusting the plan over time, at the request of the client. The financial planning includes advice regarding securities investing and may include discussions of a client’s tax, insurance, employee benefits, estate planning, and other issues. Churchill, however, does not provide legal, insurance, employee benefit, estate planning, tax, or accounting advice, and the client must rely on legal, insurance, and accounting professionals for that advice and documentation.

Personal finance is frequently defined as the ideas and tactics used to manage an individual’s or family’s financial affairs. However, it might be challenging to determine which concepts and tactics to prioritize.

While there are numerous financial tips available online (approximately 12 million pieces of internet material have been devoted to the subject of personal finance), it’s sometimes advisable to seek guidance from reputable experts on the subject.

1. Learn From Last Year’s Budget

A new year is an opportunity to make a fresh start in your financial life. However, taking the time to reflect on the previous year will help you come closer to your financial objectives.

Examine your spending and saving habits and devise a strategy for preparing for the future that considers how events such as the pandemic and the country’s recent bout of inflation may influence your strategy moving forward.

According to analysts, consumers have discovered a newfound interest in preserving an emergency fund and making sure their investments are diversified. This is a great strategy to help recession-proof your finances in the coming years

2. Calculate Your Annual Retirement Spending

The good news about Step 1 is that you are likely accustomed to reviewing your finances and living below your means.

Start by examining your current monthly spending and consider what will be reduced, what could be increased, and what could be added or eliminated.

Add your final monthly expense estimates together and divide by 12 to arrive at the magic number: your annual retirement needs. To make it truly magical, we recommend increasing it by 10 to 20 percent to allow for some leeway. You never know when you might need some extra money in your budget.

Two items that are frequently overlooked during this calculation are taxes and health care, both of which can put an early end to your early retirement.

Healthcare, in particular, is a significant stumbling block in many plans, particularly for those who obtain health insurance through their employer before retirement. Leaving that job entails abandoning your policy. Several alternatives include the following: If you’re married and your spouse continues to work for a traditional employer, the simple solution is to take advantage of that plan. Alternatively, consider purchasing private insurance or browsing the Affordable Care Act marketplace for a plan. Losing current coverage qualifies as a qualifying life event, allowing you to enroll outside of the annual open enrollment period.

Finally, we’ll discuss the always challenging subject: taxes. As is always the case, the objective is to keep them to a minimum. To accomplish this, you’ll want to plan how and when to withdraw income from your investment accounts.

Bear in mind that many tax-advantaged retirement accounts, such as 401(k)s and IRAs, have restrictions on when you can take qualified distributions, typically requiring you to be at least 59 1/2 years old to avoid taxes and penalties. (Except for Roth IRAs, which permit distributions.) Speaking with your CPA regarding your taxes is always advisable.

Recommended reading: Retirement Withdrawal Strategies: 5 Ways to Extend Your Savings

3. Set Up Your Trust

This may be one of the most overlooked financial tips. Trusts can be used for a variety of objectives in the financial, retirement, estate, and tax planning of a family. Trusts can help ensure that assets are effectively managed and dispersed following the grantor’s wishes throughout generations.

Trusts can be used to remove assets from one’s estate, to accomplish charitable purposes, to reduce income taxes, to protect beneficiaries from spendthrift tendencies, to prevent assets from becoming marital property in the event of a divorce, to protect assets from creditors, and to provide lifetime income to one or more beneficiaries while passing the remainder interest to a subsequent generation of beneficiaries.

Additionally, trusts can ensure the secrecy and confidentiality of money transfers (trusts avoid probate and the terms are confidential).

4. Assess Your Risk Tolerance

Risk and profit go hand-in-hand when it comes to investing. The adage “no pain, no gain” encapsulates the link between risk and reward quite well. Contrary to what others may tell you, all investments entail some level of risk. If you want to purchase securities – such as stocks, bonds, mutual funds, or exchange-traded funds – it is critical to recognize that you may lose some or, in rare cases and depending on your approach, all of your investment.

The potential for a higher investment return may be the reward for taking on risk. If you have a long-term financial objective, you may earn more money by investing prudently in higher-risk assets, such as stocks or bonds, than by limiting yourself to lower-risk assets. On the other hand, for short-term financial goals, lower-risk cash investments may be beneficial.

You should take some time on your own or with a financial advisor to review your goals and objectives in order to determine your risk tolerance.

5. Find a Tax Strategist

One of the most critical elements in managing your finances and developing your wealth plan is selecting the correct tax advisor who can assist you in formulating and implementing such strategies continuously. Each dollar you pay in taxes is a dollar you cannot spend or invest yourself. The correct tax expert will assist you in retaining a greater portion of your own money.

It’s a difficult task. The federal tax code in the United States, along with its associated regulations and case law, totals tens of thousands of pages. When you factor in state and local taxes, as well as taxes from other nations if you conduct business worldwide, you’ll clearly understand why a tax expert is vital.

Once you’ve chosen a tax counselor, you should collaborate closely with him or her to develop a long-term tax strategy. Typically, this process takes several months. You’ll define your objectives, investigate potential opportunities, and then devise a strategy for achieving long-term tax savings. It is a thorough examination of both your current circumstances and your desired state of affairs five, ten, or even fifty years from now. A tax strategist will share their financial tips, knowledge, and expertise to help you manage your finances.

6. Build an Emergency Fund

Despite your priorities, you’ll want to have some liquid funds on hand. Perhaps you’re more concerned with repaying your student loans than with accumulating a sizable emergency fund. That is acceptable; you are not required to save six months’ worth of spending. However, you should set aside at least three.

You never know what may occur. You or a partner may lose your job, experience a medical emergency, or face any number of other difficulties. Whether we like it or not, life is inevitable.

Having money set aside to deal with challenges when they arise can make you feel safer and more prepared. Most emergencies are stressful enough on their own. With a financial buffer, you can eliminate some of the concerns.

It is entirely up to you how you save money for emergencies. Perhaps you deposit all of your earnings from side gigs into a separate account that you only access in an extreme emergency. It could be as easy as a monthly auto-deposit of a small amount. It is all up to you.

7. Consider a Financial Advisor

You visit a physician when you are ill, a mechanic when your automobile needs repair, and a contractor when you are building a house. Of course, you could do it yourself if you had the time and knowledge to learn each of those vocations. Similarly, the bulk of consumers should employ a professional to obtain the finest advice while maximizing their time savings. When it comes to your financial plan, there is nothing wrong with doing it yourself. However, having the professional perspective and knowledge to maximize the return on your investments can elevate your financial plan to the next level.

Whether you are approaching retirement, have concerns about your present financial situation, or are just getting started and living paycheck to paycheck, a financial planner may be advantageous for you. A financial advisor can assist in resolving some of the most difficult challenges associated with wealth management and personal money management. They can aid in developing a customized retirement savings plan with a schedule, developing a strategy for achieving financial goals such as saving for major life events or giving financial tips about life insurance.

Turn to Churchill Management Group

When it comes to navigating your financial investments, it is critical to deal with specialists that conduct daily study and planning for affluent people. You may be certain that Churchill Management Group has the expertise and experience necessary to assist you in making future financial decisions.

Please don’t hesitate to contact us at (877) 937-7110 or [email protected] if you need financial tips from our experts.

We’d love to hear from you.

Financial Planning Services Disclosure Churchill provides financial planning services to Clients that specifically engage Churchill for that service. The planning can include defining goals, designing a plan, assisting with implementing the plan, and evaluating and adjusting the plan over time, at the request of the client. The financial planning includes advice regarding securities investing, and may include discussions of a client’s tax, insurance, employee benefits, estate planning and other issues. Churchill, however, does not provide legal, insurance, employee benefit, estate planning, tax or accounting advice, and the client must rely on legal, insurance and accounting professionals for that advice and documentation.

Are you wondering about retiring early? The average retirement age is 62, but you might be able to retire early if you plan and invest appropriately. Let’s dive into the crucial steps you need to follow in order to retire early with a comfortable, steady income.

Step 1: What Kind of Lifestyle Do You Want When You Retire Early?

The number one question people ask when thinking about early retirement is, “How much money do I need to retire early?” The answer depends entirely on what you imagine your early retirement to look like. If you plan on staying home, living comfortably, and maybe taking an occasional trip, you’ll need less money than someone who hopes to take several big trips each year.

The best way to come up with a realistic number for early retirement is to sit down with a budgeting tool or financial advisor and start thinking about all the expenses you might have during retirement. Begin with living expenses, like mortgage, insurance, utilities, and food, being generous to accommodate for rising prices.

Once you have the essential expenses factored into your budget, it’s time for the fun part: Think about how much disposable income you would like each month during retirement to cover hobbies, activities, and travel. Once you have a reasonable number for monthly discretionary spending on top of your living expenses, you can calculate an annual average.

Step 2: Calculate Your Necessary Nest Egg to Retire Early

After creating your retirement budget and giving yourself plenty of wiggle room for unexpected expenses and rising costs, you can take your annual average and use it to determine how much money you need to retire. Just subtract the age at which you plan to retire from your life expectancy and multiply that by your annual income.

For instance, if you decide that you need $10,000 per month during retirement, that’s $120,000 per year. If you’re preparing to live to be 90, and you wish to retire by the age of 55, that’s 35 years in retirement. That means you’ll need $4.2 million to cover your early retirement in full. Of course, one can never know for sure how long they will live and it is important to plan conservatively in terms of time horizon.

Of course, this doesn’t mean that you need to put away $4.2 million by the age of 55. Smart investing strategies mean that you can aim to retire early when you reach a smaller milestone and your retirement savings will likely continue to grow over the next 35 years, allowing you to take systematic withdrawals while the remainder earns interest and dividends. In addition, you might need to make adjustments to your needs based on your personal situation or simply due to inflation which is why it is important to review your needs regularly with a financial professional.

Step 3: Evaluate your Financial Situation

Once you know how much you need in total to cover your entire retirement, you can work backward to determine how much you need to have in savings before you can actually retire. Start by taking how much you need to cover your retirement, then subtract how much you expect to have in your retirement savings at your age of retirement. This includes real estate, cash, investments, and other assets.

If you’re currently 50 and have $750,000 in your portfolio growing at about $35,000 annually, you’ll have $925,000 by the time you retire early at 55. If you also plan to pay off your home during that time, you can add the value of your home (e.g., $450,000) to your portfolio.

In our example, that gives you $1.3 million by the age of 55, so you still need $2.9 million to reach your nest egg goal.

Once you have identified the gap between what you’ll have at the time of retirement and how big your nest egg needs to be, the first thing to consider is how you can save more between now and your target retirement date. You can also play around with your retirement budget to try and bring down your annual expenses. For instance, if you can drop your spending to $100,000 per year, you’d only need $3.5 million in your nest egg.

When you have determined the amount you will likely need to cover your expenses annually during retirement, you can run cash flows at different conservative rates of return applied to your savings to see if you are on track to achieve your goals.

Step 4: Support Your Retirement Plan

For most people, the gap between how much they expect to have at the time of retirement and how big their nest egg actually needs to becomes a surprise. It can be disheartening to learn that you won’t be retiring with enough to fully cover your expenses, but it’s not uncommon.

What matters is that you talk to a financial advisor to make sure that you know how much you need at the time of retirement so that conservatively estimated returns can continue to grow your portfolio as you live out your retirement plan. Once you know how much you need at the time of retirement, you can begin to close the gap by taking these measures.

Create a Savings Plan
Let’s say that you have no debt, your house is paid off, and you’ll have $1.3 million in your portfolio by the age of 55. In order to start closing the gap so you can accumulate your necessary nest egg of $3.5 million, you’ll need to start saving more. The sooner you put money into your retirement portfolio, the longer it has to grow.

Your financial advisor can help you determine how much you need to save and offer advice on whether you should be pursuing more aggressive investments in order to reach your goal so you can retire early.

You can also look at ways of reducing your expenses and increasing your income so that you have more available to save in the years leading up to your retirement.

Recalculate Your Retirement
Retiring early is possible as long as you start planning long enough in advance. If you run the numbers and you realize that retiring by 50 or 55 just isn’t realistic, the most responsible thing to do is recalculate your goals so that you figure out what is achievable.

Once you reduce your expenses and increase your income as much as possible, you’ll know the soonest possible date that you can retire. Even if it’s a bit later than you anticipated, realize that the harder you work to get there, the more likely you’ll be able to retire early.

Step 5: Invest Your Money

What you invest in will vary depending on how far off your retirement date is, how much money you have saved, and how much risk you’re willing to take.

It is likely unwise to guide your own investments, especially if you lack experience. Putting your retirement portfolio in the hands of a professional who has the knowledge and time to actively manage it is likely your best bet for reaching your retirement goals. They can tell you what makes a good investment and help guide you with alternative investments if you’re interested in them.

Step 6: Get a Financial Advisor

When it comes to retiring early, you can do a lot of preparation on your own, such as coming up with a mock retirement budget and running some rough numbers to figure out how big your nest egg needs to be to cover retirement. However, when it comes to figuring out if you need 100% of your nest egg at the time of retirement, or how much you can expect to earn on returns during retirement, it’s best to reach out to a professional.

By talking to a financial advisor, you can aim to get the peace of mind you need to make sound investment decisions. You’ll also get crucial guidance on budgeting, preparing for inflation, and other useful advice that will help you reduce risks and maximize your returns so that you can retire early with a steady income.

Step 7: Don’t Put Retirement on The Back Burner

It’s not uncommon for people to go through the trouble of planning for retirement but failing to check in with their plan. Once you have a retirement strategy in place, you need to stay on top of it—and any changes that might impact it.

For instance, you should always keep your eyes on Social Security and healthcare news so you know what to expect in retirement. When big changes happen, it’s important to talk to your financial advisor about whether those changes will impact your plan, and how you need to respond.

Conclusion

Ultimately, with the right professional by your side, it’s entirely possible to retire early, and it’s something you’ll have definitely earned. If you’re looking for more information, reach out to Churchill Management Group for assistance creating your plan to retire early.

FAQs
How much money do you need to retire with a $100,000 a year income?

Most experts suggest that you plan for 80% of your current income to support your retirement, so those earning $100,000/year should plan to need $80,000/year once they retire. If you intend to spend 35 years in retirement, you’ll need a $2.8 million nest egg to achieve your goal. Of course, cash flows can be run using conservative rates of return to best determine the amount you need at retirement.

What is the best state to retire in?

Low cost of living, affordable healthcare, and overall lack of severe weather make Georgia the best state to retire in, followed closely by Florida, Tennessee, and Missouri. (source)

Financial Planning Services Disclosure; Churchill provides financial planning services to Clients that specifically engage Churchill for that service. The planning can include defining goals, designing a plan, assisting with implementing the plan, and evaluating and adjusting the plan over time, at the request of the client. The financial planning includes advice regarding securities investing and may include discussions of a client’s tax, insurance, employee benefits, estate planning, and other issues. Churchill, however, does not provide legal, insurance, employee benefit, estate planning, tax, or accounting advice, and the client must rely on legal, insurance, and accounting professionals for that advice and documentation.

One of the first things to understand is that many retirement accounts carry a required minimum distribution or RMD, that kicks in at retirement age.

Professionals who put money away for retirement in the form of a 401(k) or a traditional or Roth IRA often want to have control over the ways they withdraw this money later in life. Some of this has to do with understanding your exposure to market cycles, how taxation affects your retirement accounts, and much more. Let’s talk about five retirement withdrawal strategies you can put in place as you age.

Withdrawal Basics

One of the first things to understand is that many retirement accounts carry a required minimum distribution or RMD, that kicks in at retirement age.

On the other hand, most account holders can start taking out penalty-free withdrawals at the age of 59 ½.

But no matter what age you start at, some annual retirement withdrawal strategies can help you to balance your retirement income against the markets and other factors of your financial reality at that time.

The 4% Retirement Withdrawal Strategy

The 4% retirement withdrawal strategy is a common and popular way for retired individuals to organize their withdrawals.

In this scenario, as you start to take retirement withdrawals at a certain age, for example, at age 70, you take an initial 4% out the first year. The next year, you take that same 4% along with 2% of that amount, in order to account for inflation.

The 4% strategy, though, is sometimes confusing because of how it’s explained. It’s very important to understand that the 2% tacked on is not 2% of the account holdings, but 2% of the original 4%!

So for example, if someone has $500,000 saved for retirement and takes out $20,000 that first year, the second year they will take out $20,400. (not $30,000!) It’s still 4% of the $500,000, with 2% of the $20,000 (or $400) tacked on. Finance pros who do not take the time to explain this detail do their clients a disservice.

The 4% strategy benefits those who want to mitigate the effects of inflation on their income. Some professionals suggest that individuals using this approach should have a certain percentage of their money in equities, and keep an eye on it as they go because the 4% strategy does not account for some of the more extreme market cycles. In fact, you might have to adjust the percentage based on your individual situation and the market environment.

The Fixed Dollar Retirement Withdrawal Strategy

The fixed dollar strategy, the simplest of all retirement withdrawal strategies, does not account for inflation or changes to the market. Here, the retirement account holder simply takes the same fixed dollar amount out each year.

The Fixed Percentage Retirement Withdrawal Strategy

The fixed percentage strategy is a bit different.

In this retirement withdrawal strategy, the account holder will take out a certain percentage of the portfolio every year. The dollar amounts will vary, usually slightly, but then at the end, everything will be neat and tidy. As the markets expand and contract, the account holder is taking a certain fixed chunk of that saved money each year until it is gone.

The Buckets Retirement Withdrawal Strategy

This retirement withdrawal strategy is a bit different in that it contemplates more than one source for retirement withdrawals.

Here, the old wisdom on a diversified portfolio applies. The buckets strategy involves a retirement saver originally setting up three different asset pools. One will be cash. Another will be equities. The third one will be securities — bonds and notes that yield interest. (These days, one could add a fourth bucket for cryptocurrencies and decentralized finance assets, or perhaps consider those assets for a subsection of the equities pool, which more accurately preserves the original asset mix.)

This is a much more complicated and pro-level investment strategy than any of the others above. It attracts people who like to spend time managing their retirement money themselves or want to hire an advisor.

The idea for withdrawals with the bucket plan is that savers will then withdraw allocated money from each of the different buckets in each year of retirement. It provides a very granular level of control, but it takes time and effort.

Dynamic Withdrawals

This is the freest retirement withdrawal strategy of them all. It involves closely watching markets and market realities, and withdrawing accordingly.

Basically, with dynamic withdrawals, the investor takes a more granular approach: maybe selling more of one kind of equity or changing the amounts withdrawn according to what the market is doing on a particular week. There’s more active choice involved. In fact, some experts would talk about dynamic withdrawals as a form of “active management” of a withdrawal plan and contrast some of the other options, like fixed amount withdrawals, as “passive management.”

Some experts talk about the dynamic withdrawals method having “guardrails” for investors, where they can course-correct due to big market changes.

Factors in Retirement Withdrawal Strategies

As you go, you’ll want to be thinking about some of the biggest factors in how to structure retirement fund withdrawals.

Market Conditions
One of these, obviously, is the market. Who knows what the market will be like in those later years? There may be as-of-yet unknown sectors or new types of derivatives, or any other kinds of investments, that change how funds are managed.

Taxes
Another of these unknowns is taxes. The traditional retirement account is, in some senses, set up for one fundamental purpose — to allow account holders to take money out in years when their annual income is low.

However, today’s world paints a more nuanced picture of an individual’s tax situation over his or her lifetime.

Your Age at Retirement
The traditional way of thinking about finance and retirement assumed that people doing largely physical jobs would reach the end of their active careers at a certain age and then cease to collect income from active work (or anything else, mostly, except retirement benefits).

But the nature of work has changed dramatically in the last two or three decades. With knowledge based work quickly eclipsing physical labor, individuals will be able to work much later into their lives. In a gig economy, they are much more likely to set up various revenue streams that will continue in those post-retirement years, which will raise their active income, diluting some of the benefits of the traditional retirement plan.

Social Security
All of that has to be considered in any retirement strategy, along with another major element — Social Security.

Workers pay into Social Security throughout their careers, with the understanding that they will then start to receive Social Security payments in retirement.

That means that any retirement withdrawal strategy has to coexist with the Social Security payments that the senior is receiving from the government in exchange for taxes paid in previous years.

All of this also has to work with an overall picture of someone’s life expectancy. As someone approaches retirement, if they encounter chronic health conditions or disease, they may reevaluate how payouts should happen.

Conclusion

These are of course general guideline for directing retirement account withdrawals. For more detailed financial advice, contact a professional at Churchill Management Group. Our financial advisors are experienced in helping clients take retirement planning and retirement withdrawal strategies to the next level.

FAQs
What’s the benefit of strategic retirement withdrawals?

Two main benefits of strategic retirement withdrawals are balancing funds for inflation and dealing with market corrections.

At the same time, some of these retirement withdrawal strategies can help protect retired individuals from withdrawing in ways that hurt the growth of their money because of market changes.

What are the benefits of a Roth IRA?

Since Roth IRAs have initial contributions subject to income tax, they have tax-free withdrawals. Also, there is not a requirement to withdraw all of the IRA money before the end of the account holder’s life.

Can a self-employed person set up a retirement plan?

Yes. Traditional and Roth IRAs are available to self-employed persons through a brokerage or financial institution.

What do financial advisors do?

Financial advisors help individuals and households plan for the future by managing their money in ways that help them grow their capital over the course of a working career.

Financial Planning Services Disclosure; Churchill provides financial planning services to Clients that specifically engage Churchill for that service. The planning can include defining goals, designing a plan, assisting with implementing the plan, and evaluating and adjusting the plan over time, at the request of the client. The financial planning includes advice regarding securities investing and may include discussions of a client’s tax, insurance, employee benefits, estate planning, and other issues. Churchill, however, does not provide legal, insurance, employee benefit, estate planning, tax, or accounting advice, and the client must rely on legal, insurance, and accounting professionals for that advice and documentation.

Even with high risk tolerance, diversification is key to preserving and growing your retirement savings.

New 401(k) plan rules unveiled last year will significantly increase the contribution limit to $20,500 for 2022. With Automatic Enrollment (AE), more Americans are taking advantage of the tax-free benefits to save money out of their paychecks. Only about 21% of Americans max out their 401(k) savings potential. If you’ve never really thought about maxing out your 401(k) contribution, 2022 may be the perfect opportunity to start.

If you’re not saving at least 15% of your annual income for retirement, look at your budget and consider the benefits of increasing your 401(k) contribution. With employer matching and the new, higher contribution limits, you could make a significant impact on your retirement fund. Consider ways you can maximize your 401(k) account for 2022 and beyond.

Maximum 401(k) Contribution Limits for 2021 and 2022

Around November of each year, the IRS reviews and adjusts the maximum contribution limits for IRAs, 401(k) plans, and other retirement savings accounts. In November 2021, the IRS increased the contribution limits for 2022.

If you have more than one 401(k) account, you should note that these limits are an overall limit. However, the contributions you make to other retirement account types, like traditional and Roth IRAs, are not factored into your 401(k) contribution limits.

Limits for 2022
Employees can contribute up to $20,500 to their 401(k) plans in 2022. If you’re over 50, the IRS allows you to make additional contributions of up to $6,500, bringing the total contribution limit to $27,000 for 2022.

If your employer also contributes to your 401(k), you and your employer combined can contribute up to $61,000 in 2022 or up to 100 percent of your compensation. For those over 50, combined 401(k) contributions cannot exceed $67,500.

What Happens if You Exceed 401(k) Contribution Limits?

The IRS simply does not allow an individual to exceed the contribution limits they have set, which is why it’s important that you evaluate your estimated contributions at the beginning of the year and then analyze your actual contributions at the end of the year.

If you discover that you have exceeded the contribution limits for a given year, you need to notify the IRS by March 1. They will return excess deferrals to you by April 15. If you fail to notify the IRS, whether intentionally or accidentally, your excess contributions will be taxed at six percent each year from the time they were deposited until the time you withdraw them.

Roth IRA vs. Roth 401(k) Contribution Limits

A Roth IRA (Individual Retirement Account) has separate limits from a Roth 401(k) IRA, which is a Roth IRA that exists within your 401(k) plan.

Roth IRA
A Roth IRA is set up by an individual and is subject to similar limits and rules as a traditional IRA. Your Roth IRA will grow without income tax at the time of withdrawal because contributions consist of after-tax funds. You cannot deduct your contributions to a Roth IRA,.

It’s important to note that Roth IRAs are limited based on income. How much you can contribute and whether or not you can contribute at all, will depend on how much you earn. In 2021 and 2022, you can contribute up to $6,000 per year to your Roth IRA account. If you’re over 50, you do qualify for a catch-up contribution of up to $1,000, raising the limit to $7,000 per year.

Roth 401(k) IRA
A Roth 401(k) plan may be offered by your employer and it’s similar to a traditional 401(k), except it uses after-tax funds. The benefit of a Roth 401(k) is that your money can be withdrawn income tax-free, but it also means that you won’t receive a tax deduction for your contributions.

Like a 401(k), your employer can match your contributions to a Roth 401(k). If your employer offers matching for a traditional 401(k) plan, they should match your Roth 401(k) contributions. However, employer contributions will go into a traditional 401(k) plan, which means it will be taxed at the time you withdraw it.

Because your Roth 401(k) is part of your 401(k) plan, any contributions you make to this account will count towards your annual 401(k) contribution limit. So, if you contribute $10,000 to your Roth 401(k), you’ll only be able to contribute $10,500 to your traditional 401(k) plan because of the $20,500 limit in 2022. You can split your 401(k) contribution limit any way you wish.

How To Aim To Maximize Your 401(k) Retirement Savings

The quarterly statements you receive regarding your 401(k) plan and contributions are often difficult to read. However, if you want to maximize your 401(k) retirement savings, you must stay on top of your contributions and limits and ensure that you’re choosing your plan’s best investments based on your goals.

Here are some key tips to follow when maximizing your 401(k) retirement savings:

• To handle your 401(k) strategically, you need a retirement plan in place. Think about when you plan to retire and how much you’ll need at the time of retirement to support your lifestyle. Knowing how big your nest egg needs to be and how much more you need to contribute, will help you set realistic contribution and investment goals.
• Define your risk tolerance before you make any decisions. Most plans offer mutual funds ranging in risk from conservative to aggressive. You need to decide what’s appropriate for your plans before making a selection and you should update your choice as your needs and goals change.
• Even with high risk tolerance, diversification is key to preserving and growing your retirement savings. Always diversify your investments to help offset some of the risks you take on and don’t hesitate to change or pull back your investments if you find that the risk is too great.
• Always read the fine print and consider the associated fees before making any selections. You should avoid funds with high fees as they’re just going to eat away at your retirement savings and set you back.
• Never treat your 401(k) plan as a hands-off ordeal. You should be continuously monitoring your contributions, employer matches and your portfolio as a whole to check in on its performance. It’s your responsibility to re-balance your portfolio as necessary. If you’re not sure what to do, it’s important to ask a financial advisor for help.

With these tips, you’ll be able to make the most out of your 401(k) plan. The final question most people find themselves asking is difficult to answer and that is: Just how much should you be contributing each year?

What Percent of My Salary Should I Contribute to a 401(k)?

There’s no one-size-fits-all answer when it comes to how much you should be contributing to your 401(k) plan. However, at the bare minimum, you should always max out your employer’s matching offer. For instance, if your employer is willing to match up to $10,000 per year, you should contribute at least the full $10,000 annually so that you can enjoy that benefit. After all, an employer match is free money for retirement.

If you’re already matching your employer’s contribution and you’re still looking for information on how much you should be putting away each year, it’s important to talk to a financial advisor who can give you personalized advice. Making the full IRS contribution limit might not be the best move for you, which is why talking to a professional about your lifestyle and goals is essential to making a wise investment.

Contact Churchill Management Group today to speak with an expert financial advisor and get one-on-one feedback on your retirement goals. Schedule your appointment today!

FAQs

What happens if you exceed 401(k) contribution limits?

If you discover that you have exceeded the contribution limits for a given year, you need to notify the IRS by March 1. They will return excess deferrals to you by April 15. If you fail to notify the IRS, whether intentionally or accidentally, your excess contributions will be taxed at six percent each year from the time they were deposited until the time you withdraw them.

Why are 401(k) contribution limits higher than IRA?

401(k) contribution limits are substantially higher than IRA contribution limits, but IRAs provide more investment options, allowing you to invest in virtually any stock, bond, or mutual fund. Oftentimes, the best strategy is to have both a 401(k) and IRA to maximize retirement savings since the contribution limits for these accounts are completely separate.

How do I calculate a Roth 401(k) contribution on my paycheck?

To calculate your Roth 401(k) withholdings, multiply your gross income per pay period by the percentage you have elected to contribute. For instance, if you earn $3,000 per paycheck and you’ve elected to contribute five percent (0.05), your Roth 401(k) withholdings are 3000*.05, or $150.

Can I contribute to a 401(k) and IRA?

Learn everything you need to know in our article What you Need to Know About Contributing to a 401k and an IRA.

Financial Planning Services Disclosure; Churchill provides financial planning services to Clients that specifically engage Churchill for that service. The planning can include defining goals, designing a plan, assisting with implementing the plan, and evaluating and adjusting the plan over time, at the request of the client. The financial planning includes advice regarding securities investing and may include discussions of a client’s tax, insurance, employee benefits, estate planning, and other issues. Churchill, however, does not provide legal, insurance, employee benefit, estate planning, tax, or accounting advice, and the client must rely on legal, insurance, and accounting professionals for that advice and documentation.

My message to the American people is this:
Passage of the Build Back Better Act would have far greater tax implications than the infrastructure bill itself.

On November 15, 2021, President Biden sent a message to Americans: “America is moving again and your life is going to change for the better.” The bit about “moving again” is purposeful in that it’s designed to fix roads, bridges, railways, and ports.

The original goal was to “grow the economy, enhance our competitiveness, create good jobs, and make our economy more sustainable, resilient, and just.” Of course, those lofty dreams were slowly whittled down, but the bill still represents measures that could still significantly impact your business in a positive way.

So, here’s what you’ll need to know about the $1T Infrastructure Bill. While other laws may yet becoming, you should know how this bill will affect your investments and tax strategies.

What Could Happen Next?

Though important, the infrastructure bill is only one of a pair of Biden’s key legislative items. The other, a larger social spending bill dubbed the Build Back Better Act, has been passed by the House but is still locked up in tight Senate negotiations.

Passage of the Build Back Better Act would have far greater tax implications than the infrastructure bill itself. The Act’s ability to pass the evenly divided Senate, however, remains uncertain.

What Is In the Infrastructure Bill?

$110 Billion for Roads and Bridges
Biden’s infrastructure bill allocates $110 billion to improving basic transportation infrastructure, such as roads and bridges. This sum includes both repairs to existing infrastructure and the funding of new projects. A new Alaskan highway project, for example, will receive funding under this section of the bill.

$66 Billion for Railroads
The bill also allocates $66 billion to improving America’s Amtrak rail networks. Amtrak will use the funds to modernize existing infrastructure, update safety systems, and make new investments in high-speed railroads.

$65 Billion for the Power Grid
Clean energy was a major focus of the infrastructure bill from its inception, and a final amount of $65 billion is allocated to updating the power grid. This includes funding for new transmission lines and green energy technologies. It will also fund investments in smart grid technologies that more efficiently distribute power where needed.

$65 Billion for Broadband Internet
Under Biden’s infrastructure bill, major investments will be made in America’s high-speed internet systems. This funding will allow rural areas to access fast, modern internet services. The bill also includes a subsidy of $30 per month to help lower-income Americans pay for internet in their homes.

$55 Billion for Water Infrastructure
The bill earmarks $55 billion for improving access to clean drinking water. This includes a $15 billion fund for replacing lead pipes nationwide. The remainder of the funds will be used to address other contaminants, improve infrastructure in low-income communities, and invest in wastewater management.

$50 Billion+ for Cybersecurity
The bill also addresses the emerging national security issues surrounding cybersecurity and climate change. $2 billion in grant money for cybersecurity for states, territories, and tribes is set aside in the bill. A further $47 billion will improve resilience to fires, floods, and other extreme weather events. Combined and added to other parts of the measures, the bill includes more than $50 billion for these emerging concerns.

$39 Billion for Public Transit
Public transit receives $39 billion under the infrastructure package to repair or replace buses and railcars. The bill also includes funding to make public transit systems more accessible to those with disabilities.

$25 Billion for Airports
Airports will get $25 billion in funding for improving and modernizing aviation infrastructure. A program to help attract workers into the transportation industry will also help airports and airlines meet their labor needs.

$21 Billion for the Environment
In addition to preventing future environmental damage, the bill seeks to undo alleged damage that has already been done with $21 billion in environmental remediation funding. This money goes toward cleaning up abandoned mine and well sites, as well as resolving issues at EPA Superfund sites.

$17 Billion for Ports
The majority of the bill’s $17 billion allocation for ports will be used by the Army Corps of Engineers to build new infrastructure. This amount also includes investments in operations and maintenance, as well as funds for dredging out existing ports to accommodate more and larger ships.

$11 Billion for Safety
$11 billion of the bill’s spending is set aside for road safety programs to reduce accidents. A key aim of the safety measures is to make roadways safer for cyclists and walkers.

$8 Billion for Western Water Infrastructure
Beyond general water infrastructure, the bill provides $8 billion for water projects in Western states increasingly affected by droughts. These projects include new water storage sites, water recycling facilities, and desalination projects aimed at increasing the available water supply in the West.

$7.5 Billion for Electric Vehicle Charging Stations
A key initiative of Biden’s infrastructure bill is increasing the availability of charging stations for electric vehicles. To that end, the bill includes $7.5 billion in funding to build stations along major highways.

$7.5 Billion for Electric School Buses
As part of the general effort to reduce emissions, the bill provides $7.5 billion to electrify the country’s approximately 50,000 school buses. This provision would dovetail with investments in charging stations and green energy technology.

Tax Changes in the Build Back Better Act

If passed, the Build Back Better Act would enact a large series of tax changes on high-earning individuals and businesses. A key part of this is an expansion of the 3.8 percent net investment income tax to all income sources that exceed $400,000. This would include pass-through business entities, such as LLCs and S-corps. Taxable income in excess of $10 million would also be subject to a 5 percent surcharge, with an additional 3 percent charge kicking in for taxable income above $25 million.

The Build Back Better Act would also institute changes to high-value IRAs. Under the bill, contributions would be limited once an account reached $10 million. Required minimum distributions would also occur on an accelerated schedule for these accounts.

The act would also introduce a 15% minimum tax on corporations that report profits of $1 billion or more. This tax would be levied on corporations’ book income and constitutes part of the enactment of a proposed global minimum tax that G-20 leaders agreed to earlier in 2021.

Estate Tax Changes

As for estate taxes, a variety of changes had been proposed as the bill was negotiated. One such proposal was a reduction of federal estate exemptions to an inflation-indexed $6.2 million, far below the current $11.7 million level. Another proposal involved applying a capital gains tax at death for assets above $1 million. Neither of these changes, however, made it into the version of the bill that passed in the House of Representatives.

Social Security COLA and Proposed Social Security 2100 Bill

In 2021, social security saw its largest cost-of-living adjustment in nearly 40 years, with benefits increasing by 5.9% as inflation rose sharply. At the same time, full funding for social security is only projected to last until 2034.

In response to these challenges, a separate bill known as Social Security 2100 was proposed. While not part of the infrastructure bill or the Build Back Better Act, Social Security 2100 would also be used to expand the American social safety net while introducing new changes to the tax code. Originally, the bill called for a higher contribution toward social security on the part of employers. That provision, however, was dropped in favor of a funding mechanism that would apply social security taxes to income over $400,000. Income between the current cutoff point and $400,000 would remain exempt.

Items That Have Been Cut From the Build Back Better Act

Although the Build Back Better Act contains several proposed tax changes, many other proposals didn’t make it into the bill’s final version. As already noted, changes to the estate tax were cut before House passage. Other items that didn’t make the final version include removal of the stepped-up basis for inherited assets, a proposal to increase taxes on dividends, and the creation of a special tax bracket for incomes over $1 million. A proposed gas tax increase was also removed.

The final version of the bill also largely preserved backdoor Roth strategies that were previously slated for elimination. Though the bill does call for an end to Roth conversions, it would only end them for those earning over $400,000 or $450,000 if married and filing jointly. Even for high earners, backdoor Roth conversions would be allowed until 2032.

Conclusion

While it’s still unclear whether the Build Back Better Act will follow Joe Biden’s infrastructure bill through Congress, the tax changes it could usher in make it essential to plan for the possibility. Talk to a professional about the investment options available to you and how you can best structure your portfolio.

Financial Planning Services Disclosure; Churchill provides financial planning services to Clients that specifically engage Churchill for that service. The planning can include defining goals, designing a plan, assisting with implementing the plan, and evaluating and adjusting the plan over time, at the request of the client. The financial planning includes advice regarding securities investing and may include discussions of a client’s tax, insurance, employee benefits, estate planning, and other issues. Churchill, however, does not provide legal, insurance, employee benefit, estate planning, tax, or accounting advice, and the client must rely on legal, insurance, and accounting professionals for that advice and documentation.