Month: September 2021

When you’re a kid, there are certain birthdays you can’t help but look forward to.  When you’re sixteen and can drive, for example.  When you turn eighteen and can vote.  When you turn twenty-one and can…well, you know. 

As adults, we typically don’t see ages the same way that kids do.  But some ages are particularly important.  Why?  Because they have significant implications for your finances.  Here are three of those milestones:

Age 59.5:  When you turn 59.5, the early withdrawal penalty on your IRA and 401(k) will end. It is also the age at which many plans allow you to roll your balance into an IRA.

Having the penalty removed means you can withdraw money from your retirement accounts without facing a 10% penalty. That’s good news if you ever need a quick infusion of cash!

However, there are a few things to keep in mind before deciding whether to take advantage of this. First, it’s important to understand that, while the 10% early withdrawal penalty will no longer apply, any withdrawals you make from your retirement accounts will still be taxed as regular income. So, it’s hardly free money. Second, you should know that it’s often a good idea to leave that money in a retirement account.  That’s because the money inside these accounts should ideally go to one thing: your retirement! That way you’ll have the means to do what you want to do, go where you want to go, and live the life you want to live.

Many pre-retirees roll their 401(k) balance into an IRA to get access to professional management and often more investment choices.  There are many things to consider when looking at this option, cost being one of the biggest.  While you do pay fees within a 401(k), costs can rise if using professional management.  It’s important to consult with a professional to determine whether this option makes sense for you.

Age 66-67:  Depending on when you were born, this is when you reach your Full-Retirement Age – the age at which you can begin taking Social Security benefits without any reduction.  Below is a handy table that shows the Full Retirement Age for every birth year, starting with 1955.¹

While waiting until your Full-Retirement Age means you can take Social Security without any reductions, you can potentially increase your payments if you wait even beyond your Full-Retirement Age! In fact, your Social Security benefits increase by 8% for each year you wait to start your payments up to age 70. After you turn 70, there’s no additional benefit to waiting.

Age 72:  From a financial standpoint, turning 72 is one of the most important birthdays you can have.  That’s because it’s now time to start rewarding yourself every year with a special kind of present called Required Minimum Distributions. 

You see, once you reach age 72, you must begin taking annual withdrawals from any 401(k)s, 403(b)s, or traditional IRAs you have.  (Roth IRAs don’t require withdrawals until after the death of the owner.)  These withdrawals are called Required Minimum Distributions, or RMDs.  RMDs are essentially the government’s way of ensuring people use tax advantaged accounts for what they were designed – to fund retirement.  And yes, RMDs are usually taxed as ordinary income. 

What happens if you don’t take distributions?  Simple: The IRS will hit you with a 50% penalty based on the amount you should have withdrawn.  The penalty also applies if you don’t take out at least the minimum amount required. 

How RMDs are calculated:  So, how much will you have to withdraw when you take out your annual distributions?  Here’s the formula in a nutshell.  To calculate your RMD, first take the balance of your IRA (or other retirement plan) as it stood on December 31 of the previous year.  Then, divide that balance by your life expectancy factor, which is determined by the IRS every year.  You can find the factor that’s specific to you by consulting with the proper calculation tables on the IRS website², but we have a better idea.  As you get nearer to age 72, let’s sit down together and create an RMD schedule for you!  We’ll create a plan so you know exactly when to take each RMD, how much to withdraw, and even what areas of retirement each dollar should be applied to.  This way, we can do the “heavy lifting”, so you don’t have to.

If you have any questions about these milestone ages or how they’ll impact your finances, please let us know.  And be sure to contact us with any questions about RMDs.  RMDs are a particularly important part of retirement planning, so we should definitely talk about them early.   

¹ “Retirement Benefits,” Social Security Administration, https://www.ssa.gov/benefits/retirement/planner/agereduction.html

² “Publication 590-B (2020), Distributions from Individual Retirement Arrangements (IRAs),” Internal Revenue Service, https://www.irs.gov/publications/p590b

If you think about it, almost every major holiday centers on gratitude. 

With New Years, we express gratitude for new opportunities and a fresh start.  With Valentine’s, we express gratitude for our significant other.  Mother’s and Father’s Day, gratitude for our parents.  Memorial Day, gratitude for those who gave their lives for our country.  Independence Day, gratitude for our country itself.  Thanksgiving, gratitude for everything.  You get the idea. 

It should come as no surprise, then, that Labor Day is also about gratitude. 

Of course, gratitude probably isn’t what most people think of when it comes to Labor Day.  But it should be.  Because with Labor Day, we have an opportunity to give thanks for some indispensable rights and privileges – and the men and women who risked everything to win them for us. 

As you probably remember from history class, the late 1800s and early 1900s were a time of great social upheaval in the United States.  Workers around the country marched, protested, and went on strike in order to secure safer working conditions, fairer pay, and a higher quality life for themselves and their children.  Many lost their livelihoods in the struggle; some even lost their lives. 

But their efforts were not in vain.  Many of the rights and privileges we enjoy today – rights we too often take for granted – were thanks to the Labor Movement.  For example:

8-hour Days, 40-hour Work Weeks.  For much of our country’s history, Americans were forced to perform backbreaking labor for 12 hours per day or more.  From sunup until sundown, men and women gave every ounce of blood, sweat, and tears they had just to survive.  Thanks to the Labor Movement, 40-hour work weeks became standardized – and eventually codified into law.  The time we have to see our families, engage in hobbies, read a good book, or even just enjoy a beautiful sunset is thanks to the Labor Movement.

Weekends.  As you know, Labor Day is the first Monday of September.  That means we get to enjoy a three-day weekend.  But the very concept of a weekend is thanks to the Labor Movement!  Huge, nationwide strikes and marches around the turn of the century gained Americans the right to a shorter workweek.  Let’s all remember that the next time we sleep in on Saturday or go golfing on Sunday.  TGIF?  Workers had to fight for those letters to mean anything. 

Sick Leave.  Have you ever had a nasty bout of the flu?  Ever needed surgery?  If so, we imagine you took time off to recover.  We also imagine you didn’t worry about whether you’d still have a job by the time you were better.  Without paid sick leave, most Americans wouldn’t have the means to heal from their illnesses, injuries, and accidents.  Nowadays, we consider this a basic human right – a right we wouldn’t have without the Labor Movement. 

Paid Vacations.  Ever visited Yellowstone National Park?  Disneyland?  Ever gone on an iconic fishing trip, or just took a few days off to finish a project around the house?  Vacations are something none of us could live without.  They help us recharge our batteries.  They help enrich our lives.  They form the core of some our most cherished experiences and memories. 

We have Labor to thank for vacations, too. 

Safe Working Conditions.  On March 25, 1911, a fire broke out at the Triangle Shirtwaist Factory in New York City.  The factory’s owners escaped.  Most of the factory’s workers, mainly women, did not.  Due to locked doors, blocked fire escapes, and flammable surroundings, 146 laborers never returned home that day.¹  The youngest were only 14 years old.¹ 

In the 21^st century, none of us would want to work in a place that was fundamentally unsafe.  None of us would want to work where disease and disaster were rampant. 

In the 19^th century, most workers had no choice.  Thanks to their sacrifice, we do. 

Childhood.  At the turn of the 20^th century, more than 1.75 million children labored in mills, mines, factories, and farms.²  They spent 10-14 hours every day in dangerous conditions for very little money.  Most never received an education.  As a result, many grew up with callused fingers, poor eyesight, rotting lungs – and unrealized potential.  But the workers and protestors of the Labor Movement didn’t just fight for their own rights.  They fought for their children’s, too.  That’s why it became illegal for most industries to employ children under 14, and why there are so many protections in place to prevent older children from working long hours in dangerous jobs. 

These days, most kids spend their days going to school, romping on the playground, riding bikes, or any of a thousand other fun activities.  In other words, they are allowed to be children.  That’s something we should never take for granted – and it’s largely thanks to the Labor Movement. 

As you can see, Labor Day is all about gratitude.  Just as we give thanks to the Founders for our country, soldiers for our safety, and parents for our lives, so too should we thank the workers and laborers who came before us.  The men and women who, thanks to their efforts, made life more worth living.  

On behalf of everyone at Minich MacGregor Wealth Management, we wish you a happy Labor Day weekend!

¹ “Triangle Shirtwaist Factory fire”, Wikipedia, https://en.wikipedia.org/wiki/Triangle_Shirtwaist_Factory_fire

² “Exploring 19^th-Century Child Labor in the United States,” United States Census Bureau, https://www2.census.gov/programs-surveys/sis/activities/history/hh-14_teacher.pdf