Social Security Cost of Living Adjustment (COLA) for 2021

Social Security Cost of Living Adjustment (COLA) for 2021

It was announced in mid-October that Social Security beneficiaries will see a 1.3% cost- of-living adjustment (COLA) in their monthly distribution checks, effective January 1, 2021. The Social Security Administration says this is in line with prior years’ increases, although it is slightly smaller than the 1.6% increase in 2020 and a more significant 2.8% bump to monthly checks in 2019. Looking back over a longer timeline, the COLA was zero several times (2010, 2011, 2016) and only 0.3% in 2017. Back in the 1970s and 1980s, the figures are much higher, ranging from around 6% in 1977 to 14% in 1981.

Given the financial effects of the COVID-19 pandemic on many Americans, including those receiving Social Security checks, that 1.3% increase won’t go too far in many areas of the country. According to the Social Security Administration, the average monthly benefit increase will be as follows for various categories of recipients:

Some other changes coming in 2021 are:

Calculating COLA
The cost-of-living adjustment is based on the consumer price index for urban wage earners and clerical workers. However, this formula focuses on younger workers under age 62, who are not claiming benefits nor having Medicare payments deducted from their monthly Social Security income. Let’s not forget the rising costs of living seniors face in general, which outpace that COLA amount—food, housing, and prescription drugs among them.

There is a groundswell to change the COLA calculation to the consumer price index for the elderly instead. This is the Social Security 2100 Act, which is being put forward by Congressman John Larson of Connecticut. It expands benefits for current and future recipients, cuts taxes on the elderly, and aims to keep the Social Security Trust Fund solvent through the rest of this century.

Social Security is not so secure
Any way you slice it, relying heavily (or in many cases nationwide, solely) on Social Security for one’s retirement income does not bode well for today’s retirees —especially right now, when the fund is scheduled to be insolvent by 2033. Being more proactive about retirement saving can provide more stable financial health during one’s working and retirement years.

While Social Security benefits provide a financial safety net as per the program’s original intent, in today’s world, those benefits don’t stack up for individuals seeking to retire comfortably and maintain their accustomed lifestyle. That’s where self-directed IRAs and the nontraditional investment they allow can really shine.

Self-directed IRAs allow account owners to include a broad array of non-publicly traded, alternative assets, such as real estate, private equity, notes/loans, precious metals, and so many more. Self-directed investors can be proactive as well as nimbler about how they invest for their later years. That’s because, as individuals who make all their own investment decisions, self-directed investors can take advantage of market shifts and opportunities, and invest in many alternative assets they already know and understand, and that provide a hedge against stock market volatility.

At Next Generation, we’re all about client education. You can read more about the different types of self-directed retirement plans for individuals and business owners here. You may also schedule a complimentary educational session to get the information you need to decide whether self-direction is the right retirement strategy for you. Our helpful team is here to answer questions as well; you may contact us directly via phone at 888.857.8058 or NewAccounts@NextGenerationTrust.com.

Has the Pandemic Affected Your Retirement Confidence?

The Transamerica Center for Retirement Studies issued its 20th annual survey of retirees last month, titled “Retirees and Retirement Amid COVID-19.” The report focuses on financial stability and readiness in retirement amid the pandemic. Findings are based on a survey done in November/December 2019 and again in June 2020; it polled people 50+ years of age who consider themselves fully or semi-retired, and who worked for a for-profit company for the majority of their careers.

The study reported that among those retirees surveyed:

However, eating into the financial security for nearly half of those surveyed is household debt (student loans, car loans, credit cards, medical bills) and nearly a quarter of respondents are paying off mortgages.

Even though many retirees are not feeling shaken financially by COVID-19’s economic ramifications, Transamerica noted that relatively few were “very confident” before the pandemic. The study concluded that many retirees are in danger of outliving their financial resources or lack income to cover healthcare expenses or pay for long-term care. Another sobering revelation: the lack of a financial strategy for retirement. Of those who said they have a plan (58%), only 18% have it in writing. That leaves 42% without a financial strategy amid the pandemic.

Self-directed retirement plans—an effective financial strategy at any time
Self-directed IRAs are ideal for investors who are confident in making all of their own investment decisions, and those who may already be investing in alternative assets outside of a retirement plan. Whether you are in your early- or mid-career phase, nearing retirement, or already retired, you have the option to use the many different nontraditional investments allowed through self-direction to build retirement wealth.

Self-directed IRAs enable investors to include a wide range of non-publicly traded alternative assets that typical plans do not allow, such as real estate, private equity, social causes, precious metals, secured and unsecured loans, and many more. In short, while the pandemic and politics can create instability in the stock market, self-directed IRAs provide a valuable hedge against that volatility, with a more diverse retirement portfolio and better control on investment returns.

If you’re thinking of diversifying the investments in your retirement plan, are comfortable conducting your own due diligence and research about those investments, Next Generation has the tools you need to get started. Please considering registering for a complimentary educational session. Alternatively, you may also contact our team directly via phone at 888.857.8058 or email at NewAccounts@NextGenerationTrust.com.

Could Your IRA Use More Love Next Year Due to the Pandemic?

In late July, Republican senators introduced legislation that would allow people to make catch-up contributions to their IRA, 401(k) and similar retirement accounts in 2021 and 2022, should they be unable to make full contributions this year. The bill, called the “Addressing Missed-savings Opportunities for Retirement due to an Epidemic Act” (AMORE Act) was introduced by Senators Ted Cruz, Thom Tillis, David Perdue, and Kelly Loeffler. It is designed to help individuals facing financial challenges resulting from COVID-19.

Usually, catch-up contributions are for workers age 50+ who wish to contribute more than the standard limit to their qualified retirement account; for 2020, the standard Traditional/Roth IRA contribution limit is $6,000 a year and the catch-up limit for individuals aged 55 and older is $7,000. However, with millions of Americans unexpectedly unemployed or working at reduced hours and/or wages due to the COVID-19 pandemic, the AMORE Act recognizes the challenges in maintaining their retirement savings goals.

The legislation will allow Americans with IRAs and other qualified retirement plans to catch up on their savings as the economy—and their financial situation—recover. Individuals would be allowed to make the catch-up contributions in 2021 and 2022 equal to the difference between their actual contributions for 2020 and current federal limits on these accounts.

For example, Judy is 45 years old and has contributed $5,000 so far to her IRA this year; she won’t be able to contribute any more in 2020 due to being furloughed. However, under the AMORE Act, she would be able to make a catch-up contribution in 2021 and 2022 for any unused contribution in 2020 – in Judy’s case, an additional $1,000.

Here’s another way to catch up: self-direct your IRA

Self-directed investors—that is, individuals with a self-directed IRA—have the ability to include many nontraditional investments within their retirement plans, such as real estate, private equity, notes/loans, social causes, and more. Self-direction provides a hedge against stock market volatility, allows individuals to diversify their retirement portfolios, and gives way for better control over their earnings – which could be seen as another form of a “catch up.”

These types of accounts are ideal for investors who already know and understand alternative assets and might already be investing in them outside of their existing retirement plan. Self-directed IRAs come with the same tax advantages as their regular counterparts, so investors can grow their retirement savings either tax-deferred or tax-free, depending on the type of plan.

If you’d like to learn more about self-direction and its benefits, we encourage you to schedule a complimentary educational session with one of our knowledgeable representatives. Alternatively, you can contact our team directly for answers to your questions about self-direction as a retirement strategy. You can reach us via phone at 888.857.8058 or via email to NewAccounts@NextGenerationTrust.com.

Has Your Work Situation Changed? You Can Roll Your 401(k) Funds into a Self-Directed IRA

Do you have a retirement plan that is still with an employer where you are no longer working? If you have recently lost a job due to COVID-19, or are in job transition, make sure you don’t leave your old 401(k) plan behind. If yours is still with a previous employer, you can rescue those funds and roll them over into a self-directed IRA.

Right now, it’s unclear for many workers if or when there will be a new employer with a new workplace retirement plan. However, one thing is clear: opening an IRA (Roth or Traditional) is an option that enables individuals to make sure their retirement savings stay with them. Moreover, if that new retirement plan is self-directed, there is a much wider range of potential investment options available that account holders—not their employers—control.

Rollovers into self-directed IRAs

Since most 401(k) plans are limited in terms of allowable investments, rescuing and rolling over those funds into a self-directed IRA opens up the door to greater investment opportunity, without the limits imposed by most plan sponsors on the defined contribution plans they offer. As you may know from your existing 401(k), most of those plans are limited to investing in mutual funds or exchange traded funds, stocks, and bonds. Opening a new self-directed IRA will enable you to include an array of alternative assets that you may already know and understand, such as real estate, private equity, precious metals, hedge funds, secured and unsecured notes/loans, energy investments, and more.

Through self-direction, you’ll build a more diverse retirement portfolio, create a hedge against stock market volatility, and gain better control over your investment returns as part of your retirement strategy. You’ll also have the flexibility of buying and selling your investments when you choose, rather than according to a prescribed schedule that most 401(k) plans follow.

You can choose to do a rollover into a new Roth or Traditional IRA, or a SIMPLE or SEP IRA, depending on your employment status, overall tax situation and how far out you are from retirement. As always, we recommend you discuss your unique scenario with a trusted advisor. You may also have to check with the current plan administrator to see if there are any restrictions concerning the type of IRA allowed for a rollover from the existing 401(k).

How to roll funds over into a self-directed IRA

At Next Generation, our comprehensive starter kits walk you through all the steps needed and required documentation to submit in order to open a new self-directed retirement plan with us, and include a rollover form for Traditional, Roth, SEP, or SIMPLE IRAs (we have starter kits for other types of plans as well). Moreover, our helpful team of professionals are available to answer questions about opening a self-directed IRA or about the many types of non-publicly traded, alternative assets, these plans allow. You may schedule a complimentary education session; or you may contact Next Generation by phone at 888.857.8058 or by email at NewAccounts@NextGenerationTrust.com.

Will Social Security Benefits Support Your Retirement Age?

Although individuals can claim Social Security benefits as early as age 62, the retirement age associated with full Social Security benefits had been 65 for many years. That marker has been creeping up over time, with the number currently set at age 67 for people born in 1960 or later. The goal has been to encourage Americans to retire later; the Social Security Trust Fund is only solvent through 2037 and delaying benefits will help shore up the fund.

However, according to a paper titled, “How Sticky is Retirement Behavior in the U.S.? Responses to Changes in the Full Retirement Age,” the increase in full retirement age is not stopping many Americans from retiring and claiming Social Security at the age of 65. The study, published by the National Bureaus of Economic Research (and reported in Investment News) posits that Congress needs to develop new policies – in addition to increasing full retirement age –  to get Americans to retire later.

Adding to this conundrum is the effect that the COVID-19 pandemic has had on the economy and personal finances, with historic levels of unemployment or reduced work. It’s unclear right now how this will play out, but one writer foresees trouble ahead for people born in 1960—who are turning 60 years old this year—because of how Social Security benefits are calculated.

This may cause many Americans to re-evaluate their retirement timeline, as they may need to work longer as a financial necessity. This is especially true for those who have not been contributing to a retirement plan.

Build a more supportive portfolio with a self-directed IRA

Many people already understand that Social Security may not be there for them throughout their retirement years or be sufficient to rely on as a sole source of retirement income. As a result, most have retirement plans to support them in their later years. For those who’ve been planning for retirement with a self-directed IRA as part of their portfolio, they understand the need to take control of their retirement planning and diversify their investment allocations.

Self-direction enables investors to include a broad array of non-publicly traded, alternative assets within their IRAs, which provide a hedge against stock market volatility while building retirement wealth. It’s a proactive approach for individuals who are comfortable making their own investment decisions, and who understand nontraditional investments such as real estate, private equity, precious metals, lending, partnerships and  more.

Are you looking to shift your retirement strategy to include alternative assets you already know and understand? Do you want to develop a retirement portfolio that reflects your interests or an area of expertise? If you’re comfortable making your own investment decisions, it’s a great time to plan your retirement from a different perspective. You’ll find a plethora of information about self-directed IRAs on our website. If you have questions about how to get started, you can schedule a complimentary educational session with someone from our team.  Alternatively, you can contact us directly via phone at 888.857.8058 or email at NewAccounts@NextGenerationTrust.com.

Retirement Planning in the Face of the COVID-19 Pandemic

We are all aware of the widespread economic impact that the lockdowns instituted to curb COVID-19 have had on U.S. businesses and taxpayers, which has moved Americans to rethink their retirement planning strategies.

Given the spikes in unemployment or reduction in wages experienced by millions of people – and unpredictable stock market performance, which so many rely upon for their retirement wealth – the pandemic is causing disruptions beyond the everyday.

Ken Dychtwald, founder and CEO of Age Wave, reported in an article on ThinkAdvisor said, “The pandemic has had the biggest impact on what we used to think of as retirement because now all the pieces on the table are moving around. It’s brought to light the importance of matching health span to life span. People are thinking more and more about the importance of health and what they can do to optimize it.”

Health spans, lifespans, and retirement lifestyles

Americans have enjoyed longer lifespans over the generations and have had to plan on saving more for retirement to enjoy their lifestyles for longer periods of time. However, COVID-19 has older adults also thinking more about their health. As Dychtwald puts it, they have suddenly been thrust into thinking about what matters most in life. He feels that for many people, the psychological impact of the pandemic has been not only to consider what happens if they die, but how they want to live their lives—more streamlined, pared down to the essentials of a good life, and optimizing their health.

That said, according to Dychtwald, there’s more optimizing to do for retirees in the realms of technology and financial literacy. He says this population needs to adapt to and adopt technology to connect to new ways of socializing, access medical care (via telemedicine), or research financial information. A Pew Research study reported that only 62% of Americans over age 75 use the internet and 28% use or feel comfortable connecting to social media. And when it comes to financial health, Dychtwald notes many retirees don’t understand their options for retirement savings and what it all means, including Social Security benefits.

So where does retirement planning come into this new pandemic-colored picture?

A new post-pandemic lifestyle?

For many people, they’ve been experiencing a quieter, simpler lifestyle in the wake of COVID-19 lockdowns and safety guidelines— and may be re-evaluating what their retirement looks like. Will it include more travel or less travel? Time spent with loved ones or more time for hobbies or volunteering? Staying in a sprawling home or downsizing to a cozy bungalow, moving to an urban environment from the suburbs or getting that cabin in the woods?

Given the business closures—even temporary ones—business owners who may have been putting off retirement before the pandemic might be looking at retiring earlier than originally planned … and are taking a fresh look at their retirement accounts and how the funds are invested.

Taking control of your financial future with self-directed IRAs

Luckily for self-directed investors, they’re connecting, researching, and are savvy about the types of investments they’re including within their retirement accounts. Rather than rely on the ups and downs of the stock market or tolerate sluggish returns on Treasuries, self-directed investors are taking stock of their goals, perhaps shifting their priorities, and planning for the future—despite these uncertain times—with nontraditional investments such as real estate, private equity, secured and unsecured loans, hedge funds, precious metals and many more.

While this retirement strategy is not for everyone, many individuals are seeking a hedge against stock market volatility (such as the recent market turbulence wrought by the pandemic), portfolio diversification and better control over their investment returns – all benefits offered by self-directed IRAs.

Are you looking to shift your retirement strategy to include alternative assets you already know and understand? Do you want to develop a retirement portfolio that reflects your interests or an area of expertise? If you’re comfortable making your own investment decisions, it’s a great time to plan your retirement from a different perspective. You’ll find a plethora of information about self-directed IRAs on our website; and if you have questions about how to get started, you can schedule a complimentary educational session with someone from our team.  Alternatively, you can contact us directly via phone at 888.857.8058 or email at NewAccounts@NextGenerationTrust.com.

Considering Taking a Hardship Distribution from Your Retirement Plan?

The coronavirus pandemic is leaving millions of Americans on furlough or out of a job, dealing with reduced hours or workload… but NOT with reduced monthly bills to pay. For many, this is a time of financial hardship. Sadly, according to a 2018 Federal Reserve report, 40 percent of adults cannot cover a $400 emergency expense and the current situation goes far beyond that.

Sometimes, individuals consider dipping into one’s retirement plan to cover short-term expenses. Among the emergency expenses that may qualify for such a withdrawal are tuition/education expenses; down payment or repairs on a primary residence, rent or mortgage payments (to thwart possible eviction or foreclosure); out-of-pocket medical expenses; and funeral costs.

Historically:

Changes with the CARES Act

This stimulus package has loosened the rules around taking hardship withdrawals from retirement plans, and loans from 401(k) plans. A CARES Act provision allows individuals who are facing adverse financial consequences due to COVID-19 to withdraw funds from their retirement accounts without penalty (regardless of age). This applies to IRAs and 401(k) plans.

The withdrawal must be made before December 31, 2020 and can be up to $100,000. Tax payments on this income are extended out three years. For those taking loans against their 401(k)s, that amount is also raised to $100,000. Note that there are no loans from IRAs.

Why gamble with your retirement savings?

Many financial experts argue against taking out a hardship loan from one’s 401(k) plan to avoid reducing any retirement savings, when there are other loan options available (such as a home equity loan, SBA loan, or other lines of credit). And, all good intentions aside, it may be difficult to replace the funds from a hardship distribution from an IRA or other retirement plan—and then rebuild on that money for retirement.On top of that, the stock market has suffered a tremendous downturn, with subsequent volatility almost daily, as a result of COVID-19 and the economic stressors stemming from lockdowns.

Weathering market volatility through self-direction

Self-directed investors have greater leeway when it comes to hedging against that stock market volatility. That’s because of the many alternative assets that can be held in a self-directed retirement plan. Investing in real estate, precious metals, private equity, or other non-publicly traded assets give savvy investors many more ways to build a more diverse retirement portfolio that have stronger potential to weather the COVID-19 storm (and other times of economic uncertainty). One reason is because the returns on nontraditional investments in a self-directed IRA do NOT directly correlate with stock market returns.

You can even loan funds from your self-directed IRA to someone who is dealing with a cash flow shortage, with the terms worked out between both parties, and receive interest and principal paid back to your IRA.

As always, it is best to consult your trusted financial adviser about how to navigate financial hardship as it relates to your retirement plan. At Next Generation, we’re here to answer any questions you have about self-direction as a retirement strategy, or about the many alternative assets allowed in these plans. You can schedule a complimentary educational session to learn more or contact us directly via phone at 888.857.8058 or email NewAccounts@NextGenerationTrust.com.

Women’s History Month: A Look at Women and Their Financial & Investing History

Ever since the women’s liberation movement of the 1960s and 1970s a lot has changed for women in America, thanks to spitfire pioneers who generated shifts in societal attitudes and pushed for legislative changes.

The National Organization of Women advocated for six measures to ensure women’s equality: enforcement of laws banning employment discrimination, maternity leave rights, childcare centers (so mothers could work), tax deductions for childcare expenses, equal and unsegregated education, and equal job-training opportunities for women in poverty. These all took many years to pass.

Eventually, as more women entered the workforce employers were barred from firing a woman because she was pregnant. More women began running for political office. No-fault divorce laws arose. Women began serving in combat, became astronauts, and sat on the Supreme Court bench. Moreover, they could finally apply for a credit card or loan in their own names.

Women in financial history

Women have been making their mark on the financial sector since our country’s early days. In fact, future First Lady Abigail Adams began trading in government-issued bonds during the Revolutionary War with strong results, and a woman named Victoria Woodhull opened her own brokerage house in 1870 with her sister; she also ran her own newspaper company and was the first woman to run for U.S. President.

Some more notable firsts in modern times:

Women and investing

The women’s liberation movement notwithstanding, it’s been an uphill climb for women to take their rightful places in the workplace and take their seats at corporate tables. As of January 1, 2020, there have been 82 individual women in Fortune 500 CEO roles in total, with three serving as CEO twice.

However, more women are undergoing a new women’s liberation movement when it comes to their investment choices . . . and discovering they can take more control of their financial futures through self-directed investing.

Self-directed IRAs enable investors to better control their retirement savings by investing in alternative assets they know and understand. Although historically, women have taken a more moderate approach to risk, those who prefer to make their own investment decisions can open a new self-directed retirement plan and include non-publicly traded, alternative assets to build a more diverse retirement portfolio. These investments might include real estate, private equity, private lending, partnerships, precious metals or impact investments.

Self-directed investors also conduct their own research and due diligence about the alternative assets they wish to include in their retirement plans. They may already be investing in these assets outside of their existing retirement accounts. In fact, that’s how our founder and CEO, Jaime Raskulinecz, started Next Generation.

Next Generation’s Women in History

Jaime was a seasoned real estate investor who wanted to include real estate in her IRA; she discovered self-direction as a retirement strategy that would allow her to do so. As a pioneer in her own right, Jaime started a company in 2004 to enable more investors to include nontraditional investments in their retirement plans and Next Generation, a third-party administrator for those plans, was born. Continuing to build on her success, in 2017 she led the formation of its sister firm, Next Generation Trust Company, which now acts as custodian for all of its accounts.

Jaime and her partner Linda Varas, Principal of Next Generation, have always believed in the power of women in the workplace and our team is a testament to that. Jaime and Linda have cultivated a career-building environment for women (and men, too!), as you’ll see on our team page.

We are proud to recognize Jaime’s many professional achievements as we continue to educate more women on the power of self-directed investing. Want to take control of your future, today? Sign up for a complimentary educational session with one of our knowledgeable representatives. Alternatively, you can email us directly at NewAccounts@NextGenerationTrust.com or call 888.857.8058 to get started.

Americans are Working Longer

Recent research from the Transamerica Center for Retirement Studies* shows that Americans are working longer, with 54 percent saying they expect to work past age 65 or never retire at all. Twenty-two percent of respondents said they plan to retire either at age 65 or later, and 22 percent plan to retire earlier.

While there are personal factors around why Americans are working longer – such as maintaining social connections, longer lifespan and emotional health – financial factors are also part of this story. In the U.S., it’s often not having enough saved for retirement and Social Security concerns; three-quarters of the workers surveyed said they are worried that Social Security will not be available when they retire.

Global expectations around retirement age are very interesting to look at and compare with U.S. figures. Transamerica conducted additional research across 15 countries, in collaboration with the Aegon Center for Longevity and Retirement. While the current expected age of retirement in the U.S. is 66 (shared by the United Kingdom and Australia), it is 65 in many European countries and Canada, 60 in India, and 58 in Turkey and China. The findings are based on 14,400 workers and 1,600 retired people surveyed online between 22 January and 14 February 2019.

However, as we know, the average retirement age is rising in the U.S.; for Americans born in 1960 and later, it is 67. The Netherlands is already there and according to the study, France, Spain and Poland are planning to move their retirement age to 67 as well.

Americans are Working Longer, but a Self-Directed IRA Can Help Make the Most of Your Employment and Retirement Timelines

In the Transamerica/Aegon global study, a majority of respondents said they envision an active retirement, where work and leisure can co-exist. Sixty percent cited travel and 57 percent cited spending time with family and friends as important retirement goals; 49 percent said they look forward to pursuing new hobbies. Additionally, 27 percent aspired to do volunteer work and 26 percent planned to include some form of paid work. The two biggest retirement concerns were declining physical health and running out of money.

Whether you retire at age 65 or 66, or continue to work in some capacity well into your retirement years, you can make the most of your retirement savings through self-direction. A self-directed IRA allows you to include many alternative assets, which are not allowed in typical retirement plans, and build a more diverse retirement portfolio. This also allows investors to hedge against the volatility of the stock market, and include nontraditional investments they already know and understand. Why limit yourself to stocks and bonds when you can invest in real estate, precious metals, promissory notes, private equity and joint ventures—and have more control over your returns—within a self-directed IRA?

At Next Generation, we help individuals make the most of their retirement savings and live up to their retirement goals through self-directed retirement plans. If you’re someone who’s comfortable making your own investment decisions and conducting your full due diligence about certain types of investments, you may benefit from self-direction.

Plus, with the SECURE Act provisions that enable workers to continue contributing to a Traditional IRA for a longer timeline, and delay taking required minimum distributions from their plans until age 72, there’s more time to build up one’s retirement nest egg with a broad array of nontraditional investments.

Want to learn more? Sign up for a complimentary educational session about self-directed IRAs with one of our knowledgeable representatives. Alternatively, you can call us directly at 888.857.8058 or email NewAccounts@NextGenerationTrust.com.

*Online survey conducted between October 26 and December 11, 2018 among a nationally representative sample of 5,923 workers who were U.S. residents, age 18 or older; and full-time or part-time workers who are not self-employed and work in a for-profit company employing one or more people.