As we all know, long-term care costs are one of the biggest risks in retirement. Three of my four grandparents have needed long-term care, and the experience has been hard — not only emotionally but also financially. The cost of long-term care can be anywhere from $50,000 to $100,000 a year, depending on your location and the type of care. The average stay can be anywhere from two to five years, so that length affects the overall financial impact. 

Knowing that 70% of people will need long-term care at some point in their retirement means that it is especially important for you to plan for. The only problem is — how do we plan for such costs, especially when long-term care insurance is so expensive? Add to that the fact that we have to be insurable to be able to get it. So, instead, let's talk about another option that may be attractive to some people. 

The opportunity is called a Medicaid asset protection trust. The idea of this is to move money out of your estate into this type of trust so that the government cannot come after it for Medicaid planning purposes. Let's take a step back to understand how Medicaid planning works. The government will offer you free long-term care assistance after you spend down the majority of your assets. The good news is that you get the care you need. The bad news? You lose what you have worked so hard for. So how do we ensure we get the care we need but also protect what we've worked hard for? That's where this trust comes into play. 

This trust has to be set up the right way

First, we must set this trust up the right way and give it enough time to satisfy the look-back period. Then Medicaid will not consider those assets when deciding if you are eligible for Medicaid. This can be of a lot of value for those with larger amounts of non-qualified assets, such as multiple properties or non-retirement investments. The things to note with this trust is you will want to make sure it is an irrevocable trust. Now, that can be scary because an irrevocable trust typically means you have no access to those assets anymore. But if you set this trust up the right way, you can still have access to those assets. 

It's important to work with an estate planning attorney who specializes in this area. For our clients, we have an attorney who meets with them at our office to ensure this gets done the right way. 

You also want to make sure that you’re not getting sold this trust if you do not need it, because not everyone needs it. If you don’t have any non-qualified assets, and all of your assets are in an IRA, then it may not make sense for you. Current rules state that money in an IRA will not be spent down until after both spouses have passed. Keep in mind that these rules can change at any time, and that’s why it’s important to find an attorney that you can continue to work with to make changes to these trusts as needed. 

The attorney we work with meets with our clients periodically to make any adjustments required based on rule changes as they happen. We believe preparing for this now will better set you up for success if there are rule changes in the future. 

Setting one up can be costly

The other downside of this type of trust is cost. Depending on who you work with to get it done, the cost can be anywhere from $7,000 to $12,000. The attorney who works with our clients does it for a lower amount since we do not take a referral fee, and we have an exclusive relationship. You’ll likely get the best results when you work with a financial planner who partners with an estate planning attorney to ensure your trust gets done the right way, that you don't get sold something you don't need and that you get the best pricing. 

Other planning advantages and opportunities

A Medicaid asset protection trust can also lead to other advantages and opportunities in other areas of planning. For example, we can also use this trust to help plan for estate taxes. 

Estate taxes may not be a concern for many people, considering the current high threshold before it kicks in ($13.61 million for 2024). However, the threshold is likely to be lowered in the future. It has, in the past, been as low as $1 million or less, so it’s possible that if your net worth is more than $1 million, you could pay a 40% tax on everything above that in the future. 

A Medicaid asset protection trust could help you protect some of those assets by getting them out of the estate so they’re not subject to that estate tax. We do this for many of our clients who have been diligent savers. 

Also, with trusts, you can be more creative about ensuring the money goes to the people you want it to go to and when you want it to go to them. For example, if you wanted your kids to get only a certain amount each year for the rest of their lives, then you could have that set up. Or if you wanted a minor child to not get the money until the age of 25, then you could do that also. You could also ensure that if there were a divorce or one of your family members died, that the money stayed in the family. 

Those can all be reasons why setting up a trust can make sense. We work with many people in or near retirement who have been diligent savers, but only about half of them need trusts. That's why it's important to do your due diligence and see if this makes sense for your specific situation.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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When it comes to withdrawing from your portfolio, many retirees fear that their cash flow might run out before they do. As illustrated in part one of this series, relying on stock sales to meet retirement expenses can be risky, especially during a market downturn early in retirement. 

How can we leverage the insights from parts one and two to safeguard our retirement income? Here are four actionable steps to consider.

Redefine and reframe your principal risk

Price volatility is a popular measure of risk but not a great one for retirement planning. Volatility on its own is simply a probability statistic (and hence why it’s described with technical terms such as alpha, beta, R-squared and the Sharpe ratio). 

For our financial planning purposes, volatility needs to be linked with a consequence to provide a practical measure of risk. For example, the fundamental risk in your portfolio is not having the cash available when you need it to meet your spending needs. In measuring your success, your personal monthly spending need is your ultimate yardstick and the only benchmark that matters.

If an adviser says to you (or you tell yourself) that you beat the market last year, your response should be, “Interesting information, but not my primary focus. Much more important, where am I relative to my financial goals, and do I need to course-correct?”

Utilize a goals-based safety-first strategy

With a more practical and fundamental definition of risk, it’s time to let your financial goals guide your planning and investing, not simply your risk tolerance. Match your assets and income with future liabilities and spending. 

The premise of our goals-based safety-first strategy is to rely as little as possible on the sale of stocks to cover basic needs, especially when the stock market is falling. Your primary objective during the withdrawal stage is not to maximize investment returns, but rather to meet your spending needs.

Add a margin of safety to your projections

Lower your projected withdrawal rate in your modeling to account for the sequence of returns risk (that is, the risk that you start withdrawing during a bad stretch of market returns). Financial author William Bernstein calculated that a particularly bad sequence of returns can penalize your safe withdrawal amount by about 1.5 to 2 percentage points. 

So, for example, if you are projecting a 5% withdrawal rate, consider lowering that estimate to an amount closer to 3% to 3.5% to provide cushion against “bad” market returns in the early years of the withdrawal stage. This may also lead you to conclude that you need to make other course corrections — for example, targeting a larger portfolio balance on your retirement date than you originally assumed. Simply put, plan to spend less and save more.

Maintain a cash reserve

As you approach your retirement date, have a cash cushion. Keep three to five years of spending needs out of the stock market and in cash. Since you hopefully won’t need to sell and withdraw from the equity portion of the portfolio if the market is declining, you avoid the negative compounding effects we saw illustrated in part one. (Remember, compounding works with you during the accumulation stage and against you in the withdrawal stage.) And as the market eventually recovers, you can then sell some of your equity investments to replenish your cash reserve. 

Three to five years of cash is my personal comfort zone. What do others say? Author and investor Darrow Kirkpatrick found that the S&P 500 recovers from declines, on average, in about three years. For business cycle declines going back to the 1800s, it’s about five years. Citing research by Wade Pfau, Kirkpatrick notes that worst-case real stock market losses of greater than 50% take, on average, nine years to recover.

Based on Kirkpatrick’s findings, on a worst-case basis, you might consider having upwards of 10 years of spending needs in cash, plus potentially more in other conservative investments. 

Take as little risk as you need

The above suggestions are but four considerations as you make personal course corrections to your robust financial plan. My primary message is this: Make sure to reconcile cash withdrawal plans with what your modeling and current market conditions indicate you can support. 

In other words, as you plan for the withdrawal stage, don’t take as much risk as you can tolerate; take as little risk as you need.

With a focus on safety first to cover basic spending needs and the right balance of liquidity, the fragile decade can be a lot less frail.

As always, invest often and wisely. Thank you for reading.

This content is for informational purposes only. It is not intended to be, nor should it be construed as, legal, tax, investment, financial or other advice. 

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From modest beginnings in small island states, citizenship by investment (CBI) programs have grown into a worldwide industry with diverse opportunities for acquiring citizenship in a foreign country through economic contributions. These programs play a growing role in global economics and trade, offering countries a means to attract foreign capital and individuals a pathway to diversify their citizenship portfolio.

For successful applicants, CBI programs increasingly demand expertise, meticulous application preparation and staying updated with evolving program information for success. It can be helpful to review the origins and recent developments of economic citizenship to understand CBI programs and plan for how they may evolve in the year ahead.

The birth and expansion of CBI

Economic citizenship programs emerged in Pacific Island microstates, with some of the first programs arising as clandestine or unofficial revenue sources for the microstate governments. Based on my observations, official CBI policies first took root in the Caribbean in the early 1980s. Dominica was an early adopter of granting economic citizenship, recognizing the benefits investment immigration could bring to its economy. St. Kitts and Nevis introduced the first codified CBI program in 1984, one year after gaining its independence from the United Kingdom, setting a precedent for other nations by including CBI in its 1984 Citizenship Act.

The success of Caribbean CBI programs led to their adoption in other regions. In 1986, Canada introduced its Immigrant Investor Program (IIP), marking the beginning of residency by investment programs. The United States followed suit with the EB-5 Immigrant Investor Program in 1990, and similar programs were later established in Australia, New Zealand, the United Kingdom and the European Union.

Political and economic factors driving the evolution of CBI

Several overarching factors have driven the growing interest in CBI programs:

• Political and economic instability. Some individuals from unstable regions have sought the stability and security offered by secondary citizenship.
• Global mobility. Since the inception of CBI, the desire for visa-free travel and the ability to move freely across borders has driven demand for secondary citizenship.
• Unstable governments. Families looking for a secure and stable environment often turn to CBI programs as a plan B.

While CBI programs have consistently been in demand due to the need for global mobility and security, certain events have historically created a spike in interest in CBI programs:

• Election cycles. Demand often rises during election periods, particularly in U.S. presidential elections. The 2020 election period, for example, saw a notable increase in demand for secondary citizenship as a plan B.
• Geopolitical catalysts. Events such as Brexit (2016), the Hong Kong protests (2019-2020), ongoing conflicts in the Middle East (Syria, Iraq, Yemen), Turkey’s earthquake and election cycles, and the Ukraine conflict have all caused some transient-increased demand for CBI programs.

Kiplinger Advisor Collective is the premier criteria-based professional organization for personal finance advisors, managers, and executives. Learn more >

Initially, CBI programs primarily attracted high-net-worth individuals seeking visa-free travel and increased global mobility. Today, the appeal of overseas CBI programs has broadened. More individuals are seeking secondary citizenship for personal or business security, political stability and economic opportunity. The motivations have diversified beyond just travel benefits. As the demographics, motivations and political environments have evolved, CBI programs have broadened to cater to a wider array of applicants. Some of the different types of investment immigration programs available today include:

• Residency by investment (RBI). RBI programs allow individuals to obtain residency status in a foreign country through significant economic contributions. These programs are often seen as a step toward full citizenship. Countries such as Portugal, Spain and Greece offer popular RBI programs, often referred to as "Golden Visa" programs, which grant residency in exchange for real estate investments, job creation or government bonds.
• Citizenship by ancestry. Some countries offer citizenship based on ancestry or descent. Individuals who can prove that their parents, grandparents or even great-grandparents were citizens of a particular country may be eligible for citizenship. This type of program is prevalent in countries that have experienced a broad dispersion of emigrants, such as Italy and Ireland.
• Retirement programs. Designed for retirees seeking a peaceful and stable environment or a new adventure, these programs offer residency or citizenship to individuals who can demonstrate a steady income or substantial savings. Countries like Panama, Malaysia and Portugal have retirement programs that attract retirees abroad with favorable tax regimes, lower cost of living and high quality of life.

Program expansions have made investment immigration accessible to a broader audience, each catering to specific needs and circumstances. The breadth of new opportunities and the intricate nature of CBI programs have also increased the importance of expert guidance. Modern advancements have streamlined the application processes for CBI programs. However, those advancements have also enabled more rapid changes in program benefits and regulations. Legal professionals now play a pivotal role in preparing and reviewing applications, ensuring compliance and providing expert consultation to facilitate smoother approvals.

Looking forward: Future of CBI programs

As CBI programs continue to evolve, several trends are expected to shape their future:

• Environmental and climate concerns. With increased awareness of climate change effects, along with increased regulatory efforts to combat it, there will likely be growing emphasis on CBI programs that help address environmental and climate-related issues. By incentivizing immigration through sustainable investment requirements, governments can contribute to the aim of reducing carbon emissions and transitioning to more environmentally friendly economies.
• Diversification of investment options. Investment options will diversify to compete for and attract a broader range of talent and achieve specific economic goals.
• Appeal to remote workers. The growing trend of remote work will make CBI programs more attractive to individuals seeking flexible living arrangements across borders.

The evolution of CBI programs has reflected changing global trends and the diverse needs of individuals seeking secondary citizenship. As global political and economic systems face new challenges, new opportunities will arise. CBI and related programs will continue to play a pivotal role in meeting the demand for global mobility and economic strategies.

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I see all sorts of articles online regarding the benefits of doing $100,000 Roth conversions over a 10-year period, which makes me think that a lot of people aren’t even evaluating income tax brackets. But that’s the best place to start when evaluating whether a Roth conversion makes sense.

Here are three thresholds you need to consider before deciding to do a Roth conversion:

1. Your income tax rate.

This is us looking left. The reality of a Roth conversion is that it’s just a bet that your current tax rate is lower than your future tax rate. If so, you’d rather pay the taxes today. If you’re in the period between retirement and when you start RMDs (required minimum distributions), this can be a pretty safe bet.

I met with a client the other day who is three years out from RMDs. Once both spouses start receiving RMDs, that will push them from the 24% marginal bracket to 32%. So, in doing the conversion calculation, we want to see how much we can convert while staying in the 24% bracket.

2. Your capital gains tax rate.

We are looking right. People talk about capital gains tax rates as though they are 15% for everyone. That is not the case. Evaluating capital gains rates is most important at low income levels and at high income levels.

When your income is very low, a Roth conversion can cause you to go from paying 0% in capital gains to paying 15% on everything. This is an expensive trigger.

Once taxable income crosses above $518,900 (S) or $583,750 (MFJ) for 2024, you jump from 15% to 20%. Less talked about is the 3.8% net investment income tax, which, as it sounds, is a tax on investment income over $200,000 for individuals and $250,000 for a married couple filing jointly.

3. Your Medicare premiums.

Finally, we are going to check the bike lane to ensure we don’t get smacked by an e-bike. Premiums for Medicare Parts B and D are income-adjusted. However, unlike the above income tests, Medicare premiums are determined by gross, not taxable, income. The Part B premiums can increase by as much as $419 per month, per person, based on income. In my experience, this is the one that upsets people the most.

To be clear, you’re not always trying to stay under every threshold. In many situations, it makes sense to pay more in Medicare premiums to avoid a much larger income tax bill down the road.

Evaluating Roth conversions in your situation requires projecting out your future tax rates; i.e., should you even be crossing the road at all? To get a sense of what your rates may look like, you can build out a free plan here.

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But people also recognize this: No one wants to give Uncle Sam more money than necessary, especially since all of us have our own uses for that money.

That’s where good tax planning comes into play. With the right strategies, you can reduce your income tax bill, put fewer dollars in Uncle Sam’s pocket and keep more in yours.

That can be especially beneficial for retirees, who need to make sure their money lasts the rest of their lives.

Let’s look at three ways you can give Uncle Sam less so you can keep more.

1. Carefully consider which assets to leave to beneficiaries.

It’s nice to be able to bequeath something to your children, grandchildren or others after you are gone. But as you make plans to do so, keep in mind the income tax ramifications, both for you and for your heirs. With the right moves, you both can avoid taxes.

For example, if you have assets such as stocks or real estate that have appreciated in value since you purchased them, you should consider the advantages of a “step-up in basis.” If you were to sell those assets now, you would pay capital gains taxes. on whatever gains you have made. Leave these assets to your heirs, though, and the situation changes because the step-up in basis rule comes into play. Under that rule, there is a restart on the date from which the gains are measured. Instead of being calculated from when you purchased the asset, the gain is determined from the time your heirs inherited the asset.

Let’s say that many years ago, you bought several shares of a stock for $10,000, and today those shares are worth $50,000. If you have the option, this might be a good candidate to leave to your heirs rather than sell right now. If you sold the stock, you would owe capital gains tax on the $40,000 gain. But if you leave the stock to your beneficiaries, their starting point for capital gains is $50,000 (or whatever the value is at the time of your death) because of the step-up in basis. If they sell quickly, they likely would owe little or no capital gains taxes.

2. Have a strategy to pay taxes efficiently.

But, of course, leaving assets to beneficiaries means someone else has to pay taxes after you are gone.

You are paying taxes in the here and now. As you do so, you need a strategy to make sure you are paying them in the most efficient manner and that you are taking advantage of anything in the tax code that allows you to pay less.

That begins with capitalizing on the income-tax deductions available to you. About 90% of taxpayers use the standard deduction, which has risen over the years, especially after the Tax Cuts and Jobs Act of 2017 was passed. The deduction is even higher for those who are blind or who are 65 and older, though you have to be sure to check a box on your 1040 form and add on the extra amount.

In the past, more people Itemized their deductions, and that is still an option. It’s just difficult for the average person to come up with enough deductions to bring the itemized total higher than the standard deduction. But if you can itemize and claim an even greater deduction than the standard, you want to go that route.

Among the tax deductions that could help you get to the appropriate total are mortgage interest, medical expenses and charitable contributions. Make sure you deduct only what is allowed, though. For example, medical expenses are deductible only when they exceed 7.5% of your adjusted gross income.

Another way to be efficient with your tax payments is to keep an eye on the income tax brackets and the possibility of dropping into a lower bracket. For example, if a married couple filing jointly can reduce their taxable income to $89,450 or lower, they move out of the 22% tax bracket and into the 12% bracket. (Extra deductions can help you move from one of the higher tax brackets as well, but the gap between the 22% bracket and the 12% is the largest.) It’s worth noting that even when you are in the higher bracket, all of your income is not taxed at the higher rate. Only the portion of your income that exceeds a certain threshold is taxed at that higher rate.

3. Make sure investments are in the proper accounts.

One other way to pay taxes efficiently is to make sure your investments are in the appropriate accounts that will be most likely to produce the desired results. If you aren’t careful, you can incur unnecessary taxes.

Essentially, the accounts you might have money invested in can be broken down into two types: accounts that are taxable and accounts that come with some sort of tax advantage.

Taxable accounts include brokerage accounts, where you might hold stocks. The upside with these is there is no age restriction or other restriction on getting access to your money. You do pay taxes, but if you have held the asset for more than a year, it is considered a long-term capital gain and is taxed at a lower rate than regular income.

Tax-advantaged accounts are those with investments that are tax-deferred, such as a traditional IRA or 401(k), or that are tax-exempt, such as a Roth IRA, where you pay the taxes now but not when you begin withdrawing money. Although these accounts give you some tax advantages, one tradeoff is they have rules on when you can withdraw money and penalties if you break those rules.

So where to put your money?

That comes down to the type of investment. As much as possible, you want investments that are subject to little or no taxes in your taxable accounts. Investments subject to a higher tax rate should go into the tax-advantaged account.

A good financial professional can help you determine the best investment accounts for your individual situation. That person can also help you find other ways to make sure you are paying taxes in the most efficient manner possible.

By taking the right measures, you will still pay what you legally owe — but not more than required.

Ronnie Blair contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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You’ve reached the summit of your financial independence journey — now what? 

Without a plan, you might find yourself financially “rim rocked,” as rock climbers stuck with no way out. 

Many assume climbing is about finding a way up and simply taking the same route down, but the truth is that accidents often happen during the descent. A 2006 study found that over half of the 192 deaths above base camp on Mount Everest from 1921 to 2006 occurred on the way down. As mountain climber Eric Arnold, who tragically died descending from his fifth summit, noted, “Two-thirds of the accidents happen on the way down. If you get euphoric and think, ‘I have reached my goal,’ the most dangerous part is still ahead of you.” 

Early Retirement Withdrawal: How to Plan

Achieving FIRE (financial independence, retire early) status is similarly ambitious, and drawing down assets over a much longer period than a traditional retirement brings unique risks. Market conditions and life circumstances can change dramatically over these withdrawal years. One wrong move could prove costly — penalties, taxes, or worse, running out of money. This is reflected in a recent Schroders retirement study that found the major concerns for retiring Americans include: “not knowing how to best generate income and/or draw down assets” and “outliving assets.”

That’s why Brett Spencer, founder and lead advisor of Impact Financial, emphasizes the importance of creating a plan and “diligently monitoring it.”

The FIRE movement is broad, with individuals achieving it in a variety of ways, leading to an array of strategies for spending down assets. While one way is not best for all, many of the dangers on the way down are the same. Here are some strategies for overcoming them.

Sidestepping early withdrawal penalties 

The IRS means well. To discourage premature use of retirement funds, it imposes a 10% tax penalty on early withdrawals from certain retirement plans before age 59 ½. However, this guardrail becomes an obstacle for those who actually save diligently but then retire early.

Fortunately, there are ways to access retirement accounts before age 59 ½ without penalties.

One option is Substantially Equal Periodic Payments (SEPP), also known by its low-budget cyborg movie name, 72(t). This allows penalty-free withdrawals from IRAs or 401(k)s at any age, provided you take a series of substantially equal periodic payments for a minimum of five years or until you turn 59 1⁄2, whichever is longer. Spencer notes that “rules need to be followed for withdrawals to qualify.” For instance, payments must be calculated using one of three IRS-approved methods and cannot be altered once started.

Another possible strategy is a Roth conversion. Here, you transfer traditional IRA or 401(k) funds into a Roth IRA. After five years, these converted funds (but not earnings) can be withdrawn penalty-free and tax-free. This requires careful planning to manage tax implications during the conversion years.

For those with a 401(k) or 403(b) and who aren’t exactly rushing out the door by FIRE standards, the Rule of 55 is another exception. This IRS rule allows individuals who leave their job during or after the year they turn 55 to withdraw funds from their 401(k) without the 10% early withdrawal penalty.

Navigating taxes and investment costs 

A towering figure casting a shadow over the spending down of your assets is none other than Uncle Sam. While you can’t avoid them, you can minimize taxes on account withdrawals.

An early retiree client of Spencer’s illustrates this point. His client structured his FIRE plan with passive income investments, generating more portfolio income than needed. As a result, he paid taxes on unused investment income, which was then re-invested. Spencer says, “We’ve improved this client’s tax efficiency by moving some income investments into his tax-deferred retirement accounts. This way he is more in the driver’s seat on the income he realizes.”

A Roth conversion could also help lower your tax burden, as converted funds can be withdrawn tax-free. However, since you pay taxes on the conversion, the decision depends on whether your tax rate is higher now or when you start withdrawing funds.

For a taxable portfolio, Spencer suggests two strategies: tax loss harvesting and tax gain harvesting.

Tax loss harvesting allows you to sell investments at a loss to offset gains and reduce taxable income. Losses can offset up to $3,000 of ordinary income per year and be carried forward to future years. 

Meanwhile, tax gain harvesting involves realizing gains when you’re in a 0% or low tax bracket. You sell and immediately buy back investments (from a taxable account) that have increased in value to reset the cost basis and take advantage of low capital gains tax rates.

Spencer cautions, “These strategies take a lot of monitoring and careful planning with the right software and tax knowledge.”

Investment costs are another potential drag on your retirement savings. A Vanguard paper even calls the failure to plan for investment fees, such as mutual fund expense ratios, a retirement risk for FIRE investors. After all, investing costs reduce net returns. Therefore, consider investing in lower-cost funds to help you keep more of your returns, increasing the probability of success.

Keeping your portfolio financially sustainable 

Arguably, the biggest challenge among early retirees is portfolio sustainability.

Many FIRE proponents use the famous 4% rule to determine their spending plans. This guideline suggests saving 25 to 30 times your annual spending, then withdrawing 4%, adjusted for inflation, annually. However, the 4% rule is based on a shorter drawdown period of 30 years, not the 50-year period of someone retiring early at 40. Therefore, the 4% guideline might be too generous.

When considering a potentially 50- or 60-year time frame, predicting portfolio sufficiency is difficult. Retirement planning often assumes relatively static spending, but many variables, such as healthcare costs, can dramatically alter your financial needs.

The 4% rule can be a good starting point, providing a target for saving and spending. However, the earlier you retire, the lower your withdrawal percentage may have to be. A safer rate might be around 3% to sustain your portfolio for 50 years. Alternatively, you could save more before reaching FIRE status.

Market downturns also pose a risk to portfolio success when withdrawing funds as prices drop. A dynamic withdrawal rate can help mitigate this risk. With this strategy, you adjust your withdrawal rate based on market conditions: withdraw more during good years and less during bad years, allowing better recovery.

Additionally, Spencer recommends diversification. “A properly diversified portfolio reduces the level of downside potential, which becomes really important once you are living off of your portfolio,” he says. While bonds are a common diversifier, keep in mind they fell alongside stocks in 2022. Therefore, diversify broadly across all asset classes, such as international securities.

Planning is the ultimate lifeline  

A noticeable feature of the FIRE community, evident in blogs and Reddit forums, is a deep commitment to planning. Some manage their finances and retirement planning on their own, which is possible but challenging. Given the potential pitfalls, working with a financial advisor may benefit most.

Spencer points out: “While the thought of retiring early can be very attractive, it is very important to plan and stress test your plan.” Advisors can use simulation models to assess the success rate of your portfolio under various scenarios. While not a guarantee, it provides a good idea of your plan’s sustainability and strength.

Ultimately, the potential dangers should not deter those inspired to retire sooner rather than later. 

Achieving financial independence, even in the most aggressive scenarios, typically takes about a decade or more. This is enough time to learn, grow and adjust strategies, as many FIRE advocates do.

As Beat writer and outdoor enthusiast Jack Kerouac wrote, “Because in the end, you won’t remember the time you spent working in an office or mowing the lawn. Climb that goddamn mountain.”

Read More

• 401(k) Withdrawal Penalty Rule Changes for 2024
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But most people don't realize that the bottom line isn't the end of the story. Humans are emotional creatures, and even the most "rational" of us can seem to act "irrationally" when it comes to money decisions. That's where understanding financial psychology comes in. Recognizing the psychological factors that influence our financial choices helps us make more considered decisions, especially during stressful times.

In my experience working at the intersection of financial and personal well-being, I've helped numerous clients address the qualitative aspects of wealth management. And now, I'm here to share just a few of the most helpful points with you.

Understand the ‘why’ behind your financial behaviors

First of all, it helps to start with why. Did I buy that car for me, or for the impression it makes on other people? Why do I shop online when I'm stressed? Did I sell that stock out of the fear of losing money? 

By deeply contemplating your financial decisions, you can develop an understanding of what your tendencies are. This helps build self-awareness. Eventually, self-awareness could lend you the ability to pause and consider all aspects of a decision before finalizing it.

We all have financial comfort zones, those areas in which we make decisions by habit, without consideration. These zones are shaped by our past experiences. While they can provide a sense of security and help to manage decision-making stress, they can also expose us to our financial blind spots.

Financial blind spots are the biases and emotions that impact our decision-making. Overconfidence, loss aversion and mental accounting can lead to negative outcomes, sometimes without us even noticing. Similarly, money scripts, or money messages, are the core beliefs about money that we develop through childhood experiences and financial flashpoints. These all have a major influence on how we make financial decisions.

By fully understanding our "why" — by identifying what we learned about money growing up and how those experiences informed our current money beliefs — we can mitigate these blind spots and scripts.

Find the balance between needs and wishes

After you start to understand your why, you'll need to examine what your goals are. What is most important to you, now and in the future? What about your family? And when do you want to achieve your goals? All choices have costs.

We define "needs" as anything that enhances your well-being. From eating nourishing food to having appropriate insurance coverage, our needs are critical to our flourishing. On the other hand, our "wishes" are our long-term financial goals and dreams, such as starting a business, achieving financial independence or retiring early. Wishes represent the culmination of our ambitions and the realization of our broader life aspirations.

Finding a balance between these isn't easy, especially in the chaos of everyday life. But by focusing on what we can control, such as how we interact with money and how we use our priorities as a filter for making financial decisions, we can foster conscious, informed decisions that align with both the short term and the long term.

Note: When you're evaluating your own needs and wishes, avoid comparing your financial situation to other people. You never really have a complete view of and understanding of someone else’s financial situation. Someone else's "why" could be entirely different from yours.

Look beyond the money

Defining your wealth by the number in your accounts can be very limiting. In the real world, wealth is defined in a variety of ways.

Your health, your time, your relationships, your skills and your knowledge can be defined as wealth. These are things that money can't buy on its own, and they contribute significantly to overall well-being.

For instance:

• You can pay for a personal trainer, but if you have a poor diet, your health will suffer
• You can pay for an Ivy League education, but if you don't study, you won't get much out of it
• You can pay for lunch when you go out with friends, but this won't create meaningful relationships in and of itself

In this sense, money can be leveraged as a resource — as a means to help you pursue your goals — but it can't accomplish anything on its own. Human intervention is required to direct the purpose of money. And you define that intervention.

Expand your perspectives

Behavioral Wealth Management is about more than just accumulating assets; it's about understanding the deeper motivations behind your financial decisions and making these decisions in the context of the bigger picture — your overall well-being. By expanding your perspective on wealth to include your time, relationships, health and more, you can make financial decisions that create a balanced and fulfilling life.

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Sandra Batra, 56, created a binder to organize all of her father’s documents after he was stricken with cancer in 2011. Batra says the project helped her and her mother easily locate her father’s important documents while he was in the hospital. 

After her father’s death in 2012, Batra decided to turn her idea into a business, LifeLink Consulting, which helps clients organize estate-planning documents into a binder or flash drive. Batra also gives clients blank worksheets they can use to provide other details, such as who they want to care for them and their end-of-life wishes. Her online course costs $99. 

To organize your own records, you can use an accordion file or binder and divide the documents into different categories, such as estate planning, life insurance policies, property titles and investment statements. You should also include categories for health insurance, long-term-care insurance, and bank account and credit card information. That way, your family will have the details they need to pay medical bills if you’re hospitalized for a long period. 

Use Microsoft Word or Google Docs to write down additional details, such as who you want to take care of your pets, a list of subscriptions and memberships, and passcodes to any home security systems or online accounts. Once you draw up the documents, print them and place them in your binder (you can also store them digitally — more on that below). 

Where to keep your documents

Store your documents in a secure area, such as a locked filing cabinet or fireproof safe in your home. Make sure your loved ones know the location of your cabinet or safe, and give them any keys, combinations or codes required to access it. 

If you don’t want to keep the documents in your home, you can entrust them with your estate lawyer, says George Taylor, estate attorney with Brinkley Morgan. 

“Your estate attorney can store original documents, like your will and titles to your house and car. Then you and the executor of your will can have copies,” he says. 

You can put copies of your will and other important documents in a safe-deposit box, but it’s usually not a good idea to keep originals there if you’re the sole owner. After your death, the bank will seal the safe-deposit box until an executor can prove he or she has the legal right to access it. That could lead to long and potentially costly delays before your will is executed. 

Digital options for financial paperwork

You should keep original, paper versions of your will, power of attorney and other key estate-planning documents. But if you’d like to create a backup of your paper documents, consider using a flash drive, which you can plug into your computer’s USB port, to collect them all in one place. 

Alternatively, you can use a cloud storage system, such as Microsoft’s OneDrive or Apple’s iCloud. OneDrive’s free version gives you 5 gigabytes of cloud storage. Its family version, which allows up to six individuals to share and access documents, costs $99.99 a year. 

Apple’s iCloud Drive provides 5GB of free storage. For 99 cents a month, you can upgrade to iCloud+, which provides 50GB of storage, and you can share it with up to five family members. Whichever option you choose, protect documents in the cloud by creating strong passwords and adding two-step verification. 

Your heirs will need passwords to log in to your online accounts, so make sure they have easy access to them. You can write them down in a document to store in your binder or use a secure password-management tool. A family membership to 1Password ($4.99 a month after a two-week free trial) offers shared account access for up to five family members. With Bitwarden, you can share your account with one other person free. Or sign up for a family membership ($40 a year), which allows access for up to six people. 

How to make updates in paperwork

Batra recommends updating your documents each time you have a life change. For example, you may need to alter the beneficiaries in your will or life insurance policies if you get divorced or have grandchildren, and living trusts should be updated to reflect the purchase or sale of property included in the trust. Even if you haven’t undergone any big changes, check your documents at least once a year to make sure the information is current. 

If you entrusted your estate attorney with your documents, he or she can also help you keep them up to date, Taylor says. Ask your estate attorney to send you an annual e-mail or letter reminding you to update your information and make sure the right person is still in charge of your affairs, he says. 

Key documents to share with your family

Make sure to include the following information in a binder or digital file:

• Will or trust 
• Powers of attorney for finances and health care 
• Organ donation form 
• Living will 
• Letter of instruction for your heirs 
• Beneficiary designations 
• HIPAA release (allows health care providers to share information about you with authorized individuals) 
• Bank and financial statements 
• Real estate deeds and titles 
• Retirement-account documents 
• Life insurance policies 
• List of important personal property, such as jewelry and artwork, and estimated values
• Funeral instruction

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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When you are giving to charity, that must be the primary intent. The tax savings that go along with it should be optimized by choosing the strategy that makes the most sense for you. This article is for those who are charitably inclined and also have a desire for retirement income. Lastly, if executed properly, these methods will save some tax bucks. 

Charitable gift annuity

If you’re a Baby Boomer, it’s likely your alma mater has made you quite aware of its charitable gift annuity (CGA). Many college websites will even run an illustration to show you the tax benefits and income you’ll receive on an annual basis.

Here’s how it works:

• You make an irrevocable gift of cash or an appreciated asset to a charity. Universities are common beneficiaries, but it can be any qualified charity that has a charitable gift annuity
• You receive an immediate charitable deduction for a portion of the gift
• You receive a fixed income stream for a set period or for the rest of your life
• At the end of the period or your life, the remainder goes to or stays with the charity

Here’s where I would use this strategy:

• An appreciated asset is always a good starting point. If you bought Apple stock before you bought an iPhone or bought Nvidia stock before 2023, you may be a good candidate
• While these figures are subjective, I generally think this strategy makes sense for a single charity where the gift is between $50,000 and $250,000. If you get above $250,000, a charitable remainder trust may make more sense
• You feel strongly about the charity. Remember, this is an irrevocable gift. You cannot get the money back, and you cannot change the remainder beneficiary

Charitable remainder trust

This is a strategy we employ for clients who are generous but want to reserve the right to change who they are generous toward. As with your living trust, you will have to employ a trust and estate attorney to draft the trust. You will also have to use the services of a tax professional to file a trust tax return each year. Sound complicated? 

Here's how it works:

• You make an irrevocable gift into a charitable remainder trust (CRT)
• You receive an immediate charitable deduction for a portion of the gift
• You receive a fixed income stream (through a CRAT) or a percentage of the balance in the trust (through a CRUT) for a set term or for the rest of your life
• At your death, the remainder goes to the beneficiaries listed in the trust

Because the mechanics sound, and are, very similar, it’s important to highlight some of the reasons I would opt for the CRT route over the CGA route:

• Desire for flexibility. The gift to the trust is irrevocable, but you can change the beneficiaries of the trust
• The complexity necessitates larger gifts to make sense. You must consider the cost to draw up the trust, file an annual tax return and manage the trust assets
• There can be multiple beneficiaries
• It gives the trustee control of the investments
• A CRT allows you to avoid a potentially large capital gain

In every situation that we have recommended one of these strategies, there have been two stories. First, the story of the charity and the impact that charity had on the client or is having on the world. Second, the story of the appreciated investment that allowed the donor to make such a large gift.

This article should not serve as a recommendation to do one or both. It should simply allow you to zoom in a little closer on what may make sense for you. But before you do, make sure you have the capacity to give. In other words, can you give a large gift and still maintain your lifestyle? Your financial plan answers that question. You can build one using the free version of our planning software here. 

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This can be best showcased by the current pay gap between men and women. According to women’s advocacy group AAUW, women earn 16% less than men on average. Female employees earn 84 cents for every $1 a male counterpart earns. Considerably the most shocking statistic from the report is that a 20-year-old woman just starting full-time employment is estimated to lose $407,760 over a 40-year career compared to a man. With the odds already stacked against us, it’s imperative that we truly understand how to maximize our earnings. We cannot afford not to. 

Before determining how to optimize our earnings, it’s important to understand how we got here. Historically speaking, women weren’t allowed to take control of their finances. Women couldn’t open their own bank accounts until the 1960s, and they weren’t able to get a credit card until 1974. This lack of financial empowerment has led to financial illiteracy while contributing to the gender pay gap and other inequalities in the workforce. 

Family dynamics and strict gender roles have also contributed to the financial challenges women face. Having children, keeping the home in order or caring for loved ones can all negatively impact a woman’s career — especially if it forces her to take time away from work. A report from AARP found 61% of women are more likely to assume caregiving responsibilities compared to 39% of men. As for pay, a report from the National Women’s Law Center found full-time working mothers are typically paid 75 cents for every dollar paid to fathers. Although women have made strides to change this narrative, some of those systemic ideals still stand today.

Considering these statistics, women must make conscious efforts to reach financial security and independence. This starts with debunking some common financial myths.

I’m too young to start saving for retirement

When you’re starting your career, planning for retirement is probably one of the last things on your mind. Although it may be decades away, it’s never too early to start investing for retirement because of time and compound interest. 

Compound interest is when you earn interest on the initial principal and the interest you’ve accumulated along the way. Essentially, your interest is earning interest, so the sooner you start saving, the better. 

A great way to start saving for retirement is to open an IRA or take advantage of your employer-sponsored 401(k). If your employer matches your contributions, you’ll want to contribute that amount to maximize your savings. Consider it free money to you from your employer.

I don’t make enough money to invest

Anyone can, and should, invest their earnings. Some people choose to invest in the stock market, which can bring a high rate of return. Others may choose to invest in real estate or a high-yield savings account. Each one of these options has a level of risk associated with them. 

Meeting with a financial expert can help you find the right investments based on your financial situation and help you evaluate how much risk you’re willing to take. 

Keep your checking and savings accounts with the same bank

While it may be convenient, keeping all of your money in one bank could cause you to miss out on other opportunities. The terms vary for each bank. Some may offer higher compounding, and others could require you to keep a certain amount in the account at all times to keep it active. Do your research before opening a new savings account.

Debt is bad

Accumulating some debt can actually benefit you. Some credit cards offer cash back and other rewards programs when using them to make purchases. The key is to not let it get out of hand. If you have a credit card, be sure to pay it off in full at the end of each month to avoid paying interest. This will also allow you to build credit, which can help you in the long run. 

A good credit score can lead to better interest rates on mortgages, car loans, etc. Debt becomes bad when you can’t afford to pay it off, so don’t charge more than you can afford. 

Once you have a basic understanding of personal finance, you can begin to apply these concepts to your life. Creating a budget — and sticking to it — can help you figure out how your money is being spent and where you can cut costs. The extra funds can then be used to pay down debt or contribute to savings. 

If you have multiple loans, you might want to consider consolidating them. Making one payment instead of five can help ensure you never miss a payment, and it could even lower your interest rate. 

In addition to loan consolidation, taking advantage of autopay methods can also increase your financial discipline. This ensures your bills are paid on time because the money is automatically withdrawn from your account each cycle.

Setting goals for different phases of your life can also help you become more financially prepared. List your financial objectives and a deadline to complete them. This will empower you to save and spend with intention. 

You can also take this opportunity to financially plot out a plan for major life events such as buying a home or starting a family. 

And if you haven’t, I’d encourage you to set up emergency savings to cover unexpected costs. A general rule of thumb is to have three to six months' worth of living expenses saved. 

Personal finance can be complex and comes with unique challenges — especially for women. Talking with a financial adviser can help you navigate these challenges, allowing you to be in the driver’s seat of your finances.

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