Tag Archive for: retirement planning

The “Big Beautiful Bill”: What It Means for Your Finances

/in , , , , /by

The “One Big Beautiful Bill Act” (OBBBA), signed July 4, 2025, is poised to significantly impact nearly every aspect of your financial life. From your tax bill to your healthcare and your children’s future savings, understanding the nuances of this bill is crucial for effective financial planning.

Here’s a breakdown of what the OBBB means for you:

Tax Planning: More in Your Pocket, But Mind the Details

The OBBB makes permanent many of the individual income tax rates and brackets from the 2017 Tax Cuts and Jobs Act (TCJA), providing long-term clarity. But there’s more:

  • Expanded Standard Deduction: The standard deduction sees a permanent expansion, making tax filing simpler for many and potentially reducing the need to itemize.
  • Temporary Deductions (2025-2028): Get ready for some new, but temporary, tax breaks.
    • No Tax on Tips/Overtime: If you earn qualified tip income (up to $25,000) or overtime premium pay (up to $12,500 for individuals, $25,000 for joint filers), you may be able to deduct it. Keep an eye on income phase-outs.
    • Senior Tax Deduction: Individuals 65 and older meeting income thresholds ($75,000 single, $150,000 joint) can claim an additional $6,000 deduction, aiming to offset federal taxes on Social Security.
    • Auto Loan Interest Deduction: A temporary deduction of up to $10,000 for interest on loans for U.S.-assembled vehicles is available, subject to income phase-outs.
  • Increased SALT Deduction Cap: For five years, the State and Local Tax (SALT) deduction cap temporarily increases to $40,000 (from $10,000), with income-based phase-outs. This is a win for residents of high-tax states.
  • Enhanced Child Tax Credit: The Child Tax Credit permanently increases to $2,200 per child and will be indexed for inflation.
  • Business Tax Incentives: Businesses will see the reinstatement of 100% bonus depreciation and permanent Section 199A (Qualified Business Income) deduction, encouraging investment.
  • Estate and Gift Tax Relief: The unified credit and Generation-Skipping Transfer Tax (GSTT) exemption thresholds are permanently increased to $15 million per individual, offering substantial relief for high-net-worth individuals.

Your Action Plan: Review your current tax strategies with a financial advisor to maximize these new permanent and temporary provisions. Consider whether itemizing still makes sense for you.

Healthcare & Social Programs: A Shifting Landscape

The OBBB includes significant cuts to federal funding for vital social programs:

  • Medicaid Changes: Expect cuts to Medicaid funding and new work requirements for many adult beneficiaries. If you or your loved ones rely on Medicaid, be aware of potential reduced coverage or new eligibility hurdles.
  • SNAP (Food Assistance) Adjustments: The Supplemental Nutrition Assistance Program (SNAP) also faces federal funding cuts and expanded work requirements.
  • Affordable Care Act (ACA) Implications: New eligibility verification requirements are imposed for ACA marketplace coverage, and enhanced tax credits for ACA coverage are set to expire. This could lead to higher out-of-pocket premium payments for many, particularly older adults. The CBO estimates these changes could lead to a significant increase in the uninsured population.

Your Action Plan: Reassess your healthcare and benefits planning. Explore alternative options if you’re impacted by changes to Medicaid or ACA, and adjust your budget accordingly.

Retirement & Savings: New Avenues and Program Shifts

The bill introduces both opportunities and challenges for your long-term financial goals:

  • “Trump Accounts” for Children: A brand-new savings option for newborns. These “Trump Accounts” receive an initial federal contribution of $1,000, with parents able to contribute up to $5,000 annually. Classified as IRAs, gains are tax-deferred until age 18. This is a new consideration for long-term savings for your children.
  • Student Loan Program Overhaul: Federal student loan programs are undergoing significant alterations, potentially ending subsidized and income-driven repayment options. Limits are also placed on Pell Grant eligibility. Current and future students will need to adjust their education financial planning.
  • HSA and 529 Expansion: Good news for healthcare and education savings. Eligible uses for Health Savings Accounts (HSAs) and 529 education savings plans are expanded, offering more flexibility.
  • Social Security Outlook: While the bill provides some temporary tax relief for seniors, its overall impact on the national debt could accelerate the insolvency of Social Security. This is a long-term consideration for retirement planning.

Your Action Plan: Evaluate “Trump Accounts” alongside existing savings vehicles like 529 plans. If you have student loans or are planning for higher education, understand the new repayment and eligibility rules. Review how you leverage your HSA and 529 plans for maximum benefit.

Investment & Business Considerations: Adapting to Policy Shifts

The OBBB also brings changes that could influence your investment portfolio:

  • Clean Energy Tax Credits: Many clean energy tax credits from the Inflation Reduction Act are being phased out, which may impact investments in renewable energy and electric vehicles.
  • Fossil Fuel Promotion: The bill promotes increased domestic oil and gas production, which could influence investment strategies in the energy sector.

Your Action Plan: Consider how these policy shifts might affect your investment portfolio. Diversification and a long-term perspective remain key.

Overall Financial Planning Implications: A Holistic Approach

The “Big Beautiful Bill” is a game-changer. It necessitates a comprehensive review of your financial strategy.

  • Review Tax Strategies: Don’t miss out on new deductions!
  • Reassess Healthcare and Benefits Planning: Understand potential impacts on coverage and eligibility.
  • Evaluate Savings Options: Explore new opportunities like “Trump Accounts” and expanded HSA/529 uses.
  • Update Estate Plans: High-net-worth individuals should revisit their estate plans due to increased exemptions.
  • Adjust Investment Portfolios: Align your investments with the new economic realities. If you’re a client of ours, we’ve already done this for you.

The “One Big Beautiful Bill” is far-reaching. Given its complexity, consulting with a qualified financial advisor and tax professional is highly recommended to understand how these provisions specifically impact your unique financial situation and to adjust your plans accordingly. Schedule time with a Warren Street advisor today. .

Justin D. Rucci, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Sources:

https://www.whitehouse.gov/wp-content/uploads/2025/03/The-One-Big-Beautiful-Bill-Legislation-for-Historic-Prosperity-and-Deficit-Reduction-1.pdf

https://apnews.com/article/what-is-republican-trump-tax-bill-f65be44e1050431a601320197322551b

https://dart.deloitte.com/USDART/home/news/all-news/2025/jul/obbb-signed

https://www.bairdwealth.com/insights/wealth-management-perspectives/2025/10/the-one-big-beautiful-bill-act-how-it-may-impact-you

https://www.lathropgpm.com/insights/tax-update-one-big-beautiful-bill-act-signed-into-law-what-does-it-mean-for-you

https://www.loeb.com/en/insights/publications/2025/07/the-one-big-beautiful-bill-act-breaking-down-key-changes-in-the-new-tax-legislation

https://blog.zencare.co/obbba-bill-medicaid-therapy-cuts

https://www.investopedia.com/parents-and-the-big-beautiful-bill-11767091

https://www.crfb.org/blogs/obbba-would-accelerate-social-security-medicare-insolvency

https://www.americanprogress.org/article/what-trumps-anti-environment-one-big-beautiful-bill-act-means-for-your-wallet-health-and-safety

https://budgetlab.yale.edu/research/long-term-impacts-one-big-beautiful-bill-act

I’ve Got a Lump Sum in Cash, Should I Invest It Right Away?

/in , , /by

What should you do if you’ve just received a big bonus at work, inherited some money, sold a business, or come into a financial windfall? Should you invest it all at once, even if the market feels high or low, or take a gradual approach by investing in smaller increments over time?

This is a common question we hear from clients and investors alike. It’s no surprise—deciding how to invest a significant sum of money can feel overwhelming. What if you invest it now and the market drops? Or, what if you wait and the market takes off? It’s natural to worry about making the wrong choice or missing out on potential gains.

Both investing a lump sum immediately and spreading it out over time come with their pros and cons. Let’s explore some key factors to help guide your decision.

Start with Your Goals

Before making any investment decisions, consider your financial goals.

If you need the money for short-term purposes, like upcoming college tuition, the market’s volatility could be a concern. In this case, conservative options like short-term bonds, bond funds, or CDs might be better suited to protect your funds.

For long-term goals, such as retirement, investing in the stock market may be a better choice. Despite short-term fluctuations, the market has historically trended upward over time.

Compare Lump-Sum Investing vs. Dollar-Cost Averaging

Investing a lump sum means your money is fully exposed to the market immediately, allowing you to benefit from any immediate gains if the market is rising. However, since markets are unpredictable, a downturn could occur soon after you invest.

If the risk of short-term losses makes you uneasy, dollar-cost averaging (DCA)—where you invest a fixed amount at regular intervals—might be a more comfortable approach. For instance, you could invest $12,000 by putting in $1,000 monthly over a year. This way, you buy more shares when prices are low and fewer when they’re high, helping you manage the average cost over time.

Keep in mind, though, that research shows lump-sum investing outperforms DCA 68% of the time. If maximizing returns is your main goal, lump-sum investing could be the better option. However, if you’re worried about losses and potential emotional reactions, DCA may be worth the slight reduction in expected returns.

Don’t Wait to Invest

Historically, stocks and bonds outperform cash over the long term, so it’s important to start investing as soon as possible. Holding off is essentially an attempt to time the market, which is notoriously difficult. In 2023, equity fund investor returns trailed the S&P 500 by 5.5%, largely due to market timing efforts.

Both lump-sum investing and DCA help you avoid this pitfall, letting you benefit from the market’s long-term growth. The key is choosing the strategy that aligns with your risk tolerance and long-term plan.

If you’re unsure which strategy is best for you, reach out—we’d be happy to help you decide.

Justin D. Rucci, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Do I Have Enough to Sell My Business?

/in , , /by

As a business owner, you’ve spent your life’s work growing your business, taking care of employees, managing your product or service, and looking after your people. Now, you may be getting to a point where your spouse tells you you work too much. Or perhaps you’re watching the clock more than you used to, counting down the minutes until you can head home and unplug from your “boss” responsibilities.

Whatever your reasoning, if you’re starting to ask questions like, “Do I have enough to sell?” and “Will that be enough?” then it’s time to focus on you for a change.

Why Business Owners Need Specialized Financial Planning

Business owners face a unique set of financial challenges and opportunities. Whether you are a small business owner or running a large corporation, the following considerations are critical:

  • Maximizing tax efficiency
  • Choosing the most appropriate retirement account type
  • Evaluating your retirement account options
  • Managing 401(k) and pension investments
  • Considering a defined benefit plan, i.e., “pension”
  • Aligning company benefits offerings with company goals

Our team specializes in helping business owners handle these and other issues while they’re still working. During those years, we help you work through proper planning techniques to diversify your assets, reduce risk, optimize your taxes, and offer competitive benefits. All of these steps help streamline and strengthen your business at the time — but they also set you up for a successful transition into retirement or your next business opportunity.

When you do get to the point of exiting, we help you bring all of this planning together into one critical decision: whether or not you have what you need to move on from your business and into your ideal retirement, whatever that looks like for you. 

Creating a Dream Retirement

At Warren Street, we’ve helped many business owner clients over the years answer the “Do I have enough to sell?” question and develop their exit strategies accordingly. 

If you choose to work with us during your own exit process, we’ll play a key role on your professional team alongside your attorney. While your attorney looks after the legal structure of the deal, we’ll handle related asset management and tax mitigation. For example, if you’re involved in an all-cash sale with multiple payments coming in the next few years, we will discuss tax deferral opportunities to add into your transition plan. Or, if you’re struggling with a go/no-go decision, we’ll conduct scenario planning to help you make an informed choice based on your current financial situation, projected future state, and personal goals.

No matter where you are in the exit planning process, we can help evaluate your current assets, investments, estate planning, and legacy goals, so you can make a clear and confident decision on what next steps are right for you.

If this sounds like you and you’re a current Warren Street client, please mention your interest to your Lead Advisor! Or, if you’re not a client but are interested in learning how we can help, schedule a complimentary introductory call with us. We hope to hear from you and look forward to exploring how we can make your post-exit dreams a reality.

Cary Facer

Partner Emeritus, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Chevron 401(k) Changes: Unpacking Your New Funds

/in , , /by

As a retired Chevron employee and financial advisor, I’m constantly keeping my finger on the pulse of what’s happening at the company. Last month, Chevron sent a letter to employees announcing that, as of June 1, the funds in their retirement plans will be changing. 

Given these updates, I wanted to take the time to make sure my Chevron connections understand what’s happening — and what it could mean for your portfolio.

What’s changing?

The gist is this: on June 1, 2023, your Fidelity NetBenefits account will reflect new investment choices. In many cases, your money will be automatically allocated to new funds. For example, If you’re currently in a Vanguard Target Retirement Date Fund, this will map to a BlackRock LifePath® Index Fund. All in all, the 16 existing investment choices will be funneled down into just 11 choices. This applies to both the Employee Savings Investment Plan (ESIP) and Deferred Compensation Plan (DCP).  

In my opinion, the most impactful change is the consolidation of three equity funds — Vanguard 500 Index, Vanguard Large Cap Value Index, and Vanguard PRIMECAP — into just one equity fund, the “Equity Index.” This is tricky, because for many people, it made sense to hold a pure S&P 500 fund such as the Vanguard 500 Index. Pure S&P 500 funds allow you to “own” the largest 500 companies in the US, compared to the “Equity Index,” which is more of a mix. 

We are currently investigating this and the other new funds to understand exactly what they entail and how they will interact with the rest of your portfolio.

What should you do?

This fund consolidation is neither good nor bad; however, it does mean that you should talk to an advisor about the impact it will have on your portfolio. The new funds have different risk and return profiles, expense ratios, and diversification characteristics than the old funds, and they’re not necessarily a direct map. It’s critical that you confirm your new funds still support your future retirement goals. 

No matter your age or retirement goals, it’s always a good practice to review your 401(k) plan on a regular basis and make sure it still aligns with your needs. The updates to the Chevron 401(k) plans are a good reminder to take a close look at yours and make any necessary changes.

If you don’t already have an advisor or are looking for a new one, I’m also happy to speak with you (no charge) about your portfolio. I’ve been helping Chevron colleagues and clients for more than 40 years and am an expert on the company’s employee benefits package. I’m available to answer any questions you have about the upcoming changes. 

Feel free to give me a call at 714-876-6200 or book time with me if you’d like to chat. I hope to hear from you and am here to help!

Len Hanson

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Why We Believe Social Security Will Endure

/in , , , /by

In planning for retirement, one topic is often top of mind: whether or not Social Security will still be around when we retire.

As we covered in a related post, When Should You Take Your Social Security, most of us have been paying into the program our entire working life. We’re counting on receiving some of that money back in retirement. 

But then there are those headlines, warning us that the Social Security trust fund is set to run dry around 2034. 

Does this mean you should grab what you can, as soon as you’re able? Let’s explain why we agree with Social Security specialist Mary Beth Franklin, who suggests the following: 

“While there may be good reasons to file for reduced Social Security benefits early, claiming Social Security prematurely out of fear is a bit like selling stocks in a down market: All you’ve guaranteed is that you’ve locked in a loss. And if future benefit cuts did materialize, the benefits of those who claimed as soon as possible would be reduced even further.” 

— Mary Beth Franklin, InvestmentNews

Still, Social Security Will Likely Change 

While we don’t expect Social Security to go bust, we do expect it will need to change in the years ahead. As its trustees have reported:

“Social Security is not sustainable over the long term at current benefit and tax rates … [and] trust fund reserves will be depleted by 2034.”

But let’s unpack this statement. First, “depleted” does not mean the Social Security Administration is going to turn out the lights and go home. It means it could run out of trust fund reserves by then, which are used to top off the total amount spent on Social Security benefits. There are still payroll taxes and other sources to cover more than 77% of the program’s payouts. So, worst case, if we did nothing but wait for the reserves to run out, we’d be forced to make hard choices about an approximate 23% shortfall starting around 2034.  

Admittedly, Social Security is between a rock and a hard place. Nobody wants to lose benefits they’ve been counting on or spend significantly more to maintain the status quo. But if we don’t do something to shore up the program’s reserves, our options will likely only worsen. 

In this context, the political will to reform Social Security seems strong, and bipartisan. As Buckingham Strategic Partners retirement planning specialist Jeffrey Levine has observed: 

“My gut sense is that practically no politician in America would ultimately be happy having to explain to voters why they let Social Security collapse on their watch … That’s not a great message to have to bring to voters, especially older voters who show up at the polls in the greatest numbers.”

As members of Congress wrangle over the “best” (or least abhorrent) solutions for their constituents, they have been submitting proposals behind the scenes, and the Social Security Administration has been weighing in on the estimated effect for each. 

Time will tell which proposals become legislated action, but the range of possibilities essentially falls into two broad categories: We can pay more in, or we can take less out. Most likely, we’ll need to do a bit of both. 

Possible Ways to Pay More In

To name a few ways to replenish Social Security’s reserves, Congress could: 

  1. Raise the cap on wages subject to Social Security tax: As of 2023, earnings beyond $160,200 per year are not subject to Social Security tax. There’s been talk of increasing this cap, eliminating it entirely, or reinstating it for income beyond certain high-water marks.
  1. Increase the Social Security tax rate for some or all workers: Currently, employers and employees each pay in 6.2% of their wages, for a total 12.4% up to the aforementioned wage cap. (This does not include an additional Medicare tax, which is not subject to the wage cap.) As cited in a September 2022 University of Maryland School of Public Policy report, “73% (Republicans 70%, Democrats 78%) favored increasing the payroll tax from 6.2 to 6.5%.” 
  1. Increase the tax on Social Security payouts, and direct those funds back into the program: Currently, if your “combined income” exceeds $44,000 on a joint return ($34,000 on an individual return), up to 85% of your Social Security benefit is taxable, as described here. Anything is possible, but taxing retirees more heavily seems less politically palatable than some of the other options. 
  1. Identify new funding sources: For example, one recent bipartisan proposal would establish a dedicated “sovereign-wealth fund,” seeded with government loans. Presumably, it would be structured like an endowment fund, with an investment time horizon of forever. In theory, its returns could augment more conservatively invested Social Security trust fund reserves. Other proposals have explored a range of potential new taxes aimed at filling the gap. 

Options for Taking Less Out

We could also cut back on Social Security spending. Some of the possibilities here include:

  1. Reducing benefits: Payouts could be cut across the board, or current bipartisan conversations seem focused on curtailing wealthier retirees’ benefits. 
  1. Extending the full retirement age: There are proposals to extend the full retirement age for everyone, or at least for younger workers. This would effectively reduce lifetime payouts received, no matter when you start drawing benefits. 
  1. Tinkering with COLAs: There are also bipartisan conversations about replacing the benchmark used to calculate the Cost-of-Living Adjustment (COLA), which might lower these annual adjustments in some years. 

These are just a few of the possibilities. Some would impact everyone. Others are aimed at higher earners and/or more affluent Americans. It’s anybody’s guess which proposals make it through the political gamut, or what form they will take if they do. 

Should You Take Your Social Security Early? 

So, given the uncertainties of the day, should you start drawing benefits sooner than you otherwise would? An objective risk/reward analysis helps guide the way. 

Many investors feel “safer” taking their Social Security as soon as possible, to avoid losing what seems like a bird in the hand. However, the appeal of this approach is often fueled by deep-seated loss aversion. Academic insights suggest we dislike the thought of losing money about twice as much as we enjoy the prospect of receiving more of it. Thus, we tend to cringe more over a potential loss of promised benefits than we factor in the substantial rewards we stand to gain by waiting. Put another way: 

You’re not reducing your financial risks by taking Social Security early. You’re only changing which risks you’re taking. In exchange for an earlier and more assured payout, you’re also accepting a permanent, cumulative cut to your ongoing benefits. 

If this still seems like a fair trade-off, consider that Social Security is one of the few sources of retirement income ideally structured to offset three of retirement’s greatest risks: 

  1. Life expectancy risk: In an annuity-like fashion, Social Security is structured to continue paying out, no matter how long you and your spouse live. 
  2. Inflation risk: The payouts are adjusted annually to keep pace with inflation. 
  3. Market risk: Even in bear markets, Social Security keeps paying, with no drop in benefits.  

In short, if you are willing and able to wait a few extra years to receive a permanently higher payout, you can expect to better manage all three of these very real retirement risks over time. 

This is not to say everyone should wait until their Full Retirement Age or longer to start taking Social Security. When is the best time for you and your spouse to start drawing benefits? Rather than hinging the decision on uncontrollable unknowns, we recommend using your personal circumstances as your greatest guide. Consider the retirement risks that most directly apply to you and yours, and chart your course accordingly. 

But you don’t have to go it alone. Please be in touch if we can assist you with your Social Security planning, or with any other questions you may have as you prepare for your ideal retirement.

Emily Balmages, CFP®

Director of Financial Planning, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

When Should You Take Your Social Security?

/in , , , /by

Ever since President Franklin D. Roosevelt signed the 1935 Social Security Act, most Americans have pondered this critical question as they approach retirement: 

“When should I (or we) start taking my (or our) Social Security?”

And yet, the “right” answer to this common query remains as elusive as ever. It depends on a wide array of personal variables, including how the unknowable future plays out. 

No wonder many families find themselves in a quandary when it comes to taking their Social Security benefits. Let’s take a closer look at how to find the right balance for you.

Social Security Planning: A Balancing Act

For Social Security planning purposes, you reach full retirement age (FRA) between ages 66–67, depending on the year you were born. However, you can generally begin drawing Social Security benefits as early as age 62 (with the lowest available monthly starting payments) or as late as age 70 (for the highest available monthly starting payments). 

Retirees are often advised to wait at least until their full retirement age, if not until age 70 to begin taking Social Security. In raw dollars, waiting to take your Social Security often works out to be the best deal for many families. Plus, these days, many of us choose to work well into our 60s, 70s, and beyond. Some analyses have even factored in the cost of spending down other assets while you wait, rather than using them for continued investment growth. The conclusion is the same. 

However, you’re not “many families.” You’re your family. Your personal and practical circumstances may mean this general rule of thumb won’t point to your best choice. Following are some of the most common factors that may influence whether to start taking Social Security sooner or later. 

  • Alternative Income Sources: First, and perhaps most obviously, if you have few or no alternative income sources once your paychecks stop, you may not have the luxury of waiting. You may need to start taking Social Security as soon as possible. 
  • Life Expectancy: If you’re considering the benefits of waiting until age 70 to take Social Security, remember that this strategy assumes you live to at least the average age someone your age and gender is likely to reach. Even if you can afford to wait, you’ll want to factor in whether your health, lifestyle, and family history justify doing so. 
  • Estate Planning: Have you placed a high or low priority on leaving as much as possible to your heirs and/or favorite charities after you pass? Your preferences here may influence how, and from where you’ll spend down your inheritable estate, which in turn may influence the timing of your Social Security enrollment. 
  • Employment: How likely is it you’ll keep working until your FRA? Once you reach it, you can collect full Social Security benefits, even if you’re still working. But until then, your earnings may reduce your Social Security benefits.
  • Marital Status: If you’re married, one of you has probably paid in more to Social Security. One is likely to live longer. You may retire at different times, and your ages probably differ. All these factors can complicate the equation. You’ll want to consider the timing, rules, and outcomes under various scenarios—such as when and whether to take Social Security as an earner, the spouse of an earner, the widow or widower of an earner, or an ex-spouse of an earner—while also factoring in whether you and/or your spouse are still working prior to your FRAs, as described above. Ideal start dates for one scenario may not be ideal for another. 
  • Other Circumstances: Beyond your marital status, there are other factors that may influence your timing decisions if they apply to you—such as if you’re a business owner, you live abroad, you qualify for Social Security Disability, or your children qualify for Social Security benefits under your account. 
  • Income Taxes: We find many pre-retirees don’t realize that up to 85% of their Social Security income may be taxable. Your annual Social Security income also figures into your modified adjusted gross income (MAGI), which can push you past thresholds for incurring Medicare surcharges (beginning at age 65, based on your MAGI from two years prior). Bottom line, broad tax planning may influence your timing as well. 

Degrees of Control 

Clearly, there’s a lot to think about when deciding when to start taking Social Security. Whether you’re going it alone or with a financial planner, here’s one piece of advice that should help: 

Control what you can. Let go of what you can’t.

What do we mean by that? There are many known factors you can include in your Social Security planning. You know your marital status. You can access your Social Security account and/or use a calculator to estimate your benefits. You can make educated guesses about your life expectancy, how long you’ll work, and so on. Also, if you’ve delayed taking Social Security past your FRA, you may be able to change your mind … to a point. You can file to collect up to six months of retroactive benefits if you end up needing the income sooner than planned. 

You can use all of this planning information and more to make reasonable assumptions and timely decisions about when to take your Social Security. 

After that, we recommend going easy on yourself if (or more realistically, when) some of your plans don’t go as planned. Come what may, you’ve done your best. Instead of channeling energy into regretting good decisions, use it to make judicious adjustments whenever new assumptions arise. By consistently focusing on what we know rather than what we hope or fear, we remain best positioned to shift course as warranted in the face of adversity. 

Whether you’re planning to file for Social Security or you’re already drawing it, we appreciate the opportunity to help you and your family make good choices about when, and how to manage your available options. We hope you’ll contact us today to learn more.

Cary Facer

Partner Emeritus, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Chevron Employees: How to Retire in 2023

/in , /by

As a former Chevron employee and current financial advisor, I know firsthand that planning for retirement can be daunting. You might be asking yourself questions like:

  • How do I anticipate all the different factors that go into retirement?
  • How much money is enough?
  • What if I have an unexpected expense in retirement?

If you’re feeling like 2023 is your year but are afraid to take the plunge, read on. These are the top three considerations I discuss with my Chevron friends and clients when they ask me those questions.

1. Wait until at least age 55.

Every case is different, but in general, it’s best to wait until at least age 55 to retire. Every year you wait increases the likelihood you won’t run out of money. 

Talk to your advisor about scenario planning (more on that in the next point) to figure out what age makes sense for your specific situation. And remember, there are always exceptions to this advice if it’s a matter of your health or other serious issues.

2. Determine your post-retirement budget.

When you picture your life in retirement, what does it look like? Are you jet-setting the world with your spouse, or enjoying a quiet life at home with your grandkids? Working a part-time job to stay busy, or finally pursuing your hobbies and passions full-time? Upgrading to the big truck you always had your eye on, or getting every last mile out of your current ride?

These are important considerations, as they’ll impact the amount of money you’ll need in retirement. If you think you’ll have similar cash flow needs in retirement as now, that’s important to know. Or, if you anticipate boosting your spending on vacations, supporting other family members, etc., that also needs to be taken into account. Once you have determined your budget needs pre- and post-retirement, your advisor can help you put together a strategy around your paychecks, how much to save in the plan, and what number you need to hit to retire.

3. Do scenario planning.

We offer free scenario planning, called a Monte Carlo analysis, to help clients measure whether they could retire successfully. This simulation runs thousands of different scenarios based on your personal financial data. Then, it analyzes your “probability of success” in reaching the amount of money you’ll need at your desired retirement age. Best of all, this is a key tool for answering the question, “How much money do I need to retire?”

Whether it’s with Warren Street or another financial advisor, ask your advisor to help you put together a plan that accounts for these different situations, so you can set yourself up for success. As long as you have the relevant information ready to share with us — such as your current assets, expected savings, and time horizon — the analysis process takes no longer than 30 minutes. That’s a short amount of time to invest in your peace of mind!

Many Chevron employees are looking to retire this year, especially given that Chevron stock prices have generally held up. Whether you’re in the “this is my year” camp or still have another five years in you, I’d love to talk with you. Let’s put the numbers together and see what’s possible. I’m here to answer your questions and help you run the numbers, but the final decision is always yours.

Len Hanson

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Secure Act 2.0: Spending Today, Saving Tomorrow

/in , , /by

It can be hard to save for your future retirement when current expenses loom large. We advise proceeding with caution before using retirement savings for any other purposes, but SECURE 2.0 does include several new provisions to help families strike a balance. 

  • Student Loan Payments Count as Elective Deferrals (2024): If you’re paying off student debt and trying to save for retirement, your student loan payments will qualify as elective deferrals in your company plan. This means, whether you contribute to your company retirement plan or you make student loan payments, your employer can use either to make matching contributions to your retirement account. 
  • Transferring 529 Plan Assets to a Roth IRA (2024): This one is subject to a number of qualifying hurdles, but SECURE 2.0 establishes a path for families to transfer up to $35,000 of untapped 529 college saving plan assets into the beneficiary’s Roth IRA. With proper planning, this may help families “seed” their children’s or grandchildren’s retirement savings with their unspent college savings.
  • New Emergency Saving Accounts Linked to Employer Plans (2024): SECURE 2.0 has established a new employer-sponsored emergency savings account, which would be linked to your retirement plan account. Unless you are a “highly compensated employee” (as defined by the Act), you can use the account to save up to $2,500, with your contributions counting toward matching funds going into your main retirement plan account. 
  • Relaxed Emergency Plan Withdrawals (2024): SECURE 2.0 relaxes the ability to take a modest emergency withdrawal out of your retirement plan. Essentially, as long as you self-certify that you need the money, you can take up to $1,000 in a calendar year, without incurring the usual 10% penalty for early withdrawal. Once you’ve taken an emergency withdrawal, there are several hurdles before you’re eligible to take another one.
  • Additional Exceptions to the 10% Retirement Plan Withdrawal Penalty (Varied): SECURE 2.0 has established new exceptions to the 10% penalty otherwise incurred if you tap various retirement accounts too soon. For example, there are several new types of public safety workers who can access their company retirement plans penalty-free after age 50. Various exceptions are also carved out if you’re terminally ill or a domestic abuse victim, or if you use the assets to pay for long-term care insurance. The Act also has modified how retirement plan assets are to be used for Qualified Disaster Recovery Distributions. Many of the new exceptions are fairly specific, so check the fine print before you proceed. 
  • Relaxed Emergency Loans from Retirement Plans (2023): If you end up living in a Federally declared disaster area, SECURE 2.0 also increases your ability to borrow up to 100% of your vested plan balance up to $100,000, with a more generous pay-back window. 
  • Expanded Eligibility for ABLE Accounts (2026): ABLE accounts help disabled individuals save for disability expenses, while still collecting disability benefits. Before, you had to be disabled before age 26 to establish an ABLE account. That age cap increases to 46. 
  • A Tax Break for Disabled First Responders (2027): If you are a first responder collecting on a service-connected disability, at least a portion of your disability payments will remain tax-free, even once you reach full retirement age and begin taking a retirement pension. 

Next Steps

If you missed the first part of the blog series, we discussed key provisions in the newly enacted SECURE 2.0 Act of 2022, including updates that impact (1) savers/investors and (2) employers/plan sponsors. Check in next week for the last part of this blog series, where we share tax planning tips under this new Act. 

Justin D. Rucci, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Reference Materials and Additional Reading:

Perks of a California Retirement

/in , , /by

Having a comfortable retirement doesn’t necessarily mean leaving The Golden State behind.

In our California-based advising firm we often see clients who would like to move out of the state at retirement (or sooner). There are plenty of reasons to re-settle, and if your only reason is “I want to” then that is good enough for us. But the retirement of your dreams doesn’t necessarily mean you need to pack up and move. Call us biased…but we love The Golden State! 

The State Tax Problem

A major concern for Californians is taxes. Our top state tax bracket is the highest in the nation. However, a retiree’s taxable income is not often in the highest bracket. The tax rates for most middle (and even upper-middle) class taxpayers are comparable to, and sometimes lower than, those in several other states.

To illustrate: in 2021 a single California taxpayer’s taxable income between $61,215 and $375,221 will be taxed at 9.3%. Compare that to a nice midwestern state like Minnesota. Their very top tax bracket is 9.85%, but it starts at taxable income over $166,041. So if your taxable income is between $166,041 and $375,221, you will pay similar state taxes whether you are in California or Minnesota.

Let’s look at a more realistic retirement income. Taxable income in retirement for an average married couple might be around $85,000. In California, their effective state tax rate for 2021 would be about 2.40%. If the couple decided to move to Arizona (a low tax state) in retirement, their effective state tax rate would be about 1.87%. That’s a difference of just $450 per year. Uprooting and moving states to save $450 in a year may not really be worth it!

It is true that state taxes are much lower in many other states. There are even states with no state income tax. But these states offset their lack of income tax with sales tax, property taxes, and other local taxes. The bottom line is: no state is going to let you put down roots for free. While California certainly is not the most taxpayer friendly state, for a large portion of residents the higher tax brackets are not going to be a factor.

Quality of Life in California

Two major considerations for quality of life are staying physically active and staying socially engaged. We know that a sedentary, perpetually isolated lifestyle is bad for your health. The mild-to-warm weather in California means your favorite activities can usually continue year-round, keeping you moving and socializing consistently throughout your life.

California has something for everyone. Do you prefer vibrant evenings out in the city or quiet mountain escapes? Yoga on the beach? Pickleball in the suburbs? Hiking in the desert? It’s all here.

Why Warren Street Loves CA

Why else does our team love California? When asked “What are some reasons a person might want to retire in California?” here is what we had to say:

  • “Many job prospects for those who want to have a part-time retirement living.”
  • “On the tax note, Prop 13 and Prop 19 can keep CA property taxes low.”
  • “Good access to medical care and good doctors in most of CA.”  
  • “Diverse population and diverse cultures in CA.”  
  • “California is a great hub for entertainment and tourism.” 
  • “Home to multiple beaches, national parks, etc.” 
  • “CA is the largest municipal bond market by issuance.” 
  • “In-N-Out.”

Every state has something great to offer. Above all, we love to see our clients happy and living their best life – before and after retirement.

Do you want to continue your California dream after you retire? Or do you want to try somewhere new? Whatever your goals, Warren Street is here to help you make them reality.

Kirsten C. Cadden, CFP®

Associate Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

References:

https://www.thebalance.com/state-income-tax-rates-3193320

https://www.nerdwallet.com/article/taxes/california-state-tax

https://smartasset.com/taxes/california-tax-calculator

Have You Heard of the “Mega Backdoor Roth IRA”?

/in , , , /by

Chances are if you are reading this, you’re already at least somewhat familiar with a Roth IRA. While the contribution limit will vary over time, in 2019 the limit is $6,000, plus an additional $1,000 catch up contribution for individuals over the age of 50. This limit is per individual, allowing married couples to contribute up to a maximum of $12,000-$14,000 depending on their age. Direct contributions to a Roth IRA also have an income phase-out limit that you’ll need to be aware of, which starts at $122,000 for single filers and $193,000 for joint filers.

What if I told you there was a way to contribute to a Roth IRA well beyond these limits, regardless of your income level? At some employers, you can.

The typical “backdoor Roth IRA” is a strategy for individuals to contribute to a Roth IRA that are over the income phase-out limitation for a direct contribution. This can be beneficial for many people, but still caps your contributions at only $6,000 or $7,000 per year. In some cases, your 401(k) may allow the ability to contribute on an “after-tax” basis, which opens up a world of possibilities for additional Roth contributions.

Roth contributions are contributed on an after-tax basis(meaning no current tax deduction), but earnings grow tax-free as long as you meet all the withdrawal eligibility rules set by the IRS. This means you must be at least age 59 ½ and meet the IRS’ “5 year rule” at the time of withdrawal.

An “after-tax” contribution works similar to a Roth contribution, but the taxation differs slightly. A pure after-tax contribution also provides no current tax deduction, but earnings associated with the money grow only tax-deferred and are later taxable at ordinary income rates upon distribution. As you can see, Roth dollars are generally more valuable than pure after-tax dollars.

The good news is, there is a fairly easy way to convert your pure after-tax dollars into Roth dollars so that all earnings grow tax-free. Once you hit the $19,000(plus $6,000 catch up for individuals over the age of 50) annual limit for your pre-tax and/or Roth contributions into your 401(k), you will want to begin contributing on an after-tax basis.

Pure after-tax contributions are not subject to the typical annual contribution limit of $19,000 or $25,000. Instead, they are capped at an overall 401(k) contribution limit of $56,000 or $62,000. This overall limit includes all of your pre-tax, Roth, employer matching, and after-tax contributions combined. In other words, if you make $100,000 per year and are under the age of 50, your pre-tax/Roth contributions are $19,000, your employer match is $6,000, and your maximum after-tax contributions are $31,000. ($56,000 – 19,000 – 6,000 match = $31,000 of remaining after-tax contribution ability). This additional $31,000 could then be rolled into a Roth IRA, allowing for the “mega backdoor Roth” contribution. This means you can potentially get up to $37,000 per year into a Roth IRA!

There is one caveat to this however. When you convert your after-tax contributions to a Roth IRA, any earnings that are associated with the after-tax contributions that enter the Roth IRA will be taxable. If you contributed $10,000 after-tax and that money has since grown to $12,000, you will pay tax on the $2,000 should you put the full $12,000 into the Roth IRA. This can be circumvented by removing only the pure after-tax contributions(basis) and leaving account earnings in the 401(k) account to grow tax-deferred and be withdrawn at a later date. For this reason, the sooner you can get the money from the after-tax 401(k) to the Roth IRA, the sooner your money will be growing for you tax-free. Once the money is in the Roth IRA, you are open to the entire world of investing beyond what is offered in the 401(k) plan. You have the ability to have the money invested in mutual funds, ETFs, stocks, bonds, and with the oversight of professional management should you choose.

This is a great savings strategy for individuals who are looking to increase the amount of their retirement savings and want to do so in a tax-advantaged way. For individuals who have the excess cash flow and budgetary means of doing so, the “mega backdoor Roth” is a no brainer. While this strategy can be complex, once initially set up the ongoing maintenance is minimal. Warren Street Wealth Advisors is here to assist and facilitate after-tax contributions, conversions to Roth accounts, and the underlying investment management. For individuals looking to take advantage of this huge tax savings opportunity, be sure to contact us for help getting this strategy implemented for your situation. Please bear in mind this strategy is only applicable to individuals who are already maximizing their current pre-tax or Roth contributions in the 401(k).

If you have any questions on the strategy or investments and tax planning in general, be sure to reach out and contact us as we are happy to help. As with nearly everything financial planning, specific rules and details will need to be implemented on a case by case basis, so be sure to contact us with the specifics of your case.

Justin D. Rucci, CFP®

Wealth Advisor

Warren Street Wealth Advisors

 

Justin D. Rucci, CFP® is an Investment Advisor Representative, Warren Street Wealth Advisors, a Registered Investment Advisor. Investing involves the risk of loss of principal. Justin D. Rucci, CFP® is not a CPA or accountant and the information contained herein is considered for general educational purposes. Please seek a qualified tax opinion or discuss with your financial advisor as nothing in this publication is considered personal actionable advice.