2023 Q3 In Review - Integrity Wealth Advisors, Ventura & Ojai, California

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THE IMPACT OF SOUND FINANCIAL PLANNING PAY OFF STUDENT LOANS OR SAVE FOR RETIREMENT? Recent Vanguard research 1 shows that an experienced wealth management team not only adds peace of mind, but also may add about 3 percentage points of value in net portfolio returns over time. What does this mean? Your team has the ability and the time to evaluate your portfolio investments, meet with you to discuss objectives, and help get you through tough markets. All of these factored together potentially add value to your net returns (returns after taxes and fees) over time. But the most interesting part of this research is that it shows that financial planning and financial coaching contributed to the greater majority of the added net 3% in net portfolio returns. It’s important to realize how valuable making sound financial planning decisions is and that value is added by your financial planning team. As investors, our emotions can be our worst enemy, especially when the markets are volatile, and guidance from a “behavioral coach” can save us from panic-selling and abandoning long-term financial plans. Numerous studies demonstrate that advisors can have a huge impact on investor finances, but it’s hard to say if these findings have been recognized and understood by everyday investors. DREAM. PLAN. ENJOY. After a three-year pause during the pandemic, student loan payments are back. This also marks the return of a perennial question for recent (and, in this case, not-so-recent) grads: Should I pay down my student loans before I start saving for retirement? It can be tempting to postpone saving for things like an emergency fund or goals like retirement, especially if you're young and aren't making a lot of money. However, thanks to the power of compounding, setting aside even small amounts when you’re young could help you build significant savings by the time you're retired. It's not impossible to tackle student debt while also saving for retirement. Consider prioritizing these steps: 1. Make the minimum loan payments The cardinal rule for paying off student debt is: Don't miss payments. Make at least the minimum payment on every loan and ensure the amount fits your monthly budget. As you repay your loan, you're establishing credit history, and your student loan interest payments may be tax-deductible if your adjusted gross income is less than $85,000 ($175,000 for joint returns). So, there's an upside to starting payments and making them on time. 2. Maximize 401(k) contributions to at least get the match Your next priority is to consider your qualified workplace retirement plan. You'll want to contribute as much as you can afford to your 401(k)—or 403(b) if you work for a nonprofit or 457(b) if you're a government employee—up to your employer's match. Not contributing enough to receive the match (often 5% or 6%) is turning down what's effectively "free money." 3. Pay off high-interest-rate debt Debt with a high interest rate, such as that held on a credit card, can quickly pile up— especially if you carry over your balance from month to month. Start by cutting back your credit card use and put extra money toward your balance. With less debt, you'll be able to save more for retirement and other financial goals. 4. Build an emergency fund Life happens, and you should plan for the unexpected. Otherwise, you might find yourself relying on your credit card or retirement savings during a financial setback. Keep the money in a high-interest savings or money market account where it can grow and where you can easily access it should you need to make a withdrawal. 5. Put additional funds to work When you're fortunate enough to have leftover funds, use them wisely. After you've paid your debts—and yourself—consider investing the rest in the market. While investing involves risks and you could lose money in the market, you may also gain more from investment returns over the long run. The bottom line Juggling student debt can be tricky but investing in your future is worth it. College graduates can successfully manage loan repayment while saving for retirement. You don't have to choose one over the other, let us help you navigate these decisions.
HEALTH CARE COSTS IN RETIREMENT – ARE YOU PREPARED? Even if you've been saving diligently, health care costs can throw a wrench in your retirement plans. A report from the Employee Benefit Research Institute estimates a 65-year-old couple could need as much as $383,000 in savings to have a 90% chance of covering their health care expenses—including premiums, deductibles, prescriptions, and out-of-pocket costs—in retirement. Here are four strategies to consider before you reach retirement age. 1. MAKE THE MOST OF AN HSA If you're enrolled in a high-deductible health care plan (HDHP) that offers a health savings account (HSA), consider using it to sock away extra money for future medical needs. You can make tax-deductible contributions of up to $3,850 for individual coverage and $7,750 for a family in 2023—plus an additional $1,000 for those ages 55 and older. Your earnings grow tax-free, and withdrawals of contributions and earnings are tax- and penalty-free when used for qualified health care expenses, including Medicare and long-term care (LTC) insurance premiums. And once you reach age 65, withdrawals from an HSA can be used for any purpose without penalty, although ordinary income taxes will apply to funds used for nonmedical expenses. 2. ENROLL IN MEDICARE AT THE RIGHT TIME Most near-retirees know Medicare becomes available at age 65, but fewer realize there's a permanent penalty for missing the initial enrollment period (IEP). Your IEP is a seven-month span, including the three months before, the month of, and the three months following your 65th birthday. If you fail to apply during your IEP for Medicare Part B—which covers most everyday (outpatient) medical expenses—your monthly Part B premiums could go up 10% for every 12-month period, you go without coverage. There's also a 1% penalty per month for each month you delay enrolling in Part D prescription drug coverage (see "The ABCDs of Medicare"). group health care plan for hospitalization. However, once you enroll in Medicare, you can no longer contribute to an HSA, so if your plan is to stay with your group health insurance and to keep contributing to an HSA after age 65, you may want to postpone enrolling in Part A. Once you or your spouse no longer has employer-sponsored health insurance, you'll have eight months to sign up for Medicare during a special enrollment period (SEP) to avoid penalties. 3. REDUCE YOUR MODIFIED ADJUSTED GROSS INCOME Medicare premiums are also affected by your modified adjusted gross income (MAGI). Relatively higher-earning retirees may be subject to Medicare's Income-Related Monthly Adjustment Amount (IRMAA), which is a surcharge on the monthly premiums for Parts B and D if your MAGI from two years prior exceeds $97,000 ($194,000 for married couples filing jointly). The differences in premiums for Part B, in particular, can be steep, so taking steps to reduce your MAGI could lower your medical costs as well. 4. PLAN FOR LONG-TERM CARE Long-term care covers the costs of activities of daily living and can be a significant risk to your financial situation in retirement without careful planning. Long-term care insurance can seem costly but with the average annual cost of a private room in a nursing home at nearly $108,405, it may be more expensive not to have it. If you begin collecting Social Security before your 65th birthday, you'll automatically be enrolled in Part A (which covers hospital stays and is generally premium-free) and Part B. But if you plan on waiting to collect Social Security, be sure to apply for Medicare as soon as you're eligible. Be aware that Medicare coverage can be affected if you or your spouse is still working and enrolled in an employer's health care plan. For example, you may be able to delay signing up for Part B without penalty until workplace coverage ends. You could enroll for Part A while being covered by an employer plan—generally, you'll have no premium costs, and Medicare will pay secondary to your
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2023 Q3 In Review - Integrity Wealth Advisors, Ventura & Ojai, California

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