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estate taxes in new york

Strategies to Minimize Estate Taxes in New York

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Navigating the complexities of estate planning can be overwhelming, especially when it comes to tax implications. In New York, estates valued above a certain threshold are subject to estate tax, which can significantly impact your loved ones’ inheritance. This article identifies strategies to help you maximize your estate while keeping it below the tax limit.

From leveraging lifetime gifting to utilizing trusts, there are various options available to minimize your tax burden and ensure the smooth transfer of your assets to your heirs.

Understanding estate taxes in New York

Estate taxes in New York can be complex and challenging to navigate, especially for those who are unfamiliar with the intricacies of estate planning. As a resident of the Empire State, it’s crucial to have a solid understanding of how estate taxes work and how they can impact your financial goals.
The estate tax is a tax levied on the transfer of your assets upon your death. In New York, the estate tax is administered at the state level, in addition to the federal estate tax. This means that your estate may be subject to both state and federal estate taxes, depending on the value of your assets.

The current estate tax limit in New York

As of 2024, the estate tax exemption in New York is $6.94 million. This means that if the total value of your estate is less than $6.94 million, your estate will not be subject to the New York estate tax. However, if the value of your estate exceeds this threshold, your estate will be subject to a tax rate that can range from 3.06% to 16%.

It’s important to note that the estate tax exemption in New York is different from the federal estate tax exemption. The federal estate tax exemption is currently set at $13.61 million for individuals and $27.22 million for married couples. This means that if your estate is valued below the federal exemption, it will not be subject to the federal estate tax.

Understanding the difference between the state and federal estate tax exemptions is crucial in estate planning. If your estate exceeds the New York exemption but falls below the federal exemption, you may still be subject to the state estate tax, even if you are not subject to the federal estate tax.

Gifting strategies to reduce your estate

Lifetime gifting is a powerful tool in estate planning, as it allows you to transfer wealth to your loved ones while you are still alive. By taking advantage of the annual gift tax exclusion, you can reduce the overall value of your estate and potentially avoid or minimize the estate tax. Under the current tax laws, you can gift up to $18,000 per person per year (or $36,000 for married couples) without incurring any gift tax.

In addition to the annual gift tax exclusion, you can also utilize the lifetime gift tax exemption, which is currently set at $13.61 million per individual. This means that you can gift up to $13.61 million during your lifetime without incurring any gift tax. However, it’s important to note that any gifts you make will reduce the amount of your estate tax exemption at the time of your death.

Another gifting strategy to consider is the use of a 529 college savings plan. By contributing to a 529 plan, you can effectively remove those assets from your estate, while also providing a tax-advantaged way to save for your loved ones’ education. Additionally, 529 plan contributions qualify for the annual gift tax exclusion, making them a particularly attractive option for estate planning.

Creating a trust to protect your assets

Trusts can be a powerful tool in estate planning, as they allow you to transfer assets to your beneficiaries in a controlled and tax-efficient manner. There are several types of trusts that you can consider, each with its own unique advantages and considerations.

One popular option is the revocable living trust. With a revocable living trust, you can transfer ownership of your assets to the trust while you are still alive, but maintain control and access to those assets. Upon your death, the assets in the trust are distributed to your designated beneficiaries, bypassing the probate process.

Another type of trust to consider is the irrevocable trust. Unlike a revocable living trust, an irrevocable trust cannot be modified or terminated once it has been established. However, this structure can provide significant tax benefits, as the assets in the trust are no longer considered part of your estate. Irrevocable trusts can be particularly useful for protecting assets from creditors or for minimizing estate taxes.

Utilizing life insurance to cover estate taxes

Life insurance can be a valuable tool in estate planning, particularly when it comes to addressing the potential estate tax liability. By purchasing a life insurance policy, you can ensure that your loved ones have the funds necessary to pay any estate taxes that may be owed upon your death.

There are several types of life insurance policies that can be used for this purpose, including term life insurance and permanent life insurance (such as whole life or universal life). The choice of policy will depend on your specific needs and financial goals, as well as the size of your estate and the anticipated estate tax liability.

In addition to providing a source of funds to pay estate taxes, life insurance can also be used to create liquidity within your estate. This can be particularly important if your estate is primarily composed of illiquid assets, such as real estate or a closely-held business. By using life insurance to generate cash, you can ensure that your heirs have the resources they need to pay any taxes or other expenses associated with your estate.

Considerations for business owners in estate planning

If you are a business owner, your estate planning strategy will require additional considerations and nuances. Your business assets, including real estate, equipment, and intellectual property, can significantly impact the value of your estate and the potential estate tax liability.

One key consideration for business owners is the use of succession planning. By developing a clear plan for the transfer of your business to your heirs or other designated successors, you can ensure a smooth transition and minimize the potential for disputes or tax complications. This may involve the use of buy-sell agreements, family limited partnerships, or other specialized business structures.

Working with a financial planner and estate planning attorney

Navigating the complexities of estate planning and minimizing your estate tax liability in New York can be a daunting task, especially if you are unfamiliar with the intricacies of the New York estate tax system. That’s why it’s crucial to work with a qualified financial advisor and estate planning attorney who can guide you through the process and help you develop a comprehensive strategy.

Remember, estate planning is an ongoing process, and it’s essential to review and update your plan as your circumstances and the tax landscape evolve. By staying informed, seeking professional guidance, and taking a proactive approach, you can ensure that your legacy is preserved and your loved ones are protected.

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lock in longer-term rates

Why Lock in Longer-Term Rates?

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It’s good to be a saver right now. For the first time in years, investors are being paid a competitive rate to hold cash and other short term fixed rate investments. Many investors are starting to question why they should lock in longer-term rates at all with short term rates being higher. There are several reasons you may consider to lock in a lower yield on longer dated CDs, bonds and fixed income funds.

 

  • Stability and predictability: By locking in a longer-term rate, investors can have a clearer understanding of their future cash flows and interest earnings.

 

  • Preservation against rate decreases: If an investor believes that interest rates may decline in the future, locking in a longer-term rate can shield them from potential rate cuts.

 

  • Potential hedge against inflation: Longer term rates are still higher than inflation has historically been. Inflation can erode the purchasing power of money over time. By locking in a longer-term rate, investors can help preserve their capital against the negative impact of inflation on their returns, as the interest rate remains fixed over the entire term.

 

  • Pursuing long-term financial goals: Some investors may have specific long-term financial goals, such as funding retirement, education expenses, or major purchases. Locking in longer-term rates can align better with such objectives, providing a steady and predictable income stream to support these goals.

 

  • Diversification: A well-balanced investment portfolio includes a mix of short-term and long-term investments. By incorporating longer-term rates, investors can diversify their portfolio and spread risk across various maturities.

 

Ultimately, the decision to lock in longer-term rates should align with an investor’s specific financial goals, risk tolerance, and liquidity needs. Reach out if you need help figuring out where different fixed income investments fit into your own investment plan.

 

The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

 

All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. CDs are FDIC insured to specific limits and offer a fixed rate of return if held to maturity, whereas investing in securities is subject to market risk including loss of principal.​ Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

 

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inheriting an annuity

What To Do If You Inherit An Annuity

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Inheriting an annuity can be a blessing but it’s important to understand what your options are. An annuity is a financial product that provides a regular stream of income over a specified period or for the lifetime of the annuitant. If you have recently inherited an annuity, it’s important to be informed and take appropriate steps to make the most of this asset. Let’s discuss what you should do if you are in this situation.

 

  • Read the fine print: The first step is to thoroughly review the terms and conditions of the inherited annuity. Understand the type of annuity it is, such as a fixed annuity, variable annuity, or indexed annuity. Take note of the annuitant’s original investment, any guarantees, payout options, and any applicable fees or penalties. This information will help you make informed decisions going forward.

 

  • Determine Your Relationship to the Annuitant: Your relationship to the annuitant will determine the options available to you. If you are the spouse of the annuitant, you may have different choices than a non-spouse beneficiary. Spousal beneficiaries may have the option to assume the annuity contract, continue receiving payments, or transfer the annuity to their name. Non-spouse beneficiaries often have the option to receive a lump sum, payment over a certain number of years, or establish a new annuity.

 

  • Consult with Professionals: Inheriting an annuity can have tax implications and complex financial considerations. Consult with professionals such as financial advisors, tax advisors, or estate planning attorneys. They can help you navigate the intricacies of the inherited annuity, understand the tax implications, and provide guidance on the most suitable course of action based on your individual circumstances.

 

  • Consider Your Financial Goals and Needs: Consider your financial goals and needs when deciding what to do with the inherited annuity. Assess whether the annuity aligns with your long-term financial objectives. Evaluate other financial resources and assets you have and determine how the annuity fits into your overall financial plan. Consider factors such as your age, risk tolerance, and the current economic environment.

 

  • Evaluate Payout Options: Depending on the type of annuity and the options available, you may have choices regarding how you receive payments. Common options include taking a lump sum distribution, receiving regular payments over a specified period, or setting up a new annuity in your name. Carefully evaluate each option, considering factors such as your income needs, tax implications, and future financial goals.

 

  • Understand the Tax Implications: Inherited annuities may have tax consequences, so it’s important to understand the tax rules that apply. The tax treatment varies depending on various factors, including the relationship to the annuitant, the age of the annuitant at the time of their passing, and the payout option chosen. Consulting with a tax advisor can help you navigate the tax implications and minimize potential tax liabilities.

 

  • Review Beneficiary Designations: If you decide to keep the inherited annuity, review and update the beneficiary designations if necessary. Ensure that the designated beneficiaries align with your current wishes and any changes in your life circumstances. Regularly reviewing and updating beneficiary designations is essential to ensure that your assets pass according to your wishes.

 

Inheriting an annuity can be a significant financial event. Taking the time to understand your options, consult with professionals, and evaluate your financial goals will help you make informed decisions regarding the inherited annuity. By considering your unique circumstances and seeking expert advice, you can effectively manage this asset and make choices that align with your financial objectives.

 

The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. Stratos Wealth Partners and LPL Financial do not offer tax advice or services.

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Considering Exchanging Your Life Insurance for LTC Insurance?

Considering Exchanging Your Life Insurance for LTC Insurance?

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Considering Exchanging Your Life Insurance for LTC Insurance?

 

Life insurance and long-term care (LTC) insurance are two essential financial tools that can provide valuable protection and security for individuals and their families. While both types of insurance serve distinct purposes, there may be instances where individuals consider exchanging their life insurance policy for LTC insurance. Let’s explore the factors to consider when making this decision and provide valuable insights to help you make an informed choice.

 

Understanding Life Insurance and LTC Insurance

 

Life insurance is a crucial component of a comprehensive financial plan. It can provide a financial safety net for your loved ones in the event of your passing. With a life insurance policy, you can ensure that your family members are protected and have the necessary funds to cover various expenses such as funeral costs, mortgage payments, outstanding debts, and future financial needs. There are different types of life insurance policies available, including term life insurance and permanent life insurance, each with its own unique features and benefits.

 

On the other hand, LTC insurance is specifically designed to cover the costs associated with long-term care services. As people are living longer, the need for long-term care is becoming increasingly important. LTC insurance can provide financial support and protect your assets in the face of expensive long-term care expenses, such as nursing home care, assisted living facilities, and home healthcare.

 

Factors to Consider when Exchanging Life Insurance for LTC Insurance

 

When contemplating whether to exchange your life insurance policy for LTC insurance, several factors should be considered. These factors include:

 

  • Current Life Insurance Policy Evaluation: It is vital to evaluate the terms and coverage of your existing life insurance policy. Consider the death benefit, premiums, and any potential cash value accumulated. Understanding the financial implications of surrendering your life insurance policy is crucial for making an informed decision.

 

  • Health and Age Considerations: Your health and age play a significant role in determining your eligibility and premiums for LTC insurance. As you age, the cost of LTC insurance tends to increase, and certain health conditions may limit your options or result in higher premiums. It is important to assess your current health status and consider potential future care needs.

 

  • Long-Term Care Needs Assessment: Analyzing your long-term care needs is essential in determining the appropriate coverage level for LTC insurance. Factors to consider include your lifestyle, family history, and personal preferences. Consider the availability of informal care, family support, and the cost of long-term care services in your area.

 

  • Financial Considerations: Exchanging your life insurance for LTC insurance may have financial implications. It is crucial to evaluate your overall financial situation, including retirement savings, other insurance coverage, and potential alternatives to fund long-term care expenses. Seeking advice from a financial advisor can help you assess the impact on your financial goals and objectives.

 

The Benefits of LTC Insurance

 

LTC insurance offers several benefits that make it a valuable option for individuals seeking long-term care coverage:

 

  • Asset Protection: Long-term care services can be costly, and without insurance, the expenses can quickly deplete your savings and assets. LTC insurance provides coverage for various long-term care expenses, offering asset protection and helping you maintain your financial security.

 

  • Flexibility and Choice: LTC insurance provides flexibility and choice when it comes to selecting the type of care you desire. Whether you prefer nursing home care, assisted living facilities, or receiving care in the comfort of your own home, LTC insurance allows you to make choices based on your individual needs and preferences.

 

  • Relieving the Burden on Loved Ones: By having LTC insurance, you can alleviate the burden on your loved ones when it comes to your long-term care needs. It provides you with financial resources and ensures that your family members can focus on providing emotional support rather than worrying about the cost of care.

 

  • Self-Assurance: Knowing that you have a plan in place for potential long-term care needs brings confidence and self-assurance. LTC insurance offers security and reassurance, allowing you to enjoy your retirement years without the constant worry of how you will manage if you require long-term care.

 

When considering whether to exchange your life insurance policy for LTC insurance, it is crucial to thoroughly evaluate your current policy, assess your health and long-term care needs, and consider the financial implications. LTC insurance offers valuable benefits such as asset protection, flexibility, and peace of mind. By making an informed decision, you can ensure that you have the appropriate coverage to meet your long-term care needs for your financial future.

 

The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies may be suitable for you, consult the appropriate qualified professional prior to making a decision.

 

For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.

 

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Making Your Inheritance Last a Lifetime

Making Your Inheritance Last a Lifetime

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Inheriting a large sum of money can be a life-changing event, but it can also be overwhelming. Without proper planning and management, the money can quickly disappear. To make your inheritance last a lifetime and secure your financial future, consider these five strategies.

 

Create a Financial Plan

The first step in making your inheritance last a lifetime is to create a financial plan. This plan should include a budget, investment strategy, and long-term financial goals. Consider working with a financial advisor to help you create a plan that is tailored to your specific needs and goals. Your plan should also account for any taxes or fees associated with your inheritance, as well as any debts or obligations you may have. By creating a solid financial plan, you can plan for the future so that your inheritance is used wisely and that you are able to pursue your financial goals over the long term.

 

Pay Off Debts and Build an Emergency Fund

One of the first strategies for making your inheritance last could be to evaluate and pay off any outstanding debts and build an emergency fund. This may help you avoid high interest rates and fees and provide a safety net in case of unexpected expenses or emergencies. Start by creating a budget and prioritizing your debts, paying off those with the highest interest rates first. Once your debts are paid off, focus on building an emergency fund that covers at least three to six months of living expenses. This will help you avoid dipping into your inheritance for unexpected expenses.

 

Invest Wisely

Another important strategy for making your inheritance last is to invest wisely. Consider working with a financial advisor to create a diversified investment portfolio that aligns with your long-term financial goals and risk tolerance. Avoid making impulsive investment decisions and instead focus on a long-term strategy that balances risk and reward. Remember to regularly review and adjust your investments as needed to ensure they continue to align with your goals and risk tolerance.

 

Consider a Trust or Estate Planning

Consider working with an attorney on a comprehensive estate plan and possibly setting up a trust. A trust cab help protect your assets and ensure they are distributed according to your wishes. A trust can also provide tax benefits and help avoid probate court. It’s important to work with a qualified attorney to set up a trust or estate plan that meets your specific needs and goals. Keep in mind that the cost of setting up a trust or estate plan can vary depending on the complexity of your situation.

 

Live Within Your Means

One of the most important strategies for making your inheritance last a lifetime is to live within your means. This means creating a budget and sticking to it, avoiding unnecessary expenses, and saving for the future. It’s important to resist the temptation to overspend or make large purchases that may deplete your inheritance quickly. By living within your means, you can ensure that your inheritance lasts as long as possible and provides financial security for years to come.

 

The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. Stratos Wealth Partners and LPL Financial do not offer tax advice or services.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

 

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Building Wealth Through Tax Planning Strategies

Building Wealth Through Tax Planning Strategies

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You have worked hard to accumulate wealth, but if you’re not careful, taxes can eat away at your hard-earned money. That’s why tax planning strategies are an important part of your wealth management plan. Here are some tips to help you address your tax burden and keep more of your money.

  • Start with a comprehensive plan: Implementing tax planning strategies is an ongoing process, so it’s essential to have a comprehensive plan that considers your short-term and long-term financial goals. A comprehensive strategy should also consider potential changes in tax laws and regulations that could affect your tax liability.
  • Evaluate your retirement contributions: Contributing to your retirement accounts can potentially affect your taxable income. For example, you can contribute up to $22,500 to your 401(k) or 403(b) plan in 2023, and if you’re over 50, you can make an additional catch-up contribution of $7,500. Contributing to a traditional IRA or a Roth IRA is another way to potentially reduce your taxable income.
  • Consider tax-efficient investments: Some investments are more tax-efficient than others. For example, municipal bonds are tax-exempt at the federal level, and some are also exempt from state and local taxes. Tax-efficient funds that invest in stocks with low turnover can also reduce your tax liability.
  • Take advantage of tax-loss harvesting: Tax-loss harvesting involves selling investments that have lost value to offset gains in other investments. This strategy can help you lower your tax bill and potentially rebalance your portfolio.
  • Work with a tax professional: Tax planning can be complex, so it’s a good idea to work with a tax professional who can help you navigate the process. A tax professional can also help you identify opportunities to reduce your tax liability and maximize your wealth.

Incorporating tax planning into your financial plan is critical to evaluate your tax needs over time, potentially reducing your tax burden and keeping more of your hard-earned money. Remember, tax-efficient planning is an ongoing process, so it’s essential to review your plan regularly to ensure that you’re taking advantage of all available tax-saving opportunities.

 

​The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. Stratos Wealth Partners and LPL Financial do not offer tax advice or services.

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biden's student loan deft relief

What to Know About Biden’s Student Loan Debt Relief Plan

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On August 24, 2022, President Biden announced his long-awaited plan to cancel student debt for millions of borrowers. While critics will argue that this bill did not do anything to bring down the high costs associated with higher education, the debt forgiveness will provide relief to many that are scheduled to resume paying their student debt in January.

Here are a few quick takeaways of what we know so far:

Private Loans Do Not Apply- Only federal loans that were funded by June 30, 2022 will be eligible to be cancelled. This includes loans taken out for graduate school and Parent Plus Loans. Privately held student loans are generally not eligible for forgiveness.

Income Limits- Borrowers are eligible for up to $10,000 of debt to be cancelled if they made under $125,000 for single individuals and $250,000 for married couples in years 2020 or 2021. Income only needs to be below this threshold in one of these years, not necessarily both.  Up to $20,000 for Pell Grant recipients will be forgiven, with these same income thresholds. Based off other government programs, income levels will most likely be based on Adjusted Gross Income (AGI) although this has not been announced yet.

Tax Liability on Debt Forgiveness- It doesn’t look like the federal government will tax the amount that is forgiven, but some states are already talking about treating the debt forgiveness as income. New York is one of those states.

How Can You Apply for Forgiveness- If you already have income information on file with the US Department of Education you may automatically receive the forgiveness if you are eligible. For those that will need to apply, the Department of Education has stated that they will launch the application “in the coming weeks.”

If you have federal student loan debt and are waiting for more details to see how to apply for loan forgiveness sign up at the Department of Education subscription page to be notified when the process officially opens. Click here

 

 

Footnotes:

https://studentaid.gov/debt-relief-announcement/

https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/24/fact-sheet-president-biden-announces-student-loan-relief-for-borrowers-who-need-it-most/

https://www.investmentnews.com/borrowers-could-face-state-tax-bills-on-forgiven-student-loans-225848?utm_content=buffer58e02&utm_medium=social&utm_source=linkedin.com&utm_campaign=buffer

https://www.ed.gov/subscriptions

 

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Securities offered through LPL Financial, Member FINRA / SIPC. Investment advice offered through Stratos Wealth Partners, Ltd, a registered investment advisor. Stratos Wealth Partners is a separate entity from LPL Financial.

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Women Face a Unique Path to Retirement

Women Face a Unique Path to Retirement

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The truth of the matter is that women are controlling more wealth than any other time in our history. They also face unique challenges when it comes to retirement planning. The fact that, on average, women live longer than men make proper planning even more important.

In my experience working with households where women are the sole financial decision maker, women value professional advice and collaboration when it comes to retirement planning. They are confident in their ability to stick with a plan but are not overconfident in their ability to manage risk when markets act up.

Time vs Timing- They embrace the idea that the time spent invested in the market is more valuable than timing the market. Meeting with a financial planner has more in common with working with a personal trainer than going to a doctor. There are no overnight remedies but a disciplined plan over time is proven to be the most effective strategy.

Inflation is the silent killer- The primary goal of retirement planning is not to get rich. It is to save enough for retirement and have our investments outpace inflation. Holding cash feels good in times like these but holding too much over the long run erodes the purchasing power on our savings.

Social Security Can Get Complicated-  If you’ve spent an extended amount of time out of the workforce to raise a family or care for a family member, you may have a lower social security benefit than expected. This is because your Social Security benefit takes into consideration your top 35 working years. If you spent a good amount of time outside of the workforce there are going to be some zeroes averaged in when calculating your benefit. If you are divorced, you should educate yourself on any spousal and/or survivor benefits that you may be eligible for from your ex-spouse.

Confronting Long Term Care- We have all seen the statistics. Women have a longer life expectancy than men. This increases the probability of being a caretaker and also needing outside help to care for themselves. Addressing this potential cost and how it would affect your retirement plan is critical. For many, it could be the largest risk to their retirement savings.

Aligning Your Values with Your Investments- With the rise in interest for sustainable investing, there are many investment companies that can tailor a portfolio to invest in companies with a focus on environmental, social, and governance (ESG) concerns. This is great news for those that want to invest in companies that are having a positive social and environmental impact.

A Smarter Way to Be Charitable- The ability to deduct charitable contributions has become more difficult due to the SECURE Act which was legislation passed by Congress in 2019. However, there are strategies where you can bunch your contributions in a given year to increase the likelihood of being able to receive a deduction.

If you are within 10 years of retirement, now is a good time to get organized and start assembling your trusted team of professionals to help you get the most out of your retirement. If you have questions about any of the above or would like to discuss how I can help you plan, feel free to reach out for a complimentary consultation.

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Securities offered through LPL Financial, Member FINRA / SIPC. Investment advice offered through Stratos Wealth Partners, Ltd, a registered investment advisor. Stratos Wealth Partners is a separate entity from LPL Financial.

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Deconstructing your Debt-to-Income Ratio

Deconstructing your Debt-to-Income Ratio

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Your debt-to-income ratio (or DTI) measures your monthly debt payment against your monthly income (before taxes or before other deductions have been made). To calculate your DTI, add your total monthly debt payments and divide them by your total pretax monthly income. For example, if you pay $200 a month toward your car loan and another $800 toward your mortgage, your monthly debt payments are $1,000. If your pretax monthly income is $4,000, your DTI is 25% ($1,000 divided by $4,000).

 

Guidelines vary widely, but in general, a DTI of 35% or less is preferred by lenders (closer to 20% is ideal), whereas a DTI over 45% is likely to be considered problematic. Lenders use your DTI ratio to measure your ability to manage debt — so having a low DTI is very important, especially when it comes to buying a home, car or other major asset. The following are some ways to lower your DTI ratio.

 

Pay Off Debt

Surprise! While it’s easier said than done, reducing your debt can help you reduce your monthly payments, and therefore the percentage of your monthly income going toward debt. Aside from lowering your DTI, paying off your debt can also improve your credit score by reducing your credit utilization ratio, which is your total debt divided by your total available credit. A higher credit score could help improve your chances of qualifying for a mortgage or getting a favorable interest rate.

 

Increase Your Income

Increasing your income is another way to reduce your DTI. Not only will you have a higher gross income for the calculation, but you’ll also have the opportunity to put more money toward your debt, which can further reduce your DTI. A few ways you might increase your income include working toward a work promotion, working overtime or picking up a second job or side gig.

 

Lower Your Monthly Payments

By reducing your monthly debt payments, you can reduce the percentage of your income being used for debt. There are several ways to lower your monthly payments, including refinancing your loans or negotiating the interest rate on your debt. While negotiating your interest rate may be possible for credit cards, installment loans — like personal loans, auto loans or student loans — will likely require a refinance to adjust the rate.

 

Reduce Your Nonessential Spending

Look at where your money is going every month and cut back as much as you can. For example, are you paying for things like subscriptions that you no longer need? Freeing up that extra money in your monthly budget means you’ll have more available to pay off debt. And the more quickly you can pay off debt, the more quickly you can reduce your DTI.

 

Increase Your Down Payment

When lenders calculate your DTI, they consider the impact of a mortgage loan on your finances and aim to keep your DTI with your mortgage under a certain level. You can reduce your DTI when you own a home by putting down a larger down payment, which will result in lower mortgage payments each month.

 

 

 

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

Kmotion, Inc., 412 Beavercreek Road, Suite 611, Oregon City, OR 97045; www.kmotion.com

©2022 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this newsletter are those of Kmotion. The articles and opinions are for general information only and are not intended to provide specific advice or recommendations for any individual. Nothing in this publication shall be construed as providing investment counseling or directing employees to participate in any investment program in any way. Please consult your financial advisor or other appropriate professional for further assistance with regard to your individual situation.

 

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Common Retirement Investment Mistakes

Common Retirement Investment Mistakes

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Only one-in-four Americans (27%) feel very confident that they will have enough money to live comfortably when they retire, according to the 2020 Retirement Confidence Survey Summary Report.⁠1 While the number is up slightly from the 2018 survey (23%), it underscores a pervasive sense of uncertainty among those approaching retirement age.

While there is no single action that can boost the collective confidence of retirees, there are several key investment mistakes that, if avoided, can help maximize retirement savings and provide confidence to those who are entering their Golden Years.

Pitfall #1: Failing to Maximize Your Contribution
If you can afford to do so, contributing the maximum amount to your employer-sponsored retirement plan will increase the chances that you’ll reach your investment goal. The earlier you start, the better; it will allow your investments, and any potential earnings to grow on a tax-deferred basis.

Pitfall #2: Failing to Develop a Concrete Plan
Establishing clear goals that incorporate a time element (number of years until retirement) is necessary to create a relevant investment plan. Without such a plan, it is difficult to understand whether your savings will provide you with the living standard to which you’ve grown accustomed and for each year of your retirement.

Pitfall #3: Short-Term Investment Mindset
The stock market fluctuates; that’s a fact. And in the short-term they face a relatively high risk of price volatility. But in the long-term stocks have historically delivered relatively stable earnings. So selling off your holdings whenever the market takes a dip is a sure way to incur losses that impact your long-term goals.

Pitfall #4: The Quest for Perfection
Buying low and selling high is evergreen advice, but trying to time investment decisions on when the market will be at its lowest or highest is risky business, often leading to missed opportunities. As per #3 above, investing for the long-term can provide a more stable investment mindset.

Pitfall #5: Eggs All in One Basket
Some investors make the mistake of investing in just one fund or asset type, thereby subjecting it to high risk should the market impact their specific holding. Spreading your investment risk over a mix of assets can help manage potential loss during these sharp market swings. The key here is diversification to offset losses in a particular asset category.

With these pitfalls in mind, you are well-positioned to avoid the common mistakes of other investors and maximize opportunities for your retirement plan.

 

 

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Past performance is no guarantee of future results.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

This material was prepared by LPL Financial, LLC.

1 https://www.ebri.org/docs/default-source/rcs/2020-rcs/2020-rcs-summary-report.pdf?sfvrsn=84bc3d2f_7

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