What’s New for 2025?

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To help you stay informed, here are five changes you can look forward to in the new year.

Higher catch-up contributions for some. As of January 1, individuals ages 60 through 63 may be able to make increased catch-up contributions (if offered) to their workplace plan. The catch-up amount for people age 50 and older is $7,500 for 2025, but for people ages 60 through 63, the limit will be $11,250.1

Cap on out-of-pocket Medicare drug costs. A bit of welcome news for people with Medicare Part D prescription drug coverage — a $2,000 annual cap on out-of-pocket prescription costs takes effect on January 1.2 People with Part D will also now have the option to pay out-of-pocket costs in monthly installments over the course of the plan year instead of having to pay all at once at the pharmacy, which may help make it easier to manage prescription drug costs.

Automatic enrollment for new workplace retirement plans. Businesses that have adopted 401(k) and 403(b) plans since the passage of the SECURE 2.0 Act in December 2022 are now required to automatically enroll eligible employees at a contribution rate of 3% to 10%. After the first year, this rate will increase by 1% each year until it reaches 10% to 15%. New companies in business less than three years and employers with 10 or fewer employees are excluded, and other exceptions apply. Employees may opt out of coverage or elect a different percentage.

REAL ID deadline. The deadline for getting a REAL ID is May 7 (although the TSA has announced that enforcement may be phased in). As of that date, every air traveler who is at least 18 years old will need a REAL ID-compliant drivers license or identification card or another TSA-acceptable form of identification for domestic air travel and to enter certain federal facilities. Other TSA-acceptable documents are active passports, passport cards, or Global Entry cards. Standard drivers licenses will no longer be valid ID for TSA purposes, but enhanced drivers licenses from certain states are acceptable alternatives. Travelers who don’t have a REAL ID by the deadline could face delays at airport security checkpoints. Visit the TSA website at tsa.gov for updates and information.

New credit scoring risk model for mortgages. In late 2025, lenders are expected to begin using VantageScore 4.0 and FICO Score 10 T (instead of Classic FICO) to qualify borrowers. These new credit scoring models will provide a more precise assessment of credit risk.3 Models will consider trended credit data (an analysis of a customer’s behavior over time or historical payment and balance information) and other data not previously considered as part of the Classic FICO score, such as rent, utility, and telecom payments. This change will potentially help more applicants qualify for mortgages.

Learn more about investment products and schedule a call with Calan Jansen, Osaic Institutions Financial Advisor, today!

1–2) These are indexed annually for inflation so may rise each year.

3) Fannie Mae and Freddie Mac, 2024

This content has been reviewed by FINRA.

Prepared by Broadridge Advisor Solutions. © 2024 Broadridge Financial Services, Inc.

 

Investment and insurance products and services are offered through Osaic Institutions, Inc., Member FINRA/SIPC. F&M Financial Services is a trade name of F&M Bank. Osaic Institutions and F&M Bank are not affiliated.

Securities and Insurance Products:

Not Guaranteed by the Bank | Not FDIC Insured | Not a Deposit | Not Insured by Any Federal Government Agency | May Lose Value Including Loss of Principal

Prepared by Broadridge Advisor Solutions. © 2024 Broadridge Financial Services, Inc

What is a Brushing Scam? Why “Free Stuff” Isn’t Good News

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Imagine this: a package arrives at your doorstep that you didn’t order. It seems harmless—even exciting—but it could mean you’re the target of a “brushing” scam.

How “Brushing” Scams Work:

  1. Fake Orders: Scammers send real packages to your address, often inexpensive items like gadgets, beauty products, or household goods.
  2. Inflated Reviews: Using your name and address, scammers create fake accounts to post 5-star reviews, boosting product ratings and deceiving other shoppers.
  3. Stolen Information: Your personal data—like your name, address, or contact details—has likely been leaked or stolen.

Why It’s a Big Deal:

  • Fraudulent Reviews: Scammers use your “verified purchase” as a loophole to make their products appear more trustworthy. This unfair practice misleads consumers who rely on reviews to make informed decisions.
  • Compromised Data: Receiving an unexpected package is a sign your personal information is exposed. Scammers might have obtained your data through breaches, phishing scams, or data leaks.
  • Bigger Risks: While brushing scams often stop at packages, they can escalate. Scammers may use your data for identity theft, unauthorized accounts, or financial fraud.

What You Should Do:

  • Don’t Keep Quiet: Report the scam to the retailer (e.g., Amazon) and the Federal Trade Commission (FTC).
  • Check for Breaches: Review your accounts and credit reports for suspicious activity. You can check data breaches at IdentityTheft.gov.
  • Protect Your Identity: Consider placing a fraud alert on your credit file to prevent unauthorized activity.

Helpful Resources:

Bottom Line: If you receive a package you didn’t order, don’t ignore it. It’s not a gift—it’s a warning sign. Stay vigilant, protect your information, and report suspicious activity.

Choosing a Beneficiary for Your IRA or 401(k)

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Selecting beneficiaries for retirement benefits is different from choosing beneficiaries for other assets such as life insurance. With retirement benefits, you need to know the impact of income tax and estate tax laws in order to select the right beneficiaries. Although taxes shouldn’t be the sole determining factor in naming your beneficiaries, ignoring the impact of taxes could lead you to make an incorrect choice.

In addition, if you’re married, beneficiary designations may affect the size of minimum required distributions to you from your IRAs and retirement plans while you’re alive.

Paying income tax on most retirement distributions

Most inherited assets such as bank accounts, stocks, and real estate pass to your beneficiaries without income tax being due. However, that’s not usually the case with 401(k) plans and IRAs.

Beneficiaries pay ordinary income tax on distributions from pre-tax 401(k) accounts and traditional IRAs. With Roth IRAs and Roth 401(k) accounts, however, your beneficiaries can receive the benefits free from income tax if all of the tax requirements are met. That means you need to consider the impact of income taxes when designating beneficiaries for your 401(k) and IRA assets.

For example, if one of your children inherits $100,000 cash from you and another child receives your pre-tax 401(k) account worth $100,000, they aren’t receiving the same amount. The reason is that all distributions from the 401(k) plan will be subject to income tax at ordinary income tax rates, while the cash isn’t subject to income tax when it passes to your child upon your death.

Similarly, if one of your children inherits your taxable traditional IRA and another child receives your income-tax-free Roth IRA, the bottom line is different for each of them.

Naming or changing beneficiaries

When you open up an IRA or begin participating in a 401(k), you are given a form to complete in order to name your beneficiaries. Changes are made in the same way — you complete a new beneficiary designation form. A will or trust does not override your beneficiary designation form. However, spouses may have special rights under federal or state law.

It’s a good idea to review your beneficiary designation form at least every two to three years. Also, be sure to update your form to reflect changes in financial circumstances. Beneficiary designations are important estate planning documents. Seek legal advice as needed.

Designating primary and secondary beneficiaries

When it comes to beneficiary designation forms, you want to avoid gaps. If you don’t have a named beneficiary who survives you, your estate may end up as the beneficiary, which is not always the best result.

Your primary beneficiary is your first choice to receive retirement benefits. You can name more than one person or entity as your primary beneficiary. If your primary beneficiary doesn’t survive you or decides to decline the benefits (the tax term for this is a disclaimer), then your secondary (or “contingent”) beneficiaries receive the benefits.

Having multiple beneficiaries

You can name more than one beneficiary to share in the proceeds. You just need to specify the percentage each beneficiary will receive (the shares do not have to be equal). You should also state who will receive the proceeds should a beneficiary not survive you.

In some cases, you’ll want to designate a different beneficiary for each account or have one account divided into subaccounts (with a beneficiary for each subaccount). Keep in mind that, due to legislation passed at the end of 2019 (the SECURE Act), most non-spouse beneficiaries are required to empty their inherited retirement accounts within 10 years (previously, they could take distributions according to their life expectancies). Exceptions include minor children, those who are not more than 10 years younger than the account owner (such as a close-in-age sibling), and individuals who meet the IRS’s definition of chronically disabled. (Once a minor child reaches age 21, the 10-year rule applies.)

Avoiding gaps or naming your estate as a beneficiary

There are two ways your retirement benefits could end up in your probate estate. Probate is the court process by which assets are transferred from someone who has died to the heirs or beneficiaries entitled to those assets.

First, you might name your estate as the beneficiary. Second, if no named beneficiary survives you, your probate estate may end up as the beneficiary by default. If your probate estate is your beneficiary, several problems can arise.

If your estate receives your retirement benefits, the opportunity to maximize tax deferral by spreading out distributions may be lost. In addition, probate can mean paying attorney’s and executor’s fees and delaying the distribution of benefits.

Naming your spouse as a beneficiary

When it comes to taxes, your spouse is usually the best choice for a primary beneficiary.

A spousal beneficiary has the greatest flexibility for delaying distributions that are subject to income tax. In addition to rolling over your 401(k) or IRA to their IRA or plan, a surviving spouse can generally decide to treat your IRA or plan account as their own. These options can provide more tax and planning options.

If your spouse is more than 10 years younger than you, then naming your spouse can also reduce the size of any required taxable distributions to you from retirement assets while you’re alive. This can allow more assets to stay in the retirement account longer and delay the payment of income tax on distributions.

Although naming a surviving spouse can produce the best income tax result, that isn’t necessarily the case with estate taxes. At your death, your spouse can inherit an unlimited amount of assets and defer federal estate tax until both of you are deceased (note: special tax rules and requirements apply for a surviving spouse who is not a U.S. citizen). If your spouse’s taxable estate for federal tax purposes at his or her death exceeds the applicable exclusion amount, then federal estate tax may be due. In other words, one possible downside to naming your spouse as the primary beneficiary is that it may increase the size of your spouse’s estate for estate tax purposes, which in turn may result in an unexpected tax burden when your spouse dies.

Naming other individuals as beneficiaries

You may have some limits on choosing beneficiaries other than your spouse. No matter where you live, federal law dictates that your surviving spouse be the primary beneficiary of your 401(k) plan benefit unless your spouse signs a timely, effective written waiver. And if you live in one of the community property states, your spouse may have rights related to your IRA regardless of whether he or she is named as the primary beneficiary.

Keep in mind that a non-spouse beneficiary cannot roll over your 401(k) or IRA to their own IRA. However, a non-spouse beneficiary can directly roll over all or part of your 401(k) benefits to an inherited IRA.

Naming a trust as a beneficiary

You must follow special tax rules when naming a trust as a beneficiary, and there may be income tax complications. Seek legal advice before designating a trust as a beneficiary.

Naming a charity as a beneficiary

In general, naming a charity as the primary beneficiary will not affect required distributions to you during your lifetime. However, after your death, having a charity named with other beneficiaries on the same asset could affect the tax-deferral possibilities of the noncharitable beneficiaries, depending on how soon after your death the charity receives its share of the benefits.

 

Learn more about investment products and schedule a call with Calan Jansen, Osaic Institutions Financial Advisor, today!

Investment and insurance products and services are offered through Osaic Institutions, Inc., Member FINRA/SIPC. F&M Financial Services is a trade name of F&M Bank. Osaic Institutions and F&M Bank are not affiliated.

Securities and Insurance Products:

Not Guaranteed by the Bank | Not FDIC Insured | Not a Deposit | Not Insured by Any Federal Government Agency | May Lose Value Including Loss of Principal

Prepared by Broadridge Advisor Solutions. © 2024 Broadridge Financial Services, Inc.

Have You Had Your Fiscal Physical Yet? Why End of Year Works Just as Well for Your Financial Wellness.

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How did we get here? By “here” we mean almost at the end of the year. If it seems like this year flew by, you’re not alone. And if there are still a few things on your to-do list from January to check off, know that you’re not alone there either.

For some of us, our goals going into the year were about careers, health and wellness, travel, or maybe even purchasing a house. Others of us may have made plans to get our financial houses in order. If you still haven’t tackled that one, we’ve got good news. It’s never too late to start… so, how about right now?

Just like your annual trip to the doctor (we can pause here if you need to schedule that one too), a fiscal checkup should be on your yearly list of to-dos. Making this a habit makes it easier to track progress and identify issues before things go off the rails.

So what should be included in your annual fiscal physical?

Here are 5 areas to focus on (plus one bonus entry) to ensure you are on track. Go ahead and grab a pencil and some paper; the doctor will see you now.

Budget Beats

Oh boy, this probably feels like a biggie, and in many ways it is, but it doesn’t have to be so daunting. In fact, budgets are built to be broken down into smaller bits to allow for decisions to be made on all different levels.

Your budget is your financial plan for the year or more. Amazon.com has over 1000 books on budgeting, so if you don’t have a system set up, now is a great time to do just that. Here’s an example of how to create one that might be easy to adopt and stick with.

Assuming you have a budget in place, taking a look at where you are in that budget year-over-year is a key part of your fiscal physical.  Ask yourself these questions:

  1. In what areas was I under budget?
  2. In what areas was I over budget?
  3. Were there changes in income (up or down)?

Taking the time to answer these questions thoroughly and thoughtfully can provide incredible insights that will help you plan for next year and the years after that. If there was one more question we’d add to that list it would be, “What didn’t I budget for?” which brings us to the next part of our check-up.

Having an incorrect "estimate" of your spending is one of the most common ways a budget can be thrown off. Keep a close account of how much you've spent to make sure you're only spending money you can afford.

Review Your Emergency Fund

Your emergency fund helps take the sting out of unexpected expenses. By having money set aside for the “unknown unknowns”, we are better prepared to weather literal and proverbial storms. According to NerdWallet.com, the rule of thumb for how much should be in your emergency fund is “at least three to six months’s worth of expenses.”

Building an emergency fund can take time, with most folks choosing to set aside funds on a consistent basis over months and even years to build up their account. Be sure to bake this into your budget and hold yourself accountable. If the day comes when you need it, your future self will thank you for your diligence.

During your check-up is a great time to look to see if and how you had to use any of these funds over the course of the year and to make plans to replenish funds that were deployed.  Also, look to see if new items need to be added to your budget if it becomes apparent that these “emergency” expenses will occur more frequently.

Check Your Debt

77% of Americans have some sort of debt, so odds are you are in this category. Do you know what your debt is at this moment? Do you know your plan for repayment? These are questions you can and should ask yourself as part of your fiscal physical.

To be clear, debt isn’t bad (or good), but not having an awareness can be problematic. Taking the time to dig into your debt is time well spent.

Shift next to your plans for repayment. There are two popular strategies, “snowball” and “avalanche.”.

Debt Snowball is when you prioritize balances, paying off the smallest debts first, then moving on to the bigger ones next. This method builds motivation by settling debts faster.

Debt Avalanche is when you prioritize interest rates, paying off the highest interest rate debt first, then moving on to the next highest after that, and so on. Over time, you will pay less interest.

Whichever method you choose, having a plan in place and sticking to it is a great way to stay on top of your own money mountain.

Bonus materials: We believe this topic is an important one and we’ve written several informative articles over the years. Be sure to check out our entire library of posts, especially “9 Tips For Paying Off Your Credit Card Debt“ and “How To Get Out of Debt In The New Year.”

The Avalanche method of paying off debt will save you money in the long run, but many people like the psychological aspect of seeing debts disappearing quicker. The best method is the one you will stick with.

Retirement Readiness

Who doesn’t dream about the day they can call it a career and retire? In fact, 4.1 million Americans reach retirement age each year. Being ready for the changes that come when we walk away from the working world is incredibly important, which is why assessing your retirement readiness is a key aspect of your fiscal physical.

Do you have a 401(k) plan or other retirement account(s)? Great! Here are a few questions to ask yourself to determine if changes are necessary.

  1. How much are you contributing?
  2. Are you contributing enough to meet your goals? (Try this online calculator, or better yet, consider tapping F&M Bank’s Wealth Management resources, learn more, and schedule a meeting today.)
  3. Are you taking advantage of potential matches from your employer?
  4. Are you maxing out your contributions?
  5. If you are maxed out, should you open a traditional or Roth IRA?

Touch Up Your Taxes

We hate to be the bearers of bad news, but tax time is coming like clockwork. The end of the year is the ideal time to take a quick look at your situation and make necessary corrections before they can cause headaches.

Here’s what to look for:

  1. Are your tax withholdings correct? (Here’s a calculator courtesy of the IRS to help estimate your withholdings.)
  2. If you are self-employed or receive income that doesn’t have taxes withheld, make sure you’re making the correct quarterly estimated tax payments. This helps in two ways: you can avoid a large bill come April and the possibility of underpayment penalties.

Consider accelerating deductions at the end of the year - making an additional charitable contribution is a great way to do this while also participating in Giving Tuesday.

Bonus: Consider College Expenses

The average cost of a 4-year college education is now over $100,000, so saving and planning ahead makes a lot of sense. A savings plan such as a 529 plan can be a powerful tool to save for education expenses and is often combined with other deposit products including our Coverdell Education Savings Account and CDs.

If covering or contributing towards college costs is on your radar we encourage you to read our article on helping your student pay for college. Working with a member of our wealth management team can be a real benefit too, putting you and your loved ones in a position to succeed.

Breathing Easier

Just like seeing your doctor regularly is an investment in your health, performing an annual check-up on your finances can pay off in the long run.

At F&M Bank, we strive to be your trusted resource for financial planning and advice. Reach out to us today or visit your local branch in the Shenandoah Valley to learn how we can help keep you and your finances in top shape.

Stay Informed and On Top of Your Finances with F&M

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At F&M, we are committed to providing you with actionable information to help you manage your accounts more efficiently. Our goal is to keep you informed and ahead of important financial milestones, ensuring you never miss a beat.

Courtesy Email Reminders for Dealer Loan Payments

Understanding the importance of staying current with your loan payments, we are pleased to introduce courtesy email reminders for upcoming dealer loan payments. These reminders will be sent directly to your email inbox, providing you with a convenient way to keep track of your payment schedule.

If you do not wish to continue receiving these email reminders, simply select “If you do not wish to receive future email, click here” at the bottom of the email and you will be opted out of future communications.

 Example Email Reminder (click to enlarge):

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Text Alerts: Real-Time Updates at Your Fingertips

To enhance your banking experience, we offer convenient text alerts through our online banking platform. These alerts are designed to keep you updated on your account activity in real time, helping you stay on top of your finances. Here are some of the key features of our text alerts:

  • Balance Alerts: Receive notifications when your account balance goes above or below a specified threshold.
  • Transaction Alerts: Get instant updates on transactions made with your account.
  • Payment Reminders: Never miss a due date with timely reminders for upcoming payments.

Activating text alerts is easy. Simply log in to your online banking account, navigate to the alerts section, and customize the notifications to suit your needs.

 

We’re Here for You

Our commitment to delivering actionable information and timely reminders is part of our dedication to providing exceptional service. We believe that by keeping you informed, we can help you achieve your financial goals with greater ease and confidence.

If you have any questions or need assistance with setting up text alerts or managing your loan payments, please do not hesitate to contact our customer service team. We are here to help you every step of the way.

Thank you for being a valued F&M client.

 

What expenses are included in the annual cost of college?

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To most parents, the annual cost of college simply refers to tuition and room and board. To the federal government, however, the annual cost of college means the cost of attendance. Twice per year, the federal government calculates the cost of attendance for each college, adjusts the figure for inflation, and, if your child is applying for financial aid, uses this number to determine your child’s financial need.

Five categories of expenses are used to determine the cost of attendance at a particular college:

  • Tuition and fees: Same for all students at private colleges but can vary at public colleges, depending on whether the student is in-state or out-of-state
  • Room and board: Can vary by student, depending on the meal plan your child selects and whether he or she lives on or off campus
  • Books and supplies: Can vary by student, depending on your child’s courses and his or her requirements
  • Transportation: Can vary greatly by student, depending on where your child lives in relation to the school
  • Personal expenses: Can vary by student (e.g., health insurance, spending money, clothing)

Tuition, fees, room, and board (referred to as “direct costs”) are calculated using the college’s figures. For books, supplies, transportation, and personal expenses (referred to as “indirect costs”), the federal government sets a monetary figure even though the exact expenses incurred will depend on the individual student. Thus, depending on these variables, your child’s actual cost may be slightly higher or lower than the cost used for official purposes like financial aid determinations.

If you’re interested in obtaining the monetary amount allotted to each category for a particular college, contact that college directly.

 

 

Prepared by Broadridge Advisor Solutions. © 2024 Broadridge Financial Services, Inc. 

Investment and insurance products and services are offered through Osaic Institutions, Inc., Member FINRA/SIPC. F&M Financial Services is a trade name of F&M Bank. Osaic Institutions and F&M Bank are not affiliated.

Securities and Insurance Products:

Not Guaranteed by the Bank | Not FDIC Insured | Not a Deposit | Not Insured by Any Federal Government Agency | May Lose Value Including Loss of Principal

Can Home Improvements Lower Your Tax Bill? It Depends

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Most home improvements are not tax deductible — with one possible exception. In certain situations, you may be able to deduct improvements deemed necessary for medical reasons (not just beneficial to general health). If you itemize instead of taking the standard deduction, you can deduct unreimbursed medical expenses that exceed 7.5% of your adjusted gross income, so the tax savings could be significant if a costly home improvement pushes your total medical expenses above that threshold. Installing air conditioning to help treat asthma or modifying a home to make it wheelchair accessible are common examples of qualifying expenses.

Here are two more ways that improving your home could potentially reduce your tax burden.

Capital improvements

Projects that add to the value of your home, prolong its life, or adapt it to new uses are considered capital improvements. When you sell your home in the future, you can add the cost of capital improvements to your initial basis (what you paid for it originally), reducing your capital gain and the resulting tax bill.

Some examples of capital improvements include remodeling the kitchen, replacing all your home’s windows, adding a bathroom, or installing a new roof. Repairs that keep your home in good condition (such as repainting, replacing a broken door or window, or fixing a leak) don’t count as capital improvements. However, an entire repair job may be considered an improvement if it’s done as part of an extensive remodel or restoration.

Energy-saving tax credits

The Inflation Reduction Act of 2022 reconfigured two nonrefundable tax credits for home improvements that save energy. Unlike a deduction, which reduces your taxable income, a tax credit lowers your tax bill dollar for dollar. Both credits are available only for the installation of new products that meet specific energy efficiency requirements.

The energy efficient home improvement credit is equal to 30% of qualified expenditures for an existing home (not new construction). A $3,200 maximum annual credit is available through 2032. A $2,000 limit (30% of all costs, including labor) applies to electric or natural gas heat pumps, heat pump water heaters, and biomass stoves and boilers. A separate $1,200 limit applies to home energy audits and building envelope components (such as exterior doors, windows, skylights, and insulation) and energy property (including central air conditioners).

The residential clean energy property credit is a 30% tax credit available for qualifying expenditures for clean energy property (and related labor costs) such as solar panels, solar water heaters, geothermal heat pumps, wind turbines, fuel cells, and battery storage.

Learn more about investment products and schedule a call with Calan today!

 

 

For retirees investing in bonds, don’t assume that individual bonds and bond funds are the same type of investment. Bond funds do not offer the two key characteristics offered by bonds: (1) income from bond funds is not fixed–dividends change depending on the bonds the funds has bought and sold as well as the prevailing interest rate, and (2) a bond fund does not have an obligation to return principal to you when bonds within the fund mature. Additionally, the risk associated with bond funds varies depending on the bonds held within the fund at any given time, whereas the risk associated with individual bonds generally decreases over time as a bond nears its maturity date (assuming the issuer’s financial situation doesn’t deteriorate). Finally, fees and charges associated with bond funds reduce returns. Even so, you may still find bond funds attractive because of their convenience. Just be sure you understand the differences between bond funds and individual bonds before you invest.

This content has been reviewed by FINRA.

Prepared by Broadridge Advisor Solutions. © 2024 Broadridge Financial Services, Inc. 

Investment and insurance products and services are offered through Osaic Institutions, Inc., Member FINRA/SIPC. F&M Financial Services is a trade name of F&M Bank. Osaic Institutions and F&M Bank are not affiliated.

Securities and Insurance Products:

Not Guaranteed by the Bank | Not FDIC Insured | Not a Deposit | Not Insured by Any Federal Government Agency | May Lose Value Including Loss of Principal

Investment Planning throughout Retirement

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Investment Planning throughout Retirement

Investment planning during retirement is not the same as investing for retirement and, in many ways, is more complicated.

Your working years are your saving years. With luck, your income increases from year to year as you receive promotions and/or pay raises; those increases offer some protection against rising costs caused by inflation. While you’re working, your retirement objective generally is to grow retirement savings as much as possible, and investments that offer higher potential reward in exchange for greater potential for volatility and/or loss are often the focus for those retirement savings.

When you retire, on the other hand, spending rather than saving becomes your focus. Your sources of income may include Social Security, employer pensions, personal savings and assets, and perhaps some income from working part-time. Typically, a retiree’s objective is to derive sufficient income to maintain a chosen lifestyle and to make assets last as long as necessary.

This can be a tricky balancing act. Uncertainty abounds — you don’t know how long you’ll live or whether rates of return will meet your expectations. If your income is fixed, inflation could erode its purchasing power over time, which may cause you to invade principal to meet day-to-day expenses. Or, your retirement plan may require that you make minimum withdrawals in excess of your needs, depleting your resources and triggering taxes unnecessarily. Further, your ability to tolerate risk is lessened — you have less time to recover from losses, and you may feel less secure about your finances in general.

How, then, should you manage your investments during retirement given the above complications? The answer is different for everyone. You should tailor your plans to your own unique circumstances, and you may want to consult a financial planning professional for advice.

The following discusses two important factors you should consider: (1) withdrawing income from retirement assets, and (2) balancing safety with growth.

Choosing a sustainable withdrawal rate

A key factor that determines whether your assets will last for your entire lifetime is the rate at which you withdraw funds. The more you withdraw, the greater the likelihood you’ll exhaust your resources too soon. On the other hand, if you withdraw too little, you may have to struggle to meet expenses; also, you could end up with assets in your estate, part of which may go to the government in taxes. It is vital that you estimate an appropriate withdrawal rate for your circumstances, and determine whether you should adjust your lifestyle and/or estate plan.

Your withdrawal rate is typically expressed as a percentage of your overall assets, even though withdrawals may represent earnings, principal, or some combination of the two. For example, if you have $700,000 in assets and decide a 4 percent withdrawal rate is appropriate, the portfolio would need to earn $28,000 a year if you intend to withdraw only earnings; alternatively, you might set it up to earn $14,000 in interest and take the remaining $14,000 from the principal. An appropriate and sustainable withdrawal rate depends on many factors including the value of your current assets, your expected rate of return, your life expectancy, your risk tolerance, whether you adjust for inflation, how much your expenses are expected to be, and whether you want some assets left over for your heirs.

Fortunately, you don’t have to make a wild guess. Studies have tackled this issue, resulting in the creation of tables and calculators that can provide you with a range of rates that have some probability of success. However, you’ll probably need some expert help to ensure that this important decision is made carefully.

Withdrawing first from taxable, tax-deferred, or tax-free accounts

Many retirees have assets in various types of accounts: taxable, tax-deferred (e.g., traditional IRAs), and tax-free (e.g., Roth IRAs). Given a choice, which type of account should you withdraw from first? It depends on your specific situation.

Roth IRA earnings are generally free from federal income tax if certain conditions are met, but may not be free from state income tax.

Retirees who will not have an estate

For retirees who do not intend to leave assets to beneficiaries, the answer is simple in theory: Withdraw money from a taxable account first, then a tax-deferred account, and lastly, a tax-free account. This will provide for the greatest growth potential due to the power of compounding.

In practice, however, your choices, to some extent, may be directed by tax rules. Retirement accounts, other than Roth IRAs, have minimum withdrawal requirements. In general, you must begin withdrawing from these accounts by April 1 of the year following the year you turn age 73. Failure to do so can result in a 25 percent excise tax imposed on the amount by which the required minimum distribution exceeds the distribution you actually take. (The tax is reduced to 10% if you take the full required amount and report the tax by the end of the second year after it was due and before the IRS demands payment.)

Retirees who will have an estate

For retirees who intend to leave assets to beneficiaries, the analysis is more complicated. You need to coordinate your retirement plan with your estate plan.

If you have appreciated or rapidly appreciating assets, it may be more advantageous for you to withdraw from tax-deferred and tax-free accounts first. This is because these accounts will not receive a step-up in basis at your death, as many of your other assets will, and your heirs could face a larger than necessary tax liability.

However, this may not always be the best strategy. For example, if you intend to leave your entire estate to your spouse, it may be better to withdraw from taxable accounts first. This is because spouses are given preferential tax treatment with regard to retirement plans. As a beneficiary of a traditional IRA or retirement plan, a surviving spouse can roll over retirement plan funds to his or her own IRA or retirement plan, or, in some cases, may continue the deceased spouse’s plan as his or her own. The funds in the plan continue to grow tax deferred, and distributions need not begin until the spouse’s own required beginning date.

Retirees in this situation should consult a qualified estate planning attorney who has some expertise with regard to retirement plan assets.

Balancing safety and growth

When you retire, you generally stop receiving income from wages, a salary, or other work-related activity and start relying on your assets for income. To ensure a consistent and reliable flow of income for your lifetime, you must provide some safety for your principal. This is why retirees typically shift at least a portion of their investment portfolio to more secure income-producing investments, and this makes a great deal of sense.

Unfortunately, safety comes with a price, which is reduced growth potential and erosion of value due to inflation. Safety at the expense of growth can be a critical mistake for some retirees. On the other hand, if you invest too heavily in growth investments, your risk is heightened, and you may be forced to sell during a downturn in the market should you need more income. Retirees must find a way to strike a reasonable balance between safety and growth.

One solution may be the “two bucket” approach. To implement this, you would determine your sustainable withdrawal rate (see above), and then reallocate a portion of your portfolio to fixed income investments (e.g., certificates of deposit and bonds) that will provide you with sufficient income for a predetermined number of years. You would then reallocate the balance of your portfolio to growth investments (e.g., stocks) that you can use to replenish that income “bucket” over time.

The fixed income portion of your portfolio should be able to provide you with enough income (together with any other income you may receive, such as Social Security and required minimum distributions from retirement plans) to meet your expenses so you won’t have to liquidate investments in the growth portion of your portfolio at a time when they may be down. This can help you ride out fluctuations in the market, and sell only when you think a sale is advantageous.

Be sure that your fixed income investments will provide you with income when you’ll need it. One way to accomplish this is by laddering. For example, if you’re investing in bonds, instead of investing the entire amount in one issue that matures on a certain date, spread your investment over several issues with staggered maturity dates (e.g., one year, two years, three years). As each bond matures, reinvest the principal to maintain the pattern.

As for the growth portion of your investment portfolio, common investing principles still apply:

  • Diversify your holdings
  • Invest on a tax-deferred or tax-free basis if possible
  • Monitor your portfolio and reallocate assets when appropriate

 

Learn more about our investment products and schedule a call with Calan today!

 

For retirees investing in bonds, don’t assume that individual bonds and bond funds are the same type of investment. Bond funds do not offer the two key characteristics offered by bonds: (1) income from bond funds is not fixed–dividends change depending on the bonds the funds has bought and sold as well as the prevailing interest rate, and (2) a bond fund does not have an obligation to return principal to you when bonds within the fund mature. Additionally, the risk associated with bond funds varies depending on the bonds held within the fund at any given time, whereas the risk associated with individual bonds generally decreases over time as a bond nears its maturity date (assuming the issuer’s financial situation doesn’t deteriorate). Finally, fees and charges associated with bond funds reduce returns. Even so, you may still find bond funds attractive because of their convenience. Just be sure you understand the differences between bond funds and individual bonds before you invest.

This content has been reviewed by FINRA.

Prepared by Broadridge Advisor Solutions. © 2024 Broadridge Financial Services, Inc.

Have You Met Calan Jansen, One of Virginia’s Leading Financial Advisors?

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When it comes to managing your wealth and planning for your financial future, having an experienced and knowledgeable advisor by your side is crucial. In the state of Virginia, one name stands out among the rest – Calan Jansen. With over 20 years of wealth experience and Series 66, 63, SIE, 7, and 6 licenses, Calan has established herself as one of the top financial advisors in the region.

Calan’s Background and Expertise

Raised in Shenandoah County, Calan’s roots are deeply embedded in the local community. Her career in finance has been driven by her passion for helping individuals achieve financial security and peace of mind. Calan’s extensive experience in wealth management has equipped her with a unique set of skills and insights, enabling her to navigate the complexities of the financial world with ease.

Impressive Achievements

For the last five years, Calan Jansen has consistently ranked among the top 20 advisors nationally within Osaic Institutions Inc. This exceptional accomplishment is a testament to her dedication, expertise, and unwavering commitment to her clients’ financial success. Furthermore, Calan is also proud to hold the distinction of being the leading female advisor in the state, breaking barriers and paving the way for other women in the industry.

Extensive Wealth Experience

With over 20 years of experience in the financial industry, Calan Jansen brings a wealth of knowledge and expertise to her clients. Throughout her career, she has honed her skills in various aspects of wealth management, including investment strategies, retirement planning, and risk management. Calan’s expertise extends to a wide range of financial instruments, ensuring that her clients receive tailored advice and guidance to meet their unique financial goals.

Thoughtful Approach

What truly sets Calan apart is her thoughtful approach to each client she works with. She understands that every individual has different financial aspirations, circumstances, and risk tolerances. Calan takes the time to listen and understand her clients’ needs, goals, and concerns, allowing her to develop personalized strategies that align with their long-term objectives. Her ability to build strong relationships based on trust and open communication has earned her a loyal client base who appreciate her genuine care and dedication.

 

Calan Jansen’s impressive track record, extensive wealth experience, and thoughtful approach make her the go-to financial advisor in the state of Virginia. Her commitment to her clients’ financial success, coupled with her expertise in wealth management, sets her apart from the rest. Whether you are planning for retirement, seeking investment opportunities, or looking to protect your assets, Calan Jansen is the trusted advisor who will guide you every step of the way.

 

Learn more about our investment products and schedule a call with Calan today!

 

Investment and insurance products and services are offered through Osaic Institutions, Inc., Member FINRA/SIPC. F&M Financial Services is a trade name of F&M Bank. Osaic Institutions and F&M Bank are not affiliated.

Securities and Insurance Products:

Not Guaranteed by the Bank | Not FDIC Insured | Not a Deposit | Not Insured by Any Federal Government Agency | May Lose Value Including Loss of Principal

 

 

Should You Buy Long-Term Care Insurance?

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The longer you live, the greater the chances you’ll need some form of long-term care. If you’re concerned about protecting your assets and maintaining your financial independence in your later years, long-term care insurance (LTCI) may be for you.

Who needs it?

As we age, the odds increase that we’ll need some form of long-term care at some point during our lives. And with life expectancies increasing at a steady rate, the likelihood of needing long-term care can be expected to grow in the years to come.

But won’t the government look out for me?

Medicare pays nothing for nursing home care unless you’ve first been in the hospital for 3 consecutive days. After that, it will pay only if you enter a certified nursing home within 30 days of your discharge from the hospital. For the first 20 days, Medicare pays 100 percent of your nursing home care costs. After that, you’ll pay $204.00 in 2024 per day for your care through day 100, and Medicare will pick up the balance. Beyond day 100 in a nursing home, you’re on your own–Medicare doesn’t pay anything.

If you’re at home, Medicare provides minimal short-term coverage for intermediate care (e.g., intravenous feeding or the treatment of dressings), but only if you’re confined to your home and the treatments are ordered by a doctor. Medicare provides nothing for custodial care, such as help with feeding, bathing, or preparing meals.

Medicaid covers long-term nursing home costs (including both intermediate and custodial care costs) but only for individuals who have low income and few assets (eligibility guidelines vary from state to state). You will have to use up most of your savings before you qualify for Medicaid, and aside from a small personal needs allowance, you will have to use all of your retirement income, including Social Security and pension payments, to pay for your care before Medicaid pays anything. And once you qualify for Medicaid, you’ll have little or no choice regarding where you receive care. Only facilities with Medicaid-approved beds can accept you, and your chances of staying in your own home are slimmer, because currently most states’ Medicaid programs only cover limited home health care services.

Looking out for yourself

If you want to retain your independence, protect your assets, and maintain your standard of living while at the same time guaranteeing your access to a range of long-term care options, you may want to purchase LTCI. This insurance might be right for you if you meet the following criteria:

  • You’re between the ages of 40 and 84
  • You have significant assets that you would want to preserve as an inheritance for others or gift to charity
  • You have an income from employment or investments in addition to Social Security
  • You can afford LTCI premiums (now and in the future) without changing your lifestyle

Once you purchase an LTCI policy, your premiums can go up over time, but the rates can only rise for an entire class of policyholders in your state (i.e., all policyholders who bought a particular policy series, or who were within certain age groups when they bought the policy). Any increase must be justified and approved by your state’s insurance division.

Several factors affect the cost of your long-term care policy. The most significant factors are your age, your health, the amount of benefit, and the benefit period. The younger and healthier you are when you buy LTCI, the less your premium rate will be each year. The greater your daily benefit (choices typically range from $50 to $350) and the longer the benefit period (generally 1 to 6 years, with some policies offering a lifetime benefit), the greater the premium.

 

Connect with an Osaic Institutions Financial Advisor today!

 

Prepared by Broadridge Advisor Solutions. © 2024 Broadridge Financial Services, Inc.

Investment and insurance products and services are offered through Osaic Institutions, Inc., Member FINRA/SIPC. F&M Financial Services is a trade name of F&M Bank. Osaic Institutions and F&M Bank are not affiliated.

Securities and Insurance Products:

Not Guaranteed by the Bank | Not FDIC Insured | Not a Deposit | Not Insured by Any Federal Government Agency | May Lose Value Including Loss of Principal