Here’s what every plan sponsor should know as we head into a new year
As 2026 approaches, 401(k) plan sponsors are prioritizing three key areas: expanding financial wellness, ensuring regulatory compliance, and reducing plan costs.
Expanding Financial Wellness Programs
About 39% of sponsors are focusing on programs that help employees manage day-to-day finances and plan for the future. These programs go beyond retirement savings to include budgeting, emergency funds, debt management, and college savings, helping reduce financial stress and improve productivity. At Note Advisors, we provide this support to all plan participants by offering a one-on-one meeting with our Certified Financial Planners to address these topics outside the scope of their 401(k) plan, helping to enhance overall financial wellness.
Ensuring Regulatory Compliance
SECURE Act 2.0 introduces several changes for 2026, including Roth treatment of catch-up contributions for high earners, gradual increases in required minimum distribution ages, access for long-term part-time employees, and enhanced automatic enrollment rules. Sponsors need to update plan documents, payroll systems, and communicate clearly with participants.
Reducing Plan Costs
Around 70% of sponsors are exploring cost-saving strategies such as plan design changes, vendor evaluations, and multi-employer plan structures. Many are also using outsourcing and technology to simplify administration and manage fiduciary risk efficiently.
In 2026, sponsors aim to improve employee financial well-being, comply with new regulations, and manage costs. These priorities help ensure their retirement plans are effective, efficient, and supportive of participants’ long-term goals.
The Value of Professional Guidance
Research shows that individuals who work with a financial advisor tied to their retirement plan feel more confident in their decisions. They tend to contribute more regularly, invest in ways that better align with their goals, and report greater peace of mind. Having a trusted professional walk alongside you can turn confusion into clarity and uncertainty into action.
TJ Conway, CFP® APMA™ is a Financial Advisor and Retirement Planning Associate at Note Advisors. TJ works closely with plan sponsors and participants to support retirement plan enrollment, conduct ongoing plan reviews, and help align investment strategies with long-term financial goals. As a Certified Financial Planner® and Accredited Portfolio Management Advisor℠ (APMA®), TJ is committed to providing client-focused, high-quality financial advice. Connect with him on LinkedIn
Rethinking the question most people ask as they approach retirement.
When most people approach retirement, the big question they ask is: “How much can I safely spend each year without running out of money?”
It’s a fair question. But it’s the wrong one.
A better question is: “How do I set up a system that lets me spend confidently today, while giving me permission to adjust when—not if—markets (or life) throw me a curveball?”
That’s where retirement income guardrails come in.
What are retirement income guardrails?
Think of guardrails on the highway. They don’t dictate the exact lane you have to drive in—but they keep you from veering too far off course.
Retirement guardrails do the same thing for your spending. Instead of sticking to a rigid number year after year (say, the famous “4% rule”), guardrails allow you to take, on average, a higher withdrawal rate—so long as you make small adjustments when needed.
This flexibility is powerful because retirement isn’t a straight, predictable road. Markets go up and down, expenses change, and unexpected events happen. Guardrails help you adjust without losing your overall sense of direction.
Guardrail rules in practice
One of the best-known systems comes from Jonathan Guyton and William Klinger, who studied “dynamic withdrawal strategies.” Here’s the gist:
You start with a base withdrawal rate (say 5.4% of your starting portfolio).
You increase that withdrawal for inflation each year—unless the market gives you a reason not to.
Guardrails kick in when your withdrawal rate drifts too far from the original target.
For example:
If withdrawals climb above 6.5% of your remaining portfolio, you cut back.
If withdrawals drop below 4.3%, you give yourself a raise.
It’s not about following a strict formula—it’s about setting clear boundaries. Guardrails only work when the underlying portfolio is built and managed correctly. A portfolio that is too conservative won’t generate enough growth to recover when markets rebound. On the other hand, a portfolio that is too aggressive won’t provide a large enough “war chest” of stable assets to carry you through downturns—potentially forcing you to sell equities at the worst time.
Dynamic vs Static Withdrawals
Static Withdrawal Strategy = “Set it and forget it.” You pick a number (like 4% of your initial balance) and keep spending it, regardless of what markets do. Simple, but it can leave you with too much unspent money—or risk running out if markets turn south early.
Dynamic Withdrawal Strategy = “Adjust as you go.” You spend freely in good years and tighten up in tough ones. The tradeoff? Slightly less predictability, but much more security and flexibility.
Which one feels more like real life? (hint, hint: Dramatic)
A $2 Million Portfolio Example
Scenario 1: 4% (Pre-tax) Withdrawal Rate
That’s about $80,000 annually from a $2M portfolio.
With inflation adjustments and normal market conditions, research shows this level of spending is very sustainable. But can we achieve the same outcome (not running out of money) while spending more?
Scenario 2: 5.4% (Pre-tax) Withdrawal Rate
That’s about $108,000 annually from a $2M portfolio—$28,000 more per year than the standard 4% rule.
Can it work? Yes—with the proper portfolio structure and management
In a recession, you might cut back to $97,200 (a 4.86% withdrawal rate). Notice that’s still higher than the 4% rule based on the starting portfolio.
When markets are strong, you have the opportunity to give yourself a raise. For example, if your $2M portfolio grows to $2.5M, you could increase withdrawals to $118,800.
The real danger isn’t starting at $108k. The danger is insisting on that number no matter what happens.
The Behavioral Side: Why this Works
Retirement isn’t just math—it’s psychology.
One of the biggest fears retirees face is running out of money. Ironically, that fear often leads to underspending. Many sacrifice enjoyment in their 60s and 70s—when they’re healthy and active—just to preserve a cushion for their 90s.
Guardrails solve this problem because they give retirees permission to spend:
You know what your “lane” is.
You know you have room to go faster when markets are kind.
You know you’ll slow down when things get rocky.
That flexibility builds confidence. Instead of feeling like you’re walking a tightrope, you feel like you’re driving with a sturdy guardrail system in place.
The Bottom Line
Instead of obsessing over the “safe withdrawal rate,” focus on creating a guardrail system that works for you.
Start by figuring out your initial withdrawal rate.
Build in guardrails that trigger adjustments if spending drifts too far.
Make sure your portfolio is structured appropriately. Guardrails don’t work for every portfolio. If you’re unsure whether your portfolio is set up to support a higher dynamic withdrawal rate, please reach out to us—or your financial professional—for guidance.
Give yourself permission to enjoy the wealth you’ve worked so hard to build.
Because retirement should feel less like a tightrope walk and more like a road trip where you know the path is safe, even if you need to steer around a few potholes along the way.
Feel like you could use sturdier guardrails before you retire?
No portion of this commentary is to be construed as the provision of personalized investment, tax or legal advice. Please consult with the appropriate professionals for advice that is specific to your situation. Note Advisors, LLC can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.
At Note, we frequently encounter business owners who tell us they get approached by “wealth” managers preaching asset allocation. These managers possess little information about them, their businesses, their objectives, or the headwinds they’re facing. These managers then readily preach about the importance of diversification and the investments that owners need to make.
The thing is, most business owners aren’t thinking about asset allocation at all. Rather, they’re focused on asset concentration.
Why?
Because their life savings and sweat equity are tied up in their business. This is punctuated by the debt they’ve taken on in order to feed the engine of their business – their most concentrated investment.
While asset allocation may be wise advice from an “Investment 101” standpoint, it is not an effective conversation with most small business owners. Many I’ve spoken to over the years are quick to say, “I have nothing to invest.”
However, if I have their ear, I’m able to persuade them they have everythingto invest.
They have themselves, their tomorrows, and the investments they’ve already made. With good fortune and perseverance, those assets will give them the kind of financial capital that wealth managers very much want under their management. However, it can take a decade or two before that happens. Only then does asset allocation advice become relevant.
An effective financial advisor must be able to see you – the business owner working to build equity. They must recognize the importance of promoting asset concentration, not preaching diversification. They should fully understand your business, your objectives, and the headwinds you are facing. Only then can they be dedicated to working with you to mitigate the risks associated with business ownership. Only then can you more easily move from concentration through liquidity, and onto successful allocation.
This simple three-word phrase is one I’ve heard throughout my career, in instances that often stick in my mind. One of those relates to a couple I worked with for more than 20 years. Early on, I provided the husband with financial advice about an insurance policy, which he then purchased. Sadly, he subsequently contracted an illness that caused him to become disabled for the remainder of his life.
As I do with all clients, I attempted to get back together with the couple for an annual review of that policy, and the details of how it worked. More often than not the appointments were scheduled and cancelled as “unnecessary,” with the wife always concluding, “We’re all set.”
This year the gentleman passed away. His widow contacted me to ask if I could provide her information on his life insurance beneficiaries. When I shared the information, she was shocked. She indicated that she and her husband had modified their wills to ensure select individuals they had originally noted as beneficiaries on the policy would not receive any proceeds.
I advised her that since such a policy is a separate contract with the insurance company, changing their wills did not change the beneficiary designations. I explained that unless an insurance contract is modified, the policy is paid out according to the original terms.
At that point, the widow became upset, saying her husband would be rolling over in his grave if he knew the amount of money that would be going to certain beneficiaries. She said she understood that she and her husband had cancelled a number of appointments with me and clearly they were not as “set” as they both thought.
I advised her that I was sorry but, as difficult as it was to watch it unfold, the proceeds were being paid out exactly as they had been written. In the end, it was an expensive and painful lesson for this woman about the consequences of not being “all set.”
Medical professionals require an active relationship with their patients in order to establish and maintain a baseline of their health. Without that baseline there is no reference for how much a patient has changed, how their current health varies from “normal”, or how to ensure their ongoing wellness.
The same is true for financial professionals.
Without a baseline understanding of a client’s personal and financial situation and a game plan for the future, advising is often nothing more than business transactions that sometimes include opportunistic purposes to sell products to a client without clear objectives.
Today, professionals in every field are recognizing the risks of advising “we’re all set” clients; those who don’t proactively participate in the planning process. They are also facing increased liability costs of attempting to advise reactive individuals in today’s litigious society. Many are notifying such clients of non-compliance and pruning them from their client/patient lists. Not a great place to find yourself when you need professional help and realize you are not “all set,” not insurable, not prepared for retirement, not liquid and not protected by any kind of safety net or parachute.
The next time you’re inclined to dismiss a professional who is trying to serve you and maintain an active relationship, think twice. Agree to meet with them and keep that appointment. Maintain your baseline. Let your professional lead you through their established processes and provide you with proven solutions. Make sure that ultimately, when you say those three little words, you really are, “all set.”
In the decades I’ve spent advising individuals on their businesses and their wealth, I’ve observed that people are often concerned about having the “right answers.” It makes sense. We all want to be correct, feel affirmed, and know we’re on the path of success. However, I’ve learned that to arrive at the “right answers,” you need to ask the right questions. At Note, we believe great advisors ask great questions. The kinds of questions others might not.
Questions you never get to fully contemplate in the day-to-day demands of running your business.
Questions which, by the time you recognize they should have been asked and addressed, rob you of valued financial capital and time.
“What made you decide to start this line of work?”
“Are you still doing it for the same reasons?”
“What has to happen over the next three years for you to feel professionally fulfilled and successful?”
“When was the last time you took off a couple of weeks, or even a month, from your work?”
“If you don’t have the support in place to take a month off or more, what do you think would happen to your business if you become unable to work for an extended period of time due to illness, injury, or premature death?”
These kinds of essential business questions don’t stop there. For many business owners, there are succession concerns that can implicate partners, family, and employees.
“How do you plan on getting out of this business alive?”
“Are your children working for you? If so, do they expect to own the business someday?”
“Can you identify key employees in your company?”
“Do they know they are your key employees?”
Some business owners have shareholder involvements.
“Have you reviewed your shareholder agreement to make sure those integral to your business aren’t robbed of ownership positions, like your children?”
“How might this impact partners and co-shareholders you might have?”
“Does your shareholders agreement address liquidity needs that may occur during their lives—college education funding, unanticipated expensive medical care, helping a child with a home down payment or a grandchild with their education?”
“Can these needs create the unintended consequences of diminished business focus, or loss of a key shareholder?”
There’s also the challenge of managing relationships with varied business advisors.
“Do you have a collaborative team of advisors—an accountant, a tax expert, a lawyer, an operations pro? “How do you coordinate communication among them all?
“Do you have one core advisor facilitating such communication? Or do you find yourself spending your business time interpreting the work of each one of your advisors for everyone else?”
“How’s that working for you?”
If any of these questions hit a nerve, I want you to know that I see you and the challenges you’re facing. That’s why I’m passionate about asking great questions that grab your attention and give you pause. Questions that inspire the right answers for your family, your business, your wealth, and your legacy.
According to a recent survey, 80% of Americans say that saving for retirement is critically important. However, only 56% are actually putting money away for their golden years.
In 2006 U.S. Senators Gordon Smith and Kent Conrad introduced a resolution that was passed by Congress, creating National Retirement Security Week in the third week of October (this year October 18-24.) On September 2, 2020, the National Association of Government Defined Contribution Administrators (NAGDCA) updated its legislative priority to advocate for October to become National Retirement Security Month.
The purpose of observing National Retirement Security Week/Month is to raise awareness and help individuals take concrete steps towards a secure retirement. Over and above elevating public knowledge on the subject, there is also an effort to encourage employees to speak to a retirement plan consultant or expert and participate in an employer-sponsored retirement plan if available.
At Note Advisors, we are here to help you build and increase your retirement funds. While it can seem like an overwhelming process, here are some basic ways that you can start to secure your retirement future.
Start saving money
Statistics show that 32% of Americans did not start saving for their retirement until they were in their 30s. Another 13% waited until their 40s. The longer you wait, the greater the amount you will need to save each month, but it’s never too late. Start saving now.
Automate Your Savings
Have your contributions automatically deducted from your paycheck to guarantee that you are saving.
Boost Contributions as You Age
If you are over 50 years old, you can save an extra $6,000 per year tax deferred.
Don’t Rely on Social Security
Social Security was never meant to serve as a total retirement income replacement source It was meant to supplement pension income. Further, nearly a quarter of public sector employees are ineligible. Social Security benefits replace roughly 40% of pre-retirement income among average earners. While this is a meaningful supplement to other income sources, it’s hardly enough to maintain a comfortable lifestyle on its own.”
If You’re Young, Invest More Aggressively
Choosing a more aggressive investment strategy early will quickly grow your nest egg and also give you time to recoup if the market takes a dip.
Meet Your Company Match
If your company offers to match your contribution up to a certain percentage do it. It’s free money and that match can be tax-deductible for your employer as well. Diversify Add a tax-advantaged retirement account like a Roth IRA to your retirement portfolio, so that some of your saving grows tax free.
No Company Retirement Plan?
While 28% of Americans take full advantage of their company’s retirement saving options, 20% aren’t offered a plan by their employer, or are independent contractors. If you fall into that category, consider alternative solutions, like an Individual Retirement Account (IRA).
Speak with a retirement plan consultant or expert
Nearly 60% of Americans say they have a workable knowledge of how retirement plans operate, but 30% say they don’t have a clear vision of their own plan. If you are unsure about planning your retirement, we at GCW Capital are here to help. Contact us today and let’s work together to develop a retirement strategy that meets your needs and will fund your future.
If you are self-employed, you shouldn’t count on the payroll tax break the president has issued via executive order — at least not yet.
Payroll taxes are normally shared by employers and employees. Each covers a 6.2% tax to fund Social Security, as well as a 1.45% tax to fund Medicare.Self-employed people foot the entire bill for these levies themselves, at a cost of 15.3%, and pay for them as part of their quarterly estimated taxes
The president’s executive order would suspend the employee’s share of payroll taxes from September 1st through the end of the year. It would cover workers who make no more than $4,000 per biweekly pay period or $104,000 annually.
It is currently unclear whether this relief would apply to the self-employed, which is raising a number of tax concerns including whether employers or employees could face surprise tax consequences and compliance issues related to the executive order.
Separately, business owners, including independent contractors and freelancers, are already eligible to defer the employer’s side of the Social Security tax via the CARES Act. Under this provision, employers may choose to defer the share of tax that would have been paid from March 27 through Dec. 31. They would then pay 50% of the amount owed next year and the remainder in 2022.
With so many unanswered questions, the best course of action if you are self-employed is to continue to set aside your self-employment taxes and pay them as usual. At the very least, you should wait until further guidance is issued by the Treasury Department to decern on whether you qualify to defer this slice of the tax.
If you have questions, or need to talk about this or any other financial issues, give us a call. We’re to help
The pandemic has had a major economic impact on employers as well as individuals. According to a national survey by the Plan Sponsor Council of America, as of April more than 20 percent of large organizations had already suspended matching 401(k) contributions.
The beauty of a 401(k) is that it offers tax advantages and makes regular contributions seamless. Having a match on top of that is icing on the cake—but not having it doesn’t negate the other benefits.
When money is tight, you may have to rethink and reprioritize. You don’t want to jeopardize your future, but you also don’t want to make imprudent decisions like racking up a huge credit card bill or defaulting on other commitments in order to continue contributing.
On the other hand, if your budget still allows you to make regular contributions, you definitely should. In fact, as counter-intuitive as it may seem, now could be the time to increase your contribution to make up for the lost match.
It’s a balancing act. So, before you decide what to do, ask yourself these questions.
How Stable is Your Job?
When the company you work for, whether large or small, is looking at its balance sheet to find ways to economize, you want to be realistic about the future of that company. Are there layoffs ahead? Cutback in hours? If you think your position could be impacted, now is the time to make sure you have enough cash on hand to be able to make it financially.
Do You Have an Adequate Emergency Fund?
Today’s uncertainties have brought the importance of emergency funds front and center. The standard recommendation to have enough cash easily accessible to cover three-to-six months essential expenses may even be an understatement. If your emergency fund is less than adequate, building it up should be a primary focus.
Look at your budget. Can you redirect some dollars to this important fund? If there’s no other way to do it, you could reassess how much you’re currently contributing to your 401(k) in order to balance present financial stability with future security.
Have Your savings to Date Been Adequate?
A common employer match is 50 cents on the dollar for the first six percent of your salary. This means that if you have only been contributing up to the match, you’ve been contributing nine percent between you and your employer. That’s good, but below the 10-15 percent recommended for someone in their 20’s (an older person just beginning to save may need to contribute even more). If you’re behind in your savings already, you’ll likely have to work harder in the future to catch up.
How Close Are You to Retirement?
This is a crucial question. If you’re far from retirement, you may feel like you have plenty of time ahead to save. However, the reality is that the earlier you start saving—and the more aggressively you save—the more time you have to benefit from potential market appreciation and compound growth. Stop saving now and you will have lost the power of time. Conversely, if you’re close to retirement and still have a way to go to meet your savings goal, every dollar you save now is essential.
There’s More to Your 401k Than the Match
While getting an employer match is a definite plus—and an opportunity you never want to pass up—there’s more to it than that. Obviously stopping contributions, or temporarily reducing your percentage, would put more dollars in your pocket and potentially help ease your cash crunch. On the other hand, it’s a trade-off, not only in terms of your future security, but also your current tax situation.
If you have a traditional 401(k), your contributions are tax-deductible, which lowers your taxable income. Decrease or completely stop those contributions and you potentially increase your tax liability. You also decrease your long-term, tax-deferred earnings potential. If you have a Roth 401(k), you don’t get an immediate tax benefit, but the ability to take tax-free withdrawals in the future is huge.
It Doesn’t Have to be All or Nothing
If you need some extra money now for essential expenses or to boost your emergency fund, reducing your contribution (rather than stopping it completely) could make sense in the short term. Still it’s important to promise yourself that you will recommit to saving more as soon as things turn around.
Match or no match, when it comes to long-term retirement saving, contributing as much as you can to a 401(k) is one of the best things you can do.
This blog was excerpted from an online article by Carrie Schwab-Pomerantz, CFP®, Board Chair and President, Charles Schwab Foundation; Senior Vice President, Schwab Community Services, Charles Schwab & Co., Inc.; Board Chair, Schwab Charitable
There are many statistics about the gender pay gap worldwide. For example, in the United States, women still only earn 82 cents to a man’s dollar. It is also well acknowledged that women, on average, outlive men. So, the importance of women saving and investing to help make up for this deficit is obvious.
The thing is, according to a study conducted in the late 90s by Brad M. Barber and Terrance Odean, while women have many traits that would make them good investors, they are far less confident than men in their investing ability. In fact, data from several studies over the years show that even when women have investment accounts, they hold the majority of their money in more conservative holdings like bonds and cash.
The question becomes, how to get women not only to invest, but to invest more aggressively when appropriate. The following five tips can help.
1. Begin With an Emergency Fund
The first step to financial security is having enough cash in a savings account to cover at least three-to-six months’ worth of unexpected expenses. This fund will not only help you in case of an emergency, but can also give you the confidence to start investing and help weather a market downturn.
2. Look to retirement
Whether you’re in your 20s or your 40s, you can’t afford to wait to start saving for retirement. And even though women are known to put others’ needs first, when it comes to retirement, you have to think of yourself. Take full advantage of a company retirement plan like a 401(k). In fact, this is a great way to begin investing. Contribute at least up to the company match, more if possible. Don’t have a company plan? Consider an IRA. The point is to save as much as you can as soon as you can. Living to 90-plus is becoming more common. You need to be prepared.
3. Invest in stocks
Your first thought may be that you don’t want to take the risk. Market downturns definitely happen as we’ve recently seen, but being too cautious can also put you at a disadvantage. Stocks are an important part of any portfolio because of their long term potential for growth and higher potential returns versus other investments like cash or bonds.
As evidence, consider this statistic: a dollar kept in cash investments from from 1926 to 2019, would only be worth $22 today. That same dollar invested in small-cap stocks over those 93 year would be worth $25,688 today.1
So where to begin? Many broad-based mutual funds and exchange-traded funds make it easy to invest in a cross-section of stocks. An index fund or target-date fund can make it even easier. Using a robo advisor can also be a good way to begin. You don’t have to know a lot to start; you just need to know where to start.
4. Plan for Other Financial Goals
What are your other goals—a down payment on a home, a child’s education or a vacation? Investing a portion of your savings in stocks may help you reach those goals faster, with the caveat that money you think you’ll need in three to five years should be in less risky investments. Stock investing should ideally be long-term, understanding how much risk you can stomach, and how much risk you can afford to take.
5. Ask for Help and Advice
When you have questions, ask your benefits administrator, your broker, even a knowledgeable friend or family member—but ask. There are also lots of online investing resources to explore. Need more? Consider working with a financial advisor.
A financial advisor is sort of like a personal trainer, someone to guide you and keep you going when you might otherwise be tempted to call it quits. He or she should understand your feelings, situation, and goals. Never hesitate to ask questions, including how your advisor is paid.
No time like the present
Time is a crucial factor in investing. If you have many years ahead of you to invest—and you commit to keeping your money invested—time will likely help you weather the inevitable market ups and downs. That’s not to say you can’t start investing later in life, but keep in mind that money you’ll need in the short-term should not be in the stock market.
That said, women need to develop the knowledge base and confidence to make the most of their hard-earned savings and build financial independence through investing. It doesn’t take a lot of money; it just takes getting started. Contact Angela Hall, CFP, if you’re ready!
[1] Source: Schwab Center for Financial Research. The data points above illustrate the growth in value of $1.00 invested in various financial instruments on 12/31/1925 through 12/31/2019. Results assume reinvestment of dividends and capital gains; and no taxes or transaction costs. Source for return information: Morningstar, Inc. Based on the copyrighted works of Ibbotson and Sinquefield. All rights reserved. Used with permission. The indices representing each asset class are CRSP 6-8 Index (small-cap stocks) through 1978, Russell 2000 thereafter; and Ibbotson U.S. 30-day Treasury bills (cash investments). Past performance is no guarantee of future results.
Parts of this blog were excerpted from an online article by Carrie Schwab-Pomerantz,CFP®, Board Chair and President, Charles Schwab Foundation; Senior Vice President, Schwab Community Services, Charles Schwab & Co., Inc.; Board Chair, Schwab Charitable
Retirement. A time in life to which we all look forward. However, According to the Bureau of Labor Statistics, in 2016, 26.8% of those between the ages of 65-75 continued to work—a number that is expected to rise to 30.6% by 2026.
There are varying reasons Americans are postponing retirement, from economic stability to personal fulfillment. Whatever the reason, and however long you might plan to remain working, there are retirement-related financial concerns that should be addressed in your sixties to ease your eventual retirement transition and avoid potential snags down the road.
Wait to File for Social Security
Just because you reach “full retirement age”(FRA)doesn’t mean you have to collect Social Security benefits, especially if you’re still working. The longer you wait, the more your benefits will increase—up to age 70.
Monthly benefits increase between six and seven percent for every year you delay from age 62 to your FRA, and then grow eight percent a year between your FRA and age 70. If you are healthy and longevity runs in your family, you stand a good chance of increasing your lifetime benefit by postponing your start date.
Enroll in Medicare Part A
If you’ve already filed for Social Security, you’ll be automatically enrolled in Medicare Part A and Part B at age 65. But if you haven’t, you have a choice to make.
Most people will benefit by enrolling in Medicare Part A at age 65 whether or not they continue to work. There are no premiums, and enrolling now will help you avoid potential penalties or delays down the road.
If you’re covered by your employer’s plan and your company has 20 or more employees, that plan will remain your primary coverage. If you work for a company with fewer than 20 employees, Medicare will be your primary insurer.
*Another caveat: Once you enroll in any portion of Medicare, you can no longer c*ontribute to a Health Savings Account. So if you’re relying on your HSA to boost your savings, you’ll need to postpone Medicare.
Consider Postponing Medicare Parts B and D
If you work for a company with fewer than 20 employees, you’re probably best off enrolling in Medicare Part B and Part D when you turn 65. But if you work for a larger company, you may well be better off sticking with your employer plan and enrolling in Medicare once you retire. This link to a Medicare.gov website provides information on costs and coverage that may help you make a decision.
Once you leave your job, you will generally have eight months to enroll in Part B or face a penalty. Part D also has a late enrollment penalty if you go more than 63 days without “creditable” prescription drug coverage. Creditable means that your existing insurance is expected to pay as much as the standard Medicare prescription drug coverage.
Continue to Save for Retirement
No one should ever walk away from an employer’s 401(k) match, but it makes sense to try and save more. The good news is that as long as you are working, you can continue to contribute the legal maximum ($26,000 in 2020) to your 401(k) regardless of age. If you anticipate being in a high tax bracket come retirement, you might want to consider a Roth 401(k), if available.
You can also contribute up to $7,000 to either a traditional or Roth IRA as long as you have earned income, although in 2020 Roth IRAs are restricted to those who earn less than $206,000 (combined income for a married couple filing a joint return) or $139,000 (single).
Note that the 2019 SECURE Act extended the age limit for contributing to a traditional IRA from age 70½ to 72.
Don’t Forget About Required Minimum Distributions
The CARES Act passed in March of 2020 has temporarily suspended all required minimum distributions (RMDs) for 2020, regardless of age. This includes 401(k)s and traditional IRAs.
Starting in 2021 when the CARES Act expires, we will revert back to the RMD rules established by the 2019 SECURE Act. If you did not turn 70 ½ by 2020, you can wait until the year in which you turn 72 to start taking your required distributions.
Also note that earning a paycheck means you can delay taking a required minimum distribution (RMD) from your 401(k). As long as you are working (and you don’t own more than 5% of the company), that requirement is waived until April 1 of the year you retire. There are also no RMDs for Roth IRAs at any age.
Think About Your Mortgage
Conventional wisdom says we should pay off our mortgages before we retire, but it’s important to look at your mortgage in the context of your complete financial profile. Before you rush to pay off your mortgage, especially if that involves selling securities or will reduce your liquidity, you should consult with your financial advisor.
Plan How to Turn Your Portfolio into Your Paycheck
Switching from saving to spending and depleting what you’ve worked so hard to build can be a difficult transition. Before you stop working:
Review your net worth statement to understand exactly where your stand.
Make a retirement budget and stash away a minimum of a year’s worth of cash.
Review your portfolio to make sure you have the appropriate balance of risk and safety.
Consult with your financial advisor to create a tax-efficient drawdown strategy.
It’s great to choose to work for as long as it’s financially and personally rewarding, but planning carefully for the eventual transition to retirement can make the next phase of life even more fulfilling.
This blog was excerpted from an online article by Carrie Schwab-Pomerantz, CFP®, Board Chair and President, Charles Schwab Foundation; Senior Vice President, Schwab Community Services, Charles Schwab & Co., Inc.; Board Chair, Schwab Charitable
