Life is complex enough. With so many demands on your time and attention, finding ways to simplify things is both a goal and a never-ending struggle. To help, let me give you two ways to make your financial life just a little bit easier.

For retirees who have reached age 72 – the age where required minimum distributions or RMDs enter the scene – there’s a little known trick that will help eliminate the need for having to make administratively burdensome estimated tax payments each quarter.

Just like when taxes were withheld from your paycheck during your working years, any taxes withheld directly from your IRA distribution are considered by the IRS as if they were paid evenly throughout the year. That’s the case, even if they were withheld on the very last day of the year.

This treatment turns your IRA into a convenient tax planning tool at the end of each year. In other words, if you are able to target the right tax withholding percentage for the US Treasury and State of Michigan, you can safely forget about estimated tax payments. That means you can forget writing out eight checks, rummaging through your files for eight tax vouchers, addressing eight envelopes, licking eight stamps and stop worrying about the deadlines of April 15, June 15, September 15 and January 15.

Speaking of required minimum distributions, or RMDs, another simplification move you might consider is to finally consolidate your IRAs. I’m always surprised by the number of people who have multiple IRA accounts spread across multiple brokerage firms.

While it’s a natural instinct to not put all of your proverbial eggs in one basket, the most common reason for having too many accounts in too many places is purely administrative inertia. However, that inertia results in wasteful, extra effort and risk in the long run. If you ever fail to take out your annual RMD, there is an unbelievably onerous 50% excise tax waiting in the wings.

Beyond that worry, having too many separate IRA accounts complicates your tax preparation, too. For every additional IRA you have, there is one more Form 1099-R to remember, to gather and to report to your tax preparer. And, if you use your IRA as a charitable tool, as you should, you’ll also need to track and tally up your donations from each separate IRA. Why? Because your brokerage firms won’t automatically subtract them from your Form 1099-R. That bookkeeping duty is yours.

From my experience, each added element of complexity creates the possibility of making costly mistakes. The longer I’ve been in this business, the more I seem to embrace simplicity.

We’re now barreling into the end of 2022. After obsessing about your long list of things to buy for the upcoming holiday season, take a little bit of time to check-off entries on your financial planning to-do list! Here are some simple ones.

IRA Donations: The holidays are a natural time to think about your charitable giving. Consider donating directly from your IRA rather than from your regular checkbook. As long as you’ve reached age 70.5, this tax management tool is in your toolbox.

When you give from your IRA it won’t count as taxable income. Yes, those IRA donations will show up on your tax return as a distribution, but if done correctly they will then immediately get subtracted. Since you’ve never paid any tax on your IRA balance to begin with, your IRA donations are just like getting a tax deduction. If you’re like most people today who use the standard deduction, donations made out of your regular bank account won’t result in any tax benefits.

Additionally, if you are age 72 and subject to required minimum distributions (RMDs), it’s possible your IRA donations will help to lower the taxation of your Social Security benefit. This double tax benefit of IRA donations counting toward your RMD and possibly also reducing the taxation of your Social Security benefits could add up to some nice tax savings.

Check Beneficiaries: Given that this is a time for family, it’s an obvious moment to review all of your beneficiary designations on your retirement accounts and life insurance policies.

This is especially important if you’ve moved any of your accounts in 2022. Too often when people are filling out account paperwork, they’re simply unable to recall all of their beneficiaries’ information on the fly. To move things forward, they send in the paperwork anyway and swear they’ll later go back to fix it. Unfortunately, as we all know, later never arrives. Doing a routine beneficiary review will catch these long-overdue tasks.

Tax Gathering: Speaking of moving money around, if you transferred any accounts or insurance policies in 2022, you should immediately pull out your tax file and jot down that old account information. When tax time arrives in a few short months, you might need to reach out to that brokerage firm or insurance company to gather your 2022 tax information.

There is nothing fun about failing to include something easy on your tax return and getting a love letter from the IRS when their computers finally notice your oversight. Worse yet, this IRS notice will arrive well past your ability to remember any details. Avoid the stress now and make a log of your closed account information.  

One of my favorite lines came from the movie, A League of Their Own. In the film, Tom Hanks plays the role of a reluctant manager of a women’s baseball team during WWII. In a totally sexist scene, one of his players expressed emotional vulnerability on the field. Dumbfounded, Hanks popped out of the dugout declaring that “There’s no crying in baseball! There’s no crying in baseball!” 

Having worked with retirees for over two decades now, I feel similarly about retirement. While I’m hopefully more empathetic in my delivery, there really is no failure in retirement, either. It’s just not how it works in reality. 

Over the years, financial planners have been given some pretty good retirement modeling software to help clients map out their future. While the mathematical basis of a client’s future income and investment returns has been pretty solid, the modeling of how they actually spend money in retirement has always left something to be desired. 

For anyone who has ever had the pleasure of reviewing a typical retirement model produced by financial planning software, the language of “success” and “failure” has likely struck you as both alarming and silly. When most retirees face particularly difficult future scenarios, such as a deep bear market or an unfortunate stretch of lower-than-expected investment returns, they don’t just blindly spend themselves off a cliff. They actually talk, think, prioritize and adjust. 

Worse yet, the sophisticated modeling of thousands of future outcomes of your retirement years, known as a Monte Carlo simulation, often shows an absurdly wide variation of possible outcomes. These outcomes range from you running out of money to watching your portfolio grow into the stratosphere! At both extremes, you are assumed to spend more and more each year in retirement, as if you are an unthinking robot. 

Then, in an unhelpful summary, the final report shows that your retirement dreams have a 75% chance of “success” along with a heart-stopping 25% chance of “failure.” Ready to hang it up, and with the odds seemingly in your favor, you cross your fingers and decide to retire.

Of course, it’s a known fact that real retirees aren’t robots at all. I’m pretty sure I haven’t met one! In reality, the description of success and failure in retirement is more accurately about accepting the possibility of needing to make some spending adjustments as your future actually unfolds. 

So, rather than modeling the impossibility of blindly driving off the cliff, the more helpful plan is to establish and monitor portfolio-level guardrails and then use them to proactively nudge things safely back on the road to the goal. Based on my experience working with living, breathing human beings, that’s exactly how retirement looks in the real world. 

Social Security is set to give out the biggest hike in benefit payments since 1981 and it’s going to be even larger than last year’s 5.9% raise. Drumroll please. Starting in January, benefits will rise a whopping 8.7%.

Hands down, inflation has been the financial focus of the past year. It has impacted both stocks and bonds in a severe way. With bonds failing to provide stability for investment portfolios, it’s not uncommon for conservative investors to see their portfolio down about 20% for the year. It’s been ugly and any good news is welcome.

Thankfully, for retirees, there is a silver lining. Since 1975, Social Security has been automatically and annually adjusting benefit payments to offset inflation’s bite. Not surprisingly, this policy was put in place at a time of high inflation. Clearly the political pressure of giving discretionary raises to voters (I mean, retirees!) was too much to bear. The solution? Automatic adjustments, by law.

The 8.7% inflation hike in Social Security benefits translates into a raise of $160 per month for the average beneficiary. Adding to the good news, for the first time since 2012, the monthly Medicare Part B premium that is deducted from Social Security checks will decrease by about $5 per month. Bottom line, there’s soon going to be more money in the pockets of retirees.

A common question for those not yet collecting Social Security is whether they, too, will benefit from this 8.7% inflation adjustment. It depends.

If you are over the age of 62, the answer is, yes. This is true for those who are receiving benefits and for those who are eligible, but choosing to delay their filing in return for a higher benefit later on. For this group, the annual inflation adjustment is built directly into their benefit formula.

If you have not yet reached age 62, things are more complicated. For this group, your benefits are based on your earnings history. After ranking the best 35 years of your earnings, Social Security does adjust each year using a different time of inflation adjustment. Specifically, they use a national average wage index. To properly calculate a person’s average earnings over an entire career, those earnings way back in 1985 must be put “on par” with today’s average prevailing wage level.

Now, historically the national average wage index has grown faster than the inflation rate used by Social Security in setting current benefits. But, you guessed it, not this year! So, for those under age 62, your projected Social Security benefit will not quite see the 8.7% bump. Life’s not entirely fair, I suppose.

To learn more about Social Security, plan to attend the Money Series at Leland Township Library on Tuesday, November 15 at 3pm. Register at MoneySeries.org.

Jason P. Tank, CFA, CFP® is both the owner of Front Street Wealth Management, a purely fee-only advisory firm and the founder of the Money Series, a non-profit program committed to providing open-access to financial education, for all. Contact him at (231) 947-3775, by email at [email protected] and at www.FrontStreet.com

I’m getting that “deja vu” kind of feeling. In May, June and July, I wrote about the increasingly ugly state of the investment markets. After the short-lived summer rally, things now look uglier. My underlying message, nonetheless, remains consistent.

In my June 26th column, I highlighted the return of the “ballast of bonds.” Over the past decade, like a frog in a hot pot, a false sense of complacency crept in. Low interest rates and ultra-tame inflation became a fixture in all financial calculations, including bond prices. After years of this status quo, things have now shifted on a dime following the post-Covid surge of demand and inflation. It caught almost every investor, and the Fed, by surprise.

With each version of the Fed’s promise to fight inflation, the bond market’s guesses about the path and plateau of interest rates have ratcheted higher and higher. The series of hits this has been delivered to the bond segment of balanced portfolios has felt like Chinese water torture.

We’ve now seen an historic decline of 14% in broad bond market indexes. Bonds now offer far more ballast and the most attractive yields in over a decade. I view bonds more favorably for two reasons; (a) Inflation is likely to peak soon and (b) bonds will likely re-assume their traditional role as a counterweight to stocks. While I’ve said it before, in my view, the pain in bonds is nearly done.

Turning to stocks, it’s becoming clear the Fed has accepted a recession as the necessary price of vanquishing inflation. Once hopeful of a soft landing, investors in stocks are now also anticipating something bumpier.

To set expectations then and now, in late-May I wrote a retrospective on the “anatomy” of past bear markets. Right after I wrote those words, stocks officially fell into bear market territory. And, after the big summer rally, they are once again down around 25%. Today, I’ll reiterate my message of early July; now is once again the time to prepare portfolios for the recovery.

Reviewing history, the typical bear market’s average decline is 30% to 35%. If this bear market follows suit, another 10% to 15% decline and more volatility should be expected. The average bear market over the last 50 years took about a year to reach the bottom. We are now sitting at about the 10 month mark. Like bonds, I think most (but not all) of the pain in stocks is done.

With both known and unknown uncertainties swirling around, the table is set for an emotionally challenging three-to-six months for investors. We all know that history doesn’t exactly repeat. But, much like a deja vu moment, it does often have a vague rhyme to it.