That may be focused on specific sectors of the economy (e.g. medical care).
An estate can be a byproduct of retirement planning. For example, if you plan your retirement savings and investments to cover you for a reasonably bad case (in terms of investment returns and currently-unknown spending needs like medical surprises), but the actual case is not as bad financially as the planned-for case, the leftover money that is your estate is a byproduct. Estate planning would be more along the lines of how your estate is disposed of.
Doing that while eliminating special tax rates for capital gains would simplify many aspects of the tax code. Some of the stated justification for lower tax rates for ālong termā (> 1 year) capital gains is inflation, so adjusting the basis for inflation would solve that problem in a reasonably fair manner, while allowing for removal of the special rates and all of the other provisions in the tax code that exist to deal with inflation gains (e.g. various homeowner related provisions) or to deter or prevent people from getting some kinds of income into the capital gain category.
Will that happen? Unlikelyā¦
But any of many other things (like changing tax rates) could be reasonably anticipated in retirement planning.
Maybe, maybe not. If the current low-inflation environment persists, my real, inflation-adjusted RMD will likely be at least similar to my initial RMD, if not higher. And in a high-inflation environment, at least some, and possibly all of my investments would produce a correspondingly higher rate of return. Corporate and municipal bonds generally need to pay a ārealā interest rate thatās in positive territory net of inflation; if they donāt, no one would invest in bonds. This real rate of return generally doesnāt vary all that much. The stock market is more of a crap shoot, but I always have the ability to adjust my portfolio to generate the highest rate of return. If bonds are outperforming stocks, I can just shift more money into bonds. Itās not at all obvious that Iāll lose out to inflation.
Whether basis can be changed by executive order to be indexed to inflation is over my pay grade, but I think it requires Congress. Or every POTUS would be monkeying with the code code.
So was Hās ā¦ until the megacorp went through bankruptcy & the pension was frozen at a number well below what we had expected. H worked for the company for more than 40 years, and his pension is a joke (fortunately, we are savers & will be okay). But it is better than the pensions our friends who worked for Hās megacorp & ended up being spun off into a separate corporation will get. Their pensions are pretty much nonexistent. Being protected by the PBGC is not always reality.
The bottom line is that retirement is a scary thing.
^ Ironically, defined benefit pension plans which were once considered the gold standard are turning out to be less secure than defined contribution plans, at least for those who have the foresight and the means to invest and the sound judgment to invest wisely.
āCorporate and municipal bonds generally need to pay a ārealā interest rate thatās in positive territory net of inflation; if they donāt, no one would invest in bonds. This real rate of return generally doesnāt vary all that much.ā
Just like the stock market, the return will be dictated by your starting point. Unless you only invest in short term bonds, or wait until your current portfolio matures, you would suffer a capital loss if interest rates go up. And currently inflation linked treasury bonds have a negative real yield (as much as -1.5% in the last month).
@camathmom, I think it is easy to be anxious about where the country is headed. According to Real Clear Politics, roughly 70% of those surveyed in the US in fact thinks the country is going in the wrong directionā¦
Like you, we live in an expensive place, but on the east coast. Our kids are in the Bay Area, where I would like to live. Alas, ShawWife is not on board. So, we sold our existing house and another lot with ShawWifeās art studio on it. Closing for the studio scheduled for tomorrow; for the house at the end of the month. We had intended to downsize but we found the most phenomenal lot, which had a house on it that was much larger than the 5 BR house in which we raised our kids.
We feel incredibly fortunate to have found this house and to have been able to afford it (got a very good price). We are building a new studio and renovating ā the cost of the renovation will be higher than most people in the country spend on their houses. Well-known architect designing it; the price per SF will likely increase quite a bit. But, I do feel anxious about boosting our exposure to real estate.
In addition, life is relative. Steve Schwarzman (CEO of Blackstone) used to say that the easiest way to feel rich is to have poor friends. Relative to our peer group (not Schwarzman, obviously), we are relatively frugal. So, we have saved quite a bit. We have helped our kids and hope to be able to do so if they need it.
Last night, we had over to dinner in our outdoor dining area the couple from whom we bought our new house. The wife had grown up in the house ā her dad was a successful, fairly famous guy. One of his daughters developed serious mental illness and the dad/mom set aside money to buy her a house and for her to live (likely $75K to $100K per year). I thought their help for the D was admirable and although I hope first and foremost that my kids never have such problems but hope further tha as can help if it is needed.
To all of you that are retired already or are in near retirement. Do you sell your individual stocks and convert them into bonds/ETF/mutual funds that are more conservative/safe? I have some stocks that are invested in TESLA/APPLE/BAC/etc. Iām not retiring soon so I still have a lot of time. Just wondering, whatās your strategy.
Weāve been retired for awhile (early). Most of our portfolio is remains in equities. Hopefully, weāll be living for another 30-40 years at least. Iāll admit to having a higher risk tolerance than some.
Iāve been (primarily) a mutual fund investor for years, so the only adjustments are between bond and stock funds. Was 100% equities up until ~3 years prior to retirement when I started to swap stock funds for bond and treasury funds. The Personal Investment plan is to start increasing the equity portion of the Asset Allocation by selling bond funds to pay bills.
Weāre retired, and still have more than would be recommended in equities. Most is in mutual funds/ETFs. We have very little of our portfolio in individual stocks.
My H really wants to retire. He feels we can afford it. We have a mix of real estate and retirement accounts with a huge emphasis on RE. We will take a hit on RE income this year but we are still in a good spot. We sold a mutual fund that we have held for many years recently for a huge profit. Thatās a first for us as we are not good stock market timers. (Should have sold my Boeing stock when it was high, blew that one) No FA for the last 10 years. We never felt they were worth the cost. Our retirement accounts are mainly in dividend paying stocks and mutual funds plus cash.
Estate planning is an area I want to learn more about. All my parents died with very little money left. I will hopefully be in a different position and have an estate to leave to my children. (Not huge but hopefully enough to make their lives a bit easier) Iāve watched other family members and friends with significant wealth struggle with how to best manage their estate with changing tax laws.
@2018dad
We are both retired and have mostly Vanguard mutual funds. Used to be nearly all stock funds but have gradually moved abut 1/2 to balanced funds. This week we need to sit down and talk about moving it again. Iām thinking it would make more sense to have it in a mix of stock market index funds and bond/treasury funds instead of balanced funds to avoid selling any stocks during a downturn. Thereās already four or five years worth in money market funds, so maybe that would be long enough to ride out bad markets?
I havenāt been employed in many many years and my H is retired. Mainly I invest for the family and we have RE and equities. Our RE and stock dividends amply pay for our living expenses and like @doschicos, I have a relatively high tolerance for risk in my investments but I am also conservative because I keep at least 6 years of living expenses in cash so I can ride out a bad economy. We have not touched our 401K yet.
I prefer to invest in individual stocks and I have a core portfolio that Iāve kept for decades but occasionally trimming some because they have become too dominant in my overall portfolio.
We will count on pensions for living expenses with SS (as long as it lasts) for life enhancing activities and as an inflationary hedge. Retirement accounts are about 1/3 cash/laddering CDs, and the rest in Vanguard, with a bit in bonds. Quite frankly, Iām amazed at how quickly weāve been able to save and invest money in the ten years since the kids have graduated from undergrad. All of a sudden our expenses went waaaaay down, incomes rose, and we inherited some money and could max out our work Roth 401K. Itās weird to be in such a comfortable financial place (no debt, house paid off, two small pensions coming in monthly, me retired, husband still working for another 3 years) after many years of living so frugally. I donate quite a bit to various causes to help my ācomfort guilt!ā Covid has me cooking at home almost every meal, so we are back to much of the frugality. No travel, no eating outā¦
@mom60 - For estate planning, Federal taxes you probably donāt have concerns https://en.wikipedia.org/wiki/Estate_tax_in_the_United_States
the key part āā¦Because of these exemptions, it is estimated that only the largest 0.2% of estates in the U.S. will pay the tax.[7] For 2017, the exemption increased to $5.5 million. In 2018, the exemption doubled to $11.18 million per taxpayer due to the Tax Cuts and Jobs Act of 2017. As a result, only about 2,000 estates per year in the US are currently liable for federal estate tax.[8]ā. Some states have estate tax.
Now there could be concerns about tax on appreciated assets. Many couples work hard to minimize eventual tax impact on the kids. My current view is anything the inherit is a windfall, and if they have to share some with the government it is ok with me.
We are about 60% in equities - all individual stocks. Dh retried, but went back to work (albeit at a much lower salary, but heās loving what heās doing). Other is deferred comp, 401k, real estate notes, and cash.
Like @cbreeze - we are heavier in equities because of appreciation in holdings weāve had over decades.