Nelson Capital Management

Retirement is one of the most significant transitions in life. It marks the shift from structured days and steady paychecks to a new rhythm centered on personal choice, freedom, and the opportunity to redefine how you want to live. But the very things that make retirement exciting also make it complex. It requires stepping away from predictability and stepping into a chapter where your financial security depends more on past preparation than on future earnings. This mix of freedom and responsibility creates a natural tension between the desire to enjoy your time while ensuring your resources last. That tension becomes even more pronounced when retirement coincides with a market high.

Retiring at a market top can feel like perfect timing. After years of contributions and compounding, your portfolio may be larger than it has ever been. Seeing a high balance can create a powerful sense of readiness. Yet the same market strength that boosts your confidence also introduces meaningful risks. Market peaks are recognizable only in hindsight, and what feels like strong market today could be the start of weaker or volatile returns ahead.

The real challenge begins once you shift from saving to spending. When you retire, you become immediately exposed to sequence-of-returns risk, which is the danger that poor market performance early in retirement can cause long-lasting damage to your portfolio. If withdrawals occur while markets are declining, those losses become permanent, reducing the base from which future returns can compound. Even a portfolio that looks ample at the start of retirement can become strained if the first few years align with a downturn.

This risk is particularly relevant today, because long periods of strong returns often foster complacency. Over the past decade, U.S. equities have delivered performance far above historical averages. But broad market data across more than two centuries shows that extended periods of lower real returns are not unusual. There have been many 30-year spans in which inflation-adjusted stock returns were in the 3-4% range or lower. If the decades ahead resemble any of those periods rather than the recent boom, retirees who based their plans on optimistic assumptions may face shortfalls. Sustaining a consistent level of spending for a 30-year retirement often requires saving 12 to 20 percent of income during working years, depending on eventual real returns.

Spending patterns also play a more important role than many realize. Although people often assume retirement will cost less, research shows most retirees spend nearly as much as they did while working, and many spend more in their early, active years. Those who spend significantly less usually do so out of necessity, not preference. Beginning retirement at a market high does not change the need for disciplined spending.

Given these risks, the way you structure your withdrawal plan becomes essential. Two tools can help reduce vulnerability to market timing and early downturns: the bucket strategy and dynamic withdrawal rules.

The bucket strategy separates your portfolio into segments according to time horizon. One bucket holds three to five years of essential spending in cash or short-term bonds shielding your lifestyle from equity market volatility. A second bucket focuses on intermediate-term stability, and a third holds longer-term growth assets, such as equities. This framework helps you avoid selling stocks at unfavorable times by giving you dedicated reserves to draw from during market declines. It also creates a more predictable system for replenishing each bucket over time.

Dynamic withdrawal rules add another layer of resilience. Unlike fixed withdrawal systems, dynamic approaches adjust spending based on market conditions. Guardrail methods allow higher spending when markets perform well and reduce withdrawals slightly when portfolio balances fall below predetermined thresholds. Percentage-based withdrawal methods tie annual spending to a set percentage of the portfolio, ensuring sustainability even during extended downturns. Even simple strategies, such as pausing inflation adjustments or trimming discretionary spending during weak markets, can meaningfully extend portfolio longevity.

Retiring at a market top is neither inherently good nor inherently risky. It offers genuine advantages, but it also requires planning and realistic expectations. The success of retirement depends less on guessing the perfect moment to leave the workforce and more on building a plan capable of navigating whatever markets deliver next. Confidence at the peak is valuable, but resilience afterward matters far more.

The opinions expressed in this post are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. It is only intended to provide education about the financial industry. Individual investment positions discussed should not be construed as a recommendation to purchase or sell the security. Past performance is not necessarily a guide to future performance. Please remember that investing involves risk of loss of principal and capital. Nelson Capital Management, LLC is a registered investment adviser with the U.S. Securities and Exchange Commission. No advice may be rendered by Nelson Capital Management, LLC unless a client service agreement is in place. Likes and dislikes are not considered an endorsement for our firm.

We understand how important it is to have trusted resources when it comes to understanding Medicare — whether for yourself, a family member, or someone you care for. Here is a recap of the live webinar hosted by Medicare expert Mike Groh of Risk Strategies. During this session, you will learn:

Key considerations as you approach age 65 or plan for retirement
The differences between Medicare Parts A, B, C, and D
How to avoid costly penalties
An overview of Medicare supplemental plans
How and when to apply, including important deadlines

About the Speaker: Mike Groh is a Producer at Risk Strategies, based in Cincinnati, Ohio. He specializes in individual Medicare, under-age-65 individual health insurance, and ancillary benefits. Mike leads a national team supporting more than 160 Risk Strategies offices with individual Medicare and health product solutions. With over 30 years of experience as a Producer and Sales Manager in the life and health benefits markets, Mike brings valuable insights to individuals and small groups alike.

Required Minimum Distributions (RMDs) are the minimum amount that a retiree must withdraw from retirement accounts each year. They apply to traditional IRAs, SEP IRAs, SIMPLE IRAS, 401(k)s and 403(b)s. They do not apply to Roth IRAs or Designated Roth accounts in a 401(k) or 403(b). The distribution is taxed as ordinary income in the year it is withdrawn.

The SECURE Act of 2020 pushed the age at which you are required to start taking RMDs from 70½ to 72. SECURE 2.0 pushed it further to ages 73-75 depending on the year in which you are born. The calculation for the amount of an RMD is based on the account balance at the end of the previous year and a life expectancy factor determined by IRS tables. It starts around 4% of the account balance and increases as life expectancy decreases. The first RMD must be taken by April 1^st of the year after the account owner turns the applicable RMD age and future RMDs must be taken by December 31^st of each year. The penalty for failing to take an RMD is 25% but can be reduced to 10% if corrected within two years.

The rules around RMDs for Inherited IRAs were changed significantly by the SECURE Act. Prior to 2020, non-spouse beneficiaries were able to stretch distributions from an Inherited IRA over their lifetime with RMDs based on their life expectancy. The SECURE Act instituted the 10-Year Rule where non-spouse beneficiaries must withdraw the full balance of the Inherited IRA within 10 years. IRAs inherited prior to 2020 are grandfathered into the old rules and not subject to the 10-Year Rule. Certain types of beneficiaries, known as Eligible Designed Beneficiaries (EDBs), are also not subject to the 10-Year Rule and may take RMDs based on their life expectancy. These beneficiaries include the spouse or minor children of the deceased IRA owner, disabled or chronically ill individuals, and individuals not more than 10 years younger than the IRA owner. Minor children are subject to the 10-Year Rule once they reach the age of majority.

The original law did not offer guidance on RMDs for Inherited IRAs but the IRS recently issued final rules stating RMDs must be taken from Inherited IRAs each year throughout the 10-year period. However, this does not go into effect until 2025. This applies to both Inherited IRAs and Inherited Roth IRA. Withdrawals of contributions from Inherited Roth IRAs are tax free. Withdrawals of earnings from an Inherited Roth IRA are also tax free unless the account is less than 5-years old at the time of the withdrawal.

Individual investment positions detailed in this post should not be construed as a recommendation to purchase or sell the security. Past performance is not necessarily a guide to future performance. There are risks involved in investing, including possible loss of principal. This information is provided for informational purposes only and does not constitute a recommendation for any investment strategy, security or product described herein. Employees and/or owners of Nelson Capital Management, LLC may have a position securities mentioned in this post. Please contact us for a complete list of portfolio holdings. For additional information please contact us at 650-322-4000.

The SECURE ACT 2.0, signed into law December 29, 2022, made several rule changes that impact retirees and those saving for retirement. The provisions of the retirement package were included in a spending bill that contains 4,155 pages and it builds on the first SECURE ACT which was approved by Congress in 2019.

Here are the key takeaways:

The age to start taking RMDs increases to age 73 in 2023 and to 75 in 2033.

The most notable provision of this bill from a financial planning perspective is the increase in the age at which individuals must begin taking required minimum distributions (RMDs) from their retirement account from age 72 to 73. The new RMD age applies to anyone who turns 72 on or after January 1, 2023. In 2033, the RMD age will increase again to 75.

The penalty for failing to take an RMD will decrease to 25% of the RMD amount, from 50% currently, and 10% if corrected in a timely manner for IRAs.

Under the new law, penalties for missing or underestimating RMDs will be reduced. Failure to take the proper RMD from a retirement plan used to include a penalty of 50% of the shortfall. Beginning this year, the penalty is reduced to 25% or to 10% (if the individual corrects the issue within two years).

Catch-up contributions will increase in 2025 for 401(k), 403(b), governmental plans, and IRA account holders.

Beginning January 1, 2025, individuals ages 60 through 63 years old will be able to make catch-up contributions up to $10,000 annually to a workplace plan, and that amount will be indexed to inflation. (The catch-up amount for people age 50 and older in 2023 is currently $7,500.) If you earn more than $145,000 in the prior calendar year, all catch-up contributions at age 50 or older will need to be made to a Roth account in after-tax dollars. Individuals earning $145,000 or less, adjusted for inflation going forward, will be exempt from the Roth requirement.

Individuals can roll up to $35,000 from a 529 account to a Roth IRA in the name of the student beneficiary. The 529 account must have been in existence for at least 15 years. That provision becomes effective in 2024.

After 15 years, 529 plan assets can be rolled over to a Roth IRA for the beneficiary, subject to annual Roth contribution limits and an aggregate lifetime limit of $35,000. Rollovers cannot exceed the aggregate before the 5-year period ending on the date of the distribution. The rollover is treated as a contribution towards the annual Roth IRA contribution limit.

Qualified Charitable Distributions

The new law also makes two notable changes to the Qualified Charitable Distribution (QCD) rules. The provision allows for individuals over 70 ½ to make a one-time election of up to $50,000 for a charitable distribution to a charitable remainder annuity trust, charitable remainder unitrust or a charitable gift annuity. And, beginning in 2024, the overall QCD limit of $100,000 will be indexed to inflation so that it will likely increase a modest amount each year.

Other notable provisions include:

The creation of a “retirement savings lost and found” national database to help individuals find their benefits if they changed jobs, or if the company they worked for moved, changed its name or merged with a different company.
Individuals can withdraw up to $22,000 from an employer-sponsored plan or an IRA for federally declared disasters.
Beginning in 2024, employers have the option to match student loan payments with a contribution to the employee’s retirement plan account. The goal is to help workers who are burdened by student loans and cannot afford to make a contribution to their retirement plan by ensuring that they are accumulating some retirement savings even as they pay down their loan.
Employers will also have the option to allow employees to create “rainy-day funds” in their retirement plan. Individuals would then be able withdraw up to $1,000 from the plan penalty-free for emergencies. The provision addresses a concern that spiked during the pandemic, when employers saw a big increase in the number of employees who were tapping their retirement accounts to cover unexpected expenses.
Long-term part-time workers will become eligible for their company’s retirement plan after two consecutive years with at least 500 hours of service. Previous law required three years of service.

Individual investment positions detailed in this post should not be construed as a recommendation to purchase or sell the security. Past performance is not necessarily a guide to future performance. There are risks involved in investing, including possible loss of principal. This information is provided for informational purposes only and does not constitute a recommendation for any investment strategy, security or product described herein. Employees and/or owners of Nelson Capital Management, LLC may have a position securities mentioned in this post. Please contact us for a complete list of portfolio holdings. For additional information please contact us at 650-322-4000.

A new retirement bill known as the SECURE Act 2.0 is making its way through Congress. It aims to build on the SECURE Act of 2019 by giving Americans more incentives to save for retirement and proposes changes to required minimum distribution rules to allow individuals to keep their money in retirement accounts longer.

The SECURE Act of 2019 changed the rules around how an individual can save and withdraw money from retirement accounts. It was the first major legislative change to retirement tax laws in more than a decade. Now, new legislation under consideration includes extending required minimum distributions (RMDs) to later ages and increasing catch-up contribution amounts.

As a reminder, the original SECURE Act passed in 2019 included the following:

Raised the age of required minimum distributions from 70 ½ to 72.
Removed the ability to “stretch out” distributions from an inherited IRA over a lifetime for non-spouse beneficiaries.
Allows 529 college savings plans distributions to pay back student loans.
Penalty-free withdrawals of up to $5,000 from workplace savings plans to help offset the costs of having or adopting a baby.

The following provisions have been proposed and are under consideration, but none have yet been enacted into law under the SECURE Act 2.0:

Delays RMDs until age 73 in 2022. Distribution requirements would shift to age 74 in 2029 and 75 in 2032, but there are variations of this timeline in other proposals.
Raises the annual “catch-up” contribution amount to $10,000 for 401(k), 403(b) and 457(b) plans and to $5,000 for SIMPLE IRA or SIMPLE 401(k) plans. The exact age for the higher catch-up amount is under negotiation.
Employers would be allowed to make matching retirement plan contributions to Roth 401(k) plans.
Employers would be required to automatically enroll employees in 401(k) and 403(b) plans. Automatic deferrals would start at 3% to 6% of compensation.
Employers would be allowed to make contributions to retirement plans for employees who are repaying student loans and not participating in a retirement savings plan.

The SECURE Act 2.0 was passed by the House of Representatives in March with a 414 to 5 vote. A separate bill called the EARN Act was introduced in the Senate in September. Both bills would make significant changes to RMDs, but there are differences in the two bills’ RMD provisions. The odds of passing a major retirement bill before the end of the year look promising, but nothing is expected to get done until after the midterm elections in November.

The SECURE Act (Setting Every Community Up For Retirement Enhancement), which passed the House with overwhelming support in a 417-3 vote in 2019, was signed into law on December 20th. This is the biggest overhaul to retirement rules since 2006. We wrote about the proposed changes in a previous blog post, but below is an overview of the notable modifications that take effect January 1, 2020.

Increasing the Retirement Age to 72 from 70 ½

Retirement age is extended by two years, so savers will be required to begin taking their required minimum distributions from 401(k)s and traditional IRA accounts at age 72 instead of 70 ½. In addition, the age limit for contributing to a traditional IRA, which is currently capped at 70 ½, is repealed. More people are working beyond age 70 either by choice or necessity, so savers can take advantage of tax-deferred accounts for a longer period of time and keep up with increasing life expectancies.

No More Stretch IRAs

The ability to “stretch” an inherited IRA will be shortened to 10 years. Previously, when an IRA was inherited, the non-spousal beneficiary was able to stretch the required distributions and tax payments over their lifetime. Under the new bill, non-spousal beneficiaries will be required to withdraw the full balance of the account within ten years of inheritance, accelerating the income taxes due and reducing growth potential.

Qualified Charitable Distributions Still Allowed at 70 ½

The Secure Act makes no change to the date at which individuals may begin to use their IRAs to make charitable distributions. The rule allows IRA owners who have reached the age of 70 ½ to make charitable contributions of up to $100,000 and avoid reporting the distribution as income on their tax returns.

Annuities in 401(k) Plans

Individuals with 401(k) plans will be allowed to buy annuities through insurance companies in exchange for contracts that guarantee a monthly income stream. This is an attempt to offer working Americans a product similar to a pension that many corporations used to offer. What workers need to keep in mind is that annuities can drastically reduce the growth potential of their money and eliminate the opportunity to pass excess retirement money to heirs (unless they pay extra). 401(k) statements will also be required to project how much the participants current savings would generate over a lifetime of monthly payments at least once per year. This will give savers an expensive alternate perspective on current progress towards retirement goals.

Children with Investment Income

The 2017 Tax Cuts and Jobs Act stated that minor’s interest, dividends and other unearned income is taxed at the trusts and estates tax rate. This will be repealed and the “kiddie tax” would return to the parents’ marginal tax bracket.

New Parents

New parents will be able to withdraw up to $5,000 penalty free from their IRA or 401(k) plan within one year of the birth or adoption of a child to help accommodate addition expenses associated with having a child.

Employers Without Retirement Plans

Employers without retirement plans will have the option to band together to offer 401(k) plans with less fiduciary liability concern and reduced costs.

Part-time Employee

Employers will be required to grant access to 401(k) style plans for part time employees working 500+ hours per year and have been with the company for over 3 years.

529 Plans

Qualified education expenses for 529 plan funds are expanded to cover student loans.

Individual investment positions detailed in this post should not be construed as a recommendation to purchase or sell the security. Past performance is not necessarily a guide to future performance. There are risks involved in investing, including possible loss of principal. This information is provided for informational purposes only and does not constitute a recommendation for any investment strategy, security or product described herein. Employees and/or owners of Nelson Roberts Investment Advisors, LLC may have a position securities mentioned in this post. Please contact us for a complete list of portfolio holdings. For additional information please contact us at 650-322-4000.

Changes to retirement accounts could be on the way. The House of Representatives voted overwhelmingly to pass the SECURE Act (Setting Every Community Up For Retirement Enhancement), the first big overhaul to retirement rules since 2006. The legislation is currently sitting in the Senate awaiting a vote. We will keep a close eye on the legislation and make you aware of any changes that directly affect you. Here are a few of the notable proposed changes:

Increasing the Retirement Age to 72 from 70 ½

The age cap for contributing to a traditional IRA, currently set at 70 ½, would be repealed. More people are working beyond age 70 either by choice or necessity, so savers can take advantage of tax-deferred accounts for longer to keep up with increasing life expectancies. Similarly, savers would be required to begin taking their required minimum distributions from 401(k)s and traditional IRA accounts at age 72 instead of 70 ½, giving them extra time to grow their money in tax-deferred accounts.

Annuities in 401(k) Plans

Individuals with 401(k) plans would be allowed to buy annuities through insurance companies in exchange for contracts that guarantee a monthly income stream. This is an attempt to offer working Americans a product similar to a pension that many corporations used to offer. Keep in mind that annuities can drastically reduce the growth potential of employees money and eliminate the opportunity to pass excess retirement money to heirs (unless they pay extra). Annual 401(k) statements would also be required to project how much the participants’ current savings would generate over a lifetime of monthly payments.

Inherited IRAs

The ability to “stretch” an inherited IRA would be shortened. Currently, when an IRA is inherited, the non-spousal beneficiary is able to stretch the required distributions and tax payments over their lifetime. Under the new bill, non-spousal beneficiaries would be required to withdraw the full balance of the account within ten years of inheritance, accelerating the income taxes due and reducing growth potential.

New Parents

New parents would be able to withdraw up to $5,000 penalty free from their IRA or 401(k) plan within one year of the birth or adoption of a child to help accommodate additional expenses.

Children with Investment Income

A minor’s interest, dividends and other unearned income is currently taxed at the trusts and estates tax rate. This would be repealed and the “kiddie tax” would return to the parents’ marginal tax bracket.

Employers without Retirement Plans

Employers without retirement plans would have the option to band together to offer 401(k) plans with less fiduciary liability concern and reduced costs.

Part-time Employees

Employers would be required to grant access to 401(k) style plans for part-time employees working 500+ hours per year who have been with the company for over 3 years.

Individual investment positions detailed in this post should not be construed as a recommendation to purchase or sell the security. Past performance is not necessarily a guide to future performance. There are risks involved in investing, including possible loss of principal. This information is provided for informational purposes only and does not constitute a recommendation for any investment strategy, security or product described herein. Employees and/or owners of Nelson Roberts Investment Advisors, LLC may have a position securities mentioned in this post. Please contact us for a complete list of portfolio holdings. For additional information please contact us at 650-322-4000.

The lure of a guaranteed income stream for the remainder of one’s life leads many Americans to invest billions of dollars in annuities each year. In 2016, over $220 billion of annuities were sold. Who wouldn’t want stable and secure income during their retirement years? Most of us would, but the insurance companies that create these products attach a big price tag and the drawbacks of having your money locked up often leaves investors with buyer’s remorse.

What is an annuity?

An annuity is a contract between the policy holder and an insurance company. Depending on the type of annuity purchased, the owner can elect to receive guaranteed payments for life or to have payments made over a specified length of time.

Are there different types of annuities?

There are two basic types of annuities: deferred and immediate. With a deferred annuity, your money is invested for a period of time until you are ready to begin taking withdrawals, typically in retirement. For an immediate annuity, you begin receiving payments soon after you make your initial investment.

Fees

One of the biggest disadvantages of an annuity is the expensive fee that is often attached. Annuities are cash cows for insurance companies and the brokers that sell them. The commissions and annual expenses associated with annuities can be very high and very difficult to understand. Typically, the fee earned by the broker selling an annuity is around 5% to 6%, but it can be as high as 10%. In addition, there are annual expenses that can run between 2-3%. The lack of transparency in these products allows brokers to take advantage of investors who are worried about outliving their assets. This is a big reason why annuities have garnered such a bad reputation.

Liquidity

After buying an annuity, that money is locked in for a certain period of time, typically from six to eight years. You can technically take the money out, but you pay a surrender charge for access to your money. You may also pay penalties if you withdraw before age 59½, in addition to any applicable taxes. If an unexpected event occurs and you need a lump sum of your money, the cost of getting your money back can be quite high.

What should you do if you own an annuity?

We typically do not recommend annuities because of the aforementioned drawbacks, but if you already own an annuity, we can help. If the annuity has been held longer than seven years, it may be possible to find and transfer your money to a lower-cost annuity through what is known as a 1035 exchange. A 1035 tax-free exchange is the IRS tax code that allows for the rollover of a non-qualified annuity to a new annuity or life policy of equal or greater value. Capital gains and/or income taxes will not be realized from this type of transfer when completed properly. Please feel free to contact us if you have further questions.

Individual investment positions detailed in this post should not be construed as a recommendation to purchase or sell the security. Past performance is not necessarily a guide to future performance. There are risks involved in investing, including possible loss of principal. This information is provided for informational purposes only and does not constitute a recommendation for any investment strategy, security or product described herein. Employees and/or owners of Nelson Roberts Investment Advisors, LLC may have a position securities mentioned in this post. Please contact us for a complete list of portfolio holdings. For additional information please contact us at 650-322-4000.