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Maybe Not!

By Rick Kahler CFP

The Grinch who stole Christmas is alive and well this year—in the US Congress. Our Representatives and Senators passed a bill that negatively affects the middle and working class by changing the rules of passing on an IRA. Now adult children who inherit IRAs will be required to drain them within 10 years and pay all the taxes on the distributions and future earnings.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act, which changes many of the rules of US retirement laws, was approved almost unanimously (417-3) by the House of Representatives and the Senate (81-11). South Dakota’s Representatives Dusty Johnson and Senators John Thune and Mike Rounds all voted for the bill. Despite its name, many of the new law’s provisions are anything but retirement “enhancements.”

I wrote about the SECURE Act in June, as did other financial journalists, but it hasn’t received widespread attention. Despite its heavy bipartisan support, it isn’t necessarily a retirement boost for middle and working class savers.

This revision of long-standing IRA rules is especially unfair to parents who banked on the reliability of those rules. Many of them did Roth conversions and paid the tax due on a traditional IRA, with the intention of leaving the portion of the IRA they did not use themselves as a tax-free gift that could grow over the years and support their children’s retirement.

The amount of taxes raised by forcing inheritors to liquidate IRAs early is estimated at $15.7 billion over 10 years. The main trade-offs for this tax grab were (drum roll) extending by 18 months the age at which an IRA owner must begin taking distributions, increasing incentives to employers who set up 401(k)s, and allowing people over age 70 ½ who are working to contribute to an IRA (mic drop).

New strategies will need to address how an inheritor distributes the IRA to minimize the tax hit. Taking all of an IRA in one year could result in an heir in the peak of their earning years paying 50% of it in taxes.

If you counted on passing on an IRA to your children, you need to reexamine your estate planning. It may be better to name a spouse as a beneficiary rather than children, as a spouse still can inherit the IRA without being forced to liquidate it over 10 years.

The strategy of letting IRA assets accumulate and spending down taxable accounts may change completely. You now may want to spend down IRA accounts, with any balance going to charities, and pass on the accumulated taxable assets to children who will get a step-up in basis (tax free).

If you have made the beneficiary of your IRAs a trust, often created at death in your will, that whole strategy needs reconsidering. “Some types of IRA trusts make no sense under the new law,” says Natalie Choate in a December 21, 2019, Wall Street Journal article, “Inheriting IRAs Just Got Complicated.”

The new law gives a great boost to favoring life insurance over IRAs as a tax-efficient way to move assets to heirs. It also paves the way for high fee and commission annuities to be sold to sponsors of 401(k) plans.

Why did Congress vote so overwhelmingly to penalize IRA inheritors and open up investors’ 401(k) plans to insurance products?

Perhaps many of them didn’t fully understand what they were voting on. Or perhaps the insurance lobby did their normal amazing job of selling the alleged benefits of insurance and annuities.


In any case, don’t assume the SECURE Act is a gift that will enhance your retirement security.

Your thoughts are appreciated.



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On Retirement Gaps Since the Recession

The “Have and Have Nots”

[By staff reporters]




Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™8Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™


When Will You Retire?

Where Will Your Money Come From?

By Rick Kahler CFP®

The list is fairly short: Social Security, a pension, working, your assets, children, or public assistance.

According to an April 22, 2019 Bloomberg article by Suzanne Woolley, entitled “America’s Elderly Are Twice as Likely to Work Now Than in 1985“, only twenty percent of those age 65 or older are working. The rest either can’t work physically, can’t find work, or don’t want to work. According to the ADA National Network, over 30 percent of people over 65 are disabled in some manner.

According to the Center on Budget and Policy Priorities, Social Security provides the majority of income for most elderly Americans. It provides at least 50% of income for about half of seniors and at least 90% of income for about one-fourth of seniors. The average Social Security retirement benefit isn’t as high as many people think. In June 2019 it was about $1,470 a month, or about $17,640 a year.

And, as per the Pension Rights Center, around 35% of Americans receive a pension or VA benefits. The greatest percentage of pensions are government. This would include retired state and federal workers like teachers, police, firefighters, military, and civil service workers. In 2017 the median state or local government pension benefit was $17,894 a year, the median federal pension was $28,868, and the median military pension was $21,441.

Working provides the highest source of retirement income for the 20 percent of those who are over 65 and are still working. According to SmartAsset.com, Americans aged 65 and older earn an average of $48,685 per year. However, in a NewRetirement.com article dated February 26, 2019, “Average Retirement Income 2019, How Do You Compare“, Kathleen Coxwell cites a figure from AARP that the median retirement income earned from employment is $25,000 a year.

About 3% of retirees receive public assistance.

This leaves around 20% of those over 65 who depend partially or fully for their retirement income on money they set aside during their working years. According to TheStreet.com, “What Is the Average Retirement Savings in 2019“, by Eric Reed, updated on Mar 3, 2019, the average retirement account for those age 65 to 74 totals $358,000. That amount will safely provide around $15,000 a year for most retirees’ lifetime. The median savings is $120,000, which will produce only about $5,000 a year. In order to retire at age 65 with an annual investment income of $30,000 to $40,000, someone would need a retirement nest egg of over $1 million.



My conclusion from this data is that most Americans are woefully underprepared to live a comfortable lifestyle when they can no longer work. Between Social Security, pensions, and retirement savings, a retiree can expect a median income of $18,000 to a maximum of $52,000 a year. According to data I compiled from NewRetirement.com, the average median retirement income of those over age 65 is around $40,000.

What are some things you can do to increase your chances of enjoying a comfortable retirement income?

If you are under age 50, begin setting aside 15% to 25% of your income for retirement.

If you are over 60, keep working as long as you can. If you retire early, your monthly Social Security benefit is lower for the rest of your life.

Consider ways to stretch your retirement income by downsizing, sharing housing, or relocating to an area of the US or even outside the country with a lower cost of living.

Research what you can reasonably expect from Social Security and other sources of retirement income. Base your retirement expectations on informed planning, not on vaguely optimistic expectations.

Assessment: Your thoughts are appreciated.


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Are Under Spending Doctors Extinct?

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The Last Generation of Extreme Frugality … or Another ReStart

By Rick Kahler MS CFP® ChFC CCIM www.KahlerFinancial.com

“Be frugal.” “Save for the future.” “Live on less than you make.”

That’s my usual financial advice, and it’s well worth repeating even though most medical professionals aren’t following it.

[Very] occasionally however, I find it necessary to work with clients to overcome a different problem—underspending.

A Problem?

Huh? How can underspending possibly be a problem? Isn’t it a virtue to save and accumulate?  Of course it is. Accumulating wealth typically requires people to live on much less than they earn. Being frugal is the common denominator of almost every first-generation wealth builder. But, don’t confuse living on less than you make with underspending.

To Every Season

Like almost everything, saving is but for a season. Once people retire and stop earning money from a medical practice, business or a job, a new era begins where it’s time to consume the fruits of their frugality. The problems start when the wise frugality of the earning years continues long past the time that it’s necessary. Frugality then can turn to under-consumption.

Be Thrifty – Not Frugal

What’s wrong with someone living on less than they could? Is it bad to continue to be thrifty? Of course not. The habit of frugality isn’t something people can turn off at a flip of a switch, and maybe that’s part of the problem. Wealth accumulators have lived with the money script of “Don’t consume your investments or savings” for so long, that when the time comes to begin living off of their investments it poses a significant challenge.

Extreme Frugality

The result can be under-spending is frugality taken to extremes. As I define underspending, it is spending significantly less than the amount you could conservatively spend annually and still have a 99% chance of never running out of money.

Under-spending is not the same as continuing to make frugal choices during retirement and economizing when possible. Typically, underspending results in people failing to get adequate medical care, eat a healthy diet, live in a well-maintained and comfortable home, or use help and support that would make life easier.


Take Dr. Martin and his wife Eleanor, for example. They worked hard all their lives and managed to save $2,000,000. Today they are age 72. Based on a very conservative withdrawal rate of 3%, they could easily afford to take $60,000 from their portfolio each year. Instead, they withdraw $10,000. With the $30,000 they get from Social Security, they live on $40,000 a year.

What’s wrong with that?

What’s wrong is what they don’t spend money on. Both of them have neglected their health. They do get annual checkups from their family doctor, which are covered by Medicare. Yet, neither of them has seen a dentist for several years. Eleanor needs hearing aids but won’t get them because they “cost too much.” Even though Martin’s eyesight is beginning to fail and night driving is difficult, they insist on driving thousands of miles to visit their children because airline fares are “so outrageous.”

They sleep on a mattress that is 20 years old. Their house needs painted inside and out. Only two burners work on the kitchen stove, but they get by because it isn’t really a problem except at Thanksgiving when the family comes to visit.

The Cure

The cure to underspending is not running out and spending money frivolously or indulgently on things or experiences that don’t really add value to your life. Instead, it’s using what you have to make your life more comfortable and enjoyable.


There is a season to plant for the future, with hard work, frugality, and saving. There is also a season of harvest. That’s the time to use what you have accumulated to support your health and well-being.

How many under-spending doctors are left? Do you know any? Is this the last generation of same? OR, the start of next gen 2.0 frugality.


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Playing with the FIRE Movement

“What do you think of the FIRE movement?”

[By Rick Kahler CFP]

“What do you think of the FIRE movement?” a reporter asked me recently. I told her I was ambivalent about it.

The FIRE acronym in this context stands for “Financial Independence, Retire Early.” While a Harris poll done in late 2018 found most people over 45 had never heard of the FIRE movement, it apparently has caught fire among millennials.

The focus of FIRE adherents is lifestyle more than finances. Two books are the foundation of the FIRE movement: Your Money or Your Life, written in 1992 by Vicki Robin and Joe Dominguez, and Early Retirement Extreme, written in 2010 by Jacob Lund Fisker. The concept was popularized in 2011 by blogger Peter Adeney (Mr. Money Mustache), who lives in Longmont, CO. At the age of 30, Adeney and his wife retired with a retirement fund of $600,000 and a paid-for home.

According to the reporter who interviewed me, many advisors have strong opinions against the FIRE movement. This may seem odd. After all, financial independence and retiring early is often a goal of those seeking financial planning. That was certainly one of my goals when I was the age of today’s millennials.

I find very little to criticize about adopting a frugal lifestyle and saving as much as possible. For decades I have suggested living on half of what you make, with a goal of reaching financial freedom as soon as possible. Some FIRE proponents do save up to 50% of their income, which is five times more than their peers, according to a January 21, 2019, InvestmentNews article by Greg Iacurci, “Advisors throw cold water on FIRE Movement.”

What makes many financial planners uncomfortable is the definition of “early.” In my day, early was age 50, not 30. In terms of FIRE, Adeney promotes a lifestyle of aggressive frugality with the goal of retiring as soon as possible, using a 4% withdrawal rate as a guideline to determine the nest egg you need to accumulate.



This raises two obvious issues that need clarification.

First, you need to earn enough to be able to live on 50 percent of your income. Relatively few young adults make that much. There is no magic income number, since the cost of living varies so much across the country.

One’s definition of frugality is also important. To some that may mean setting the thermostat at 68 all winter or driving a small fuel-efficient vehicle. For  others it may mean chopping your own wood to heat your living space only with a wood-burning stove or doing without a car altogether. As with many things, the wisdom is knowing when frugality crosses the line to dangerous deprivation.

Finally, the earlier you retires the longer your retirement nest egg must last. With a 4% withdrawal rate, someone retiring at age 70 has a much higher probability of seeing their investment portfolio last for their lifetime than someone retiring at age 30. Also, the rate of return on the portfolio is critical. The higher the rate of return the longer the funds will last. If there is any potential problem with the FIRE formula it’s probably this.

Since the average 30 year old may live another 60 years, and assuming a 4% return net of mutual fund and advisor fees, I would make a strong argument for a 2 percent withdrawal rate. Someone age 50 could reasonably withdraw 3%, while someone age 60 or above could probably be safe at 4%.


As with any conflagration, playing with FIRE irresponsibly can end up burning down the house. But used wisely, it can sustain life and make living much more rewarding.

Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™8Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™


Consider Taxes Before Retiring Abroad

Physicians Considering Retirement in Another Country?

By Rick Kahler CFP®

One way for a retiring doctor to stretch a retirement nest egg is to relocate your retirement nest. Finding a place with a lower cost of living can include considering retirement in another country.

International Living

According to International Living, Panama is one of the best options for Americans looking for affordable living costs, good medical services, and an appealing climate. Costa Rica, Mexico, and Belize are also good possibilities.

Before you pack your sunhat and flip-flops and head for a low-cost retirement haven like Panama, however, take a look at all the factors affecting your retirement income and expenses. One of those is taxes.


Moving out of the country does not mean your tax bill to the US government or your current state will decrease. Short of giving up your US passport, there is nothing you can do to escape paying US taxes on your income, even if you don’t live in the US. We are one of two countries worldwide—the other is Eritrea—that taxes our citizens based on both residence and citizenship.

You might assume, however, that moving out of the country would end your liability for state income taxes. That isn’t always the case. Some states still want to tax your income even though you don’t live there. According to Vincenzo Villamena in a December 2018 article for International Living magazine titled “How to Minimize Your State Tax Bill as an Expat,” it’s especially problematic if you end up returning to your old address in the state and start filing an income tax return. Eventually, he says, “the state will see the gap” and may require you to pay taxes on the missing years.

You have nothing to worry about if you live in one of the seven states with no income tax: South Dakota, Wyoming, Nevada, Washington, Texas, Florida, and Alaska. Tennessee and New Hampshire aren’t bad, either, as they don’t tax your earnings but they do tax your investment income. Most other states will let you off the hook if you submit evidence that your residence is in another country and you haven’t lived in the state for a while.

Then there are the states that won’t let go of their former residents easily. Those are California, Virginia, New Mexico, South Carolina, North Carolina, Massachusetts, and Maryland. Assuming that when you leave you will be coming back, they require that you continue to pay state tax on your income.



The solution to this issue takes a little financial planning and some extra time. The best way to escape paying taxes to a state you no longer live in is to move to a state with no income tax first before relocating abroad. You must prove to your old state that you have left and have no intention of ever coming back.



This means moving for real—cutting as many ties to your old state as possible and establishing as many as possible in your new state. You will want to sell your home, close bank accounts, cancel any mailing addresses, change healthcare providers and health insurance companies (including Medicare), be sure no dependents remain in the state, and register to vote and get a driver’s license in the new state. As a final good-bye you will want to notify the tax authorities that you are filing a final tax return for your last year that you lived in the state.


In case you need a good state from which to launch your leap into expat status, consider South Dakota. Not only would my income tax-free home state let you go easily, it would welcome you back if you should decide to return to the US.

Your thoughts are appreciatedBook of Month


Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™


Retirement Medical Costs Not So Scary?

When Seen Yearly

By Rick Kahler CFP®

Have you ever worried yourself into a frenzy over something, only to find out you were worrying about the wrong thing?

For example, researchers say that Baby Boomers are more worried about being financially devastated by unexpected health costs in retirement than they are about outliving their retirement savings.

But isn’t the cost of health care a legitimate worry?

We all have heard the stories of people who lost their homes, savings, and retirement portfolios paying for exorbitant medical expenses due to an unforeseen health problem. Just recently Fidelity reported that the average couple will spend $280,000 on health care in retirement.

What is often overlooked is that medical expenses before retirement are inherently more volatile than those after retirement. Before retirement, the variation in medical insurance premiums plays a huge role in the cost of medical care. Those who suffer the greatest losses from unexpected catastrophic medical expenses are often those who are uninsured.


The Affordable Care Act was designed to make it unusual for those with health insurance to suffer a catastrophic loss from unforeseen medical expenses. Still, the cost of paying for adequate health care can be staggering if you don’t qualify for a subsidy. In South Dakota, the monthly cost of providing health care for a family of four runs between $1,800 and $3,000 a month, depending on whether you hit the maximum annual out-of-pocket threshold.

While that cost alone could be considered catastrophic for some, the difference is that the potential cost is known and can be budgeted for. This is where Health Savings Accounts (HSAs) can be so effective, allowing a couple to put aside $7,000 in tax-deductible savings to use toward funding family out-of-pocket expenses. Any unused funds can be carried forward indefinitely to fund future out-of-pocket costs.

In the same way that insurance helps mitigate catastrophic health costs before retirement, so does Medicare almost eliminate unexpected health care costs after retirement. While it is true the average couple will spend $280,000 on health care in retirement, “the reality is that health care costs in retirement aren’t needed as a ‘lump sum’ on the day of retirement,” notes financial researcher Michael Kitces. In an October 2018 article, “Getting Real About (Annual) Health Care Costs In Retirement,” he points out that the Medicare system actually makes retirement health care costs a remarkably stable annual cost that can be planned for.


For example, a 65-year old couple with an income of under $170,000 will pay $270 a month in Medicare part B premiums. A Medicare Supplement plan to cover costs not paid by Medicare can run another $300 a month. This puts the monthly out-of-pocket expenses at $570 per month. Let’s further assume an additional $135 a month for ancillary expenses like dental and vision, for a total of $705 per month, or $8460 per year.

If we assume both spouses live for 23 more years after age 65, and we factor for inflation, they will spend $280,000 in retirement for medical expenses.

When we view retirement medical costs as ongoing monthly expenses rather than lumping 23 years into one large number, they are not that scary. As Kitces notes, “Of course, individual health care costs may still vary… but it turns out they vary in rather predictable and plannable ways.”




With that bit of knowledge, Baby Boomers can now stop worrying about being financially devastated by catastrophic medical expenses. Those who still need something to worry about can focus instead on what really counts: sufficient retirement income. This means saving enough for retirement and managing their income after retirement so they will have enough money to provide for the rest of their lives.


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