Why retirees should avoid structured CDs: Retirement Scan

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Our daily roundup of retirement news your clients may be thinking about.

Why retirees should avoid structured CDs
Buying a structured certificate of deposit can be a bad move for retirees because of the hefty front-end load fees, which can go as high as 8% of the principal, according to this article on MarketWatch. Structured CDs also impose a higher early withdrawal penalty, use complex payout formulas and offer no dividend income. Clients who invest in structured CDs also owe income tax on earnings they have not received.

Should clients tax-loss harvest in their IRA?
Tax-loss harvesting can help investors improve the tax situation and achieve tax diversification of their portfolio, but the strategy is more appropriate in taxable accounts than tax-sheltered accounts, such as IRA, according to this article on Morningstar. Instead of tax-loss harvesting, IRA investors should consider converting some traditional IRA assets into a Roth to increase their after-tax income after retirement. A Roth conversion is recommended when the market is down or investors move to a lower tax bracket.

Are married clients on the same page as one another?
Married couples succeed in preparing for the golden years if they share the same retirement and financial goals, and they act together to address money matters, according to this article on Money. The article offers a 10-question quiz that couples should take individually, and then compare answers. Those clients should bear in mind that they don’t have to get everything it right the first time around, but rather use this as a first step in a journey to reach their retirement dream.

How to put RMD to work (and avoid a 50% penalty)
Clients who have reached the age of 70 1/2 are compelled to take the required minimum distribution from their tax-deferred retirement account, as failure to withdraw the funds brings a hefty 50% tax penalty, according to this article on USA Today. Retirees who have no need for the RMD may reinvest the money in municipal bonds for better after-tax yield. Those who want to reduce their RMD and the subsequent tax liability may consider investing some of their IRA assets in a qualified longevity annuity contract, as it is excluded from the tax computation on the RMD.

How can retirees adjust spending for inflation without breaking the bank?
Retirement expert David Zolt has introduced a method that retirees can use to determine when they can adjust their spending based on inflation without draining their retirement savings, according to this article on Forbes. Zolt shows a wealth glidepath throughout a 45-year planning horizon based on certain assumptions, such as a $4 initial spending and 3% compounding inflation. Zolt says that retirees should keep spending level when wealth drops under the glidepath, and make inflation adjustments when their remaining wealth exceeds the critical number from the glide path.

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