Securing Your Legacy: A Comprehensive Guide to Wealth Transfer

By Corey Gragg, CFP®

Many individuals and couples want to leave a lasting impression on their loved ones. For some, part of this lasting impression, or legacy, can be created by passing assets to the next generation.

The transfer of wealth can occur at death through a will, life insurance, trust, or other estate planning vehicle. Another method for transferring wealth is to make gifts to loved ones or other beneficiaries during one’s lifetime. 

Important factors and considerations when contemplating wealth transfer strategies include the age of those doing the planning and the beneficiaries, the amount of assets available, and laws that govern the transfer and taxation of gifts and inherited assets.

Annual Gifts

In 2024, current tax law allows for gifts of up to $18,000 to any individual (or $36,000 if the gift is coming from a married couple) without any tax implications. That amount, called the annual gift exclusion, is adjusted annually for inflation.

If you give an amount that’s over the exclusion limit, that amount goes into a lifetime exemption bucket. So, for example, if you gift your niece $25,000 instead of the $18,000 limit for 2024, that extra $7,000 spills into a lifetime exemption bucket. In 2024, the lifetime exclusion limit is $13.61 million and $27.22 million for individuals and married couples, respectively. 

More good news: You don’t have to keep track of the amount in your lifetime exemption bucket. That’s something that’s typically tallied by your accountant as part of your tax filings.

Direct Payments

Two notable exceptions to the annual gift and lifetime gift limits are for direct payments that are made to an educational institution for tuition, and direct payments to a healthcare provider for health-related costs. The IRS allows for these payments to be made on behalf of a beneficiary, with no gift tax implications.

529 College Savings Plan

Utilizing a 529 college savings plan is another way to transfer your wealth to your loved ones. As long as the beneficiary uses the 529 funds to pay for qualified education expenses, they can withdraw the money tax-free.

In 2024, there’s a special provision that lets you contribute up to five years’ worth of gifts as a lump sum without incurring gift taxes. The contribution limits are $90,000 for individuals and $180,000 for married couples. Another recent change to tax law states that beginning in 2024, you can convert up to a lifetime limit of $35,000 in a 529 to a Roth IRA (subject to Roth IRA annual contribution limits) tax-free and penalty-free, as long as the 529 beneficiary has owned it for at least 15 years.

Revocable or Irrevocable Trust

A trust is a legal document that determines what happens with your assets after your passing. There are two types of trusts to consider: revocable and irrevocable. 

Revocable (living) trusts can be modified after they’re created. Conversely, irrevocable trusts are permanently binding. The type of trust you choose is entirely dependent on your personal situation.

Revocable living trusts allow you to avoid probate court (which can be lengthy and expensive), protect your privacy, and enable more flexibility for your assets. However, a revocable trust doesn’t have direct tax benefits and doesn’t shield your assets from creditors.

Irrevocable trusts, on the other hand, are typically used by people with significant wealth who want to bypass estate taxes and other tax liabilities. Also, since this type of trust is a separate legal entity, there are different tax rules, regulations, and potential benefits associated with the use of an irrevocable trust. The biggest downside is that the person who creates an irrevocable trust gives up control of their assets, since these types of trusts cannot be changed.

There are many types of irrevocable trusts, each of which meet specific planning-related needs. For example, an Irrevocable Life Insurance Trust (ILIT) is often used to remove life insurance proceeds from a large estate to help pay for estate taxes, if needed.

Beneficiary Designations

Another option for transferring wealth: depending on the asset type, you can transfer assets using something called a beneficiary designation. A beneficiary designation is specified by the owner of the asset and explicitly states who should receive the asset upon their death.

Qualified asset types for beneficiary designations include retirement accounts like 401(k)s, 403(b)s, and IRAs. If you use a Transfer-on-Death (TOD) or Payable-on-Death (POD) designation, you can also use a beneficiary designation to transfer non-qualified investment and bank accounts.

One of the most notable perks of transferring assets using a beneficiary designation is the ability to avoid probate.

Wills

Creating a legal will is one of the more widespread strategies for transferring wealth. A will is often used to provide clear and organized details of what happens to any assets that are not titled in a trust. 

As mentioned above, wealth can be transferred to a named beneficiary. If this is the case, the beneficiary designation takes precedence over a will. This is especially true for tax-deferred accounts because they’re typically set up with a named beneficiary.

One of the bigger advantages of using a will to transfer wealth is that it gives you complete control over who acquires your assets and how much they get—eliminating ambiguity and potential conflict. 

The Gift of Time

In years past, many individuals and couples decided only to leave a legacy after their passing. Today, many families with the financial means to do so, will provide gifts during their lifetime to allow beneficiaries to benefit from gifts at a younger age, and to give themselves the opportunity to see the enjoyment of their gifts.

Estate Taxes & the Impending Exemption Decrease

Not only does gifting provide a legacy for grantors and innumerable benefits for beneficiaries, but gifting and estate planning strategies are often used to decrease (or avoid altogether) a potential estate tax bill.

In 2024, an estate that is greater than the previously mentioned exemption amount ($13.61 million for individuals) will be subject to a 40% tax on the assets in excess of that amount. Clearly, employing gifting or estate planning strategies could provide significant tax savings for a large estate.

Another major factor to consider: After 2025, provisions from the Tax Cuts and Jobs Act of 2017 will expire and the estate tax exemption amount will decrease by an estimated 50%. This change will bring estate taxes back into the equation for a significant amount of U.S. households, making now the right time to start planning.

Wealth Advisors

It’s possible to manage wealth transfer on your own, but there are significant advantages to working with a qualified wealth advisor. They can use their knowledge and experience to guide you on tax laws, investment strategies, estate planning tools, and the nuances of wealth transfer.

Get Started Building a Lasting Legacy

At Elk River Wealth Management, we would love to meet with you to discuss how we can help you leave a lasting legacy for your loved ones. We’re here to help you navigate the challenges of estate planning and gifting with clarity and confidence.  

To schedule an introductory meeting, email cgragg@elkriverwealth.com or call (720) 452-1901. We look forward to hearing from you!

About Corey

Corey Gragg is the Director of Financial Planning at Elk River Wealth Management, an independent investment advisory firm that embraces a financial planning platform in order to deliver comprehensive wealth management solutions to clients in Colorado, Arizona, Nebraska, and across the United States. Corey is an experienced wealth advisor that works with individuals, families, and business owners to put together goal-based, comprehensive financial plans. What he enjoys most is working with families to provide financial independence and peace of mind through detailed planning and seeing them reach their goals. He takes his clients’ trust in him seriously and strives to continue to earn it every day. 

Prior to joining Elk River Wealth Management, Corey held various sales and advisory roles with American Century Investments, located in Kansas City. Corey holds an accounting & finance degree from Washburn University in Topeka, Kansas, a Master of Science in Personal Financial Planning through The College for Financial Planning, and the CERTIFIED FINANCIAL PLANNER™ certification. Corey lives and works in Denver, Colorado. Outside of work, he loves to hike, run, golf, and spend time with family and friends. To learn more about Corey, connect with him on LinkedIn.

Charitable Giving & RMDs: A Win-Win Strategy for Retirees

By Corey Gragg, CFP®

Many dream of leaving a legacy—and required minimum distributions (RMDs) may offer a path for leaving yours. 

Using RMDs to facilitate charitable gifts can be a valuable tax strategy for retirees. If you want to turn your generosity into a tax break, you’ll need to navigate the eligibility requirements and limits of qualified charitable distributions (QCDs). Here’s how the process works.

Benefits of Charitable Giving and RMDs

To be clear, charitable gifts offer more than just financial benefits. By giving generously, you can make a positive impact on your community. Now that you’ve reached your retirement years, you can look back on the opportunities you’ve received and share them in a meaningful, measurable way.

Charitable donations can also offer tax benefits. Individuals who have made pre-tax contributions to a retirement account are required to take RMDs from those retirement accounts. The age at which RMDs are required depends on your date of birth, as dictated by the SECURE Act 2.0, which was passed in 2022. These distributions are normally taxed as ordinary income. However, making qualified charitable distributions (QCDs) to qualifying organizations can allow individuals to avoid paying taxes on the amount that is distributed directly to a charitable organization.

In other words, if you’re 70.5 years or older, you can save money by directing your RMDs straight to the qualifying charity of your choice. By linking your charitable giving and RMDs, you can reduce your tax liability while leaving your mark on your community.

Requirements for QCDs

While the process sounds straightforward, there are some requirements that apply to charitable giving and RMDs. These requirements govern the organizations that are eligible for tax deductions, as well as the amount you can deduct.

What Account Type Can I Use for Charitable Giving and RMDs?

This strategy only applies to specific retirement account types, including:

  • Traditional IRA
  • Rollover IRA
  • Inherited IRA
  • Inactive SEP IRA
  • Inactive SIMPLE IRA 

In every case, you must meet the minimum age requirement (70.5 and older) and adhere to RMD deadlines.

What Charities Qualify as a QCD?

To qualify as a QCD, a charity must have a 501(c)(3) non-profit status. Private foundations, donor-advised funds, and supporting organizations are excluded from eligibility as a QCD. Common examples of QCDs can include religious organizations, charities, volunteer fire and rescue departments, and non-profit educational organizations.

How Much Can I Donate to QCDs?

There is a cap on how much you can donate per year with this strategy. Taxpayers are limited to $100,000 per calendar year. This amount will be indexed annually for inflation starting in 2024. Similarly, the taxpayer must donate directly to the qualifying charity, which means that the money can’t be funneled through a business or separate organization. It is the taxpayer’s responsibility to keep track of all QCDs and report them during tax season.

How Do I Report Charitable Donations?

To unite your charitable giving and RMDs, you’ll need to report your QCDs on your annual income tax return. Using Form 1099-R, you’ll report all QCDs as normal distributions. The only exception is inherited IRAs, which are reported as death distributions. 

Keep in mind that you must obtain acknowledgment of the donation in order to claim it on your tax return. Many organizations can provide you with a receipt or giving statement, which you can use for tax reporting purposes.

Get Help With Your Tax-Free Donations

If you’re 70.5 or older and subject to required minimum distributions, QCDs can serve as a valuable, tax-efficient method for charitable giving, especially if you’re required to take minimum distributions from your retirement account. By following these tips, you’ll be better able to reduce your liability while also putting your money where it counts—back into your community.

If you need help navigating the legal and financial requirements of this strategy, the Elk River Wealth  team is here for you. We invite you to schedule an introductory meeting by emailing cgragg@elkriverwealth.com or calling (720) 452-1901.

About Corey

Corey Gragg is the Director of Financial Planning at Elk River Wealth Management, an independent investment advisory firm that embraces a financial planning platform in order to deliver comprehensive wealth management solutions to clients in Colorado, Arizona, Nebraska, and across the United States. Corey is an experienced wealth advisor that works with individuals, families, and business owners to put together goal-based, comprehensive financial plans. What he enjoys most is working with families to provide financial independence and peace of mind through detailed planning and seeing them reach their goals. He takes his clients’ trust in him seriously and strives to continue to earn it every day.

Prior to joining Elk River Wealth Management, Corey held various sales and advisory roles with American Century Investments, located in Kansas City. Corey holds an accounting & finance degree from Washburn University in Topeka, Kansas, a Master of Science in Personal Financial Planning through The College for Financial Planning, and the CERTIFIED FINANCIAL PLANNER™ certification. Corey lives and works in Denver, Colorado. Outside of work, he loves to hike, run, golf, and spend time with family and friends. To learn more about Corey, connect with him on LinkedIn.

Maximizing Your Retirement Savings: The Complete Guide to Roth IRA Conversions

By Corey Gragg, CFP®

Wouldn’t it be nice if saving for retirement was straightforward? Instead, it may feel like anything but—especially when choosing from the many available options.

While most people know they need to invest, it can be overwhelming to sift through all the information about Traditional IRAs vs. Roth IRAs, pre-tax vs. Roth 401(k) contributions, etc. What’s more, there’s the option to move funds from a Traditional IRA (or other pre-tax retirement account) to a Roth IRA, known as a Roth IRA conversion. Talk about confusion!

When it comes to retirement planning, it’s crucial to consider the pros and cons of a Roth conversion and how those affect your personal financial plan before deciding whether to make a change. So, let’s take a deeper look into the key elements to determine whether a Roth IRA conversion is right for you.

Traditional IRA vs. Roth IRA

It’s important to note that both a Traditional IRA and a Roth IRA offer tax advantages. When you contribute to a Traditional IRA, you realize an immediate benefit by reducing your taxable income (and tax liability) in the current year. However, when you withdraw those funds from your IRA in retirement, you pay income taxes on the full amount of your withdrawals. Contributing with pre-tax dollars to a 401(k) or similar plan provided by your employer has the same tax implications.

With a Roth IRA, you’ll realize the tax benefits when you’re ready to withdraw. Since you fund your Roth account with after-tax dollars, money can be withdrawn tax-free when certain conditions are met. The biggest benefit of a Roth IRA is long-term tax-free growth.  

As tempting as it is to think short term and opt for a Traditional IRA solely for the immediate tax deduction, the long-term benefits of a Roth IRA, particularly tax-free withdrawals in retirement (once you hit 59½), can prove to be even more advantageous. A Roth IRA can be a great way to mitigate taxes in your retirement years and keep more of your hard-earned money in your pocket.

So, what happens if you have already contributed to a Traditional IRA or other pre-tax retirement account, and you want to be sure this is still the best strategy for you? This is where a Roth IRA conversion may offer some very specific tax benefits.

Note: Pre-tax and Roth contributions to a 401(k), 403(b), or other employer-sponsored plan have very similar tax implications to Traditional IRAs. Similarly, Roth contributions to 401(k), 403(b) or other employer-sponsored plans are treated similarly to Roth IRA contributions.

Why a Roth IRA Conversion?

Before getting to the why, it’s important to know what a Roth Conversion is. Put simply, a Roth IRA conversion is essentially moving money from a Traditional IRA (or other pre-tax retirement account) to a Roth IRA. There are several factors to keep in mind when considering a Roth conversion. First, consider this crucial question: Would you rather pay taxes at today’s rate or the anticipated future rate? 

If you have a Traditional IRA but believe you’ll ultimately be in a higher tax bracket when ready to withdraw funds, a conversion may be best. But remember this: contributions you made to a Traditional IRA haven’t been taxed yet, so when you decide to convert, you’ll need to pay taxes on any amount that you convert from a Traditional IRA to a Roth IRA.

If you’re worried about paying a large tax bill in one year, note that Roth conversions can be done over time. You can convert just enough of your account to bring your taxable income for the year to the top of your tax bracket without jumping into a higher one. It’s a strategic way to move money from a Traditional IRA to a Roth IRA while keeping your tax liability in check. This is called tax bracket optimization.

With the taxes taken care of, your funds can grow tax-free until you decide to withdraw them or pass them on to your heirs. This is another benefit of Roth conversions for individuals and couples who seek to provide a legacy for their heirs. Money that has grown in a Roth IRA that is inherited is also completely tax-free for the beneficiaries of the account, as opposed to a Traditional IRA, where beneficiaries are required to pay income tax on any withdrawals. Keep in mind the primary aim of a Roth IRA conversion is to reduce taxes paid in the long run, which can include multiple generations.

How to Navigate the Income Eligibility Cap

By now, it’s obvious that a Roth IRA conversion has major advantages, but one drawback is that most high-income earners don’t qualify for a Roth IRA. As of 2023, you’re not eligible to contribute to a Roth IRA if you make at least $153,000 as an individual or $228,000 as a married couple. But there may still be a way to take advantage of the benefits: a “backdoor” Roth conversion.

This strategy is for those who exceed the income limits but are interested in the tax benefits. The process includes making a non-deductible contribution to a Traditional IRA and immediately converting the funds to a Roth IRA. 

It’s important to note that you won’t get to use the tax deduction that often comes with a Traditional IRA contribution, but the real goal with this strategy is to get the funds into a Roth IRA for tax-free growth.

With this strategy, you gain the flexibility to control your tax burden. It allows you to smartly  navigate your tax brackets and minimize your overall tax liability, which could affect how much money you really need to maintain your lifestyle in retirement.

How We Can Help

Still have questions regarding whether a Roth IRA conversion is best suited for your specific needs? That’s where we at Elk River Wealth Management come in!

Our mission is to be the indispensable partner known for delivering exceptional advice, especially when it comes to your retirement. We can help you explore your options and determine whether a Roth IRA or a Roth conversion is right for you. 

We invite you to schedule an introductory meeting by emailing cgragg@elkriverwealth.com or info@elkriverwealth.com and by calling (720) 452-1901.

About Corey

Corey Gragg is the Director of Financial Planning at Elk River Wealth Management, an independent investment advisory firm that embraces a financial planning platform in order to deliver comprehensive wealth management solutions to clients in Colorado, Arizona, Nebraska, and across the United States. Corey is an experienced wealth advisor that works with individuals, families, and business owners to put together goal-based, comprehensive financial plans. What he enjoys most is working with families to provide financial independence and peace of mind through detailed planning and seeing them reach their goals. He takes his clients’ trust in him seriously and strives to continue to earn it every day.

Prior to joining Elk River Wealth Management, Corey held various sales and advisory roles with American Century Investments, located in Kansas City. Corey holds an accounting & finance degree from Washburn University in Topeka, Kansas, a Master of Science in Personal Financial Planning through The College for Financial Planning, and the CERTIFIED FINANCIAL PLANNER™ certification. Corey lives and works in Denver, Colorado. Outside of work, he loves to hike, run, golf, and spend time with family and friends. To learn more about Corey, connect with him on LinkedIn.

Increase Your Savings: How Donor-Advised Funds Can Reduce Your Tax Burden

By Dan Owens, CPWA®

Benjamin Franklin is quoted as saying that the only certainties in life are death and taxes. While we may not be able to avoid either one, there are plenty of ways we can help reduce our tax burden and increase our savings. One such way is through a donor-advised fund. A donor-advised fund (DAF) is a charitable investment account that allows you to lower your taxable income through contributions, then choose organizations to support, either immediately or in the future. It’s a win-win situation. Here’s some of what you need to know about this unique tax-saving strategy.

Charitable Giving Under the Tax Cuts and Jobs Act (TCJA)

Before we explain what DAFs are, it’s important to mention the changes in charitable giving under the Tax Cuts and Jobs Act (TCJA). Essentially, the tax benefits for charitable giving have been reduced by more than 30% since the TCJA went into effect in 2017. If you’re charitably inclined, you’re probably used to itemizing your deductions. However, with the increased standard deduction and the limit on deductions for state and local taxes, you may not have received as much of a tax benefit for your giving in the past few years (since the TCJA went into effect in 2017) as you may have previously. Using a DAF is one strategy to help maximize the tax benefits of charitable giving.

What Is a Donor-Advised Fund?

Essentially, a donor-advised fund is a philanthropic investment account that is funded with irrevocable, tax-deductible contributions. After making a contribution, a donor can direct how the funds are invested (stocks, bonds, ETFs, etc.), then make gifts to most charitable organizations as the donor chooses. One important thing to keep in mind: once you put an asset into a DAF, you can’t take it back. 

Because of this, your contributions are considered a completed charitable gift and are immediately tax-deductible. You can take the tax deduction right away even if you wait several years to pass the money on to charity. Though you don’t technically retain ownership when you put money or assets into a DAF, you are still able to guide investment selection and recommend which organizations will receive contributions from the DAF. You can name your DAF account, as well as your advisors, successors, and beneficiaries. The “administrator” of the DAF makes the ultimate decision on where the funds go, but if you’re worried about not having as much control of your money, know that most DAF administrators will honor donor wishes, as long as the recommendation complies with legal and tax requirements and grant-making policies.

Tax Benefits of a Donor-Advised Fund

DAFs offer several tax benefits. First, you get to take an immediate deduction when you contribute, even if the money has yet to be given to the charity of your choice. Any limit to the deduction you’re allowed to take depends on what kind of assets you contribute to the DAF.

Publicly traded securities are a popular asset to contribute to a DAF. This is because you can avoid paying long-term capital gains taxes and still deduct the fair market value of the securities (those held over a year). If you buy a security at $100 and put it in a DAF when it’s worth $200, you get to deduct $200 of taxable income, while paying $0 on the gain on the stock.

Contributions of long-term capital gain property to a DAF, such as appreciated securities, can be deducted up to 30% of your adjusted gross income (AGI). For all other cash contributions, you can deduct up to 60% of your AGI. If your contributions exceed your deductible limit, you can carry the deduction forward for up to 5 years, if needed. 

Also, all contributions can be invested within the DAF to grow tax-free. Once assets are in a DAF, they belong to charity and are therefore exempt from taxes.

How Are Donor-Advised Funds Used?

Using a DAF can lead to more deductions over two years. Following is an example of savings in the 24% tax bracket and additional benefits from donating appreciated securities.

Let’s take a look at an example. The 2022 standard deduction for a married couple filing jointly is $25,900, and $27,700 in 2023. Assume that you have been donating $15,000 per year to charity. When combined with your property taxes and mortgage interest, you have total itemized deductions of $31,000 each year. That means you only receive a tax benefit for $5,100 of your giving in 2022 and $3,300 in 2023. Your total tax deductions over the two years are $62,000.

Now, instead, imagine that you open a donor-advised fund in 2022 and contribute $30,000 to it to cover your charitable giving for 2022 and 2023. In 2022, you will have itemized deductions of $46,000 ($16,000 of mortgage interest and property tax combined with $30,000 contributed to a DAF). Then in 2023, you can simply take the standard deduction since you have no charitable giving to report. Your total deductions over the two years will be $73,700.

By using a donor-advised fund, you end up with $11,700 more in deductions over two years. If you are in the 24% tax bracket, that’s a tax savings of over $2,800. If you donate appreciated securities to the DAF, your tax savings will be even greater because you will not face capital gains tax on the disposal of the securities. This strategy is also called “bunching,” because several years of charitable contributions are “bunched” into one year.

Is a Donor-Advised Fund Right for You?

If you’re already donating to charities and organizations that you care about and you want to maximize the tax benefits and flexibility of those gifts, a DAF could be a great option.

Another great time for a large DAF contribution would be in a year with a large income event, like the sale of a business. Selling a business for $50,000,000 likely comes with a large tax bill. Contributing $10,000,000 to a DAF during that year could allow a business owner to save more than $2.3 million in taxes, while not being forced to make a decision on which organization(s) to immediately gift the money. In that case, the DAF could be used over a number of years (or even decades) to support causes that are close to the family’s heart.

At Elk River Wealth Management, we would be pleased to partner with you to determine the best strategy for your tax-efficient giving. We specialize in delivering comprehensive wealth management services with a personalized touch. If you want to see if a DAF is the right fit for your goals or explore any of our other financial services, call our office today at (720) 452-1901 or email cgragg@elkriverwealth.com.

About Dan

Dan Owens is a Managing Director and Senior Wealth Advisor for Elk River Wealth focusing his efforts on the Arizona market. Dan has over 20 years of experience in the financial services business and is a Certified PrivateWealth Advisor® (CPWA®). Dan values building relationships with clients and focuses on the financial needs of individuals, families, and business owners. Dan enjoys what he does and is dedicated to helping people successfully navigate the complexities of the financial system. Since moving to Arizona in 2003, Dan has been an active member of the community, volunteering for projects and organizations that support the greater Arizona community. He has served on local boards, committees, and foundations, including UMOM, HandsOn Greater Phoenix, SARRC, CoBiz Cares Foundation, and CoBiz Biz Bash. Today, he is a proud member of the Team Bradley Bear board helping families struggling to pay bills while battling pediatric Cancer.

Dan met his wife, Kim, while both were volunteers and together remain passionate about helping others. They make their home in central Phoenix and enjoy riding bikes, hiking, and other outdoor activities with their two children.

Top 5 Financial Mistakes Every Business Owner Should Avoid

By Dan Owens, CPWA®

Small businesses are the backbone of our country. At Elk River Wealth Management, we specialize in helping business owners manage their personal finances, understand how their business fits into their overall financial plan, and avoid pitfalls that can derail life.  

In working with our clients, we often see business owners make similar mistakes when it comes to managing their business and personal finances. Let’s discuss these mistakes and how you can avoid making them yourself.

1. Neglecting Personal/Family Retirement & Financial Planning

It’s easy for business owners to overlook their personal financial well-being—especially for an event that seems far away, like retirement. When you have a full plate with your business and other aspects of your life vying for attention, your retirement planning may take a back seat. However, neglecting your retirement plan could have serious consequences. 

The longer you wait to develop a retirement plan, the greater the risk of not retiring on your terms. People say, “Time is money,” and it is also a helpful resource when planning for distant goals. The inverse is true, too; the lack of time can be a challenge difficult to overcome. As a business owner, it’s important to have clarity regarding what you want retirement to look like for you, so you can start building a plan to achieve it. 

Will you continue running your business? Are you planning to pass it on to your children or grandchildren? Or do you plan to sell it and retire with the sale proceeds? What sale price would be enough to fund your retirement lifestyle? 

With a skilled financial advisor, you can take the first steps toward establishing a comprehensive retirement plan that satisfies the needs of your business finances, your family finances, and your personal retirement planning. 

2. Not Having a Business Succession Plan

You’ve poured your heart and soul (as well as many valuable years of your life) into building a successful business. Setting a business succession plan outlines essential details regarding:

  • Business continuity
  • Leadership succession
  • Ownership transitions
  • Who will buy the business and how will they fund the purchase? 

If anything happens to you, or even your employees, there should be a clear plan of action that helps maintain the longevity and success of your business. 

Another key component of a business succession plan often includes buy–sell agreements and key man life insurance. A buy–sell agreement outlines the process of buying out a deceased or departing owner’s share of the business. Key man life insurance supplements the business with financial support in case a key employee or owner passes away unexpectedly. 

Without these succession planning components, your business could experience immense uncertainty if anything happens to you or another owner. 

3. Not Choosing the Right Entity Structure and Business Insurance

Selecting the appropriate entity structure for your business, such as an S corporation or C corporation, has significant tax and liability implications. The choice can impact your personal liability, taxation, and even your ability to raise capital. 

To choose the most advantageous business structure for your business, it’s important to research your options thoroughly; and consult with a financial planner professional for an informed decision that aligns with your business goals. 

Additionally, business insurance is non-negotiable. Proper entity structure may protect you from liabilities arising from your business, and it is important to safeguard the assets of the business. An appropriate level of business insurance shields your business from unexpected events, such as lawsuits, property damage, or employee injuries. 

Investing in the right insurance coverage safeguards your business’s financial stability. A financial planner professional can help you assess your insurance coverage and identify any gaps.

4. Inadequate Employee Benefit Structures

If you were one of the businesses affected by recent labor shortages, you know how crucial it is to attract and keep a dedicated team. Offering employee benefits like these helps your business remain competitive in the labor market.

  • Retirement plans
  • Health insurance
  • Dental and vision 
  • Other perks

Without structured employee benefits, your business could experience higher turnover or face a lack of applicants for open positions. 

At Elk River Wealth Management, we work with experts in benefits who will help you take care of your employees by working with you to design a comprehensive benefits package aligned with your business’s financial capacity and employee needs. 

5. Neglecting Investment Diversification

Overreliance on your business’s success to provide financial security could backfire if the market shifts or the business faces a dip in profitability. Diversifying your investment portfolio beyond your business can help reduce the risk of putting all your eggs in one basket. 

If there is a problem in the business, it is likely you will be called upon to fix it. The fix may mean changing how you do business, but it may also mean more capital, which means you need to be prepared. 

It is smart to build a nest egg outside of your business. Construct a stable investment portfolio that has a mix of securities, such as:

  • Stocks
  • Bonds
  • Real estate
  • Exchange-traded funds (ETFs)
  • Mutual funds

It’s important to diversify based on industry as well. For example, if your investment portfolio is made up only of stocks in the technology sector, a disruption in that industry could result in a larger negative impact on your investments. 

During periods of economic downturn, the right diversification strategy could cushion potential blows to your portfolio and minimize losses. 

Avoid Financial Mistakes With Professional Guidance

As a financial advisor for Elk River Wealth Management, we’ve worked with business owners like you, and we are familiar with how much you’re handling on a regular basis. You know your business inside and out, and you need someone just as familiar with your finances. 

As a Certified Private Wealth Advisor® professional, I’ve helped business owners like you avoid financial pitfalls by developing a customized plan that fits their lives and their business. If you’re ready to get your small business on the right track financially, we invite you to schedule an introductory meeting by emailing dowens@elkriverwealth.com or calling (720) 452-1875.

About Dan

Dan Owens is a Managing Director and Senior Wealth Advisor for Elk River Wealth focusing his efforts on the Arizona market.

Dan has over 20 years of experience in the financial services business and is a Certified Private Wealth Advisor® (CPWA®). Dan values building relationships with clients and focuses on the financial needs of individuals, families, and business owners. Dan enjoys what he does and is dedicated to helping people successfully navigate the complexities of the financial system.

Since moving to Arizona in 2003, Dan has been an active member of the community, volunteering for projects and organizations that support the greater Arizona community. He has served on local boards, committees, and foundations, including UMOM, HandsOn Greater Phoenix, SARRC, CoBiz Cares Foundation, and CoBiz Biz Bash. Today, he is a proud member of the Team Bradley Bear board helping families struggling to pay bills while battling pediatric cancer.

Dan met his wife, Kim, while both were volunteers and together remain passionate about helping others. They make their home in central Phoenix and enjoy riding bikes, hiking, and other outdoor activities with their two children.

How Much Money Do I Need to Maintain My Lifestyle in Retirement?

By Corey Gragg, CFP®

There’s a question we all ask ourselves at some point: Will I have enough money to  retire and live the lifestyle that I want  in retirement?

The prevailing school of thought is that we should be saving 10 to 15% of our annual pre-tax income each year including any employer match leading up to retirement. Of course, this rule of thumb is just that—a rule of thumb. 

To find your unique “magic number” for retirement, there are many variables to consider. These variables include your current and future income, savings, expenses, debt, and especially the lifestyle you desire for your retirement. Consider the following questions when determining your magic number for your unique retirement.

What’s Your Ideal Retirement Date?

Your age (now and in retirement) is one of the most significant factors to consider when determining how much money you need to save. If you want to retire early, you’ll have fewer years to save for a longer retirement. And if you start claiming Social Security benefits before full retirement age, you’ll also have to factor in a smaller monthly benefit amount.

The state of the stock market can also play a role in how much money you need and how long your money lasts. Those who plan for the inevitability of market volatility fare better in retirement than those who don’t. Of course, you have no way of knowing if we’ll be in a bear or bull market when you retire—but these are scenarios you must account for in your retirement planning.  

What Do You Want Your Retirement Life to Look Like?

Have you thought about the type of lifestyle you want to have in retirement? If you know you want to travel, play golf, or spend time with your grandkids, you need to factor in what that looks like, and how much it will cost.

For example, if you plan to travel, you’ll need to consider: 

  • Will you be traveling stateside or internationally?
  • How often do you want to travel?
  • How would you like to get there? (e.g., car, plane, or RV)
  • Where would you like to stay? (e.g., 5-star hotel, Airbnb, with family members)
  • Will you be traveling with your family? Would you like to cover their expenses, too?
  • Will you maintain your primary residence? If so, who will watch your house and maintain it while you’re gone?

Even if your dream is simply to spend time with your grandkids, you’ll still need to think through your expectations and expenses. To some people, “spending time with grandkids” means babysitting a few times a week. To others, it means footing the bill for all-expenses-paid trips to various destinations of their choosing. Whatever it is you want to do with your time, map out the details so you can have a clear picture of how much you’ll need to make it a reality. 

Will You Earn an Income in Retirement?

Working during your retirement is a great way to stay active, keep your mind sharp, and maintain a sense of purpose. Some retirees choose to build a second career through consulting. Others decide to pick up a low-stress, part-time job at a family office or retail store. No matter what you do, if you plan to work during retirement, you won’t have to save as much to live comfortably. 

How Much Debt Do You Carry?

Bringing debt into retirement has two major drawbacks: 

  1. It reduces the amount of cash flow you have for housing, travel, hobbies, and other non-essential purchases.
  2. It can potentially drain your retirement savings quicker, which means you may run out of money or have to adjust your lifestyle down the road.  

If you carry debt, take a close look at what you owe and figure out how much cash flow you’ll need in retirement to cover these expenses. Some people prefer to pay off any high-interest debt before they retire. Others will take it one step further by paying down their mortgage and auto loans, too.

What Kind of Healthcare Coverage Do You Expect to Have?

Right now, you most likely have health insurance through your employer. When you stop working, you’ll need to have another plan for healthcare coverage. You may be able to join your spouse’s plan, if he or she is still working. Or you can get coverage through the healthcare marketplace. You qualify for Medicare starting at age 65, but even then, you may want additional coverage to pay for prescription drugs, dental care, eye exams, and other expenses. 

Retirees sometimes fail to fully plan for expenses during the later stages of retirement, and medical care often tops the list. It’s estimated that retirees will use 15% of their income for health expenses, and the average retired couple could see healthcare expenses of approximately $300,000 after age 65. Don’t let this be a planning oversight that prevents you from retiring comfortably!

Will You Be Supporting Any Children or Grandchildren?

Your kids may be grown and out of the house by the time you retire, but that doesn’t necessarily mean you’ll stop supporting them financially. Over 79% of parents said they still give financial support to their adult children (ages 18 to 34), according to a Merrill Lynch study, and the COVID-19 pandemic caused a boomerang effect, with 67% of adult children still living at home with their parents after returning home due to the need of financial help.

And even if you aren’t helping your kids out with daily expenses, you may want to contribute to their weddings or down payments on home purchases down the road.  

Where Will You Live?

Housing may be your biggest expense in retirement. And even if your home is paid off, you might eventually consider downsizing to a smaller place that requires less maintenance and has less expensive utility costs. 

To save even more, you can think about relocating to an area that has an overall lower cost of living. For example, the cost of living in Orlando, FL, is only 3.3% higher than the national U.S. average, whereas the cost of living in Los Angeles, CA, is 76.2% higher than the U.S average. Clearly, where you live can make a huge impact on the overall cost of retirement.

What Is Your Family’s Health History?

The average 65-year-old man has a 35% chance of living until age 90; that rate goes up to 46% for a woman the same age. And while life expectancy is unpredictable, if your family has a strong history of living to age 90 and beyond, your chances may be even greater than these odds. In this case, you’ll need to determine if your planned retirement savings will last long enough. 

Similarly, if you have known health conditions and/or a family history of health problems that could affect your life span, you’ll want to consider this, too. 

Your Unique Retirement Needs a Unique Plan

It would be nice (and much less complex) if the amount needed for your ideal retirement came down to a simple formula or percentage. On the contrary, to apply to your unique situation, your “magic number” requires a deep dive into your financial situation, priorities, and goals.

At Elk River Wealth Management, we strive to simplify financial planning and prioritize your needs. At the heart of everything we do is our commitment to delivering a complete experience to help you build on your successes and manage every aspect of your financial life, including how much you need to save for your ideal retirement. By collaborating with us, knowing we will steward your money with care and integrity, we take the burden off your shoulders so you can live without financial worry within a personalized retirement plan. 

Would you like to partner with a financial planner who can help you find the right balance between living the life you want and safeguarding your nest egg? We invite you to schedule an introductory meeting by emailing cgragg@elkriverwealth.com or calling (720) 452-1901.

About Corey

Corey Gragg is the Director of Financial Planning at Elk River Wealth Management, an independent investment advisory firm that embraces a financial planning platform in order to deliver comprehensive wealth management solutions to clients in Colorado, Arizona, Nebraska, and across the United States. Corey is an experienced wealth advisor that works with individuals, families, and business owners to put together goal-based, comprehensive financial plans. What he enjoys most is working with families to provide financial independence and peace of mind through detailed planning and seeing them reach their goals. He takes his clients’ trust in him seriously and strives to continue to earn it every day.

Prior to joining Elk River Wealth Management, Corey held various sales and advisory roles with American Century Investments, located in Kansas City. Corey holds an accounting & finance degree from Washburn University in Topeka, Kansas, a Master of Science in Personal Financial Planning through The College for Financial Planning, and the CERTIFIED FINANCIAL PLANNER™ certification. Corey lives and works in Denver, Colorado. Outside of work, he loves to hike, run, golf, and spend time with family and friends. To learn more about Corey, connect with him on LinkedIn.