Servion Financial Advisors Newsletter - December 2021

DECEMBER 2021

In This IssUe Don’t Forget to Take Your Required Minimum Distribution This Year!

2022 Retirement Plan Contribution Limits Year-End Financial Checklist What to Know About the 2022 Social Security Cost of Living Increase

happ y

HOLIDAYS

Happy Holidays from Servion Financial Advisors!

We deeply appreciate the trust you placed in us this year, and we’re looking forward to working with you in 2022.

Dave Edelman, Randy Thiel, Dave Murdock, Diane Rekuski, and Ellie Meenan

Don’t Forget to Take Your Required Minimum Distribution This Year!

2022 is right around the corner, but before it arrives there’s one thing you need to remember: required minimum distributions (RMDs) returned in 2021.

If you haven’t taken yours yet, do it now.

There are some RMD changes that you should know about.

1

The RMD age has changed to 72.

This change comes as a result of the SECURE Act. If you hit age 70½ before 2020, RMDs kicked in at that point and you need to continue to take your RMDs as you always have. If, however, you reached (or will reach) that age in 2020 or later, you have more time - those withdrawals are now required to start at age 72.

Another way to think of it is this: anyone born on July 1, 1949 or later can wait until they turn 72 to take their first RMD.

2 3

4 5

There is no longer a waiver for RMDs in 2021.

As a result, anyone age 72 or older as of December 31, 2021, must take their RMD by year-end to avoid the 50% penalty - unless this is your first RMD, in which case you have until April 1, 2022.

Your first RMD can be deferred but no subsequent distributions can be.

For your initial RMD only, you are not required to take the distribution until April 1 of the calendar year following the year in which you turn 72. So, for someone reaching age 72 on September 1, 2021, their initial RMD could be deferred until April 1, 2022. However, all subsequent RMDs must be taken by December 31 of the appropriate year. Therefore, if they wait until the April 1st, 2022 deadline for their first distribution, they will need to take their second distribution in 2022 as well.

You do not have to take the RMD all at one time.

You can divide the RMD amount and take it throughout the year, as long as the total RMD amount is fully distributed by December 31.

Penalties can be steep.

In an attempt to enforce the taking of RMDs and the payment of taxes on them, custodians and plan sponsors are required to report the amount of your RMDs to the government. If these are missed, the government will know, and you will not only owe taxes due, but also 50% of the amount not taken.

Confused about RMDs? Don’t worry, you certainly aren’t alone. Servion Financial Advisors can help. Visit servionfa.com or call 651-631-3111 any time.

2022 Retirement Plan Contribution Limits Every year, the Internal Revenue Service updates the maximum amounts that may be contributed to 401(k)s and other retirement accounts. This chart provides the limits for 2022 and the change (if any) from the previous year.

Contribution Limits

2021

2022

Change

401(k), 403(b) and 457 elective deferrals

$19,500

$20,500

+$1,000

Catch-up deferral for age 50 and up on 401(k), 403(b) and 457

$6,500

$6,500

None

SIMPLE 401(k)/IRA

$13,500

$14,000

+$500

SIMPLE catch-up contribution

$3,000

$3,000

None

Traditional and Roth IRA

$6,000

$6,000

None

Catch-up contribution for Traditional and Roth IRA for age 50 and up

$1,000

$1,000

None

Who qualifies as a Highly Compensated Employee?

$130,000

$135,000

+$5,000

Health Savings Account (HSA)

Single: $3,600* Family: $7,200*

Single: $3,650* Family: $7,300*

Single: +$50 Family: +$100

Health Flexible Spending Account (FSA)

$2,750

$2,850

+$100

Maximum total employer + employee contributions to all plans at same employer

$58,000

$61,000

+$3,000

*Includes contributions by both employee and employer

If you have questions or would like to discuss retirement planning, investing or any other aspect of your financial life, reach out to Servion Financial Advisors for advice.

servionfa.com • 651-631-3111

What to Know About the 2022 Social Security Cost of Living Increase From shopping at the grocery store to just reading the news, it’s hard to miss rising prices. Whether inflation is temporary or here to stay, it’s clear many things cost more now than they did a year ago. And that’s led to a big boost in Social Security checks.

The Social Security Administration recently announced that it has given its annual Cost of Living Adjustment (or COLA) rate a 5.9 percent boost for 2022. It’s the biggest increase in 40 years.

Here’s how much retirees’ monthly checks will go up in 2022 — and what you need to know about how it could affect your financial planning.

What changes to expect More than 70 million retired Americans rely on Social Security to pay their bills every month; there are about 64 million Social Security beneficiaries and 8 million Supplemental Security Income recipients.

Some Americans receive both benefits.

As the average Social Security beneficiary receives about $1,565 a month this year, the scheduled 5.9 percent increase will amount to an extra $92 a month — or $1,104 extra over a full year. That works out to a new monthly benefit of $1,657 for the average retiree.

There are also some changes to note if you’re still in the workforce. Social Security tax is 6.2 percent of your paycheck (your employer

pays another 6.2 percent — if you’re selfemployed you pay the full 12.4 percent). But you only pay the tax on a certain amount of your earnings. That amount is increasing from $142,800 to $147,000.

Things to keep in mind While you can start claiming Social Security beginning at age 62, you must be at your full retirement age (FRA) (either age 66 or 67, depending on when you were born) in order to receive 100 percent of your benefit.

Additionally, for every year that you delay receiving these funds after your FRA up to age 70, you’ll receive an 8 percent bump in your benefits, which will remain in place for the rest of your life.

The maximum Social Security benefit for a worker retiring at full retirement age is increasing to $3,345 per month in 2022 from $3,148 per month in 2021. If you already started receiving benefits but find that you can cover expenses by other means, you also have the option to suspend Social Security until age 70.

How it all fits together The annual COLA increase is designed to help retirees keep up with inflation and for each of the past two years, benefits rose just 1.3 percent because inflation was a lot lower.

This year’s COLA reflects that inflation

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AS THE AVERAGE SOCIAL SECURITY BENEFICIARY RECEIVES ABOUT $1,565 A MONTH THIS YEAR, THE SCHEDULED 5.9 PERCENT INCREASE WILL AMOUNT TO AN EXTRA $92 A MONTH — OR $1,104 EXTRA OVER A FULL YEAR.

this year has remained at its highest rate in more than a decade as price increases from pandemic-related labor and materials shortages are impacting the economy.

The Social Security Administration bases the cost-of-living adjustments on a formula that’s tied to the Consumer Price Index (CPI), which measures what consumers pay for goods and services. According to the latest data from the Bureau of Labor Statistics, the overall CPI has risen by 5.4 percent over the past 12 months. But even if inflation tapers off next year, the higher benefit may not be enough to offset the increases in medical costs, food, lodging and gas. In fact, Medicare Part B premiums, which many retirees have deducted from their Social Security checks,

are expected to rise by more than 6 percent per month.

That’s why, even though Social Security is undeniably an important component of your retirement plan, setting up diverse savings and income streams is the best way to support yourself through your golden years.

Source: https://www.northwesternmutual.com/life-andmoney/what-to-know-about-the-social-security-cost-ofliving-increase-for-2022/

651-631-3111 • servionfa.com

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