William C. Newell

William C. Newell

Thursday, 06 September 2018 15:27

The Snowball Effect

Save and invest, year after year, to put the full power of compounding on your side.

Have you been saving for retirement for a decade or more? In the foreseeable future, something terrific is likely to happen with your IRA or your workplace retirement plan account. At some point, its yearly earnings should begin to exceed your yearly contributions.

Just when could this happen? The timing depends on several factors, and the biggest factor may simply be consistency – your ability to keep steadily investing and saving. The potential for this phenomenon is apparent for savers who start early and savers who start late. Here are two mock scenarios.

Christina starts saving for retirement at age 23. After college, she takes a job paying $45,000 a year. Each month, she directs 10% of her salary ($375) into a workplace retirement plan account. The investments in that account earn 6% per year. Thirteen years later, Christina is still happily working at the same firm and still regularly putting 10% of her pay into the retirement plan each month. She now earns $58,200 a year, so her monthly 10% contribution has risen over the years from $375 to $485.1

The ratio of account contributions to account earnings has tilted during this time. After eight years of saving and investing, the ratio is about 2:1 – for every two dollars going into the account, a dollar is being earned by its investments. During year 13, the ratio hits 1:1 – the account starts to return more than $500 per month, with a big assist from compound interest. In years thereafter, the 6% return the investments realize each year tops her year’s worth of contributions to the principal. (Her monthly contributions have grown by more than 20% during these 13 years, and that also has had an influence.)1

Fast forward to 35 years later. Christina is now 58 and nearing retirement age, and she earns $86,400 annually, meaning her 10% monthly salary deferral has nearly doubled over the years from the initial $375 to $720. This has helped her build savings, but not as much as the compounding on her side. At 58, her account earns about $2,900 per month at a 6% rate of return – more than four times her monthly account contribution.1

Lori needs to start saving for retirement at age 49. Pragmatic, she begins putting $1,000 a month into a workplace retirement plan. Her account returns 7% a year. (For this example, we will assume Lori maintains her sizable monthly contribution rate for the duration of the account.) By age 54, thanks to compound interest, she has $73,839 in her account. After a decade of contributing $12,000 per year, she has $177,403. She manages to work until age 69, and after 20 years, the account holds $526,382.2

These examples omit some possible negatives – and some possible positives. They do not factor in a prolonged absence from the workforce or bad years for the market. Then again, the 6% and 7% consistent returns used above also disregard the chance of the market having great years.

Repeatedly, investors are cautioned that past performance is no guarantee or indicator of future success. This is true. It is also true that the yearly total return of the S&P 500 (that is, dividends included) averaged 10.2% from 1917-2017. Just stop and consider that 10.2% average total return in view of all the market cycles Wall Street went through in those 100 years.2

Keep in mind, when the yearly earnings of your IRA or employer-sponsored retirement plan account do start to exceed your yearly contributions, that is not a time to scale back your contributions. Your retirement account will not do all your retirement saving work for you at that point; you still need to keep the momentum of your saving effort going – and maintaining it will assist the compounding.

  

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

  

Citations.

1 - time.com/money/5204859/retirement-investments-savings-compounding/ [3/21/18]

2 - fool.com/investing/2018/05/16/how-to-invest-1000-a-month.aspx [5/16/18]

Monday, 20 August 2018 19:41

Retirement blues: Taking it too easy can be hard on you

It might seem like retirement is a time to take it easy and devote yourself to gardening, golfing, and napping. But don't take it too easy, say Harvard experts. For optimal well-being, you need to stay engaged — with your own interests as well as with other people.

Making the change

Newly retired men face some typical difficulties. One is creating a new routine after leaving behind the nine-to-five grind. "During that phase of going from a lot of structure to almost no structure, men can exhibit the same signs as someone who is overworked," explains Dr. Randall Paulsen, a psychiatrist at Harvard-affiliated Brigham and Women's Hospital.

Retirement can also come with changes in a man's relationship with a spouse or partner. "If you have a partner at home who is not used to you being around all the time, there has to be a recalibration," says Dr. Michael Craig Miller, assistant professor of psychiatry at Harvard Medical School.

Partners in retirement may need time to adjust to the new circumstances. "Older couples have to, in a sense, learn how to enjoy having lunch together," Dr. Paulsen says.

Staying engaged

In retirement, you expect to have more time — but to do what?  Doing either too little or too much can lead to the same symptoms, such as anxiety, depression, appetite loss, memory impairment, and insomnia.

The solution can be just about anything — from volunteering once a week, to taking a class, to launching a new career — as long as it means something to you personally and keeps you coming back for more. It's a plus if you choose a social activity, because research suggests that social engagement is as important to your health as exercise and a healthy diet.

Dr. Miller cites the example of men who take their interest in a sport or hobby to a new level in retirement. They eagerly read or study to improve their knowledge or skill. They interact with peers who have similar interests. They work with teachers or trainers regularly and stick to a rigorous schedule of practice.

The trick is to find a balance of activities that draw you in and stretch you out. "We grow and keep our brains alive by being engaged with things that challenge us," Dr. Miller says.

Whatever you choose, don't make it too easy — or too hard. A moderate amount of stress lights up our brain circuits and focuses our attention; an overload can do harm. "The sweet spot is the stuff that's just outside your reach, where you have to work and concentrate," Dr. Miller says. "Those are the kinds of challenges that help us feel alive and engaged."

Retrieved from:  https://www.health.harvard.edu/mens-health/retirement-stress-taking-it-too-easy-can-be-bad-for-you

Thursday, 26 July 2018 16:01

Should Couples Combine Their Finances?

To consolidate or not: that is the question.

Some couples elect to consolidate their personal finances, while others largely keep their financial lives separate. What choice might suit your household?

The first question is: how do you and your partner view money matters? If you feel it will be best to handle your bills and plan for your goals as a team, then combining your finances may naturally follow.

A team approach has its merits. A joint checking account is one potential first step: a decision representing a commitment to a unified financial life. When you go “all in” on this team approach, most of your incomes go into this joint account, and the money within the account pays all (or nearly all) of your shared or individual bills. This is a simple and clear approach to adopt, especially if your salaries are similar.

You need not merge your finances entirely. That individual checking or savings account you have had all these years? You can retain it – you will want to, for there are some things you will want to spend money on that your spouse or partner will not. Sustaining these accounts is relatively easy: month after month, a set amount can be transferred from the joint account to the older, individual accounts.

A financial plan may focus the two of you on the goal of building wealth. Investment and retirement plan accounts are individual by design, but a plan can serve as a framework to unite your individual efforts.

You may want separate financial accounts. Some couples want to pay household bills 50/50 per partner or spouse, and some partners and spouses agree to pay bills in proportion to their individual earnings. That can also work.

This may have to change over time. Eventually, one spouse or partner may begin to earn much more than the other. Or, maybe only one spouse or partner works for a while. In such circumstances, splitting expenses pro rata may feel unfair to one party. It may also impact decision making – one spouse or partner might think they have more “clout” in a financial decision than the other.

Even if you staunchly maintain separate finances throughout your relationship, you may still want to have some type of joint account to address basic monthly household costs.

What else might you consider doing financially? Well, one good move might be to consult and retain a qualified financial professional to provide insight and guidance as you invest and save toward your goals.

Think about how your tax situation might change if you marry. Some people marry and correspondingly change their withholding designation from single to married on their W-4 form. In return, they are shocked to find their income taxes are much more than they ever expected – or they discover they have an enormous refund coming their way. Adjusting your withholding earlier in a calendar year makes more of a difference than if you do so later.1

If marriage means a name change, be sure to update bank account, investment account, Social Security account, and insurance policy data with time to spare. Marrying couples will probably want to redo beneficiary forms on accounts and policies and make various accounts joint tenants with right of survivorship (JTWROS) accounts or Totten trusts (also known as payable-on-death accounts). A JTWROS or POD account allows the assets involved to pass to a surviving spouse without probate.2,3

Take a look at the auto and health insurance coverage each of you have. You might notice some overlap, and you may want to address that.

The Knot, the wedding planning website, says that the number one priority for 55% of marrying couples is uniting personal finances. Agreeing how to handle your household finances can be a goal whether you marry or not.4

  

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

      

Citations.

1 - turbotax.intuit.com/tax-tips/tax-refund/top-5-reasons-to-adjust-your-w-4-withholding/L8Gqrgm0V [5/31/18]

2 - legalzoom.com/knowledge/last-will/topic/totten-trust [5/31/18]

3 - legalzoom.com/knowledge/last-will/topic/joint-tenancy [5/31/18]

4 - forbes.com/sites/investor/2018/05/08/the-most-important-conversation-newlyweds-need-to-have/ [5/8/18]

Thursday, 28 June 2018 18:19

The Case for Women Working Past 65

Why striving to stay in the workforce a little longer may make financial sense.

The median retirement age for an American woman is 62. The Federal Reserve says so in its most recent Survey of Household Economics and Decisionmaking (2017). Sixty-two, of course, is the age when seniors first become eligible for Social Security retirement benefits. This factoid seems to convey a message: a fair amount of American women are retiring and claiming Social Security as soon as they can.1

What if more women worked into their mid-sixties? Could that benefit them, financially? While health issues and caregiving demands sometimes force women to retire early, it appears many women are willing to stay on the job longer. Fifty-three percent of the women surveyed in a new Transamerica Center for Retirement Studies poll on retirement said that they planned to work past age 65.2

Staying in the workforce longer may improve a woman’s retirement prospects. If that seems paradoxical, consider the following positives that could result from working past 65.

More years at work leaves fewer years of retirement to fund. Many women are worried about whether they have saved enough for the future. Two or three more years of income from work means two or three years of not having to draw down retirement savings.

Retirement accounts have additional time to grow and compound. Tax-deferred compounding is one of the greatest components of wealth building. The longer a tax-deferred retirement account has existed, the more compounding counts.

Suppose a woman directs $500 a month into such a tax-favored account for decades, with the investments returning 7% a year. For simplicity’s sake, we will say that she starts with an initial contribution of $1,000 at age 25. Thirty-seven years later, she is 62 years old, and that retirement account contains $974,278.3

If she lets it grow and compound for just one more year, she is looking at $1,048,445. Two more years? $1,127,837. If she retires at age 65 after 40 years of contributions and compounded annual growth, the account will contain $1,212,785. By waiting just three years longer, she leaves work with a retirement account that is 24.4% larger than it was when she was 62.3

A longer career also offers a chance to improve Social Security benefit calculations. Social Security figures retirement benefits according to a formula. The prime factor in that formula is a worker’s average indexed monthly earnings, or AIME. AIME is calculated based on that worker’s 35 highest-earning years. But what if a woman stays in the workforce for less than 35 years?4

Some women interrupt their careers to raise children or care for family members or relatives. This is certainly work, but it does not factor into the AIME calculation. If a woman’s work record shows fewer than 35 years of taxable income, years without taxable income are counted as zeros. So, if a woman has only earned taxable income in 29 years of her life, six zero-income years are included in the AIME calculation, thereby dragging down the AIME. By staying at the office longer, a woman can replace one or more of those zeros with one or more years of taxable income.4

In addition, waiting to claim Social Security benefits after age 62 also results in larger monthly Social Security payments. A woman’s monthly Social Security benefit will grow by approximately 8% for each year she delays filing for her own retirement benefits. This applies until age 70.4  

Working longer might help a woman address major retirement concerns. It is an option worth considering, and its potential financial benefits are worth exploring.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - dqydj.com/average-retirement-age-in-the-united-states/ [6/11/18]

2 - thestreet.com/retirement/18-facts-about-womens-retirement-14558073 [4/17/18]

3 - investor.gov/additional-resources/free-financial-planning-tools/compound-interest-calculator [6/14/18]

4 - fool.com/retirement/social-securitys-aime-what-is-it.aspx [6/9/18]

Friday, 25 May 2018 15:42

Facts About Refinancing

Even with interest rates rising, you may want to explore the possibilities.

In the first quarter of 2018, the refinance share of home loan applications in the U.S. fell to 40%, the lowest in ten years. Higher mortgage rates had reduced demand for refis.1

Still, the refi is not exactly dead. If you have good credit, you may be considering refinancing yourself, for one or more reasons. Perhaps you want to shorten the term of your home loan. Maybe you have an adjustable-rate mortgage now and want to refi into a fixed rate. Or, maybe you want to tap into home equity or consolidate debt. Whatever your reason(s), you must weigh two questions. One, how long do you want to stay in your home? Two, how much money will you really save?

Refinances break down into three types: rate-and-term, cash-out, and cash-in. Rate-and-term refis simply adjust the term and/or the interest rate of your existing loan. Even though interest rates are rising now, they still make up the bulk of refinances. This kind of refi could permit you to walk away from closing with as much as $2,000 in cash. The no-cash-out variety adds closing costs to the loan balance, relieving you from having to pay those costs out of pocket.2

A cash-out refi gives you an opportunity to tap home equity and pay off your existing mortgage. In a cash-out mortgage, the loan balance on the refinance is at least 5% more than the balance on the original loan. As you just owe the balance of your original loan to the lender, the overage is either paid out as cash at closing or routed to your creditors to help you whittle down other debts.2

A cash-in refi is the inverse of a cash-out refi. You bring cash to the closing to lower the outstanding principal of the loan, pursuant to a shorter loan term or a lower interest rate available at lower loan-to-values (LTVs). You may be able to cancel mortgage insurance premium payments as part of the move (i.e., by reducing a conventional mortgage to 80% LTV or lower).2

How much will a refi cost? In ballpark terms, the answer is often $2,000-$5,000. In percentage terms, think 3-5% of the loan amount.3,4

The price of a refi may be notably cheaper in one state than another, thanks to variations in closing costs. Of course, certain closing costs may be negotiable, like app and processing fees. Sometimes you can save on title searches, title insurance, and inspections by turning to a third party for those services. If your last appraisal was conducted recently, you might be able to negotiate your way out of a new one.3

Sometimes you can refinance without an appraisal. The Federal Housing Administration (FHA) and Veterans Administration (VA) offer streamlined refinancing programs to homeowners with existing FHA or VA-backed home loans. The underwriting process is less demanding than it would be otherwise. Besides usually waiving the appraisal, these programs also commonly waive credit score and income verifications.2

In some situations, refinancing may not be “the answer.” If you are stretching the term of your loan out with a refi, you will carry mortgage debt for years longer than you originally planned, complete with thousands more paid out in interest. If you are using home equity to fund a remodel or upgrades, your home’s value may not rise as much as you anticipate from the work. Then there are the little curveballs life throws at us, such as potential job changes and relocations. If you sense you might have to move before you can recapture the closing costs of the refi, is it even worth the trouble to try?

Hopefully, you will be able to lower the interest rate on your loan, shorten its term, or find a way to reduce your monthly payments through refinancing. Online calculators and a conversation with a trusted mortgage professional may help you determine the potential break-even points for a refi and find paths to a home loan more suitable to your needs.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

  

Citations.

1 - cnbc.com/2018/03/13/mortgage-refinances-fall-to-decade-low.html [3/14/18]

2 - themortgagereports.com/16096/refinance-mortgage-rates [12/9/17]

3 - lendingtree.com/home/refinance/how-much-does-it-cost-to-refinance/ [3/14/17]

4 - investopedia.com/financial-edge/1010/9-things-to-know-before-you-refinance-your-mortgage.aspx [1/12/17]

Thursday, 12 April 2018 19:05

Good Reasons to Retire Later

Working longer might work out well for you.

Are you in your fifties and unsure if you have enough retirement savings? Then you have two basic financial choices. You could start saving and investing more of your pay than you currently do, or you could work longer so you have fewer years of retirement to fund.

That second choice might be more manageable, and it may also work out better financially.

Research suggests that working longer might be a good way to address this shortfall. Last month, the National Bureau of Economic Research (NBER) published a paper on this very topic, and its conclusions are significant. The four economists writing the report maintain that when you reach your mid-sixties, staying on the job just one more year could help you greatly. Waiting a little longer to file for Social Security also becomes a plus.1

What was the most noteworthy finding? By the time you are 66, staying on the job just an additional three to six months will do as much for your standard of living in retirement as if you had contributed 1% more to your retirement plan for 30 years.1

Here is an example from the report, with an asterisk attached. A 66-year-old who has directed 9% of their earnings into an employee retirement plan during the length of their career retires. Had they simply put 10% of their pay per year into that retirement plan rather than 9%, they would have retired with 11.11% more money in that account.1

If they work for another year, retire at 67 and file for Social Security benefits at 67, they may put themselves in a better financial position. In this simple example, Social Security benefits would constitute the other 81% of their retirement income. They are just slightly past their Full Retirement Age as defined by Social Security, so by retiring at 67, they receive 108% of the monthly Social Security benefit they would have received at 66.1,2

The asterisk in this scenario is the outlook for Social Security. In the future, will Social Security benefits be reduced? That possibility exists.

Working full time until age 67 may be a tall order for some of us. Right now, only about a third of American workers retire after age 65; about a fifth retire at age 60 or younger. Perhaps the ambitious, energetic baby boom generation will alter those percentages.3

Working one or two more years may be worthwhile for several reasons. Your invested assets have one or two more years to compound before potentially being drawn down – and when assets have grown for decades, even a year of compounding is highly significant. If you have $350,000 growing at 6% annually in a retirement fund, waiting just a year will enlarge that sum by $21,000 and waiting five more years will leave it $118,000 larger – and this is without any inflows.3

Spending another year on the job may help you become fully vested in a pension plan, and it also positions you to receive greater Social Security payments (assuming you are currently 62 or older). Wait until age 65 to retire, and you can leave work without having to worry about buying health insurance – Medicare is right there for you. You also keep your mind active by working longer, and you maintain the friendships you have made through your career or workplace.3

Retire later, and you may do yourself a financial favor. Consider the idea, and be sure to consult with the financial professional you know and trust today regarding your retirement prospects.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

    

Citations.

1 - marketwatch.com/story/you-may-want-to-work-longer-heres-why-2018-01-22/ [1/22/18]

2 - bloomberg.com/view/articles/2018-01-23/the-remarkable-financial-benefits-of-delaying-retirement [1/23/18]

3 - fool.com/retirement/2017/04/23/5-benefits-of-delaying-retirement.aspx [4/23/17]

Tuesday, 20 March 2018 13:44

The Value of a Stop-Loss Strategy

Why you may want to have one in place in any market climate.

What is a stop-loss strategy, and how can it potentially aid an investor? Savvy investors use stop-loss orders as a kind of “insurance” against stock market losses. Simply explained, a stop-loss order is an order you give to a brokerage to sell a stock when the share price falls to a certain level.

A stop-loss strategy may be used to preserve gains and alleviate downside risk. Say you buy 10 shares at $60 a share, and eight months later the price is at $68 a share. You place a stop-loss order with your broker, telling your broker you want to sell if the share price dips to $66. One day, the share price falls to that level, and the stop-loss order becomes a market order authorizing a trade. If the market (or market sector) dives quickly, you may not be able to sell your shares for $66, but you will likely be able to sell them near that price.1

You can also employ trailing stops as part of a stop-loss strategy. This can be useful with a growth stock. As an example, suppose you buy into a company at $20 a share, and two years later, the share price stands at $35 and seems poised to rise further. Is it time for profit-taking, or should you hang on to those shares a bit longer?

A trailing stop may provide an answer to this dilemma. When you put a trailing stop in place, you authorize your broker to sell the stock when the price dips a certain percentage below the current market value – say, 10% under market price. So if shares move up to $50, then fall to $45, you are able to sell at or near $45, and you profit more than you would had you sold at $35.2

The trailing stop moves up as the share price moves up. Obviously, you do not want to set the trailing stop only a handful of percentage points below the current price, because that could mean activating the stop too soon.

Profit targets are also part of stop-loss strategies. When the price of a stock reaches a certain level – a target price – you sell. In setting a profit target, you know when to get out, and you know your degree of profit as you close the trade.

How much gain do you need to break even or profit? Here is the key question in a stop-loss strategy. Reaching a price target represents a win, and a stop-loss represents a loss. At a glance, it seems easy to gauge whether your stop-loss strategy is a success: the wins merely have to exceed the losses. The evaluation is not quite that simple. You can use relatively simple math to figure out your break-even percentage: (Stop Loss ÷ (Target + Stop Loss)) x 100.3

For the sake of simplicity, say your average loss is $100 and your average target $200. The calculation becomes: (100 ÷ (200 + 100)) x 100, or 0.33 x 100 = 33%. Commissions aside, you need to win on 33% of your trades to break even. Win more trades than that and you are profiting.

When exactly will you break even or profit? Time will tell, but the answer may directly relate to the difference in your loss level and your target level. If your target level is way above your loss level, in theory you will have to win very few trades to profit – but in reality, you may have a hard time winning any trades, and your strategy could fail. When your target level is closer to your loss level, you must win more often to break even, but winning may become easier for you.

A stop-loss strategy could help you sustain the income stream from your portfolio. A little reflection will reveal why. When Wall Street slumps, a buy-and-hold investor can become a buy-and-fold investor, hanging onto losers too long and then selling them at or near a market bottom. Alternately, an investor may fall in love with a winner so much that no profit is ever taken – he or she learns a tough lesson when its share price falls and the opportunity to sell high is lost. Having price targets and stop orders in place takes some of the emotion out of trading in these circumstances, helping to mitigate losses and lock in gains.

Sure, there are potential drawbacks to a stop-loss strategy. Some people prefer price alerts to automatic stop-losses, because they want to stay hands-on and not cede control of trades to software and algorithms – and in a steep market drop, those algorithms may quickly drive a stock’s price well under a stop in the blink of an eye. An opportunity cost can also be paid with the use of price targets – maybe this or that stock clearly has more upside, and it really feels like you are selling too soon when the target is reached. These points aside, a well-considered stop-loss strategy may have real value for an investor, especially one who does not actively trade stocks on a day-to-day basis.  

  

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

  

Citations.

1 - investopedia.com/ask/answers/06/stoplossorderdetails.asp [1/4/18]

2 - thebalance.com/trailing-stop-1031394 [7/25/17]

3 - thebalance.com/calculating-your-break-even-percentage-1031085 [10/14/16]

Friday, 26 January 2018 16:12

The Major Retirement Planning Mistakes

Why are they made again and again?                      

Much has been written about the classic financial mistakes that plague start-ups, family businesses, corporations, and charities. Aside from these blunders, there are also some classic financial missteps that plague retirees.  

Calling them “mistakes” may be a bit harsh, as not all of them represent errors in judgment. Yet whether they result from ignorance or fate, we need to be aware of them as we plan for and enter retirement.        

Leaving work too early. As Social Security benefits rise about 8% for every year you delay receiving them, waiting a few years to apply for benefits can position you for greater retirement income. Filing for your monthly benefits before you reach Social Security’s Full Retirement Age (FRA) can mean comparatively smaller monthly payments. The FRA varies from 66-67 for people born between 1943-59. For those born in 1960 and later, the FRA is 67.1,2    

Some of us are forced to make this “mistake.” The Center for Retirement Research at Boston College says 56% of men and 64% of women apply for Social Security before full retirement age. Still, if you can delay claiming Social Security, that positions you for greater monthly benefits.1    

Underestimating medical bills. In its latest estimate of retiree health care costs, Fidelity Investments says that a couple retiring at 65 will need $275,000 to pay for future health care costs. That estimate may be conservative, as Fidelity’s calculation does not include eye care, dental care, or long-term care expenses.3    

Taking the potential for longevity too lightly. Actuaries at the Social Security Administration project that around a fourth of today’s 65-year-olds will live to age 90, with about one in ten living 95 years or longer. The prospect of a 20- or 30-year retirement is not unreasonable, yet there is still a lingering cultural assumption that our retirements might duplicate the relatively brief ones of our parents. The American College New York Life Center for Retirement Income recently polled people about longevity, and 47% of respondents over age 60 underestimated the remaining life expectancy for an average 65-year-old male.4

Withdrawing too much each year. You may have heard of the “4% rule,” a popular guideline stating that you should withdraw only about 4% of your retirement savings annually. Many cautious retirees try to abide by it.

So, why do others withdraw 7% or 8% a year? In the first phase of retirement, people tend to live it up; more free time naturally promotes new ventures and adventures and an inclination to live a bit more lavishly.        

Ignoring tax efficiency & fees. It can be a good idea to have both taxable and tax-advantaged accounts in retirement. Assuming your retirement will be long, you may want to assign this or that investment to its “preferred domain” – that is, the taxable or tax-advantaged account that may be most appropriate for it as you pursue a better after-tax return for the whole portfolio.

Many younger investors chase the return. Some retirees, however, find a shortfall when they try to live on portfolio income. In response, they move money into stocks offering significant dividends or high-yield bonds – which may be bad moves in the long run. Taking retirement income off both the principal and interest of a portfolio may give you a way to reduce ordinary income and income taxes.  

Fees have an impact. The Department of Labor notes that a 401(k) plan with a 1.5% annual fee will eventually leave a participant with 28% less money than one with a 0.5% annual fee.5   

Avoiding market risk. Equity investment does invite risk, but the reward may be worth it. In contrast, many fixed-rate investments offer comparatively small yields these days.    

Retiring with big debts. It is hard to preserve (or accumulate) wealth when you are handing portions of it to creditors.  

Putting college costs before retirement costs. There is no “financial aid” program for retirement. There are no “retirement loans.” Your children have their whole financial lives ahead of them. Try to refrain from touching your home equity or your IRA to pay for their education expenses.  

Retiring with no plan or investment strategy. An unplanned retirement may bring terrible financial surprises; the absence of a strategy can leave people prone to market timing and day trading.

These are some of the classic retirement planning mistakes. Why not plan to avoid them? Take a little time to review and refine your retirement strategy in the company of the financial professional you know and trust.  

    

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.    

Wednesday, 03 January 2018 20:43

Talking to Your Heirs about Your Estate Plan

They should not be left ill-informed or unaware.

Talking about “the end” is not the easiest thing to do, and this is one reason why some people never adequately plan for the transfer of their wealth. Those who do create estate plans with help from financial and legal professionals sometimes leave their heirs out of the conversation.

Have you let your loved ones know a little about your estate plan? This is decidedly a matter of personal preference: you may want to share a great deal of information with them, or you may want to keep most of the details to yourself. Either way, they should know some basics.

Having this talk can become easier when it is a values conversation, not a money conversation.

Values driven estate planning. You can let your heirs know that your values are at the core of the decisions you have made. You need not tell them how much they will inherit. You may let them know about the planning steps you have taken to make a difficult time a bit easier.

For example, you can tell your loved ones that you have a will and/or a revocable living trust. In all probability, your executor or successor trustee has been informed of his or her future responsibilities – but other heirs may not know who the executor or successor trustee will be.

You can tell them that you have an advance health care directive in place and inform them who you have named as an agent to make health care decisions on your behalf if you cannot do so. You can provide the contact information for your estate planner, your CPA, your retirement planner, and any insurance, legal, and medical professionals you consult. Have your heirs ever met these people? Tell your heirs the role they have played for you, your family, or your company and why the judgment of these professionals should be trusted.   

Do people beyond your household need to know any of this? Think about it for a second. If you have grandchildren, nieces, or nephews, do they figure into your estate plan? Is it appropriate to let them know that you have made an estate-planning decision or two on their behalf? How about charities or non-profits you have supported – have you notified them of your intent to make a gift from your estate and could knowledge of your decision better facilitate the process? How about your business partner(s)? Do they need to be informed of particular estate-planning intentions you have?

Obviously, you must keep certain details close to the vest. Keeping everything to yourself, however, can be problematic. Are your heirs aware of the location of a copy of your health care proxy? Might they discover that you have planned for some of your estate to transfer to charity only after your death? Dilemmas and surprises like these may be avoided through communication – the type of communication that anyone planning an estate should make a priority.

Not every couple or individual does, though. BMO Wealth Management asked the high net worth clients it advises if they had disclosed the location of their wills and power of attorney forms with their heirs. Thirteen percent of respondents said their heirs had no clue; 25% said “only my spouse and I” knew the location of the documents.1

A 2017 Caring.com poll determined that just 42% of Americans had gone so far as to draw up a will, let alone an estate plan. So, if you have planned for the transfer of your wealth, you are ahead of many of your peers. Just see that your intentions, and some specific details, are effectively communicated.1

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - cnbc.com/2017/11/15/12-financial-planning-documents-to-handle-health-end-of-life-care.html [11/15/17]

Thursday, 16 November 2017 21:42

Are There Blind Spots in Your Insurance Plan?

Deficient coverage may cost you someday.

Many households and businesses are insufficiently insured. The problem is not necessarily the quality of coverage, but the breadth and depth of it. Your own business or household may be more vulnerable than you realize. 

Too many people go without disability insurance. If you work in a physically demanding field, your employer may provide short-term disability coverage – but many companies do not. According to the Bureau of Labor Statistics, just 39% of workplaces offer employees short-term coverage, and only 33% offer long-term coverage.1

If you are disabled and cannot work, your income soon disappears. Short-term disability insurance, which may last anywhere from 10-26 weeks, commonly replaces around 60% of it. Not ideal, but better than 0%. About 8% of the time, however, a short-term disability lasts more than six months and extends into a long-term disability. Long-term disability coverage can replace 50-70% of your salary for a period of 2-10 years, perhaps even until you turn 65.1,2

More people ought to have earthquake and flood coverage. You may think that earthquake insurance is only for those living right on top of fault lines. If your home sustains quake damage that you must repair with tens of thousands of dollars of your hard-earned money, or if your business is forced to close for two weeks after a major quake hits your area, your opinion will change.

Recent hurricanes and flood surges have underlined the value of flood insurance for those living in low-lying areas. Just 12% of U.S. homeowners have this coverage. A typical homeowner policy will cover minor water damage, but not flood damage.3   

If you finance a car and it is stolen or totaled, will you have to pay for it? Not if you have GAP (Guaranteed Auto Protection) insurance. If you are going to finance a car, SUV, or truck, ask about this coverage – especially if you intend to use that vehicle for work or business. The coverage is cheap – payments are usually $10-15 more each month (over the life of the loan).4

If you buy a new truck for $25,000 and it is totaled a year later, the insurer providing GAP coverage will determine the current value of the vehicle and write a check for that amount minus your deductible. You may want GAP coverage if you are buying a vehicle with less than 30% down. Without it, you may risk owing more than the current market value of your vehicle if it is stolen or wrecked.4

Is your sewer line insured? Cities usually require homeowners to maintain the sewer lateral running onto their property – the “branch” of the main sewer system on the street that connects to their house. If that sewer lateral backs up, it could cost you thousands and create a health problem for your neighbors. (Businesses have the same responsibility.) Tree roots and even improper disposal of paper products and grease can lead to this problem. Coverage against it is relatively cheap – it just adds about $40-50 to the annual premium on a homeowner policy.5

Address the weaknesses in your personal or business coverage, today. You certainly do not want to look back with regret on “what you should have done.” Be prepared, and put coverage for some or all of these potential crises in place.

  

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

     

Citations.

1 - time.com/money/4428179/short-term-disability-pay/ [6/19/17]

2 - thebalance.com/what-is-long-term-disability-insurance-1918178 [7/9/17]

3 - cnbc.com/2017/09/11/navigating-insurance-claims-post-hurricane-irma.html [9/11/17]

4 - chron.com/cars/article/Financing-a-car-GAP-insurance-can-keep-drivers-12200736.php [9/15/17]

5 - wnins.com/resources/personal/features/sewerbackup.shtml [9/15/17]

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