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The Pre-Retirement Checklist

Getting ready for retirement? Before you can cross that bridge, you’ll need to cross some important items off your to-do list. This handy checklist of ten crucial steps can help you visualize how prepared you are.

□ Retirement Budget

Understand what your income will be, and how you can confidently spend the money you have accumulated for retirement.

□ Emergency Savings

Prepare for emergencies by saving at least 3 months’ living expenses, and have that money easily available to you.

□ Tax Strategy

Have a sound tax strategy to guide you through the process of spending money from both taxable and tax-deferred accounts.

□ Lifestyle and Location

Consider where you’ll live, both short- and long-term. Have a plan for funding a move and understand the timing involved.

□ 401(k) Strategy

Have a strategy for your 401(k) plan and determine the best time for you to access the money, based on your goals.1

□ Bucket List

Write down your personal goals for your retirement years. Explore your dreams, priorities and values.

□ Extended Care

Make arrangements in the event that you or a loved one encounters a health issue requiring full-time care.

□ Estate Strategy

Develop an estate approach that includes how you want your assets to be allocated, and who will handle your estate.

□ Health Insurance

Understand your options with Medicare and define a strategy for covering health care expenses for the long haul.

□ Social Security Strategy

Have a sound tax strategy to guide you through the process of spending money from both taxable and tax-deferred accounts.

If you’re not as prepared for retirement as you’d like to be, just reach out to a financial professional. Together, you can fine-tune these strategies so you can finish your checklist and get started on that bucket list.

1. Distributions from 401(k) plans and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.

How Stocks Work

How much do you know about stocks? Here’s a great infographic on how stocks work.

The Coronavirus Outbreak

Markets sold off around the globe, as news that the coronavirus, also known as COVID-19, has spread to South Korea, Italy, Japan, and Iran. Many European markets closed down more than 4%. While the U.S. stock markets sold off hard as well, with the S&P 500 Index down 3.35% and the Dow Jones Industrial Average lost 1,031 points by the end of trading on Monday.

“Although the fear over the pandemic is real, and the potential slowdown in the global economy could hurt 2020 corporate profits, let’s not forget that big down days are part of what long-term investors have had to accept,” said LPL Financial Senior Market Strategist Ryan Detrick.

As shown in the chart below, an average year has more than five separate days with at least a 2% correction for the S&P 500 Index. Even last year, with stocks up 30%, there were five separate days that saw the S&P 500 close down at least 2%.

The United States had held up relatively well in the face of the growing COVID-19 crisis. In fact, according to Sam Stovall of CFRA, the S&P 500 actually gained 1.6% a month after the first reported coronavirus case in the United States on January 21. As the chart below shows, stock market gains historically have been normal after the initial outbreak of various health crises have reached the United States.

Now, could the coronavirus impact the global economy more than previous epidemics and pandemics? That’s clearly a strong possibility, as global supply chains have come to a halt in the world’s second largest economy (China). The good news, though, is corporate America just reported a very impressive earnings season. The bad news is that this might change in the near future.

Lastly, we’d like to stress that pullbacks and market corrections happen and are part of long-term investing. In fact, since 1980 the average year has experienced a pullback from peak to trough of 13.7%. Even more impressive: Looking at the 29 years that stocks have been green since 1980, we see the average year had a correction of 10.9%!

We’ll continue to monitor the impact of the coronavirus situation very closely. In the meantime, we would suggest that long-term investors consider staying the course and possibly use this volatility as an opportunity to rebalance your portfolio or add to positions that have recently come down in value.

Disclosure: This website is solely for informational purposes. Nothing on this website should be considered as advice, research or an invitation to buy or sell securities.

Questions To Ask A Financial Advisor

Congratulations, you’re ready to hire a financial advisor! Hiring a financial advisor is an important milestone in one’s financial life. It symbolizes an inflection point of sorts, whereby you have accumulated enough money to justify seeking help in managing it effectively. But hiring a financial advisor can be confusing. Advisors are to money what doctors are to your health – they have years of training and experience, and come in many different varieties, specialties and levels of skill. Their compatibility with you and your goals can vary wildly depending on many different variables.

Even though they may carry the same title, “financial advisor”, the fact is that in today’s regulatory environment that can mean many different things. A psychiatrist and a rheumatologist may both have earned the right to be called “doctor”, but if you have Lupus, there’s only one you’d want to visit. Many advisors offer different services or products, get compensated in various manners, have multiple licenses or designations, work with a diverse range of clients. . . and the list goes on and on. This is not helpful when someone is looking to work with an advisor, in fact it can be discouraging. It’s important that you spend a little bit of time up front to see if they’re the right advisor for you.

Here’s a list of questions to ask a financial advisor when you first meet with them.

What Services Do You Specialize In?

Some financial advisors are more investment management focused and others are more focused on financial planning. Some do both. If you’re not looking for a comprehensive financial plan, and are more interested in having your assets managed, then you can narrow your search and look for an advisor that primarily sets up investment accounts.

But if you’re looking for an advisor that understands your whole financial picture, then work with someone who not only understands your investing goals, but also offers retirement planning, tax planning, estate planning, protection planning, cash flow analysis, help with major purchases as well as other goals.

Are You a Fiduciary?

This is a crucial question to ask a financial advisor. Fiduciaries must put their clients’ best interests before their own. Because of this obligation, financial advisors who are bound by the fiduciary duty tend to have fewer, and ideally, no conflicts of interest. Non-fiduciaries need only to recommend products that are “suitable” — even if they’re not the lowest-cost or most ideal for you.

It’s important that you ask the advisor this question to determine whether they may have any potential conflicts of interest. Some advisors may also act as insurance agents or representatives of a broker-dealer. They may earn commissions from selling or trading products, which may incentivize them to sell these products to their clients when they may not be in the best interest of the client.

What Professional Credentials Do You Have?

Financial professionals can have a confusing list of initials behind their names. You should find out what licenses the advisor has as well as how long they have held those licenses. It’s also recommended that you check their record for any disclosures (past regulatory, criminal or disciplinary actions). If you’re looking for someone to manage your assets, make sure you work with an advisor who has weathered more than one storm, because tough markets are when you will need them the most.

If you’re more interested in financial planning, you should look for an advisor with some sort of financial planning credentials. One of the most popular is the Certified Financial Planner (CFP) designation. This designation requires its people to complete coursework, a certification exam, and have sufficient experience before using the title. It also requires its practitioners to adhere to a set of ethical standards, including the fiduciary standard that requires them to put your interests ahead of theirs.

How Are You Compensated?

Financial advisors can get paid in various ways. Advisors acting as fiduciaries typically only accept fees paid by clients. Advisors working for banks, brokerage firms and insurance companies can receive commissions from the sale of stocks, bonds, mutual funds, annuities or other insurance products. It may be hard to determine how these advisors are paid, as some of these commissions are embedded within the products. But keep in mind that advisors who are paid on commission may have an agenda to push and, as a result, are conflicted. Unfortunately, many of them are merely financial salespeople rather than true financial advisors.

To make things easier and avoid conflicts of interest, focus on fee-only advisors. They don’t get commissions for selling products and as we reviewed above, must put your best interests first when working with you. Depending on the service, a fee-only advisor may charge a flat fee, an hourly fee, an asset-based fee or a combination. Typically, advisors charge a flat fee or hourly fee for financial planning services and an asset-based fee for portfolio management. Always get a quote and find out what is included for that amount and what constitutes an extra charge. You might be responsible for trading costs, as well as other account fees. These additional costs can add up, so make sure you’re aware of them before you hire a financial advisor.

Where Are My Assets Held?

Your financial advisor should work with a brokerage, bank, insurance company, or other financial business that will act as an independent custodian for your money. That relationship should be clear and transparent, and you should always have the ability to connect with the custodian directly to see the value of your account instead of relying on the advisor.

Beware of any advisor that won’t share that custodian’s information, that insists on being the only go-between with the custodian, or acts as his or her own custodian. You should be able to go online and check your accounts at any time.

What Is Your Investment Philosophy?

A financial advisor should be able to describe their investment philosophy. Some advisors customize portfolios according to clients’ needs, while others offer a selection of model portfolios that they assign to clients based on their risk tolerance, goals and time frame. It’s important to ensure you have the same investment philosophy. Knowing whether or not their investment style aligns with your personal investing philosophy beforehand can save you a lot of headaches in the long run. A good financial advisor will want to learn about you, your overall financial situation, your risk tolerance and your goals before they make any recommendations.

Do You Have Account Minimums?

Some financial advisors require clients to invest a certain level of assets in order to start or maintain a relationship with them. For example, one financial advisor might work with clients who have at least $100,000 in investable assets, while another advisor might require a minimum of $10 million in assets. On the other hand, there are also advisors that don’t have any account or asset minimums as they typically charge financial planning fees. These account minimum differences is a good indication of the types of clients an advisor typically works with and if they would be a good fit for you.

How Often Will We Meet And Communicate?

In the beginning of your relationship with your financial advisor, it’s important that you have an open line of communication. Once you’ve established a solid plan, communication can be less frequent, but you’ll still want to be keep in touch and have regular checkups. How often is the advisor in touch with his or her typical client? How often should you plan to meet face to face or via conference call? Can you call or email whenever a question arises, or do you have to stick to a scheduled time? The answers to these questions will help you find an advisor that has a communication style that better suits your needs.

What’s Your Succession Plan?

Before starting a relationship with a financial advisor, it is very important to know what would happen to their clients if something unexpected happened to them. Advisors are in the business of helping others plan for their goals as well as a worst-case scenario. You would hope that your financial planner has also planned for unexpected scenarios. Advisors understand that their career won’t last forever, yet many of them don’t have a succession plan in place in case they exit the business by choice or for some unforeseen reason. Ask to see a Business Continuity Plan as well as a Succession Plan from your advisor. Whether your advisor is young or old, they should be ready to make sure that their clients are taken care of, if they are not around.

Conclusion

There are many types of financial professionals out there. So it’s important that you interview a few of them and find one who aligns with your goals, needs and wants in this relationship. Like any other type of relationship, trust is the most important factor. At the end of the day, you are hiring a financial advisor to help you plan for the precious years of your life and handle your money. Hopefully asking these questions will help you identify an advisor that you would like to work with and help start the relationship out on the right foot.

Retiring Wild: National Parks and You

For many older adults, finding time to experience nature can be one of the greatest pleasures in retirement. And what better place to take in America’s splendor than one of our over 400 National Park Service sites?1 For over a century, generations of retirees have explored these stunning landscapes, marveled at the diverse wildlife, and discovered the physical benefits of a retirement spent in the great outdoors.2 But recent research suggests that the mental benefits could be even more important for retirees. Read on to learn more.

The Cortisol Connection

Have you ever had a stressful day? One that left you tired and irritable? Those feelings are most likely caused by the stress hormone, cortisol. Cortisol serves an essential purpose in the human body, by helping to regulate your mood, motivation, and fear. However, when someone experiences sustained stress, their elevated levels of cortisol may greatly increase their risk of heart disease, depression, and even negatively impact their memory.2 Luckily, multiple studies show that connecting with nature for at least 20 minutes each day may be correlated to significantly lower cortisol levels.3 But the benefits don’t stop after 20 minutes. In fact, longer durations spent in a natural environment, may further enhance feelings of peace and wellbeing as well as increased mental performance.4

A Thrifty Option

The American National Park system is considered by some to be one of the healthiest and financially smart ways to vacation in retirement. After all, of the 417 current National Park Sites, roughly 300 allow free admission.5 For those who want access to everything the National Park Service (NPS) offers, the Lifetime Senior Pass ($80) or the Annual Senior Pass ($20) are both a steal. Regardless of which you purchase, remember that:

  • The Senior Pass may provide a 50 percent discount on some amenity fees, such as those related to camping, swimming, and specialized interpretive services.
  • The Senior Pass generally does NOT cover or reduce special recreation permit fees or fees charged by concessioners.
  • There may be a service fee depending on how you purchase your pass. For more details, including the most recent ticket prices, visit the National Park Service website before planning your next trip.

A Prescription for Nature

Even though locations like Yellowstone, Yosemite, and Zion are the most-popular destinations for retirees, many communities benefit from smaller parks and nature preserves as well. For those who haven’t hiked or camped much, these local areas can be a great way to get started. Even those with more than a few years of national park experience stand to benefit, both physically and mentally, from visiting one of their local wildlife areas. So, before you pack your bags and load up the camper, do yourself a favor and look into what your home offers. You may discover that one of the best ways to stay happy, healthy, and sharp is closer than you think.

  1. Department of the Interior, 2018
  2. Science Daily, 2019
  3. Webmd, 2019
  4. Science Daily, 2019
  5. National Park Service, 2019

Setting the Stage for the Coming Recession

Brian Smedley, head of the Macroeconomic and Investment Research Group at Guggenheim Investments, explains what the data tell us about the timing and severity of the coming recession.

Key Takeaways:

  • Fed rate cuts could start to have more impact, but so far data are consistent with our recession forecast, which also suggests the next recession will be of average severity.
  • Limited monetary and fiscal policy space may prolong the recession; the Fed doesn’t have much room to maneuver on rates, and the effect of 2018’s one-time tax cuts has worn off.
  • When the business cycle turns, the Fed is likely to pull out all the stops by cutting rates to the zero bound and recommencing asset purchases.
  • Historical evidence of “successful” Fed cuts is mixed, however, and it is difficult to correctly time policy moves.
  • At this point in the cycle, we believe there is more risk to the downside than upside and caution investors to focus on capital preservation.

Source: Guggenheim Investments 

How Retirement Spending Changes With Time

New retirees sometimes worry that they are spending too much, too soon. Should they scale back? Are they at risk of outliving their money? This concern may be legitimate. Some households “live it up” and spend more than they anticipate as retirement starts to unfold. In 10 or 20 years, though, they may not spend nearly as much.

By The Numbers

The initial stage of retirement can be expensive. The Bureau of Labor Statistics figures show average spending of $60,076 per year for households headed by pre-retirees, Americans age 55-64. That figure drops to $45,221 for households headed by people age 65 and older.1

When retirees are well into their 70s, spending often decreases. The Government Accountability Office data shows that people age 75-79 spend 41% less on average than people in their peak spending years (which usually occur in the late 40s).

Spending Pattern

Some suggest that retirement spending is best depicted by a U-shaped graph — It rises, then falls, then increases quickly due to medical expenses.

But in a 2017 study, the investment firm BlackRock found that retiree spending declined very slightly over time. Also, medical expenses only spiked for a small percentage of retirees in the last two years of their lives.2

What’s the best course for you? Your spending pattern will depend on your personal choices as you enter retirement. A carefully designed strategy can help you be prepared and enjoy your retirement years.

 

 

 

 

1. Bureau of Labor Statistics, 2019

2. CBSnews December 26, 2017

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

Retirement Realities

Expectations vs. Reality

Predicting exactly what your retirement will be like is about as possible as a meteorologist predicting the weather correctly every single time. In fact, few retirees find their financial futures playing out precisely as they assumed. But, understanding some of the more common assumptions about retirement may help you get closer to your goal than most.

Do Retirees Actually “Outlive” Their Money?

Generations ago, as people retired, many did live in dire straits, sometimes “down to their last dime,” which lead to the creation of Social Security. Today, Social Security is still around and a common supplement to one’s retirement strategy. True, health crises can sometimes impoverish retirees, but working with a financial professional may even help you prepare for this hard-to-anticipate cost.

Retiring on 70-80% of Your End Salary May Not Be Feasible

A quick internet search reveals all sorts of sources instructing new retirees should strive to retire on 70-80% of their end salary, but it can be a tough one to achieve.

Most new retirees often want to travel, explore new pursuits, learn some hobbies, and finally get around to those things they had put off when they were too busy with work. So, in the first few years, some may spend roughly as much as they did before retirement.

For many retirees, median household spending increases on the way to a retirement transition. But, with a smart financial strategy, the annual median household spending in retirement tends to decline gradually after age 60 and begins to plateau when people reach their early eighties.1

Practice Makes Perfect, Even in Retirement

On average, households headed by those older than 65 spend 25% less annually than younger households (a difference of more than $15,000). While health care spending increases in retirement, other household costs decline, particularly transportation and housing expenses.2

Retirement May Arrive Earlier Than Expected

Most people retire closer to age 60 than age 70. Believe it or not, the average retirement age in this country is 61. That means you could find yourself claiming Social Security earlier than you planned, if only to avert drawing down your retirement savings too quickly.3

Living the Life You Want

In general, American retirees seem to have it pretty good. A recent survey found that 47% of American retirees feel that the time they put in before retirement allowed them to enjoy the same standard of living they had while working.4

Remain Flexible in Retirement

Your retirement may differ slightly or even greatly from the retirement you have imagined. Fortunately, it may be possible to create a flexible retirement strategy with the help of a financial professional. It’s never too late to start!

 

 

1. JP Morgan, 2019

2.Yahoo Finance, 2018

3. Gallup, 2018

4. Forbes, 2019

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

What Will Your Mortgage Look Like in Retirement?

Anyone who has gone through the process of mapping out their retirement knows there can be a lot to keep in mind. Saving, investing, anticipating medical costs, and making sure you have enough tucked away for years to come is just the start. One question many people overlook is: “Should I pay off my mortgage before I retire?” The answer is more complicated than you may think.

Maintaining a Mortgage in Retirement

Imagine you have $300,000 set aside to pay off your mortgage. But rather than using those funds to pay off your mortgage, you instead invest that money. Sure it’s tempting to stop making a monthly payment, but what if that $300,000 earned a hypothetical 6% for the next five years. You would have a little more than $400,000. Yes, your house may appreciate in value over the same period of time, but you should consider all your choices for that lump-sum of money.

Eradicate (Other) Debt

Before you pay down your mortgage, any extra cash might be better suited to paying off other kinds of debt that carry higher interest rates, especially non-deductible debt, such as credit card balances.

Make Your Mortgage Work

Many homeowners benefit from a mortgage interest deduction on their taxes. Here’s how it works: the amount you pay in mortgage interest is deducted from your gross income, which reduces your federal income tax burden. But remember, the further along you are toward paying off your mortgage, the less interest you’re paying. If you’re unsure if you’ll be able to take advantage of this mortgage benefit, it’s best to consult your financial professional.

Retire Your Mortgage

Your monthly mortgage payment may be a large part of your available capital, especially in retirement. Eliminating unnecessary subsidies can significantly reduce the amount of cash you need to meet monthly expenses.

Uninteresting Interest

Depending on the length of your mortgage term and the size of your debt, you may be paying a substantial amount in interest. Paying off your mortgage early can free up money for other uses. True, you may lose the mortgage interest tax deduction, but remember as you get closer to paying off your loan: more of each monthly payment goes to principal and less to interest. In other words, the amount you can deduct from taxes decreases.

Home Is Where the Heart Is

There’s a value to your home beyond money. It’s where you raised your children, made fond memories, and you may want it to remain in the family. Paying off the mortgage may help make your home part of your legacy. After all, some things you just can’t put a price on.

 

 

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

Essentials for Your Year-End Financial Checklist

The year-end deadline for many key financial decisions is approaching. Check your finances now to avoid unpleasant surprises.

December 31 marks the deadline for decisions that can significantly affect your wealth. Taking action now might enable you to reduce your taxes and increase your retirement savings. It’s also a great time to review your entire wealth plan with a professional financial advisor.

Take tax losses on your positions. Your investment portfolio probably has one or more poor performers. You may wish to sell losing positions to realize the losses and offset them against your capital gains. You can deduct up to $3,000 of excess capital losses against your ordinary income. Reevaluate and rebalance your holdings to achieve your desired asset allocations.

Fund your retirement accounts. Although you have until April 15 of next year to fund your retirement accounts, now is the time to determine your remaining contributions to your 401(k) plan and Individual Retirement Accounts (IRA). If your income exceeds Roth IRA limits, consider a partial conversion of traditional IRA assets to a Roth IRA*. Also, don’t forget to take any required minimum distributions if you’ve reached age 701/2.

Review your flexible spending accounts. It’s a good time to review your health insurance coverage with your financial advisor and insurance agent. Make sure you don’t let your flexible spending account (FSA) balance exceed $500, the maximum amount you can carry forward into the next year. Some employers offer a grace period until March 15 to use last year’s funds. However, you can only use one of these options. You should check with your employer to see what their policy is.1

Review your beneficiary designations. Circumstances might have changed during the year, prompting changes to the designated beneficiaries in your will, trusts, retirement plans, insurance policies, and charitable gift plans. Review your estate plan to evaluate moving assets to new or existing trusts. Finalize your gifting to family and friends based on the latest gift tax limits. Review your insurance policies to determine if the coverage is still appropriate.

Year-end financial reviews are essential. Contact me today to schedule a review session that will help you find opportunities to manage your tax burden, control your bequests, and start planning your financial goals for the new year.

* Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regards to executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation.



1 irs.gov, “Plan now to Use Health Flexible Spending Arrangements in 2018; Contribute up to $2,650; $500 Carryover Option Available to Many” 11/15/17