Retirement Planning 101

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A stock market lesson to remember

Confidence can quickly erode, but it can also quickly emerge.

Undeniably, spring 2020 has tried the patience of investors. 

• An 11-year bull market ended. Key economic indicators went haywire. 
• Household confidence was shaken. 
• The Standard & Poor’s 500, the equity benchmark often used as shorthand for the broad stock market, settled at 2,237.40 on March 23, down 33.9% from a record close on February 19.1 On April 17, the S&P closed at 2,874.56. 
• In less than a month, the index rallied 28.5% from its March 23 settlement. And while past performance does not guarantee future results, there is a lesson in numbers like these.

1 In the stock market, confidence can quickly erode – but it can also quickly emerge. 

That should not be forgotten. There have been many times when economic and business conditions looked bleak for stock investors. The Dow Jones Industrial Average dropped 30% or more in 1929, 1938, 1974, 2002, and 2009. Some of the subsequent recoveries were swift; others, less so. But after each of these downturns, the index managed to recover.

2 Sometimes the stock market is like the weather in the Midwest. As the old Midwestern cliché goes, if you don’t care for the weather right now, just wait a little while until it changes. The stock market is inherently dynamic. In tough times, it can be important to step back from the “weather” of the moment and realize that despite the short-term volatility, stocks may continue to play a role in your long-term investment portfolio. 

When economic and business conditions appear trying, that possibility is too often dismissed or forgotten. In the midst of a bad market, when every other headline points out more trouble, it can be tempting to give up and give in. 

Confidence comes and goes on Wall Street. The paper losses an investor suffers need not be actual losses. In a down market, it is perfectly fine to consider, worry about, and react to the moment. Just remember, the moment at hand is not necessarily the future, and the future could turn out to be better than you expect.

Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.

Life Insurance & The Living Benefits: Are You Aware?

Now, most people understand how important life insurance protection is, especially if you have a family. What most people don’t understand, however, is the other many uses of life insurance, including the living benefits. Are you aware?

Life insurance is one of the oldest financial tools, however options have changed over the years. Obviously, its main use is to insure your life by passing on desired money’s to family members and loved ones if you should pass away prematurely. But, in today’s very complex and ever changing financial world, life insurance has adapted to have many uses and provide many other benefits. 

For example, were you aware that life insurance has some very valuable advantages and tax savings benefits? Were you aware that life insurance can provide benefits to you while you are living? Were you aware that certain types of life insurance if properly set up and funded correctly, can provide a tax free income in retirement as well as long term care funding?

The fact is that many very smart and wealthy people utilize life insurance in many different ways for maximizing and protecting their nest egg.

The financial road less travel

Most people have heard the common phrase ‘The Road Less Traveled’. The general consensus of the meaning is to do the less obvious, to be different from the rest or to follow a path that is perhaps not as easy because not many people have done it.

Sometimes; however, if you take ‘the road less traveled’, you find something of tremendous value. The same very well could be found on ‘the financial road less traveled.’

When it comes to retirement planning most people do things the way they understand, are most familiar with and maybe the way that their parents did it. For example, many people use a traditional IRA or company sponsored 401(k) or 403(b) plan to save money for retirement. According to the Investment Company Institute these plans have trillions of dollars in them. However, just because these plans are so popular does not mean that they are the best option for you. There are other retirement savings plans options available that are not as well known about or commonly used that could be a better place for you to save money for retirement.

Today’s financial world is constantly and ever changing. Sometimes, this means you may benefit more by utilizing planning tools and strategies that are not as well known or used as frequently. By taking the unconventional route, i.e. ‘the financial road less traveled’, you very well could make your retirement plan much more predictable.

Thinking about retiring? Consider these factors first

For most people, the ultimate goal that comes from working many years is to retire comfortably someday.

Unfortunately, because of the current economic environment, the question of retirement is less about the normal retirement age, and more about whether you can afford to retire. To determine this, there are several factors to consider, such as:

• Knowing when and how to claim Social Security to maximize benefits over a lifetime
• Setting up a reliable income and distribution plan from your nest egg
• Understanding tax issues on all your assets and how to minimize them
• Protecting your assets and nest egg
• Making sure your estate and beneficiary documents are accurate
• Having a plan in place for a long term care illness
• Having the right investment plan in place for growth and protection

Nest Egg. Did you know…?

You work and save over many years to build a nest egg for retirement, and basically for one simple reason. Do you know what that is?

Well, the ultimate objective of retirement is to provide yourself a sufficient or desired income stream throughout your retirement years. Unfortunately, most people, financial advisors included, are unaware as to how to setup their retirement plan properly for providing this lifetime income.

Taking income from your nest egg the proper way comes down to many factors and considerations. Of course, each is based on your unique set of goals, objectives and desires, but here are some main provisions to consider.

What should you do with your money once you retire?

Specifically, which accounts should you tap first and why?

Did you know?

Different plans have different age rules and requirements for tapping into your nest egg.

Are you still going to work after retirement?

If so, you need to be aware of and understand the rules and provisions that will affect taxes, Social Security and RMDs.

Beware of the taxman.

Tax planning is critical in retirement. You want to set up your income plan and distributions to minimize the taxes that you pay. Remember, tax evasion is illegal, but tax avoidance using the right tools and strategies is not.

There are many more factors to consider.

How to Ruin Your Retirement Plan

Ralph Waldo Emerson once said “It requires a great deal of boldness and a great deal of caution to make a great fortune, and when you have it, it requires ten times as much wit to keep it.” This quote relates to retirement and estate planning so well. As hard as it is and the time it takes to build a retirement nest egg to be able to retire comfortably, it can be ruined so easily and very quickly.

Simply put, gone are the days of being able to rely on the government and corporations to take care of you. 

Many pension funds and company 401(k) contribution match programs are disappearing, and many entitlement programs like Social Security and Medicare are extremely underfunded causing possible reductions in benefits in the future. Thus, in today’s world, the responsibility of a successful retirement falls on your own shoulders. With that responsibility and control, a retirement plan can easily be ruined in several different ways, such as:

• Not having the proper risk management system in place to protect against extreme volatility and major market downturns
• Not knowing about or understanding all the tools, designs and strategies available to protect, preserve and maximize your plan
• Not saving or having your money in the right type of accounts
• Not making strategic moves each year to become more tax efficient
• Not considering and having a plan for the astonishing and increasing cost of health care, including long term care
• Not having the proper income plan in place to minimize taxes and avoid outliving your money in retirement
• Not making the proper adjustments to your plan each and every year based on all of the changes that occur

It does not matter whether you are still building your nest egg for retirement or are already retired, and trying to protect and preserve that nest egg; there are several ways to ruin your plan.

Think about it, does it make sense that the financial strategies that helped you get to retirement might not be the best ones to get you through retirement?

Why Do People Need A Financial Advisor These Days For their Retirement Planning?

Actually, there are a lot of answers for this question. 

Basically, what it comes down to is the financial, economic, tax and investment world has changed a lot over the last several years, and continues to change. Technology continues to advance, markets are global and financial products continue to evolve. 

Yes, there still are some historic principles that need to be followed, but these new times require much more education, and better strategies.

It seems like we are now officially in a YOYO economy – which stands for You’re On Your Own. Gone are the days of being able to rely on the government and an employer to take care of you. 

Very few companies offer traditional pension plans anymore, and many government entitlement programs are severely underfunded which will have to be treated somehow. 

Social Security already made some recent changes recently by taking away some claiming strategies. With less government help and less employer help, that means more responsibility is on you for a successful retirement. And with longevity increasing, you very well could live a very long time in retirement, which puts more pressure on your assets and incomes to last a long time.

In addition to all of this, we are dealing with an unpredictable stock market that is near all-time highs; historic low interest rates; tax law changes and possible tax increases in the future. Thus, people need help in dealing with all of this and managing their wealth, protecting their assets, reducing their taxes, having a plan for long term care, and setting up an income plan so they will not run out of money. 

In my opinion I don’t know if there was ever a more crucial time for most people to have professional help and guidance in these areas from a qualified and experienced retirement planning specialist in creating and maintaining a comprehensive plan to maximize, protect and in many cases, save their retirement lifestyle.

Do You Get It: The Mathematics of Investing

Mathematics is used in some form every day in life. While some people are very good at math, in the investment world mathematics can be very confusing and can trip up even the brightest minds.

So, when it comes to the mathematics of investing, do you get it?

Unfortunately, the lack of knowledge or misunderstanding of how math works in investing can be very costly. 

According to several financial analysts and researchers, many people spend the majority of their time recovering from cyclical downturns in the market. Can you believe that some investors spend a good amount of their time just trying to get back to even from the previous downturns?

The reason and answer as to why it is this way is the unforgiving mathematics of loss. When investments lose ground, they must make up more ground, percentage-wise, just to get back to even. For example, if you have a $100,000 portfolio that loses 50%, you are down to $50,000. You now have to earn 100% just to get back to even!

The mathematics of loss in investing is so cruel because losses count so much more than gains and because it usually takes so long to make up those losses. And this is why proper risk management and active investing is critically important in investing if you want the magical powers of compounding interest to work for you over time.

To roll over or not?

The employer-sponsored retirement plan is one of the most popular types of retirement savings plans. In fact, most people at some point in their lives have contributed to some type of employer savings plan like a 401k or 403b. However, the popularity of this type of plan brings many questions and options.

One common question that we get on a regular basis is the rollover question; what should one do with the plan once they change employers, separate from service or retire.

When one separates from service for any reason, the option to take the money out of the retirement plan and do something else with it comes available. The decision you make here is very important and can have many consequences.

Participants generally have five options when leaving their employer-sponsored plan, consisting of:- Leaving the money in the former employer’s plan, if permitted- Rolling the assets to a new employer’s plan, if one is available and rollovers are permitted- Rolling the assets into a Traditional IRA- Converting the money to a Roth IRA- Cashing out the plan

There are advantages and disadvantages to each of these options. Deciding what to do is an important decision, and many factors should be considered.

Key Dates Related to Your Retirement

When you think of certain important dates or ages, you generally think of birthdays, anniversaries, special moments, etc.

However, as you get older and get into your pre-retirement and retirement years, some other dates and ages become very important. In fact, these certain dates may even become more important than birthdays and anniversaries as missing them or not understanding what happens at these times can have a severe impact on your retirement.

Most people work extremely hard during their lifetime to build a nest egg that will take care of them in retirement. Part of building your nest egg is the proper understanding and planning around some key dates, which can make your job for planning for retirement much easier. The key dates and ages related to retirement that we are talking about here are:

age 21, age 50, age 55, age 59.5, age 62, ages 62 to 65, ages 65 to 67, age 70 and age 70.5

All of these ages represent a very important time related to some type of retirement issue, like contributions, Social Security, Medicare, Required Minimum Distributions, etc.

Most of these ages require some type of action that needs to be taken which will affect your retirement in some way. For example, are you sure you understand when you can access money out of a retirement plan without penalty, or when you can make as much money as you want without losing Social Security benefits?

To make the most of your retirement benefits, you need to understand what all of these key ages mean and all the issues and options that each age entails.

Are You Getting a False Sense of Security?

Over the last few years, the S&P 500 index has been on one heck of a run. This index has produced a very good return and has beaten many professionally managed accounts. It also has done this with little volatility. This combination has fooled many investors into thinking they can just rely on a passive, non-managed, and low-cost index fund instead of their professionally managed accounts.

So, are you getting a false sense of security? Are you concerned with world events and how they might impact the financial markets in the future?

Yes, the S&P 500 index has done well the last few years. But, this has occurred after it lost nearly half its value between August of 2000 and September of 2002, and over half its value between October of 2007 and February of 2009. In fact, some people are still trying to get those losses back even though the index has fully recovered.

But now that the S&P 500 is setting records highs, unfortunately, many people have simply forgotten those very bad years and what can happen in a passive index. Per my teaching responsibilities and relationships throughout the financial services industry, I get to see and hear first-hand the thoughts and feelings from many different clients, consultants and advisors.

The bottom line is that many investors are starting to feel that the S&P 500 or other passive index funds are the only thing they need.

They are wondering why they are paying management fees for performance that is not keeping up with the so called ‘overall markets.’ So, are they right to feel that way and should they move to a cheaper, non-managed passive index fund in hopes for less cost and better performance? Does the last few years having positive increases in many equity index values indicate that trend will continue? With many of these passive indexes at all-time highs this type of thinking could be a big mistake. Buying these indexes at richly priced levels typically equals great downside risk.

IRA Inheritance Disasters to Avoid

IRAs and other types of retirement accounts are perceived by many people as pretty simple plans but, as we have discussed in the past, there are many complexities to IRAs that can cause big problems.

When it comes to inheriting an IRA, the rules and guidelines are more complicated than most people realize. Without proper understanding, an IRA inheritance could spell disaster.

It is not unusual for IRA heirs to not know about or misunderstand some key rules and guidelines. Unfortunately, the IRS does not give much mercy when things are not done properly, even from ignorance of the rules. A wrong move can often cause much of the inherited IRA to end up with the IRS in the form of taxes. Here are some key inherited IRA mistakes that can be disastrous.

Inaccurate Or Wrong Documents – Your will or living trust has no effect on an IRA. IRA owners often make the mistake of having the wrong beneficiaries named or not designating beneficiaries altogether.

Unprepared beneficiaries – A lot of money that is passed on is wasted or blown by unprepared or irresponsible beneficiaries.

Not Knowing About Special Spousal Options – Spousal beneficiaries have special options that are not available to others.

Not Realizing Tax Issues – Most inherited IRA accounts are fully taxable to the beneficiaries. Fortunately, there are ways to minimize these taxes if you make the right moves by the right time.

Inheriting money, specifically IRAs, is a complex process filled with many rules and guidelines. If not understood or followed properly, an inheritance can turn into a disaster.