You have saved and invested for decades and you are gearing up for retirement, or maybe you have already left your job. While the idea of leaving your career behind may be appealing, it is a monumental change that can also be unsettling for some folks.
You will be sailing in a new direction, and you will take on new challenges. Your daily routine will dramatically change, and you’ll begin to rely on a lifetime of savings.
What should you do?
1. A more conservative investment posture may be in order. There was little reason for concern when you were 30-years old and volatility struck. In fact, the idea of dollar-cost averaging and buying shares at a lower price may have been appealing. Besides, the market has a long-term upward bias, and it would be decades before you would tap into your 401k or IRA.
But today, market volatility can be much more disruptive. A big decline in stocks at the onset of retirement could create significant problems down the road. We’ll handle these conversations at your leisure, but a shift towards assets that are not as volatile may be more suitable.
It’s not that we want to completely avoid equities. Some may be tempted to exit stocks. That might not be the right choice either.
Instead, we want to take on the right level of risk. In most cases, some exposure to stocks is the best path. But the growth-oriented strategies of your youth that helped build your nest egg should probably be tempered in retirement.
2. Be careful taking Social Security too early. There are some reasons to opt for Social Security when it becomes available at 62. For many, however, that will reduce their lifetime earnings from Social Security.
Today, the full retirement age runs between 66 and 67 years old, depending on the year you were born.
Individuals who collect Social Security beginning at age 62 receive 25% less in monthly benefits than if they had waited until full retirement age. This assumes a full retirement age based on a date of birth between 1943 and 1954.
Delaying Social Security until 70 allows you to receive the maximum benefit that’s available. It will provide you with an additional 32% over what you’d pocket at full retirement age, assuming full retirement age based on a birthdate between 1943 and 1954 (both examples are for illustrative purposes only).
Rules governing Social Security are complex, and the information I've provided is simply a general overview. Much will go into your decision to begin collecting your monthly benefit. It goes without saying that I'm happy to lay out various strategies so that we can best position you when the time comes.
3. Implementing the correct distribution strategy. If all your retirement assets are 100% in a Roth IRA, taxes are much less of an issue when you withdraw for living expenses. However, many of us have our savings in a traditional IRA or 401k. Distributions will be taxed at your marginal tax rate. You may also be liable for penalties if you withdraw before the age of 59 ½.
Watch out for the required minimum distribution, or RMD, for your IRA, which now begins at 72 (70½ if you turned 70½ prior to Jan 2020). You may decide to leave your IRA alone until RMDs are required.
Some may choose to take withdrawals prior to 72 as a way to reduce future RMDs and the potential tax implications of large withdrawals when they become mandatory.
Let me add that these ideas are general in nature. It’s a complex topic that could be explored in depth. My goal is to make you aware of the idea. There are ways to maximize your benefits and minimize costs. We will tailor our recommended strategies to your specific needs.
4. Spending too much or spending too little. When you retire, your lifestyle will change. You’ll have the opportunity to enjoy new experiences and enjoy them on your terms.
But let me gently caution you not to overspend in the early years of retirement. Recognize that you’ll be living on a fixed income, and you have a finite ability to earn extra cash. This is especially true as you get older.
At the same time, some retirees can be too cautious about spending. They have ample reserves but sometimes guard them too closely. We applaud those who want to leave a financial legacy to their children, but balance that desire and have some fun in retirement.
5. Be aware of scams. I won’t spend much time on this as I’ve written about elder financial abuse and ID theft in the past and will gladly provide you with more information if you would like.
6. Watch out for medical expenses. You have Medicare and you probably have a supplemental policy. But deductibles and health expenses that are not covered by insurance are always a challenge.
It’s important to budget for insurance and medical expenses that will likely occur as you get older.
7. You may live longer than you expect. Don’t let the success of your retirement plan be predicated upon saying goodbye to your loved ones shortly after leaving the workforce. Life expectancy and longevity can only be estimated.
Some folks will live well into their 80s and 90s. Continue to plan as if you’ll be tapping into your savings long after you have retired.
Lastly, stay active and volunteer. It will help keep you physically fit and mentally sharp. Just as we have a plan for your finances, it’s critical to have a plan that keeps you active and helps you enjoy retirement.
I trust you’ve found this review to be educational and informative.
Let me once again emphasize that it is my job to assist you. If you have any questions or would like to discuss any matters, please feel free to give me a call.
As always, I’m honored and humbled that you have given me the opportunity to serve as your financial advisor.
This time last year, the World Health Organization recently had declared that the spread of Covid-19 constituted a worldwide pandemic.
Stringent measures in the U.S. were being taken to slow the spread of Covid and “flatten the curve.” The lockdowns and shelter-in-place orders dealt a body blow to U.S. economic activity.
Investors, who attempt to price in economic activity over the next six to nine months, had no prior experience to a shutdown and eventual reopening of the economy. It was if we were driving through a dark and foggy night with no headlights.
Consequently, investor reaction was swift, and the first bear market since 2009 descended upon investors. Volatility was intense. In just one day, the Dow Jones Industrial Average lost nearly 3,000 points, or 12.9% (March 16, 2020 St. Louis Federal Reserve DJIA data).
That day accounted for over 25% of the Dow’s nearly 11,000 point peak-to-trough loss.
The major market indexes bottomed on March 23 (St. Louis Federal Reserve). The bear market lasted barely over a month, if we use the broader-based S&P 500 Index as our yardstick. It was a swift decline, but it was the shortest bear market we’ve ever experienced.
The ensuing rally has been nearly unprecedented. Since bottoming, the S&P 500 Index advanced an astounding 77.6% through March 31. It’s 3,972.89 close at the end of the first quarter put it within 1.65 points of the prior March 26 closing high. And that is on top of a series of new highs since the beginning of the year. Since the end of the quarter, the S&P 500 has gone on to top 4,000.
Let’s back up and take a broader view.
If we review the six longest bull markets since WWII, the S&P 500’s advance over the first year tops all other prior bull markets. In second place at 72.4% is the bull market that began in March 2009. That run lasted into February 2020 (St. Louis Federal Reserve).
But I want to caution you that past performance doesn’t always guarantee future results.
If we gauge the first year of the 1990s bull market, the S&P 500 had advanced 32.8% during the same period. It’s an excellent performance for a period that runs about one year, but it would place the start of the long-running 90s bull market in last place among the six longest periods since WWII.
Where are we headed from here? You’ve heard me say that no one has a crystal ball. No one can accurately and consistently predict what may happen to stocks.
Nevertheless, let’s look at what’s happened in the second year of bull markets that were born out of bear markets that saw the S&P 500 Index fall at least 30%.
Since World War II, there have been six other bear-market selloffs of at least 30%. In each case, the market posted strong returns in the first year, with an average gain of 40.6%. Gains ran into year two, with an average increase of 16.9%; however, the average pullback during those six periods: 10.2%.
So, let’s not discount the possibility of a bumpy ride this year.
Treasury bond yields have jumped as the government has embarked on an expensive $1.9 trillion stimulus package, and talk of new spending from Washington is gaining momentum. Further, bullish enthusiasm can sometimes spark unwanted speculation.
Might the economy overheat and spark an unwanted rise in inflation? Might rising bond yields temper investor sentiment? Up until now, investors have focused on the rollout of the vaccines, and the reopening of the economy.
Today, momentum favors bullish investors, but valuations seem stretched, at least over the shorter term. When markets are surging, there is a temptation to load up on risk.
Just as the investment plan takes the emotional component out of the investing decision when stocks are falling, it also erects a barrier against the impulse to load up on riskier investments when shares are quickly rising.
Life changes, and when it does, adjustments may be appropriate. Ups and downs in stocks are rarely a reason to make emotion-based decisions in our portfolios.
“Stop in the name of love, before you break my heart.” We know The Supremes weren’t alluding to the pitfalls couples face when they grapple over money issues. But our experiences tell us that money plus love can lead into minefields.
So, let’s recognized the obvious. Financial matters are an important part of any couple’s relationship. Face them head on.
For some couples, this will be second nature. For others, it’s a challenge, but we’re here to help.
If you take the time to get on the same page, you can solidify your finances and strengthen your relationship. Working towards the same goals is critical. It’s time well spent.
6 money mistakes you and your spouse can avoid
1. Set goals. He’s a spender, she’s a saver. Or, he has an always-expanding list of toys he would like to add to his collection, and she spends most of her time thinking about growing the family’s emergency fund and how she can max out their 401k contributions. Does that sound familiar?
It’s too late to have “the talk” after you have put a big purchase on your credit card. So, sit down and have a money date. Talk about your goals and write them down. Without goals, you won’t know where you are headed.
Share your feelings and (this is important) actively listen to the other’s viewpoint. Compromise may be needed but agreeing on common goals will allow you to move forward in a unified fashion. When you have completed this task, I am confident you’ll feel an enormous sense of satisfaction.
2. All for one and one for all. Marriage is about unity, but our interests won’t always be perfectly aligned. The same can be said about handling our finances.
A joint checking account and joint credit card are perfect for joint expenses, but separate accounts for separate purchase can be a good idea too. When you set your goals, establish agreements regarding your separate spending patterns.
3. Money secrets are a no-no. It’s OK not to disclose the birthday present you just bought for your spouse. It’s not OK to keep other money secrets hidden from your spouse or partner.
Major secrets may be a symptom of bigger problems that can threaten the stability of your relationship. Don’t destroy trust that can take years to rebuild.
4. Who handles the monthly bills? It’s a good idea to use autopay. But it's not a one-time set and forget it situation. You don’t want to get caught flat-footed with an overdue bill or late charges that may slip through the cracks and ding your credit report.
Therefore, who takes care of the bills? It may make sense for one person to be in charge so there’s no confusion, and regular payments aren’t missed.
But checking in monthly or bi-monthly is a good way to keep both individuals on the same page. Check-ins also allow you to make any adjustments, as a couple, to your goals.
5. What comes first, the chicken or the egg? It’s the age old question. Here's another one. Should we go in the direction of retirement savings or college savings?
Having children means putting your kids before yourself more times than you’ll ever be able to count. But when it comes to saving for retirement or college for your kids, put yourself at the front of the line.
Pensions are disappearing and Social Security isn’t enough. You must consider your retirement needs first. There are exceptions, and we can look at ways to fund both goals. But do your best to maximize retirement savings. At the minimum, capture the full amount of your company’s match.
Keep this in mind: If you don’t fund your retirement, who will?
6. Stash away cash for an emergency. Did you know that just 39% of Americans have $1,000 to handle an emergency? The rest would have to use a credit card or borrow to cover an unexpected need. I know you have ample reserves, but sadly, that’s not the case for all Americans.
If you received a stimulus check in December and you don’t have an emergency fund, please save it!
When was the last time you received a phone call or email from a scammer? It you were contacted recently, you aren’t alone.
Internet scams show no signs of letting up. In fact, the problem may be getting worse. In its most recent report from the Internet Crime Complaint Center (IC3), the FBI said it saw the largest number of complaints and the highest dollar losses reported since the center was established 20 years ago.
The FBI said it recorded 467,361 complaints in 2019 and more than $3.5 billion in losses to individuals and businesses.
The costliest scams involved business email compromise, romance or confidence fraud, and mimicking the account of a person or vendor known to the victim to gather personal or financial information, the FBI said.
“Criminals are getting so sophisticated,” Donna Gregory, the chief of IC3 said. “It is getting harder and harder for victims to spot the red flags and tell real from fake.”
But you can avoid becoming a victim with vigilance and common-sense steps.
Here is one example from the Federal Trade Commission (FTC): You may receive an email that appears to be from a company you are familiar with, such as Netflix. Not everyone subscribes to Netflix, but tens of millions do.
You receive the email requiring that you update credit card or bank information for payment. If you comply, you’ve given criminals personal information they can use to steal from you. (If you are unsure, go to the website of the company and check your information there.)
Also be careful about clicking on links or attachments that could compromise your personal information or lock up your computer. Use these four steps to protect yourself from phishing:
Please note that some of these email/texts now include a warning not to give out the passcode to anyone. Why is this needed? Some scammers will attempt to log into your account, then call claiming they are from that company and need your passcode. Just hang up.
7. Steer clear of the fake Facebook page Scammers sometimes set up a fake Facebook page of a well-known company. Scammers then add a post claiming they will give away autos, free airline tickets, or thousands of dollars to “hundreds of lucky winners.” Simply share the post, comment, click on a provided link, and fill out the requested information. If you look at the FB page, you’ll notice it’s brand new as there are few posts, and it lacks a verified FB badge indicating its authenticity. However, you’ll see hundreds of individuals who have dutifully complied with the scammer’s requirements. Sadly, they will win nothing but grief.
What to do if you are scammed
Be vigilant and use common sense. Anyone can fall victim to these scams. If you have paid someone, call your bank, money transfer app, or credit card company and see if they can reverse the charges.
If you gave personal information, go to [[https://www.IdentityTheft.gov IdentityTheft.gov]] to see what steps you should take, including how to monitor your credit.
Did a scammer take control of your cell phone number and account? Contact your service provider to take back control of your phone number. Once you do, change your account password. Passwords should be lengthy and include numbers, letters, special characters, and capitalized letters. Short passwords can easily be hacked using computer programs.
When you report a scam, the FTC can use the information to build cases against scammers, spot trends, educate the public, and share data about what is happening in your community. If you were scammed, report it to the FTC at ReportFraud.ftc.gov.
Finally, be vigilant and use common sense. Avoid clicking on suspicious links, and never give out personal information to a stranger over the phone. You’d never tell your best friend your annual income, so why would you give a suspicious caller your passwords, bank information, date of birth or your Social Security number
The year 2020 presented us with unique challenges. Never has a singular event had such wide-ranging repercussions as the Covid pandemic.
It has touched nearly every area of our lives. Schooling, socializing, family gatherings, travel, and more. And the restraints from social distancing and restrictions implemented to slow the spread of Covid remain in place.
Of course, it wasn’t just our daily routines that were impacted. The economy and our investments saw unprecedented swings in 2020.
Yet, we are an optimistic nation. As the economy was set to climb out of a deep hole, investment legend Warren Buffett said, “I remain convinced…nothing can basically stop America. The American miracle, the American magic has always prevailed, and it will do so again.”
Last year’s strong finish for stocks suggests Buffett is on the right track.
As we enter a new year, we tend to look back at our successes, our challenges, and new goals for the upcoming year. Without a doubt, we all faced challenges in 2020. But I believe we've all had personal victories, too.
I’m convinced most of us are hopeful as we look to 2021. I know I am.
New Year’s resolutions are one tool that offers us guideposts as we begin the cycle anew. Surveys say that more than half of adults make resolutions--yet, we know far fewer keep them.
The top two resolutions center on money and health. My goal is to keep things simple and realistic, focusing on resolutions for your finances.
I’ll offer you options. Some may seem simple, but the foundation of any financial plan must be built on the basics, the fundamentals.
Some may apply to you. Others may not. But I encourage you to grab ahold of what is realistic.
7 financial resolutions to get you started in 2021
The seven resolutions are simply guidelines and suggestions. Does it seem overwhelming? Then focus on one or two. Or, grab hold of the ones that apply to you and tackle one per month.
As I always remind you, I'm here to assist you, encourage you and point you in the right direction. If you have questions, I am no further away than a phone call or email.
The end of the year is fast approaching. As the calendar days march toward 2021, let’s keep in mind that there are several ideas we should review as you work to get your year-end financial house in order.
While procrastination is tempting, remember how checking items off our ‘to-do’ list always gives us a sense of accomplishment.
Before we get started, the tips below are simply guidelines. Feel free to check with your tax advisor, as various nuances can crop up. As always, we would be happy to assist you
1. Health care open enrollment has begun. If you obtain your health insurance through the Health Insurance Marketplace, now is the time to purchase your health insurance for 2021.
This is the one time of year you can change your health insurance coverage or enroll. If you don’t act by December 15, you will miss out on coverage for 2021 unless you qualify for a special enrollment period. Plans sold during open enrollment start January 1, 2021
2. On a similar note, open enrollment for Medicare has begun. You can sign up for Medicare health and drug plans between October 15 and December 7
Decide if your coverage will meet your needs during 2021. If you like what you had this year and it is still available next year, you won’t need to take any action.
3. Did you max out your retirement accounts? You can put up to $6,000 into an IRA in tax year 2020; $7,000 if you are 50 or older. You will have until Tax Day to make a 2020 tax-year contribution. The sooner you contribute, the longer your assets can grow tax-deferred
Contributions to your 401(k) are automatically deducted from each paycheck. Contributions for tax year 2020 must be made by the end of the year to count against 2020 income.
The 401(k) contribution limit is $19,500 for 2020 and the catch-up limit is $6,500.
Your employer or plan administrator will let you know if you can adjust changes to your contribution this year. As we have said in the past, we strongly suggest that you contribute the minimum amount necessary to receive your entire employer’s match. It’s free money. Don’t leave free money on the table.
4. This year’s RMD waiver. If you are 72 (or turned 70½ before January 1, 2020), you are obligated to take a required minimum distribution (RMD) from your IRA. But this year is an exception.
Thanks to the CARES Act, the RMD is waived in 2020. This RMD waiver applies to everyone with a 401(k), IRA, 403(b) or 457(b) account. Owners of inherited IRAs may suspend RMDs for 2020, too.
5. If you are over 70½, you may be eligible to transfer up to $100,000 from your IRA to a charity without paying taxes on the distribution. This is called a qualified charitable distribution or QCD. Moreover, a QCD satisfies the RMD requirement as long as certain rules are met.
6. Let’s consider “harvesting” tax losses. Do you own stocks, exchanged-traded funds, or mutual funds that are below the purchase price? If so, you may sell by the end of the year and offset up to $3,000 in ordinary income or capital gains.
However, please be aware of the ‘wash sale’ rule and treatment of long-term and short-term losses. The rule defines a wash sale as one that occurs when an investor sells a security at a loss and, within 30 days before or after the sale, buys a "substantially identical" stock or security. If so, the IRS disallows the loss.
Short-term capital gains occur when an asset that is sold was held for one year or less. Short-term capital gains are taxed as ordinary income. Long-term gains are taxes at a more favorable rate.
7. Consider converting your traditional IRA to a Roth IRA. Depending on the outcome of the election, tax rates may rise next year. Therefore, converting a traditional IRA into a Roth IRA this year would require taxes to be paid at 2020’s rate, but it would enable the account holder to withdraw funds without paying federal taxes at retirement.
Whether or not tax rates rise next year, a Roth IRA is an excellent retirement vehicle.
Let me remind you that these year-end financial planning steps are guidelines. One size does not fit all. The advice I recommend is tailored to your specific needs and goals. I would be happy to discuss any questions that you may have. I'm simply a phone call or email away.
I trust you’ve found this review to be helpful and educational.
I've addressed various issues with you, and I have an open-door policy. If you have questions or concerns, let’s have a conversation. That’s what I’m here for.
As always, I’m honored and humbled that you have given me the opportunity to serve as your financial advisor.