Tag: 401k

Why We Love Money (And You Should, Too!)

WHY WE LOVE MONEY (AND YOU SHOULD, TOO!)

Mike Desepoli, Heritage

“Money can’t buy happiness but somehow it is better to cry in a BMW than on a bicycle.”
We often end up listening to the endless arguments upon whether to be materialistic or not. While spiritually we should not really become materialistic because world’s greatest joys are not hidden in materialistic items at the same time living in a practical world around people, you cannot help but be materialistic after all without money you cannot go anywhere (think about your cab driver).

Here is our take on whether to love money or not and to what extent?

MONEY BUYS YOU THINGS

Off course world’s greatest joys are hidden in the things that money cannot buy but think of the dress that you always wanted to buy, think of the vacation that is too expensive but you really wish to experience it, think of the joy which is beheld in a double crest cheesy pizza. These things are not possible without money; do you still believe that money cannot buy joy?

MONEY MOTIVATES

Won’t you be joyous to see your bank balance hitting the sky? Well, isn’t the whole point of finding a job, earning well, having a well-settled life somehow revolves around earning money too. It is true that job satisfaction is primary to be thought upon but don’t you think that often money motivates you to do more or to do better? Come on who would refuse to put some extra efforts for monetary benefits offered?

MONEY BRINGS PRESTIGE

Whether you agree or disagree, the society has agreed upon that fact that money brings in prestige. While respect has to be earned and there are no two ways about it but your lifestyle adds on to this respect as well. A king sized lifestyle gets a king sized treatment and what is a king without treasure? Are you getting our point?

THE DESIRES

We are humans and that is why our desires are unreasonably endless. However, have you ever noticed that each desire of yours stops at money? Whether you wish to learn a newer skill or pack your bags for travelling. Everything begins and ends with the amount that your bank balance reads. The unfulfilled desires bring anxiety and with no money in your hand, you are going to pile up in anxiety only.

UNDENIABLE FACTOR

No matter how much you hate minting money so matter how much denial do you possess for money the reality is that money forms an integral and undeniable element of life. Your stand in the society, your extracurricular activities, your lifestyle, your efficiency of work and so on is determined by money.

We agree that greed can dig your grave but, a complete denial of money is yet another form of digging your graves too. While it is vital to be contented with what you have, there is no harm in desiring for a little extra either.

GOT A PIECE OF ADVICE ON MONEY? WE WOULD LOVE TO GET YOUR FEEDBACKS IN COMMENTS

Do you love money too? Check out #AskTheAdvisor 41: 3 Things Successful Investors NEVER Do!

Facebook Data Scandal: What you need to know

Facebook data scandal: Here’s everything you need to know

Mike Desepoli, Heritage

Cambridge Analytica is in the midst of a media firestorm. This came after an undercover sting operation caught senior executives boasting about psychological manipulation, entrapment techniques and fake news campaigns. Alongside social media giant Facebook, the London-based elections consultancy is at the center of an ongoing dispute over the alleged harvesting and use of personal data.

What happened

It started with an explosive expose broadcast by Britain’s Channel 4 News on Monday. In it, senior executives at Cambridge Analytica, were caught on camera suggesting the firm could use sex workers, bribes and misinformation in order to try and help political candidates win votes around the world.

How did this initially come to light?

The Channel 4 News investigation followed articles published over the weekend by the New York Times and U.K. newspaper The Observer. The reports sought to outline how the data of millions of Facebook profiles ended up being given to Cambridge Analytica.

In this way, 50 million Facebook profiles were mined for data. Kogan then shared this with Cambridge Analytica, which allowed the firm to build a software solution. The software was used to help influence choices in elections, therefore spurring the narrative of collusion. This was according to a whistleblower, who revealed the alleged practices to both newspapers.

How has Facebook Stock responded?

As you might expect it’s been under quite a bit of pressure the last few days. It is currently off about 10% from recent all time highs made in February. With growing calls for executives to appear before congress, it will likely continue to be under pressure. In the news today, there is a group of investors who have filed a class action lawsuit against Facebook with the intention to recoup stock losses.

What happens next?

U.S. senators have urged Facebook boss Mark Zuckerberg to testify before Congress. They will likely ask about how the social media giant will protect its users. Meanwhile, in the U.K., Zuckerberg has been summoned by the chairman of a parliamentary committee in order to explain the “catastrophic failure” to lawmakers.

The head of the European Parliament has also said it will carry out an investigation to see whether data was misused.

 

 

Tariffs & Trade Wars

Tariffs & Trade Wars

By Emmet Sullivan , Guest Blogger

 

Many consumers, investors, and ordinary citizens often worry when the word “tariff” is thrown around. Instantly signaling an increase in price in imported goods, the word is almost synonymous with a negative economic impact.  Thinking in terms of the big picture, we need not jump to such hasty, and often misguided conclusions.

What is a Tariff?

First, it is important to understand what tariffs are, and what they hope to accomplish. A tariff is an additional tax imposed on imported goods.  By imposing these taxes on imports, national governments hope to discourage large-scale outsourcing. As a result they hope to spur domestic production by driving import prices up. When the prices of imports go up, the hope is that consumers will look to domestic suppliers for goods they would normally obtain from international sellers.

The current tariff talks in the U.S. are based around metals. Specifically, President Trump wants to impose a 25% tariff on imported aluminum and steel.  The levy is intended to increase demand of domestically manufactured metals by increasing the price of their international substitutes.  This in turn might create a number of job opportunities in U.S. metal production related to the surge in demand.

Trade War?

Many worry that this tariff may result in an international trade war between the U.S. and countries like China and South Korea. There is speculation that trading partners might retaliate with similar tariffs. Therefore, this would make it harder for U.S. producers to export their goods.  However, Canada (the U.S.’s largest supplier of both aluminum and steel) and Mexico (the U.S.’s third largest trading partner) are both exempt from the tariff as part of the ongoing re-negotiation of the NAFTA agreement.

In summation, the tariff should not be an immediate cause for worry. As stated, some of the U.S.’s largest trading partners are exempt from its effects, and some speculate that it has been implemented as a negotiation tool for international agreements like NAFTA. The tariff’s long term effects remain to be seen, but we caution against fear of an economically-harmful trade war at present.

What is a stock market correction? And a few other facts.

What is a stock market correction? And a few other facts you need to know

It’s been a crazy few days on Wall Street.

 

On Tuesday, the Dow plunged 567 points at the opening bell and briefly sank into correction territory before roaring back. On Monday, the Dow took its biggest single day point plunge in history.

Here’s what you need to know about what’s going on in the stock market.

What is a stock market correction?

A correction is a 10% decline in stocks from a recent high. In this case, that was less than two weeks ago, when the Dow closed at a record high of 26,616. A correction is less severe than a bear market, when stocks decline 20% from their recent highs. The stock market’s last correction began in the summer of 2015 and ended in February 2016.

Why is this happening?

The most immediate reason is a fear of inflation.

 

Last Friday’s jobs report was strong. Wages are rising, and unemployment is historically low. That’s great news for Main Street. But on Wall Street, it raises fears that inflation will finally pick up, and that the Federal Reserve will have to raise interest rates faster to fight it.

How are global markets reacting?

Overnight, world markets followed the United States’ lead and dropped. The Nikkei in Japan closed down 4.7%, China’s main stock index closed down 3.3%, and Australia’s closed down 3.2%. European markets were lower, but not as much as Asia. Stocks were down about 2% in Britain, Germany and France.

What does this mean for the rally?

From Election Day to the record high on January 26, the Dow climbed more than 8,000 points — a remarkable 45%. Many factors were behind the rapid rise: The ever-improving economy and job market, business optimism, record corporate profits, and the big business tax cut, which Republicans made law. The losses in the market since the beginning of last week wiped out about a quarter of that gain. The Dow began Tuesday up about 6,000 points since the election.

Is this the worst decline ever?

No.

Monday’s decline of 1,175 points on the Dow was, by far, the biggest point decline in history. The Dow had never lost more than 777 points in a single day. But in percentage terms, the declines of Friday and Monday are nowhere near the worst. On Black Monday in 1987, the Dow dropped an incredible 22%. That’s the equivalent of a 5,300-point decline today. And on several days during the financial crisis in 2008, the Dow dropped 6% or 7%. Monday’s decline was 4.6%. That was the worst for the Dow since August 2011.

 

Does all of this mean we’re entering a recession?

Stock market declines don’t cause recessions, and they do a pretty poor job of predicting whether one is coming. So while the market plunge might rattle investors and ding consumer confidence, it is not a sign that the economy is in trouble. Unemployment is at a 17-year low. Average hourly wages went up last month the most in eight years. Consumer and business confidence are near record levels. Economists say it would take a much bigger stock market move than Monday’s plunge to change that.

For more information visit us at Heritage Financial Advisory Group and check out the latest episode of The #AskTheAdvisor Show.

Stock Market Sell-Off: Heartburn, Not A Heart Attack

 

Managing Investment Risk

Managing Investment Risk

By Mike Desepoli, Heritage

If we know one thing about stock market investors it’s that the better the market performs, the less and less they think about risk. The first thing every investor should know and accept is that there is no such thing as a surefire investment. Risk is a part of the process. No matter what you invest in, there is always a possibility that you won’t turn a profit – or worse: you can lose some or even all of what you put in to it. You can manage risk, though, with a few proven techniques.

Asset Allocation

The first step in managing risk is to practice asset allocation. This means having your money in a variety of asset classes, which include cash, stocks, and bonds. Doing so is a protective measure – typically when stocks are doing well, bonds aren’t, and vice versa. Having some money in cash (or cash equivalents, which are extremely low-risk investments such as Treasury Bills and money market funds) makes sense, because outside of inflation risk – the slow but steady increase in the cost of living – your money is pretty safe.

Generally speaking, cash is the least risky of the asset classes, then bonds, and then stocks. Where you put your money depends largely on what type of investor you are, so be sure to allocate your funds according to your comfort level and needs:

• Aggressive Investor. 75% of holdings in stocks, 15% in bonds, and 10% in cash
• Balanced Investor. 50% of holdings in stocks, 25% in bonds, and 25% in cash
• Conservative Investor. 25% of holdings in stocks, 25% in bonds, and 50% in cash

Diversification

After you spread risk by investing in different asset classes, you can manage it even further through diversification. There are many different types and classes of stocks and bonds – some are much more risky (but with the potential for greater reward) than others. Therefore it is a good idea to divide your funds among a variety of investment vehicles with different risk and reward potentials.

For example, consider purchasing shares of stock in an assortment of different sectors. A sector is a subset of a market, and stocks are often grouped by the company’s type of business. Sectors include utilities, transportation, technology, health care, energy, and communications services. When you diversify your holdings among sectors, you spread risk – if one sector is doing poorly, another is probably doing well.
An easy way to diversify your holdings is with mutual funds, since they are comprised of many different investment types and classes.

Dollar Cost Averaging

Dollar cost averaging is another way of managing investment risk, and nothing can be simpler to do. You can practice dollar cost averaging by purchasing securities with a fixed amount of money at regular intervals. This way you buy more shares when the price is low and fewer shares when the price is high, thus reducing the over-all cost of the shares purchased.
If you have a retirement account through your employer, you already practice dollar cost averaging. You are having a set amount of money deducted from each paycheck deposited into your retirement account. And whether the mutual fund is doing well or poorly, the same amount of money is being invested. Done over many years, you ride out the highs and lows of the market.

Review and adjust your portfolio (your collection of investments) regularly. Even if you are comfortable with a great deal of risk, the closer you get to retirement, the more conservative your investment portfolio should become. The last thing you want is to have the bulk of your money – cash you are expecting to have when you stop working – in investments that have a high likelihood for loss.

What To Do With Your 401k When Changing Jobs

What To Do With Your 401k When Changing Jobs

By Mike Desepoli, Heritage

Last year, millennials were nicknamed the ‘job-hopping generation’ after a Gallup report revealed that 6 in 10 millennials are open to new job opportunities.

According to this report, millennials have a reputation for job-hopping and are said to move freely from company to company, more so than any other generation.

That being said, I don’t think switching jobs is a trait unique to millennials only, even though they are said to job-hop three times more than other generations.

The job market is ever-changing and is not like it used to be. Fewer companies offer pensions and some entry-level jobs offer very little benefits or stagnant wages. Self-employment, temporary work, and side jobs have all become increasingly popular work options.

Also, there is less loyalty among employees who realize they can be laid off at any given time.

At the end of the day, if you come across a better job opportunity that you think you’ll be happier with and has better pay and benefits, you may feel tempted to switch jobs and there’s nothing wrong with that.

If you have a 401k however, you may be wondering what you can do with it when you do secure another job. You don’t want all the money you saved for retirement to go to waste, so here are a few options.

 

Keep the Money in Your Old 401k

Most companies will let you leave the money you saved for retirement in your 401k where it is. In other cases, there may be a balance requirement.

Employees who move on to another company may choose this option out of default especially if they have no idea what to do with their 401k. The major downside is that you won’t be able to contribute to your 401k anymore.  Also, you’ll have to keep track of more than one retirement account.

If you tend to switch jobs every couple of years, you could wind up with multiple 401k plans that you can’t contribute to which is why it’s best to consider some of these other options first.

 

Roll Over Your 401k to Your New Company’s 401k

If you had a good 401k plan with your old employer, you can easily roll it over to your new 401k. Check to see what the investment options are along with the fees with your new company. If you don’t like your current options as much as your old plan, consider rolling it over.

Most employers will accept a 401k rollover. As long as you have at least $5,000 in your account, it’s your legal right to do roll it over. If you have less than $5,000 in your account, your employer will have the option to cash you out of the plan.

If you’re going with this option, always ask for the rules to be clarified since you may have limitations since you’re no longer with the company. For example, you may be charged extra fees since you no longer work there.

Move Your 401k to an Individual Retirement Account (IRA)

This is another option you’ll have especially if you don’t like your new company’s 401k plan. IRAs and Roth IRAs are great options that typically have lower fees and allow you to have more control over your investment options. With an IRA, you will just have more control overall. You can choose low-fee investments and won’t be limited to name just your spouse as your beneficiary like with most 401k plans.

Keep in mind that there is a difference between a traditional IRA and a Roth IRA. With a traditional IRA, you contribute pre-tax dollars.  The money is not taxable until withdrawals begin. If you withdraw funds before then, you’ll most likely have to pay a penalty fee.

With a Roth IRA, your contributions are taxed when you make them so your earnings will be tax-free. Withdrawals are also tax free once you attain age 59 1/2.

There are also income limits to be eligible for an IRA. In 2017, you must earn less than $118,000 if you’re single and less than $186,000 if you’re married. The maximum contribution you’re allowed to make per year is $5,500 and $6,500 if you’re 50 or older.

Cash Out Your 401k

This isn’t the best option, but it is an option nonetheless. If you want or need the money in your 401k account to pay bills, meet other expenses you have, or even to reinvest another way, you can simply cash out what’s in your retirement account.

A major downside is that you will have to pay taxes on the money along with a penalty. If you cash out a smaller amount, what you receive will be even smaller. If you cash out a large amount, it won’t really be worth it due to your large tax bill.

You could also destroy your retirement nest egg in the process especially if you received a nice 401k company match.

Depending on how many times you switch jobs that provide you with a 401k account, you may need to make the decision of what to do with your old 401k more than once. To determine which option is best for you, determine your current and future needs. Always consider factors like fees along with your investment options.

I’m sure everyone wants to retire some day so it usually the better option to keep money from your 401k and roll it over or put it in an IRA.

Trump Tax Reform Plan

Trump Tax Reform Plan Released

 

Just days before the 100-day mark of the Trump administration, we were presented the outline of what is being called “the biggest tax cut” in US history. Trump’s tax reform calls for big cuts in federal taxes for businesses and a simplified basis for individuals.

But what exactly does this big news mean for investors?
  • Even a minor decrease in tax rates on businesses can have a big benefit on their bottom line. Rather than use the extra money for expansion or other projects, it is likely that companies would use those dollars to increase stock buy-back or raise their dividend. The end result: more wealth for shareholders.
  • With more favorable tax rates on corporations, foreign companies will be more inclined to increase business within the Unites States. More companies will begin production domestically rather than seeking international options, which in turn will drive U.S. economy upwards.
  • Personal tax rates are projected to become a whole lot more simplified changing the existing seven brackets down to three; 10%, 25% and 35%. Income ranges for these amounts have yet to be announced, however; the proposed rates would ease the tax burden on most Americans, freeing up dollars to be invested.
  • In addition to lower personal tax rates, Trump wants to double the standard deduction for individuals. This would look like a deduction of $24,000 for a married couple. Essentially this means that the first $24,000 earned is not taxed. This creates yet another tax savings for individuals, and more dollars in the pockets of tax-payers.
  • The proposed plan lowers the capital gains tax from 23.8% to 20%; eliminating the portion that is used to fund the Affordable Care Act. This reduction makes investing in the stock market much more attractive.

While companies begin to save money on taxes and drive their market share, it is going to force investors on the sidelines to take part in the market gains. Extra money in the consumers pocket due to having a smaller tax burden will also contribute to a market up rise; while having a smaller burden on the backend when it comes to capital gains.

About the Author

Kristi Desepoli is an associate financial advisor at Heritage Financial Advisory Group. Heritage specializes in investment management and financial planning for business owners and executives.

The Added Value of Financial Advisors

The Added Value of Financial Advisors

By Mike Desepoli, VP of Heritage Financial Advisory Group

As financial advisors we are often asked whether it is worth the cost to hire a financial advisor. I know, very ironic. After all, there is a cost to make you money. People say they can listen to the news to find out where and how to invest, so, “Wouldn’t I be better off just keeping that fee for myself?” That is an excellent question with an answer that depends on many factors.

Good financial planning decisions extend well beyond where and how you invest. Two major research efforts have attempted to quantify how good financial decision making can enhance one’s lifetime standard of living. It is important to understand what this research means, because this may not always equal a higher portfolio return in the short term. Financial advisors have a range of tasks they manage for clients, and how well they do it can add to the bottom line of your portfolio.

The research identifies how good decision making can enhance sustainable lifetime income on a risk-adjusted basis. The ability to spend more than you could have otherwise can be interpreted as meaning that the assets earned a higher return net of taxes and fees to make that spending possible.

Recent research conducted by financial giant Vanguard took a closer look at the value a financial advisor can add in real percentage terms. Their research indicates that overall, the estimate for value added by an advisor annually is 3%. While there are many different aspects of the financial planning process, they found that advisors add value in 3 key areas.

Portfolio Construction

Constructing a well-diversified portfolio that is both tax and cost efficient is one of the ways a financial advisor helps increase your investment returns. They will also help make sure you stay diversified, and don’t fall victim to the temptation to put all your eggs in one basket. Many do it yourself investors find themselves chasing the latest hot stock, usually at the tail end of a long run. Investors without a plan will ultimately buy high, sell low when they run out of patience, and repeat the process into oblivion. Having a well-constructed portfolio accounts for just over 1% of the overall annual return.

Behavioral Coaching

Your advisor has the ability and the time to evaluate your portfolio investments, meet with you to discuss your objectives, and help get you through tough markets even when your emotions try to get in the way. All of these factored together potentially add value to your net returns over time. The single greatest cause of failure in the investment markets can be attributed to emotional decision making. It is no secret that people are emotionally with their money. We work so hard for it who can blame us. However, allowing your emotions to cloud your judgement and decision making is sure to drag down your portfolio. Work with a financial advisor who will keep you calm, cool, and collected even when the chips are down.

Wealth Management

This part of the job entails making regular changes to your portfolio to help reduce risk. It also involves helping clients navigate withdrawals in a way to help limit the taxes they will pay. Many investors incur taxes that could have otherwise been avoided or delayed had they navigated their withdrawals differently. It is very important to understand the taxable status of money that you are transferring or withdrawing from your account. If you are dealing with a retirement account, it is imperative to know if the funds are pre or post tax. We’ve come across many folks in our travels that created a taxable mess by simply being uninformed. If you don’t know, ask your financial advisor or accountant.

About Heritage

Heritage Financial Advisory Group is a Long Island based Financial Advisor that specializes in investment management and financial planning. We work primarily with families, entrepreneurs, and Doctors to create financial strategies that have a lasting impact. For more information, say hello to our team of professionals.

 

A 5 Step Plan to Retire Early

A 5-step plan to Retire Early

Cut spending, invest carefully, live simply — and comfortably

 

Wish you could retire right now? Give up the rat race, embrace a life of independence, reduce your stress, and have more time for what you value most — your family, education, travel? That might seem like a fantasy but to retire early is within reach of most Americans, if they would only take the steps to make it happen.

That’s not a sales pitch. It’s true. You, too, can retire the way you want, when you want.

While many think of retirement planning as a complex process, it doesn’t have to be. Below, we outline the key strategies learned by people who have done it — people who, without being millionaires, managed to retire in their 30s, 40s and 50s. If you’re eager to join the ranks of the financially independent, get going by following the steps below.

Step 1: How much do I need to save?

These days, a better term for “retirement” might be “financial independence.” That is, retirement isn’t connected to a specific age, and it may entail continuing to work or volunteer. It’s all about doing what you want, when you want.

And anyone can do it. Financial independence, after all, is a simple concept: you need enough money to create income to support your lifestyle for the rest of your life. That points to the crux of retirement planning: How much you need to save depends entirely on how much you spend. Your spending rate is the single biggest factor determining when you will be financially able to retire.

The first step to financial independence is figuring out where your money is going now. Monitoring and, if possible, reducing, your current spending has two important benefits: it frees up more money to be put aside in savings, and it reduces the amount you need each year to live on, thus lowering the total amount you need to save.

To track your spending and savings, check with your financial advisor to see if they offer an online service that can help you with this. At heritage, our clients utilize Heritage CFO to monitor and track their finances in real-time.

Certainly, your spending will change once you retire. You’ll stop sending money to savings. You won’t be spending money on commuting. Other costs may rise. Perhaps you’ll want to travel more, or you may encounter higher health-care costs.

Step 2: How do I invest?

Just as reining in spending is a recurring theme among early retirees, so is the idea of investing.  Successful retirees use the funds they have accumulated to generate growth and additional income by investing. Not all investment strategies are created equal, so make sure you find a strategy that is suitable for your goals and objectives.

Step 3: Housing costs in retirement

A key piece of retiring early is keeping your housing costs low. If you plan to live in the U.S., the ideal situation is to pay off your mortgage before retiring. But as noted in No. 1 above, the key to retiring early is a simple function of how much you spend versus how much you have in income. If you save enough such that you can cover your mortgage costs after retiring, then there’s no inherent problem with holding on to a mortgage.

Many retirees cite the significant psychological value of carrying no debt when they quit working.  However, with interest rates as low as they are, others argue that holding the mortgage and investing in the financial markets the cash that otherwise would pay off the mortgage can be a smart financial move.

Step 4: Paying for health care

Early retirees deal with the issue of health insurance in a variety of ways. Individual costs will vary widely, depending on the situation. Certainly, the availability of health insurance in the U.S., thanks to the Affordable Care Act, has made it easier for individuals to quit jobs they might otherwise have kept for the health insurance.

Step 5: Manage your taxes

Just as when we’re working, taxes are a consideration in retirement, whether you retire early or not. It’s crucial to include an estimate of your annual tax bill in your “total savings needed” amount.

Your tax bill may come in a variety of flavors. If you’re pulling your income out of a taxable brokerage account, you’ll most likely owe capital gains on those distributions.

Also, your Social Security benefits are taxable if your income exceeds a specific amount.

Keep in mind that, if you continue to do consulting or part-time work after you retire early, then any Social Security benefits you’ve claimed will be temporarily reduced.

 

About Heritage Financial Advisory Group

Heritage Financial Advisory Group’s mission is to inspire our clients to achieve true wealth through education, communication, and service which exceeds their expectations. We offer a comprehensive suite of investment management and financial planning solutions, serving families, business owners, executives and institutions. Contact one of our financial advisors to request a complimentary consultation. Visit us at Long Island Financial Advisor .

Retirement Income – Do You Have Enough?

Retirement Income – Do You Have Enough?

 

Here’s a million dollar question: How will you transform your savings into income that will last throughout your retirement?

 

There are probably as many answers to that question as there are retirees. However, all retirees may rely on some of the same income sources and strategies. For instance, we all hope Social Security benefits will provide a portion of our income during retirement. Many people plan to combine those benefits with other sources to generate a reliable stream of income over several decades. As a result, they plan on having several income sources. These sources include:

Social Security Benefits

 

The Social Security Administration estimated the average monthly Social Security benefit paid to retired workers in January 2017 to be $1,360. The maximum benefit paid at full retirement age (FRA) is estimated at $2,687. Talk with your tax or financial professional about whether you’re likely to owe taxes on your benefits.

 

Make sure you know your FRA. For Americans born between 1943 and 1954, FRA is age 66. However, if you were born in 1955, FRA is 66 years and 2 months. The FRA increases (in two-month increments) until age 67, which is FRA for Americans born after 1960.

Employer-sponsored Lifetime Income Solutions

 

It’s likely the vast majority of your retirement savings are invested in your 401(k) plan or another employer-sponsored plan. Consequently, some of these plans offer lifetime income options that are intended to help plan participants create streams of income. For instance:

Systematic withdrawals

Are offered by 73 percent of plans. Many plan sponsors offer systematic withdrawal options that allow participants to take regularly scheduled distributions from their accounts. Depending on plan provisions, payments may be made in specific dollar amounts or determined by a set withdrawal percentage or a specific period of time. In some plans, participants are provided with modeling tools to help them determine payment amounts. Furthermore, participants can choose to work with a financial professional to determine how much to take each year.

In-plan managed payout options

are offered by 15 percent of plans. These investments are usually managed to “provide sustainable retirement income, either over a fixed time horizon or over the lifetime of the investor.” Income is not typically guaranteed.

Qualifying longevity annuity contracts, or QLACs

are deferred income annuities that begin making required payments no later than age 85. Retirees who want reassurance they will not outlive their savings may want to consider investing a portion of their savings in a QLAC.

 

Health Savings Accounts (HSAs)

 

HSAs should not be confused with flexible spending accounts (FSAs). They are not the same. You must participate in a high-deductible health plan to have an HSA, and you can contribute more to an HSA than to an FSA. Contributions are tax-deductible, interest and earnings may grow tax-free, and distributions are tax-free for qualifying medical expenses.

 

Best of all, you can accumulate assets into retirement and use your HSA as a healthcare fund. Distributions used to pay for healthcare are tax-free, and those used for living expenses after age 65 are penalty-free.

 

Individual Retirement Accounts (IRAs) (Traditional, Roth, and other types)

 

Many people have substantial assets tucked away in IRAs. They can be systematically withdrawn, invested for income or growth, used to purchase annuities, or utilized in other ways. Your age and the type of IRA you have may affect the role it plays in your retirement income strategy. Many people choose tax-efficient retirement income strategies, which means they try to minimize taxes during retirement. Tax-efficient strategies typically affect the order in which assets are withdrawn.

The strategy you choose to create retirement income should be tailored to your specific lifestyle and financial goals. As a result, it should also balance the level of risk you’re willing to accept against the level of income needed. If you would like assistance formulating your retirement income strategy, please contact your financial professional.

Fragile Markets

Fragile Markets

Heritage Financial Weekly – December 12, 2016

 

Dad: “Fra-gee-lay” …it must be Italian!

Mom: I think that says “fragile,” honey.

Dad: Oh, yeah.

 

This holiday season, investors’ enthusiasm for U.S. stocks has rivaled old man Parker’s passion for his major-award leg lamp in ‘A Christmas Story.’ Last week, three major U.S. indices hit all-time highs.

Consumer Sentiment on the Rise good for stocks?

Barron’s reported consumer confidence is helping make this the most wonderful time of the year for U.S. stock markets. The University of Michigan’s Index of Consumer Sentiment rose to 98 in December, reflecting a surge in consumer confidence. It was the highest reading since January 2015 and is closing in on the highest level since 2004. Surveys of Consumers chief economist, Richard Curtin, wrote:

 

“The most important implication of the increase in optimism is that it has raised expectations for the performance of the economy. President-elect Trump must provide early evidence of positive economic growth as well as act to keep positive consumer expectations aligned with performance. Either too slow growth or too high expectations represent barriers to maintaining high levels of consumer confidence.”

 

In his December Investment Outlook, Bill Gross cautioned while many aspects of Trump’s agenda – tax cuts, deregulation, fiscal stimulus – are good for stocks over the near term, investors should keep an eye on the longer term, as protectionist policies could restrict trade and, together with a strong dollar, could lead to more fragile markets.

 

European stocks also moved higher last week as a result of the European Central Bank (ECB) announcing a taper. Quantitative easing will continue through 2017, but ECB purchases will fall each month beginning in April.

A Look At The Numbers

Data as of 12/9/16 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 3.1% 4.6% 5.4% 7.7% 12.5% 4.8%
Dow Jones Global ex-U.S. 2.7 2.0 2.1 -2.8 2.7 -1.1
10-year Treasury Note (Yield Only) 2.5 NA 2.2 2.9 2.1 4.5
Gold (per ounce) -0.8 9.5 7.6 -2.0 -7.4 6.4
Bloomberg Commodity Index 1.3 12.2 11.2 -11.2 -9.2 -6.3
DJ Equity All REIT Total Return Index 3.8 7.7 10.8 12.1 12.6 4.8

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

 

Divorced? you may want to investigate spousal benefits.

If you weren’t the top wage earner in your marriage, or your job was raising the children, then Social Security’s spousal benefit could prove advantageous. As a result, it provides the lower earning spouse with 50 percent of the higher earning spouse’s benefit at full retirement age, even if you’re no longer married.

 

“Social Security operates with a philosophy that a divorced person may deserve a personal benefit, having been the long-term partner and helpmate of a member of the workforce. The benefit is similar, in fact, to the spousal benefit that is available to a person who is still married.”

 

What Does it all Mean?

To qualify, you do have to answer ‘yes’ to a significant list of requirements:

 

  • Married for at least 10 years
  • You are unmarried now
  • Age 62 or older
  • Your ex-spouse is entitled to Social Security benefits
  • The benefit you qualify to receive based on your work, is less than the benefit your ex-spouse qualifies to receive because of several factors. There are other factors that could affect your application for spousal benefits, including whether your ex-spouse has begun taking benefits. If you would like to learn more, contact your financial professional .
Weekly Focus – Think About It

“My mission in life is not merely to survive, but to thrive; and to do so with some passion, some compassion, some humor, and some style.”

–Maya Angelou, American poet

5 Signs Your Spending Too Much in Retirement

Signs You’re Spending Too much In Retirement

 

How can you tell that you’re spending more than your savings will support? If any of these five signs describe you, it’s time to make some changes.

You don’t know how much you should be spending.

If you don’t have a budget, you’re probably spending too much. The Center for Retirement Research at Boston College found that 53% of households risk falling more than 10% short of their retirement goal. Another 40% of retirees may run out of money for basic needs. Other statistics show that more than two-thirds of Americans don’t use a budget.

“A budget acts as a roadmap for overall spending during a given week, month or year. A lot of times we are unaware of how much money we spend in any given month.A budget really is an accountability tool to make sure we are living within our means,” says Mark Hebner.

If you don’t follow a disciplined spending plan, start today.

You’re spending more than 6% of your savings per year.

How much you should spend post-retirement depends on many factors. Retirement experts say that depleting more than 4% to 6% of your savings annually is ill-advised. If you have $750,000 saved, a 5% withdrawal rate would give you $37,500 per year plus Social Security benefits. If you want to be safer, go with the traditional guideline of 4%.

You’re paying too much to service your debts.

Recent data from the Bureau of Labor Statistics found that the average retiree is spending 31% of his or her income on a house payment. That works out to about $13,833 per year, assuming an average income of $44,713. (And that’s just the house payment.)

Experts advise no more than a 36% debt-to-income ratio. Debt hurts you in two ways. First, the interest drives up the cost of the item. Second, you’re using money that could remain invested to service the debt. The more money that remains invested, the more your accounts will continue to grow. This is even more important now that you’re no longer bringing home a salary.

You’re displaying evidence of a “cut loose” mindset.

You spent decades working more than full time, supporting a family, paying into Social Security and delaying the fun things that come with making a comfortable salary. Now you’ve reached retirement and it’s time to do all those things you’ve always dreamed of doing.

That’s true, but not all at once. Rewarding yourself in the first year by purchasing a Corvette, going on an around-the-world vacation and purchasing a summer home will give you very few years of comfortable living. Spread those purchases over time if they fit into the budget.

“Financial planning in general is focused on the long game. Retirees should not only view the investment process as long term, but they should also make the most of their savings in retirement. Spending down all of your savings in the first few years of retirement is a recipe for complete disaster,” says Hebner.

You aren’t supporting your excess spending with a side job.

If you didn’t save enough for retirement – or you discover that your desire for adventure is costing more than your budget can support – working to support your spending can fill in the gap. Even a part time job that brings in $15,000 per year allows you to spend a lot more than the confines of your retirement budget may allow. Don’t fall into the trap of spending without a plan to augment your retirement income if you find yourself falling short.

The Bottom Line

It’s true that your thinking should change from amassing money to using it once you retire. But you need to create a transition plan. Your money may have to last 30 years or more – you probably hope you need it that long. Just keep in mind that over time, as your healthcare requirements rise, you may naturally spend more. Be sure you leave yourself enough of a cushion.