Tag: rollover IRA

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.

 

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.