Zynergy

Retirement Planning

Retirement Q&A – Do I Need an Attorney?

Lauren Flanagan

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My situation seems fairly straightforward; do I need to hire an attorney to execute my will or can I use software and do it myself? 

Have you ever googled “Pinterest Fails?” There are thousands of examples of do-it-yourself projects gone bad, many of which can provide a good laugh. When you are dabbling in recipes and crafts, why wouldn’t you give it your best shot? You can always get a do-over or turn to a professional if you fail. However, there are mistakes that cannot be undone and at times, it may be too late to turn to a professional. In the case of a major plumbing DIY fail or even retirement planning, the damage may not be irreparable, but will likely be very costly. With estate planning, you really only get one shot; it is literally a life or death matter and must be handled prudently. Some things in life ought not to be left to chance.

Working with an attorney to create an estate plan does require an upfront investment, but it will likely pay dividends in the future. The good news is that if your situation really is straightforward, the cost should be relatively low, and one could argue that the value added is priceless. Here are just a few reasons to use an attorney:

  1. Having a will is not enough. You also need a living will and power of attorney. A lawyer will be up to date on the changing laws that affect these documents and will be able to guide you through the process.
  2. If you are dead or incapacitated, you can no longer advocate for yourself and your wishes. Documents that have been drawn up by an attorney are far less likely to be challenged/contested and are also significantly more likely to be upheld.
  3. By taking the appropriate estate planning measures, you take the responsibility off your next of kin and/or heirs, potentially providing them some peace of mind during an already difficult time.
  4. A good estate planning attorney will be your trusted guide, navigating through the nuance of laws from state to state, including the impact of taxes, probate, and other legal issues. He or she will help to ensure that your assets pass according to your wishes while minimizing the costs to execute your plan at the time of your death and could become a great resource for your heirs as well.

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Adam had just finished up his first month of work, and after enjoying a happy hour with his new colleagues, he came home and perused the pile of mail on the table. He smiled at the familiar handwriting on a greeting card and opened it eagerly to find a graduation card with a handwritten note and a check.

“Did you wonder where your graduation gift was? You know I’d never forget my guy! Pick me up at 9:45 tomorrow morning; we have an appointment at 10 nearby. Bring the check! Love, Gram xo”

Puzzled, Adam stared at the check. It was for $6000, made payable to Charles Schwab and the memo said “ROTH IRA.” At that moment, his mom walked in, saw his confusion and asked what was going on.

Adam replied, “I don’t know. I think Grandma might be getting confused. She sent me a check meant for someone else and she has two random names in the memo. Who are Ruth and Ira, anyway?”

His mom giggled and said, “I’ll let Gram explain it, but I can assure you she is not getting confused!”

The next morning, Adam dutifully picked up Margaret and followed her directions to an office building in the center of town. As they headed toward the building, Margaret remarked, “Alright, now that we’ve got the 401K covered, it’s time for your next tip… Contributing to a Roth IRA.”

“A Roth IRA?” Adam wondered aloud.

“Only the single most powerful tool in your retirement arsenal… in my humble opinion!” Margaret said with glee.

Adam smirked as he followed his grandmother into the building, ruefully recalling the conversation he had with his mom. “Of course, Gram knew what she was doing,” he thought to himself, “I’m obviously the only one who is confused here!”

Adam and Margaret were greeted at the door and directed to an office, where it was obvious that the advisor was expecting them. “Hi, Margaret! And you must be Adam! I’ve heard so much about you. I’m Susan,” the advisor said as she extended her hand and continued. “I understand congratulations are in order on both graduation and your new job! Come, sit down.” Adam mumbled his thanks and took his seat obligingly.

“I’ve been working with Susan for years,” Margaret confided. “Not only is she a fee-only Certified Financial Planner which was important to your grandfather and I, but she provides the best service around. And now, she’s going to help you get started!”

“Adam, your grandmother tells me that she’d like you to open a Roth IRA. I understand that you’ve already begun to contribute to a 401K at work, so you have a little bit of an understanding of retirement accounts, but I’d like to start by asking if you know what a Roth IRA is.” When Adam shook his head, Susan continued, “Ok, let’s start there then.

“Put very simply, a Roth IRA is an Individual Retirement Account that is funded with after tax contributions. Then when you are of retirement age, you can withdraw the money, including earnings, tax-free. There are limits on how much you can contribute each year and some rules about withdrawing the funds, but that gives you a quick overview. Do you see how that is different from your 401k, Adam?”

“I think so,” Adam said. “I know that my 401K contributions come out before taxes, which helps to reduce my taxable income for tax time. But I thought that the 401K also grew tax-free?”

Susan replied, “That’s right. The difference though is that the 401K grows tax-free, but it’s actually tax-deferred, meaning that while you won’t pay taxes on the earnings each year, you will eventually have to pay income tax on the withdrawals. Let’s look at a real easy example:

“Let’s say in year one, you contribute $5000 to your 401K and $5000 to your Roth IRA. To keep it simple, let’s say you don’t contribute to it again. With an 8% growth rate, that money can be expected to grow to over $50,000 in time. If you withdraw the whole balance from your 401K at 59 ½ years of age, you can expect to be taxed on $50,000 in additional income. However, because the money you contribute to a Roth IRA has already been taxed, and because of the structure of a Roth IRA, you will not pay a dime in taxes if you withdraw that entire balance at age 59 ½. “

At this point, Margaret jumped in. “That’s why I told you the Roth IRA is such a powerful tool!”

Susan added, “Well, there are a few exceptions to that if you withdraw the money early, but we will cross that bridge if we get to it, ok?”

Adam laughed and said, “Gram would probably disown me if I withdrew it early!” They all laughed as Margaret threw her hands up, exclaiming, “Well!”

Susan continued, “Okay. Let’s get started with the application. You are well within the income limits, so you can contribute up to the maximum of $6000, and this check will cover that. I’ll call you sometime in December to set up a monthly contribution amount for next year, so you should take some time to think about how much you can afford to do. You see how powerful a Roth IRA can be, so you want to take advantage of it as much as possible while you can!”

As they wrapped up the meeting and headed back out to the car, Adam gave Margaret a quick hug and said “Thanks, Gram. That was pretty awesome.”

Lesson 3: Open a Roth IRA – As soon as feasible and before your income exceeds the limit, open and contribute to a Roth IRA, up to the annual maximum (currently $6000 in 2019 with an additional “catch up” contribution of $1000 allowed if you are over 50 years old). This will give you great flexibly and tax advantages upon retirement.

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When the Honeymoon is over… again: How to Transition into Retirement with your Spouse

Shortly following my wedding, I attended a networking event where I saw several friends and colleagues for the first time since my recent nuptials. After being the subject of many well wishes and platitudes, a well-respected business woman, about 20 years my senior, pulled me to the aside, and said “So, how is it really?” She went on to share how difficult the transition had been for her many years prior and commiserated over the fact that even in the best of marriages, the adjustment is a huge deal. I remember feeling so relieved.

As she prepares to retire with her wonderful husband of many years, I wonder if we may have that same conversation someday soon, but in reverse. As a retirement planner, one of the themes that I pick up on again and again, is how hard the transition can be, even in the best of marriages.

Consider the following scenarios:

Joe and Ruth

Ruth was a homemaker and the queen of her castle. She kept the house, family and schedules running smoothly while juggling a social calendar of volunteering, time at the club and her weekly tennis game. For as long as they were married, Joe worked 40-60 hours a week, got to the gym daily and played golf with his buddies every Saturday morning. Weekends were spent with family and friends and they vacationed several times a year.

Now Joe is home… all the time.

Bill and Anne

In addition to raising their children, Bill and Anne managed two fulfilling careers. While they derive much of their purpose and fulfillment from their work, they have also prided themselves on a healthy work/life balance, and have a shared love of travel, a robust social calendar and several separate hobbies.

Now they are both home… and it feels like something is missing.

While retirement is an exciting time and often a lifelong goal, it does bring with it a period of adjustment. This typically comes after the initial period of retirement bliss (sound familiar?!) and can be difficult for an individual who is trying to figure out how to feel fulfilled, how to fill his or her days, etc. When you add another person in to the equation, there are now two people who are navigating this adjustment period together (but not necessarily in sync) which adds an additional layer of complexity.

What do you do to avoid feeling like the “Honeymoon is Over?!”

Hopefully, if you are this close to retirement, you have already done a comprehensive financial plan. But have you done a lifestyle plan? The lifestyle component of retirement planning is frequently overlooked but is nearly as important. The key (surprise, surprise) is communication.

Have the Conversation(s)

Just as you would counsel a young couple to plan for the marriage, not just the wedding, you need to plan beyond the retirement party. Have the conversation, over and over again. Start with pie in the sky retirement dreams. What would retirement look like for each of you if you had no restrictions? Will you work, travel, help family, volunteer, etc.? Will you move or stay in your current home? What aspects of those dreams are realistic and implementable? Where are there differences and similarities in your visions? Can you tweak them to create a shared vision? Get specific and start to drill down to what each day will look like. Keep a shared calendar so you can manage joint activities, but also so you can respect each other’s individual commitments.

Date Each Other

“Wait,” you may be thinking, “more time together?” It seems counterintuitive that the answer to having a lot more time together is even more time together. However, as you settle into your new routine, you may find that it begins to feel a little too routine. Introducing a date night, where you do something that you love doing together or try something new, may be just what you need. One retired couple I know does four to six “Surprise Date Weekends” each year. They rotate planning it, with each surprising the other and it has added a new level of excitement and romance to their relationship.

Create Your Own Space

Whether literally or figuratively, you’ll want to be sure to create your own space. Perhaps it means a dedicated room in the house, or space within a room, for each of you. It might just mean scheduled “me time,” but it’s important that you maintain some individuality.

In the case of Ruth and Joe, Ruth might feel overwhelmed by Joe being home all the time in the space that was traditionally hers alone for a minimum of forty hours a week. Joe, on the other hand, might have difficulty figuring out where he fits in. When they talk about it, they can determine that Ruth has certain routines that she needs to maintain for her own peace of mind, but there are some changes she can make easily to make Joe feel like less of an outsider in his own home.

Redistribute Responsibilities

Don’t be afraid to challenge the status quo. Now that you are both home and not managing work schedules, commuting, etc., it may be a good time to review all of the household/family responsibilities and change things up. You may even discover new talents and interests.

For the duration of the marriage of Anne and Bill, Anne was responsible for preparing dinner. For a myriad of reasons over the years, Anne was typically home earlier, so it just made sense for her to assume this responsibility. When she complained about being bored with the monotony of cooking every night for so many years, Bill offered to take over. It turned out that not only was he very good at it, but he truly enjoyed it too. In fact, his passion for cooking was so contagious, that many nights, Bill and Anne enjoy cooking together!

Most importantly, understand that this adjustment is a normal part of the retirement process. Give yourselves time to adjust and have patience as you work through it. Be sure to communicate your feelings and talk about how you are settling in. You may not be on the same page right away, but at least you’ll be on the same chapter!

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As Americans, we certainly value independence. Never is that more obvious than when we approach the 4th of July and celebrate the independence of our country. At the signing of the Declaration of Independence, John Adams wrote that it “will be celebrated, by succeeding Generations, as the great anniversary Festival” and that the celebration should include “Pomp and Parade…Games, Sports, Guns, Bells, Bonfires, and Illuminations from one End of this Continent to the other.” Nearly 250 years since that momentous occasion, this still rings true. Celebrating independence and freedom is a constant theme threaded throughout the history of America.

From the time you are a young child, you have been groomed for independence. First steps, tying your own shoes, getting on the school bus for the first time, first jobs, graduations, and a plethora of other “firsts” were all cause for celebration. As children, we struggle to “do it ourselves” suggesting an early desire for independence. As young adults, we strive to gain independence from our parents. As adults, we celebrate venturing out on our own, obtaining our first “real” job, purchasing our first homes, and eventually paying off that mortgage.

Yet despite a lifelong affinity for independence, many retirees find themselves losing it. Getting older is a fact of life but losing our hard-earned independence does not have to be a given. The truth is that most of us will outlive our ancestors, which likely means a much longer retirement. However, with careful planning, you can maintain your independence.

4 Steps to Ensure Your Financial Independence in Retirement

1. Have an Emergency Reserve

Save about six months’ worth of expenses in a liquid savings account that you can easily access in the event of an emergency. Consider a high yield savings account or a CD ladder from an FDIC-insured bank to put this money to work for you.

2. Build Your Nest Egg

Save at least 10% of all of your income in retirement (i.e., IRA, Roth IRA, 401K, etc.) and individual brokerage accounts. Be sure to invest in a diversified portfolio with low-cost funds. Most importantly, don’t touch it! Let the power of compounding work for you, and your portfolio will grow significantly before you need to start withdrawing from it.

3. Pay off Your Mortgage Before You Retire

Once you have an idea of when you would like to retire, it’s time to start thinking about getting that mortgage paid off. Going into retirement without a mortgage has huge benefits, both financially and emotionally. First, determine how much more you would have to pay monthly in order to pay off the mortgage by the time that you retire, then decide if the increase in payment is financially feasible and, if so, increase your payment accordingly. (Need help determining if this is the right decision for you? A Certified Financial Planner TM can help.)

4. Insure Against the Risk of a Long-Term Care Need

Nothing will derail retirement quite like an unanticipated major health event. Long-term care insurance can be a great option unless you have considerable assets to self-insure the risk. It can become prohibitively expensive though, so it’s important to start getting quotes early (i.e., in your fifties!)

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Q. I keep hearing that I should be keeping my investment costs low, but as far as I can tell, I don’t have any investment costs… How do I know if, and what, I’m being charged?

A. You are not alone. Frequently, we meet with people who do not realize there are underlying costs to their investments. Many times, if someone is not paying a flat fee to a financial planner or investment advisor, they do not realize they are paying a fee at all. There are typically three or four costs associated with your investments:

  1. Investment Fees – This fee is typically a flat fee that is charged on an ongoing basis to manage your accounts, provide financial planning, etc.
  2. Expense Ratios – Expense ratios are tied to the specific funds in your portfolio. The charges are paid directly from your dividends so many times, you don’t even realize you were charged.
  3. Trading Costs – These are the fees that the account custodian (i.e., the brokerage firm) may charge when you place a trade. In many cases, these have come down considerably, but it is something to be aware of, especially in an actively traded account. These fees are tied into the transaction, so it is unlikely that you will see these charges in a statement.
  4. Sales Loads – Some funds have built-in sales charges called loads. These are commissions to the salesperson and are built right into the cost of the transaction, so again, it may not be something that you clearly see in a statement.

To determine what your true cost of investing is, you can start by reviewing statements and/or by asking your financial advisor. 401K statements typically show the expense ratios right on the statement, and if not, if you can access your investment options, you should be able to see that breakdown online. If you would like to research it on your own, Google the name of the funds (or their trading symbols) and look at a site like Morningstar or Yahoo! Finance for more information. If you are still at a loss, you might consider sitting down with a Certified Financial Planner TM for a more thorough analysis.

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Adam sank onto the couch and sighed contentedly. His first day of work was on the books, and it was a good day at that. He glanced over at the packet of enrollment information that he needed to go through to elect his health coverage, 401K, and various other benefits. Remembering his grandmother’s advice on contributing to his 401K, he began to peruse the information on the company’s 401K. Deciding there is no time like the present, Adam pulled out his laptop and set out to enroll in the 401K program. As he made his way through the first steps, he let out a triumphant “Yes!”. The company contributes 100% of the first 5% of the employee’s contribution; Grandma would be pleased. He elected the 5% contribution, went on to the next step: Allocating the Account, and immediately felt overwhelmed. “Looks like it’s time to move up that second lesson,” he thought to himself as he reached for his phone and dialed his grandmother.

After a few rings, Margaret answered the phone with an exuberant “Adam! How’s my guy?”

“I’m good, Grandma. I had my first day of work, and so far, so good! I definitely think I’m going to like it there. But I’m at a loss with this 401K stuff you wanted me to set up.”

“Oh, why don’t you pop by and we can walk through it together?” Margaret replied, always happy to get some extra time with her grandson.

Adam agreed and headed over to his grandmother’s, laptop in hand.

After catching up for a few minutes, Adam fired up his computer and the two got down to business. “Gram, look at all these options! How’s a person supposed to know what to do?”

“I know it looks overwhelming, but we are going to simplify this a bit as you are just starting out. When your balance begins to grow, we can start to talk about diversification, but let’s not blow your mind with that just yet. At this point, we want to focus on two things: being aggressive and keeping costs low.”

Observing Adam’s dumbfounded expression, Margaret continued, “Ok, let’s start with being aggressive. Because you have so much time until you retire… Sorry, Charlie!” she exclaimed with a wink, “volatility is your friend. I know you’ve heard us all talk about the ups and downs of the stock market through the years. When you are close to retirement, these dramatic swings can be pretty scary, but with all this time ahead of you, you’re in a position to reap the benefits! For now, you’ll want to invest in a Total Stock Market fund. So, let me see… that narrows it down to just five choices!”

“Ok, great!“ Adam exclaimed, looking relieved and happy his grandmother could help. “So, what’s next?”

“Now we have to look at the expenses. Your grandpa was always talking about keeping investment fees low… well you know him, he wanted to keep all fees low,” Margaret laughed and went on, “but it usually served us well!” She scrolled through the investment options and paused when she came to a section that broke down the expense ratios and pointed to the screen. “Ah, this is what we need. Look at this.”

Adam leaned over as his grandmother pointed out the fees associated with each of the five options. “Why are the fees all so different?” he wondered.

Margaret explained, “These are the charges that are passed along by the owners of these funds. But here’s the thing. If the funds all perform roughly the same which we can see that they do base on these performance numbers, then you need to be singularly focused on the fund with the lowest fees so that we’re keeping expenses as low as possible.

“Think about it like this: if you go to the drugstore, you can buy store-brand Ibuprofen for $5 or the name brand for $10. When you look at the ingredients of what is inside the packaging, you realize that they are identical. So basically, you are paying a $5 surcharge for the name, right?”

Adam nodded and she continued, “When you pay that ‘extra surcharge’ with investments, it has a long-lasting impact on the growth of your account, so we want to find the fund with the lowest fees. Oh, look, this one will do nicely!” Adam clicked on the investment, hit submit, and turned to Margaret, giving her a big hug. “I guess I’m on my way! Thanks, Grandma!”

Retirement 101: Lesson Two: Investing in Your 401K When you are starting out, time is on your side, so take advantage of that and consider investing aggressively. When you are young and your time horizon until retirement is long, volatility (the ups and downs in the market) is your friend. Rather than seeing the “loss” in your 401K statement when the markets are down, consider the upside: that your ongoing contributions are purchasing new shares at a cheaper rate! And speaking of “cheap,” keeping your investment expenses low will be one of the key factors to your portfolio’s long-term success.

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(Due to the complicated nature of this topic, the language used in this blog post will be more advanced than in our typical blog post)

Let’s assume for a minute that you were just out of college and took a job working for your eccentric uncle Jim. Although your uncle thinks a little differently than most, he is very smart and owns a successful electronics business. Uncle Jim also has enrolled you in his company’s 401k plan where he matches your dollar for dollar contribution up to $5,000 per year. Recognizing the value of this match, you contribute the full amount to take full advantage of the match and add a combined total of $10,000 to your 401k each year.

However, Uncle Jim shuns the traditional portfolio investing and decides his 401k returns will be based on an annual coin flip. He will flip a coin each December and if heads are the result, he will add 30% to the total portfolio but if you are unlucky enough to get tails, he will take away 10% from the total.

The good news of our little thought experiment is that over enough time, we will get roughly the same number of heads as tails, yielding an average annual return of 10%. However, since you just completed a statistics class your senior year of college, you are aware that there is no guarantee that over the next 20 years you work with your uncle, the results will be equal parts heads and tails. There is a good chance that more heads or more tails come up over the next 20 years and you run the risk that simple bad luck will significantly impact your long-term return. As an example, if fifteen tails come up and only five heads in the next 20 years, you will have achieved effectively no return.

Remembering that statistics class, you approach your uncle with an idea. Would he be willing to split your account into 10 equal parts and flip the coin 10 times each year with the same rules? Your uncle, not seeing much difference in the two strategies, agrees to the change and you are thrilled. Now, instead of betting your nest egg on 20 flips in 20 years, you are getting 200-coin flips in the next 20 years, a much larger number furnishing you very strong odds that the final results will be closer to 100 heads and 100 tails, effectively insuring the desired 10% average annual return. Congratulations, you have just diversified your portfolio.

You created a simple diversification by making investments that have a positive net outcome (coin flips with an average 10% return) and adding more investments that have a low or no correlation to the first investment (i.e. each coin flip is independent and the result of one has no impact on the result of the next). Each year, you will have 10-coin flips and while there is a chance all 10 may come up tails in one year, it is far less probable than if we only had one-coin flip per year. In fact, the more coin flips, the more likely we are to achieve our desired result of 50% heads and 50% tails. We have diversified away from the risk of being unlucky in only a small number of flips.

Think about the actual investment choices in your 401k. Your plan probably offers large-cap stocks, small-cap stocks, international stocks, real estate, long-term bonds, short-term bonds, cash, etc. Each of these asset classes is like a coin flip. They all have an expected positive outcome but can also be subject to bad timing/luck. The expected return of small-cap stocks is about 12% per year on average, but you should be prepared for years of -50% and even several years of negative returns in succession if you are invested for 20 or more years. However, long-term bonds actually have a negative correlation to small-cap stocks. This means that historically when small-cap stocks have fallen, long-term bonds rise in value. It is this negative correlation that smooths out the bumps in the otherwise volatile road of equity investing and allows our average annual returns to be closer to what we expect. Diversification lets us sleep at night when markets are volatile.

Each investment in our portfolio has a positive expected long-term performance (just as our coin flips did); however, each of them also can perform poorly during certain market cycles. When building an efficiently diversified portfolio, the key is to have asset classes that perform differently during different cycles and are thus, negatively correlated. We want certain things to zig while others zag. Anyone who has seen the volatility of the stock market knows that cycles can change on a dime. Today’s bull market can melt into economic collapse in the blink of an eye. That is why it is important not to liquidate those asset classes that are performing poorly in today’s cycle. Today’s pariah could be tomorrow’s hero!

Work with a good financial planner to find the right diversification for your portfolio. Remember, once you set the portfolio in motion, re-balance regularly and don’t sell the asset classes that have performed poorly lately. Selling conservative investments in a booming market means there is nothing to offset the volatile investments when the market falls. Keep a cool head, focus on the long-term, and most importantly, stay diversified no matter what the cocktail party crowd tells you. We may not have an eccentric uncle Jim, but we can diversify as we do.

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After four years of working (and playing) hard, Adam graduated from Rutgers University with honors. In addition to his shiny new diploma, he also had a great job lined up and the future certainly seemed bright. His grandmother Margaret, whom also shared his alma mater, was especially proud. They were always close, and on his graduation day, she passed him a small blue envelope. Adam thanked her and placed the envelope in his pocket as they headed out to celebrate the occasion with the family.

Back in his room that evening, Adam tore open the envelope and was surprised when a carefully scripted invitation fell out. He shook his head and smiled; apparently, Grandma was not done celebrating yet.

On Sunday, Adam donned his favorite jeans and a well-loved Rutgers t-shirt and headed to the local pub where he and his grandmother had shared many a meal. As he walked in, Margaret beckoned him from her favorite corner booth. The two exchanged an affectionate hug and took their seats. Mere seconds later, the server appeared with two pints as his grandma gave him a huge grin. Margaret raised her glass as she proclaimed: “A Toast: To Financial Freedom!”

Adam grimaced as he slowly shook his head and reminded his grandmother that he had not yet earned his first paycheck and did have a fair amount of student loan debt though he acknowledged that he was fortunate to have had help from his family and had considerably less than many of his friends.

Not to be deterred, Margaret pressed on. “You know Adam; your grandfather and I have a great life together. We started out with nothing, worked hard and saved, and we retired very comfortably. I think I know something about financial freedom and invited you here today so I can share some tips as you are starting out.”

Adam nodded and finally raised his glass to cheers his grandmother. They both took a big sip and settled in. Margaret began…

“Okay then. One of the most important things that I learned is that it’s never too early to start planning for your retirement. But let’s focus on just one tip for today… your 401K.”

“My 401-What?!” asked a bewildered Adam.

“Your 401K. It’s going to be your first step towards financial freedom, and you must begin right away! A 401K is an employer sponsored retirement plan. It is a great tool! Here’s how it works. You get to choose an amount to be deducted from each of your paychecks, the company deposits that amount to your 401K (and it is pretax which helps reduce your income tax today) and then most employers match your contribution up to a certain amount, so you effectively receive even more than your salary each year in compensation! It’s free money, kiddo! During your first week of work, you will be given enrollment information on many things, and this is one of the most important. You will want to enroll in your 401K immediately up to that employer match, so you do not leave that free money on the table.”

“Grandma, I haven’t even seen my first paycheck and you’re already having me chop it up!” Adam protested.

“I know honey, but that is the beauty of setting things up right away. If you never see that additional amount in your take home pay you will never miss it. It is a small price to pay to set up your financial future. Let’s be honest… I haven’t steered you wrong yet, have I?!”

Adam chuckled and reluctantly agreed with his grandmother as she went on: “The greatest thing about the 401K, aside from the free money of course, is the power of compounding.” Margaret laughed as Adam’s eyes widened and continued, “Let’s use simple numbers. Assume you are making $50,000 a year and contribute 5% to your 401K. If your employer matches an additional 4% of your salary, your total annual savings is $4,500. At your age, you can invest rather aggressively so you can anticipate 10% growth per year. Now if you just put that money under your mattress (which by the way my mom would have advocated for) you would have just $180,000 in forty years when you are approaching retirement. But with the power of investing and compounding, you’ll have well over $3 million dollars! Imagine that!!”

Adam exhaled with a “Wow.”

Margaret tipped her glass toward Adam and exclaimed, “Well I think I’ve given you enough to think about today my little millionaire. Shall we continue our lesson next Sunday, same place?”

Adam laughed and said, “Sure, Grandma.” Margaret smiled from ear to ear and leaned in close as she whispered, “Great. Now that the business of the day is out of the way, tell me about that sweet girl you were speaking to yesterday!”

Retirement 101: Lesson One: Enroll in your 401K immediately up to the amount of the employer match. (For example, if the employer matches 100% of the first 3% and 50% of the next 2% for a total possible match of 4%, then you would want to contribute 5% to maximize that match.) The employer match is free money and is thus the best, risk-free return on an investment that you will ever get. Add into the mix the power of compounding and the tax benefits of a 401K (or other qualified retirement accounts), and this is certainly the first step toward financial freedom.

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Q: It seems every year that I am scrambling to gather all my information and get my taxes filed. How do I get ahead of the game to make the process easier next year?

A: You are not alone. Tax time can be very stressful, and many people find that despite their best intentions, they are scrambling to find all the relevant information and get their tax preparation done in the allotted time. Like most things in life though, this stress can be alleviated by starting early. A little bit of extra effort this year will reap great rewards during the next tax season. Here are some easy tips to get a head start on next year’s taxes:

Organize Prior Year Returns

With a few exceptions, you should be able to destroy anything over 4 years. (For more information on this, visit https://www.irs.gov/taxtopics/tc305). You should maintain 3 years’ worth of tax returns along with receipts and supporting documents. If you are a paper person, save the documents in a fire safe box, organized by year. As a new return cycles in, shred the oldest. If you are comfortable with computers, and more importantly, cloud-based storage, consider going paperless. Most accountants will send you your return in a pdf and if not, you can scan it. Create a folder for Tax Returns in whatever online storage application you use and organize it by year. Save prior year returns along with the confirmation from the IRS that returns were filed. For added security, add a password to safeguard these documents.

Change Tax Withholdings

Consider adjusting your tax withholding if you either had a larger tax payment due than you are comfortable with or if you received a large refund. The IRS has a great tax withholding calculator that can help: https://apps.irs.gov/app/withholdingcalculator/

Get Organized

Create a System to Organize your tax information for the current year

  • If you are a paper person:
    • Use an Accordion File
      • Create folders and as you receive information or receipts, organize them accordingly
        • Income
        • Investments
        • Deductions
        • Receipts
        • Business/Real Estate
        • Miscellaneous
  • If you are a digital person:
    • Create a system of folders in a secure location, preferably cloud-based
      • Scan and save receipts as they come in throughout the year
      • Consider using Quicken or Mint.com to organize and categorize your spending throughout the year. This will make it very easy to access

Do Some Tax Planning

Perhaps there were areas where you could have gotten more deductions or credits. Careful planning now can help you to minimize your tax liability and avoid the scramble at the end of the year. Ask your accountant, if applicable, to keep an eye on what you can do to improve your tax situation in subsequent years.

Safeguard Your Information

Last but not least, whatever you choose to do, be certain that you are securely maintaining your tax information. Nothing seems to bring out scams, hacks, and identity theft quite like tax season.

  • Regardless of whether you are storing your documents at home or online, be certain that they are secure and in a safe location
  • Use unique passwords and update them regularly
  • Be sure to only open attachments and links from verified and trusted sources and never give anyone your social security number over the phone

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Buy High, Sell Low

Your investments have not been performing so well. Despite the lackluster performance, your financial advisor continues to purchase additional shares with any free cash. Meanwhile, everyone is talking about how great Amazon stock is performing and you can’t help but wonder what is wrong with your advisor. You could not be more right. Buying high and selling low is really fundamental to investing wisely. Get rid of the losers and buy what’s doing the best. If a stock or fund is selling at record highs, you need to get in on the action so you can make the big money.

Go to Cash

When it looks like the end of the world is coming, it probably is. The world has ended several times in the last three decades, and we all need to be prepared. Perhaps the opposite party is taking the white house or congress, trade wars and terrorism are escalating or there is just too much change on the horizon. You no longer have the resolve to stay invested in the market. And why would you?! Get out while you can. There is no better time to act on your gut instincts and let that fear rule your decisions. Go to cash. Put it under your mattress. It might be kind of lumpy, but at least you will not lose sleep over the markets again.

You Can’t Take It with You

So many people spend lots of time putting together financial plans and retirement budgets but to what end?! The truth is you cannot take the money with you when you die. It would make much more sense to spend every dollar enjoying your retirement and let the chips fall where they may if you outlive your expectations. After all, you’ve worked hard your whole life; it is time to enjoy the fruits of your labor. Sit down and do a good estimate on your life expectancy, take the total value of your portfolio and divide it by the number of years you have left. You now have your annual budget! Surely your children will take you in when you run out of money. And if all else fails, that is what Medicaid is for right?!

Uproot Your Life: Florida or Bust!

The only certainties in life are death and taxes and you should do everything in your power to avoid both! If you live in a state with high taxes, get out! Put your house on the market tomorrow and head to Florida, Nevada, Mississippi or Louisiana. Can’t handle the heat? No problem! Alaska, Wyoming and South Dakota are solid choices too. Say goodbye to your family and be sure to talk up their exciting new vacation destination! You are retired now and the last thing you need is to be paying astronomical taxes. There is nothing more important than minimizing your tax liability…. after all, you can always Facetime the grandkids!

Collect, Collect, Collect!

You can start collecting Social Security at 62, so why on earth would you wait? You have been paying in to the system, and you should get your hands on that money before the system completely disappears. Of course, the government has structured the payments to increase over time; clearly, they are trying to trick you into leaving that money on the table for several years. If there is one thing more certain than death and taxes, it is that you should never trust a government program.

Put All Your Eggs in that Basket

You’ve been working at your company since you graduated college. It is a solid company that handsomely rewards its employees with great salaries, bonuses, and company stock. Your family has been well provided for with your salary, and you expect that your retirement will be well funded with your 401K (all funded with company stock), as well as the shares you have accumulated over time. Your friend, a financial advisor, has been pushing you to diversify your investments but why? You are a good and loyal employee and have great confidence in the company that has invested so much in you. What could possibly go wrong? Absolutely nothing! All big, well-run companies with storied histories can rely on their futures to be as strong as their pasts, right?

There’s no better time to DIY

You’ve just retired and find that you have a lot of time on your hands. You’ve always been a curious and intelligent person and are continuously looking to learn new things and expand your horizons. You’ve been interviewing financial planners and your son wonders one day why you wouldn’t just do it yourself and save the fee. And why wouldn’t you do just that? You’re retired; there is no better time to Do It Yourself! What value does a financial planner really add after all? Never mind the extensive and ongoing training a Certified Financial Planner TM and other professionals endure. Surely you can likely get all the tips you need just by watching CNBC or attending cocktail parties. In fact, while you’re at it, you should probably check out WebMD for whatever ails you and save on those copays!

APRIL FOOLS!!!!

As a child, I got such pleasure from uttering that phrase, and we decided to have a little fun with it this first of April. The truth is, however, that these are real concerns and sentiments that we come up against frequently in financial planning. Getting caught up in the hype, the panic, and the fear is normal. It also speaks volumes as to the value of a good financial planner who helps to take emotion out of money management and safeguard your future. For honest-to-goodness financial tips, reverse everything you read above or check out our previous blogs.

Happy April Fool’s Day!

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The Jackpot Could Be Yours… And that’s not just the Luck of the Irish

It’s March, and while that might bring to mind thoughts of snow and cold weather, it also brings a lot of celebrations around luck. Around here, you could attend a St. Patrick’s Day parade every weekend day for four weeks; celebrating with thousands of people wearing green and chattering about the Luck of the Irish. Add to that the excitement of March Madness, and picking brackets, cheering on the underdog in college basketball, and suddenly, dreams of good luck and chance winnings may not seem so nebulous.

But let’s not run out and buy our lottery tickets just yet.

The truth is that if you talk to the coaches or the players that were considered the unsung heroes, the underdogs of the tournament who pulled off the win, none of them are going to say it was just sheer good luck. They are far more likely to tout discipline, the long game, planning and training. Are they correct?

Let’s explore the difference between a chance game (a gamble) and making a sound investment.

What are the chances of winning a big lottery?

The chance of winning the grand prize in the Powerball and Mega Million is 175 MILLION to ONE! (So, you’re saying there’s a chance?!) If we dream for a moment and say that you are the incredibly lucky winner; there is then a 66% chance that you will be sharing those winnings with at least one other person. To put these numbers in context, the odds of becoming a movie star are only 1.5 million to one, so that might be a more lucrative path!

Would Nearly $1 Million Feel Like a Jackpot to You?

Suppose your parents played the lottery and paid an average of $1 a day throughout their lives. You have observed this behavior over your lifetime and assumed you would do likewise. But at 18 years old, you took an introduction to finance class and think: “What if I invested that dollar a day instead? What might that look like?”

Beginning at 18 years old, you then put $1 a day into a low-cost ETF (Exchange Traded Fund) until you are 70 years old. We will assume for the purpose of this illustration that you invest in a total market index fund with extremely low expense ratios.

On your 70th birthday, you take a look at your account and realize that you have amassed just under $1 million dollars. Meanwhile, your parents never did realize their big win and are down by that same $18,720.

Now don’t get me wrong. I’m not saying that you should never play the lottery. It can be fun and certainly provides for some good conversation when the jackpots do get high. It is important though to recognize what the true cost of that dollar is each time you play and to understand that you can create wealth by investing that dollar instead. So enjoy the parades and wearing green this month, have fun cheering on the underdog, but when it comes to your personal finances and deciding what to do with that $1, go out and make your own luck!

Please note: the examples used were for illustration purposes and excluded taxes, fees and inflation and are intended to demonstrate the power of investing that same $1/day.

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One of the biggest challenges in personal finance is managing credit card debt. Credit card debt levels in the United States are staggering and with high interest rates and multiple cards, the prospect of getting out of debt can seem overwhelming and even insurmountable. If you can afford little more than the minimum payments, the debt will continue to grow, and it likely feels like there is no end in sight. When you are at the base of that mountain of debt, it can feel pretty hopeless. The truth of the matter though is that no one conquers a mountain in one day. It takes careful strategizing, focus and discipline.

Let’s consider some steps you can take to finally made a dent in your debt. Our debt dissolver is a program designed to let you chip away at your debt in a very methodical way, helping you to conquer that mountain before long.

Tips for Paying off Credit Card Debt

1. Create a List of Your Debts

Make a list of all of your credit card debts, including balance, minimum payment and interest rates. You can include student loans and auto loans, but do not include mortgages.

2. Reorder the List from Smallest Outstanding Balance to Largest

Even if a debt is extremely low and seems inconsequential, be certain to include it. Ignore minimum payments and interest rate. It is important to order the list from smallest outstanding balance to the largest.

3. Continue to Pay the Minimum Payment on All of the Debts Listed

Focusing on paying off one debt exclusively will not help the overall situation if you are no longer current on the other credit cards. Not only do you need to be a responsible borrower, but this is not the time to increase the debt due to the late fees and higher interest rates that are sure to come.

4. Focus Intently on the First Debt Listed

Circle the first debt. If there is any wiggle room in your budget or if you were perhaps paying a little more than the minimum on some of your debt, all of the excess should go toward aggressively paying off the first debt. Then, any additional money that may come in should be allocated towards that debt as well.

Note: Get creative! Are there things lying around the home that you no longer use and can sell? Is there anything in your budget that you can cut to free up cash? Are there opportunities available to easily earn a little extra money? Can you be more resourceful with shopping?

5. Celebrate!

No, I’m not suggesting you rack up more debt, but take a moment to pat yourself on the back. Strike a big “X” through the debt and acknowledge that your hard work and focus paid off. This will set the tone for continuing through the process. We must celebrate our small successes.

6. Repeat the Process with the Second Debt

It’s time to refocus intently on the second debt. You have now freed up the amount of the payment that you were making to the first. Apply that extra money to the minimum payment on the second smallest debt as well as any additional monies that may come in.

7. Continue to Repeat for Each Subsequent Debt

Each time you pay off the previous debt, you have freed up that payment amount to apply to the next. Continue to move through the process until you are debt free. Stay focused and aggressive, and you will be amazed at the results.

It may seem counter-intuitive to focus on the smallest balance when large balances or high interest rates loom. And we would certainly encourage you to consider transferring a large balance to a lower interest rate card if the opportunity is there and the transfer fee makes sense. It also cannot hurt to call your credit card companies and inquire as to lowering the rate; the worst they can say is no. Despite the interest rate disparities, we have countless stories of debt dissolver success. It works.

We have worked with people with over $100,000 in consumer debt who have paid it off in two years. Just last year we met with two young members who were saddled with student loan and credit card debt. Within one year, by following this plan with singular focus, both are debt free.

Stay intently focused and you too will soon be debt free.

 

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In honor of Presidents’ weekend, we took a look at the Presidents and Founding Fathers whose faces grace our currency, to see what we can learn from them about money. Interestingly enough, in the case of many of them and despite the fact that they are all respected leaders, the lessons on personal finance to be drawn are frequently more about what not to do than what to do.

George Washington ($1 Bill)

“To Contract New Debts is Not the Way to Pay Old Ones”
“There is no practice more dangerous than that of borrowing money.”

At the time of the American Revolution, George Washington was one of the richest men in the colonies due to his vast real estate holdings. Real estate was the best measure of wealth in colonial times as each acre of farmland was essentially an income producing business. Despite his vast wealth, Washington was often times cash poor as the constant maintenance of his property was a drain on his liquid resources. When investing in real estate as Washington did, consider not only the return on investment but the amount of work required to maintain that investment. And although real estate can be an important component of your financial plan, it is important to strike a balance, and it is imperative to have liquidity and emergency reserves.

Thomas Jefferson ($2 Bill)

“The modern theory of the perpetuation of debt has drenched the earth with blood and crushed its inhabitants under burdens ever accumulating.”

Thomas Jefferson was down on debt and for good reason! Jefferson was notorious for living above his means and assuming debt to pay for nonessential items. He was also famous for lending money to friends without ever collecting on those debts. He died with enormous amounts of debt that burdened his family. You cannot be successful financially, if you are spending more money than you make and are assuming debt (that you cannot pay off), especially to finance frivolous spending. Take a lesson from one of our greatest founding fathers and live below your means.

Abraham Lincoln ($5 Bill)

“You cannot escape the responsibly of tomorrow by evading it today.”

Abraham Lincoln was cautious about borrowing and spending, but mostly he is remembered for his integrity. When, as a young man, he established a business partnership with a friend and due to heavy borrowing, the business went bankrupt, Lincoln stayed in town for several years to work off all of his debts while his partner ran away. This gave Lincoln the reputation as “Honest Abe” and helped his business and political career later. In today’s world, your credit score is used to monitor your “financial integrity”. Make sure you are keeping tabs on your score and paying your bills in a timely manner. Take a lesson from “Honest Abe” …. your future self will thank you!

Alexander Hamilton ($10 Bill)

“I may have mortally wounded my prospects. But my papers are orderly! As you can see I kept a record of every check in my checkered history. Check it again against your list and see consistency.”

Hamilton tracked every penny he made and spent. He was incredibly detail oriented. This is a very valuable trait in personal finance. Budgeting is only half the battle; you must track your expenses too in order to be accountable to that budget. If tracking is difficult, use a tool that wasn’t available to Hamilton in the 18th century, www.mint.com. Create budgets, easily track your expenses, and plan for your future all with the click of a mouse. I think Hamilton would be a Mint.com fan if he were alive today (considering he was the founder of the federal mint).

Andrew Jackson ($20 Bill)

“I have always been afraid of banks.”

Andrew Jackson was very distrustful of banks and understandably so. In the early 19th century, when Jackson was President, there was no FDIC insurance. Banks would routinely go out of business leaving depositors with nothing. This cycle of bank booms and busts led to much greater volatility in the financial system and regular “bank runs” (think It’s a Wonderful Life). Today, we enjoy the security of FDIC insurance on bank deposits up to $250,000. I think, if Jackson were alive today, he would agree that a savings account in 2019 is far more secure than burying your money in the backyard.

Ulysses S Grant ($50 Bill)

“Do you think anyone would be interested in a book by me?”

Grant was not infallible either. As a young man, he got involved in many failed entrepreneurial endeavors. Despite his military prowess, he was frequently taken advantage of. Following his presidency, he fell prey to an investment scheme; losing everything. Not only did he invest money in what was essentially a Ponzi scheme, he invested all of his money in it! In fact, the significance of his quote, was that he essentially had to write a memoir to refill the family coffers. We can draw valuable lessons from Grant on the importance of prudent investing and the value of diversification (not putting all of your eggs in one basket).

Benjamin Franklin ($100 Bill)

“If you know how to spend less than you get, you have the philosopher’s stone.”
“Our necessities never equal our wants.”
“Beware of little expenses: a small leak will sink a great ship.”
“A penny saved is a penny earned”

That Benjamin Franklin graces the $100 bill is certainly poetic justice. Franklin was frugal, for the most part, and focused his life on living below his means. Franklin is also well-known for his unique estate planning strategy. Although he did leave some of his estate to family, the bulk was left in trust to the cities of Philadelphia & Boston that would pay out over 200 years. This trust funded, among other things, the Franklin Institute in Philadelphia and the Benjamin Franklin Institute of Technology in Boston. Have you put the same level of thought into your estate planning as Franklin did? Do you have a will, living will, and power of attorney established? You may not want to leave a 200-year trust, but I think we should all take a lesson from Franklin and recognize the importance of having some measure of control over our money once we leave this earth.

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Valentine’s Day on a Budget

Valentine’s Day is fast approaching but celebrating with your main squeeze doesn’t have to cause a financial squeeze. Like so many things, Valentine’s Day has become a bit commercial and may put pressure on you to create a “Wow” experience for your partner. Adding to that, you often have to pay a premium to eat out, travel or purchase gifts on the holiday. Despite the higher costs, the evening may still fall short of expectations due to crowds, busy kitchens, harried staff and all the hype.

There are many ways to acknowledge the holiday and honor your loved one, without breaking the bank and frequently, with the added benefit of creating an even more memorable and personal experience.

There’s No Place Like Home: Create a Romantic Date without Leaving the House

  • Bring out the good china and set the table. Light some candles. Add a simple floral arrangement; an even less expensive (but still romantic) alternative would be to add rose petals.
  • Make a day out of it; create a menu and do the grocery shopping and cooking together. The internet has made it fairly easy to recreate meals and desserts from your favorite restaurants and doing it together can turn the task of cooking into a fun experience.
  • The days of the mix tape may be long gone, but what about creating a playlist of music that means something to you as a couple. It will be a great backdrop to the evening, literally setting the tone, but is also the gift that keeps on giving. Many music providers (Apple Music, Amazon Music and Spotify are just a few) offer free introductory trials for their subscription services, giving you access to an enormous music library at a very low cost.

Enjoy Life’s Simple Pleasures

  • Carve out some time to watch the sunrise or set together. Find a local spot (like a beach, mountain or park) to double the impact and enjoy the breathtaking views.
  • Pour a cup of coffee (or wine!) and actually sit together and talk while you enjoy it.
  • Go for a walk or a hike if the weather allows for it.
  • Unplug! Go off technology completely and give your partner your undivided attention for the day.

Still feel strongly about going out on the town?

  • Celebrate off holiday: Consider going the weekend before or after
  • Surprise your loved one at the office and go to a nice lunch instead
  • Eat early! Sometimes an earlier reservation can save on cost with the additional benefit of beating the crowds and getting servers who are fresh.
  • Plan a night out around appetizers or desserts. You can visit different places, sample different items and save considerably. Take advantage of Happy Hour pricing when you can.
  • Find a good “bring your own” restaurant and bring a favorite bottle of wine with you to save on the bar tab. Before you leave, surprise your loved one with an appetizer and cocktail at home. Not only is it a thoughtful touch, but it will likely cut down on spending at the restaurant.

Meaningful Gifts that Cost Little to Nothing

  • Write a Letter. Skip the expensive greeting card (unless you think that will put you in the doghouse!) and write your loved one a letter. Highlight some of your most memorable moments, what you love about the person, perhaps some dreams for the future. In the age of emails and texts, letter writing is becoming a lost art, yet people love receiving a letter or handwritten note.
  • If flowers are a necessity, consider bringing home flowers a few days before rather than relying on delivery. Many times, you can get a beautiful bouquet from a grocery store or farmer’s market and if you get to hand it to your loved one, it can truly be a “special delivery!”

Whatever you decide to do, just remember that celebrating Valentine’s Day does not have to equate to spending a lot of money. As the great Greek poet and lyricist Pindar once said, “Every gift which is given, even though it be small, is in reality great, if it is given with affection.”

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They say that the only certainties in life are death and taxes. It is our hope that both will be rather uneventful, quick and painless. Considering we are not doctors, but financial planners, let’s keep our focus where our strength lies and delve into some tips to help you get through the tax season.

Get Organized

Organization is truly the key to a successful tax season, and the earlier you can get organized, the easier it will be. We suggest using a folder system which can be adapted whether you like to use paper or prefer to work digitally.

For Paper Lovers:

  • Buy an accordion file
  • Label the Tabs as follows (and as appropriate to your situation):
    • Income
    • Deductions
    • Investments
    • Business or Investment Real Estate
    • Miscellaneous
    • Receipts
  • As you receive your tax documents, review them and file them in the appropriate folders

For Digital Fans:

Replicate the system above but with folders and subfolders on your computer. Scan or save your tax documents and receipts to the appropriate folders as you receive them.

File Early

Nothing elicits procrastination like filing taxes, but April 14th is not the time to bring back the all-nighter of your college days. Circumstances out of your control like system crashes, computer glitches, and unforeseen emergencies can arise, preventing on-time filing and leading to unnecessary penalties and interest. Save yourself the stress and aggravation… and potential costs by filing early.

Accuracy is Key

Even if a tax professional is completing your return, give it a once-over to make sure all of the figures are accurate. Compare your W-2 to your final paystub to make sure the figures match. Be certain to use the most recent documents and any corrected tax forms, if applicable. Compare your new return to the one you filed last year to see if you might be missing anything. No matter who completes your taxes, it is your signature at the bottom, and you will be the one held accountable.

Be Security Conscious

Tax Season is notorious for bringing out creative and costly scams. Be sure to use secure passwords on all sensitive information and avoid public Wi-Fi. When storing paper files, choose a secure location. If you are working with digital files, make sure you frequently update your passwords and have up to date cyber protection. Do your research before selecting an accountant or tax planning software. Do not provide sensitive information over email or the telephone.

Know the Tax Deadlines

Last but not least, there are many dates and deadlines that you should be mindful of as you plan for this season and the year to come. We have broken them down below.

January 31st

Deadline: Most Tax Documents Must Be Mailed

What it means to you: Employers must postmark all employee W-2s by 1/31. Businesses must also provide most 1099s and 1098s by this date. You should have all information on your income from salaries, other compensation, investment income, interest, dividends and distributions, as well as on interest paid, very early in February so you can begin to prepare to file your taxes.

February 15th

Deadline: Remaining Tax Documents Must Be Mailed

What it means to you: Employers must postmark all 1099-B, 1099-R and 1099-MISC forms by this date. If you sold any stocks, bonds or mutual funds through a brokerage account, or had any real estate transactions, you will have to wait for these forms to prepare your tax filing.

March 15th

Deadline: Last Day to Use 2018 FSA Money

What it means to you: If you have a flexible spending account through your employer, you may be allowed to carry over the balance to the next year. If you did, you must use those funds by March 15th, or you will lose them.

April 15th

Deadline: Tax Filing

What it means to you: Your taxes must be filed by April 15th, unless you’ve requested an extension, to avoid penalties.

Deadline: Last Day to Make 2018 IRA, SEP IRA, Roth IRA or HSA Contributions

What it means to you: If you did not yet maximize your contributions for 2018 and are eligible to do so, you may continue to make contributions for 2018 up until the 15th of April. Note: if you are in this position, don’t wait until the last minute. This is a very high-volume time for financial services, and you don’t want to miss out on the opportunity.

Deadline: Last Day to Recharacterize a 2018 IRA or Roth IRA Contribution

What it means to you: If you made a contribution to a Roth IRA but some or all of it was not eligible per the Roth Guidelines (For example, you fall into the income thresholds), you have until April 15th, to correct the contribution and assign it to a traditional IRA. Note: it is prudent to do this well before the deadline as it can take some time.

October 15th

Deadline: Tax Filing for Extensions

What it means to you: If you requested an extension, your 2018 taxes must be filed by October 15th to avoid penalties. Note: you will still be required to pay interest.

Deadline: Last Day to File Electronically

What it means to you: If you are on extension, you will not have the ability to file electronically if you miss this deadline. You will be required to file a paper return.

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‘Tis the season for making resolutions, and some of the most common New Year’s resolutions are getting organized, budgeting and saving more. Although most make these commitments with the best of intentions, the truth is fewer than 40% of resolutions will be kept for even the next six months. If you have resolved to improve your financial footing for the upcoming year, how do you avoid being part of the majority who will not see it through?

Here are some easy tips to get your financial house in order:

Start Simple – Don’t try to do too much too quickly. Rome wasn’t built in a day. Take small steps to avoid feeling overwhelmed and discouraged. Choose one area to focus on and do not move on to the next until you’ve accomplished it.

Create a Budget – Calculate your income and expenses. Determine which expenses are “discretionary” and if necessary, make cuts where you can. Be sure to consider irregular expenses (like travel, gifts, etc.), not just your monthly bills. Consider using an aggregator like Mint.com to establish and maintain your budget.

Pay Yourself First – Ideally, when you set your budget, you should include a line item for savings. Set up an automatic transfer on paydays to pay yourself before any bills. Be realistic and start small, with gradual increases over time. Ultimately, your goal should be to get to the point where you are saving at least 10% of your pay through various channels. Another simple option is to increase your retirement contribution by 1% each year.

Track Your Spending – Creating a budget is only one piece of the puzzle. Now that you have your budget in place, you have to track it. The budget is merely your roadmap, and you will very likely have to make course corrections over time. If you use a good aggregator, you should be able to track your spending to monitor how you are measuring up to your budget.

Clear out the Clutter – Go through your financial documents periodically. In most cases, you only need to maintain financial records for three years. Nearly all financial documents can be archived online. Consider going paperless to further reduce the paperwork.

Stay Up to Date – Review beneficiaries on your accounts periodically to ensure that your wishes are reflected appropriately.

Don’t Give Up – Too often, we hit a wall when we set out to accomplish something. The challenge is to regroup and figure out a way to scale that wall. If you are struggling, try to go back to a previous step. If that doesn’t work, consider asking for help. Keep moving in the right direction and your small wins will become habits, ultimately earning you financial freedom.

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Retirement Q&A

Topic: How Will I Supplement My Income in Retirement?

I’m afraid I’ll never be able to retire. My expenses in retirement will be much higher than my Social Security benefit. How do I bridge the gap without working?

This is a frequent worry for people as they prepare for retirement. It is, however, quite normal for your expenses to outweigh your income in retirement. Thus far, you have been in the “accumulation phase” of life; saving for retirement and hopefully spending less than you were bringing in. In retirement, it is time to switch gears to the “distribution phase.”

What does this mean?

When you retire, it is important to calculate your annual expenses. Then, you must total your income sources and determine the difference between the two.

Guaranteed Annual Income – Annual Expenses = Annual Need in Retirement

Once you determine the additional “income” needed in retirement, you will look to set up a safe distribution from your retirement accounts (IRAs, 401Ks, etc.). This will, in effect, serve as your “paycheck” to fill that gap. A safe distribution rate is one that takes into account the projected growth of your investments and accounts for inflation to ensure that your investments continue to grow over time in spite of the withdrawals that you will make. If you have any questions on this process, you might want to seek the guidance of a Certified Financial Planner TM.

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“Why do I need a financial planner rather than a financial advisor or wealth manager?”

Imagine you decide to take an expensive European vacation and are confident you will have enough money to make your dream a reality if you save diligently for the next few years. You meet with a banking professional and find a high yield savings account that will ensure your money will work for you and enhance your regular monthly savings towards this goal.

You should be all set, right?

The truth is that “money management” is only a small consideration when planning such a trip. A “bucket list” vacation with multiple destinations has many variables, such as timing, modes of transportation, accommodations, sightseeing destinations, dining, and entertainment. If you start with the dollars and work backward to build your budget, you may not experience the trip of your dreams. You must carefully balance your desires and expectations with your financial limitations and build the financial end of your plan around the trip you want, rather than the other way around. It is possible to experience Europe on any budget (I once backpacked for six weeks on a $50/day budget) but do you want to sacrifice your dreams because of budget constraints that likely could have been avoided with some careful planning? In most cases, working with a travel professional will help you plan all the details to realize your ideal trip while giving you a fair assessment of costs. It is also beneficial to have that agent as your resource to help make course corrections if something does not go as planned on the trip.

Financial planning is not much different.

Certainly, there are many advisors who will look at your age, income, and expected retirement date and tell you how much money you will need to retire based on some rule of thumb or algorithm. Some may not give much thought to that at all. Their job is to manage your money and make it grow. They are essentially helping you to build your nest egg for your dream retirement. But without careful analysis and ongoing planning, how do they know how much is enough?

Financial planning, and specifically retirement planning, is designed to take a comprehensive look at all of the factors that go into a successful retirement and construct a highly individualized plan to get you there. A good financial planner is going to carefully consider your assets, liabilities, income, spending, risk management (i.e., insurances), retirement needs, retirement wants and retirement dreams before customizing a strategy that helps you realize the retirement that you have worked so hard for. Money management is just one component of that. Additionally, financial planning is an ongoing process that helps you to course correct, ensuring you stay on track, despite changes that will most certainly arise over time.

Interestingly enough, it does not cost you, the traveler, any additional money to use a travel agent. And in many cases, it does not cost much more (and sometimes less!) to use a fee-only financial planner compared to most money managers. Yet in both cases, the added value is priceless.

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“You Rest, You Rust”

Not long ago, retirement represented “the end;” the culmination of a long career that ended because one could no longer physically or mentally maintain the rigors of the job. It typically wasn’t far off from the average life expectancy either, so in many ways it felt like the end of life, period.

For a plethora of reasons, the perception around retirement today is significantly different. Today, retirement represents a new beginning: it’s the third act (or fourth or fifth) in the story of your life. With these changes comes another layer of retirement planning: how you will pass your time.

Many years ago, I was talking to a favorite client at the bank. Henry was a spirited octogenarian who helped shape my views on what retirement should look like. He was always on the go, always learning and always smiling. He truly enjoyed his life. Henry shared this little pearl of wisdom which has stuck with me for over a decade: “You Rest, You Rust.” He went on to say that so many people retire and stop living their lives, trading their careers and hobbies for Wheel of Fortune and Jeopardy, a sedentary lifestyle. Yet, it is more important to exercise your mind and body during retirement than ever because once you stop, you get “rusty” and it just becomes more and more difficult to pursue your interests and to find enjoyment in life.

Just as you would carefully consider your financials when you build a retirement plan, it is crucial to plan for your lifestyle. Developing a “lifestyle plan” that you must ensure can be supported by your financials will set you off to a great start.

Planning to Enjoy Your Retirement

Define and Pursue Your Hobbies
For some people, this is easy. Perhaps you’ve been enjoying your hobby throughout your life and are thrilled to have additional time to pursue it. For others, it is trickier. Occasionally, hobbies took low priority because of career or familial obligations. You may have to dig a little deeper. Think back over your life to things that brought you pleasure; can you make a hobby out of them? Is there something that you’ve always thought: “If I had more time, I would want to do that.” Now is the time. Additionally, consider whether you can find like-minded individuals to join your pursuits. For example, if you love reading; give some thought to joining or starting a book club.

Maintain and Nurture Your Relationships
Retirement is a great opportunity to spend more time with family and friends. Sometimes, the extra time might leave you feeling like you are more alone. Perhaps a lot of your relationships were tied up with work, or you lost touch with old friends because your life was so hectic with the demands of raising your own family. With social media, it is easier than ever to reconnect with old friends. Think back on your life to the friendships that meant something and consider reaching out.

Never Stop Learning
Gandhi once said, “Learn as if you were to live forever.” Learn something new every day. Pursue your curiosity. Read voraciously. Take a class. The opportunities are endless. Check your county parks and recreation system, local community colleges and neighborhood groups.

Create a Bucket List
Are there things in your life that you have always wanted to do but couldn’t for one reason or another? Create a list of the top 5-10 things that you would like to do. Try to include some things that can be easily accomplished with some bigger endeavors, so you can start to check some items off your list. And keep the list going! A bucket list should be ever evolving, so as you check a few items off, you add a few new ones.

Give Back
Many times, retirees struggle to find fulfillment. Volunteering is a great way to rediscover your purpose. Sit down and let your mind wander for a while about the things that mean the most to you. Is there a cause that means something to you? Do you have a particular skill that might benefit a certain group? Try to come up with a list of 3-5 causes (social, religious, non-profits, health, etc.) that might resonate with you and then look for opportunities to volunteer in your community for like-minded organizations. Not sure where to look? Try Google, Facebook, a local chamber of commerce, or just tapping your network.

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Do I need a will if I have named beneficiaries?

I have beneficiaries on my IRAs and bank accounts… Do I still need a will?

Generally speaking, the answer is yes. Rules vary from state to state and needs vary from person to person, but in most cases, executing a will is prudent.

Designating beneficiaries on life insurance policies and qualified retirement accounts is certainly a step in the right direction to ensure that your assets flow to your intended beneficiaries as these directives supersede any will directives. There are similar options with bank accounts and brokerage accounts (Payable On Death or Transfer On Death designations). However, it starts to get more complicated when real property, such as homes, automobiles, or collectibles are considered. Additionally, even in the rare circumstance that you could structure all assets to be left via designated beneficiaries, special consideration must also be given to how your final expenses will be settled and who will be in charge of dispersing your personal property.

Finally, it is important to consider that designating beneficiaries is just one piece of the puzzle. Guardianship and support are two monumental concerns if you have minor or special needs children. In addition, power of attorneys and living wills are an important part of estate planning which could potentially be overlooked if you opt against creating a will.

A will ensures that your intentions are carried out. The process of creating the will is a good exercise in reviewing your assets, ensuring that accounts are titled appropriately to reflect your wishes and that the right tools are in place to ensure that your wishes are carried out efficiently.

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The world was rocked last week with news of the death of American music icon Aretha Franklin. Known as the Queen of Soul, Aretha leaves behind a strong legacy with songs that will go on forever. But what of the legacy that she left for her family?

Aretha Franklin joins a long list of icons, including Prince, Jimi Hendrix, Bob Marley and Sonny Bono, who will be remembered not only for their music, but also for departing this world without a will, leaving their heirs’ fates in the hands of the courts and attorneys. In Aretha’s case, not only does she leave behind a huge estate, she has a special needs son whose care must be taken into consideration. Nearly everyone is dumbfounded by this lack of planning, but will it serve as a cautionary tale to Americans?

Approximately 55% of American adults do not have a will in place. On some level, it is completely understandable. Finances and death are ranked as the two topics that people feel are most challenging. These are tough conversations that force you to contemplate your mortality and your legacy. But if there was ever a time to stretch out of your comfort zone, this is it. Wills are not just for the rich and famous.

Why Everyone Needs a Will

  • Control the Flow of Assets – Some of your assets will flow automatically to your intended beneficiary because of the “title” of your accounts, regardless of your will. However, not all assets work that way. If you die without a will, the state, not you, will determine who gets your assets.
  • Manage Guardianship – When you have minor children or a special needs child, you will appoint a guardian through the will, so you are in control of who is responsible for your children when you pass. Otherwise, this decision goes to a court. Many times, people become paralyzed by this decision and put off creating a will because they can’t decide.
  • Save Time and Money – Depending on the state that you live in, probate costs can be extremely high. Having a will helps minimize these costs and expedite the process.
  • Protect your Privacy – When a will goes to probate, it becomes a matter of public record. Anyone will be able to access your debts, assets and other information that you would likely prefer to be kept within your family.
  • Maintain Control of your Healthcare and Finances – By establishing a living will and power of attorney, (both medical and financial) you set the tone for how your medical needs are met and who provides you with assistance in making decisions on your behalf, according to your wishes.

These become even more important when you consider divorce and blended families. These situations create additional complexity such as taking care of children from previous marriages.

Most people can probably share a story about what happened to a family in the absence of a will. As Certified Financial Planners, we have seen it all. There are instances when fighting over an estate tears a family apart. There have been times when the family does its best to carry out what they think the deceased would have wanted. There are times where assets flow to ex-spouses because beneficiaries were never updated. Occasionally, assets flow to a current wife, without regard for children from a previous marriage. In some cases, these issues can be worked through but in others, they cannot.

One of most consistent recommendations in any of our financial plans is to create or update your estate planning documents. Not only does this ensure that your legacy unfolds the way that you wish it to, it relieves your family from the pressures and complications that arise from having to do it without a will, giving them peace of mind and allowing them to focus on the already difficult task of living life without you.

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Question: Now that I’m retired, I am no longer contributing to my retirement accounts.  In fact, I am now taking distributions. That being the case, how is it that my portfolio grows in retirement?
Answer: Over the course of your retirement (and life), the market will experience many fluctuations.  In the short term, your investments will go up and down, but over the long-term, your portfolio should see steady growth. For that reason, when planning for your retirement, we base our the projections on an average rate of return and a steady distribution rate.  In other words, we  do not change your distribution based on that year’s performance. Then, the distributions are essentially taken from the portfolio growth, rather than the principal so the investment itself remains intact and even grows.

To simplify the point, think back to the 1980s and even 1990s.  Many seniors would live off the interest from their CDs. They might not see much growth, but the interest rates were high enough that in many cases, the interest on the CDs provided a nice supplemental income without ever having to touch the actual CD. Hard to imagine that considering CD rates today!

For that and a number of other reasons, your investment portfolio is more crucial than ever to your retirement planning.  Let’s say you have an investment portfolio of $500,000 and we anticipate that you will earn an average return of 8% and will distribute 4% from your account annually. Perhaps you pay a 1% fee to your financial planner.  That leaves 3% for the continuous growth of your portfolio. This is why we want to determine a “safe distribution” rate that will still allow your portfolio to grow despite that fact that you are now in distribution rather than contribution mode.  For assistance developing an optimal portfolio allocation and safe distribution rate to meet your retirement goals, consider consulting a fee-only financial planner.

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The Art of Retiring to Something

Rachel and Renee have been lifelong friends though they no longer live in the same area. Both have close-knit families and have had successful and fulfilling careers. They retired within one month of each other and decided to get away for a long weekend to celebrate one year of retirement.

After careful planning, Rachel and Renee meet at a new hotel in Asbury Park just after the summer season draws to a close. They are looking forward to enjoying the local flavor, some quiet beach time and just catching up. As they collapse into the cushy seats on the rooftop bar shortly after their arrival, Rachel marvels at how well Renee looks…and how happy. Surprised by the observation, Renee exclaims “Well honey! Of course, I’m happy. I’ve got my health. I’ve worked hard my whole life and now I’m doing just what I want with it. Joe and I are enjoying each other’s company and are planning a few nice vacations each year. I get time with the kiddies and then I get to give them back! I have my yoga classes, my hiking group and my book club. And then my work at the hospital. What more could I want?”

At that, Rachel starts crying. After a glass of champagne and some careful prodding, Renee is able to piece together Rachel’s story. Apparently, retirement has been a very different experience for Rachel thus far. First, Rachel is feeling lost without her job. She loved her work, was very successful and is now realizing that much of her fulfillment was derived from it. Second, although Rachel and Ted have been happily married for well over thirty years, their simultaneous retirements have put quite a strain on their relationship. Rachel loves Ted and of course, wants to spend quality time with him, but he is always there! She whispers through her tears, “I feel suffocated. And then I feel guilty for feeling suffocated.” Third, as much as Rachel always loved her career, she also prided herself on the fact that her first and favorite job was being a mom. She loves her family and would do anything for them, so when her daughter, Kathryn asked her to watch the grandchildren, so she can go back to work, she readily agreed. After all, she thought, the only thing better than being a mom, is being a grand mom! But the days are long, and they are wearing on her. Yet both Rachel and Ted are afraid to even book a vacation, lest they put added pressure on Kathryn and her husband Tom. “I know I should feel lucky. We are in great shape financially and we both have our health. But honestly, I feel lost. I thought this was going to be such an amazing time but instead, I don’t even know who I am anymore.”

Renee pulls Rachel in for a big hug, and then, with a gleam in her eye, promises: “Rachel, you know what you need? A Retirement Re-do! We’ll start working on your roadmap this weekend!” In spite of herself, Rachel smirked. There is nothing Renee likes more than putting together a plan. Renee added, “It sounds to me like you and Ted planned very well for retirement from the financial perspective but didn’t think much about what life would look like and what you wanted to get out of it. You retired from your job but didn’t plan to retire to anything. But this can be fixed. And there’s no time like the present to reset. In fact, when we go back to the room, I’ll pull up the roadmap template that we used. I’d bet that the next time we do one of these weekends, you’ll be loving retirement too!”

Why was the experience of Renee so different from that of Rachel?

Both of the friends did a great job of planning for their future from a financial perspective. Although finances is a crucial component of your retirement plan, it is just that: one component. Retirement represents one of the biggest transitions that you will experience in your lifetime and accordingly, requires careful consideration and planning. To ensure your success and wellbeing, you’ll want to create a plan that focuses, not just on the finances, but also on the place, the people, and your pleasures, passion(s) and purpose. When planning for your retirement, use the retirement roadmap below to ensure not only a financially successful retirement, but a fulfilling one as well.

A Roadmap to Retiring To (Not From) Something

Set Your Retirement Vision

  • What does retirement look like to you?
    • Where would you like to live?
    • How would you like to spend your time?

Determine What Brings You Pleasure

  • What routines can you establish to find enjoyment each day?

Explore Your Passions

  • Do you love to travel?
    • Do you have a running list of destinations?
  • Do you have any hobbies?
    • Can you pursue them on your own?
    • Can you join a club?
  • Is there anything that you would like to learn more about?
    • Can you take a class?

Pursue Your Purpose

  • What brings you fulfillment?
    • Should you consider a part time job?
    • Would you like to volunteer?
    • Can you share your legacy by helping or mentoring others?

Consider your Social Network

  • Who will you spend your time with?
    • Are there holes in your network without work?
    • How much time do you want to spend with family?
    • Set limits if appropriate
    • Can you expand your network to include people with like interests?

Set a Budget

  • What is your budget for discretionary spending?
    • Can you afford to explore your pleasures, passions and purpose?
    • If need be, prioritize your wish list and get creative

Share Your Vision

  • For married couples, it is so important to talk (frequently) about your retirement lifestyle. Talk in terms of the big picture and drill down to the “every day”
    • What are your individual visions, and do they match up?
      • What tweaks can you make so they at least complement each other?
      • Do you need to set boundaries?
    • How will you share responsibilities?
    • How will you spend your time?
    • What will you do together? What will you do individually?
    • How will you incorporate alone time? Will you have separate “spaces?”

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No 401K Left Behind

Whether retirement is around the corner or just a speck on the horizon, your 401k is a very important tool and how you handle it when you change jobs can be crucial to your financial well-being. This begs the question:

What Should I Do With My 401K When I Leave My Job?

Here are your options:

Leave It

Nearly half of all Americans leave their 401ks behind when they change their jobs. This is unlikely a deliberate decision but rather, the path of least resistance.
The Downside: Most 401ks have limited investment options and higher administrative costs. Additionally, it can create an unnecessary burden to have to manage several old 401ks, as the average worker is expected to switch jobs more than 10 times over their lifetime. Imagine having to pull money from, or consolidate, over 10 different accounts in retirement!

Cash It Out

It may be tempting to take the money and run, especially if you have other expenses to consider. However, this really should be done only in extreme circumstances, as your last option.
The Downside: This withdrawal will be a taxable event. Additionally, if you are under the age of 59 ½ (or 55 in some cases), you will also be assessed a 10% penalty. However, perhaps the greatest concern is the loss of the power of tax-deferred compounding that a retirement investment affords you. This will become especially problematic if you exercise this option repeatedly.

Roll It Over to Another 401K

Some companies will allow you the option of rolling your old 401k into your new one.
The Downside: As mentioned above, 401ks have limited investment options and higher administrative costs. By rolling over an old 401K into a new one, a larger portion of your retirement savings will now be subject to these same restrictions.

Roll It Over to an IRA

When you leave a job, for retirement or otherwise, you have the option to roll your 401K into a new or existing IRA.
The Downside: Your IRA funds will be subject to Required Minimum Distributions (when you must begin to take money out of your retirement accounts) at 70 ½ years old, whereas that can be delayed with a 401K if you work past 70 ½. Also, loans are not available through IRAs.

Generally, the best option is to roll your old 401K into an IRA. IRAs have great flexibility and give their owners more control. This strategy also helps simplify your financial situation as future 401ks (or other IRAs) can be rolled over to an existing IRA. In addition, there are many estate planning advantages to an IRA over a 401K. You can choose to work with a financial advisor or to manage it yourself, but the flexibility of an IRA means that if you are unhappy with your results, you can make a change at any time.

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The Downside to Longevity

The good news: We are living longer! The bad news: We are living longer!

The downside: Research shows that 8 out of 10 adults over the age of 50 are significantly underestimating their life expectancy: men by an average of 6 years and women by nearly 8 years. These figures are staggering and increase the probability that many will out-live their assets in retirement. This can have a devastating impact on your financial well being and quality of life.

So what can I do to ensure that my longevity is a benefit rather than a detriment?

  1. Give it your best guess – When considering an estimated age of death, don’t use generalizations. Give it some serious and careful consideration. Some things to consider:
    • Family history
    • Gender
    • Health
    • Advancements in medicine
    • Lifestyle
  2. Don’t plan to spend your last dollar at your estimated age of death – Safe distribution rates can help to ensure that your portfolio grows over time and is not cannibalized in the early years of retirement. Limit your annual distributions to no more than 4% of your total investable assets to increase the odds that your money outlives you.
  3. Keep on planning – A retirement plan is not a one-time, set it and forget it, endeavor. It should be carefully monitored and evolving. Consider a pilot taking a flight across the world. The flight path not only takes careful planning before take-off but it also requires course corrections to make sure the flight is successful. Retirement is no different. You could potentially be planning for a very long period of time, so it makes sense to course correct over time.
  4. Delay, delay, delay – If it is practical, it may be beneficial to delay retirement and/or collecting retirement benefits. If you are happy in your job, consider working an extra year. Avoid collecting social security before Full Retirement Age and if possible, wait at least an extra year to collect. If you are married, it might make sense for the higher earner to wait until 70 to collect the benefit, so the higher benefit is maximized for whichever spouse lives the longest. Due to its annual Cost of Living Adjustments (COLA) and your ability to increase benefits by delaying, social security itself can serve as “longevity insurance.”

Living longer should be a good thing. Retirement planning is therefore more important than ever. There are a lot of nuances to retirement planning and it does require some thoughtful guess work. But with careful and ongoing planning, your money should not run out before your time does.

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Finding the Right Financial Advisor

With so many names, titles and designations to sift through, how do you find the right financial advisor for you?

Financial Advisor. Investment Advisor. Financial Planner. Wealth Manager. Certified Financial Planner™. Financial Consultant. Registered Representative. Certified Public Accountant. Personal Financial Specialist. And the list goes on…

All of the choices and terms can be overwhelming. What do they mean, why are they important, how do I use them choose the right financial advisor for me?

Imagine you have a health issue. Let’s assume you broke your ankle and need to get to a doctor. “Doctor” is certainly a broad designation. There are hundreds of specialties and there are two different licenses (MD or DO), which highlight differences in training and philosophy. So how do you choose? I imagine you are not going to visit your general practitioner in this case. You might first consider a podiatrist because they deal with feet, right? But in reality, your best option is an orthopedic doctor. Then you can narrow your scope further and visit, for example, an orthopedic surgeon who specializes in sports injuries. Finally, you need to decide whether the distinction of MD or DO is important to you.

Believe it or not, choosing a financial advisor is not all that different.

Using the example above, a financial advisor can be likened to the broad category of “doctor.” It is really just a catchall phrase for any financial professional and can include planners, investment advisors, tax professionals, estate planning professionals, insurance professionals, etc.

Identifying Your Financial Needs

Your first step then is identifying your financial “pain” point.

  • Do you simply have questions about your tax situation or perhaps need to file a return?
  • Do you wish to invest your money?
  • Do you have a risk you would like to insure against?
  • Do you have bigger picture questions you would like answered such as:
    • “How will I fund college for my children?”
    • “When will I be able to retire?”
  • Perhaps you have more specific questions like:

Once you have a general idea of what you are looking for, you can begin focusing your search to the broader categories of financial planner, investment advisor, accountant, insurance specialist, etc.

Checking A Financial Advisor’s Qualifications

Now you want to start thinking about specialization, philosophy, and training.

It is important to understand that anyone can hold himself out as a financial planner. Recently, I spoke to someone who told me he was a financial planner, and I asked: “Oh, what kind of planning do you do?” His response: “I sell annuities.” As a Certified Financial Planner, ™ my heart sank. In my mind, selling financial products does not in any way count as “financial planning.”

The CFP® is the gold standard in personal financial planning. It requires not only rigorous training and significant experience, but is also holds the professional to the highest of standards including the role of a “fiduciary.” If you are looking for someone who will look at your whole situation and make big picture recommendations for you, who will help you implement and monitor your plan and who will put your interests ahead of their own, then you will likely want to seek out a Certified Financial Planner. ™

There are many designations for financial advisors. Frankly, some of them mean very little. Be sure to do your research and don’t assume that someone carrying a long list of letters after their name is going to be the right fit for you!

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Budgeting for Retirement: Not a One Size Fits All Proposition

One of the most widely used rules of thumb in retirement planning is the notion that you will need 70-80% of your pre-retirement income once you retire to live a comparable lifestyle. Another suggests that you should save eight times your final salary for retirement. Surely, there is some merit to these rules and admittedly, they can serve as a great guidepost when retirement is still far off in the horizon. But should you bet your future on them?

What is the concern with planning your retirement based on the rules of thumb?

By definition, a rule of thumb is:

A principle with broad application that is not intended to be strictly accurate or reliable for every situation. It refers to an easily learned and easily applied procedure or standard, based on practical experience rather than theory.

Retirement is far too important to leave to principles that are “not intended to be reliable.” If every person, couple, and household is unique, then doesn’t it stand to reason that the way they approach planning should be as well?

Think about some of the retirees in your circles. Perhaps your parents travelled around the world for several years, while your aunt lived a quiet, but comfortable, retirement in her home. Meanwhile, a family friend spent most of their retirement battling severe health problems. Retirement was clearly different for all of them. Then, after further thought, you remember that your parents only travelled for the first ten years of their retirement, then they settled into a more subdued routine at home; the first half of their retirement looked very different than the second.

The best thing you can do as you approach retirement (10-15 years out) is to approximate a thoughtful projection of your retirement budget. The more you can work through this process, build in appropriate cushions and tighten these figures, the more accurate your retirement income needs will become. It’s also important to recognize that there are two components of retirement budgeting: your initial retirement where spending will likely be higher and your “advanced years” when life slows down and many of your expenses dwindle. That being said, a few expenses, such as medical, will increase with age and should be factored accordingly.

Once you have a firm grasp of your spending needs, the next step is to look at your guaranteed sources of income (i.e., social security, pension, etc.) and figure out the difference between your expenses and income to begin to settle on your annual needs in retirement. Your retirement income can be an important component to these calculations.

Imagine you expect to have $70,000 per year in living expenses during retirement. Because of a pension and social security, you will be able to cover $60,000 without drawing from your portfolio. You are left with a relatively modest need to fill of $10,000/year once you do retire. Postponing retirement until you accrue 7-8 times your salary would be excessive and likely cost you some of the best years of your retirement. (Please note these are simplified numbers and don’t consider more sophisticated planning items such as inflation and taxes).

On the other hand, if you have followed the “rules” and saved enough to satisfy the various rules of thumb, but you have fairly extravagant plans early in your retirement, then you may end of cannibalizing your portfolio early on and could risk running out of money. Perhaps you have extensive travel plans or expect to maintain two households, so you can avoid the winter but stay close to family. You may very well need to save more than what the rule of thumb will dictate.

You might benefit from working with a Certified Financial Planner ™ to help you create a customized retirement budget. But there are also decent tools available if you’d like to give it a shot on your own…. Keep in mind that much like rules of thumb, these are not one size fits all, and may require adding additional expenses unique to you!

Sources

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“Fiduciary.” One who acts in utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client.

The Standards require that all CFP® professionals who provide financial planning services will be held to the duty of care of a fiduciary, as defined by CFP Board. Since some CFP® professionals are not involved in providing financial planning services to clients, it would be inappropriate to hold these individuals to a duty of care that may not apply to their professional activities. While CFP Board’s fiduciary standard is reserved for financial planning services, the Standards nevertheless require a high duty of care for all CFP® professionals in any type of client relationship: “A CFP® professional shall at all times place the interest of the client ahead of his or her own.”

What Is a Fiduciary and Does It Matter?

In most businesses, there are cycles and trends that pop up now and again and create a buzz. Typically, in the wake of a big event, there is hype surrounding buzzwords and wherever you go, or whenever you log in to social media, you are likely to hear about it. You have probably been bombarded of late with information or opinions on gun control, school safety, flu vaccines and the “me too” movement. As financial planners, we rarely encourage following the “hype,” but must consider that there is always something to learn from the buzz.

A question we are asked often from our prospects is “Are you a fiduciary?” Despite its importance, it is the first time in more than a decade in business that we have been asked the question on a consistent basis. The truth of the matter is it is an excellent, and relevant, question… certainly buzz-worthy.

What is a Fiduciary?

According to the CFP® Board, a Fiduciary is one who acts in the utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client. In other words, a fiduciary must put their clients’ interests above their own.

Why It Matters

Imagine that you were working with a financial advisor. Stu came highly recommended by a family member and you put your trust in him. He invested your money in a number of funds that had a decent return, so you feel rather comfortable with the relationship.

Fast forward a few years: your cousin is working toward her CFP® and has offered to do a free review of your investment portfolio. She finds that the expenses on your funds are exorbitantly high and have subsequently, performed significantly lower than similar funds from other companies. She points out a few funds that he could have used that were nearly identical but with much lower fees and with them, your portfolio would have doubled already. You call Stu and learn that he is out on his yacht for the afternoon but will be available the following day when he returns from a golf outing.

How does that make you feel? Your trusted advisor put you in a product that was significantly more beneficial to him than it was to you. All of a sudden, he’s not so trusted and it’s probably going to be difficult to trust again. Unfortunately, this has become a common theme in the industry.

Let’s go back to the buzz about the flu. The flu has been rampant, and you are anxious to get a flu shot. You understand that there is a limited supply and rush to make an appointment with your doctor. Your doctor spends some time talking about the flu shot with an emphasis on the negative effects. As you are walking out, after declining the flu shot, the doctor’s mother walks past you in to the last patient room. While you are settling your account, you overhear the nurse request the last flu shot dose for the doctor’s mother. Suddenly, you don’t feel so confident in your doctor. Was he acting in your best interest, or his?

This is why the fiduciary standard is so very important. As Certified Financial Planners (TM), engaged in the business of Financial Planning, we are required by both the CFP® board and Investment rulings to act as a fiduciary. However, for a good financial planner, the mission is far more visceral: “Do the right thing because it’s the right thing to do.” This is one of the lessons that have been ingrained in me since I was a child. Frankly, that’s what being a fiduciary means to me. You always put the interests of the client first because it’s the right thing to do. When you do the right thing, everybody wins.

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Why You Need to Be Cautious with Online Retirement Calculators

If you were dealing with a major health trauma, would you turn to a website for a diagnosis? In our “Web-MD” society many people do just that for minor ailments or research, but it seems ridiculous to trust the internet for something that could be life threatening. I imagine, in such a case as heart disease, cancer, or any debilitating illness, you would prefer to visit a qualified and trusted medical professional who will avoid generalizations and “rules of thumb”, exploring all the potential possibilities of your symptoms, applying your personal medical history to propose the best course of action for your specific circumstances.

It is not much different with retirement planning. Too often, people place their trust in retirement calculators and can make common mistakes that may be catastrophic to their retirement.

I am not completely opposed to using retirement calculators, as they can be useful tools for planning in general; however, it is important to understand the limitations of these calculators and the impact that can have on your future.

As Certified Financial Planners ™, we have met with several individuals who came to us for help and were convinced that they were ready to retire because an online retirement calculator told them so. Often, the calculator was right. Generally, this happens when the situation is fairly straightforward. In other words, there is significant income and investments to easily sustain spending. There have also been times when our analysis suggested that the individual was not ready to retire and that to do so would require significant changes in lifestyle…or worse, they would run out of money at some point in the future!

The Downside to Retirement Calculators:

  • The Output Is Only As Good As The Input: You are making a lot of assumptions when using most retirement calculators. Some of them require a certain level of experience, expertise and research. If just one of your inputs is wrong, it can throw off the long-term results significantly.
    • Inflation – Even expert economists have difficulty predicting inflation accurately
    • Life Expectancy – You can look at family history and your health, but unless you have your crystal ball, this one’s basically a guess. Due to recent advances in medical technology and more pervasive knowledge of the role of diet and exercise in longevity, studies have shown that most people today underestimate their life expectancy.
    • Investment Return – Historical returns and a diversified portfolio can help you predict an average return over the long term, but there are no guarantees! (And if there are, then inflation and/or expenses is almost certainly a problem)
    • Expenses in Retirement – There are many “rules of thumb” for determining your expenses, and if you use one, your actual figures will probably be different. A comprehensive analysis of your expected expenses should be done to get this number as accurate as possible. A small difference in your actual expenses can mean a big difference in your retirement success.
  • Inflexibility: Many financial calculators prepopulate assumptions. Retirement is a very personal experience and should be customized to your needs, risk tolerance and goals. If the calculator is too general, it is highly unlikely that the results will apply to your specific needs.

Retirement is one of the few things in life in which you do not get a second chance. There is no practice or dry run, short of returning to work as a Wal-Mart greeter at a much older age. You must make sure your assets cover your needs for the rest of your life from the beginning. The complexity and human elements of your retirement are not something you should trust to a mathematical algorithm. You have worked your whole life for a comfortable retirement… don’t leave it to chance!

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As Certified Financial Planners ™ in New Jersey, we frequently get the question “should we move out of state to save money on taxes in retirement?” New Jersey is certainly an expensive place to retire and those close to retirement often believe that they need to get out of Dodge in order to retire comfortably. It seems logical that if NJ is “expensive,” you should leave.

But the answer is not as straightforward as one may think. Here are some things to consider:

  • Do you have family and friends nearby?
    • Do you have family and friends where you intend to move?
    • Will you spend a lot travelling back to visit frequently?

Rose and Pat are lifelong NJ residents. They retired last year with a sizable investment portfolio and find they are busier than ever with a robust social calendar. Nothing gives them more pleasure than spending time with their children and grandchildren, all of whom live within an hour radius. Rose and Pat also love to travel. Finally mortgage-free, they are considering moving south rather than be burdened with a hefty property tax bill and income taxes. Their children have expressed the concern that they may not be able to visit often due to scheduling and financial constraints. In this case, it probably makes very little sense for Rose and Pat to make a move. They may see an improvement in their quality of life from a financial perspective but at what cost? Their life is in NJ. It’s also possible that any savings in taxes may be more than offset by the travel required to maintain important relationships in their lives.

  • Do you like where you live?
    • Will you be able to maintain your lifestyle elsewhere?
    • Is the other area conducive to your interests and hobbies?

Bob and Peggy have lived in NJ their whole lives. While they have always enjoyed going into the city for shows, they find that they do not visit as frequently. Their children are married and have moved out of state. Most of their friends have moved south. Bob and Peggy are avid golfers and enjoy the beach. They have come to really dread the change of seasons and have been contemplating downsizing and moving to South Carolina to save on taxes. And why wouldn’t they? Their quality of life, financial and otherwise, will likely improve with the move.

  • Are there other considerations that might impact this decision?
    • Healthcare
    • Other Taxes (Income, Sales, Probate)

Sometimes in life, we make decisions based on what looks good on paper rather than what feels right. Certainly, as financial planners, we want the numbers to make sense. But you have worked your whole life to get to this point. If your life is where you live now, you enjoy it, and you can make the numbers work, then it probably makes little sense to make a decision to move based solely on the amount of taxes you pay. And by all means, if the grass really is greener elsewhere, then make your move!

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The holiday season is fast approaching. My house is already abuzz with talk of Wish Lists, and I could probably wallpaper my entire home with the Black Friday catalogs and advertisements that I have received. And while the [grand] children’s heads might be filled with visions of dancing sugarplums, it’s likely that you are considering the more practical matter of how to fund this most wonderful time of the year.

At this point in the year, there’s not much you can do about setting money aside each month so it will come down instead to careful and thorough planning. Here are some tips to ease the holiday financial stress:

  • Create a high level budget. What can you reasonably afford to spend this holiday season?
    • Do you have any money set aside?
    • Review your income and expenses to determine where you can pull money from (and if applicable, where you can cut expenses to meet your goals)
    • If you must use credit cards, have a reasonable plan for paying then back without accruing too many finance fees.
  • Create a Wish List for your holiday spending and get specific. The devil is often in the details, and many people go over budget, overlooking the little things. Assign dollar amounts to each item.
    Things to Consider:

    • Who do you want/need to give gifts to and how much do you want to spend on each recipient? (Be sure to account for taxes and shipping)
    • Travel
    • Decorations
    • Holiday Meals
    • Entertaining/Entertainment
    • Charitable Donations
    • Gift Wrap, Cards, etc.
  • Compare your budget to your wish list. How do they match up?
    • If it works, great!
    • If it doesn’t…
      • Take another shot at your list; where can you cut back? Are there things on your list that are unnecessary and wouldn’t be missed?
      • Can you get creative and add to that income? For example, do you have anything of value that you don’t use anymore that you can sell? Do you have credit card rewards that you can take advantage of?
  • Map it out
    • Timing is everything! Consider spreading your spending out over the next several weeks, but be strategic about it. You can likely knock some of your big list items out over Thanksgiving weekend when the deals are great and spread the rest of your spending out throughout December. Create a schedule for holiday grocery shopping, making charitable donations, book travel, etc. to ensure that you are in control of what is going out and when.
    • Be in the Know! Do some research and know your prices.
  • Stick to it
    • You’ve spent a lot of time now mapping out your strategy. Now the most important thing is to stick to it. Bring your list with you or save it as a picture in your phone so it’s always accessible.
    • Be prepared. It sounds silly, but if you do a big shopping day, eat first and bring a snack or two. When you hit a wall, go home. You are much more likely to overspend and settle on something when you are overtired or hungry.
  • Enjoy the Season
    • Your to-do list is likely overflowing and you may be experiencing some financial stressors as well. If it gets to be too much, perhaps it’s time to reassess your wish list.
    • Now that you are armed with a game plan, it is my sincere hope that you find this really can be The Most Wonderful Time of the Year!

Bonus Tip: Use technology! It can save you money and time. Take advantage of the 7 Best Apps for Holiday Shopping listed at Nerdwallet.

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When Should I Collect Social Security?

Have you ever watched a game show where the contestant reaches a certain point and can either stop and take home a guaranteed prize that is considerable or keep going forward for a much higher prize, but with the risk that he leaves with nothing? Often, I find myself cheering them on when they succeed with the latter strategy but thinking how foolish the decision was if they lose it all. Because with the benefit of hindsight, it’s very easy to judge the decision. But with so many unknowns, it really could have gone either way.

In retirement, we don’t have the benefit of hindsight either and must take calculated risks when making decisions that will impact our financial future. One of the most important retirement decisions you must make, is also one of the most difficult: when is the best time to collect your social security retirement benefit? Many people want to collect early, or at least at Full Retirement Age (FRA). “I earned this money and I don’t want the government to keep it.” While that’s understandable, you might be cutting off your nose to spite your face. Delaying your benefit can ultimately mean you collect significantly more. Unfortunately, there is no one right answer, unless you happen to know exactly the date you will die. But before you head to the psychic, there are a few guidelines you can follow.

Delay, Delay, Delay

In general, we would recommend waiting until FRA and even delaying beyond that to 70, if you can. Social Security is likely to be your only guaranteed income stream that has a Cost of Living Adjustment (COLA). Because Social Security has that COLA, it is important to get that initial benefit up as high as you can.

What does that mean? Let’s say you have a $2000 monthly benefit and you pay $10,000 in taxes and insurance, $5,000 in utilities and such, $5,000 in groceries and $4,000 in entertainment. Ten years from now, inflation has increased these expenses to $30,000/year. Without that COLA, you would have a deficit of $6,000 per year!

Delaying is particularly important when you have a spouse that could potentially survive you. The surviving spouse steps up to the higher benefit, so it is often best to let one benefit grow as large as possible.

How It Works: For every year that you delay collecting your SSI benefit past your Full Retirement Age (FRA), your benefit will increase by as much as 8%, putting a lot more in your pocket as time goes by. This increased benefit coupled with the COLA, will serve as great longevity insurance. Of course, you have to live longer to reap the benefits and you have to be able to continue working or support yourself off your assets in the interim.

If your health is good and your parents lived into their 80s or beyond, you will want to be the contestant that stays in the game.

Take the Money and Run

Delaying is not always going to be the best option though. Here are a few scenarios under which it would be better to start collecting at your Full Retirement Age (or even 62)

  • You Need the Money
    • If you have retired and have no other source of income, you may not have a choice but to collect early.
  • Your Health is Poor
    • If you delay collecting social security, there will eventually be a break-even point to justify making this decision. If you are in poor health though and have a low life expectancy, then you are unlikely to benefit from this strategy because your chances of breaking even are reduced greatly.
  • Your Life Expectancy is Not High
    • Family history or high-risk behavior, such as being a lifelong smoker, may also be another strong reason to avoid delaying.

How It Works: For every year that you collect early, your benefit will decrease by a certain percentage. If you collect at 62, this reduction can be as much as 25%. Sometimes, you won’t have the choice to wait until FRA or beyond, but if you can, delay collecting early.

If you’re less optimistic about how long you will live, you will want to be the contestant that takes the guaranteed win and gets out of the game.

Regardless of what you decide, you should never collect before your FRA if you are still working as you may be penalized once you reach a certain threshold.

There are some great tools out there for analyzing your situation and determining how you can maximize your social security benefit. For example, the AARP has a Social Security Benefits Calculator. As a mistake can be very costly, we highly recommend contacting a fee-only financial planner, if only to do this analysis.

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You’ve worked hard at your job for a long time. You are now closer to retirement than you are to the day you started, but still years of work ahead. Then, out of the blue, you receive a message from HR with an offer to retire… now. Your productivity comes screeching to a halt as you can’t help but fantasize about all the trips you will take and how you will fill your days. Your mind is racing with one all-consuming thought:

Could I… Should I take the Retirement Buyout?

The answer is It Depends. There are many factors to consider and you’ll want to evaluate each before making a decision.

How Attractive is the Retirement Buyout?

Does it make sense to take the package? Does the package amply compensate you for what you would be giving up by not working until your full retirement date?

Layoff Risk

Is it likely that you will be laid off if you do not take the retirement buyout? If your company is looking to cut costs, retirement buyouts might be the first step on the path to layoffs. It is possible that you will risk getting a less generous severance package if you do not accept the buyout.

Health Insurance

With the rising costs of health care, this is very important. Will your health insurance needs be covered until you turn 65 and become eligible for Medicare? Is there a health insurance benefit included in the buyout package? If not:

  • How many years do have before you qualify for Medicare?
  • Can you afford to bridge that gap?
  • Do you have any other options for medical insurance (i.e., through a spouse)?

Are You Ready to Retire?

While most people think they would jump at the chance, this often proves to be the most difficult decision.

  • Are you financially ready to retire?
  • Are you close to your retirement goals?
  • Can you manage your expenses? Is your house paid off?
  • Do you want to continue working?
    • If so, do you think you can find another job?
    • If not, have you given thought to how you will spend your time?

The decision of whether or not to take a retirement buyout can be a complicated one. Part of it is very personal but a large part of it comes down to financial planning. At Zynergy Retirement Planning, we can help!

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Why is it often so difficult to choose the right financial planner? First, the sheer number of planners makes narrowing the field seem like an overwhelming task. In addition, the variety of designations, affiliations, associations and an alphabet soup of letters following a planner’s name calls for a dictionary to decipher. Once you narrow it down and decide that you would like to employ a financial planner for a fee to help protect your interests, you are then hit by another obstacle:

What is the Difference Between a Fee-Only and Fee-Based Financial Planner?

Fee-Based Financial Planner

  • Earns a commission from sales of specific products in addition to the fees that they charge their clients
  • Although they are working for their clients, a fee-based financial planner is also motivated to sell these commissioned products to them, creating a potential conflict of interest.
  • What is best for the client, may not always be best for the planner and vice versa
    Have you ever gone to a doctor, to whom you pay a fee for your visit and while you are waiting in the lobby, you see a pharmaceutical representative walk in with lunch for the office? The nurse brings you back, the doctor examines you, and the visit goes much as it usually does. At the end of the appointment, the doctor writes a prescription for a new drug and assures you that it’s about the same price as the one you are already using and that you won’t see a difference. As you walk out of the office, you bump into the sales rep and notice the logo for the script you just received from your doctor. What has this done to the level of trust you have in this new prescription and your doctor for that matter? A Fee-based financial planner can create the same concerns.

Fee-Only Financial Planner

  • Receives no commission of any kind based on product sales
  • All compensation comes directly from the client, greatly reducing conflicts of interest
  • Offer comprehensive, unbiased financial advice based on what is best for each individual client
  • Fee-only financial planners who are members of NAPFA are held accountable by that organization’s strict professional and ethical standards

When you are looking to a professional to assist you with your well-being, whether it be medically, financially or otherwise, there is nothing more important than being able to trust the advice. You should always feel as though your doctor or your financial planner is working with your best interest in mind and that you are all working toward the same goal!

At Zynergy Retirement Planning, we do not accept any referral fees, kick-backs, or commissions of any kind. Our goal is to work with you to plan the retirement you have always wanted and to do it in the way that best suits your needs. Set up a free consultation with us today to work with Red Bank’s trusted Fee-Only Certified Financial Planners™.

Contact Zynergy Retirement Planning

Schedule a free consultation with a retirement specialist today.

732-784-2380