Category: Financial Planning

Do You Know How Much Money Your 401(k) Could Lose This Year?

Do You Know How Much Money Your 401(k) Could Lose This Year?

In other words, I’m asking, “Do you know your risk?”

 

But I didn’t ask it that way because I know that, for a lot of people, risk is this abstract, distant, otherworldly life force. They know it has an effect on their portfolio, but not to what extent or—in all reality—how.

 

Tell me if this scenario resonates with you.

You are stuffed in a room with 100 or so of your coworkers of all ages. A well-dressed financial rep enters the room. He’s here to talk about your 401(k).

 

Speaking in generalities, he outlines 5 different portfolios from conservative to aggressive: “If you’re a riskier person, you might want to go with the more aggressive portfolio. If you’re more careful or getting ready to retire, you might want to go with one of these more conservative ones.”

 

After a good amount of explanation, he asks you to choose. So you do…kind of haphazardly. You pick one that you think matches your risk tolerance, or maybe you pick one considered to be “middle of the road”. You’re not sure what you got yourself into, but…hey…how bad can it possibly be?

 

Of course, this scenario plays out in a lot of different ways. But, from my 19 years of experience, it’s typical. The only problem is, it doesn’t reveal what’s really important to you: how much money you could lose or gain. You don’t really understand. You just choose, and risk remains some abstract, otherworldly concept.

 

So let’s get it back into orbit. In fact, let’s land it right in your neighborhood with some meat and bones substance. Do you remember which of those 5 portfolios you chose?

Well…here they are, demystified, showing you in-the-ballpark figures for how much you could stand to lose and gain in a given year:

  • Conservative (33 risk score): -10% or +20%
  • Moderately Conservative (47 risk score): -18% or +32%
  • Moderate (59 risk score): -24% or +40%
  • Moderately Aggressive (68 risk score): -28% or +46%
  • Aggressive (72 risk score): -32% or + 48%

Note: Risk Scores are based on a scale of 1-100 with 100 being the most aggressive.

 

They might have slight variance in risk scores, percentages, and names from company to company. Your particular portfolio may be a bit different, but this is the typical landscape of the 401(k) options offered to you.

 

This means that—with a $100,000 401(k)—you could stand to lose $32,000 with the aggressive option, $24,000 with the moderate option, and $10,000 with the conservative. All in one year.

 

In light of what you chose, how does that make you feel?

If you are comfortable with the loss and gain, you made a good choice. If you’re scared, you didn’t, and you need someone to make adjustments so your portfolio matches your risk tolerance. Simple, right?

 

You have just experienced a wonderful taste of a personalized risk analysis.

This is what I do with my clients. I sit them down. I analyze their portfolio. I tell them what percentage they could lose or gain in a year.  And then I ask a very important, very telling question: “If you were to lose (insert dollar amount of potential loss here), would you be comfortable with that?”

 

They have one of three reactions:

  1. “Oh no, that’s way too much.”
  2. “Yes, I’m comfortable with that.”
  3. “Yes, and I would be comfortable with more loss if it means more gain.”

 

In my practice, working mostly with soon-to-be retirees, I usually get the first reaction the most. And for good reason too! People who will be retiring soon should have a conservative portfolio. They shouldn’t invest aggressively like a 25 year-old because they just don’t have the time to make up for losses.

 

But if they never check the risk of their portfolio, they will never make those necessary adjustments.  And when the economy takes a turn for the worse (eventually it will), they could lose one-third of their money when they need it most. They might even make a fear-based decision to pull their money out, locking them into those losses for good.

 

I don’t usually show so much urgency, but I know how important it is. I’m not going to knock down your door, but I will implore you now.

 

Don’t let this be you.

 

Need a personalized risk analysis at no cost to you? Call Seniormark at 937-492-8800 for a free consultation.

 

Wondering what to do with your 401(k) after you retire?  Consider attending our 401(k) workshop offering, designed to help you answer your most pressing questions. There are no high-pressure sales attempts here, just an in-depth and informative discussion about your options. Click here to discover more. 

 

5 Strategies to Get the Most Benefits Out of Your Social Security

5 Strategies to Get the Most Benefits Out of Your Social Security

It’s human nature to want to get the most out of everything. That’s why “stretching your dollar” appeals work so well.  It’s also why people spend 15 minutes scrounging that last bit of toothpaste from the tube (you know you’ve done it).

 

As you are approaching retirement, you’ll want to do the same thing with your Social Security.

 

Of course, there are a lot of strategies to consider, and this list definitely won’t be exhaustive (unless you want a Encyclopedia Britannica-length blog post). But if you have just started thinking about Social Security and how you’re going to squeeze those last few dollar signs out of the tube…this is a good place start.

 

Boost Benefits While Your Income Has Peaked

Social Security bases your benefits on your income over 35 years. They pick your highest income years and do some mind-bending, brain-busting, soul-sucking math equations and bam! Out pops your PIA, which is your monthly Social Security Check. Here’s the moral of the story: higher average earnings over 35 years= higher PIA= more money in your Social Security check every month.

 

I take it you are earning more now than you did when you were 30? So what would happen if you would work a few extra years, making your peak income? Those lower income years (when you were just scraping by) could drop out of the equation, leading to a better Social Security check. According to Elaine Floyd, a Certified Financial Planner from Savvy Social Security Planning, waiting to retire until 70 as opposed to 62 will you earn you an extra $31,000 in increased Social Security benefits. It’s not a lot, but taken along with an extra eight years of fat income, it might very well be worth the extra work. Or—as Floyd put it—the extra $31,000 is like “icing on the cake.”

 

Maximize Your Money By Delaying Benefits

Good things come to those who wait. Delaying benefits until 70, 67, or even 65 can be difficult. It will take a strong financial situation, strong health, and a strong will. But your patience will be worth it in the end.

 

In fact, your benefit payment goes up by 8% for every year after full retirement age that you delay. That’s a lot of cash. So unless you can’t afford to wait or you have a low life expectancy, I recommend waiting.

 

Take Advantage of Spousal Benefits

Spousal benefits are 50% of the other spouse’s PIA (monthly Social Security check). For couples where one spouse is obviously the “breadwinner” of the two, this is especially beneficial to know. Because—a lot of times—half of the higher income earner’s Social Security check is way more than the full amount of the lower income earning spouse. And you can’t take both. But keep in mind, in order to claim spousal benefits, you have to have been legally married for at least one year and be at least 62. It’s also important to note that both the husband and wife cannot claim spousal benefits at the same time, and—it almost goes without saying—they stop when you are no longer married.

 

Collect Benefits From a Divorced Spouse

You may never want to see them again, but you may want to see their money. Don’t worry…this isn’t stealing! It won’t affect their benefits at all. It works exactly like spousal benefits. You get 50% of what your ex-wife or husband gets in their Social Security check. The only key here is that you have to have been married for 10 years and not be remarried.

 

Collect Survivor Benefits

If your spouse has passed on, you can collect his or her benefits on their behalf. You will have to forfeit your own check, but a lot of times your husband or wife’s check is better anyways.

So there you have it—5 ways to maximize your social security. But it is important to realize: Social Security (like all things involved with the government) is very complicated. It takes a person with a lot of expertise to help you get the most out of your social security, just like it takes a person with a lot of muscle to work out that last bit of toothpaste.

Wondering when you should start Social Security benefits? Have Social Security questions that need answered? Discover more about our free Social Security workshop designed to help you answer your most pressing questions.

3 Reasons Why Most Retirees Should Rollover Their 401(k)

3 Reasons Why Most Retirees Should Rollover Their 401(k)

I’m not saying there aren’t legitimate reasons to keep your 401(k) at your employer, but those reasons are typically unimpressive or only apply to a small percentage of people.

 

For instance, a 401(k) plan will allow you to make penalty-free withdrawals after you turn 55. An IRA will make you wait until 59 ½ to make penalty-free withdrawals. This might be something to consider, but only if you plan on cashing out that early. If you aren’t retiring within that time frame, you probably aren’t.

 

In my experience, I’ve found that rolling over your 401(k) to an Individual Retirement Account (IRA) is still the best option, and here’s why.

 

1. You Are in Control

When you leave your 401(k) with your employer, it is tied to that employer. Although this doesn’t mean you will lose your money if your employer goes under (that would be rare and virtually unheard of), but it could very well limit your access to your funds.

 

I used to believe this was a nearly impossible rarity as well, but I’ve changed my mind. Within just a 6 month period, I had two clients call in, wanting to roll over their 401(k). They heard that their previous employer was going under, and they wanted to cut ties as soon as possible. We set to work right away, but by the time the paperwork was filed, it was too late. Their 401(k) was frozen. They couldn’t move it. They couldn’t withdraw from it. They couldn’t touch it. And this didn’t just last for a couple weeks, it lasted a year or more for both of them.

 

Not only was this inconvenient and frustrating (it was their money, after all), but it can also be detrimental. What if it was an emergency, and they really needed that money to make ends meet? You save money in a 401(k) so that income will be there for you when you need it in retirement. When it is deemed unavailable by no fault of your own, it can be quite irritating.

 

With an IRA, instances like this won’t happen. Rolling over your 401(k) gives you the control. The money is in your hands, secure and swaddled in your arms.

 

2. You are Free

Keeping money with an employer narrows your investment options. You can only pick from the investments your company has deemed “good” for most employees.

 

Of course, this is not always a bad thing. It is kind of nice that someone is taking the time to explore the breadth of investment options to choose the ones that are in the best interest of the majority. And if you are happy with your portfolio, you may not feel inclined to roll it over—that’s completely fine.

 

But here’s the thing: what is in the best interest of the majority is not always the best interest of the individual. It is always a compromise.

 

An IRA, on the other hand, offers you any and all investments opportunities available—stocks, bonds, mutual funds, real estate. If you can name it, you have access to it. This gives you the freedom you need to develop a killer portfolio.

 

3. You Have Someone to Help You

This is not to say that you don’t have anyone to help you with a 401(k) plan, but the help usually isn’t as individualized.

 

If you worked at a larger company or corporation, you know what this kind of help looks like. Once a year, everyone gathers in the break room or a conference room, and a financial representative comes in to talk about 401(k) plans. No one talks to you about your specific situation. They speak mostly in generalities: “if you’re older you might want to do this. If you’re younger, you might want to do this.” Everyone in the room—whether they are 20 or 60—is getting the same spiel.  They don’t sit down with you one-on-one, and they probably aren’t qualified to do so.

 

But with an IRA, you can hire a financial advisor to manage your portfolio. They take an individualized approach and ensure that your investments are set to meet your goals and match your specific risk tolerance.

There are some management fees associated with doing this, so I guess that is one weakness in choosing to rollover your 401(k). But I have discovered over and over again that you get what you pay for. Your retirement income is precious; you should put it in good hands.

 

Looking for a Certified Financial Planner who can help you roll over your 401(k)? Call Seniormark at 937-492-8800 for a free consultation! We specialize in the transition to retirement.

 

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When Should I Take Social Security? — 4 Questions to Ask Yourself Before Making a Decision

When Should I Take Social Security? — 4 Questions to Ask Yourself Before Making a Decision

Wow. That is a whopper of a question. And with social security getting a lot more media coverage lately, it is a question on the forefront of many minds just like yours. Most experts will answer with a resounding “wait!” “Wait until your full retirement age!” Or even “Wait until you are 70!”

 

And I am inclined to agree with them on many accounts, but this only tells a little bit of the story.

 

The truth is that no one can offer you a definite yes or no, now or later, 62 or 70 answer. It depends on a great number of factors:  your personal goals, convictions, health, and financial situation. This is why—instead of trying (and failing) to answer the question for you myself—I am going to offer you some guidepost questions for you to ask yourself. If answered thoroughly, the questions will lead you down a path to a good decision.

 

1.  Will I Continue Working Full Time?

The first question you should ask yourself is whether or not you are going to continue employment.  Because if you retire prior to your full retirement age, income matters when it comes to Social Security benefits. If you make it over the $16,920 a year earnings-test amount, Social Security begins reducing your benefit check. Having a higher income over your lifetime actually helps your benefits, but while you are receiving them—not so much.  In fact, for every $2 over the earnings-test amount, $1 will be deducted from your benefits checks for the year.

 

Allow me to put this into perspective. This means that a $2000 a month check ($24,000 a year) can vanish very quickly. Let’s put it this way: a person making $64,920 a year (48,000 over the earnings-test amount) will have all of their benefits reduced to zero. It would be like they never signed up at all!

 

Part time work to keep you busy won’t usually reach the earnings-test amount, but—in almost every other case—I strongly recommend waiting.

 

2.  What Resources Do I Have?

If you decide that you have had enough of your stressful job and decide to retire, you will no longer have a steady source of income. This is where drawing Social Security earlier can come in handy.

 

But there are exceptions. For example, If you have a strong enough financial situation, you can get by without your social security check and maximize your benefits no problem.

 

So check your storehouses. Do you have a sufficient nest egg? A retirement plan like a 401(k) or IRA? Investments? Pension income? In other words, do you have something to live off of while you let your Social Security benefits accrue? If not, then you need to take social security. But if you do, it might be a good idea to delay.

 

3.  What’s My Life Expectancy?

It’s also important to remember that waiting to collect Social Security benefits is still a trade off. If you collect at age 66, for example, you will get more checks in the mail than if you wait until 70 (48 to be exact). But if you wait until 70, you will receive checks that are 32% bigger. The decision you are really trying to make is this: Do I want more, smaller checks now or fewer, larger checks later?

 

This is where life expectancy swoops in to help. If you live a long life, larger checks later is usually the better bet because you will likely reach your break-even point, the age when the larger check begins to benefit you. (For an in-the ballpark figure, the break even point for many people is 10-12 years after their full retirement age.) But if you don’t, taking more, smaller checks now is the right approach. You may not have time to wait.  In that case, reap the benefits now.

 

In order to determine life expectancy, you can consider your current health status and your family’s history with longevity, but this would be a shot-in-the-dark speculation.

 

Instead, I recommend using a highly customized life expectancy calculator like livingto100.com. It takes into account everything from exercise habits, family history, all the way to how you barbecue your meats (not sure how this affects life expectancy) to create a truly personalized calculation. Of course, this is still speculation, but at least it is speculation based on carefully- researched scientific data. Not as much a shot in the dark.

 

4.  Am I Married?

If you’ve been married for more than a couple weeks, you know that marriage changes everything. From finances to weekend plans to what you’re going to make for dinner, you’ve got someone else to think about.

 

Marriage also affects Social Security. For instance, you might have poor health and a bleak life expectancy. In this case, it might make sense for you to take out Social Security early. But what about your spouse? When you pass away, your spouse receives your full Social Security benefit. If he or she lives long, it may still be beneficial to delay.

 

And this is just one of quite a few examples.

 

A Final Thought

I would like to emphasize this point one more time: the question of when to take Social Security is not one-size-fits-all. It’s not strategic to delay benefits if you don’t have the means to do so. But the “I might die tomorrow anyhow, so I might as well take it now” approach is not the best either. In order to get to the right answer, you first have to ask the right questions.  So analyze your situation, learn all you can, and—at the end of the day—sit down with an expert you trust to put it all together.

 

Need some help making decisions about Social Security? We are offering a workshop on Social Security planning on September 7 in our Sidney office.  You can sign up by clicking here:  Social Security planning workshop or by calling our office at 937-492-8800.  As always, if you have any questions, feel free to call our office any time.

One Priceless Secret to Help You Find a Trustworthy Retirement Advisor

One Priceless Secret to Help You Find a Trustworthy Retirement Advisor

You can’t choose retirement help based on an agent’s smile or friendliness or wrinkleless pants. And contrary to popular belief, the handshake shouldn’t make or break your decision either. The truth is, even if he or she is a nice guy or gal, that doesn’t make the person any more trustworthy.

 

Not that those things don’t matter at all. I hope the person you work with during this crucial transition isn’t a jerk. All I am asking is for you to consider this as well: Is he a captive or an independent agent? Because knowing the difference…well…it can make a world of difference.

 

Tied Hands

A captive agent works for one company. Their job is to sell that one company’s products. They can’t lead you to the best-valued plan for your unique needs because they are limited to the insurance plans that their company offers.

 

Here’s something you’ll never hear a car salesman say: “Yeah, you know what you need, sir? You need to go visit the dealer down the street. He’s got exactly what you are looking for…and at half the price! Here, let me get the directions for you.”

 

It’s the same thing with captive agents. Even if there’s a better deal with another company, they’re not going to tell you that! Just like a car salesman, they have to sell what’s on the lot if they want to make a commission. In other words, their hands are tied. And when their hands are tied behind their back, it’s a bit more tempting for them to cross their fingers.

 

Hands Free Help

On the other hand (I promise I didn’t try that), independent agents are on their own. Since they don’t work for any one specific company, they can instead work for you, shopping plans from all the companies they represent. By analyzing your situation, they can find the one health care plan that is best suited to you. Or—if there are several—they can talk to you honestly about the advantages and disadvantages of your different options. It’s that simple!

 

And that’s why the captive vs. independent agent dichotomy is so vital when you are deciding who to work with. Because—when compared side by side—the independent advisor is the obvious choice…

 

Hands down. (I’m deeply sorry…I had to.)

 

Are you interested in working with an independent advisor with a passion for helping retirees? Then call Seniormark at 937-492-8800 to set up a free consultation.

 

 

Photo:  https://www.mogicons.com/en/stickers/emoticons/secret-emoticon-265/

 

Investing Fact Check: No One Can Predict the Future

Investing Fact Check: No One Can Predict the Future

Not the common investor. Not your financial planner. Not even the “big wig” finance-savvy gurus.

 

I get it. It’s alluring to think you might have a competitive edge. The seductive power of huge yields in a short amount of time is almost magnetic. And it’s definitely a good marketing point for investment advisors who claim they can “beat the market”. But the truth is, market timing and stock picking just don’t work.

 

Of course, people score big sometimes. They might even get lucky a few years in a row. But, in a way, this is just dangerous. Like a gambler with a string of good hands, these people may begin to think they’re invincible, play hard for another year, and—eventually—return home with empty hands in their pockets and a droopy tail between their legs.

 

The results are in.

In fact, they’ve been in for a long time: When it comes to investing, you are your own worst enemy. Investor behavior consistently causes people to underperform over the long haul.

 

In Dalbar’s 22nd Annual Analysis of Investor Behavior, they discovered that the average investor underperformed the S&P 500 by 3.66% in 2015. According to Dalbar, “while the broader market made incremental gains of 1.38%, the average equity investor suffered a more-than-incremental loss of -2.28%”. This type of data is consistent over the last 20 to 30 years. Over the last 20 years, the S&P 500 has outperformed the investor by 3.52%.

 

And with the “expert” investment managers, the results still aren’t that hot. In 2014, 86% of them failed to beat the market.

 

So why is this happening?

Maybe it has something to do with the fact that the average equity fund retention rate of 2015 was 4.10 years. This means that every 4.10 years the average investor changed his mutual fund to chase the hot returns of another investment option, ultimately trying to beat the market, ultimately believing they (or a financial guru) could predict the future. If you just jumped down to this point, see the above statistics. It didn’t work.

 

So why do investors still believe it?

If it doesn’t work, then why do people still do it? There are many reasons why. Perhaps it is just lack of research and reflection. Or perhaps it is because people are looking at their stocks in a vacuum, thinking that their 6% return isn’t bad even though the S&P performed at 8%.

 

But I think the biggest reason is that they don’t look at the big picture. They see the ads that say “if you would’ve picked this stock last month, you would be up 40%” or “Here at (insert investing company name here), we’ve beat the market 3 years in a row”. They see the Warren Buffets of the world and forget that these are just isolated cases. When you zoom out and see the million other people who tried to beat the markets and failed, the truth comes into focus.

 

So—in the end—you can choose to do what many investors are doing.

 

Or you can choose the time-tested, statistically verified way: diversify your portfolio and wait…without touching it. If you’re retiring soon, I recommend this strategy. You don’t have time for risky moves. You don’t have time to make up for heavy losses.

 

Instead, you need an investment strategy that safeguards your portfolio from crippling losses, while allowing it to grow—slowly but surely—well into your retirement. It’s not flashy. It won’t get you on the cover of Money Magazine. But unlike trying to predict the future—

 

It works.

 

Want a Certified Financial Planner to analyze your portfolio at no cost to you? Call Seniormark at 937-492-8800 for a free consultation.

 

Photo:  http://carolfrank.com/a-crystal-ball-into-our-economic-future-a-morning-with-economist-brian-beaulieu-2-0/