Category: Financial Planning

Get a Second Look Before Buying an Annuity or Your Money May Be Held For Ransom

Get a Second Look Before Buying an Annuity or Your Money May Be Held For Ransom

Two clients of mine, a couple, came into my office one morning, and they mentioned they were heading over to meet with a financial advisor about their Equity Indexed Annuity after their appointment with me. Just as a fair warning, I shared with them what I have learned about the dangers of some annuities, making it a point to mention that some have steep surrender penalties that can extend anywhere from 7-17 years. What I didn’t know then is that they can be even worse than that.

 

They seemed surprised. Why hadn’t their advisor mentioned those downsides? They would ask him, they concluded, and then come back to finish up some business with me.

 

They did come back, and with some very concerning news. “He made it sound like we could never take all our money out without penalties,” they said.

 

And now they surprised me. I asked for their disclosure document, researched the product, and—to my frustrated astonishment—found it to be true: this annuity was basically holding their money for ransom.

 

You see, according to the rules of this particular EIA, they can never take out their money as a lump sum. Even after they have passed away, their kids will not be able take out their money as a lump sum either. The only way the couple can is by taking it out 10% each year for ten years after a five-year deferral period.

If they refuse to play by those rules and take out their money as lump sum anyhow, the penalties would eat up all their returns, bonuses, and more. They would only get $164,555, which is $61,859 less than their account value of $226,414 and about 10,000 less than what they originally paid into the annuity five years ago! In other words, they would have lost 27% of their money after having been invested for five years.

 

This illiquidity might be tolerable if the returns were decent, but that is not the case with their annuity. It has a cap of 3%. This means that no matter how good the markets are, the most return they can get is 3%. Period. All in all, this is a terrible deal.

 

Now, this is not to say that all annuities are bad or that all of them will tie up your money like this one will. But this example does serve as a warning that you can hardly be too cautious around these complicated products. Why? Because annuity salesmen (even those who call themselves “financial advisors”) may not tell you about these downsides.

 

My clients were not told about these penalties. Instead, they were sold on the guarantees, the promises of market returns without market risk and an upfront 10% bonus. Then, with a skewed perception of what they were getting themselves into, they signed away full rights to their money forever.

 

So, before you sign anything, I always recommend getting a second opinion, just to make sure the annuity is being portrayed as it really is. I am convinced that if all the pros and cons were laid bare, significantly fewer people would purchase them.

 

Thinking about getting into an annuity? Call Seniormark at 937-492-8800 and a Certified Financial Planner will give you a second opinion on whether or not it is right for you!

 

Why the Guaranteed Income of an Annuity Isn’t Always Worth It For Retirees

Why the Guaranteed Income of an Annuity Isn’t Always Worth It For Retirees

Everyone likes a guarantee. It’s like a warm house that shelters us from the cold, unknown outside of diminishing returns and tragic losses. So, for the retiree, someone like you who has a lot to lose, the idea of your income being unaffected by market fluctuations sounds inviting. The assurance that you won’t ever outlive your assets wraps itself around you like your favorite blanket.

 

But sometimes a guarantee isn’t worth what it is costing you. And sometimes the world outside the guarantee is a little bit sunnier than you might think.

 

I have found this to be the case with retirement investments. Annuities in general—indexed, variable, and others— often do not live up the glory of their sales pitches, and the world of a conservative investment portfolio with a financial advisor is not nearly as cold and harsh as some might assume.

 

Let’s start by looking at some of what you are giving up by going with an annuity. Because I’ve found that my clients are less enamored by these products once they see beyond the warm and fuzzy sales tactics.

 

Access to Your Funds

No matter how you parse it, you are giving up liquidity by choosing an annuity.  When you invest your money in an annuity, you are giving up your rights to access your money as a lump sum as the annuity gives you your set dollar amount of income every month. They are kind of like a parent, giving you an allowance for monthly expenses, but scolding you with penalties for taking out too much too fast. Although they will allow you to take out up to 10% per year, more often than not, you will incur a 10-15% penalty for taking out any more than that.

 

This might not seem like a big deal if you aren’t planning on any big purchases anytime soon. However, this can change on a dime. What if you come across a real estate steal for a snowbird home in Florida? Or what if you find a promising investment and cannot take advantage of it because your “parent” company will slap you on the wrists for accessing your own money? Then you might start to feel a bit smothered.

 

But if the lack of freedom doesn’t drive you crazy, I think what I am going to explain next will.

 

Fees and Returns

This is where the rubber meets the road when it comes to investments. If you aren’t making money with your money, then it is hardly worth it to invest. And, unfortunately, the truth about annuities is that the return is not all that great. Sure, agents make it sound nice with the guaranteed 5% income or maybe a 10% bonus in some cases, but the return (how much money you are really making) is a lot less flashy. Why?

 

There are a lot of really complicated reasons, but the most drastic one is the draining fees. From the typical annuity options I have come across, the total comes to about 3-4% when you add up all the insurance, rider, and mutual fund fees. Now…that percentage does not sound like a lot when you see it printed on the contract. But the effect it can have on your nest egg over your life expectancy is shocking, especially when compared to the fees of other financial advisors, which are typically 1-2%.

 

For an example, Let’s say you are investing a  $100,000 portfolio, and let’s say this portfolio averages a hypothetical 5% return over twenty years (a typical life expectancy for those heading into retirement). The annuity with its fee of 3% will allow your nest egg to grow to $168,595. Not too bad, right?

 

But how does that figure sound when you compare it with $219,112, the dollar amount you would have with a financial advisor who charges 1% in fees? That is over a $70,000 difference, a difference based off only a couple measly percentage points.

 

It’s also the difference between the warm security of an annuity and the few brave steps out into the world of a conservative portfolio.

 

The Air is Fresher Outside

Although I understand the hesitation, it is really not that cold or scary outside of that guarantee as long as your portfolio is conservative and diversified sufficiently. It is easy to look at recessions and stock market crashes and worry about running out of money in retirement, but even then a conservative portfolio can save you from any devastating losses.

 

For a solid example, I like to point to the recession surrounding the stock market crash of 2008, often called the lost decade (January 1st, 2000—December 31, 2009). Even during this severe downturn, when the market was consistently in the negative, the conservative funds we manage were still averaging 6.23% per year after managing fees. Even the most aggressive funds we manage were still making almost over 2% per year on average. Of course, that isn’t a good return by any means, but it sure isn’t doomsday. It’s more like a chilly breeze than a devastating snowstorm.

 

So, when it comes to retirement investing options, I recommend stepping out into the sunshine. Your nest egg needs some vitamin D to grow up big and strong.

 

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

I’m Retiring Soon: Will Social Security Be There For Me?

I’m Retiring Soon: Will Social Security Be There For Me?

Over recent years, there’s been a lot of chatter about Social Security’s financial future. And let’s just say that the discourse has been a little, well, over-the-top. Politicians have been ranting about Social Security going broke, acting like—if we don’t overhaul the system in the next 20 minutes—it’s as good as gone. Jeesh. They’re practically the doomsday preppers of retirement finances.

 

My advice to you: Don’t let their sensationalism bother you too much. This just isn’t the truth. There’s some truth in there for sure, but—for the most part—it is just causing a lot of unfounded fear.

 

To begin debunking those unfounded fears, I need to start with a quick explanation of how Social Security works.

 

How Social Security Works

Founded during the aftermath of the Great Depression, Social Security started to keep elderly people out of poverty in their retirement. It was set up as a “pay-as-you-go” program in which the workforce surrenders a portion of their income in payroll taxes to fund Social Security benefits for the current retirees. Then—when that workforce retires—the next generation of workers bears the burden to fund their benefits.  This cycle continues indefinitely, a constant influx of funding coming from the payroll taxes of the working American in order to pay for their elder’s retirement.

 

Do you see the implications? This means that Social Security can never run out of money completely. In fact, the only way this would happen is if the workforce decided that making money isn’t worth it anymore and paying taxes is optional. In other words, it’s not likely.

 

Of course, just because it can’t go broke, doesn’t mean it doesn’t need to be fixed in some respects.

 

The doomsday preppers aren’t completely off their rockers. Social Security isn’t perfect. Sometimes the funding from taxpayers is not enough to fulfill the promised benefits.

 

This is what is happening now. Although the government built up a surplus in a trust fund to prepare for the retirement of the baby boomer generation, the sheer number of retirees has proved too much. The trust fund is set to run out in 2034 (according to the S.S. Trustee report of 2017), leaving Social Security unable to pay the full benefit.

 

But please note, I didn’t say that it won’t be there at all. The trust fund might be going broke, but Social Security is not! By payroll taxes alone, 77% of benefits can still be delivered.

 

Now that’s still not fun. No one wants a reduced check. But this is considering that the government does nothing. They can increase the full retirement age, and they can increase payroll taxes a little bit.

 

Slowly But Surely

But whatever they do, it very likely won’t be all at once. It is not like you will get slammed out of nowhere with a 23% decrease in Social Security benefits.

 

Just take a look at how the government handled changing the full retirement age to keep Social Security solvent. Starting in 1983, congress set legislation in motion that was designed to increase the full retirement age from 65 to 67 in tiny increments. It is now 33 years later and—for the people retiring soon (like you)—the full retirement age is still only 66 and 2 months. After all that time, we are only half way there! In my opinion, it will be the same thing with any decrease in benefits or payroll tax hike.

 

The point is—for the people currently collecting Social Security and for those who are considering taking benefits soon—you’ve got very little to worry about it. Social Security may need a few tweaks, but it is not nearly as ruined as what the doomsday-ers are saying.

 

Will You Be There For Yourself?

In fact, what you should be more concerned about is where the rest of your retirement income is coming from. Social Security was never meant to cover all of the expenses of your retired life. You need extra funds, extra income to ensure that you can retire comfortably for your entire life expectancy. In other words, you have some planning to do as you approach retirement…some advisors to see, some decisions to make.

 

It seems that the question is not as much whether or nor Social Security will be there for you, but rather…will you be there for yourself?

 

Need a Certified Financial Planner to help you transition from employment to retirement? Call Seniormark at 937-492-8800 for a free consultation!

The #1 Investing Mistake Soon-to-be Retirees Make

The #1 Investing Mistake Soon-to-be Retirees Make

I’ll cut right to the chase. The #1 investing mistake soon-to-be retirees make is investing like a 25-year old. Although age is but a number in most respects; in this case, it is so much more. It affects investment strategy. And, in turn, it affects another very important number to you: your retirement savings.

 

From Growth Emphasis To Preservation Emphasis

Here’s why. Age should affect your approach to risk. As you get older, your portfolio should evolve from one that emphasizes growth to one that emphasizes preservation. This means that—as you approach 65—you should avoid risky and aggressive investing strategies in favor of a more conservative approach.

 

Aggressive strategies work well for the previously- mentioned 25-year old because in his “growth-minded” portfolio, he has time to recover from losses. Those drops in in the stock market will eventually even out over the long haul of his working life. In other words, the risk will eventually reap reward.

 

But you don’t have a long haul anymore. Your nest egg can’t afford to suffer any catastrophic losses because you simply don’t have the time to recover. It’s true! Now is the time for more bonds and less stocks. It’s time to roost on that nest egg. At this point in life, high risk does nothing but set you up for a great fall.

 

Remember the Financial Crisis of 2008?

It was a bleak time for everyone, but especially for soon-to-be retirees. According to the U.S News and World Report, retirement savers suffered 2 trillion in stock market losses!

 

Imagine the regret as soon-to-be retirees watched their hard-earned money slip through their fingers. Imagine the frantic worry as they thought about their retirement savings. Would they have enough savings? Would they have to go back to work part-time? Would they have to delay their retirement?

 

In fact, the Huffington Post claims that back in 2008, a poll concluded that 63 percent of Americans were worried about not having enough for retirement. For older Americans, the fear was probably even more intense!

 

So What If It Happens Again?

I’m not saying it will, at least, not with the same severity. But business cycles are consistent. The stock market will fluctuate. It can only go up for so long before it takes a turn for the worse.

 

And where will that leave you? In the U.S. News and World Report article “How Did Your 401(k) Really Stack Up in 2008,” the author points out that during the financial crisis stocks fell 38% while bonds dropped only 8%. This just goes to show that more conservative strategies (like bonds) do better in a recession. You can’t avoid loss during stock market crashes, but you can lessen the impact by adjusting your risk!

 

 The Moral of the Story: Assess (and Reassess) Your Risk

Over the last couple of months, we’ve had half a dozen or so retirees come in with sky scraping risk scores. On a scale from 1-100 with 100 being the most aggressive, their scores were anywhere from 75-90. This is astounding! Why would they be so risky so late in life?

 

There are a number of reasons, but I think the most common one is that they simply don’t know. One of those previously mentioned clients told us that her portfolio was very conservative, and it turned out being a 76! Imagine if her stocks suddenly plummeted. With risk like that, it wouldn’t be surprising to lose 25-35%.

 

We don’t want this to be you! We want you to plan ahead, to become an expert on your investment strategy as you approach retirement. Because—although we want you to live like a 25-year old—we don’t want you to invest like one.

 

Want to perform a risk analysis? Contact Seniormark at 937-492-8800 to set up a free consultation.

 

Will You Outlive Your Nest Egg in Retirement?

Will You Outlive Your Nest Egg in Retirement?

If this question is on the forefront of your mind as you approach retirement, you are not alone. According to recent studies, this is the primary concern of soon-to-be retirees just like you:

  • 43% of workers fifty or older say that outliving their money is their most significant retirement-related fear.
  • 57% of financial planners state that running out of money is their clients’ most pressing retirement concern.
  • 60% of older Americans fear outliving their savings more than death itself.

 

Truly, these figures speak to sleepless nights and anxiety of many older Americans, especially considering that many are less afraid of the grim reaper than an empty pocketbook.

 

But before you jump on the bandwagon of restless worry, I think it is important to step back and consider whether your fears are founded at all. Although there is definitely reason to believe that many Americans are financially unprepared for retirement, this doesn’t mean that you are. In fact, most of the clients I work with at my offices in Sidney and Troy have saved enough for a modest or beyond modest standard of living in retirement.

 

So, how do you find out? I have two words for you: income planning. In order to help ensure that you have enough money to last your entire life expectancy, you must analyze your situation and put an adaptable plan in place.

 

Although income planning is often a confusing and overwhelming process in all of the details, at its core, it is really only a few simple steps. Here is a rough sketch of what the income planning process looks like to get you thinking in the right direction:

 

  1. Check Your Income Sources

Almost everyone has steady sources of income that form the foundation of any good income plan. Start by figuring your Social Security benefit, and then add in your pension or income from rental properties (if you are lucky enough to have either of these). The key here is to add up any and all sources of reliable cash flow, perhaps even cash flow from part-time work in retirement (yes, I realize that seems crazy, but many retirees are choosing to work).

 

  1. Analyze Your Other Savings and Retirement Accounts

This includes investments and savings accounts as well as any qualified retirement account such as an IRA or 401(k). The idea is to calculate any lump sum amounts you will draw from to supplement your income sources. Once you’ve completed this step, you are ready to move on to the next (less enjoyable) step.

 

  1. Calculate Your Expenses

What I am talking about here is your basic expenses. This doesn’t include travel or big-ticket purchases such as boats or snowbird homes. This is about monthly necessities like food, water, shelter, car payments, mortgage payments, and the like. Start with what your bills are now, and then compare that to retirement. Will you have a car payment well into your retirement, or will you pay that off soon? What about your mortgage? How will your healthcare expenses change? For almost all retiring 65 and over, this means considering how much Medicare will cost them (read this blog to see) as opposed to their private insurance or employer plan.

 

  1. Run The Calculation

This step involves plugging all of those numbers into a system, either a homemade excel spreadsheet or an online program. This will help you figure out the chances of you making it your entire life expectancy without running out of money. With our clients, we use Money Guide Pro. This system runs a thousand different scenarios, calculating probabilities on various unknowns. It enables us to consider a wide variety of factors such as inflation, taxes, or potential dips or spikes in your investment portfolio that are difficult to calculate by hand.

 

  1. Add in Fun Extras

This is where it can get fun. If your chances of success are very high, you can add other “extra” expenses into your plan. Perhaps you want to go on a $5,000 trip every year to an exotic location. Perhaps you want to give back to your community so much every month. Whatever your dreams and goals are, you can add these in and rerun the calculation. You can continue to do this as long as your chances of success remain in a comfortable range!

 

Want Someone to Crunch The Numbers for You?

At Seniormark, we realize that income planning is easier said than done. But however difficult it may be, it simply must be done in order to answer the question weighing on so many minds: Will I outlive my nest egg in retirement?

 

Give Seniormark a Call for a free consultation at 937-492-8800 and put your fears to rest!

 

To Delay or Not to Delay? The Social Security Break-Even Point Explained

To Delay or Not to Delay? The Social Security Break-Even Point Explained

The question of when to take Social Security has been called “the single most important retirement money decision of your life.” So it makes sense that it would be weighing on the minds of many soon-to-be retirees. Should I take it early at 62?  How about my full retirement age of 66? Or maybe 70, when my benefits are maxed out?

 

And when that question is brought to the table, what inevitably follows is a discussion of the “break-even” point, a mystical age out there in the unknown future. The problem is, sometimes the explanation is just as elusive as the number itself.

 

Most people don’t even know what the break-even point is, let alone how it affects when they should start receiving benefits! This is why I am here to clarify.

 

The Big Trade-Off

But before I go into my explanation, you need to know that the decision of when to take Social Security is always a trade-off. This is probably why it’s so hard to make! For example, if you claim at 66 (rather than 70), you receive checks for those four extra years, but your benefit is smaller. If you delay claiming benefits to 70, you forfeit those 4 years of benefits, but your monthly Social Security Check is much larger.

 

So what’s the break-even point? In short, it is the age (month and year) when delaying benefits starts to pay off. It is the point in your life when the larger checks begin to catch up (in dollar amount) with the head start you would’ve gotten had you begun at age 66.

 

But that’s a little too abstract. Let’s get concrete.

 

A Running Analogy

Imagine two track runners, all decked out in the short shorts and sports watches, hanging out at the starting line. Let’s call them Jack and Will.

 

Now Jack, he’s a really on-top-of-it type of guy, eager and prepared. He is poised at the start line, ready to go. When the gun goes off, he takes off, determined and well paced.

 

Will, on the other hand, is a little bit lazier. When the gun goes off, he waits. He takes time to stretch, yawn, maybe take a few more sips of his Gatorade. And after Jack completes 4 laps, he takes off. He’s way behind, but he’s going 32% faster than Jack.  Did I mention that Will is a world-class athlete?

 

At first, it looks like Jack is going to win hands down. But after each lap, Will gains on him.  Lap 5 and 6? Will’s chances still look bleak. 6 and 8? Still no chance. But by the time Will completes his 11th and 12th lap, victory is within his grasp. Will grits his teeth. Closer. Closer. He’s breathing down his neck!

 

And then, with a burst of adrenaline and determination, Will finally surpasses Jack in lap 13.

 

The break-even point. The brief moment Jack and Will were side by side is the break-even point.

 

Now let’s bring it back to Social Security.

 

Claiming earlier (let’s say at 66) is being like Jack. When the gun of full retirement age sounds, you take off. But your check is smaller. You’re making money at a slower pace.

 

Now claiming later, that is just like Will. You take off 4 laps too late, but your check is larger. You’re making money 32% faster (8% for every year past full retirement age).

 

Eventually the monetary benefits of claiming late will surpass the benefits of claiming early.

 

But that doesn’t mean that claiming later is always the better bet.

 

For instance, what if you pass away before you reach your break-even point? Or, keeping with the running metaphor, what if Jack and Will’s race was only 9-laps? In that case, Will wouldn’t have had enough time to catch up.

 

This is why Social Security advisors consider your life expectancy. If your life expectancy is beyond your break-even point, it may be a good idea to delay. But if not, it may not be.

 

However, the biggest point about the break-even point is this: It is not the sole determinant in the “to delay or not delay” question. Marital status, availability of resources and many other considerations greatly affect the decision. The truth is that a lot of factors come into play when running the race of Social Security planning. What you really need is a trusted advisor who can coach you through “the single most important retirement money decision of your life”.

 

Need a Certified Financial Planner to help you make the right decisions about Social Security? Call Seniormark at 937-492-8800 for a free consultation.

 

“Fear Not!” Is Still the Best Investment Advice

“Fear Not!” Is Still the Best Investment Advice

Here’s a crude snapshot of a conversation I had with my client a few months ago. I think you’ll find it heartbreaking:

“I see you have all your investments in a money market account.” (Note: this is an extremely low-risk investment option)

 

“Yeah…I did that when the market crashed in 2001. I started losing lots of money, and my portfolio dropped from $120,000 to $80,000. I got scared, so I pulled out and switched to a lower risk investment.” He paused. “I think I made a mistake.” Then he grew curious. “I have $100,000 now. How much would I have if I would’ve stayed put?”

 

I cringed a little bit. The question is a recipe for regret. “Are you sure you want to know that number?” He nodded. So I did a little number crunching. Here’s the grand reveal: “You would have $200,000 right now,” I told him.

 

The man was mild mannered. He didn’t overreact. “Ohhhhh…..that’s a lot of money,” he said. But even if he couldn’t sense the full effect of that sting, I felt it for him.

 

What kills me is that it was just one, fear-based decision. A natural, understandable fear, of course, but that doesn’t change the fact that it led to a poor investment decision, one that cost him $100,000.

 

In fact, fear almost always leads to poor investment decisions. It consistently causes investors to sell when the market hits rock bottom and buy back in when it is already well on its way to recovery.  In other words, fear causes investors to disobey the most fundamental rule of investing: buy low and sell high. It subdues logic in its cage and releases an irrational beast, bent on destroying your portfolio.

 

Case Study: The “Great Recession” of 2008

2001 isn’t the only time this happened, and my client certainly isn’t the only case. The “Great Recession” also caused a great deal of panic and poor decisions. If you check out this graph created by BlackRock Mutual Funds, you’ll see what I mean.

Allow me to help a bit with the interpretation. The blue line represents the stock market performance. The light blue bars represent money invested in mutual funds, or…in finance jargon… the “Net Equity Mutual Fund Flow”.

 

You’ll notice something quite peculiar if you attend to the circled section of December ’08, the stock market crash. During the fright and terror of that lowest dip, a lot of people sold their mutual funds. The blue bars at their lowest point (far below the axis) evidence this.

 

And when did investors buy back in? Note that the blue bars follow the stock market line very closely. By the time most people bought back in, the market was already near its next peak. People were selling low and buying high! This is not a good investment strategy.

 

A Little Advice For a Big Problem

No one knows what the market will do tomorrow. It might go up. It might go down. It might fluctuate a little. It might fall or rise dramatically. There are a lot of uncertainties in investing.

 

But one thing is for sure: the stock market consistently grows over the long haul. According to distinguished finance professor at Wharton, Jeremy Siegel, it has grown an average of 6.5-7% per year over the last 200 years. But one of the major problems is that fear zaps long-term vision, blinding investors to the future possibility of growth as they watch their hard-earned money plummet in the present.

 

So here is the little piece of advice: Like an angel who appears in the dead of night, “Fear not!” The sensationalist media of apocalyptic proportions is lying to you.

 

As long as your portfolio is truly diversified and matched to your risk tolerance, as long as you regularly review your investment strategy with a professional, don’t lose your head!

 

You’ve got nothing to fear but fear itself.

 

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

 

 

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 under perform over the long haul.

 

In Dalbar’s 22nd Annual Analysis of Investor Behavior, they discovered that the average investor under performed 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.

4 People You Need to See Before Retiring

4 People You Need to See Before Retiring

Retirement is an exciting transition, of course, but it is also a nerve-racking one. Information is flooding your inbox and mail, and weighty decisions are heaping on your fatigued shoulders.

 

But think back to previous life transitions: from elementary to high school and from high school (or college) to the workplace. These transitions were stressful as well.  But what made them manageable were the people.

 

The transition to retirement is no different. You need people to assist and advise you throughout this complex process. The following people may not be as involved as a personal mentor or teacher, but they can and will serve as guideposts throughout your journey.

 

A Social Security Office Representative

So…not exactly your BFF. I realize that. But this person has one vital piece of information to give you: your social security statement. This document details how much monthly benefit you qualify for from the federal government. It contains information you need to consider when planning for retirement. If you already have this filed away, then great! You can move on to guidepost #2.

 

Employer and/or Human Resource Department Employee

Depending on the size of your employer, you may not be very chummy with these people either, but hear me out because some employers provide retiree benefits such as health care or a pension. You need to find out more about these benefits (if they exist) in order to effectively plan for retirement. One important question to ask is how the benefits will interact with Medicare. For example, in the case of health insurance, who pays first—the employer or Medicare?

 

Your Doctor

I hope we’re getting a little bit closer to the heart! No? Well here’s the value: you may already have an idea of your overall health and prescription drugs, but if you don’t, your doctor will explain it thoroughly. This information comes in handy throughout the Medicare planning process, especially when shopping for a Part D prescription drug plan.

 

A Retirement Advisor

If this guy or gal is not your friend beforehand, there is a good chance he will be after all of this is over. A retirement advisor is a person who puts all of the pieces together.  He takes the information you gathered from the other 3 people and uses it to develop a retirement plan tailored to your unique needs. This covers planning for expenses (medical and otherwise), social security benefits, and Medicare planning.

 

As a bonus, the last people I would tell you to visit are your friends and family. Although I wouldn’t necessarily trust them with shopping your drug plan or determining your social security benefits, they are wonderful moral support as you approach this overwhelming milestone. So visit your kids, your grandkids, your siblings, and your lifelong friends. Nothing relieves stress more than knowing you don’t have to handle it all alone.

 

Looking for a retirement advisor ready to help you transition from work to play? Call Seniormark at 937-492-8800 for personal help at no cost to you!

 

I’m Retiring Soon—What Do I Do with My 401(k)?

I’m Retiring Soon—What Do I Do with My 401(k)?

As you may have realized, when you reach retirement age, you can pack up all your pictures and favorite fountain pens and desk knick-knacks, but you can’t just toss your 401(k) in a cardboard box, kick open the door, and journey off to new, work-free horizons.

 

You have to decide what to do with the hard-earned money you’ve saved at your employer, a decision that should be thought out carefully, so you can avoid mistakes that may hack away at your retirement livelihood.

 

To get you thinking in the right direction, I’d like to outline all of your options for what to do with your 401(k). Some are much better than others for most people, so I think it will be beneficial to run you through the four common choices retirees make and the potential strengths and weaknesses of each.

 

  1. Do Nothing

That’s right, you could take the path of least resistance and just leave it with your employer. And, surprisingly, there are viable reasons for doing so. For a small one, a 401(k) usually has good protection from creditors. But here’s the big one: keeping your money in a 401(k) will allow you to withdraw without penalty at age 55. Other options are not so friendly to early takers, socking you with penalties if you withdraw before 59 and a half. So, if you are retiring before 59 and a half, this is an important point to consider.

 

However, aside from that, there aren’t too many reasons you’d want to keep your 401(k) with your employer. It limits your investment options. Oftentimes, you can’t get good, individualized management help. And, if you’ve had a string of employers and left a pot of money with each, you’ve probably got a trail of 401(k) accounts following behind you, making your money difficult to manage. Scattered money leads to a scattered brain.

 

In other words, sticking with your employer is not your worst option, but it may be not your best.

 

  1. Take a Lump Sum Distribution—Cash It Out!

To fling us all the way over to the dark side, this is the worst option. In fact, this choice can cause you to loose a third of your 401(k) value in one foul swoop. How? I’ll give you a hint. It has something to do one of life’s two certainties.

 

No, not death…but taxes.

 

When you cash it all out at once, that money becomes part of your income for the year. This will often make you soar into higher tax brackets, and—next thing you know—Uncle Sam can snag tens of thousands of dollars from your hard earned money.

 

 

To take an example, let’s say your yearly income (as a couple filing jointly) is in the 15% bracket ($18,651 to 75,900 in 2017). If you take out a 401(k) with, let’s say, $200,000 in it, this will catapult you up 3 tax brackets to 33%! That’s $66,000 gone, in just one transaction.

 

To put it bluntly, this 401(k) strategy should only be used in emergencies. Even if you want to buy a big-ticket item like a car or a boat or a house, only cash out what you need and, if possible, cash it out in chunks to rein in the tax hikes.

 

  1. Transfer It to a Roth IRA

A Roth IRA is a phenomenal option for 20-somethings wanting to save money for their retirement. However, for the soon-to-be retiree, it usually isn’t. Why? Well, you run into the same tax problem that you do with the second option. Remember the 33% hit?

 

You see, unlike with a traditional IRA, with a Roth IRA, you pay taxes on your money up front. Then, you can withdraw the money tax-free later on. Therefore, the only time it makes sense to convert to a Roth IRA is if you know you will be in a higher tax bracket in the future, when you take it out. For retirees, this is rarely the case.

 

Perhaps a Roth IRA would be a good option if you knew you didn’t need the money, planned to let it grow tax-free until you die and pass it on to your kids. But I’m speaking in extreme rarities now. Most retirees are counting on their 401(k) to live.

 

  1. Transfer It to a Traditional IRA.

The last option is the most popular, and for good reason, too. As far as taxes go, you can transfer it electronically, avoiding all taxes up front. Then you can pay the taxes as you withdraw it, in a reasonable bracket for your income.

 

And, it also wins on many other fronts, fronts that the decision to leave it at your employer doesn’t.

 

For one, you are free to choose from the world of investment options. Like a talent scout seeks out the best players for his team, you can seek out the best performing investments to develop a killer portfolio that is both diversified and matched to your unique risk tolerance.

 

For another, you can consolidate any and all retirement accounts in one, so it is easier to manage.

 

And finally, you can get personalized help. The kind of help that isn’t from a representative to a crowd of employees or from a recording on your phone telling you to “press one to hear more options.” When you rollover your 401(k) to a traditional IRA, you have the option to sit down face-to-face with a professional, certified financial planner and develop that aforementioned killer portfolio together.

Now, it’s important to note that there is a fee involved with working with a financial planner, which is usually 1-2% of the assets he or she manages. Whether or not the fees are higher than the fees you currently pay at your employer is a toss up, so that is something to consider.

 

 

The point is, the decision of what to do with your 401(k) is an important and complicated one. Making the wrong choice can lead to major losses or lost opportunities. That is why we offer a 401(k) planning workshop to help you sort through it all and come to decision you can be confident about. Click here to discover more about our 401(k) workshop as well as our other workshop offerings.