Have you ever been on your way to an epic summer road trip and then all of a sudden you come upon a roadblock? That can ruin the excitement you feel for the upcoming trip. This can happen in retirement as well. In retirement, you may confront roadblocks on your journey and if you don’t know how to maneuver around them it can leave you feeling stuck.
On this episode of Financial Symmetry, Allison Berger joins me to discuss 3 not so obvious retirement roadblocks that you may encounter along your retirement journey. We want to be your GPS so that if you experience them you can find your way around them without too much hassle.
Your first years of retirement are so important when it comes to investment returns. Sequence of return risk is when you have several years of bad returns at the beginning of retirement when you are starting to withdraw your money. There is no way to control your market returns, but there are ways to mitigate this risk.
To combat sequence of return risk, you’ll need to maintain a balanced portfolio the way you maintain a balanced diet. Use the financial food groups! In retirement, you can no longer subsist solely on financial junk food (stocks). You’ll want to make sure that you have a healthy serving of vegetables (bonds and cash) thrown into the mix.
After maintaining a growth mindset in the accumulation stage of life by using mainly stocks, you may be hesitant to reduce your risk load in retirement. However, having a balanced portfolio can ensure that you won’t be forced to sell when prices are down.
You want to ensure that your money will be worth something in retirement, but inflation reduces purchasing power over time. We can visualize how inflation works by thinking about what the price of milk was 20 years ago. Inflation not only impacts the prices of goods but also impacts your retirement income. Even with the cost of living adjustments, your Social Security may not have the same buying power in 20 years.
Inflation is also known as the silent assassin. It is most dangerous for those who are overly cautious. To fight inflation you’ll need to make sure that there is some growth in your portfolio. You’ll need to take on some risk.
It is important to understand how different events can impact your taxes. The best way to combat unforeseen tax bombs is through multi-year tax planning. Most people are used to tax planning one year at a time, but retirement offers an opportunity to plan ahead. You can reduce your lifetime tax burden by thoughtful planning.
If you put together a financial plan for retirement you’ll have a road map for the years ahead. In retirement, you’ll want to become flexible and look for opportunities. This is part of what we do with our clients. If you are interested in using us as your GPS to help you through those retirement roadblocks then check out our website and click Learn More.
What are you investing for? Many say higher or better returns--but higher or better than what? What do those higher returns make possible for you?
Video recap: https://www.youtube.com/watch?v=tKC2ulw3cz8
To have a successful investment experience you need to have a plan in place. Mike Eklund joins me once again on this episode of Financial Symmetry to discuss our 3 step investing process. This process creates the guideposts for all Financial Symmetry clients. Listen in to learn why failing to plan means you are planning to fail.
Have you ever thought about why you are investing in the first place? Before creating your investment plan you’ll want to set your goals. This way you can understand what kind of returns you need in order to achieve your goals.
We are all often guilty of the lottery mindset--that mindset that thinks if we could choose that one next big thing then we would be set. All we needed to do was buy Apple in 2000, or Tesla in 2012, or Bitcoin at $1000. But the reality is, successful investing requires a plan. Your investment plan can help you understand when to buy and sell or increase or reduce risk in your portfolio.
At Financial Symmetry, we use a 3 step process to help our clients achieve their financial goals.
You may be wondering what we at Financial Symmetry offer to our clients. Our clients can expect these 5 things from us.
What is your investment plan? Do you have a rules-based process? Investing is a lot like fitness. Everyone wants to start, but it can be hard to keep up. We can be your financial personal trainer and help you stay on track to reach your goals.
We can make investing easier for you. If you don’t have the knowledge, experience, and interest to do this all on your own we can help.
Have you been on the fence about hiring a financial advisor? This indecisiveness can cost you. This episode will help you decide whether hiring a financial advisor is right for you. You’ll learn the 5 C’s that you can expect when hiring a financial advisor. Press play to find out what you should expect from your financial advisor.
Video Recap: https://youtu.be/zuTdjdDkqUI
Have you been considering hiring a financial advisor? If so, then you may be seeking assistance in one of several areas.
Competence - You are looking for someone who knows more than you and is an expert in their field.
Coaching - You may know quite a bit, but knowing and doing are 2 different things. A financial advisor can be like a personal trainer and give you the push you need to get things done.
Convenience -A financial advisor can do what you don’t have time for.
Continuity - You may want someone to help you coordinate with others for family or legacy planning.
Do any of these reasons seem familiar to you? Keep listening to hear what a financial planner can do to help you.
Collaboration - Your financial advisor will co-create a plan that serves you and helps you reach your financial goals. This should be a collaborative process between the two of you. In your first meeting, you can expect to be asked a lot of questions so that they can learn about you and your goals. You want your financial advisor to lead with a planning focused approach. If you receive a sales pitch instead, this should raise a red flag.
Credentials - Many people are surprised to learn that you don’t have to have any qualifications to be a financial advisor. However, you may see a bit of an alphabet soup after a financial advisor’s name. It is important to understand what these letters mean. Are they real credentials or simply sales designations? Look for the gold standard CFP certification. CFA and CPA are two other certifications that may be relevant to your situation.
Communication - You can expect regular communication from your financial advisor. They may set up a communication calendar with you to help you set expectations in communication. This regular communication will help you stay updated. Your advisor may also reach out to discuss tax opportunities, set goals, and to review progress. Listen in to hear what red flags you should look out for in your advisor communications.
Compounding value - Are you better off after you pay your advisor than you would have been otherwise? This can be hard to quantify and may take a bit of introspection. Look at your return on life as well as the quantitative parts. Consider your investment returns, rebalancing, and tax deferral. If you think that your advisor is providing a free service then make sure to look for the hidden costs in your portfolio. A fee-only financial advisor discloses their costs upfront so that there are no surprises. If you are looking for a fee-only financial advisor you can find out more about our services at FinancialSymmetry.com.
The American Rescue Plan was recently passed, but do you know all the changes it will bring? You probably already know about the stimulus checks, but you may not know how it could affect your taxes and healthcare. This latest economic stimulus package could mean big things for your tax planning.
Video recap here: https://youtu.be/Vq8Y2CFYS6E
Since the American Rescue Plan has a heavy tax focus, I invited tax planning extraordinaire, Grayson Blazek, to brief us all on the risks and opportunities that we should be looking out for with the newest piece of legislation. He simplifies this complex topic down to 5 key areas. If you are looking for tax planning opportunities or want to know the risks to look out for, then make sure to tune into Grayson Blazek’s breakdown of the American Rescue Plan.
The third round of stimulus checks may be the most widely known part of the American Rescue Plan. These checks are capped at $1400 per person. Although the income range of those who qualify has narrowed, many people who were not previously eligible for stimulus checks will be eligible for round 3.
The age range for dependents has been expanded to those in college and older high school students, whereas with the previous rounds of stimulus, dependents were limited to ages 16 and under. Listen in to find out how the income bracket for stimulus checks has changed and learn how you could use this stimulus package as an opportunity for careful tax planning.
If you were laid off or terminated like many others last year, your company must continue to offer health insurance through COBRA. The drawback with COBRA is that the full cost of the insurance premium was placed solely on the participant without the employer absorbing a share. The American Rescue Plan will now fully subsidize the premiums of COBRA until September of 2021. This means that if you are on COBRA your premiums will be zero.
That wasn’t the only change in health insurance premiums through the ARP. Find out how the thresholds of the Affordable Care Act have changed with the bill as well. Press play to hear how.
Most people don’t pay attention to their taxes until the time comes for them to file. But maybe after listening to this episode you may want to start getting in front of your taxes and plan the year ahead rather than focus on the previous year.
If you have children, then this year is an especially good time to consider tax planning. You’ll want to take advantage of the expanded tax credit that went from $2000 to $3000 and $3600 for children under 6 years old. In addition to the child tax credit, the child dependent care tax credit was expanded to max out at $8000 per child.
Lastly, the American Rescue Plan has extended state and federal benefits to unemployment compensation until September 6. Lawmakers also chose to make unemployment compensation tax-free for 2020.
Listen in to hear all the details so that you can develop a plan to utilize these changes in your tax planning efforts. This may be a good year for you to consult a CPA to help you file your taxes.
It’s always fun to peek behind the curtain and see the strategies and process people use for their decision making.
Video recap: https://youtu.be/DDp2dBUhrSg
During this conversation, we review some of my core beliefs around:
You can use it to live, give, owe or grow. For us, we rank these in the following order: give, grow, live, owe.
Giving is at the top of our budget. Giving first breaks the power of money and releases its hold over people. Therefore, tithing to our church has been at the top of our priority list.
We then focus on the growth aspect. This starts with automating our savings so that we can reach 15% of our income. As for how we invest we focus on various types of accounts from 401K to Roth IRAs to 529s for the kids. We explain in the episode how we've set up a system to where we don't lose sleep over our 90% stock allocation.
With 3 yr old twins, a large part of our spending goes to daycare costs. My spouse and I try to spend our money on the things that create joy, including going to NC State sporting events and going on camping trips.
I've always used debt as a tool for large, low-interest purchases such as his home and car. We only hold one credit card and doesn’t want to open any more accounts than are necessary.
Have you wondered if there are any financial mistakes that you may have been making?
Video recap here: https://youtu.be/9fsWlp56R2U
Sometimes our financial mistakes aren’t obvious, so in this episode of Financial Symmetry, we discuss 3 hidden financial mistakes that you may be making and how you can spot them.
Are you guilty of believing an uncertain outcome is certain? Sometimes we feel confident that things are going to happen. This can be true even with geopolitical events like the Coronavirus. You may have known the virus would happen, but could you have predicted this current situation?
People are naturally overconfident, but the market is smarter than you. Trying to anticipate corrections will cost you money. In fact, trying to anticipate market corrections will end up costing you more money than the market corrections themselves.
One way to prevent overconfidence is by talking through potential outcomes with a financial advisor or a financial accountability partner.
Many people have a negative money script or way that we view finances. This scarcity mindset could penalize their financial potential. There will always be reasons to wait it out or not invest, but instead of focusing on those reasons focus on not missing out on opportunities. You don’t want to take a pay cut in retirement because of missed opportunities.
We often delay financial decisions to give ourselves time to think about it more or evaluate the alternatives and to consider all outcomes. But often the best investments are the most difficult ones that you have to make. This is why having an investment plan makes sense.
There are different tax opportunities that can be taken depending on your phase of life and how the laws change. One opportunity that many retirees were able to take advantage of this year was the lack of required minimum distributions (RMDs). This allowed people to do Roth conversions. Retirement brings on a wealth of tax planning opportunities since you have more control over your income in retirement. Advanced tax planning early in retirement can help you save on your lifetime tax bill. Listen in to hear how long-term tax planning can save you money over your lifetime.
Estate planning is often the last part of a financial plan that people want to address since it is the least enjoyable part of financial planning. But if you want a say in what happens to your money after you are gone then you’ll need to create an estate plan and review it periodically. Check out episodes 102 and 122 to learn more about estate planning.
Do you have enough? Are you saving enough? When is the best time to invest? Are you missing out? These are all questions that can be answered with the right financial plan. Think about what a financial plan can do for you. If you are looking for a financial advisor to help you create a financial plan click through to our website.
Stock market manias have an uncanny way of capturing our attention.
Short video recap: https://youtu.be/wr04xy1pDnU
Not only do they dominate weekly headlines, but create visions of what could be. The most recent example is the rapid rise of meme stocks, including Gamestop, AMC and Blackberry among others.
In this episode, we’ll explore what happened with this most recent mania, and describe the why behind how we can become enamored with this type of approach. We'll then offer three questions to provide a framework for the next time you're facing similar feelings.
You may have seen a Game Stop store at your local mall or shopping center. Game Stop is a video game retailer whose future did not look promising. Many people compared it to Blockbuster Video.
This uncertain future attracted the interest of short-sellers and the retailer ended up becoming one of the most heavily shorted stocks. When an online Reddit group discovered what was happening to the stock, many people decided to jump in and stop the short. This sudden influx of investors drove the share price up to unprecedented levels.
Manias are nothing new. We've seen them in many forms including the Nifty Fifty in the 1950s, the tech bubble in the 1990s and BRIC Countries during the 2000s. The speed and size of these rallies can foster a fear of missing out feeling that's is more analogous to gambling.
There's a fine line between gambling and investing. In stock market manias, it's easy for people to throw risk considerations out the window because the possibility of life-changing gains takes over. Subsequently, this mentality could lead to detrimental results when investors are using money they can't afford to lose.
With Game Stop, investing quickly becomes interesting when the stock is increasing like a rocket ship within a week. For many, this strategy looks miles more exciting when compared to a disciplined long-term strategy. This is when the gambling temptation can circumvent the longer-term evidence based approach you may have used up to that point. Enter diversification.
That's because diversification decreases your investment risk. When you diversify, you invest in many different types and sizes of companies all over the world. The goal of diversification is to ensure the performance of one specific stock won’t impact your entire portfolio.
If you find yourself considering a specific stock purchase, there are a few questions that can help your decision.
Your investment strategy will be most appropriate for you when it's created in service to your financial plan. A plan that is specifically created for your goals and circumstances. Understanding the interaction between your income and future expenses for the next few years.
Carefully considering your investment decisions and ensuring that they align with a cohesive and diversified investment strategy will help you stay on target to reach your long-term goals.
What is the most important thing you can do for building wealth?
Video recap: https://youtu.be/OVSKtk6TzB0
Recently, Jeff Levine (@CPAPlanner) put this question out into the Twitterverse: Other than saving and investing, what is the one single most important factor to financial success?
Too often when dealing with financial decisions, we try to overcomplicate what is best for us. We liked the simplicity of a single thing to focus on, so this week we are breaking down our version of the most important thing you can do in each decade to improve your financial journey.
If you are starting to build wealth in your teens and 20s you’re in luck. Time is on your side.
An often cited roadblock to getting this started, is the overwhelming debt obligations to student loans. While important to tackle high interest rate debt, carving out a small amount of automated savings can be life-changing.
For many, the first time we see a compound interest example, we are inspired. We included a powerful example below to demonstrate how much investment growth accumulates over 40 years, compared to the amount you are saving.
By saving small amounts early, compound interest becomes your super power. Automating this savings each month in an investment account with exposure to a diversified stock portfolio starting in your 20s, is arguably the single biggest impact decision you'll make in building wealth. Because of the natural discipline it creates, making it harder to stop it down the road.
During your 30s, life often becomes busier. Between new marriages, job changes and growing families, consequential decisions can pile up. These exciting changes bring curveballs you often don't expect, like childcare for remote school over the past year.
This is when deciding to pay yourself first benefits you behind the scenes when life decisions are taking priority. If your saving and investing decisions are made only after you cover your expenses, then your budget is upside down.
Automating your savings and charitable giving can leave you better positioned as you head in to your 40s.
During this decade, it's tempting to continue moving the goalposts as you reach certain levels of success.
Comparing your financial situation to others is a common derailment to your long-term success in your 40s. Keeping up with the Joneses can feel like an endless treadmill.
In the The Psychology of Money, Morgan Housel writes, “the ceiling of social comparison is so high that virtually no one will ever hit it, which means it is a battle that can never be won or that the only way to win is to not fight it to begin with, to accept that you might have enough even if it’s less than those around you.”
Determine your definition of enough. Is it a certain amount of money in the bank? A bigger house? Being laser focused on your ultimate financial goals, allows you stick to your financial plan, providing peace of mind along the way.
Successful financial planning begins with understanding potential high impact risks.
More and more, we see unexpected hurdles for people in their 50s. It could be a layoff or a loss of assets due to grey divorce, but understanding the potential impact with scenario planning beforehand can leave you more agile to adjust.
Investing in your personal and professional relationships through the years, allows for more flexibility when reinventing yourself in these circumstances. Additionally, understanding the impact of withdrawals on your assets can be valuable in the case you need temporary withdrawals to sustain you during a transition.
Hopefully, in your 60s you are reflecting on a life well lived. This is a time to gain perspective. Common rules of thumb or family recommendations may not be the best. Some common things we hear related to this are:
Having a plan in your 60s provides confidence. Hiring a financial professional can help you develop a plan and to gain perspective so that you can create a long term plan for your money.
From a historically quick bear market decline to a speedy rebound, 2020 certainly took us on a wild ride. But there is a lot we can learn from this crazy year.
Short video recap: https://youtu.be/fUfGwGk-gEY
In this episode, we are reflecting on the investment lessons we learned over the past year. What were the lessons you took away in 2020? Listen in to hear if there are any other lessons you can learn from the year.
Historically, the S&P 500 returns 8-10% per year. Since markets go up in the long term, people who focus on the long-term growth of the stock and bond markets, as well as the growth of the economy, will prosper.
This lesson was put to the test in March of 2020 when we had the shortest bear market in history. Investors that stuck it out profited greatly. From March 23 to the end of 2020 the market went up an astonishing 68%.
Since no one has a crystal ball, buying in a bear market can be scary. This is why we recommend having an investment plan or a rules-based process in place.
If you lost sleep over or sold stocks during the decline then you need to reassess your asset allocation. How did you fare in the market decline? Were you an optimist or pessimist? Did you stick to your investment plan and wait it out?
These days, the markets move at lightning speed. At this velocity, people often feel like they need to stay on top of all the latest financial news. However, listening to the financial media can hinder your ultimate goal. The media’s job is to sell advertising, not to help you reach your financial goals.
Even if all the uncertainty drives you crazy, step away from the sensationalist news. The number one predictor of long-term investment success is investment behavior, so teach yourself the discipline not to act on every little thing you hear on the news. Turn off your notifications and guard your time instead.
We all hear the rags to riches stories about the latest fads. Raise your hand if you have a friend who has struck it rich with Bitcoin lately. These stories can be so powerful, however, no one ever talks about the downside.
FOMO (fear of missing out) is real and we often want to jump on the latest bandwagon, whether it be Bitcoin, gold, or whatever the new shiny thing is. At the end of the day, the value of what you own is only what someone else is willing to pay you.
If you still want to jump on the latest bandwagon understand your motive and think about the impact of your investment on your financial plan.
As we come upon a new year it is a good time to reflect on your finances and set goals.
Video Recap: https://youtu.be/yKdGYEjhTB0
In this episode, we discuss 12 steps you can take action on to improve your financial outlook. If you’re looking to get off on the right foot in 2021, print out this checklist and run through it to find improvements you can make now.
12 easy steps you can take to improve your finances
Record your financial goals and positive habits. Writing things down is a great way to hold yourself accountable and see how far you have come. When you write down your goals you can refer back to them later. Our clients have the added benefit of using our Global Dashboard to help them keep track of their financial goals and habits.
Check your estate documents. This is something that we all push off until later. Do your heirs a favor and review your estate documents now. Are they up to date? This can save your family a lot of headaches.
Set up an income and expense tracking tool. You need to have an understanding of how much money is coming in and going out each month. When you start tracking your income and expenses you may discover a lot about yourself. It’s also a good idea to compare your cashflow this year with years past. What has changed?
Make sure you have emergency savings. The general recommendation is to have 3-6 months in an emergency fund, however, this can be specific to you and your situation. You may need more. If Covid-19 has taught us anything, it’s that the world can throw you some unexpected situations and it is important to be ready. Where is your emergency savings fund?
Match and max your 401K. Are you taking advantage of the company match in your 401K? Can you amp up your 401K? It is important to remember that the company match amount is not the maximum that you can save. $19,500 is the IRS maximum per year. Are you maxing out your 401K this year? Did you have to make any adjustments to your savings?
Review your investment strategy. There have been so many changes this year in the stock market this year. Your stock allocation may have grown so it is a good time to check whether your allocation is in line with your investment strategy. Remember that investment behavior is much more important than individual stock picks.
Make sure you are maximizing tax efficiency. Are your assets the most tax-efficient? All accounts are taxed differently. Think about what assets are best to hold across which accounts.
Pay down high-interest debt. Many times we tend to ignore our high-interest debt, but it is important to understand how often you use debt. Focus on the interest rate and balance of your debts. What is your overall debt? Is it good debt or bad debt? Listen in to hear what we think of different types of debt. Our thoughts may surprise you.
Order your free credit report. Every year around the holidays there is an increase in fraud. Try using Credit Karma to keep track of your credit score.
Review your insurance policies. Do you still need life insurance, disability, or an umbrella policy? You may be carrying too much insurance.
Show me the money! Understand where your accounts are and how they are structured. Keep an inventory of where your accounts are and consolidate them if needed. Its easier to make decisions when you are organized
Communicate with your spouse. Are you both on the same page financially? Has your financial situation changed this year?
After listening to this episode feel free to download this sheet and print it off to use it as a checklist.
Read the full post here:
Motivated by the new book, How I Invest My Money, I (Mike Eklund) wanted to communicate how I manage my own money. In our recent podcast, we discuss my approach with investments, savings, spending, debt, insurance, and what the money is for (goals). We also review some of my core beliefs which include:
Near the end of the podcast, we discuss one of the best investments I’ve ever made. As a married father of four kids, it is our purchase of a lake cabin where we create many family memories. This investment return is determined based on actual experiences as they far outweigh any financial return.
Finally, we finish with what the money is for. Primarily three things:
I hope you enjoy the podcast!
Growth stocks have been on a tear over the past several years. However, traditionally value stocks have been the big performers in the long-term. But with the rapid rise in growth over the last 10 years, are value stocks still worth it?
Video recap: https://youtu.be/qthoQhw9IxA
Today we explore the question: can value stocks still outperform in today’s environment? We’ll look at the data, provide you with the information, and then lay out action steps that you can take to act on what you learn.
Before we begin to explore our question we need to clarify the difference between growth stocks and value stocks. Growth stocks are faster growing, more expensive, and have a lower dividend yield. They are those stocks that you hear about on the news: Facebook, Tesla, and Google are a few. Value stocks have slower growth, are cheaper, and have a higher dividend yield. These are the ‘boring’ stocks and include Berkshire Hathaway, JP Morgan, and Wal-Mart.
Let’s look back at history to compare the two types of stocks. From 1926-2010 value stocks grew 12.4% per year whereas growth companies returned 9.8% per year. However, the last ten years have been very different.
Over the last 3 years, growth stocks have outperformed value stocks by 21% per year. This is the highest 3-year difference on record. Which begs the question, is this time different? Listen in to hear about a similar time period in history.
Much of the growth that we have seen over the past 3 years has been driven by FAANG stocks (Facebook, Apple, Amazon, Netflix, Google). It seems like these stocks could keep growing forever without any competition. And most recently they have all accelerated their growth with the Covid situation. On the flip side, value stocks have been hit hard by the pandemic.
But are the growth stocks becoming overvalued? Will this growth end up collapsing like the tech bubble of the late 90s?
Do you have an investment strategy? It is important to implement a disciplined, rules-based process. Have a process, have a plan, and stick with it. At the end of the day, investor behavior is the key to success.
We’re not saying that you shouldn’t own growth companies, we simply recommend a using diversified approach. We like to say that something in your portfolio should always stink. What does your investment strategy look like? Do you have a hard time hanging on to the losers?
If you are interested in working with a professional to help you come up with an investment strategy, consider using a fee-only financial advisor. Learn what makes fee-only financial advisors different by visiting our website https://www.financialsymmetry.com/.
Have you been offered an early retirement package?
Video recap: https://youtu.be/jpIfdhYVx6Y
Early retirement packages are on the rise. Companies are often looking for ways to cut costs and one way to do that is to give highly compensated employees an incentive to ease into retirement. Usually, these packages offer a one-time payment and sometimes they come with a period of additional healthcare coverage.
If you are offered an early retirement package many questions will arise. Is this a good deal? Is the package negotiable? What will I do about health insurance? And, of course, should I take it?
On this episode, Mike and I will give you the tools to create a framework to think about the questions that early retirement packages bring. Listen in to learn how to weigh this huge decision.
Before you consider anything else you need to think about how this package fits into your long-term financial plan. Receiving a lump sum can give you a lottery mindset, so you’ll need to consider what is most important to you. How would this package fit into the bigger picture of retirement?
This is a good time to ask a professional for help. If you are working with a financial advisor, you’ll definitely want to ask their opinion. A financial advisor can help you spot risks and opportunities that you may not have otherwise seen. Mike has some questions you may not have asked yourself about this early retirement package, so make sure you listen in to hear all the questions.
The main reason that many people decline an early retirement package is due to insurance. You may want to see if health insurance is a negotiable part of the package. Sometimes the company will offer to pay for your health insurance for a certain period of time.
You can also check into COBRA coverage which will guarantee you 18 months of health insurance coverage under your old plan--just be prepared for a bit of sticker shock.
Another way to cover your health insurance is to check into the ACA healthcare exchange. Be sure to weigh all of your healthcare options before signing the deal.
So many tax opportunities pop up with an early retirement package. You’ll want to consider all the ways that you can save on taxes if you do decide to accept it. Do you have a health savings account? If so, make sure to max it out. Have you maxed out your 401K for the year? What about your company stock?
If you are under 59 ½, where will your income come from? When do you plan on taking Social Security? Now is the time to plan how to build your ultimate retirement withdrawal strategy.
Will you be able to transition into retirement successfully? The answer to this may be dependent upon whether you are retiring from something or to something. This is why it is important to consider what’s next.
Will you relax on a beach somewhere, find another job, become a consultant, or try your hand at entrepreneurship? An early retirement package can bring about myriad choices, but you need to make sure that you are financially prepared to accept them.
While the FAANG stocks have been the most obvious enviable stock positions over the past decade, there are always success stories readily available to raise feelings of doubt and FOMO in even the most disciplined long-term investors.
Video recap: https://youtu.be/FN4xHoe8mHE
For example, investors who purchased $100,000 of Zoom stock at its IPO price of $36/share in April of 2019 would have earned a cumulative rate of return of about 590% and built a nest egg of ~$650k.
Zoom is one of the most recent examples of a company whose stock performance has exceeded expectations so wildly over the past 18 months that it is tempting to wish we were a part of the action and predict that those results will continue in the future, making us very wealthy in the process. After all, the path to extreme wealth is often created through very concentrated positions in individual companies. Examples include Bill Gates, Elon Musk, Mark Zuckerberg, Jeff Bezos, and many others. What made them so lucky? And why shouldn’t we be able to identify companies that will post results like these?
While individual stocks might not kill us, they do pose catastrophic risks that have the potential to be detrimental to our wealth. The nature of individual stock returns was studied in detail in Hendrik Besseminder’s 2018 study in the Journal of Financial Economics, “Do Stocks Outperform Treasury Bills?” which covered stock performance from 1926-2015. These are some of the key findings:
While the data is compelling that the odds are stacked against us on individual stocks, often the allure is just too strong. There is no reward without risk, right? Some of us may still want to take advantage of the growth potential of an individual stock position for any number of reasons. Maybe you want to have ownership in the company you work for or do business with frequently. You may have also inherited or been gifted individual stock positions. These might even have sentimental value for your family. Or you may just have a feeling about that company. If you find yourself in one of these situations, we recommend setting a decision-making framework for how you will buy, hold, and sell these positions:
For further reading on creating a decision-making framework and avoiding common investor pitfalls, we recommend Daniel Kahneman’s “Thinking Fast and Slow,” and“Decisive,” by Chip and Dan Heath. If you find yourself called by the Siren Song of an individual stock or deciding how to manage positions you may already own, please contact us to discuss the best approach for your personal situation in more detail.
Estate planning is one of the most overlooked and procrastinated upon areas of financial planning.
Video recap: https://youtu.be/NB2S1FWWH2s
While your legacy is important, it doesn’t generally take the front seat of your thoughts or your financial plan. There’s more to legacy planning than just having a will, but how much more depends on which stage of life you’re in. Find out what you should be doing to plan your legacy whether you’re in your 30s, 40s, 50s, or 60s by listening to this episode of Financial Symmetry.
When you’re in your 20s and 30s legacy planning starts with creating a will. A will gives you a good foundation and will get you thinking about electing your beneficiaries. You’ll also want to select your beneficiaries on your investment accounts.
Once you get married and start having children, then it’s important to keep your plans updated. It’s also a good time to get term life insurance. Make sure to revisit your will and the beneficiaries on your investment accounts periodically or with major life changes like a move or a new baby.
When you’re in your 40s you probably have more accounts and higher balances than you did in your 30s. Have you kept up with all of your retirement accounts from previous employers? The key to staying on the right track is to stay organized. Make sure to check in on your beneficiaries and estate documents from time to time.
If you are in your 50s and 60s you may be in the sandwich generation. This means you may have elderly parents and your own kids embarking on adulthood. This is an age when many really start thinking about their own legacy. It’s a good time to start thinking of Roth conversions. You can start tax planning not just for yourself but for your entire family. Think about how you can pass on your assets with the most after-tax value.
If you receive an inheritance there are different things to consider depending on your age and financial situation. You may want to consider paying off loans, buying a house, or even taking a mini-retirement. Having a financial plan in place can give you the confidence to do exactly what you want with those funds.
Estate planning is usually the last item on your financial planning list of things to do and it often takes another person to spur you on. A professional like an attorney or a financial planner often help guide you through this process. Let us know if you would like some help getting your estate planning in order. Plan today to make the most out of your retirement.
We know the COVID-19 global pandemic has affected everyone in unique ways. Today we want to discuss how this health crisis has affected women, specifically financially.
Video recap: https://youtu.be/beT8B1DSKZY
As working mothers, we have felt the impact of these daily changes acutely. According to Goldman Sachs “single parents, parents with young children and parents who can’t work from home are the groups most at risk to stop working entirely because they have no child care.”
Pre-pandemic the US labor force was split roughly 50/50 between men and women. However, women’s participation rate has always been directly tied to accessible childcare and pandemic-related job losses have disproportionately impacted women. With most schools resorting to distance learning and many childcare options off the table, families are struggling. Many solutions include working mothers putting their careers on hold. According to a study by the US Census Bureau, women are 3 times more likely than men to have left their job due to child care issues during the pandemic. This has negative implications for both the economic recovery and women’s future financial health.
We already know women face unique financial challenges due to three main issues:
In the current health crisis, these disparities have had more severe implications for women of color and millennial women. Sadly, these financial differences compound over time and can have devastating effects. As women grow older, they are also more likely to face poverty. According to the Social Security Administration 17.3% of nonmarried elderly women are living in poverty today. The figure below illustrates the higher poverty rates women over 65 experience in almost every category:
An article in the New York Times posited that this “Pandemic Could Scar a Generation of Working Mothers.” If that happens it also has the potential to increase the pre-existing retirement challenges women face later in life. While these trends are discouraging, the stakes are higher than ever for women to take control of their financial futures. The current situation also presents new opportunities as companies are more open to hiring a diverse workforce outside their local network. This is one silver lining of the pandemic: companies now have an expanded talent pool to choose from. If your current employer does not allow the necessary flexibility, you may be able to find a better fit. We recommend the following checklist to help you stay sane, maintain your earning power, and safeguard your finances:
We recognize there are no easy answers right now when it comes to meeting increased care giving demands while balancing career aspirations and financial stress. If you have questions about the best way to balance these changing demands with your long term financial goals, please contact us to speak with one of our financial advisors. We have four female advisors who are passionate about these issues and would love to help you position yourself for financial success.
Every 4 years it happens: an election comes along and threatens everything. Or so it seems.
Video recap: https://youtu.be/7SkvyKEXH6s
Regardless of how you feel about the candidates, we’re here to discourage you from making fear-based financial moves. Learn how to overcome your emotions so that you don’t derail your careful long-term investment strategy.
It’s hard to get away from the drama of the election coverage. It’s everywhere you look: on the TV, in the newspapers, and even from the notifications on your phone. This kind of round the clock, in your face news coverage can heighten your anxiety about the state of the world and even make you worry about your investments. It is important to remember that the media is not there to help you. Its goal is to sell advertising, not to help you achieve your financial goals.
While 2016 may seem like a distant memory, many investors were concerned at the time that a Trump victory would surely tank the stock market. We fielded a lot of calls leading up to the 2016 election discussing if a more conservative approach should be taken, at least until we had more certainty.
While Trump’s victory was a surprise to many 4 years ago, it certainly was not devastating for the stock market. In fact, the S&P 500 with dividends returned 21.83% in the following calendar year of 2017.
Investors who moved into cash to await more clarity would have swiftly regretted their decision. Check out the chart linked below which shows annualized returns for each president dating back to 1969 with the red and blue bars depicting results for Republicans and Democrats.
Staying focused on your long-term financial goals can be a challenge when the short-term seems so uncertain. People often feel tempted to time the market when the world feels up in the air. It’s important to remember that the market is influenced by many other events, not solely the election. So even if it seems that the election is the only thing going on, you need to stay focused on your long-term financial goals, stick with your investment plan, and avoid market timing.
One way to help you stay focused on your long-term financial goals is by looking at the facts. If you were thinking that this might be a good year to sit out the stock market, you may want to think again. On average, the stock market return in an election year is 11%, which is well above average.
Another surprising fact is that it doesn’t matter to your portfolio who is in the White House. There is actually no correlation between stock market performance and which party leads the country. Listen in to find out which two presidents saw the same economic growth during their first three years in the Oval Office, the answer will surprise you.
In investing, there are many factors that are beyond your control. However, that does not mean that your entire financial life is uncontrollable. Actually, the factors that you can control have a lot more to do with your financial success than which investments you choose. Think about all you can control: your cash flow, when you need money, when you stop earning income, what your income sources in retirement will be, how you pay for healthcare, and your estate planning. These controllables are much more important to your financial well being.
2020 has been a year of change. The pandemic has given people an opportunity to rethink their lives and many have been rethinking their career.
Video recap: https://youtu.be/0RCME_Y8bdI
Whether you are one of the millions of people that have been forced into a job change or whether you are considering a professional pivot on your own, there is a lot to think about when changing jobs.
On this episode, Grayson Blazek and I will walk you through all the considerations when taking on a new job. If you are rethinking your career listen in to hear how you can take advantage of your human capital.
Often when we consider a job offer there is only one number we look at. But there is more to a job than the base salary; it is important to consider the total compensation. The base salary helps you plan your monthly expenses but understanding the bonus and stock compensation is also important.
When thinking about the bonus structure of a potential job you’ll want to consider the target. Ask what the confidence in that target is. You’ll also need to understand how the bonus incentive works. How often does it payout? Is the bonus based on your personal performance or on the performance of the team?
Some other financial considerations are the stock options and the sign-on bonus. That hiring bonus can be enticing, but don’t let it cloud your judgment. Remember a hiring bonus is only a one-time payment.
When comparing job offers you’ll also want to compare the benefits package. Make sure to request an employee benefits brochure if they haven’t given you one. The benefits package is often seen as secondary to the financial compensation but those benefits can add a lot of value to your life.
First of all, you’ll want to consider the healthcare plan. Does the company offer one? How does it compare with your current plan? How much of the plan is covered by the employer? Do they offer an HSA?
Healthcare isn’t the only benefit to consider. What about life insurance and disability? Does the company offer a student loan repayment program? How about a fitness membership. Consider the entire benefits package and how it could add value to your life.
In addition to the health benefits and salary, you’ll also want to investigate the retirement plan that comes with this new position. Do they offer a 401K? Will they match your contribution? What are the plan costs? What about vesting, will you actually realize that vesting period? Do they offer other ways to save for retirement?
Your human capital is one of the biggest assets you have and the way you spend it will greatly impact your financial future. So when considering a job transition, there is much more to think about than the base salary. Tune in to this episode to discover all the details you need to consider when evaluating a job change.
We know how important it is to save for retirement, but at the same time, it’s important to enjoy life now. In this episode, we’ll walk you through how to set up a framework for your investment strategy.
Short Youtube Recap: https://youtu.be/LRcH7hwbUYY
You’ll learn how important your behavior is to your investment success, how to think through your asset allocation choices and finally how to select the investments themselves.
What is your investment approach? How you make decisions with your investments can make or break your investment success. You may think that your returns are solely based upon which investments you choose, but the reality is that your investment behavior figures into your returns much more than any specific investment that you choose.
Think about last March. What was your reaction to that volatile market? Did you buy, sell, or do nothing? Even though it’s challenging to know how to react in those moments, in a volatile market every move you make counts.
The dominant determinant of long-term, real-life financial outcomes isn’t investment performance; it’s investor behavior. –Around The Year with Nick Murray
The second driver to success in investing is your asset allocation. Asset allocation is simply the measure of how your portfolio is dispersed. How much do you have invested in stock and bonds? What percentage of your stocks are US-based? What percentage are international? Asset allocation also takes into account whether your stocks are large-cap, small-cap, etc. Your asset allocation is an important part of realizing your investment returns.
It’s important to have an independent mindset to help you pick your stocks. You don’t want to just follow the pack and do what everyone else is doing. There are several key areas that help us choose stocks at Financial Symmetry. The areas are ethical company culture, low costs, evidence-based, tax-efficient, and whether it is repeatable. We continually ask questions about the investments we choose. And if we don’t like the answers, we don’t invest in those companies.
What is your investment plan? Think about the strategy that you have used to make decisions about investing. An investment plan includes more than investments, it encompasses behavior and asset allocation. If you don’t have one consider working with a fee-only financial advisor. Having an investment plan could be the difference between a successful retirement and an uncertain one. What is your investment strategy? Try taking the quiz in our blog post to determine your investment composure.
There are fundamental principles that we all need reminders of from time to time. As kids and grandkids are heading off to college, we're talking through 6 core principles to getting off on the right financial footing. We also include a chart demonstrating the power of saving 15% of your income.
Youtube video recap: https://youtu.be/LLlJjITn6B8
If you can follow these 6 steps, it's very likely your future self will thank you.
Your ability to create wealth impacted by your ability to earn as well as understanding how you spend money. If you have had trouble saving and investing, visualize your future self. When you are making a decision think about how it will affect you and your finances, not just now, but 20 or 30 years from now. What are you doing now to help your future self?
2020 has brought us a new reality with our vacation mindsets. With many vacation plans put on hold or completely cancelled, the pandemic has become the impetus for second homes becoming more of a reality.
Short Youtube video recap: https://youtu.be/dZvXxmFmDxM
If you have been considering purchasing a second home, we lay out 5 questions to consider as you're analyzing your purchase decision.
Have you ever considered buying a lake house, beach house, or mountain house? Vacation home purchases have surged this year, quadrupling the sales of last year. After an amazing vacation, some people want to jump right in and buy. But before you apply for that second mortgage there are some questions you need to consider.
Many people only consider the cost of the mortgage, but with a second home, there is much more to consider. Where will you get the down payment? How will you pay 2 sets of utilities? Will you have 2 HOA’s to pay for? If you or your spouse lost a job, how would you continue to pay for this second home? Remember, typically a second home is not a great investment. They can be hard to sell and generally do poorly in recessions. Another important consideration is: how will this purchase impact your other financial goals?
When will you use your new home? Every weekend? Winters? Summers? Will you rent it out? Consider whether you really want a second home, or 2 nice beach vacations a year.
How much time will you use it? Will you feel like you have to go there? Will it limit other vacations? Is this really where you want to spend all of your time?
Many people end up selling their vacation home because they realize that they didn’t use it as much as they had envisioned. How close is it to your primary residence? Oftentimes, the amount of use a vacation home gets is based on proximity to one’s house.
Remember there are not only the financial costs to consider but the time cost as well. Another house means more maintenance. This upkeep requires a financial cost but it could also mean that you have to spend your own personal time fixing up the place. What will you be giving up in return for the new house?
If you are still keen on the idea of purchasing a vacation home after answering all of these questions, listen in to hear what steps you should take next are.
You spend half your life preparing for retirement, but that doesn’t mean that there won’t be surprises when you get there.
YouTube Recap here: https://youtu.be/zzEnHR9Qv8I
Retirement can bring on both positive and negative surprises, so it's important to prepare the best you can beforehand. So in this episode we breakdown the different kinds of surprises you may experience in retirement and how you can be ready.
2020 has been a year of surprises. It seems that every time we turn around the world has something new in store for us. Life has changed substantially and we are all dealing with a new reality. A changing reality amidst retirement can be scary if you aren’t prepared. If you want to be prepared for any eventuality during retirement then listen to this episode now.
In retirement, there could be good surprises or bad ones. We like to start out with the potentially beneficial surprises. You’ll want to hear which surprises might start out negative but could lead to positive changes.
Unfortunately, retirement doesn’t always bring sunshine and rainbows. It’s important to be prepared for negative surprises in retirement as well.
No one can argue that the stock market has been tumultuous lately. During times of market uncertainty, investors seem to become even more certain about their predictions of the next stock market moves.
Short YouTube Recap: https://youtu.be/ShmeDGPQ3l4
As people make these predictions over time the stakes get bigger and bigger. Listen to this episode to hear what steps you can take to fight this prediction hubris.
When markets become more volatile, the desire to control our outcomes becomes stronger. Our instincts pressure us to make predictive moves of what we feel is going to happen. This is when the ability to stay disciplined can have the biggest impact.
Otherwise, we find ourselves sweating out extreme buy and sell decisions that could cause you to miss the biggest market moving days. There was a good chance of this with our latest examples over the last 3 months, when you saw 3 of the worst 25 single day losses and 2 of the largest 25 day gains, happened in the S&P 500.
This is why we created a thought exercise to help you reflect on your investment strategy during times of market stress. We’re calling it the “R” Plan, where we provide five steps to fight the inevitable prediction hubris that occurs during these periods.
The R plan
Special needs financial planning is an intricate and delicate process.
Youtube Recap Here: https://tinyurl.com/y7wchxee
A process loaded with challenging emotional and financial decisions. So below we provide 4 steps to think through if planning for your special needs loved one’s future.
More than 40 million individuals or about 10% of total American population are living with a disability according to the US Census. This takes a careful planning approach to assure needs are met.
More Detail Here: https://bit.ly/2BbvxLv
In times of crisis and uncertainty, the potential need to access our savings seems to rise to the forefront. However, many of the accounts that we utilize for our savings are tied to certain restrictions. For example, the age 59.5 restriction for retirement account withdrawals without facing a 10% penalty, or HSAs and 529 accounts which must be used for medical expenses and education expenses respectively. These unique accounts are great tools to efficiently invest our savings given the tax deferred or tax-free growth. The issue though is what happens when we need funds to cover items that don’t meet the parameters and restrictions set forth by these accounts.
COVID-19 has me pondering my own finances and how well equipped they are to be flexible in times of need. These circumstances we’re in have produced many implications to our finances and society with a big one being the impact of education from pre-school age all the way through college.
We’ve seen a shift to more online educational resources in recent years and this has only escalated with the impacts of COVID-19. College students have spent the better part of their spring 2020 semester living at home and completing their coursework online. While certainly not the college experience these students anticipated, they’re still able to receive a quality education without the cost of living in a dorm room on campus or 3+ meals per day at the campus dining hall. We’ve even seen some refunds returned to students which if were withdrawn from a 529 account originally, then that money needs to go back into the 529 account to avoid taxes/penalties.
So what does this mean for our college savings strategy? For my two 2.5-year-old boys I’ve been saving monthly in a 529 account since they were born with intention to provide a portion of their college education from the 529 account. However, I’ve reconsidered this strategy this week and am shifting to utilizing a couple other accounts for their future savings. At Financial Symmetry we had many discussions with clients about not over-funding college savings accounts given the high taxes and penalty if not used for education along with discussions about savings for the parents own retirement and financial independence.
A great savings tool as the contributions can we withdrawn at any time tax-free, and the earnings grow tax free and can be withdrawn after age 59.5. This is the primary account I’ll now be using for future education needs for my twin boys as I’ll be able to withdraw the contributions for the education if needed. If for whatever reason they don’t need those funds for college then no worries as I can retain the Roth IRA for my own future financial needs. With a 529 plan though, I wouldn’t be able to do that as those funds would be restricted to education expenses.
I ran the numbers on the actual advantage 529 accounts do provide. Say my monthly contributions add up to $15k and earn $5k over the years to equate a $20k balance. Those earnings would be tax free in a 529 account for education expenses. If those funds were instead in a taxable brokerage account and assuming a 22% federal tax bracket this would be $1,100 of tax due on those earnings. You must weigh the flexibility of a non 529 account vs. the tax savings it can provide. Also consider that with proper tax planning in a brokerage account could mean even less taxes due given accessibility of tax efficient funds, tax loss harvesting, donating earnings to charity as ways to lower that tax bill.
Certainly nothing wrong with using a 529 account as you’re still saving for your children’s future needs, but just consider there are other vehicles that may be more appropriate given your financial situation. Also, depending on your financial situation there are other factors to consider such as financial aid.