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Financial Symmetry: Balancing Today with Retirement

When considering retirement, do you wonder what financial opportunities you may be missing? Busy lives take over and years pass without taking advantage. In this retirement podcast, Chad Smith and Mike Eklund unveil financial opportunities, to help you balance enjoying today so you are ready to retire later. By day, they are fiduciary fee-only financial advisors who answer questions about tax savings, investment decisions, and how to save more. If you’ve been putting off your financial to-do list or are just not sure what you’ve been missing, subscribe to the show and learn more at www.financialsymmetry.com. Financial Symmetry is a Raleigh Financial Advisor. Proudly serving clients in the Triangle of North Carolina for over 20 years.
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Now displaying: June, 2020
Jun 29, 2020

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. 

Wealth isn’t determined by investments selected but by investor behavior

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 

  1. Remember your past predictions. Think about the predictions that you made over the past few months. How did those turn out? Do you remember that overwhelming fear we all felt in March? Do you remember 2008? How about the tech bubble? How did your stock market predictions turn out during those tricky times?
  2. Regret - The decisions you make in the short term can have a big impact on your long-term wealth. The day to day swings can be huge when the market is volatile. Retirees often feel that they don’t have the time or ability to make up for losses and many decide to sell and flee to the safety of cash. But deciding not to ride the wave can lead to serious regrets. 
  3. Resilience - We often forget how resilient the stock market is over time. People don’t acknowledge the fact that stock market declines are always temporary and that they advance 75% of the time. It’s also good to remember that bear markets are shorter than bull markets. Declines are temporary but gains are permanent
    1. Be more conservative if you are uncomfortable with the thought of losing half of your asset value.
    2. Diversify - we may have mentioned this a few times before.
    3. Hire a professional an investment planner as well as a financial planner
    4. Consider all your options
    5. Implement an investment strategy based on your financial goals
  4. Review - When markets are volatile take the opportunity to reflect on your portfolio. Think in dollar figures rather than percentages to make potential losses more real to you. Consider these tips as you review your portfolio
  5. Reward - Staying invested in a balanced portfolio with equity exposure has provided long-term rewards. Also, returns are strongest after the steepest declines. Sticking through the rough periods to get to the rewards is the hard part. Because it’s rarely a smooth ride. Returns in any given year have ranged from as high as 54% to as low as -43%. In fact, the S&P 500 had a return within plus or minus 2% points of this 10% average in only 6 of the past 94 calendar years, according to Dimensional research.

Resources

Outline of This Episode

  • [2:06] How can you fight against your instincts of making predictions?
  • [7:04] The decisions you make in the short term can have a big impact
  • [10:21] The stock market is resilient
  • [14:54] Tips to fight stock market worry
  • [20:54] Focus on the reward

Connect With Chad and Mike

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Jun 15, 2020

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

Summary

  • Approach – Highlighting the importance of constructing an experienced team to help guide families through the special needs planning process
  • Benefits Available – What governmental benefits and programs are available to my special needs loved one now and as they age?
  • Consider Your Estate Plan – What steps should be taken to align your estate plan to provide ample financial support to your special needs loved one while making sure their benefits are not negatively affected.
  • Develop Your Savings Strategy – What accounts are available for special needs individuals and which are the best fit for your situation
Jun 1, 2020

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.

Roth IRA

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.

Brokerage Account

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.

So who should use a 529 account?

  • For those that already are maxing Roth IRA contributions, contributing a large amount to 401ks, and maxing HSA contributions.
  • Those who exceed the AGI limitation of Roth IRAs and are unable to utilize the back-door Roth strategy
  • High probability of attending private grade school as 529 accounts can now be used for earlier education than college.
  • If grandparents or others are making gifts to the child, then a 529 account is still a great vehicle to receive those gifts.
  • If you live in state with tax deduction for 529 contributions (North Carolina does not offer this).

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.

Resources and Other Podcast Episodes

Best Tips for Your Young Child’s College Savings

Great Options to Save for Your Child’s College Education

Tax Breaks and Loan Options to Pay for College

My Best Spring Break Ever (The Cost of College)

College Planning Night

 7 Ways to Use Your 529 Plan

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