December 5, 2022 Weekly Update

We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for December 5, 2022 

This Weeks Podcast – Fixed Annuities – Best Rates in Over a Decade

Looking for a positive during this current negative high-interest rate market? How about looking into fixed index annuities? We’re experiencing the best interest rates environment that we have witnessed in the fixed annuities arena in over ten years.

 

This Weeks Blog –Fixed Annuities – Best Rates in Over a Decade-

Interest rates are rising, and while this is a concern in many areas, it’s a major driver of fixed annuities. We’re in the best environment for fixed annuities in the past decade.

Anyone who is in retirement planning should consider the benefits of a fixed annuity. However, we do know that annuities may not be a tool that you prefer, and that’s 100% fine – they’re not for everyone.

Fixed Annuities – Best Rates in Over a Decade

Interest rates are rising, and while this is a concern in many areas, it’s a major driver of fixed annuities. We’re in the best environment for fixed annuities in the past decade.

Anyone who is in retirement planning should consider the benefits of a fixed annuity. However, we do know that annuities may not be a tool that you prefer, and that’s 100% fine – they’re not for everyone.

In our recent podcast, we discussed how fixed annuities work, their structure and how their returns have changed in recent years.

If you have any questions involving fixed annuities, please feel free to contact us for a free 15-minute call.

Why You Might Consider Fixed Annuities

In our view, when you try to secure your retirement, there are two main reasons that you may want to consider fixed annuities:

  1. Safe alternative investment: The stock market has been extremely volatile. Even the bond market is volatile in 2022, and this is an investment vehicle that is meant to be a safe place for your money. Fixed annuities are a nice bond alternative that can help you offset risk.
  2. Someone who is looking for guaranteed, lifetime income: Are you looking for guaranteed income? Annuities have lifetime income riders, which will act much like a pension that you would have received years ago.

If you would like either of these points as a part of your retirement plan, then a fixed annuity may be a good option for you. 

However, before we go any further, let’s see why fixed annuities are attractive in today’s retirement landscape so that you can better understand whether it’s something that you would like to pursue.

Why Fixed Annuities Are Even More Attractive Than Before

Rising inflation and insurance rates have a lot of investors concerned about their futures and the state of the economy. With the stock market putting everyone on an investment rollercoaster this year, it’s nice to have a fixed annuity as an option.

Fixed annuities benefit from the same factors that are impacting the stock and bond market negatively.

Two companies benefit from inflation and high interest rates:

  • Banks
  • Insurance companies 

With a fixed annuity, you’re working with an insurance vehicle that offers you a nice risk-tolerance investment.

In the past, fixed annuities had a 3% upside at best, meaning that if you put in $100,000, you would have just $3,000 in returns.

However, the environment is very different today.

Interest is calculated with a beginning and end point. For example, there’s an underlying index for the annuity. Let’s look at an example of an annuity with the S&P 500 as its underlier.

  • You start an annuity on January 1
  • The ending point is 1 year from today
  • If the S&P 500 is up at the end of the year, you make money
  • If the S&P 500 is down at the end of the year, you don’t make or lose money

Insurance companies put a cap on the gains that you can make. So, they may say if the index is up at the end of the year, you can make 3%. Would this be attractive to you?

Probably not.

But today, we’re seeing caps as high as 13%.

So, if you go into the year with an S&P 500 underlying asset for your annuity, and at the end of the year, it’s up 13% and your cap is 13%, you get 13% returns. However, if the S&P 500 is up 10% and your cap is 13%, your return would be 10%.

With that said, the true power is when the S&P slumps. Instead of losing out on your investment, you don’t lose anything. You might not accrue interest, but you also didn’t lose money like you would in the stock market.

You lose some upside, but you gain a strong protection against a loss.

Of course, you’re unlikely to gain 13% a year, but you can gain 3% – 6% a year with no risk of a loss. As an alternative to bonds, which are not expected to rebound for a decade, fixed annuities make a lot of sense.

Fixed Annuity Liquidity and Access

Utilizing a fixed annuity does have some nuances, which you should understand before using them. The typical scenario includes:

  • Fixed amount of time that you have to commit the money you put into the annuity to the insurance company, which is typically a 10-year period. You make a long-term commitment with a guaranteed principle.
  • Normally, you have 10% access of the annuity. For example, if you put in $100,000, you would have access to $10,000. However, if the account grows to $130,000, you would have access to $13,000 for that year.

From a long-term perspective, we look at putting 20% – 50% of their retirement into an annuity. The rest will go into the stock market so that they have 50%+ of liquidity.

Maintaining a good liquidity balance is something that you must consider when looking at fixed annuities.

Fixed annuities have a lot of different options and things to consider that go well beyond just the points above. If you do want to discuss annuities more in-depth, we’re more than happy to hop on the phone with you and have a discussion.

Click here to schedule a free call with us.

November 28, 2022 Weekly Update

We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for November 28, 2022 

This Weeks Podcast – Structured Notes – Frequently Asked Questions –

Have you heard about structured notes, and what questions do you have about them?

Structured notes are issued by a bank to perform in either the risk management growth or income categories. A bank looks at elements such as interest rates, volatility in the market, and some indices before issuing structured notes. Listen or read this week’s podcast to find out more…

 

This Weeks Blog -What are Structured Notes?

Structured notes are something that a lot of our clients are asking us about. We use these notes, but many people don’t know what they are, how to buy them or how they work. In our recent podcast (and in this BLOG), we cover all the frequently asked questions we get about structured notes.

Structured Notes – Frequently Asked Questions

Structured notes are something that a lot of our clients are asking us about. We use these notes, but many people don’t know what they are, how to buy them or how they work. In our recent podcast (and in this post), we cover all the frequently asked questions we get about structured notes.

Structured Notes FAQS

What are Structured Notes?

Structured notes are created by a bank so that they perform for one of two categories:

  • Risk managed growth
  • Income

However, we mostly use income-based structured notes for our clients.

Banks offer structured notes based on multiple factors, such as volatility, interest rates and indexes. The bank will look at all these factors and offer a sort of discount rate to others based on these notes.

We can build these notes however we want.

For example, we can request a structured note for 3 or 6 months, and the bank will create these notes for us. Longer-term notes come with lower returns because of the inherent risk that the bank takes on.

Who Issues Structured Notes?

Banks. All major banks can issue structured notes. The bank will back the note, so they will take on the risks. We recommend looking at banks that have high ratings and strong financials.

You don’t want to use a smaller bank for structured notes because they’re bank-backed and are less financially sound than larger banks.

We can walk into a bank for a structured note and ask for a note based on our:

  • Terms
  • Length
  • Financial input

Since we tell the bank how much money we can put towards a note, they can then come back with an offer for the best note that they can provide.

How Do Structured Notes Work?

We start with an underlying stock or index to help, but for this example, let’s assume that we start with:

It’s important that we choose an underlier that is not volatile because the issuing bank wants to keep its risk to a minimum.

What happens is that all three indexes that you buy will have a beginning start date. A few things can occur here.

  • If all 3 indexes are negative or flat, I’ll receive a coupon payment of, say, 12% (this will change).
  • The coupon payment provides me with a 1% coupon payment per month

Now, let’s say that the barrier amount is down 30% and one of my indexes is down by this amount. I don’t receive a coupon payment in this case. Principal barriers also exist and let’s say that it’s -40%. If the index is down by this amount on the renewal date, I might be down 40% or more.

We build the structured notes to have a 10% risk of going into this negative balance and often have notes of 6 months to 3 years.

In this case, we have a coupon payment based on the month and a principal barrier.

It’s important to note that a structured note is a debt security that relies on the return and performance of the underlying asset.

What is a Structured Note Barrier?

A structured note barrier is this sort of line, drawn in the sand, that says if we go below this point, we don’t receive a coupon payment. This coupon payment is monthly, so you may not receive payment for one month and then receive it the next.

Principal protection also exists.

In the principal barrier, the only way that you can lose money is at the end of the term – not the month. If the index falls past the principal barrier at the end of the term, you won’t receive 100% of your principal put in the investment.

So, you can lose money in this case, but you likely earned money through coupon payments.

What are Structured Note Risks?

There are a few risks to be concerned about with using structured notes to secure your retirement:

  • Issuing bank
  • Barriers

We can structure these notes to have high or low risks. High risks have greater coupon payments, but you will have a higher risk of losing principal. We structure our clients’ notes for a 10% or less risk of losing some principal, which means fewer returns but better overall protection.

You should look at the banks, too.

Every bank has a small risk of not being able to pay the coupon, but this is unlikely when structuring your notes with larger banks.

Can You Sell a Structured Note?

Yes. You can sell these notes, but there are a lot of intricacies that go along with the sale. If you sell rapidly, you’re very likely to lose money. The bank will buy investments based on your term chosen, and if you sell early, you will receive a penalty.

Why? The bank has made commitments based on this term and selling may cause them to receive a penalty that is passed to you.

It’s better to only buy structured notes with the full intent of holding onto them for the entire term.

However, there are some cases when the notes may be worth more at the time of sale and you’ll make some money on this.

When Will Structured Notes Get Called?

“Getting called” is a term that you may not be accustomed to, but it means that the bank calls the note back and cancels the note. It’s very unlikely that the bank will allow a note to go to full maturity.

Instead, they will often exercise their right to recall the note.

When we structure our notes, we require a three-month period where the bank cannot call the note. This is a guarantee that we have those three months of being paid a coupon.

If we have one of the three underlying indexes being positive or flat, this note will automatically get called. We would then need to go back and buy another one. It is a lot of work to create these notes due to the call.

What are the Costs of Buying a Structured Note?

There was a time when structured notes were expensive to buy, but they were designed for the ultra-rich. Costs to create them have come down a lot and allow the regular person to purchase a structured note.

However, you need to work with someone with a lot of money to make these deals happen.

Banks will not work with you if you have a few thousand dollars to put into structured notes. Instead, they want to work with people who have millions of dollars. As a financial advisor, we have a large fund that stretches into the millions of dollars range because we bundle our clients’ money together to structure these deals.

In this scenario, the bank wants the money and is more than willing to work out terms beneficial for all parties.

Costs for structured notes are down and availability is up for structured notes.

We do plan to have a webinar on this topic to help walk you through how these structured notes look because it’s very difficult to explain without visuals.

However, in short, structured notes offer a nice return with minimal risk.

Click here to view the books we’ve written on securing your retirement.

November 21, 2022 Weekly Update

We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for November 21, 2022 

This Weeks Podcast – 2022 End-of-Year Tax Strategies –

What should you be thinking about or doing with your tax planning as we approach the end of the year? Planning your taxes ahead of April is a great way to make the process more efficient.

When it comes to tax planning, the earlier you can do it outside of April, the more things you can get done. Some of the things you should be looking into include RMDs and QCDs, which depend on the situation or age.

 

This Weeks Blog -2022 End-of-Year Tax Strategies

Taxes should be on everyone’s mind at this point in the year. Retirement planning and end-of-year tax strategies should be interlinked to help you secure your retirement and pay as little as possible in the process.

2022 End of Year Tax Strategies

Taxes should be on everyone’s mind at this point in the year. Retirement planning and end-of-year tax strategies should be interlinked to help you secure your retirement and pay as little as possible in the process.

We’re happy to have CPA Steven Jarvis of Retirement Tax Services (RTS) to explain to us that with one month left in 2022, there are a lot of tax strategies we can put in place that can make a big difference this coming year. In fact, he recommends that we think about tax planning every month of the year.

However, there’s a lot to do before the calendar year flips over.

What to Ensure Gets Done Before the End of 2022

A few things that Steven explains that we need to think about, and they may not apply to everyone, include:

  • Required minimum distributions (RMDs): You need to begin taking care of your RMDs. RMDs are required when you hit 72, and if you don’t take them, you will face a major penalty from the IRS. The penalty is up to 50%.
  • Qualified charitable distributions (QCDs): At 70-½, you can begin using QCDs if you’re charitably inclined. You can use QCDs during the filing year and it allows you to give to charity with some tax benefits attached.
  • Retirees still working: Some retirees are still working and accumulating income, and they should check in with their CPAs to ensure that their taxes are in order. The filing deadline may be in April, but the IRS is anxious to get your money and will apply interest if the money isn’t received in January. You also go into 2023 knowing if you need to set up your tax withholdings.

There’s a lot to consider, and an accountant can help you navigate these complex tax considerations.

For example, let’s assume that someone at age 72 has an RMD of $30,000 and doesn’t need the money. In this case, you may want to consider a QCD if you’re charitably inclined. If you’re not charitably inclined, you’re better off just paying the taxes on the money and keeping it.

However, if being charitable is important to you, a QCD fits into your tax planning perfectly. The logistics here are very important:

  • Don’t take the RMD. Put it into your bank account and then transfer it to the charity of your choosing.
  • Do use a QCD, which allows a direct contribution to the charity without the money ever entering your possession and having to pay taxes on it.

Your IRA will allow you to write a check to the charity of your choosing. You can take the QCD and benefit from the tax deduction without needing to add it as a line item. Since most people take the standard deduction (more on that soon), this is a tax strategy that is perfect for you.

QCDs are very important tools that you can use before the end of the year to help reduce your tax burden while maximizing the amount of money the charity receives.

Standard Deductions

A standard deduction is available for:

  • Married and filing jointly: $25,900
  • Heads of household: $19,400
  • Single filers: $12,950

The standard deduction allows you to remove the amounts above from your income. So, in this case, the $25,900 is not taxable for someone filing jointly.

For many people, a standard deduction is a win because it allows you to reduce taxable income drastically.

However, it doesn’t make sense for some people to use a standard deduction. If you do not have deductions that surpass the figures above, it’s better to use a standard deduction. Otherwise, you can reduce taxes more by using line items and taking these additional deductions.

Example of Not Taking a Standard Deduction

Let’s assume that for the next three years, you plan on giving a charity $15,000 annually for a total of $45,000. Donor-advised funds (DAF) will be used in this case, allowing you to put $45,000 in the fund now and take a deduction this year.

A DAF allows you full control of when and how the funds are distributed.

The $45,000 is above the standard deduction, so you can itemize your taxes this year and reduce taxes by $45,000. In net savings, you’ll save $4,000 – $5,000 by itemizing deductions. And next year, when you don’t have a DAF deduction, you can go right back to taking the standard deduction.

Why is this important?

You can save money while giving more money to the charities that you care about.

Deadlines for End of Year Tax Strategies 

Roth conversions and contributions are going to be very important. The IRS doesn’t do us favors with their deadlines. You can carefully put money into an IRA for the previous year up until the tax deadline, but this must be done with precision.

If you have a traditional IRA, you must convert to a Roth IRA before the end of the calendar year.

There are two main things to consider if you’re unsure whether a Roth conversion is good for you:

  1. Bob and Sue will need a lot of money one day, maybe for an RV or roof repair. The IRS will take part of the money you take out for taxes, depending on the income buckets you have in place. A Roth account allows you to pay taxes now and not be concerned about paying taxes on the money in the future.
  2. You think tax rates may go up in the future. Roth buckets require you to pay taxes now and at today’s tax rates. The money that builds in the account is 100% tax-free.

You should proactively decide when you want to pay taxes using the information above.

In our business, a lot of clients ask if there’s a rate of tax on their Roth conversion. Understanding how the Roth conversion is taxed is important and is based on your marginal tax rate.

Roth conversions increase your taxable income, depending on your other income sources. You may have a 0% conversion or one that is 22% or higher. An accountant will need to look through your finances to really shed light on your situation and the taxes you’ll owe.

However, below is a good example to review.

Example of Roth Conversion Strategies

We have an individual who is under 72, so they do not have to take their RMDS. Additionally, this individual also has money in the bank that has already been taxed. When this person retires, they’ve set themselves up to have zero taxable income the first year in retirement because they’ll live on their cash.

The person has 0 income and still has a standard deduction of $25,900 they can take.

In this case, you can convert $25,900 and pay $0 in taxes on it because of the standard deduction that you have. You can also choose to convert $40,000, and in this case, the person would pay 10% in taxes on the $14,100 left.

You can also consider leveraging long-term capital gains to pay as little taxes as possible.

Everyone reading this will want to sit down with an advisor or CPA to find things that you can do to benefit your retirement.

Bonus: Inflation Reduction Act

While talking to Steven, we asked him about the Inflation Reduction Act and what it would mean for our average listeners. The media has made this Act seem very impactful, but Steven explains that the average person will not experience a direct impact.

Yes, 87,000 IRS agents were hired, but the agency has been grossly understaffed and has funding to improve customer service and other aspects of the IRS. The chances of being audited still remain low. Steven states that nothing will change for his clients: he’ll pay every dime in taxes that you owe, but never leave a tip.

Steven provided a lot of great information and ideas on what anyone heading into retirement should be doing before 2023 to help their tax situation.

Please subscribe to our podcast for other, great informative podcasts if you haven’t done so already.

November 14, 2022 Weekly Update

We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for November 14, 2022 

This Weeks Podcast – Tax Planning Should Be a Part of Your Retirement Plan –

Who wants to pay taxes? It’s impossible to avoid paying taxes altogether; what we can do is be more efficient with them.

Tax planning is an essential part of your retirement plan. To plan tax efficiently in your retirement, you have to understand all the different investments you’ve accumulated and the different types of tax structures to them.

 

This Weeks Blog -Tax Planning Should Be a Part of Your Retirement Plan

Retirement planning is on every worker’s mind, but there’s one area that people often overlook: tax planning for retirement. You work hard for your money, and if you take the time to plan out your taxes before retirement, it can keep more money in your pocket.

So, Why Should Tax Planning Be a Part of Your Retirement Planning?….

Tax Planning Should Be a Part of Your Retirement Plan

Retirement planning is on every worker’s mind, but there’s one area that people often overlook: tax planning for retirement. You work hard for your money, and if you take the time to plan out your taxes before retirement, it can keep more money in your pocket.

Why Should Tax Planning Be a Part of Your Retirement Planning?

Tax planning in retirement has become such a major importance that it’s something we’ve incorporated into our service. We bundle a lot of things into the cost, such as:

  • Estate planning
  • Tax planning
  • Retirement planning

We believe taxes are so important that we’ve partnered with CPAs to better help our clients. However, if you’re not a client of ours and are wondering why taxes are something to consider when you’re trying to secure your retirement, we’re going to clear that up for you.

Note: This is a high-level aspect of tax planning and is not exhaustive.

Linking Taxes and Retirement

When you enter retirement, you may have an IRA, Social Security and other income sources, all of which have their own tax requirements attached to them. Reviewing these income sources allows us to find ways to minimize your tax burdens.

Understanding the accounts that you have is the first step in the process.

Many of us have saved into pre-tax accounts, such as:

  • 401(k)
  • Traditional IRA

However, Roth accounts are handled differently, too. 

If you receive Social Security, it can also be taxed in many cases. So, there’s a lot to consider when entering retirement with all of these income sources. Let’s start with the one that most people don’t know about.

Social Security and Taxes

We’re concerned about Social Security because there’s been a lot of talk about changing it. Many of these changes may also lead to higher taxes on this income, but in the current space, you can still have benefits taxed.

Based on income, 85% of your Social Security can be taxed.

  • Individuals with an income of $25,000+ will have up to 85% of Social Security converted into taxable income.
  • Joint taxes filed with income of $32,000+ will have up to 85% of Social Security converted into taxable income.

Through tax planning and retirement planning, we may make sure there’s no other income coming in aside from Social Security to try and help save you money. Cash may be available for you to take to meet this obligation, and it may only be possible for a year or two.

If we begin in advance, we can find ways not to take money out and use cash to pay bills to reduce the risk of your benefits being taxed.

However, you need to begin as early as possible to reduce taxes. Waiting until late in the year can make it difficult to find viable ways to reduce your tax burden.

Taxes on Roth IRA and Traditional IRA 

Many people contribute to their 401(K) or IRA, and these are traditional accounts. When we say “traditional” accounts, we mean that these accounts have never had taxes paid on them. For example, if you have $1 million in a traditional IRA, you will need to pay taxes on these accounts when you take a withdrawal.

You take a tax break for your contributions, but all of your withdrawals add to your income and can be taxed.

Adversely, a Roth IRA or 401(K) is a beautiful tool that you can use for retirement. These accounts offer:

  • Tax upfront
  • Tax-free growth
  • No future taxes

You’ll pay taxes on your Roth account today, but it’s allowed to grow tax-free. For some of our clients, they’ll take some of their money from a traditional and Roth account to keep them in a lower tax bracket.

Roth accounts don’t provide an immediate tax break, but the money grows tax-free.

One method that is very popular in retirement planning is a Roth conversion.

Understanding the Benefit of a Roth Conversion

Roth conversions are a way to turn money from a traditional IRA over to a Roth. You will have to pay taxes immediately for the conversion, but when in the Roth account, it will grow for free.

Let’s look at an example of someone who has $300,000 in a traditional IRA and wants to convert $50,000 into a Roth IRA. In this case:

  • $50,000 goes into the Roth
  • $50,000 is claimed on tax returns

If you already made $75,000 and $50,000 was converted into a Roth account, it will lead to paying taxes on $125,000.

We use complex software on our end to identify your tax burden and any issues that may come up with a conversion that we overlook.

However, let’s assume the following:

  • You’re retiring in 2022
  • You’re not 72, so you don’t need to take out income from a traditional IRA
  • In 2023, you won’t have earned income
  • You have cash you can use for spending money

If you’re in the position above, you can convert some of your traditional IRA at 0% taxes. The government offers a standard deduction that you don’t benefit from unless you earn income. In this case, you can convert the amount of the standard deduction for free.

You can then consider whether you want to convert more money because you’re still in the lowest tax bracket at the moment.

Obviously, if you have a lot of income coming in, it may not be possible to pay such little taxes on your Roth conversion. We recommend that you tie tax and retirement plans into one because they work very well together.

Cash in the Bank and Taxes

If you have cash in the bank, there are no taxes attached to it. However, if you receive interest on these dollars, the taxes are typically low and negligible. You’ve already paid taxes on this money.

Brokerage Accounts and Taxes

Brokerage accounts are a bit more complex because some of the money may be taxed and the other money may not be taxed. There are also investments that have dividends that can cause you to pay taxes.

If you hold a short-term investment, you’ll need to pay taxes at your current tax rate if sold within a year.

Long-term capital gains are lower, so this can be used as an advantage. You can also leverage tax loss harvesting on these accounts to save money.

Tax planning can have such an impact on your retirement that it’s something you really need to consider. Taxes can also impact your IRMAA, or how much you need to pay for your health benefits in retirement.

Working with a CPA and financial advisor who are connected can help you save a lot of money in retirement.

Click here to schedule a call with us to discuss taxes and your retirement.

November 7, 2022 Weekly Update

We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for November 7, 2022 

This Weeks Podcast – Having a Fun Fund in Retirement –

Have you ever thought about incorporating a fun fund into your retirement spending plan? How realistic is it to do the fun things you want to do and for the time you want to do them after retirement?

 

This Weeks Blog -Having a Fun Fund in Retirement

Retirement is a major milestone, and there is something we highly recommend for all of our clients: a fun fund. You work hard, and you should work through retirement with some fun in mind.

After all, what are you working so hard to secure your retirement for if you’re not having fun?

Having a Fun Fund in Retirement

Retirement is a major milestone, and there is something we highly recommend for all of our clients: a fun fund. You work hard, and you should work through retirement with some fun in mind.

After all, what are you working so hard to secure your retirement for if you’re not having fun?

In our most recent podcast, we walk you through a retirement fun fund, how we think about a fund like this when creating an income plan, and our spending plan approach.

Understanding a Spending Plan

A retirement plan has a lot of anxiety because you’ll transition from earning and saving money to spending money. Many of our clients worry about how much they should save, but we like to really dig into the spending part of retirement, which includes:

  1. Essential income needs
  2. Wants
  3. Legacy or gifting

Essential needs are simple: your bare-bone basics to keep you happy in life. These expenses include mortgage and car payments, utilities, food and all of these related items. You might want to build in insurance payments and anything you truly need to have to live your life.

Wants is a “fun” category because it includes all of the things you want to do now that you’re retired.

However, many people plan for retirement and never think about what they’ll do afterward. The “wants” from retirement often include:

  • Traveling. Some clients travel so much during their careers, so the last thing they want to do is travel. Others want to travel because they were tied to a desk during their careers.
  • Second Home. Many people want to move closer to their grandchildren and buy a second home or just a vacation home for themselves.

Everyone should sit down and think about their “wants” in their retirement. You might not want to travel or buy a second home, and that’s 100% up to you. However, you should have a plan of what to do during retirement.

Really dream these wants out and think about the costs so that you can add them to your plan.

Finally, legacy planning is a thing you may want to consider. This will include the money that you want for:

  • Saving for your grandchild’s education
  • Charity purposes

You may not even have a legacy category in your plan, but if it’s something that you would like to do, be sure to add it into the equation. We add these three categories together to create a basic spending plan for retirement.

We recommend adding these categories up and creating a monthly spending plan to see how realistic it is to reach these goals.

How We Calculate a Spending Plan in Our Office

We love helping our clients create their spending plans because we use software for the process. We ask a lot of integral questions, plug variables into the system and it calculates the person’s monthly spending for us.

However, we also add in:

  • Inflation on the spending plan
  • Inflation on the “wants”
  • Maintenance repairs

Once we lay everything out for families, there are normally a lot of bigger items that they want to add to their lists. For example, one client took their entire family on a cruise, and this included a massive number of people.

We even calculate home renovations and more.

Going through all of this, we then decided that it was time for our clients to consider a “fun fund.”

What is a Fun Fund?

A fun fund is a fund that, if you have the means, will allow you to go on a $20,000 – $25,000 trip around the world every other year or remodel a home at $5,000 – $10,000 a year for ten years.

We run a fun fund for 10 years or so, and the impact on retirement is much different than if you used a fun fund for 25 years.

Additionally, we’ve found that in the first 5 – 10 years after retirement, people pack everything they want to do in this small amount of time. Then, after the first ten years or so, they seem to want to settle and enjoy a slower pace of life.

10-Year vs. 30-Year Fun Fund

An infinite fun fund sounds great, and it’s something that may or may not be possible for you, depending on how much you’ve saved in retirement. However, we did want to provide an example here so that you can see the financial difference between a 10-year vs. 30-year fund for someone with $1 million in retirement funds.

  • 10 years and left with $700,000 because of fun fund spending
  • 30-year may end with $300,000 left at age 90 – 95

In essence, if you go into retirement, there’s no guarantee that you’ll live to 75 or 95. If you know for a fact that you won’t live past 75, you can then have a concrete answer on how much you can spend in retirement before it runs out.

However, if you have a fun fund that is going for 20 – 30 years, you may be shocked and live until you’re 110, but you’ll have very little money – if any – left in your retirement accounts.

Depleting your retirement for 30 years with extravagant vacations and expenditures will leave you with less money to grow and potentially no retirement funds left. For many of our clients, they tend to travel less at 75 – 80, so the 10-year plan works out great for them.

If you create a fun fund for 10 years, we often find it doesn’t tax your retirement too much and allows you to do all of the fun things that you didn’t get to do in retirement. 

Final Thoughts

Creating a fun fund is something that we highly recommend you plan out. Retirement planning needs to work hard for you, and this is where the fun fund really puts everything into perspective.

If you want to have us walk you through a fun fund, click here to schedule a call with us.However, if you’re not thinking about a fun fund yet and want to just get a grasp on retirement and the steps you need to take, click here to start our 4 Steps to Secure Your Retirement Video Course for FREE.

October 31, 2022 Weekly Update

We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for October 31, 2022 

This Weeks Podcast – 3 Questions to Ask Yourself About Retirement

What questions should you be asking yourself when planning and thinking about retirement? To build a retirement-focused financial plan, you must have goals or at least have an idea of what you want your retirement to look like.

 

This Weeks Blog –3 Questions to Ask Yourself About Retirement-

When planning for retirement, you have a lot of questions pop up. However, in our recent podcast, we had the opportunity to go through the most common questions about retirement that we receive.

3 Questions to Ask Yourself About Retirement

When planning for retirement, you have a lot of questions pop up. However, in our recent podcast, we had the opportunity to go through the most common questions about retirement that we receive, including:

  1. What are my goals?
  2. Do I need professional help?
  3. How do I sit down and prepare for retirement?

If you’re just trying to figure out your retirement, this is one podcast that you’ll want to listen to (here), or you can read the summary below, too.

1. What Are My Goals?

Everyone has their own unique goals. All too often, people focus on reaching retirement, yet they don’t know what they want to get out of retirement. A few questions to ask yourself are:

  • What age do you want to retire?
  • Is it possible to retire at this age?

You don’t need to get bogged down by the details, but it’s important to begin wondering what you’ll do when you retire. A few things that are fun to think about here are:

  • Do you want to travel? If so, where do you want to travel? Plan these goals out for yourself.
  • Do you want to spend time with the kids and grandkids?
  • Do you want to pursue a new hobby?

If you begin thinking about these goals early, you can quickly see the bigger picture of retirement and what it will mean for you. 

Also, one question that people often overlook is: how do I want to retire?

Some people jump into full retirement immediately, but others want to stay busy and active, so they’ll volunteer or find a part-time job. Many retirees have the opportunity to consult, and this allows a retiree to set their own hours and decide on who they want to work with.

You really need to think about what you want retirement to look like for you and your family.

  • One client of ours has decided that they want to move from North Carolina to California to spend time with their grandkids. 
  • Another client is consulting in another state to spend time with their kids. 
  • And another client’s goal was to buy an RV and travel the United States.

Everyone has their own goals for retirement, and you need to identify your own goals so that you have a full understanding of why you’re focusing on retirement planning in the first place.

2. Do I Need Professional Help?

Once you’ve established your goals, it’s time to consider if you need professional help to meet your retirement goals. A lot of clients come to us with large retirement accounts and have been diligent savers their entire lives.

These individuals funnel money into a 401(k) or IRA, and as they get closer to retirement, they want to know how to use this nest egg in the most strategic way possible.

It’s easy to save for retirement, but it’s hard to keep enough money in your account if you’re not diligent.

However, many others just need a second opinion to look over their plan because they’ve done everything:

  • Planned
  • Invested
  • Learned about financial markets

Some people love finances and spend a lot of time each month following the markets and really come to us for an overview.

With that said, most people come to us with the following:

  • CPAs who have been doing their taxes
  • In need of an estate plan
  • Questions on when to take Social Security
  • Medicare and what plans to take
  • Questions about long-term care or downsizing a home

The person above is who we work with most. These individuals are the CEOs of their plans, but they use us as a CFO to take care of all the points above. We worry about the fine details while the person enjoys their life.

We work with a variety of specialists because there’s no way that we can handle everything in retirement on our own.

If you think you need a second set of eyes or want to work with an advisor, be sure to sit down with multiple advisors to find one that you trust. We may or may not be a good fit for you, so be sure to take the time to find the right team for you. 

3. How Do I Actually Sit Down and Prepare for Retirement?

First, determine if you need an advisor or not. If you need professional guidance for your retirement plan, then you need to go through the following steps:

  • Build out a retirement plan
  • Learn when you want to retire
  • Determine your retirement goals

We like to pick a starting point to learn where our clients are when they walk through our door. Perhaps you want to retire at 65, have $1 million in savings and have a second home. Your advisor needs to know all these details.

An advisor will need to learn about your potential income buckets, such as:

  • Social Security
  • Pension
  • Rental income
  • Annuities 

Understanding your income sources in retirement will help us understand if you have enough money to reach your retirement goals or not.

Saving is huge and a major part of retirement, but you also need to have a spending plan. Without a spending plan, it’s easy to deplete your retirement savings. In our business, we will run multiple scenarios for your retirement so that we can determine:

  • How to reach your goals
  • How much to save for retirement
  • Spending
  • So much more

There are just so many questions about retirement that people need to ask. We would hate for you to secure your retirement and then realize you don’t have the cash to travel or spend time with your grandchildren.

This is where working with a financial advisor comes in handy.

When you call us for a consultation, we’ll walk you through all these steps and scenarios to ensure that you know the complete picture of your retirement. However, if you also want a second pair of eyes to review your plan, we’re more than happy to assist you in this way, too.

Click here to schedule a call with us today if 1you have questions about your retirement planning.

October 24, 2022 Weekly Update

We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for October 24, 2022 

This Weeks Podcast – How to Invest in a Volatile Market in Retirement

What do you do in an extended market downside as opposed to a short one? How do you invest in a downturn market? The closer we are to retirement, the more nervous a downside market affects us.

 

This Weeks Blog –How to Invest in a Volatile Market in Retirement-

Are you wondering how to invest in a volatile market? If so, you’re not alone. A lot of people are struggling to find solid advice on investing in 2022, where there are multiple factors impacting markets, such as: fear of a recession, Ukraine and Russia being at war, and inflation.

How to Invest in a Volatile Market in Retirement

Are you wondering how to invest in a volatile market? If so, you’re not alone. A lot of people are struggling to find solid advice on investing in 2022, where there are multiple factors impacting markets, such as: fear of a recession, Ukraine and Russia being at war, and inflation.

Investing is a little different today than in 2019 and before.

Retirement planning can be very difficult because people are now seeing their 401(k) and IRA retirement accounts lose value. If you’re in retirement and the market is going down or sideways, it’s scary because you’re not working and funding your retirement accounts any longer. Traditionally, the closer someone is to retirement, the more concerning volatility is for them.

We’re going to share some of our strategies and approaches to investing in a volatile market to help you sleep better at night and relieve some of your anxiety along the way.

Quick Downturn Example in 2020

Downturns can be short-term or extended, and the approach you take to investing at these times must be adjusted. In most recent memory, we had a short downturn in March 2020 when the world first started to really pay attention to the Coronavirus.

The market fell 34% for the year, and by the end of 2020, the market was up 17%.

Because of the fast downturn and recovery, the event wasn’t a major issue for the market. There was actually a lot of opportunity to be had in 2020 despite lockdowns and people being stuck at home for two years.

Downturn of 2022

In 2022, we’re dealing with some of the repercussions of the measures taken in 2020 to bring markets back to stable levels. The government pumped a lot of money into the markets to help us get through the pandemic, but it has led to 2022 being a down period.

The only day that the market experienced gains was the first of the year.

In June, the major indexes hit their yearly lows, and then they rallied and recovered to being down 10%. At the time of this posting, we’re back to experiencing lows of:

  • S&P 500 being down 24%
  • NASDAQ being down 31%

Even the bond market has been decimated by the high interest rates. Using bonds to de-risk your portfolio to reduce volatility hasn’t worked at all in 2022. Combatting inflation and the war in Ukraine have both caused major issues in bonds, oil and gas prices.

Global economics have remained rattled throughout 2022, and it leads to the question of how to navigate the markets.

We haven’t dealt with markets like we have now since 2008 when the last major recession hit. Navigating markets using common strategies is more difficult because of:

Pricing is running up, so we have to look at ways to change our approach to investing. 

Two Funds We’re Sitting in with 2% Gains

Right now, we’re investing in two main funds that are offering 2% gains with a high level of security. We are investing in:

  • Government obligations
  • Treasury obligations

These funds pay a floating rate of return based on short-term treasuries or other factors. Every seven days, the rate changes. Due to the current state of the market and interest rates, the return we’re seeing is a little over 2%.

Since these are funds, every 15th of the month, the account is credited with a dividend payment for the interest earned.

We avoid the volatility in the market and work to protect our clients’ principal while providing a very modest return.

However, we’ve also started to put money into structured products, and they’re backed by large banks, such as JP Morgan. The purpose of these is to put together a fund that offers an interest rate based on environments with high volatility and interest rates.

We basically go shopping and put together an offering.

The offer paid a 9% coupon, and we’re working on one with an 11% coupon. We don’t want to put all of the money into these accounts because the coupon rate can change every three months. Banks can also choose to close these accounts at the end of the term, so while the rate of return is great, it is also a lot of work.

We invest 2% to 24% in these accounts and use other tactics to keep money growing, even if it’s not at the rate people are used to when putting their money in the stock market. When markets start to balance out, using these products may not make sense.

Investing right now, for us, means investing in products that:

  • Are low risk
  • Have no stock market correlation
  • Do well in rising interest rate markets

Of course, investing using the strategy above is more complicated than investing in an index, but it’s what we’re personally doing to help manage risk right now.

Are you looking for more answers, or are you unsure of how to invest in these types of low-risk products that do well in rising interest rate markets?

Click here to schedule a call with us today.

October 17, 2022 Weekly Update

We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for October 17, 2022 

This Weeks Podcast – Federal Reserve and Inflation

What exactly is causing the current inflation, and how does it affect your retirement?

The supply chain issues we experienced during the pandemic majorly contributed to the current global inflation we’re now experiencing. The Fed has increased rates on a few major product categories raising the cost of inflation.

 

This Weeks Blog -Federal Reserve and Inflation

The Federal Reserve and inflation are something that everyone is dealing with, from the gas pump to food prices at the supermarket. Of course, if you’re a retiree on a fixed income, your major concern right now is ensuring that you have enough money to pay for your everyday needs.

We’re going to discuss a lot of key issues in this article and how you should think about these topics rather than listen to the doom and gloom you’ll hear in the media.