How to Have Peace of Mind During Troubled Times

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Omicron is here, and it’s a variant that has taken over the news lately. Dealing with bad news means learning how to have peace of mind during troubled times for investors and retirees alike.

If there’s one thing that the pandemic has shown the world, it’s that markets can take a nosedive during a health crisis.

Anxiety and stock market volatility can last for days – or weeks – and trying to find peace of mind and secure your retirement can be difficult. So, we like to create a structure when retirement planning that allows us to handle market fluctuations even during a pandemic.

How People Have Been Trained to Mitigate Investment Risks

The most common form of investing (and it’s something that you might do) is to buy and hold. Investors have been advocating the buy-and-hold strategy for a long time. For example, you purchase Amazon stock and hold it.

However, over the years, portfolio diversification has become more popular.

For example, you may invest in:

  • 401 (k)
  • Stocks
  • Bonds
  • International stocks

You may buy a section of the market, such as a large-cap or small-cap, or you may buy into energy. Asset allocation works by buying a little piece of everything with the hopes that your portfolio makes money.

Annually or quarterly, you may reallocate your investments, and you’re certainly reducing your risks.

However, it’s also difficult to withstand a pandemic when the market as a whole tumbled 34% on news of the virus. Buy and hold investors took the brunt of the stress at this time because they saw losses of $34,000 for every $100,000 invested.

Our Approach to Mitigating Investment Risks

Now, we’re going to share our investment strategy with you today. We use this very strategy to help our clients through retirement planning, but we’re not saying that this is the only way to invest.

For us, we find the following approach to work very well.

However, you need to find a strategy that works best for you and your unique investment goals.

You may want to take a different approach – that’s fine. We’re just going to explain what works for our clients and us so that you know all of the options available to you.

How We Handle Risk Mitigation

When we invest, we don’t invest based on:

  • Gut feelings
  • Forecasts
  • What we think will happen in a market

Instead, we use data to help us monitor what the market is doing. When you use data to make decisions, you remove all of the emotion and attachment to investment from an equation.

If you can, think back to January 2020, right before the market was thrown into a tailspin on the news that this thing called the coronavirus was spreading in Wuhan and is now a major global concern.

No one could forecast that COVID-19 would take over the world in just a few months.

Did you know in December 2019 and January 2020 that the entire world would change? Of course not. Since we use active management, we were able to analyze the data and eventually pulled all of our clients’ money from the market.

We sat on cash for several months because it allowed us to negate the stock market losses.

Our clients had their portfolios fall 9% instead of 34% for those that kept all of their money in the market. We like to think of this as a race among three major players:

  1. Stocks
  2. Bonds
  3. Cash

Cash only does well when stocks and bonds are falling, so we saw these signals and made the decision to go into cash.

When we re-entered the market, we also used the data available to us to make the switch. For example, we use firms that collect data for us that we can analyze monthly and quarterly.

After the pandemic, we entered small-cap funds before the data signaled that it was time to go into mid-cap and large-cap stocks. Ironically, the news at the time we re-entered the market was doom and gloom.

If you just looked at the news, you would have sleepless nights filled with worry and fear that you’ll never be able to recuperate your losses. However, about 40 days after we pulled out of the market, the data was telling us it was time to reinvest.

Emotionally, we were scared to go back into the market, but we listened to the data.

At the end of the year, our growth portfolio rose 19% after fees in a year when many people sustained massive losses.

Feedback From Clients During the Pandemic

Our clients were emotionally invested in their portfolios, and we gathered a lot of feedback from them during the start of the pandemic. People were rightfully scared of what the market would hold for them after the dust settled.

Most of our clients said, “We understand why you call yourself Peace of Mind.”

We deal with retirees and those ready to retire. Our clients were given regular updates. We were honest and open, telling our clients, hey:

  • Stocks are dropping, so we’re reallocating to bonds
  • Bonds are no longer working, so we’re going to sit on cash

We were giving updates every few days. When clients realized that they would have lost a ton of money if we just relied on the buy and hold strategy, they gained a lot of trust in us.

Since we navigated clients out of the market crash, they trusted us going back into the market.

Now, we’re back in the same scenario with Omicron. We don’t know what the future holds with this new variant or if the Fed will step in to prop up the market. However, what we do know is that the data will tell us what key steps to take next with Omicron and any other variant that may pop up.

If you need help trying to find peace of mind in your retirement, we can help.

Click here to read our newest book, called Secure Your Retirement.

Tax Planning for Retirement

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One of the things we deal with routinely for people retiring or already in retirement is concerns about taxes. People are very worried about their taxes. After all, you’ve worked diligently to build up your retirement, so the last thing that you want to do is give more money back to the IRS.

Luckily, we were able to sit down with Steven Jarvis, a tax professional, to help answer some of the most common questions our clients have about taxes.

But first, we want to cover the many different types of tax planning professionals that you may come across.

Tax Professionals You Might Come Across When Seeking Help

Depending on your situation, there are a lot of options for taxes:

  • DIY software
  • H&R Block
  • Accountant or CPA

If you have uncomplicated taxes, software may be a good option for you. Software is very powerful, but it’s very easy to make a mistake when you go beyond the basics. 

Ideally, you may want to work with a full-service CPA. 

When you dive into tax strategies, a CPA is almost always the best option because they go beyond algorithms.

Working on Tax Strategies

Tax strategies are important, but there are many different aspects. For a lot of people, they feel like taxes are a black box that they put money into without many options available. In fact, a lot of people view their taxes as being painful.

However, working with a CPA ensures that you don’t leave the IRS a tip.

You need to pay every dollar that you owe, but you should never leave the IRS a tip.

When you’re only worried about filing a tax return, this is tax preparation. If you’ve ever gone to an accountant, handed them a stack of papers, and simply waited for a tax document that you can file, this is tax preparation.

However, you always have tax planning to consider. Tax planning allows you to look a year or two ahead, and then find ways to reduce your future tax bill. When you engage in tax planning, you’re not worried about preparing taxes this year, but rather, what you’ll need to pay in the years ahead.

A Deeper Look into Tax Planning

When tax preparation and planning work together, it truly works to your benefit. Tax planning often comes in around November, which allows you to make adjustments at the end of the year to help reduce your tax burden.

Everyone worries about taxes rising in the future.

Roth conversions are a hot topic right now, and they’re a good way to really look at tax planning on a deeper level.

When we’re talking about Roth conversion accounts, these are tax-deferred retirement accounts. Tax planners will consider whether a person’s taxes will rise. For example, will your taxes rise because:

  • Your income rises to a new tax bracket?
  • The IRS decides to increase taxes?

If taxes are never going to rise, your choice doesn’t matter. However, Congress can raise taxes next year, and you might benefit from paying your taxes now at a lower rate than in the future at a higher rate.

How much you convert also needs to be considered on a personal level.

You might want to fill up a tax bracket, but it really depends on your required minimum distributions and other factors.

Often, when people retire and finally draw from all their income buckets, they’ll move into higher tax brackets than they were in during their working years.

Tax Changes That May Come About in the Future

Tax codes are written in pencil, so any predictions on future taxes are just that – predictions. Unfortunately, we’ve seen that in recent months, where each proposed tax bill is altered and doesn’t look anywhere near the same as its original draft.

However, one very important topic to consider is that Congress may get rid of backdoor Roth contributions.

Why?

Backdoor Roth contributions offer the option to have pre-tax and after-tax dollars in the same account. As you can imagine, this strategy can be very effective, but proposed changes would disallow this strategy.

Tax strategies allow you to make the best decision for the future based on today’s tax code.

However, an annual review of your strategy is crucial because we are dealing with taxes that can always evolve and change.

Click here to schedule an introduction call to discuss your taxes further.

Federal Reserve, Inflation and the Economy

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We’ve seen a lot of headlines lately, as we’re sure you have, about the federal reserve, inflation and the economy. At the time of our podcast and writing this, Jerome Powell remains the Fed Reserve Chairman.

One thing we want to make clear is that throughout this article, we’ll be going over recent headlines.

Of course, at the time of reading this, we may have new information or outcomes for these headlines. But the good news is that the information should remain relevant.

What Jerome Powell Being Nominated as Federal Reserve Chairman Means

Jerome Powell is loved by some and not by others. There are two trains of thought here, and these are:

Side 1: People That Like Jerome Powell

A lot of people like Jerome Powell because he likes to print money. He wants to keep the economy moving aggressively, and for some people, they believe printing money will benefit the market.

Side 2: People That Dislike Jerome Powell

On the other side of the spectrum, there are concerns that printing money will cause long-term inflation, which is never a good thing.

Working as a Financial Advisor Through Federal Reserve Chairmen

Since we work with so many people nearly or in retirement, we get a lot of questions from both sides of the argument. For example, some clients want to invest heavily in the market because they believe that Powell will help the market soar, and others want to invest in financial vehicles that rise with inflation.

Our clients want us to forecast the future to try and determine what will happen if Powell is chairman.

For example, a client may ask us:

I’m concerned and excited about Powell’s reinstatement. Can we invest in something that protects against inflation and still reaps the benefits of the market?

Unfortunately, this is a loaded yet common question when dealing with inflation. What we believe is that two things need to be actively managed:

  1. Active investments in the market
  2. Overall retirement plan

Active management is important because trying to predict an outcome for an ever-changing market is a gamble. We would rather not gamble with our clients’ money, so we use the data that we have available at any given moment in time to make smart investment decisions.

Markets and investments can change rapidly in just a day or two, and active management helps our clients avoid major losses in the process.

We have a lot of passionate investors.

For example, some investors learn a lot about a particular company, love the direction and vision of the company’s CEO, and they put all their faith in this individual that they’ll help the company grow.

Unfortunately, there’s a lot of guesswork going into the scenario above that can lead to losses.

Through active management, we invest based on what’s happening now.

If inflation continues to rise and the pressure of inflation exists, we’ll adjust portfolios in three main categories:

  1. Equities, which are stocks
  2. Fixed income, such as bonds
  3. Cash

We recommend putting all three of these categories in a race to see who is winning in today’s market. At the time of writing this, equities are performing exceptionally well towards the end of 2021.

Using a number-oriented form of investing, we recommend:

  • Reallocating investments based on what’s happening now
  • Adjust as required

There are also some sides of the market where people would rather split their investments among the three categories above, so the investor may decide to invest 33% in all three categories and go with the flow.

Instead, we believe active management is the right choice because it reduces the risk of volatility.

Reactionary investing, based on headlines, is not something we recommend. Instead, use data and continue adjusting your retirement portfolio and investments to weather any changes in the market that occur today and 20 years from now.

Events Where Reactive Investing Never Works Out 100%

We’re not going to get political, but when there are presidential elections, there are many people who choose the doom and gloom path. If this Republican or Democrat gets elected, the stock market will CRASH.

Thankfully, these predictions rarely come true.

Making decisions based on assumptions never truly works out how a person thinks. We’ve been through many presidents in the last 20 years. One thing we’ve experienced, and it is rare, is that some people pull all their money out of the market because they believe a new president will cause the market to tumble.

Unfortunately, many of these individuals call us and explain how they wish they didn’t sit on the sidelines because their portfolio may have risen 10%, 20% or even more.

Another scenario is inflation.

Inflation is rising, so a lot of individuals are afraid and believe that the market will flop.

Emotions in the market rarely work out in your favor. As an advisor, we take emotions out of the market and our decisions. For example, even as surges in the coronavirus continue to happen worldwide, the markets remain strong.

Some investors feared that the market would suffer after each surge, much like it did when the pandemic first hit.

Using the data that we have available, we’re not seeing these surges impacting the market, so we recommend keeping money in the market. When the data changes, we’ll adapt our investments to minimize losses and maximize gains.

2020 Events and How We Shifted Money Going Into 2021

In 2020, the S&P 500 fell over 30%, but we did a few things:

  • First, most of our clients were sitting on cash to avoid losses in the market.
  • When reentering the markets, we took it slow and adjusted to the companies winning the race, such as technology companies.
  • January of 2021, we saw a shift where large-cap and technology started to slow and small and mid-cap companies began to revive as the market recovered. Using the race analogy, we adjusted portfolios to include more of these stocks to maximize client gains.

Since this was our first time living through a pandemic, we think we did exceptionally well for our clients and really solidified our thought process that active management is the way to go when investing.

Final Thoughts

We covered a lot in the past sections, and the sentiment remained the same: don’t react over headlines. If everyone could predict the future, we would all enter retirement ridiculously wealthy.

However, we can use the market’s data to make smart, timely investments and portfolio adjustments to avoid losses and ride gains to make the most of our investments as possible.

If you need help actively managing your portfolio or want us to run the numbers to see how we can help you grow your portfolio, schedule an introduction call today.

Considerations for Charitable Giving

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If you have a charity that you’re passionate about or just want to give back, there are a lot of considerations for charitable giving that need your time and attention. One of the best feelings when you secure your retirement is having the opportunity to help others.

Of course, if you’re not charity inclined, there’s no pressure to give money away.

However, if you want to start getting involved in charitable giving, you need to first consider how to break down your income.

Simple Income Breakdown

When we first start the retirement planning process with our clients, we help them break their income down into the following:

  1. Essential needs – what you need every month to live
  2. Wants – vacations, cars, remodel a house, etc.
  3. Legacy – leaving money to children, etc.
  4. Charity 

Charitable giving does have a lot of benefits, and you can also leverage your giving to reduce your tax burden.

However, if you’re still considering charitable giving, one topic that you might want to know more about is QCDs.

What are QCDs?

Qualified charitable distributions (QCDs) are common, especially close to the end of the year. When you want to make the most efficient use of your money, you can do so with what is known as a QCD.

Many people will take money out of their bank accounts annually and give money to charity.

However, when you’re 70 and a half, you can start taking QCDs directly out of your IRA. Annually, you can take out $100,000 in QCDs from an IRA without a penalty.

If you take the money out of your IRA, you’re taking out your donation and it is not taxable.

When you turn 72, you also need to take a required minimum distribution from your IRA. Even if you don’t need the money, it needs to come out of your account. For example, let’s assume that you’re required to take $20,000 out of your IRA each year.

You’ll pay taxes on this $20,000.

QCDs allow you to take money out of the $20,000 without paying any taxes on it. For example, let’s assume that you donate $5,000 per year. If you set up a QCD properly, the $5,000 will come out of your minimum distribution of your IRA tax-free.

When you do this, you’re:

  • Maximizing your charitable distributions
  • Reducing your tax burden

So, you might be required to take out $20,000 from your IRA each year, but you’re only taxed on $15,000 because of the QCD that you have in place.

However, you need to set up your QCD properly.

How to Setup a QCD Properly

First and foremost, you want to go to the institution that holds your IRA. The brokerage is Charles Schwab, TD Ameritrade, etc. You go to this institution and:

  • Let them know you want to set up a QCD
  • Ask for the check to be made directly to the charity
  • Include an EIN
  • Include the charity’s address

A common mistake that people make is writing the check out to themselves and then making a distribution. If you make this mistake, you’ll have to pay taxes on this money.

You can then take the QCD check yourself and give it to the charity or have the check sent to the charity directly.

Ideally, you’ll hand the check to the charity yourself so that you can receive the receipt for the donation.

You must make all of your charitable contributions by the end of the year. Additionally, the charity needs to cash the check by the end of the year. While setting up QCDs may seem tedious, it’s very advantageous and can help you reduce your tax burden while offering substantial charitable benefits.

From a tax-advantageous perspective, there is one additional benefit that you’ll want to consider: stock donations. If you have a stock that has significantly appreciated in value, you can donate the stock to avoid paying capital gains on it.

However, we don’t see this scenario happen often with our clients.

Working With a CPA is Important

While you’re giving money to charities, it’s also very important to take as much tax advantage as possible. A CPA or other tax professional will be able to help you reduce your taxes when donating to charity.

A CPA can help you think through reducing your taxes.

Additionally, a CPA may also help you determine how much you can give:

  • Monthly
  • Annually

We suggest coming up with a charity-focused financial plan. We walk our clients through the entire process so that you can have a clear picture of how much you can afford to give. In most cases, we run scenarios that show you what happens if you donate a certain amount each month to your retirement plan.

Potential Pitfalls of Making Charitable Contributions

If you’re making a QCD, it’s crucial that you go through the process with a professional. You don’t want to withhold the taxes on the QCD. In some cases, you may want to take your own distribution and then another for the QCD.

Ideally, you’ll start the process early on so that you have the time to make sure that your giving works in the best way for you.

Sure, you’re donating money out of the goodness of your heart, but that doesn’t mean that you shouldn’t take advantage of the tax perks offered to you.

Also, another important factor to consider is timing.

If you decide around December 20 or later that you want to make a charitable contribution, it’s very unlikely that the process can be carried out before the end of the year. Due to the market being closed for the holidays, there is often not enough time to go through all of the processing time to use your contribution for a tax deduction.

Ideally, we recommend that you have this done in November.

Do you want to hear other important news on how to secure your retirement and take control of your future?

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Should I Consider an Annuity In My Financial Plan?

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Are you considering an annuity? Does an annuity fit into your financial plan? These are the questions that we’re going to answer today so that you can secure your retirement in the best way possible for you.

Our clients ask us a lot about annuities, so we want to help you determine whether an annuity fits into your retirement plan.

Understanding That an Annuity is an Insurance Product

An annuity is an insurance product that you’re buying into. You’re purchasing the annuity from an insurance company, so it’s crucial to evaluate the insurance company. For us, we always look at the company’s financial security so that we know whether the company can withstand market fluctuations or dips in revenue.

You can find rating systems for each company.

Rating systems can help you understand how well-rated a company is and whether a company is a good choice for you.

There’s also protection through a legal reserve, which is similar to having the FDIC insure money that you have in the bank.

Breaking Down What a Legal Reserve System Offers

Legal reserve systems have been around for a long time. The IRS wanted insurance companies to have a guarantee in place to protect consumers. Insurers work together to operate in the United States.

For example, if one insurance company goes bankrupt, other insurance companies often:

  • Purchase parts of or the entire business
  • Keep contracts the same

In essence, the reserve part adds safety elements by having significant reserves in place to cover payouts and other expenses. Legal reserves cannot be leveraged. Instead, the insurer must have reserves to back any guarantees they offer.

Due to the multiple systems in place, if a reserve gets low, they’ll be barred from offering more insurance until the reserves are restored.

In short, the legal reserve is a safeguard against an insurer going bankrupt and the consumer losing all of their insurance in the process.

Tax Benefits of an Annuity

Annuities offer tax benefits, but the benefits depend on what type of money is placed in the annuity. Basically, you have:

  • Qualified money. Your retirement plan money. These are financial vehicles that have not been taxed yet.
  • Non-qualified money. Money that has been taxed already, such as capital gains.

You should understand your balance of money, based on these two classifications, before getting into an annuity. 

Once you understand the multiple financial buckets that you have, you can better understand the benefits of an annuity in your situation.

For example, if you have non-qualified money from a brokerage account, it’s often a good thing to put it into an annuity because it will grow tax deferred. So, if you put $100,000 in the account that you’ve paid taxes on, growth is tax-deferred.

Annuities make taxes easier and won’t require you to have to work through complex taxes every year.

However, let’s say that you have a lot of qualified money in an IRA. You can roll the IRA funds into an IRA annuity. When you go into an IRA annuity, you’re putting pre-tax money into your account.

Retirees don’t want to heavily withdraw from an IRA because of the tax consequences.

Due to these complex situations, it’s crucial to understand how an annuity works and the tax benefits they offer you.

Why Should You Use an Annuity Retirement?

Retirement planning must be strategic. An annuity can be beneficial in numerous ways, and we like to break annuities down into three main scenarios where they make sense:

  1. Income Planning
  2. Safety Alternative
  3. Tax Deferment

Income Planning

When you structure an annuity, you can do so in a way that offers a guaranteed income that you’ll never outlive. The income will always be there.

If the annuity is an IRA, you’ll be taxed on it.

When we work with clients that only need to withdraw 2% to 3% of their retirement per year, it often doesn’t make sense to have an annuity. 

Why?

You’ll either have a fee or a lower rate of return.

Safety Alternative

Safety, or bond, alternatives are a good reason to have an annuity. Let’s assume that you have a low threshold for market fluctuations. Bonds go up and down, so investing in an annuity can offer a guarantee that bonds cannot offer and help you better manage risk.

Risk conversations are huge in retirement planning because it ensures that you have money for tomorrow.

Tax Deferment

Annuities allow you to invest in the market at 100% tax deferment and with negligible fees. For tax deferment, you have the option of liquidity and tax deferment with an annuity.

How an Income Rider Works

As an income rider, the overall annuity has two sides:

  • Account value
  • Income account value

Account values grow at the annuity interest rate. However, on the income account value, you have a little step up that you can leverage. For example, maybe your income increases by 5% or 7%. Since these accounts are designed to outlive you, the income account value will always rise more than the actual account value.

When you sign up for an income rider, you’re asking the insurer to guarantee an income for the rest of your life.

However, you cannot withdraw the money from the account in its entirety.

An income rider can be added to an annuity, acts independent from your contract, and allows for peace of mind that you can make a certain minimum withdrawal from the account every month.

A rider may or may not make sense for you, but it’s something you’ll want to consider.

Initially, you’ll have a period of 5 or 10 years where you won’t receive an income. This time period really allows the account to grow and build up the value you need to retire with guaranteed income coming in every month.

Annuities may or may not fit into your overall retirement plan, but they’re certainly something to consider for everyone nearing retirement.

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8 Mistakes to Avoid When Choosing an Advisor

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Choosing an advisor is a major decision, and you can make many mistakes along the way when making your choice. Unfortunately, unless you’re involved in the financial world every day, you won’t have the experience to know how to choose the right financial advisor.

We’ve already covered a lot of great advice, from how to change financial advisors to what to do when you break up with your advisor, but today we’re going to cover mistakes you need to avoid when choosing an advisor.

And there are a lot of them.

8 Mistakes to Avoid When Choosing an Advisor

1. Working with an Advisor Without a Written Contract

You should have a written contract with a scope of service that outlines everything you can expect from the service. Your contract doesn’t need to be a legally binding, yearly service contract.

Traditionally, the advisor is bound to the contract, but the client can leave the service at any time.

The contract should include:

  • Scope of service
  • Fees involved
  • Potential conflicts of interest

When you have a written contract, it outlines exactly what you can expect from the service. Both parties can use contracts to understand what to expect from the business relationship.

2. Working with an Advisor That Doesn’t Have a Permanent Office

Working with a financial advisor who doesn’t have a permanent office is a quick way to be a victim of embezzlement. Most embezzlement reports are from advisors who will only go to your house to give advice but don’t have a physical office to go to if you need assistance.

A permanent office is an indication that the advisor is stable and trying to stay in business.

If an advisor uses a co-working space or won’t meet at a permanent location, they may be a fly-by-night scam artist.

3. Working with an Insurance-Only Advisor

An insurance-only advisor is licensed to sell you insurance products. Insurance products only pay a commission, so you must question whether the product is right for you or only recommended because of the advisor’s commission.

Plus, an insurance-only advisor won’t be able to help you with stocks or other investment products.

4. Working with a Stock Market-Only Advisor

Just like we don’t recommend that you work with someone that can only offer insurance products, we also don’t recommend someone that can only help with stocks. A stock market advisor can’t help you create a well-rounded retirement plan.

You may need stocks, insurance and a variety of other retirement options.

Ideally, you’ll work with an advisor that can offer both insurance and stock market advice. Both products work together to provide you with a higher level of retirement security.

5. Working with an Advisor That Tries to Sell You on the First Appointment

Advisors are offering a service, and they need to make a living, but they shouldn’t try and sell you on the first appointment. Instead, an advisor should:

  • Educate
  • Get to know your goals
  • Run simulations for retirement

Once an advisor knows you, then they can begin to make accurate recommendations to you. It takes us multiple appointments to truly learn enough about a client before we recommend anything to them.

6. Believing the “Too Good to Be True” Stories

If an advisor’s story is too good to be true, it probably is. An excellent example of this would be the stock market advisor saying, “I’ve never lost money.” Market fluctuations occur all the time, and it would be impossible for someone never to have a down day if they’ve been in the market long enough.

Insurance advisors who create illustrations that show 8% – 10% improvements each year, are a red flag. You need to question if the product is too good to be true or if you’re only being shown part of the illustration.

You can certainly make 8% – 10% returns per year, but you also need to know the downside. Often, earning this high of a rate of return simply isn’t feasible.

7. Doing It All Yourself

You can do it all yourself, but you need to know the commitment that you need to accumulate your wealth. When you do everything on your own, you’re going to learn information every day. You’ll need to dedicate an immense amount of time to your investments, while also managing your job and family.

When you hire a professional that works on retirement planning daily, it will help alleviate this burden.

8. Choosing an Advisor Based on Only Their Fee

You’ve heard the statement “you get what you pay for,” right? Unfortunately, the same is true when choosing an advisor. Sure, you can select a ROBO advisor with low fees, but you’re missing out on the personalization and management that can really help you build wealth.

If the market starts to tumble, the ROBO advisor will not engage in active management the same way we would.

Fees will always be a concern when choosing an advisor, but you need to consider what you’re getting for these fees. Sit down and ask each advisor what you’re getting for your money.

Low fees may mean:

  • Higher fees for additional help
  • Higher fees or commissions on certain products
  • No assistance when planning for life insurance, social security and so on

A low fee advisor may not provide active management, which likely led to massive losses in 2008 for their clients. However, the advisor with the higher fee may have actively managed their clients’ portfolios so that they didn’t lose money in 2008.

If you want to secure your retirement, you need to work with an advisor that you can trust. The mistakes above are common mistakes anyone can make, but you should avoid them as best you can.

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Fees, Commissions, and Being a Fiduciary

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When shifting from one financial advisor to another, there are many questions that you should be asking. However, there are two main questions, which we’ll be covering today in great detail:

  1. What are your fees and commissions?
  2. Are you a fiduciary?

Fees and commissions are going to be tied into the advisor’s offering in some way, so you must know how your advisor is being paid. Choosing the right financial advisor is a process, and you need to really have a firm understanding of fees, commissions and being a fiduciary to safeguard your retirement.

What are Your Fees and Commissions?

Fees have been a central focus point of big brokerage companies like Charles Schwab and TD Ameritrade. The entire industry has been in a “fee” war where they’ve tried to compete in the fee department with each other, and fees fell.

For you, lower fees are always a good thing.

Transaction costs have also practically disappeared due to the increased focus on lowering fees and costs for investors.

When working with a financial advisor, you want to know many things, but today, we’re focusing on fees. You need to understand how your advisor is being paid. Many people come into our office and explain that they don’t know all of the fees and commissions that their advisor uses.

It’s essential to:

  • Ask your advisor about their fee structure and commission
  • Dive deeper into the advisor’s fees and commission if your questions make them uncomfortable or they seem to want to dodge your questions

Since you’re hiring an advisor to work on your retirement plan, it’s your right to know how they’re being paid. We would advise against working with an advisor who doesn’t want to divulge their fee structure and commission.

There are a few ways that your advisor can be paid:

Commissions

Commissions are a form of payment that has been around for probably the longest. Commissions are made when products are sold and also in the investment world. Originally, brokers needed to be contacted to make trades and would earn commission on these trades. 

You can buy stocks without commissions in today’s investment world. 

Mutual funds often have fees and commissions on the front-end or back-end, meaning your broker makes a commission at the start or end of the investment. 

You have every right to ask your advisor whether they’re receiving a commission on your investments in any way.

Fees

Advisors can charge fees in a variety of ways:

  • Hourly: An hourly fee may be applied when the advisor works on your portfolio or completes certain tasks.
  • Flat-fee: A flat fee may be assessed for things such as helping transfer your accounts or setting up your investment portfolio.
  • Percentage of assets under management: Finally, a percentage fee may be assessed based on your portfolio’s value. For example, a 1% fee may be charged on your $100,000 investment account, or $1,000.

Advisors may also charge a combination of the fees above. 

For the most part, advisors that charge fees will not make a commission. However, if insurance products are included, a commission may be assessed.

As someone looking from the outside, it’s common to think that the lowest fees are the best. But that’s not always the case. You need to look at the services that are wrapped into the fees to really understand the value in a service.

You might pay a 1% commission for a very hands-off advisor or 1.25% for an advisor who also assists with tax planning and other aspects of financial planning. It’s vital that you ask your advisor what their fees are and what’s included in their fees to know exactly which services you’re receiving.

Are You a Fiduciary?

A fiduciary is very important to understand when working with any financial advisor. You should be asking if the advisor is a fiduciary, but before you do that, it’s important to know what being a fiduciary really means.

What is a Fiduciary?

A fiduciary has to make decisions that are in your best interest. Therefore, certified financial planners must uphold a fiduciary standard. For example, let’s assume that the advisor makes a 10% commission on a specific type of insurance and a 5% commission on the other.

Someone who does not abide by a fiduciary standard would enrich themselves by recommending the product that gives them the most commission, even if that’s not the best product for you.

However, when an advisor is a fiduciary, they need to consider your best interests, even if that means lower commissions for them.

We run as a fiduciary, and our business is founded on:

  • Learning about a client
  • Understanding the client’s goals
  • Recommending the best options for the client to reach their goals

Not only does a fiduciary have to work in your best interest, but they need to be able to prove this in the future. If a client questions why we recommended a specific financial product, we must explain why and show proof that this product was the best based on our knowledge and their goals.

Legal vs. Assumed Fiduciary

Some advisors work on legal and assumed fiduciary duties. Suitability is one way that the advisor may work, and this means that they need to offer a suitable recommendation. In the world of suitability, the advisor can recommend a higher commission product if it suits your needs.

Assumed fiduciary is also an option, and this means that the advisor will do their best to work in your interests, but they’re not legally bound to do so.

Finally, there are legally bound fiduciaries, which we believe offers the best option. There are two times when a financial advisor must be a fiduciary:

  • Certified financial planners are obligated to be a legal fiduciary to hold their CFP designation.
  • Licensing is another time when an advisor may be a legal fiduciary. For example, if an advisor is Series 65 licensed, under FINRA, they’re bound by law to hold a fiduciary standard.

You should be asking your financial advisor about their fiduciary standards and whether they uphold them. You should also ask about licensing so that you have peace of mind that if they’re Series 65 licensed, they’ll work in your best interest.

Fiduciaries Must Disclose Things That May Be a Conflict of Interest

For example, let’s assume that I have a partnership with an attorney where I make money or some form of compensation from the attorney. A fiduciary must disclose this information and allow you to decide on your own.

We’re seeing many clients who are moving to independent financial advisors because of the fiduciary standards they uphold. So, let’s assume that you work with someone at Nationwide. The agent will recommend products that the company offers.

Independent financial advisors aren’t required to recommend specific products.

The Nationwide representative would recommend their own products, even if it’s not necessarily the best option available. Independent financial advisors, like ourselves, can recommend a wealth of products, whether that means the product is from Nationwide or someone else.

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What Should You Consider If Your Spouse Passes Away?

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No one wants to think about what would happen if their spouse passed away. Death is a difficult topic to discuss, but it is an inevitable reality for all couples. It’s important that you and your spouse have peace of mind that if either of you dies, the other has a plan in place that allows them to live the best life possible.

We’re going to help you think through the ideas and questions that will be helpful if your spouse dies.

If or when your spouse dies, your mind will be in a million places at once. Grief, fear and anxiety will overwhelm you. Having a general idea or checklist that can help you through this challenging time can really make it easier for you to overcome a spouse’s death.

You can’t be 100% prepared for death no matter how hard you try, but a checklist and guidelines can certainly help make the impact a little less intense.

A few of the things to consider are:

6 Things to Consider If Your Spouse Passes Away

1. Cash Flow: From Two Incomes to One

Income is a primary concern for most people, even if you’re both retired. We see many cases where one person is still working and passes away, and even times when both spouses are retired and one dies.

The main issue is cash flow because:

  • Maybe the deceased was collecting a pension with no survivorship attached.
  • Perhaps one spouse was still working and generating income and passes away.
  • You’ll lose one source of Social Security income if you’re both collecting. Instead, an adjustment is made where you’ll receive the higher person’s benefits.

Your standard of living can drastically change if your spouse dies and you lose some of these sources of income.

2. Expenses: The Key to Life Without a Spouse

When couples think of retirement planning, they think of retiring together. Most people will plan for:

  • Two sources of income
  • Two sources of expenses

However, even if you’re losing one or more sources of income, expenses will also be less. It’s vital for you to fully understand your expenses when retirement planning as a married individual and a couple.

For example, when your spouse passes on, you may no longer need to pay for:

  • Country club fees
  • Two vehicle payments/insurance
  • Certain medical bills
  • Etc.

Once you know your cash flow and expenses, it will be a lot easier to breathe if the worst happens.

It’s crucial for you to also know where all of the bills are coming from. You have to continue living, and it’s vital to keep these bills current.

3. Estate Settlement Issues

You’ll need to do a few things to your estate if your spouse dies. One thing that comes to mind is an IRA in your spouse’s name. The IRA will need to be retitled when your spouse passes. You may be able to:

  • Become an inherited IRA
  • Be taken over if you’re a spouse

When you take over a spouse’s IRA, you’re effectively rolling your spouse’s IRA into your own. You have to go through the steps to:

  • Change joint accounts to single accounts
  • Take certain accounts and change them to your name

Many accounts may need to be properly transferred to a surviving spouse.

In terms of estate tax, there are fewer issues today than in the past, but with larger estates, it can be challenging to keep track of all property. You might need to:

  • Look through credit card statements
  • Identify certain accounts
  • Locate assets

Because your spouse passed away, you’ll also need to look through your estate plan. Perhaps you wanted certain assets to pass to your spouse, but now that they’re gone, you’ll need to consider what happens to these assets.

4. Insurance Accounts and Benefits

Insurance is a major concern because your spouse and you can have a variety of accounts. You need to be able to:

  • Name accounts
  • Know where accounts are
  • Know how much is in these accounts
  • Etc.

You need to identify and know where all of these accounts are when your spouse passes. It’s essential to keep a running list of these accounts and how to access them. Ideally, when your spouse is alive, you should begin making a list of these accounts so that the surviving spouse can access them.

Insurance and death benefits may come from:

  • Employers that offer group life insurance if they’re a larger company.
  • Veteran benefits for death and burial.
  • Pension survival benefits with certain clauses.
  • If you have a dependent or child under the age of 18 at the time of your spouse’s death, Social Security may have certain benefits available to them.
  • Life insurance policies that may be open.

Insurance is a significant asset when retirement planning because it allows you to have an influx of cash that your spouse will need upon your demise.

5. Taxes

The IRS wants their money no matter the circumstances that you’re personally facing. You may have filed your taxes a certain way when your spouse was alive, but this can abruptly change when they die.

Your house may generate a gain if you sell it.

Provisions need to be thought through thoroughly. This is a major consideration, and we recommend going to a CPA. A CPA will cost a few hundred dollars, but they’ll help you understand your tax obligations and how your tax situation might have changed.

6. Assets and Investments

When you secure your retirement, you’ll notice that you’ve acquired a lot of assets and made numerous investments throughout your marriage. These investments need to transition to you as a survivor.

There may be tax concerns with these assets being transferred to you, so a CPA can help here, too.

A few of the accounts and investments that people may have questions about are:

  • IRAs: If they’re set up properly, the IRA can often be transferred to the surviving spouse without an issue.
  • Stocks: A step up in basis may be leveraged to save you money in taxes.
  • Businesses: Will you continue the business, or is there a succession plan in place? How about the sale of the company and the tax implications that follow?

You may have annuities and other investments that need to be considered. We recommend speaking to a financial adviser or planner to discuss your risk tolerance without your spouse.

Often, your retirement plan will have more risk with two spouses, but now that one spouse is gone, it may be time to reduce these risks.

Thinking of life without your spouse is something no one wants to do, and we’ve made a checklist to help you walk through these things to consider.

The checklist is completely free, but we need to know how to send it to you.

We can send the list either through email or regular mail – it’s up to you.

Call us today to request your own checklist to help you understand what to do when your spouse dies.

Avoid 4 Retirement Investment and Planning Rip-Offs

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Retirement planning is one of the topics that should be on everyone’s mind. When you’re trying to secure your retirement, it’s important to consider rip-offs. There are retirement investment and planning rip-offs that everyone should know about.

4 Retirement Investment and Planning Rip-Offs

1. Fees

Some financial advisors say that they have “no fees,” but the reality is that there are always some types of fees. There are, typically, two types of fees that you’ll deal with, which are:

  1. Flat fee: Often a percentage of the assets being managed.
  2. Commission: Fees aren’t visible to you, but the advisor receives a commission from you investing in certain products.

If the advisor states that there are no fees for their services, it should be a red flag for you. The advisor is in the business of making money, so there has to be fees or commissions being paid.

2. Bait and Switch

A bait-and-switch occurs when someone states that they can help you achieve a certain rate of return that’s higher than the average. For example, let’s assume CDs are offering 0.6% returns, but the advisor or banker states that they’re able to secure a 6% return for you.

How?

You must ask questions. If a rate seems too good to be true, something is off. It’s vital to ask how the interest rate being offered is achieved. There are some offers that are “teaser rates,” and what this means is that during the first year, your rates may be 6%.

After year one, the rate falls back down to a normal rate.

If the advisor states that the financial vehicle offers a 6% or 7% guaranteed return for, say, 10 years, you’re likely being put into a fixed annuity with a rider. The growth rate is based on the interest for the income stream.

What does this mean?

Your income stream from the annuity has a 6% or 7% return, but it’s not something that you can decide to take out all at once.

When rates sound too good to be true, ask more questions. The annuity above is a good product, but if you don’t know that the rate is just for income, you might feel duped. Knowing and understanding the following can help:

  • The overall rate
  • How long the rate will last

Oftentimes, these high rates of return are just introductory rates and won’t be in place forever. Think of credit card offers that aim to have people sign up. Lenders are willing to offer 0% interest for six months or a year to get you to apply. It’s a similar concept here with bait and switch.

3. Outrageous Claims

Rates of return are important if you want to reach your dream of retirement. You need steady, consistent returns to retire. When you’re looking at investment vehicles, there is something called “illustrations.”

These illustrations are claims and may say you can earn 6% – 8% returns.

A fixed annuity may offer these returns on occasion, but that doesn’t mean that you’ll achieve these rates. Illustrations often claim that you can earn rates “up to,” or that others have earned “as much as,” but these are often unique cases.

Chances are, these high rates of returns were very specific cases and aren’t repeatable every time.

Even if an advisor states that they’ve had 10% returns for their clients last year or five years ago, it doesn’t mean that they’ll be able to replicate these returns in today’s market.

Instead, we recommend:

  • Asking for historical return data
  • Really reading the fine print

Outrageous claims are a great way to lure you into a contract or financial vehicle, so be on the lookout for claims that just sound too good to be true.

4. Outdated Beliefs

A long time ago, in the 1900s, there were no regulations in the banking system. When markets fell, customers would go to the bank and start withdrawing their money. The government created the FDIC to support the banking system.

The FDIC is a protection offered to you by the federal government that if the bank goes under, you’ll have protection for your money.

Imagine today, if everyone had the belief of the 1900s, and decided to ignore the FDIC. Some advisors fall into these old beliefs. Just 20 years ago, a lot of people didn’t like annuities and were very much against them.

Today, there are still some advisors stuck in their outdated beliefs that savings in retirement products are bad. 

Holding onto old, outdated belief systems is never a good idea.

Why? 

Offerings change, and the market changes, too. An advisor should look into all financial vehicles and the current state of a financial vehicle today. In the past 20 to 25 years, things have changed and at a rapid pace.

We do recommend maintaining a diverse portfolio of products and would never suggest putting all of your investments into one vehicle. However, there is a time and place for most financial vehicles in a person’s investment portfolio.

Wrapping Up

If there is one take away from the points above, it’s that you really need to take control of your retirement planning. Educate yourself on investment options and don’t be afraid to question how a certain financial product is able to offer substantially higher returns than average.

It’s your money, and you have every right to ask questions to safeguard your retirement.

Do you want more expert advice on how to secure your retirement? 

Listen to our podcast where we discuss retirement planning twice a week, every week.

Social Security Strategies

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Some of the most common questions we receive are related to social security strategies. A lot of people rely on social security to help secure their retirement because it is a source of income that can help you pay for your day-to-day expenses.

But it’s still a confusing topic when beginning with retirement planning because you’ll find a lot of different opinions.

If you’re wondering when you should take your retirement, grab a cup of coffee and continue reading.

When Should You Retire and Take Social Security?

One of the first questions we receive from clients is when to take social security. A lot of people try waiting until they’re 70 to retire so that they can receive the maximum benefits social security has to offer.

The problem is that this advice is based purely on the financial aspects of retirement and not your current situation.

You have a lot to consider, especially if you have a spouse, such as:

  • Age disparity between spouses
  • Health
  • Ability to work
  • Sources of income

For a lot of people, over 50% of their income in retirement is going to be social security, so it may make more sense to retire at 70 to maximize those benefits. The problem is that it’s not always that simple.

If one spouse is a lot younger and is still working and plans to continue working, retiring early may be the best option.

What to Think About If You Take Social Security Before Full Retirement

If you’re planning on taking social security before your full retirement, there is quite a bit to think about. You should be thinking about the following:

Is someone still working? 

If the person is still working, there is a limit to how much they can earn while on social security. For example, in 2021, if you make more than $18,960 during the year, the amount over the limit will result in 50% of the overage being deducted from social security.

This can be confusing to understand, but what it’s essentially saying is that:

  • You earn $28,960 ($10,000 over the limit),
  • $5,000 (50% of the overage) will be withheld

When trying to plan for income, it can be difficult because the withheld amount may mean a three-month gap between benefits being paid.

Spouse earnings will not impact you in this situation.

Is there an issue with permanent reduction?

Your benefits will be reduced permanently once you opt into social security early. It’s important to realize that when you hit full retirement age or 70, your benefits will not go up. Your choice to take social security is final.

Taxes

If a spouse is working and you’re taking social security, it’s important to consider taxation. You must plan for taxes because they will be a financial burden that is difficult to overcome. 

Restricted Application and the Potential Benefit It Offers

If you were born before January 1, 1954, you are eligible to use a restricted application. This is a strategy that allows you to file for spousal benefits first and restrict the application to the spousal benefits only.

What this means is that the person isn’t choosing to use their own social security benefits at this time, so they can effectively wait until they are 70 to maximize their benefits.

If you plan to wait until age 70 and meet the birth requirements, this can really be a beneficial option for you. It’s important to note that your spouse will need to already be on social security or plan to retire before your restricted application is filed.

Let’s take a look at an example:

  • One spouse is on social security that is $2,000 a month.
  • You file a restricted application and receive 50% of your spouse’s benefits, or $1,000.

You can continue taking the $1,000 while your own social security will continue to grow. And you can also, in some cases, claim six months of retroactive benefits.

How Spousal Benefits Work

While spousal benefits are 50%, it’s based on the primary person’s insurance amount. Let’s assume that the person is earning $3,000 on social security, this doesn’t mean that the spousal benefit will be $1,500.

The insurance amount may be $2,400, and the spouse would then receive $1,200.

If the dependent spouse, or the one taking spousal benefits, will also factor into how much the person receives. Why? The dependent spouse’s filing age will be the deciding factor in whether they receive the $1,200 or not.

For example, if the dependent filed at 60, the $1,200 may be reduced by 30%.

Reductions can be as high as 35%.

It’s very challenging when trying to secure your retirement because the social security office will not help you. Why? They’re prohibited from providing advice to you. You will need to work with someone who can help you navigate social security.

Note: You need to be married for 10+ years to receive these benefits.

What Happens If the Higher Earning Spouse Passes Away?

When one spouse passes on, the remaining spouse will receive 100% of the highest benefit amount between both spouses. You won’t be able to receive your benefits and survivor benefits.

Instead, let’s assume, using the scenario above, that the one spouse passes away and leaves the dependent spouse behind.

In this scenario, the dependent spouse can claim the $3,000 in benefits. 

But as with everything related to social security, the age at which you start collecting benefits will matter, too.

You will also receive the delayed retirement credits from the deceased spouse.

Note: You can also collect 50% of an ex-spousal benefit if you were to divorce rather than the one spouse passing on. If you remarry, the benefits will stop. But if the person dies and you don’t remarry until 60 or older, you can still take survivor benefits.

When to File for Social Security If You Know What Age You Want to File

You know what age you want to start taking your social security benefits, but now you need to know when to actually file. Filing should be done 3 to 4 months before you want to receive your first benefit check.

The easiest way to do filings is to use the online portal to apply.

When filing online, be sure to reiterate your plan in the remarks section to ensure that errors do not occur. This is especially important when filing for a restricted application to avoid any processing errors on the side of the Social Security Administration.

There’s a lot to think about figuring out social security strategies for your situation. Sit down with someone and really discuss your options because you may be missing out on key benefits that you can claim.Have you heard our latest podcasts? If not, we encourage you to join our podcast today for access to more than 90+ financial and retirement-related talks.

How to Change Financial Advisors

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If you’ve broken up with your advisor (episode 90 of our podcast), you may be wondering what steps to take to move to another advisor. A retirement financial plan changes and evolves over time, and there are times when moving to another advisor is in your best interest.

There are a lot of reasons to make a switch, and there’s always going to be a move where you transition to your new advisor.

It’s difficult to leave an advisor, but the transition process is rather straightforward.

How to Move from One Advisor to Another

A major question our clients have is what the process looks like when moving from one advisor to another. There are a few ways to make the transition, and don’t worry: your money won’t be lost in transit.

There are a few scenarios that can play out here.

Your New Advisor is at the Same Place

If your old advisor is at the same place as your new advisor, the process is simple. By “place,” we mean a major institution like Fidelity, Charles Schwab or any other major institute. In this scenario, everything stays the same.

You don’t have to worry about account numbers or information changing.

Instead, you’ll sign a few papers that authorize the new advisor to take the place of your old advisor.

This is a rare scenario, but it is the best to be in.

Your New Advisor is at a Different Place

A more common scenario that we deal with is that a client’s former advisor is at Fidelity and their new advisor is at Charles Schwab. In this case, all of your money needs to move in the process, which is still an easy process.

Not much changes, even the way that you look at your account. For example:

  • Your IRAs will still be IRAs
  • Joint accounts stay joint accounts
  • Etc.

For the most part, things will remain very similar when changing advisors.

Even if you have stocks that you want to hold onto, you can transfer them “in kind.” You don’t have to sell and then rebuy these stocks during the move.

Paperwork Process Required

The custodian (in this case, Charles Schwab) will require paperwork to understand who you are. An application is required, which includes all of your basic information, such as your name, address and so on.

  • If you’re transferring an IRA, you’ll need to list your beneficiaries.
  • Brokerage accounts will need to be set up, and we recommend adding in a TOD, or transfer on death.

Your advisor will walk you through all of these steps and explain what’s taking place. You’re there to sign off on what’s happening and to finalize the transfer.

  • Transfer document. A transfer document will need to be signed, which gives permission to move assets from one custodian to another. For example, if your assets are in Fidelity and you’re moving to an advisor that uses Charles Schwab, you’ll sign this document to allow the assets to transfer. You’ll need to attach a current statement to the document, too.
  • Advisor agreement. Your advisor will want you to sign documents that outline the services that they’ll render. 
  • Risk tolerance document. You’ll likely have to sign off on paperwork involving risk tolerance so that both you and the advisor know what level of risk you’re willing to take.

Note: In 99% of cases, your accounts will transfer over to an identical account with little more changing than the name of the custodian on your account statements.

It’s important to note that your former advisor doesn’t have to sign off on any of these documents. Since you’re changing advisors, not requiring a signature makes the entire process much easier on you.

The advisor will receive a notification of your money moving and that you’re moving to another advisor.

Process After Document Signing

After you’ve signed all of the paperwork, there’s a small waiting period where your accounts open quickly and sit at $0. The transfer process often takes 7 to 10 business days, so during this time, your assets will begin their transfer.

Once everything is transferred, your advisor will then begin looking through all of your assets and start working on making any changes you’ve discussed to reach your retirement goals.

Common Questions When Moving or Starting Work with an Advisor

What if you want to move from one account type to another?

What if you’re not moving from another advisor but you’re moving from a 401(k) to a traditional IRA? In this case, the process often involves a simple phone call and won’t have any tax ramifications involved.

In this case, the 401(k) will send you a check in the benefit of you to the custodian.

So, the check with all of the funds from the 401(k) is sent to you and written out to your custodian. You pass this check to your advisor, and it will now be rolled over to a traditional IRA account.

What if you handled all of your own investments but now want to work with an advisor?

If you have handled all of your own investments, it’s as simple as creating a new account with a custodian and following a similar path as outlined in the “Your New Advisor is at a Different Place” section above.

Moving to a new advisor may be required to secure your retirement. The process itself is easy, and most advisors will walk you through the process step-by-step to get started.

Want to secure your retirement?

Click here to access our 4 Steps to Secure Your Retirement video course.

How to Choose a Financial Advisor After a “Breakup

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You put a lot of time and effort into choosing a financial advisor. An advisor learns all about your financial situation and your future goals. And when it’s time to move on to a new advisor, it can be really difficult.

We’ve had a lot of clients come to us over the years that want to move on to use our services.

But they have an emotional attachment with their current advisor.

It’s difficult to move on to a new advisor when you know the person’s family members or have relied on them for years, but you also know that it’s the right time to move on. For a lot of people, choosing a new financial advisor is almost like breaking up with someone because of that deep, emotional bond that has formed.

Why Break Up with a Current Financial Advisor?

Retirement planning is a very important part of your life. Once you’ve reached retirement age, you’ve either planned properly or you didn’t. You can’t go back and correct past mistakes when you’ve reached 65, 67, 70 – whenever you choose to retire.

For a lot of people, they often feel that leaving a current advisor requires a deep reasoning.

It doesn’t. 

Your advisor is helping you manage your money. If you’re not satisfied with the person’s services or just want to try another avenue, you have every right to do so. You’re always in control of your financial advisor choice.

The most common reasons why people breakup with their financial advisors are:

  • Communication has broken down, or you really never hear from your advisor.
  • You’re simply not happy with the performance or experience you’re having with your advisor.
  • Life changes that occur, and your objectives and goals change.
  • You need an advisor that offers more services or is setup to handle more of your concerns.
  • Advisors change their overall philosophy, and the change isn’t the right choice for you.
  • Your advisor is retiring soon, so you begin looking for a new financial advisor.
  • Your advisor’s team is changing and you’re no longer working with the advisor that you want.

The truth is that you are investing your money into retirement. Your life goals and objectives are either being met or not met with your advisor, and it’s your right to leave an advisor if you want to.

How to Choose a Financial Advisor

When working with clients who want to secure their retirement, we’ve found that communication is the main factor in them no longer working with an advisor. Because communication is key, it’s often best to start here when choosing a financial advisor.

Ask the advisor about:

  • Types of communication
  • Frequency of communication
  • Types of reports or statements provided to you
  • Etc.

If the advisor shrugs off these questions or seems annoyed by them, you know that they don’t take communication as seriously as you need them to.

But there is a lot more to look for in an advisor than just communication.

You also want to consider the following:

  • Are you nearing retirement? If so, working with a specialist who focuses on near-retirement planning is often in your best interest. These advisors will be able to fill in gaps that past advisors may have missed, and they’ll be able to provide guidance that can solidify your retirement.
  • Do they match your personality? Your personality should mesh with the advisor’s personality. When both personalities mesh well, you’ll have a much better experience working with them. An advisor shouldn’t force you or try pushing you into using their services or to convince you that they’re right.
  • Will your advisor help you with goal alignment? You have goals, and the advisor should help you with goal alignment. If you want to keep your risk low and the advisor is trying to push you into a potentially high-risk investment, such as cryptocurrency, you may want to look elsewhere. The advisor should discuss your options and maybe recommend other strategies, but they shouldn’t try pushing you in one direction or another if you’re uncomfortable with their recommendations.
  • Does the advisor take a holistic approach to retirement planning? A holistic approach, for us, means that we look at the entire plan. There’s more to retirement than investing. Holistic approaches consider taxes, Medicare, long-term care, Social Security, estate planning and your goals. 

How to Break Up with Your Advisor

Breaking up with an advisor can be done in a lot of different ways. A lot of people make this a pressure-filled time with anxiety and stress, but breaking up with an advisor doesn’t need to be this complicated.

Instead, you can send an email, call the person or go see them in person.

We recommend that you keep it simple no matter which method of communication you use to break up with your advisor. If you make it complicated or explain why you’re leaving, it can lead to justification and make the entire process more difficult than it needs to be.

Simply say that you’ve chosen to go in a different direction, thank them for their services and explain that your decision is the best choice for your family.

Technically, you don’t even have to do that. You can also opt to move to another advisor with no explanation needed. Your new advisor should be able to access all of your accounts and help you with the entire moving process.

Click here to access our 3 Keys to Secure Your Retirement Master Class for FREE.

Retirement Financial Plan

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Retirement planning has a lot of moving parts, and if you’ve been reading our blog or listen to our podcast (listen here), you know that we’re big on creating a holistic retirement financial plan.

We believe that you should have a retirement plan that is well-put-together and really hits on all of your goals.

How can you create this plan?

With a team.

We’re going to help you start to secure your retirement with a quick overview of what your retirement financial plan team should look like.

Retirement is a Lot Different than Most People Realize

A lot of people think about their retirement briefly while they put money into their 401(k) plans, and a lot of people know when they want to retire and take social security. But when you sit down and get closer to retirement, you’ll realize that there are a lot of moving parts to consider.

Retirement is more than just putting money away, although money plays a big role in retirement.

And when you begin doing your research, you’ll find a lot of advisors to choose from, which can make your head spin. We’re going to discuss the key people that should be involved in your life and can help you retire the way that you want.

Advisors to Hire and Work with to Secure Your Retirement

Advisors help you go well beyond just a 401(k) and saving money. These professionals will assist you with investing your money in many cases. For example, you may have an advisor that works with your employer and will:

  • Assist with asset allocation
  • Invest for you
  • Offer a quarterly report
  • Provide yearly statements

These advisors work with money management, but they fail to look at the whole of your retirement.

We take a holistic approach to retirement. For example, you’ve received a paycheck from an employer, and now that you’ve saved money to retire, it’s time to pay yourself. You have access to this money at any time, but if you’re spending way beyond your means, your retirement buckets can quickly dry up.

An advisor that works to invest your money only isn’t considering how you’ll pay yourself.

You’ve saved and grew your money, and that’s where a lot of advisors stop. They don’t consider how you’ll manage your money after retirement, nor will they continue checking up to understand your goals. As your goals change, your asset allocation should also change.

Money managers grow and build money; not plan for when you want to retire.

Your money manager won’t consider:

Holistic advisors tend to look at your retirement plan as a whole. There’s a lot to consider, so these individuals will discuss your retirement desires with you and help make retirement possible.

Types of Advisors to Work With

You may work with a variety of advisors, including:

  • Money manager or financial adviser. These professionals will be focused on investing and growing your money.
  • Tax advisor. A tax advisor is key because they’ll help you find innovative ways to shelter a lot of the money that you save for retirement so that you don’t have to pay it in taxes. Imagine needing $1 million to retire and not realizing that you owe $250,000 in taxes.
  • Estate planner. An estate planner will help you with ensuring that all of your documents are in order so that if you become incapacitated or want to leave assets to children or family members, you can.
  • Social security specialists. These individuals will help you determine the best time to apply for social security. They’ll also assist you with maximizing your payments by retiring later. 
  • Insurance experts. An insurance expert can help you obtain the best life insurance or health insurance just in case you or a spouse pass on.

No one is a master of all aspects of retirement, but with the right team, it’s possible to bring the collective knowledge of these professionals together in one place.

Working With a Holistic Team

A holistic team, like us, will help with all aspects of your retirement. We always start with your retirement plan, which is an extensive plan that looks at your retirement goals, needs, and the “what ifs” that pop up before and during retirement.

Comprehensive plans can and should be updated annually, and they’re a clear roadmap to your retirement.

Once we have this plan in place, you can sleep better at night. You’ll know what it takes to retire and can follow a roadmap to success.

And since we’re a holistic advisor, we bring in:

  • Tax advisors
  • Social security specialists
  • Other advisors

Your team must look at your goals, and how they change, so that you can confidently enter retirement. Working on just investing your money isn’t enough to retire. Bringing together the right team that offers a holistic approach will look beyond your investment portfolio and really bring everything together, from social security, to tax considerations and so much more.

Click here to sign up for our 3 Keys To Secure Your Retirement complimentary training.

Life Insurance in Retirement

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Life insurance is a complex subject. There are people that will tell you that you need life insurance, and there are others who would rather focus on their retirement planning. And there’s really no wrong or right answer here.

Some people want to leave money to loved ones or spouses, and their way of doing this is through life insurance.

Today, we’re going to discuss life insurance in terms of retirement planning with an objective view. Not every client that we work with will benefit from life insurance, but there are times when life insurance may align with your overall goals.

But before you can really decide on getting life insurance, it’s important to know what types of insurance are available:

  • Term insurance
  • Whole life
  • Universal life
    • Variable universal life
    • Indexed universal life

All of these types of life insurance are important to know about because they have their advantages and disadvantages. If you don’t know these key points, how can you determine if a certain type of life insurance is right for you?

Understanding Term Life Insurance

Term policies are a type of life insurance that is the easiest to obtain. You take out term life insurance for a period of time. Let’s say that you pay into the policy for 10 to 20 years. If you die during this period, the insurance will pay out a death benefit.

With every type of life insurance, death benefits are tax free.

If a beneficiary receives a $1 million payout from your insurance, they don’t have to pay a single penny in taxes, which is very beneficial.

Why Term Life Insurance Makes Sense

Term life policies are cheaper and easy to get started with. A lot of people take out a term policy when they’re younger so that the person’s family can pay their bills or even pay off the house if you die.

You may even receive this type of insurance for free from your employer.

Sometimes, the policy can be expanded when it’s from your employer, which allows you to pay lower rates for even higher levels of insurance.

Underwriting is common, so you will have to take a physical exam to satisfy the insurer. We’re also seeing a lot of insurers online offering term life policies with no underwriting. While no underwriting is beneficial and easy to get started with, the insurer takes on more risk, meaning your premiums will be higher.

Understanding Whole Life Insurance

Whole life is an insurance that is offered until the end of your life. Your policy will pay out a death benefit, and it can also accumulate a cash value. The policyholder can access the cash value of their policy during their lifetime to:

  • Invest the money
  • Borrow against it
  • Withdraw it

When legacy planning, let’s say that you want to leave your two children $500,000 each. You can use your IRA to pay for your whole life policy and leave the money to your children tax free.

The cash value of the whole life policy is very beneficial because you’re able to use the cash value you build. 

Understanding Variable Universal Life Insurance

A variable universal life (VUL) policy is similar to a whole life in that it is for the entirety of your life and has a built-in savings component. The main difference is that this savings component has an investment subaccount that is similar to a mutual fund and is invested on your behalf.

You can lose cash value when investing in a VUL.

Understanding Indexed Universal Life Insurance

An indexed policy is the same as a VUL, but the key difference is that instead of a mutual fund being used to invest your cash value, the investment is put into an index. This is very similar to an index annuity.

The cash value can be linked to one or multiple indexes, such as the S&P 500 or NASDAQ.

Investing in an entire index allows investors to automatically diversify their portfolios. You also can’t lose your cash value in an indexed policy. You’ll be able to rely on a nice rate of return with an indexed universal life plan.

Let’s imagine, for a minute, that you have cash that is stashed away in a CD or a savings account. You could, instead, put this money into an indexed policy that earns a 2% to 5% return (it can also be much higher).

And you have access to 100% of this money at any time that you need it.

If you die, all of this money and the death benefit will go to your beneficiaries.

When talking about retirement planning, life insurance is a small piece of the plan. You can leverage the right type of account for its tax advantages and even grow your money while still having access to it.

The added perk is that the death benefit is dispersed to your beneficiaries.

Life insurance is fully underwritten, meaning that the insurer will want to look at your medical history. If you have some medical issues but they’re under control, you might still pass-through underwriting.

For example, let’s say that you have high blood pressure. You might assume that you won’t be able to pass through the underwriting. Medications can help get your blood pressure under control, and if it’s under control, you have a good chance of getting approved.

We believe everyone should consider life insurance, but for some people, this type of insurance won’t make sense. The best thing that you can do is educate yourself on the benefits of life insurance and determine if it’s the right choice for you.

We can also discuss your options and help you determine if life insurance is the right choice for you. 

For some people, it may not be part of their retirement plan. But for other clients, life insurance can provide you with peace of mind that you’re leaving your family with financial security when you’re gone.

Click here to schedule a free introduction call with us today.

Beneficiaries – What you need to know!

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When you secure your retirement and have been diligent in your retirement planning, you’ll quickly find that your concerns may grow. One of the most common questions we get from others is: how to leave money to the next generation.

Our clients have a lot to say about leaving money to the next generation, including:

  • I’ve given enough to the next generation.
  • My goal is to enjoy my retirement. The kids can have what’s leftover.

But what happens if you’ve done everything that you wanted to do? You’ve traveled, purchased a vacation home and you still have more money than you need. Chances are that you’ll pass away with money that is left for your heirs.

You can use smart retirement planning to make sure that anything left does go to the next generation.

Account Types That You Can Setup

A lot of accounts can be setup so that the remaining funds can be passed down responsibly, including:

  • IRAs
  • 401(k)s
  • Savings
  • Brokerage accounts
  • Life insurance
  • Annuities 

You may even have private property, such as a home or other belongings that you want to pass down to either the estate or a specific heir.

How We Would Handle These Accounts

When you enter into your retirement, you’re likely going to have multiple accounts that you’ve put money into, with the most common being an IRA and 401(k). Accounts always have their own set of issues:

Traditional IRAs/401(k)s 

These haven’t had taxes deducted from them yet, so you need a withdrawal plan in place. But these accounts also make it easy to add a beneficiary to them. You can often log into your account, such as your Charles Schwab account, and add the beneficiary online.

We’ve had a lot of clients that have forgotten about these accounts completely.

If you’re juggling multiple accounts, it’s easy to forget one that may have a few thousand dollars tucked away in it. There’s also the risk that you have already added a beneficiary that you may no longer want to leave money to. For example, your ex may have been the beneficiary, and if still listed as such, he or she will be the beneficiary even if that isn’t your wish.

We recommend that you secure your retirement by consolidating these accounts so that all of your money is in one place, and it’s much easier for you to manage these accounts. 

It’s important to note that 401(k) accounts can be consolidated down into an IRA if you’re no longer working or aged 59 ½ or older.

Savings Account

Savings accounts may not have high interest rates, but they’re a good option to have access to cash when you need it. These accounts lack the great returns you’ll see with other accounts, but you can easily setup what is known as a TOD, which is a transfer on death, or POD (payable on death).

When you set these options on your savings or options, the account is able to avoid probate, which your beneficiaries will thank you for.

You can also setup multiple beneficiaries because what happens if your main beneficiary dies before you do? 

Brokerage Accounts

Setting up a brokerage account properly makes it much easier to separate assets even when compared to a will. The brokerage account may have a beneficiary designation, POD or TOD, that you can designate.

You would name someone to your account.

When you die, all the person has to do is file a claim and provide proof of who they are. This is much easier for the beneficiary than having to deal with probate or the courts.

Life Insurance

A life insurance account is one of the best accounts that you can leave to an heir. Why? These accounts are paid tax-free, so beneficiaries never have to worry about advanced tax strategies to keep more money in the estate.

Roth IRA

Roth IRAs are tax-free, too. The beneficiary is required to take the money out within a ten-year period.

Assigning Primary, Contingent and Further Benefits

Retirement planning should include knowing who you want to assign as your beneficiaries. The standard beneficiary documentation will include:

  • Primary beneficiary, which would be your first choice of a beneficiary. This may be your wife, child or anyone you like.
  • Contingent beneficiary or beneficiaries, which are the person(s) that you’ll want to leave your accounts to if the primary beneficiary is deceased at the time the document is executed.

We recommend that if you have a second contingent, you’ll want to add them as well. A good example of this would be your grandchildren, which would be second contingents. You can have percentages assigned to all of the grandchildren, and this is actually tax advantageous in most cases.

An example of the tax advantages:

  • You want to leave money to one grandchild to pay for their schooling.
  • The child’s parent is wealthy.
  • You might think that leaving the account to your child and allowing them to pay for schooling is beneficial, but it is not.

If you list the grandchildren, the parent can use “disclaiming,” which would help them not go into another tax rate. The grandchild will have to take the money out, allowing them to, in most cases, pay far less taxes if the grandchildren are listed.

You need to make sure that the grandchild is listed as a second contingent so that the money can be passed to them rather than their parents through disclaiming.

This is a tactic that is primarily used for a 401(k) or an IRA.

Per Stirpes and Per Capita

When you fill out a beneficiary form, you’ll often have to choose by per stirpes and per capita. If you don’t choose one, it will normally default to per capita. What does this mean? This means that if you put down three beneficiaries, and one of your children dies, their portion would be dispersed to the two remaining children.

This means that the two beneficiaries would now receive 50% of the account.

If you want the money to go to that child’s grandchildren, you will put “per stirpes” next to your child’s name. This would disperse the funds to your child’s children evenly instead of the money going to only your children.

These are some of the best retirement planning methods that you can use to leave money to the next generation. Even if you don’t want to plan your retirement around the next generation, these tactics can help keep money in your estate.

If you want more information about preparing your finances for the future or retirement, check out our complimentary Master Class, ‘3 Steps to Secure Your Retirement’. 

In this class, we teach you the steps you need to take to secure your dream retirement. Get the complimentary Master Class here.

Click here to schedule a free, complimentary call with us to discuss how you can leave money to the next generation.