Do You Have All Your Eggs in One Basket in Retirement?

Diversification is a conversation that you should have to avoid risks in retirement. You’ll hear the term of having, or not having, “all your eggs in one basket.” Clients even come to us with the idea of three financial advisors. They do not want to have all their money in one place.

But what is diversification, really?

Let’s imagine that you have three advisors with three different custodians:

  1. Schwab
  2. Fidelity
  3. Vanguard

You have three custodians and three advisors. Does this mean that you’re diversified? If all three advisors have a similar philosophy, your investments in these custodians are likely going to be similar.

For example, all three may choose large-cap growth.

If you have money with each advisor across large-cap stocks, you’re truly not diversified.

Could You Be Widely Diversified with One Advisor?

Retirement planning needs to feel secure. You have risks in retirement naturally, but you can diversify by putting money into multiple financial vehicles. Most people have their money in “buy and hold” investments, and it does work, but are you willing to sit during the bad times?

If you go back to 2021 and 2022, you know what it’s like to sit through a buy-and-hold scenario when stocks are down.

For our clients, we follow four major themes or strategies in portfolios:

  1. Core strategy, which is a theme that fundamentally focuses on good data that is in front of us. Recession talk led us to be a little defensive. The core strategy looks at what we think will happen in the short- and intermediate-term in the markets. We have 5 – 7 Exchange Traded Funds (ETFs) within this strategy alone. What this represents is, many times, thousands of stocks within the ETFs.
  2. Tactical strategy, which is the theme that looks at what’s working right now. In this strategy, you’re looking at AI, technology, and large-cap stocks (like Amazon) that are running away with the market right now. This portion of the portfolio goes into these types of ETFs. If nothing is working, like a 2022 down market, we may decide to shift to lower risk assets, such as treasuries, to reduce risk and preserve capital.
  3. Structured notes, which is something our clients love and is still rather unique. We work with banks to receive a “yield,” which is sort of like interest on a CD. The risk is low, and rates (at the time of this writing) are 8% – 10%. However, as interest rates come down, the yield will also come down. Structured notes are somewhat of a bond alternative. You need to have ultra-high net wealth to get these notes as an individual, but since we manage many clients, we can go to the bank with larger purchasing power.
  4. Fixed income, which is bond ETFs and is actively managed. Since short-term bonds are going well, we’re investing in them a lot right now. Over time, we’ll move to medium- and long-term bond options as short-term starts to be impacted by interest rates.

You can secure your retirement with great diversification using these strategies. We believe that there is no singular perfect strategy for your money. Utilizing tried-and-true strategies when investing in the market to safeguard our client portfolios as much as possible.

Diversifying Outside of the Market

We have many clients who want to grow money with no downside or market risks. Our choice for diversifying outside of the market is a diversified portfolio of fixed annuities. The annuities are part of an insurance, so they work very well in helping us create a highly diversified portfolio.

Using an extreme example, let’s look at Warren Buffett.

Buffett recommends investing in insurance companies because they’re:

  • Highly stable
  • Regulated

When you work with a group that helps you diversify this way, it is a great way to spread your money out and see it all in one report.

You can see your money all on a report where nothing overlaps, and everything is working together to secure your retirement.

We had a meeting with someone who is not working with us yet, and their money was spread out in multiple areas, such as multiple 401(k)s and investment accounts.

The person was frustrated because their money was spread out everywhere, which made management much more difficult.

Diversifying your investments among different strategies is a great start to helping you get peace of mind in retirement.

Schedule a call with us if you want to talk to us about diversifying your retirement.

April 8, 2024 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 April 8, 2024

2024 1st Quarter Economic Update for Retirement

In this Episode of the Secure Your Retirement Podcast, Radon and Murs speak with Andrew Opdyke about a 2024 1st quarter economic update and the expected economic changes in the second quarter. Andrew is a Certified Financial Advisor and Economist at First Trust Advisor. Listen in to learn how the current concentration performance and the 2024 elections will impact the market volatility and economy, respectively…  

2024 1st Quarter Economic Update for Retirement

Every three or four months, we have the privilege of having economist Andrew Opdyke on our show. He’s back to help us make sense of the economy ahead because, as we all know, 2023 ended better than many people expected. We had ups and downs throughout 2023, but the start of 2024 has proved to be rather positive. Will it stay that way?…

2024 1st Quarter Economic Update for Retirement

Every three or four months, we have the privilege of having economist Andrew Opdyke on our show. He’s back to help us make sense of the economy ahead because, as we all know, 2023 ended better than many people expected.

We had ups and downs throughout 2023, but the start of 2024 has proved to be rather positive.

Will it stay that way? We asked Andrew to start our conversation about the Q1 2024 economic update.

What Andrew Has Seen in 2024 So Far in Q1 2024

We’ve seen some strong and weak data in 2024. At the end of 2023, the expectation was that the Fed would cut interest rates six times in 2024. Instead, we’re likely to see two or three rate cuts instead.

The Fed really wants to get inflation down to 2%, which is positive.

Personal consumption expenditure prices ticked higher last week on a year-on-year basis compared to the prior month. Inflation on the month was 3%, and there’s a lot going on here:

  • Russia-Ukraine war
  • Israel–Hamas war
  • Earlier last week, a boat collided with the Francis Scott Key Bridge in Baltimore.

All of this is impacting economic recovery.

If inflation remains higher than the 2% the Fed wants to achieve, interest rate cuts may wait even longer. With all of this said, the economy is growing, consumers are continuing to spend, and only time will tell how things will play out.

In Q1 2024, markets are up, with strength in AI and Nvidia and the hype around these new technologies.

While the markets did react slightly to the lack of rate cuts for a day or two, there has been less pushback than expected.

Why Did Markets Not See a Pushback with the News on Rate Cuts?

If you look back to last year, we’re kind of in a continuation phase. At the beginning of 2023, if you had told people that the Fed was going to raise rates and that profits were going to be flat or slightly down, very few people would have predicted that the market would rise 24% in 2023.

Instead, what we saw was people willing to pay more for certain company stocks.

There’s almost a disconnect between the logic of the market’s performance because the top 10% of companies have about 75% of the market cap. Growth is sort of condensed in these companies, and this is the highest we’ve seen it going back about 100 years.

If you look at smaller cap companies, they’re still trading at relatively normal levels.

The question is, what happens if market conditions impact these major stocks that account for 75% of the market cap and everyone starts selling? We could see a lot of volatility.

Right now, the market is moving on the idea of AI and its potential, but we haven’t really seen the profits from the technology to justify this. We’re in a phase where we’re seeing growth based on potential hopes and expectations rather than evidence that these technologies will be the game-changers companies predict.

Elections, Negative Conversations and the Year Ahead

Election season is always interesting because of negative conversations, uncertainty, and doubt. We just don’t know what policies will look like or how they’ll impact the market, so it leaves a big question mark for investors.

And while we have a presidential election every four years, the market does brace for the mid-term elections every two years, too.

Presidential elections do heighten concerns, but what we notice is that there is always emotion during one of these elections. You have people on all sides saying, “If this person wins, I’m moving to Canada,” and it showcases:

  • 50% of the country will be happy
  • 50% of the country will be unhappy
  • Everyone is going to go back to work

Regardless of who wins the election, you can be positive that Apple will be building another iPhone, and companies will continue producing products.

What the data tells us is that we’ll put a bunch of emotional energy into the election, and markets will have volatility before and during the election. But when the results come in, the market will tend to rise.

Once an election is over, companies tend to continue with their plans.

Short-term volatility is likely during an election, but after the “smoke clears,” markets tend to pick right back up, barring any major economic issues.

The Potential of a Recession and the Outcome

We may still see a soft landing and a potential recession, but it’s very unlikely to be a deep one. GDP numbers show that the U.S. economy grew 3% last year. Government purchases accounted for two-thirds of the growth, and we had a $1.8 trillion deficit.

Activity was led by healthcare and the government, which were responsible for roughly 50% of all job gains.

During normal times, these two account for 17% – 18% of all job gains.

When you dive into things, you’ll notice that there needs to be some healing to where the workers are. We haven’t seen a real transition back in certain sectors, such as tourism and restaurants.

Small- and medium-sized businesses are still facing an increase in rental costs, hiring, lending, and more.

Government support is really helping support the economy, but in other sectors, we are seeing companies adjust, such as in the tech sector, where layoffs are occurring. We’re at a point where there is a fine balance of government spending propping up the economy and the private sector readjusting.

We may see a weakening in employment, but if a recession does occur, it is likely to be a weak one.

Top Concerns for the Rest of 2024

If the Fed starts listening to the market and what the politicians want to happen, it poses a big risk. The Fed needs to stay the course and wait to cut rates until inflation is down enough because if they don’t, it can lead to inflation accelerating again.

Starting to cut rates too early will lead to short-term gains, but in the long term, we would need to raise rates again, restarting the whole cycle.

Spending remains too high.

The Fed lost $140 billion last year because they paid banks to hold onto the $200 billion the Fed gave to the banks a few years ago. We do need to get spending back in check, reevaluate and determine what is sustainable.

In an election year, parties want the economy to look its best. There is a concern that the wrong choices will be made to prop up the economy so that it looks good going into the election, even if that means long-term issues.

Excitement Outside of the Election

We’re seeing some broadening, which is always a positive thing. Earnings for the top 7 companies rose roughly 24% – 25%, but the rest of the 493 companies in the top 500 saw earnings decline 4%- 5%.

This year, we’re seeing earnings growth for the rest of the 493 companies.

You must remember that companies have had to do a lot and adapt to:

  • Supply chain issues
  • Worker shortages
  • Regulations
  • Interest rates

Many companies have found ways to be more productive and consistent with results. If the Fed continues to do its job and reduce inflation, we’re really putting these companies in an even better position in 2025.

Broadening out will ultimately be beneficial in the long term, even if the market isn’t reflecting it just yet.

Click here to listen to other episodes of our podcast.

 

April 1, 2024 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 April 1, 2024

Sequence of Returns – How It Could Affect Your Retirement Plan

In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss the impact of the sequence of returns on your retirement plan. The sequence of returns is the risk associated with how your money makes or loses money, and it can significantly impact your retirement plan.  

Sequence of Returns – How It Could Affect Your Retirement Plan

Sequence of returns is how long your money will last in retirement. If you’ve been reading our blog or a Secure Your Retirement podcast listener for any length of time, you know that we have a unique approach to how we set up assets to avoid the negative consequences of sequence of returns.

Sequence of Returns – How It Could Affect Your Retirement Plan

Sequence of returns is how long your money will last in retirement. If you’ve been reading our blog or a Secure Your Retirement podcast listener for any length of time, you know that we have a unique approach to how we set up assets to avoid the negative consequences of sequence of returns.

How Do We Approach Your Money Setup?

Our approach to discussing your money set up often starts with three main bucket types:

  1. Cash Bucket (ex: cash in the bank, easy to get to and emergency money).
  2. Income and safety bucket (provides income in retirement and is not impacted by stock market risks)
  3. Growth bucket (equities, stocks, bonds, structured notes and similar).

These three buckets are used to help visualize and plan for your retirement financial goals.

What is Sequence of Returns?

Keeping the buckets in mind, let’s take a closer look at “sequence of returns” and how it impacts your retirement planning.

Sequence of returns is a risk that we consider when building our retirement strategies.

In a nutshell, it asks the question: over the years, how much money will you make and lose?

If you put your returns into a chart by year, this is a sequence of return. You may:

  • Earn 10%
  • Earn 5%
  • Lose 4%
  • Earn 3%

Your withdrawal strategy will depend on these returns.

If you’re invested and working, you have time to recover from down years. If you have 10 –15+ years until retirement, you can recover from these down years.

But if you’re closer to retirement or in it, you don’t have the same luxury of time and income to spur recovery.

For example, imagine begin retirement in a bull market, where growth is high and the market is going strong. Growth years before having issues in the market is ideal.

Then, imagine going into retirement in 2022 with a bear market, when major indexes were down 20% – 30%.

The 12-month decline of 2022 still requires you to draw on your assets. So, if you have a down year and take $50,000 out of the account, it makes it all that much harder for you to grow your money again.

Note:

  • If you lose money, it takes longer to make it back
  • Withdrawals will make recovery harder because you’re not putting money back into the account

Remember, you’re not saving for retirement any longer. You rely on returns for income.

Using our bucket strategy, we help safeguard clients from the sequence of returns.

How?

If you experience a major drop in your investments, the income bucket can cover your bills and you don’t have to touch the growth bucket. Not touching the growth bucket is ideal because it allows you to recover from losses faster.

Once the growth bucket is growing nicely again, you can take money out of it and replenish the income bucket. Let’s take a look at how this strategy could help in different markets.

Scenarios of Sequence of Returns

We’re going to outline two scenarios for you where you have $100,000 in a growth bucket and need to withdraw $5,000 per year from it.

In this case, you’re withdrawing 5% of your bucket per year.

We’ll be looking at these two scenarios over a 15 year period:

  1. Upmarket return
  2. Down market return

In both scenarios, when you add up all the returns earned on the $100,000 and divide by 15, the average rate of return is 4.5%. The withdrawal for both scenarios will be $5,000 a year. Both sides have the exact same growth percentages.

Keeping that in mind, let’s walk through both scenarios.

Upmarket Return

In this scenario, the $100,000 has an 8% return, and you’re withdrawing $5,000 per year, so at year 15 you’re left with $103,000. Again, it earns:

  • +11%
  • +18%
  • +14%
  • +12%
  • +9%
  • +11%

And like markets do, some down numbers start to pile up at this point. You’re frontloaded with positive years and then hit with some down years.

Down Market Return

A down market return doesn’t have this 8% – 18% growth like the person entering retirement did with the up market. You enter with five years of negative returns of:

  • -5%
  • -6%
  • -15%
  • -8%
  • -4%

During the first five years, the returns are down. You’re not making any returns, but then you hit a growth spurt and have returns of:

  • +5%
  • +7%
  • +9%
  • +11%
  • +9%

In the second-half of this retirement outlook, you have some great returns. Since both scenarios have an average growth of 4.5%, you might assume that the accounts would be similar in the end.

What were the results for the two scenarios of the growth bucket account?

  • Upmarket Return Account: Started with $100,000, withdrawing $5,000 annually. At year 15, the ending balance is $105,944.
  • Down Market Return Account: Started with $100,000, withdrawing $5,000 annually. At year 15, the ending balance is $35,889.

As you can imagine, the down market account leaves the person with significantly less money in their accounts.

The key difference? Stock markets have positives and negatives. Unfortunately, the stock market doesn’t care when you retire.

Had the three-bucket strategy been used, the down market scenario could have reduced losses by withdrawing from the income bucket rather than the growth bucket.

Buckets provide us with predictability rather than the stress and anxiety that comes with sequence of returns.

If you want to talk and discuss your retirement plan further, we’re here to answer your questions and help you find peace of mind in retirement.

Click here to schedule a complimentary call with us.

March 25, 2024 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 March 25, 2024

Navigating Tax Withholding – A Guide for Retirees

In this Episode of the Secure Your Retirement Podcast, Radon, Murs, and Taylor discuss navigating tax withholding for retirees. When you retire, you have various sources of income, and you can choose to either withhold the tax on them, make estimated tax payments throughout the year, or do a combination of both.

 

Navigating Tax Withholding – A Guide for Retirees

While you’re working and earning a salary, your employer handles tax withholdings. When you retire and transition to multiple sources of income, it’s worth reviewing your tax situation to be sure you’re withholding enough to avoid any surprise payments and/or penalties due at the time you file your return.

Navigating Tax Withholding – A Guide for Retirees

Taylor Wolverton joined us on our podcast this week, and for those who don’t know, she’s our go-to person for everything taxes. This week we’re discussing tax withholding, which can change considerably when you retire.

While you’re working and earning a salary, your employer handles tax withholdings. When you retire and transition to multiple sources of income, it’s worth reviewing your tax situation to be sure you’re withholding enough to avoid any surprise payments and/or penalties due at the time you file your return.

What is Withholding vs Estimated Tax Payment?

There are two main ways to pay taxes (you can do a combination of both) which include:

  1. Withholding from income sources
  2. Making estimated tax payments

For our first method, taxes can be withheld from pensions, social security, IRA distributions, etc. Once you have your withholdings set up properly, this option requires the least amount of effort to maintain.

Estimated tax payments are another option and are due quarterly. At the time your tax return is filed, it’s common for your CPA / tax preparer to help you estimate how much you’ll need to pay every quarter with vouchers listing the amount to pay and when you need to pay it. You can go to IRS.gov and your state government website to make your quarterly payments.

The payment due dates are not even quarters and are:

  1. April 15th (for tax due on income received January 1 – March 31)
  2. June 15th (for tax due on income received April 1 – May 31)
  3. September 15th (for tax due on income received June 1 – August 31)
  4. January 15th (for tax due on income received September 1 – December 31)

The IRS requires taxpayers to ‘pay as you go.’ For example, if you sell highly appreciated stock before the end of March, the IRS requires that you make an estimated tax payment for the tax due on that sale of stock by April 15th of the same year. If you sold the stock during the month of November, your estimated tax payment would be due by January 15th of the following year. The potential consequence of not making estimated tax payments on time is underpayment penalties from the IRS which will be determined and reported on your tax return once it has been filed.

What You Need to Think About: Social Security

Social Security is something we review with our clients annually. You might receive your benefits immediately and your spouse years from now, so there may be a transition period for some families to consider.

The default withholding amount on Social Security is 0%. If you don’t make an election to have federal taxes withheld from social security, you may need to pay quarterly taxes on the income. We have an entire episode on taxation of social security benefits (listen to the podcast or read the blog post) if you’re interested.

Most benefits will be taxable on the federal level, but each state varies on whether they will tax social security benefits or not. The state of North Carolina does not tax social security.

If you want to withhold taxes from your Social Security, you can Google “form W-4V” or go to the IRS site (here). It’s an easy form to fill out and will allow you to start withholding taxes, with options for:

  • 7%
  • 10%
  • 12%
  • 22%

Once you fill out the form and submit it to the social security administration office, taxes will automatically be withheld. If you want to stop withholding taxes, you’ll fill out the same form again but ask for the withholding to stop.

It is not possible to withhold state tax on social security.

What You Need to Think About: Pension Income

Not everyone will have a pension, but if you do and want to begin withholding taxes from your pension, you’ll need to fill out Form W-4P. You’ll often receive the form from where your pension is coming from, such as the government or a union, but you can also find it publicly available online.

Unfortunately, the form is not as straightforward as the social security withholding form, and it’s more of a guide to approximate withholding taxes.

We recommend using the IRS Tax Withholding Estimator, which will help you fill out the form.

What You Need to Think About: IRA Distributions

An IRA is an interesting form of income because you contribute to your IRA for so long, and then in retirement, may begin withdrawals to cover expenses, and/or be forced to withdraw through required minimum distributions (RMD).

Clients turning 73 begin RMDs for the first time and will owe federal and state tax on those distributions. The amount of the RMD, the associated tax liability, and appropriate rate for withholding is a conversation we often have with clients.

If you’re starting recurring monthly distributions from an annuity, the most common default federal tax withholding is 10%. You can fill out Form W-4R to withhold an amount other than 10% or not withhold taxes at all.

What You Need to Think About: Income Not Eligible for Withholding

Some forms of income are not eligible for withholding. Some of these sources of income include interest (from a money market account, CD, checking account, and/or savings accounts) dividends, capital gains, sale of property, rental income, self-employment income, royalties, alimony, etc.

For a one-off income event such as the sale of property or sale of highly appreciated stock, you may consider making a one-time estimated tax payment.

However, if you have income not subject to withholding that recurs more regularly such as self-employment or rental income, you want to consider paying quarterly taxes before each due date during the year.

To review your situation in-depth and determine whether any adjustments to withholdings are needed, you will need to review all sources of income, determine the annual dollar amounts expected to be received, and review all current tax withholdings.

Every client’s goal is different. You may want a refund every year, or you might prefer to make a payment at the time your tax return is filed.

Your financial professional can help you set this up properly to align with your goals.

If you’re unsure about taxes in retirement, just reached retirement, or want to adjust your withholdings so that you’re not hit with a surprise tax bill, feel free to give us a call and we’ll be more than happy to help you through this process.

Schedule a call to speak with Taylor Wolverton.

March 18, 2024 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 March 18, 2024

Investing in Uncertain Times During Retirement – Election Edition

In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss the possible impact of the presidential election on your retirement investments. Political uncertainty causes increased volatility in the short term, and the idea here is to maintain security and peace of mind regarding your retirement plan.

 

Investing in Uncertain Times During Retirement – Election Edition

It’s that time that comes around every four years – presidential elections. There is one question that inevitably pops up: does the presidential election impact the stock market?  Retirement planning can provide peace of mind because you’ll prepare for the election’s influence on the market. 

Investing in Uncertain Times – Election Edition

It’s that time that comes around every four years – presidential elections. There is one question that inevitably pops up: does the presidential election impact the stock market? 

Retirement planning can provide peace of mind because you’ll prepare for the election’s influence on the market. 

The Short-term Effects of a Presidential Election 

Volatility in the short term is certain. You have economists and investors clamoring to figure out this one important question: if this candidate gets into office, what will their policies do to the market? News headlines are also all over the place, and these headlines and breaking news stories that happen every day will cause volatility. 

If you look back to the 1900s, we know that the election won’t impact markets in the long term. 

Where will the world be after the election year? Where will the U.S. be? Investors will be asking these questions all year, and it does weigh on the market. 

Long-term Effects of a Presidential Election 

Since 1900, data shows that in the long term, a party change does not impact the markets. We do have up and down markets across the board, regardless of who is in office or if there’s a party change. 

If we were going to wrap this up right here, we would say yes: presidential elections do affect the market in the short term. 

But we’re not going to be wrapping things up just yet. 

What Can We Do to Have a Portfolio That Is Agnostic to the Election and Economy? 

Investing in uncertain times is best when your portfolio is agnostic, meaning that the economy and election will have little-to-no impact on the performance. Of course, we’re not saying that this is the “perfect portfolio.” 

We’re going to describe to you a way that we recommend structuring your portfolio for peace of mind. 

If you were to go out and speak to 100 financial planners, you would find that there are two big camps for portfolio management: 

  1. Passive: A passive portfolio is created on the basis of risk tolerance and is adjusted once in a while as your risk tolerance changes. The market will not have much bearing on the portfolio allocation. 
  1. Active: An active manager will adjust the portfolio regularly based on the current market environment. 

Both camps will argue that either the passive or active portfolio is best. Our growth portfolio combines both camps to offer what we believe is a well-rounded portfolio that you can rely on during good and bad times in the market. 

Inside Look into Our Growth Portfolio 

Our “growth portfolio” cuts an account in half, with the first theme being the strategic core, and the second theme being the tactical portion. 

The strategic core model is equity-based, and we buy ETFs. Our theme for the strategic core is based on where the market is going in the intermediate term. The strategic core will be invested at all times and consider where the market is and where it could be going based on the fundamental analysis. 

Today, the strategic core is invested in equities that tend to do better un an economic slowdown or recession. 

But as the sentiment behind a recession continues to weaken, we plan to make a shift based on fundamental analysis.  

Our tactical side of the portfolio considers what’s working well right now: 

  • Large Cap stocks 
  • AI and Technology 

The tactical portfolio looks at what’s working right now and is more active. We might make a trade every 4 – 6 weeks based on the trend changes that we see. We find that the tactical side of the portfolio works very well to mitigate risk during times of market deterioration. 

If you go back to when the market wasn’t performing well in 2022, the tactical was invested in lower-risk assets, such as government treasuries. 

When the market is working well, the tactical is invested in equities, but when there is some pullback, we can adjust the tactical portion of the portfolio. 

Portfolios based on Risk Appetite  

If you’re in or very close to retirement, you want stability, right? You’ve worked hard and you can’t stomach the dramatic ups and downs of the market any longer. We have many folks come in and want a portion of their portfolios to provide stability that the stock market cannot provide on its own. 

For these folks, we created the “Moderate Growth Portfolio.” 

For a moderate growth portfolio, we take 24% of the portfolio and put it into structured bank notes. What we do is: 

  • Approach big banks: Morgan Stanley, Citibank, Barclays, etc. 
  • Structure an instrument based on an annual percentage coupon rate 

At the time of this article in March 2024, the coupon rate is about 9% annualized. The goal of this type of portfolio is to lower the risk even further for the portfolio to have some fixed income coming in. 

We can also reduce risks further with the addition of fixed-income investments such as bond funds. 

The idea is that the portfolio is based on fundamentals (i.e., strategic core), what’s working right now (i.e., tactical), and stability (i.e., structured notes and bonds). If you’re reaching retirement, a portfolio like this provides you with peace of mind that your retirement is secure. 

Using this type of portfolio allows us to minimize risks by not putting all your eggs in one basket. 

We try to combine tried and true strategies so that if one is not working great, the other can help support the portfolio. 

If you want to learn more about our investment strategies or how we can help you minimize risk in your portfolio, feel free to reach out to us and schedule a call. 

March 11, 2024 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 March 11, 2024

How To Keep Your Mobility in Retirement

In this Episode of the Secure Your Retirement Podcast, Radon and Murs speak with Mercedes Fernandez about keeping mobility in retirement. Mercedes is the founder of Movement, lead Geriatric Physiotherapist, a certified senior fitness instructor, and an authorized CPR/First Aid responder. Listen in to learn the most common mobility issues in older adults and the good habits you can develop to reduce them as you age. You will also learn how maintaining movement with simple stretches and following the right instructions with mobility aids and exercise can diminish pain and prolong your mobility ability.    

How To Keep Your Mobility in Retirement

As you get older, changes go well beyond the monetary side of things. Mobility in retirement is one such change that can have a dramatic impact on a person’s life. We spoke with Mercedes Fernandez, Geriatric Physiotherapist and Adapted Exercise Expert, on the show this week to discuss this very topic.  

How To Keep Your Mobility in Retirement

While we focus on finances and investing to help people in retirement planning, we try to have experts on our podcast to discuss lifestyle changes, too.

As you get older, changes go well beyond the monetary side of things. Mobility in retirement is one such change that can have a dramatic impact on a person’s life. We spoke with Mercedes Fernandez, Geriatric Physiotherapist and Adapted Exercise Expert, on the show this week to discuss this very topic.

Mercedes focuses on the study of human body movement. She grew up with her grandfather and works primarily with older adults. She saw that this field primarily focused on the young generation and not those who are older or elderly.

Her purpose is to help older adults stay mobile, get rid of the aches and pains, and still have the mobile freedom that allows them to live an independent life.

What are Some of the More Common Mobility Issues for Older Retirees?

Neck pain, lower back pain, and upper trapezoid pain are the most common areas Mercedes sees in older adults. For some folks the pain comes from walking with a cane or walker, but it can also come from sitting on the couch too much, looking at phones more often, or other reasons. Stretching can help to alleviate the tightness that often leads to neck issues.

StretchLab is a franchise that many people are using to help with mobility. They have flexologists that offer assistive stretching to alleviate tight muscles and the pain it eventually causes.

Simple stretches help ease pain and discomfort that many people don’t even realize is abnormal until they stretch on a regular basis. You can even do some of these stretches when:

  • Sitting in the car
  • Watching television
  • Standing at the counter

If you do have a mobility device or are considering one, you’ll want to read through the next section carefully.

Mobility Devices and the Risk That They Pose

You may have seen mobility or assistive devices on television and think, “Well, how hard can it be to use these?”. You need a little help with mobility, and one of these devices seems like the perfect fit for you.

But if you use them improperly, it can lead to Kyphosis, which is the rounding of your upper back or what many people call “hunchback.”

Using the incorrect device or the correct device improperly can impact your:

  • Posture
  • Tightness
  • Mobility

For example, when you see someone with a walker, pay close attention to how they reach for it. Often, the person will have the walker too low and will need to lean slightly down to pick it up and move it. Over time, the person will begin to hunch over to use the walker. Their feet may eventually become out of alignment and will try to keep up with the rest of their body in motion, which is a recipe for an eventual accident.

If you’ve considered ordering a walker on Amazon, it may be more convenient at first, but keep in mind there is no one to help you get started correctly.

You’ll also find that the world isn’t as accessible as it could be, so you’ll see some people dragging their walkers up a flight of stairs, which is a major safety hazard.

If you do need a mobility device, speak to a professional who can set it up correctly for you so you’re not hunching over and show you how to use it properly to reduce the risk of falling.

Hazards Inside of the Home

Little things that are hazardous are overlooked until something happens. You may have items of sentimental value in your home near walkways or sitting areas. Imagine if you use a walker or cane. Now, there is a possibility that as you navigate these tight spaces, your device could get caught or slip on them. As your mobility changes, consider the placement of your special items so they don’t become a safety risk.

Bathroom rugs are notorious for this because if you use a cane and lean on it, the rug slips and so do you.

You may also realize that it’s harder to:

  • Reach the cabinet above your exhaust fan in the kitchen
  • Pots and pans in the bottom cabinet

Unfortunately, homes aren’t always set up for mobility caution. Even if you’re 50 – 65 and you don’t currently have issues with walking or balance, it’s worthwhile thinking about prolonging your mobility and setting your home up properly now.

You should consider installing grab bars in the bathroom in case you get dizzy or lose your balance. Carpets or rugs that slip can have adhesives put on them to prevent unexpected movement. In the kitchen, something as simple as moving your heavy pots and pans to an easier location can make a dramatic improvement in your day-to-day life.

Preventing Mobility Issues or Prolonging Your Existing Mobility

You may be 65 and walk great with no balance issues at all, but in the future, a simple injury can change this in an instant.

Mercedes recommends that you keep moving. Walk more, sit less. A little exercise is good for you, no matter where you are. Wiggle your toes, lift your ankles, squeeze your bum (it’s good for your back) and even moving your neck side to side will help you remain mobile. Make sure to stretch often.

Even small things, like practicing reaching above the stove can help. If you don’t like lifting weights, that’s completely fine. You just want to keep moving and stretching as much as possible every single day.

Working With Mercedes and Her Process

To learn more about Mercedes, her process, and other resources on this topic, looking at her website is the best option. She offers customization for special groups, such as those who have had a stroke or brain injury. An exercise or health plan is created based on your:

  • Goals
  • Needs
  • Medication
  • Limitations

She also works with caregivers to assist them with helping aging parents or loved ones.

You’re aging every day, and the small changes that you make today can help you stay mobile in retirement. If you would like to reach out to Mercedes, click here to access her website.

And as always, if you want to discuss anything retirement-related with us, feel free to schedule a call with us or explore one of our books on Amazon.

March 4, 2024 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 March 4, 2024

Retirement Tips For Gifting and Loaning Money to Children

There are tax and financial implications when it comes to gifting, but you can do it right when you understand all the legalities. Listen in to learn the importance of understanding the purpose of gifting money to your kids to help you structure it and think of the implications. You will also learn how to navigate the legalities of loaning money or co-signing a house with your kids.  

Retirement Tips For Gifting and Loaning Money to Children

You’ve done well in retirement planning and you’re living a good life.  You may have plans to leave money to your heirs, and many of our clients want to learn about providing gift donations, too. Why? Gift donations may be used more immediately, so clients get to see how their gift donation plays out while they’re still alive. If your gift is used to buy your grandchild…..

Tips For Gifting and Loaning Money to Children

You’ve done well in retirement planning and you’re living a good life.  You may have plans to leave money to your heirs, and many of our clients want to learn about providing gift donations, too.

Why? Gift donations may be used more immediately, so clients get to see how their gift donation plays out while they’re still alive.

If your gift is used to buy your grandchild their first car or for a downpayment on a house, you might want to join in on the celebration. You may want to loan money to your child at a nominal interest rate or even co-sign on a house for them.

We’re going to tackle a lot of these things that you might be thinking of after you secure your retirement and want to help others in your life.

What is the Purpose of the Gift?

There are a million reasons to consider a gift donation. Sometimes, you want to help a child who needs some financial assistance. You might want to give them money every month, or you give them money outright.

Do you want your child to pay this money back?

Keep in mind that you need to maintain your own financial stability, too. Your financial plan may look great, and you run the numbers and you find that you have funds to consider a gift donation.  In one scenario, let’s say the need for a gift donation is not urgent and you decide not to make a gift donation. Keeping those funds would give you and your financial plan an opportunity to have higher earning potential and possibly greater financial stability down the road.

Another scenario to consider is you give your children money right now and without the prerequisite that they’ll be able to give it back if you need it. If you’ve reviewed your financial plan and gifting money with this prerequisite is not something you are comfortable with, it may be best to wait. Most folks want to avoid a situation where a gift donation now puts them in a hard financial position that would affect their children in the future.

Carefully reviewing your financial plan before making a gift donation will help secure your retirement.

Potential Tax Implications of Your Gift

Gift donations may have a tax implication, which is something you really want to consider, too. Consider asking:

  • Will there be taxes due from this gift donation?
  • Will the money exceed the annual gifting amount?

In 2024, you can make a $18,000 gift donation without any tax implications per donee. For example, if you have three kids, you can gift $18,000 to each child. If you exceed this amount, you need to fill out an extra document and attach it to your tax return to document how much you are gifting over your lifetime.

If you leave behind more than the current estate tax limit of $13 million, documentation will be more important.

For most people, you can gift $18,000 without issue. You:

  • Will NOT owe estate tax on the gifted amount
  • Will NOT owe federal tax on cash gift donations
  • May be subject to federal and state tax if you sell stock to gift the proceeds of that sale
  • Will owe federal and state tax if you withdraw from your IRA to gift money

Be strategic and be aware of the gift’s source of funds, because you might be hit with a Medicare surcharge (IRMAA) or move into unfavorable tax brackets. Another good reason to review your financial plan before gifting money.

When it comes to the donee, there are no tax implications for receiving a gift donation.

Family Dynamics and Your Legacy

For a family example, we’ll discuss a family with 2 children. Child 1 needs some financial help now. Child 2 doesn’t currently need financial help, so they will not receive a gift donation now. If Child 2 finds out that you’ve been giving Child 1 $18,000 a year, Child 2 may not feel like this is fair at the time of inheritance.

One option to address this is to document the gifts that you’ve been giving and reduce it from the Child 1’s inheritance to balance things out a bit.

Let’s look at some example numbers for this family:

  • $1 million estate (pre-gifting)
  • $200,000 gifted to Child 1
  • $800,000 estate (post-gifting)

In this case, for a “fair” inheritance, Child 1 would receive $300,000 and Child 2 would receive $500,000. Reviewing your financial plan and your estate plan documents on a regular basis is important to keep these numbers up to date.

How Can You Help a Child Buy a Home?

Co-signing is something that we don’t recommend. If you co-sign for your child to get the home, you’re still financially tied to the home. If the child defaults on the home, you may have to step in and buy it or deal with the credit ramifications of it all.

If you have reviewed your financial plan and don’t mind paying for the home if your child defaults, this is obviously something that you can opt to do.

Co-signing comes with a lot of risks and is the least desirable option.

Some other options for helping a child to buy a home are loaning or gifting the child money. We had a client who wanted to loan their child $10,000 for a downpayment, and this was the easiest option. If your gift remains under the current $18,000 gift limit, you can write a check to the child and your spouse can do the same.

But if the gift is higher than the exclusion, then you need to do some planning.

If you loan $100,000 (not a gift), you will need to:

  • Structure the loan properly
  • Keep legal documents on the loan
  • Require monthly payments

Loans are a way to avoid potential tax implications tied to gifting. However, you do need to meet a minimum interest rate, which your tax professional can help you determine.

If you charge 0% interest, the government will view it as a gift, and require additional documentation to file with your tax return.

You can charge an interest-only payment, or you can amortize it. In your loan agreement or estate planning documents, you can have a stipulation that upon your death, the loan is forgiven. Loaning money offers you:

  • Potential source of income from interest
  • Easier loan option for your child over banks or credit unions

You might be able to give your child a loan without closing costs and at a favorable interest rate compared to today’s market. But, as with a mortgage or other loan, you do want to keep an interest in the home if your child doesn’t repay the money to maintain the legitimacy of the loan agreement.

Step-up in basis is something to consider, too. Let’s say that you have your own house and a beach house. If you gift your beach house while alive, you need to think about the potential capital gains tax on the property for the donee.

If you would like to chat with us about gift donations further, feel free to reach out to us.

Click here to schedule a free consultation with us to discuss gifting in your unique situation.

February 20, 2024 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 February 20, 2024

Closing the Gap Strategies for Coping with Medicare’s Doughnut Hole in Retirement

In this Episode of the Secure Your Retirement Podcast, Radon and Murs have Shawn Southard, our in-house Medicare expert, talk about Medicare’s doughnut hole. Learn about the four stages of how Medicare Part D works, plus strategies you can take yourself to avoid the doughnut hole.  

Closing the Gap Strategies for Coping with Medicare’s Doughnut Hole in Retirement

A doughnut hole is part of Medicare prescription drug plans. It is found in either standalone Medicare Part D plans or Part D plans that are bundled within Medicare Advantage plans. The doughnut hole is a temporary limit on what the plan will pay for the cost of the drugs. Technically, the doughnut hole the “coverage gap” stage of Part D plans.

Closing the Gap Strategies for Coping with Medicare’s Doughnut Hole

Shawn Southard, our in-house Medicare specialist, joined us on our latest podcast to discuss Medicare’s Doughnut Hole. If you don’t know what this means or how it relates to you, don’t worry – we’ll explain everything.

What is Medicare’s Doughnut Hole?

A doughnut hole is part of Medicare prescription drug plans. It is found in either standalone Medicare Part D plans or Part D plans that are bundled within Medicare Advantage plans. The doughnut hole is a temporary limit on what the plan will pay for the cost of the drugs. Technically, the doughnut hole the “coverage gap” stage of Part D plans.

What is Part D?

Medicare started in 1966, and up until 2003, there was no prescription coverage until Congress passed the Medicare Prescription Drug, Improvement, and Modernization Act. Basically, the Act went into effect in 2006 to help beneficiaries cover the cost of prescription drugs.

As part of the Act, there is a penalty if you don’t enroll in a prescription drug plan when you turn 65 or retire.

There is a 1% penalty for every month that you didn’t enroll when you were supposed to be enrolled. The penalty is monthly for as long as you are enrolled in a Part D plan, which could be the rest of your life. For example, if you don’t enroll in a Part D drug plan for 2 years (when you were first eligible to enroll), you will have a 20% Part D late enrollment penalty. This penalty is monthly and will be in effect for as long as you are enrolled in a Part D plan. The 24% late enrollment penalty is based on the national average Part D premium, which in 2024, is $34.70. This penalty is added to your drug plan premium automatically by Medicare. 

Even if you don’t take prescription drugs, be sure to enroll in a Part D prescription drug plan to avoid the late enrollment penalty. 

Medicare Part D plans have 4 stages. Theses stages are the same for standalone Part D plans and Part D plans that are bundled into Medicare Advantage prescription drugs plans.

  1. Deductible Stage. If your plan has a deductible, you start here. You are paying 100% of the drug cost up to your deductible amount. The maximum for Part D plans in 2024, is $545. Depending upon your zip code there could be several Part D plans that do not have a deductible.
  2. Initial coverage Stage. The initial coverage stage is reached when your deductible has been met or if your plan does not have a deductible. In this stage, you pay roughly 25% of the cost with co-pays and co-insurance. The co-pay depends on one of the five tiers in the drug plan. Tier 1, the lowest tier, are drugs that are preferred generics that either have zero ($0) or a co-pay of a few dollars. Depending on your medications and their tier, you may be paying more. The initial coverage stage starts when your out-of-pocket costs reach $546 and goes to $5,030. Note: if your plan does not have a deductible, you start at the initial coverage page. You reach the doughnut hole stage after reaching the $5,030 out- of-pocket limit.
  3. Coverage gap stage. This is the “doughnut hole”. It is reached when out-of-pocket drug costs exceed $5,031 and goes to $8,000. In this doughnut hole stage, for brand name drugs that you take, you’ll pay no more that 25% of drug costs and the drug manufacturer pays 70% of the drug costs.  This 95% (25% paid by you and 95% paid by the drug manufacturer) goes towards getting you out of the doughnut hole quicker. 95 % is True Out Of Pocket (TrOOP). If you are doughnut hole stage and taking generic drugs, you pay no more than 25% of the drug costs. NOTE: only the amount you pay (25%) goes towards TrOOP.
  4. Catastrophic Stage. This is the doughnut hole exit point. This state is reached when you have pay $8,000 out of pocket for your drugs. Moving forward, you pay $0 toward any additional prescription-related expenses. But, at the end of the plan year, out of pocket costs reset back to zero. Restarting at Stage 1 starts at the beginning of the year.

If you’re in Medicare’s doughnut hole for one year, and your drug regimen stays the same, there is a strong possibility you will be in the doughnut hole next year.

Inflation Reduction Act

Under the Inflation Reduction Act, there is some very promising news. One of the changes in 2023 was that you paid just 5% when you hit the catastrophic phase and now you pay 0% in 2024. In 2025, the next stage of the Inflation Reduction Act, it   will put a cap on TrOOP at $2,000.

If the Act remains as it is, in 2025, people will reach the catastrophic phase when they spend $2,000 out of pocket. For Medicare Beneficiaries who reach the doughnut hole each year, this is a significant change that will provide immense financial relief.

In 2026, Medicare will begin negotiating the prices of 10 brand-name drugs downward. While manufacturers are fighting back against this, many Federal judges are siding with Medicare.

Are There Other Strategies to Navigate Medicare’s Doughnut Hole?

Yes, there are generics that your doctor may be able to offer you. Generics will help you save on costs. Doctors may be able to work with you to find drug alternatives that can push your costs down.

If you’re really struggling economically, you may be able to qualify for:

  • Extra help
  • Low-income subsidies

Anyone on these programs will never go into the doughnut hole and will have their costs significantly reduced.

If you want to talk to Shawn about your Medicare, call our office at (919) 787-8866.