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 May 6, 2024
In this Episode of the Secure Your Retirement Podcast, Radon, Murs, and Nick discuss downsizing in retirement. Scenarios such as lifestyle preferences and financial needs are what make downsizing a consideration for retirees.
Listen in to learn how we use practical scenarios to help clients…
Nick Hymanson, CFP® from our office, joined us this week on our latest podcast, where we talked about something many people overlook in their retirement planning: downsizing.Nick often meets with clients to review their retirement focused financial plan, making sure…
Nick Hymanson, CFP® from our office, joined us this week on our latest podcast, where we talked about something many people overlook in their retirement planning: downsizing.
Nick often meets with clients to review their retirement focused financial plan, making sure everything is up to date and the clients are happy. Sometimes, there are needed adjustments that are identified, and Nick works with clients to address these as well.
And one of these adjustments relates to downsizing in retirement.
We’ve noticed a common conversation recently where some folks are interested in discussing:
Downsizing into a smaller home
Downsizing into a home that’s easier for them to get around in
Let’s dive deeper into this topic and look at a few scenarios.
Scenario 1: You’ve Been in Your House for 30 or 40 Years
Let’s say that you have been in your home for 30 or 40 years. Maybe you raised kids in your home, and it was set up for the lifestyle you had 20 – 30 years ago. Unfortunately, the house isn’t set up for where you may be now, or in 10 years.
Often, retirees are in a much larger house than they need for the lifestyle they have now, and it would be nice for the main bedroom to be on the first floor.
Pros and Cons
In addition to wanting your bedroom on the first floor, you may want:
Fewer stairs
A smaller space that is easier to maintain
Downsizing may mean worrying less (or not at all) about constant tasks like yard work, stairs, and cleaning additional bathrooms.
In the Raleigh-Durham area, housing prices have been going up for quite some time. People are concerned about going into a smaller home that may be even more expensive than the home they are in currently. From a financial perspective, moving to a new home may be an even exchange but the person may lose some square footage and land.
Depending on the community, landscaping, and some outside work that you may not be able to do on your own may be included.
Scenario 2: Cash Flow Scenario
You’re in a beautiful home, but you want to reduce the mortgage and the strain it may have on your financial plan. From a cash flow perspective, downsizing may be a better option and provide peace of mind for the next 10 – 20 years.
If your house has appreciated in value and you don’t have much to pay off on the mortgage, you might find yourself in a scenario where you can sell your home and buy another one in cash.
A $1,000 – $3,000 mortgage can have a drastic impact on your financials.
When we look at a retirement plan, we look at a person’s income and expenses to see where they may be having stress in their finances. For some people, downsizing can either:
Reduce the mortgage
Eliminate it
If you eliminate the mortgage, you may have the additional cash to travel or have less of a strain on your finances in retirement.
We talk to clients from the beginning about their homes and if it makes sense to downsize.
Planning from the start to downsize can offer a realistic view of what freedom selling the house may offer. Of course, not everyone will need to sell their home or have a desire to do so.
If selling does make more sense from a cash flow or mobility standpoint, then it is something that is worth discussing with a financial advisor.
Moving to a CCRC is a conversation that we have, too. The CCRC allows you to receive community and care throughout the various stages of retirement, which is also a nice perk.
What Happens in Our Strategy Meeting
We have software that allows us to plug in the numbers and look at what your financial decisions today will mean in the future. Let’s assume that your target date for retirement is five years from now.
In five years, we can simulate:
What the sale price of your home is likely to be in five years
Tax consequences of selling the home
What it looks like if you use the funds to buy into a CCRC or another home that’s better for your scenario
Our goal is to show you how downsizing in retirement may benefit you. We’re able to see how a lower mortgage (or no mortgage) can benefit your overall cash flow and retirement plan. If you don’t have a $1,000 – $3,000 house payment, it can make a world of difference in your expenses.
Visualizing all the cash flows through the software helps you feel more confident in your decision, which may or may not be to sell your home.
We can look at this scenario for you if you have two homes and want to sell one in the future or even if you want to make a large purchase in the future. Seeing the figures of your retirement and how the decisions you make today can shape your retirement is empowering.
If you need help to secure your retirement, are considering downsizing and want to see how it may benefit you or want to know if you can really afford that once-in-a-lifetime trip, we’re here to have that conversation with you.
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 29, 2024
Why Savvy Savers Should Spend More in Retirement – Part 2
In this Episode of the Secure Your Retirement Podcast, Radon, Murs, and Taylor discuss in detail the importance of spending more in retirement as a savvy saver. Taylor provides a numerical analysis and insights into how spending habits in retirement can impact your financial plan in a scenario of a sample retired couple in their late 60s.
Why Savvy Savers Should Spend More in Retirement – Part 2
Learn the importance of aligning expenses with income sources and assets in retirement planning, considering inflation and the potential for increased expenses. You will also learn the importance of enjoying retirement and fulfilling bucket list items even when they require larger withdrawals.
If you missed Part 1 of this series, we recommend that you either read through our blog post here or listen to the podcast here. Continuing on with Part 2 of why savvy spenders should spend more in retirement, we decided to bring in our own Taylor Wolverton, CFP ®, Enrolled Agent, on the discussion.
Foundation of Why Savvy Savers Should Spend More in Retirement
Oftentimes, we have conversations with clients who have more money than they’ll need in retirement. However, at times the fear of running out of money is so great that even when it’s a necessity, they hesitate to spend. Because of this, many will pass on a multimillion-dollar legacy to their beneficiaries at death, whether that is their true intention or not.
Let’s look at some examples of this concept.
Husband and Wife, Both 69 Years Old
Our first example to illustrate the idea is a husband and wife, both currently age 69, with the following details:
Both fully retired- not currently receiving wages or employment income
Husband receives $4,000 a month from Social Security
In total, the couple has $2,564,000 between cash savings, IRAs, Roth IRAs, and stock along with steady sources of income from their pension and social security benefits.
Let’s look at their spending.
Spending
This couple spends about $12,000 per month to cover their expenses. This does include $6,000 to $7,000 per year that they use for travel. In our long-term projections of this scenario, we assume inflation on their expenses at a rate of 3% per year for the duration of their retirement.
Note: When we meet with the client, we try to gather as much information as possible to have an awareness of relevant figures, but there are times when someone forgets about an account or a small pension, so it’s something that we continuously review and tweak as necessary over time.
Assumptions
As previously mentioned, we assume inflation will rise 3% per year. To stress test a retirement scenario, we also assume that the invested assets will have a 4% to 5% return each year which we believe is conservative. We assume the social security and pension amounts stay the exact same with no cost-of-living adjustments over time.
What the Couple’s Retirement Page Looks Like
Clients of ours receive a one-page retirement summary that outlines income and expenses for the duration of their retirement. For this couple, the page will show the following:
$1,900 per month from the pension
$6,700 per month in combined Social Security benefits
After subtracting an estimated for tax withholdings, net income is $8,400 per month
Based on the couple’s current spending habits, they need $3,600 – $4,000 distributed from their accounts per month to make up for this difference. The couple has over $2.5 million in savings, IRAs, stock, etc., so they have a decent amount of money available to take distributions from.
Both spouses are age 69 today. At this rate of distribution, what will happen by the time they’re 80?
Inflation Calculation
The couple spends $12,000 a month at age 69, and by 80, with a 3% inflation rate, this figure will be $16,900. In just 11 years, additional pressure is put on the savings and investment accounts because the couple needs about $8,500 a month to cover expenses after pension and Social Security.
You can quickly see how inflation will impact your assets.
At age 69, the couple had over $2.5 million in retirement accounts, and by age 80, we project they will have around $3.2 million. If you were feeling stressed up until this point, you’re not alone. But with a conservative 5% annual rate of return, the couple in this example has more in savings and investments at age 80 than when they started at age 69, even when taking regular monthly distributions to cover their expenses.
What about at age 90? In this scenario, the couple is projected to have $2.9 million in savings and investments. Withdrawals started to impact the accounts somewhat, but at age 90, the total value is nowhere near an amount that would cause concern around the ability to maintain the current level of spending.
You can do a lot with $2.9 million and enjoy the money that you worked so hard to accumulate. We know that this couple puts aside $6,000 to $7,000 to travel, but they do have a few bucket list trips that they would love to take.
$30,000 Trip Added In
The couple is nervous about taking these bucket list trips because they will have to take a larger withdrawal. For a few years, the couple has wanted to take a $30,000 trip that they couldn’t because of work and other obligations.
We always sit down to crunch the numbers with our clients because retirement spending is a major source of anxiety for a lot of retirees.
What we show the client is something like this:
Remember, at age 90, without taking this trip, you’ll have $2.9 million.
Let’s add in the $30,000 expense at age 69. What’s the long-term impact at age 90? The couple has $2,780,000 instead of $2.9 million.
Over 20 years, they may lose about $120,000, but they were able to tick something off their bucket list.
Will the trip and memories be worth the money? For most people, the answer is a resounding “yes.”
$35,000 Trip Added in for 2026
Perhaps the couple was so excited about their first trip and didn’t mind the retirement spending, so they added in an additional trip of $35,000. By age 90, with the $30,000 and $35,000 trip taken, the couple will still have $2.6 million in savings and investments.
Passing $2.6 million to your beneficiaries is always going to be a nice gift.
Withdrawing money and adding in these larger expenses into your retirement planning really comes down to “what are you working for in retirement?” The sooner we can add these figures into your plan, the faster we can secure your retirement.
We encourage you to start looking at the things that you really want to do in retirement and begin planning them now.
It doesn’t matter if you would never spend $30,000 on a trip or don’t have $2.5 million in retirement accounts.
Spending and retirement accounts vary drastically between couples. If you’re not spending more than you have, there’s always a good chance that you can start checking off some of the items on your bucket list and still have more than enough money for yourself well into retirement.
We can run these numbers for you so that you can feel confident about spending more money and making memories for yourself while in retirement.
If you have any questions or would like us to run the numbers for you, please feel free to reach out to us.
You’ve saved well enough to secure and enjoy your retirement. Today, you’re going to hear two financial advisors (us) say something that you never thought you would hear: spend more in retirement.
We see it all the time – people are so used to saving that spending money is difficult.
People have developed a mindset where spending money in retirement becomes a moment of anxiety. Many of our clients leave behind significant inheritances. We encourage them, with good and thoughtful planning, to spend some of that money to:
Make memories
Experience new things
You can spend a little more and still leave money behind for the next generation.
Why Savvy Savers Should Spend More in Retirement
A long time ago, we had a client call us. She had about $2.5 million in retirement and at the time, she had some water damage in the kitchen. She was living on only her Social Security amount and was in her 70s.
She said that insurance would cover the replacement of her linoleum floors, and she asked if she had enough money to upgrade to hardwood floors for about $15,000. We knew that with 100% certainty that she could upgrade, but she was so scared and reluctant to use any of her $2.5 million, she never did.
She left behind a few million dollars to her children and grandchildren, but she never spent her money on herself. Perhaps she would have enjoyed life a little more while she was here by doing something like buying those hardwood floors for $15,000.
The Psychology of Savings
You want to save for retirement and get to a place where you don’t need to worry about having enough money. From a young age, you decide to save for the future, and you put away as much money as you can to enjoy it later.
Everything you do in life is for your family and future, whether it’s saving for a house, putting food on the table, or putting money away for retirement.
You build a habit of saving over the course of decades, and then what happens? It becomes an ingrained habit that can be hard to break. People become extremely frugal, and it’s difficult to spend your money when you reach retirement age.
There’s also a factor of going from accumulation mode to retirement, so you’re taking money out of your retirement and no longer earning a paycheck, which is scary change for a lot of people.
Shaping Your Mind for Retirement
Five or ten years from retirement, when you know you’re on the right track to secure your retirement, it’s time to start switching your mindset. You want to think about:
What you’ll do in retirement
What big travel or experience goals you have
How you’ll spend time with family
Whether you want to own a second home
When we’re working, we tend to neglect some things in life, but when you finally hit the retirement milestone, you deserve to make the most out of your time.
We always ask our clients what they’re going to do when they’re on pace to reach their goal, and they’ll often say:
We’re too busy to think about that
We’ll figure it out when we get there
If you start making goals for what you’ll do in retirement, you can start allotting money to it. Good saving habits help to reach big goals in retirement, but you need to break that “saving only” habit to some extent.
Things to Think About When You Hit Retirement
What are the things you would like to do in retirement? A few questions we like to ask are:
Where would you like to travel to in retirement? How would you like to travel?
Do you want to do any major house renovations?
Do you want to focus on your health and wellness? Ex: hire a personal trainer?
You can also create experiences with your family. For example, we have one client who took their entire family on a cruise for a week. While the person spent a little money on the experience, they created a memory that will last a lifetime.
We’re not saying go out and spend 75% of your retirement, but you can enjoy the money you worked to save and still be confident that you have planned well to secure your retirement.
What You Need to Think About to Spend Your Money Smartly
We don’t want you to go out and spend all your money. What we would like to do is have our clients get these goals in place so that we can use financial planning to help them reach their goals.
If you think about your goals ahead of time, we can:
Plan for these costs
Allot enough money for these expenses
Imagine a $35,000 trip that you want to go on. We can add the expense to your retirement plan and see its true impact.
When we understand the numbers, it makes it much more comfortable for clients to spend some money in retirement because they see the true impact of their spending.
One story that we love to share is of a client who wanted to sell their house, buy an RV, and travel the US for 10 years.
We told them to provide the details and let us run the numbers. The clients came back with data on the cost of the RV, the sale price of the house, expenses, and everything else you could imagine.
They have been happily traveling in their RV for over 10 years now.
We sat down with them last week, and they plan to keep traveling for the next 5 or so years. Next week, we’ll run through case studies to show you the numbers, examples, and “what-ifs” for this type of retirement goal.
A financial plan is like a GPS to help you reach your retirement destination. If your destination changes, the GPS can reroute you to get you where you want to be. Proper financial planning can help you safely reach your retirement destination while still making pit stops along the way.
If you want to learn more about planning for retirement and spending more money, please feel free to reach out to us.
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 22, 2024
In this episode of the Secure Your Retirement Podcast, Radon and Murs discuss the importance of spending more in retirement. The savings habits we build in our working years can unintentionally lead to a fear of spending money to enjoy life in retirement.
Learn how to shift your mindset from fear of spending and start building good habits that will lead to a successful retirement. You will also learn about the experiences and things you can spend money on, plus the importance of planning ahead of your retirement.
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 15, 2024
Do You Have All Your Eggs In One Basket in Retirement?
In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss the meaning of portfolio diversification and why you shouldn’t put all your eggs in one basket. True portfolio diversification means spreading your money across multiple layers of different options. Listen in to learn about the four major strategies we use to significantly diversify investment portfolios for our clients.
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?…
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:
Schwab
Fidelity
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:
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.
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.
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.
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.
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
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…
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?…
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.
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 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:
Cash Bucket (ex: cash in the bank, easy to get to and emergency money).
Income and safety bucket (provides income in retirement and is not impacted by stock market risks)
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:
Upmarket return
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.
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
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.
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.
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:
Withholding from income sources
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:
April 15th (for tax due on income received January 1 – March 31)
June 15th (for tax due on income received April 1 – May 31)
September 15th (for tax due on income received June 1 – August 31)
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.
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.
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.
