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Apirl 20th – Make Hay While the Sun Is Shining: How to Benefit from the New Tax Plan

Have you ever heard of the old Proverb, “Make hay while the sun shines”? It’s a phrase I grew up hearing from my dad. He believed that you’ve always got to make the best of whatever your current circumstance is. If you happen to be in sunny weather, so much the better—that’s the perfect time to get to work.

In December of 2017, President Trump signed the new Tax Cuts and Jobs Act into law and, for the remainder of his presidency at least, we’ve got a different tax system to live by. I’ve been fielding a lot of questions from clients asking if these new tax laws have any significant value for retirees. The short answer? A definite yes—but not without some drawbacks.

To get started, let’s look at the biggest changes. The tax brackets are now capped out at 37%, reduced from a high of 39.6%. For middle-income earners earning between about $77,401 to $156,150, this means you’ll find yourself lowered into the 22% bracket, down from last year’s 25%. While it might not seem like that drop means anything, ultimately that’s a difference of $4,229 without any deductions per year—that’s a lot of hay!

On top of that, the standard deduction for a married couple has doubled to almost $24,000. Effectively, this means the first $24,000 a couple makes is now basically tax free. Keep in mind this isn’t all good news, because even though that deduction has doubled, some of the ones you’re used to applying for won’t be available next year. We’re seeing major cuts in personal exemptions, job expenses, moving expenses, and many others. Additionally, the cap on State and Local (SALT) deductions now in place will probably hurt the 1 out of 10 tax payers that do prefer to itemize, with those living in states like California and New Jersey taking the hardest hits.

Ultimately, whether you’re for or against the new tax plan, it’s never been clearer it’s in your best interest to start making friends with a CPA. Even more clear is that if your financial advisor and your CPA don’t know each other, you’d better introduce them if you want the best retirement plan in place.

April 13 – Goals vs Wants

When I was driving home on Monday, I started thinking about our clients and what they do with their time when they retire. I even started thinking about my retirement. I spend nearly all my time at the office right now—if that wasn’t an option, where would I be instead?


Most of us will spend about 2,000 hours a year working. Maybe you’re working a desk job, stocking store shelves as a clerk, or even helping in a lab solving major issues. Whatever your career path might have been, at the end of it all, you’re going to be faced with a new problem: what am I going to do with those 2,000 hours once I retire? More importantly: what do you want to do with those 2,000 hours?


What I encourage you to do this week is make a list—mental or on paper—of things you want to do. What about the vacation you’ve always dreamed of taking, but never had the time for? Do you want more time with your spouse, or your grandkids? Time to finally start building the garden you always imagined in your head, but never had the time to go outside and get planted? Retirement is the period of your life where you finally have the freedom to start fulfilling some of the wants you’ve always carried around, but never had the time for.


That being said, I’ll leave you this week with a quote by Paul Coelho: “Whenever you want to achieve something, keep your eyes open, concentrate and make sure you know exactly what it is you want. No one can hit their target with their eyes closed.”

 April 6th 4 Ways to Navigate Market Volatility

1.      Relax.

The 24-hour news networks have a field day during stock market declines like we are seeing this week. It’s easy to get caught up in the hype. Don’t let yourself be sucked in. Step back, take a deep breath and relax.


2.      Take stock of where you are.

Review your accounts and see the extent of the damage that has been done. Depending upon how you are invested, it may be minor or a bit more significant. Investors who are well-diversified have probably been hurt, but not to the extent of those with a heavy allocation to equities and other areas that have been hit.


3.      Review your asset allocation.

Has your portfolio weathered this storm and the declines of this past quarter as you would have expected? If so, your allocation is likely appropriate. If not, then perhaps it is time to review your asset allocation and make some adjustments. Proper diversification is a great way to reduce investment risk.


4.      Go shopping.

Market declines can create buying opportunities. If you have some individual stocks, ETFs or mutual funds on your “wish list” this is the time to start looking at them with an eye towards buying at some point. It is unrealistic to assume you will be able to buy at the very bottom so don’t worry about that.

Before making any investment be sure that it fits your strategy and your financial plan. Also, make sure the investment is still a solid long-term holding and that it is not cheap for reasons other than general market conditions.


The bottom line is this; the stock market declines we’ve seen since the start of 2018 have been concerning, but they should not have been overwhelming. Don’t panic and don’t let yourself get caught up in the media hype. If you had a plan going in to 2018, stick to it. If you did not have a plan, it would probably be a good to time to review your holdings and make some adjustments if needed. Nobody knows where the markets are headed but those who make investment decisions driven by fear usually regret it.


April 3rd – A few Thoughts on Volatility…

I spoke to a client this morning on the phone and asked if he had any concerns about the recent stock market volatility. His response was too good not to share.


He said no.


He said he didn’t have concerns since the account that was creating an income for him wasn’t affected by the volatility. Additionally, he just sent a check for his yearly IRA contribution and was thinking it was a good thing the market went down a little right before his check cleared.


I wholeheartedly agreed with him on both points and congratulated him on having such a great attitude. Because he is, in fact, correct.


 Even though the broader markets have been down for the first time in months, his income did not change at all. The annuity responsible for providing his future income streams also guaranteed that his income would not decrease, even if the account value decreases.


The fact that he had this particular annuity was not an accident.


He and his wife had gone through our financial planning process, and through a few meetings, we determined that their primary goal was to provide steady streams of income that would not be affected by the stock markets. They did not want to watch CNBC in the morning to decide if it was ok to spend some money that afternoon.


Additionally, they wanted to invest for long-term growth, to provide a way to give themselves a raise if inflation chipped away at their buying power. So, a portion of their investments went into an annuity, and a portion went into a managed account using low-cost ETF’s.


They have confidence in their plan because they understand it and because they have a partner to help keep them on course.


We know market volatility can be concerning, but it does not have to be stressful. If you are concerned about volatility, let us help you prepare your plan.

March 30th – When 4 is Better Than 12

Pop quiz: You’re investing money in the stock market for retirement. Which return is better, 4% or 12%? I know what you’re thinking…is this guy confused? Why would he ask this?
Of course, 12 is better! Is this a trick question? 12% will always be higher than 4%.
But, let’s not forget an important part of this hypothetical scenario: the return in question is from investing in the stock market, and as sure as we know 12 is greater than 4, we also know that stock market returns are volatile. To get to that 12, the journey will travel through 5’s and 2’s and 10’s, and negative 5’s and 2’s and 10’s to get there. It’s not a straight line.
To get 12% return in the stock market, you must take a risk and experience some volatility.
That’s the issue that can lead an investor to seek 4 instead of 12. Especially if that investor is retired and making withdrawals from their investments. The volatility required to achieve a 12% return in the market, when combined with distributions from the investment, can be damaging beyond repair.
When saving and investing for retirement while working – also known as the accumulation phase – volatility can be your friend. To buy low and sell high, the market has to go low first right? Volatility can provide that opportunity. This concept is known as dollar-cost-averaging and can be a great way to save up for retirement.
When taking distributions though – also known as your retirement paycheck – volatility is the enemy. Taking money out of an investment that is down creates an obvious problem – there will be less money in the account for future growth.
We can show you how this math works. When working with retirees, our game plan always includes a plan to reduce volatility in accounts that are used for distributions. 12 is always greater than 4. But in retirement paycheck planning, 4 may be the better plan.

March 27th – How do I know my investments are good?

It’s a common question we get when meeting with prospective clients.

We hear people say, “I think I have a “good” portfolio, but how do I really know?”

Well, there are a few things you can look for, and a few things where it helps to have an advisor.

The first thing to look for is age. What is the long-term track record of your investment? When evaluating mutual funds, I like to look for at least a 10-year track record of returns, and all other things being equal, I’d like to see a fund that’s been around more than 10 years. If a fund is less than 10 years old, I would want to look further into the history of the fund’s managers to determine if it’s a fund I would recommend.

The second data point to evaluate is comparing an investment’s returns against a benchmark. The most obvious choice is the SP500 as a benchmark, but that isn’t the only choice. The appropriate benchmark depends on what type of fund is in question. See what I mean about having an advisor’s help? Evaluating investments gets confusing fast.

Once we’ve evaluated an individual fund’s performance and history, we can put all of the funds together and check the underlying holdings. We’re looking for overlap here. How many stocks are held in multiple funds? It’s very common to find portfolios that look diverse on first glance, but we find the same stocks held in a high proportion of the funds. Which mean the risk of the portfolio is increased and not as diverse as intended.

The last thing we look for is cost. How much does the fund cost to hold it for a year? This can include fees that are disclosed such as management fees and expense ratios, but also hidden costs like turnover, which is a measure of how often securities are bought and sold within the fund.

Confused yet? While this is all information that you can find on your own, having an advisor help you through this process can be a valuable service to you. If you’d like to know if your investments are good, just give us a call and we’ll walk you through the process.


March 20th – Confused about RMD’s? You’re not alone.

common question from our clients is how their required minimum distributions will affect their retirement income plan. It may seem complicated at first – we are talking about the IRS here – it’s really not all that bad if you know the rules and have a plan. Let’s break it down for you.

RMD stands for required minimum distribution and applies only to traditional IRA accounts and any workplace plan (401k, 403b, etc) that is tax-deferred.  Roths are tax-free growth accounts, so those aren’t in play here. The concept is simple: You have an account that you’ve never paid income taxes on, and now that you are of a certain age, the government wants you to pay some taxes on it.

The IRS requires you to take a taxable distribution no later than April 1 of the year following the year in which you reach age 70½. That’s rightthey couldn’t just make it age 70 or 71, they added that half-year in there just because they could. Check the calendar, and from your birthday add six months, that’s the year in which you turn 70½. Then add twelve months and note the year, because that is the year you’ll need to add an RMD calculation when you file your taxes. 

Your RMD is calculated by the IRS using the value of all IRA’s on December 31 of the previous year. All IRA accounts should be added together to get one single value as of December 31. If you use multiple providers, this can get a little confusing. For instance, a person with an IRA bank CD, a mutual fund rollover account, an annuity, and an account managed by a financial advisor, could receive four separate statements. Using an advisor who can house all your accounts in one place can be a great value when looking at RMDs!

The last bit of information you’ll need is from the IRS table. These are easily accessible at the IRS website, or from your accountant. The table tells you how much of an RMD you’re subject to by providing a life expectancy number. You divide that number by your balance on 12/31 of the previous year and now you have your RMD number. Then take a look at your actual distributions. If you’ve taken out more than the RMD, congratulations, you’re done with the exercise. If not, you’ll need to adjust your withdrawal higher to meet the RMD limit. 

And one last thing…if you get it wrong, there is a penalty of 50%! We can help you figure this out. My advice would be to get started well before your 70th birthday, to be sure you have time to get it right.

March 16th – When Your Income is in The Stock Market

For years I’ve thought about all the questions you must have about the retirement process.

  • When should I take social security?
  • Do I use my 401k first or another account?
  • What about my Roth account?
  • Should I move more of my money over to Roth accounts?

And the list goes on and on. But truly to define the process, or at least to start the process, there is a simple math problem you need to calculate.

Do I have more coming in than I will have going out?

And if the answer is NO, your first solution needs to involve an income plan.

Retirement itself really isn’t that hard, it’s generating enough income that can be hard. But these days with the stock market hitting new highs, it doesn’t seem to be a daunting task. The accounts go up by 10% per year, you take out the recommended 4% per year and everything is good, right?

Well here’s another one of those pesky questions: Do you think the market will ever go down again? Is it possible that it could go down like it did in 2008 or 2001-02? Meaning, could the market lose 30-40% or even 50% of its value over the next 30 years?

When you honestly answer that question, it should leave you with additional concerns. If your income is based on the recent or even past performance of the stock market, what is your plan to continue that income if your account drops by 50%?

Let’s look at the numbers, say you have $1,000,000 saved and it’s in the stock market. And you’re pulling about $40,000 out per year to satisfy your lifestyle. With Social Security and maybe a small pension, you’re paying all your bills and doing what you want with about $90,000 per year.

Let’s also assume you are being a prudent investor and have 60% in stocks and 40% in bonds. Now assume the market tanks by 50% and at the same time interest rates start to move higher. Being a conservative investor, your account drops by 20% to $800,000. You realize quickly, that just because the market dropped, does not mean your need for income dropped along with it. Oh sure, maybe you can cut back a little, but for the most part you still need your $40,000 per year. Now you are taking 5% out and the accounts are being further stressed with the ongoing down market.

This is what we call a conundrum! You need the money, but you don’t want to reduce your account any more than you have too. You try to wait it out, but sooner or later you need to hit the account for some cash.

You simply must understand this basic fact about retirement. Unless you’re ok with going back to work to earn more, this money must last you for the rest of your life. And if that means 30-40 more years, you’d better find a way to do that more efficiently than in just the stock market.

March 13th – Working in Retirement: Is it the New Normal?

For many retirees, the idea of sitting back and propping their feet up for the next 30 years just isn’t realistic. Maybe they’ve spent their whole lives being active at work and have no intention of slowing down. For some, though, remaining in the workforce is not just a lifestyle choice, it’s a necessity.

More than 10,000 baby boomers are turning age 65 every day. According to a 2016 survey by accounting firm Price Waterhouse Coopers, roughly half of them have investments totalling less than $100,000. At a 4% withdrawal rate, that would produce less than $4000 per year in retirement income.

Quite often, our conversations with clients include questions about how to navigate earning a paycheck while beginning their retirement journey.

Here are some tips that address some of the more common concerns.

  • Required minimum distributions start in the year you turn 70.5, but an exception can be made for your 401k. There is not any relief for IRA’s, but your company 401k could be maintained while you’re still on the payroll.
  • Social Security may be taxed if you have an earned income. Until you reach full retirement age, Social Security will subtract money from your retirement check if you exceed a certain amount of earned income for the year. … If you are collecting Social Security retirement benefits before full retirement age, your benefits are reduced by $1 for every $2 you earn over the limit.
  • Private Health Insurance is available but can be very expensive and is a major hurdle if retiring before Medicare eligibility begins at age 65. For some, remaining in the workforce to keep health insurance is their only reasonable option.
  • The 4% withdrawal rule is only a guideline and not a hard and fast rule. The earlier you retire, the longer you’ll stress your retirement accounts with withdrawals. If retiring early, your personal savings will be asked to work that much harder for you. A later retirement date can help push that withdrawal rate safely above 4%.

These are just a few concerns, obviously, every situation may be different. We can help you develop a plan for your retirement income, even if you aren’t retired!

March 9th – The Market is back to Normal – It’s about Time

For many of our clients here at Mercurio Wealth Advisors, the stock market was not a topic of conversation in 2017. I mean, we discussed it briefly. However, most meetings centred on what was going on in their lives, kids and grandkids, home improvements, that sort of thing.

The markets, after all, were up. And they went up more. And then they went up a little more.

In fact, 2017 marked the first time in history the S&P 500 saw 12 months in a row of positive gains. Not a single down month. Talk about smooth sailing!

Imagine our surprise when the market went south in February, giving us a -3.89% downturn. As advisors, we had to take a moment to adjust our eyes!

At a recent dinner presentation, Alan asked the group, “Has anyone noticed the market is back?”

What he meant was that volatility in stock markets is normal. 15 consecutive months of growth? That’s not just abnormal, it’s nearly impossible.

The recent bull market has been great for our account balances, but not-so-great for our risk tolerance. The ups-and-downs we see on a quarterly basis help strengthen our resolve for longer-term investing. When the market only goes up, our ability to suffer through the downs is eroded. Sort of a risk tolerance atrophy.

My advice? Embrace those down months. OK, maybe not embrace them. But keep a realistic time frame in mind. One single month? That’s nothing in the big scheme of things. Don’t let a little market volatility force you off course.



March 6th – Do you have a retirement blueprint—or are you just winging it?

When I’m not in the office, I enjoy building things around the house—once I’ve gotten together a plan for it, at least. A few weeks ago, my wife told me that she was going to Lowes to buy some premade closet organizers. You know, like the ones I’ve been saying I was going to get to work on for two months now? I took her hint to get the project started, and after figuring out all the steps I would need to take to build out what I had in mind, I’ve gotten it all wrapped up. I’ve even got the closet organizers to prove it!

Building anything is a lengthy process, but you’re always better off having taken your time and done due diligence rather than running at something pell-mell and hoping it works out in the end. When I start a project, I want a plan in place before I even make the first cut. I want to know all the measurements, cuts, angles, and the amount of material needed to complete the project. What I don’t want is to be half-way done and realize I made a mistake in the beginning that’s going to send me back to square one. At the end of the day though, I know at worst my mistake means I’ll have to start re-cutting some wood to get things back on track. However, when it comes to retirement, that “re-cut” you might have to make could involve you going back to work—something no one wants to hear.

Most of us don’t retire just so we can sit at home and watch TV. We want to travel, see family, spend time with our spouses, go fishing, play golf, read a good book; in short, all the things we couldn’t make time for while embroiled in the daily 9-to-5 grind. But how can you make sure you can do what you want in retirement?

The answer is simple: planning.

You have to figure out how much income you’ll need, where it’s coming from, how to make it withstand varying market conditions, and whether it can be flexible or stable. In theory, all advisors should be having a sit-down conversation with you and building out a solid game plan. My fear is they’re not. I’ve met with many prospective clients who have advisors just letting them wing it when it comes to figuring out their retirement plan. This is a plan meant to financially support you for the next 10, 20, 30 or even more years—not something you want to “wing it” on. It doesn’t matter if you’re working on a project or if you’re trying to find the answers to build a retirement plan to meet your goals—you need a blueprint to follow. Once you’ve done that, you’d be surprised how much peace-of-mind having a solid plan in place can give you, rather than just hoping for the best.

March 2nd – Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it. -Ferris Bueller

In the age of information, this old movie quote may ring truer now than ever before. The sheer quantity of information we have at our fingertips is more than at any point in history. Social media feeds, text communications, and 24-hour news channels compete for our attention in a continuous bombardment. Information overload is an understatement. Information mushroom cloud feels more appropriate. A nuclear bomb of words and thoughts and ideals lands in our brains, and we take them in while we look for more.

Which can be very bad for investors.

Working with retirees, the recent market volatility is a common topic in our meetings. Everyone, it seems, has a concern: Why?  How much?  When is the market is going to move? And, rightfully so. Volatility in the markets can be unpleasant for many investors. Volatility in retirement income is downright painful.

At a recent dinner presentation, I asked the group how long we would have to go back to see market levels equal to that day’s close of the Dow Jones Industrial Average of around 24,650. Responses ranged from “2 years” to “a long time”. They were surprised when I showed them the date. December 15, 2017.

Not even 2 full months, less than one calendar quarter, of time had passed since the last time the Dow had closed at that level. I wasn’t suggesting the recent downturn not important. I was suggesting that we keep it in perspective.

All the information they had received, from text alerts and articles to breaking news about plunging values, had not even resulted in one down quarter.

I’m all for being informed, and tracking accounts, and knowing how your money is invested.

But with so much information coming at us today, I’m encouraging you to filter those close-ups with some wide-angle views. Be informed but maintain perspective.

There is good news out there, you know. If you don’t stop and look around once in a while, you could miss it


February 27th – Advantages for Withdrawing Social Security Early?

Social Security is important to most of us – or it will be, at some point. Most of us know that delaying the start of our benefits will make our checks bigger. But is there ever a good reason to claim benefits before your full retirement age?

The answer is yes, there are several reasons to claim your benefits before full retirement age.

The most common reason is that you’ve retired early and need the income. It’s a basic concept, but for some workers, they would rather take a smaller benefit at 62 than work full time until 66. If the smaller amount of benefits enables you to reduce your workload, or even fully retire, then that’s a choice that’s available.

The second most common reason has to do with pension payments. For some early retirees, their monthly pension payment goes down at age 62 with the expectation that social security will make up the difference. So, they take a larger amount at retirement, then decrease that equal to the amount of their benefits at age 62. They receive a level income, even though their pension payments have decreased.

The third method we typically see is taking social security benefits early to delay taking withdrawals from retirement assets. Many annuities can increase the income benefit base at a better rate than social security, so it may make sense to draw social security early in order to let the annuity grow longer.

Lastly, for some retirees, they see it as simply a “bird in the hand”, and they aren’t willing to wait for the “two in the bush” out of fear that social security will eventually be insolvent. If that’s you, I would encourage you to visit and look at the numbers for yourself. The trust fund has more than 2.8 trillion in assets, backed by the full faith and credit of the United States government. The system isn’t perfect, but it is far from insolvent.

As with any financial planning, your decision when to draw social security benefits are fact dependent and your advisors can help you plan for a path that’s best for you.


February 23rd – Complicated Problems with Simple Solutions

I’ve never been much of a movie buff. Don’t get me wrong, I enjoy a good movie. It’s just not something I’m very passionate about. There are, however, a few scenes from my favorite movies that have always stuck with me.

One scene that comes to mind is from one of the Indiana Jones movies. Our hero Indy comes face-to-face with a sword-wielding warrior, and this guy means business. Dressed head to toe in black, they meet in the street like an old-timey western showdown at high noon. He’s swinging the swords, I mean really working it. Very intimidating.

Indy pauses. His face is tensed with concern, and he considers how in the world he’s going to defeat this impossible opponent. The crowd presses forward, watching on as the warrior continues his impressive display of skill and might.

And then Indy shoots him. Drops him like a sack of potatoes with a single shot from his pistol. The look on Indy’s face paints a clear message to the surrounding onlookers and those of us in the audience: “Sorry, but I have more important things to do than mess with this fool.”

Problem solved.

The scene is an incredibly well-written metaphor for how life’s most complicated moments can be solved with such simple solutions.

Retirement paycheck planning, at first glance, can seem like an intimidating opponent. How in the world can little ole’ me, armed with nothing but a few modest accounts, defeat this master intimidator known as lifetime income planning? What if the markets go down? What if we need to be put in a nursing home? What if we live until we’re 102? What if we didn’t save enough?

Easy. Just shoot it.
Don’t over think this. We may not be able to pull out a pistol and drop your retirement plan from 40 paces. But we can design a simple, easy to understand plan, that not only achieves your goals but answers the “what if’s”.
Let us help. You have more important things to do.

 February 21st – Tax tips for retirees: 3 things to know about how investments are taxed.

We all must pay them, but there are ways to minimize your tax burden. Here are 3 ways to know where those taxes are generated, so you might be able to lighten your load at tax time.

1. Turnover inside your mutual fund accounts

Mutual fund investors are probably familiar with capital gains taxes when they sell a fund. But did you know you can have a capital gain even if you don’t sell? It’s called turnover, and it can increase the taxes due on non-qualified investments.

Inside the mutual fund are dozens – if not hundreds – of individual holdings. When the fund managers sell those holdings inside of a fund, the owner is responsible for the capital gains tax. Even in down years, if a fund sold a stock for a gain, the owner can have a tax bill, even though the mutual fund went down in value. Knowing what the turnover rate is can help predict the amount of taxes due, and looking for mutual funds with a lower turnover rate can have a big effect on the tax bill.

2. Dividend reinvestments

Similar to the turnover of a fund, a dividend paid by a stock can create a tax bill. Dividend reinvestment plans are a popular tool for investors who don’t need the income and wish to reinvest in the fund. But when that stock pays the dividend, the IRS doesn’t care if you put that money in your checking account or back into the mutual fund. You’re responsible for the taxes due on those DRIPs, which can erode your overall return.

3. Roth or Traditional IRA

A traditional IRA is not taxed until you take the money out, so turnover and drips don’t affect these types of accounts. But you may be able to reduce the amount paid in taxes over the life of the holding by converting a traditional to a Roth. Here’s how that works:

When the traditional IRA is converted to Roth, that means a tax bill for the amount of conversion is due next April 15. A $10,000 conversion will be taxed the same as if you earned an additional $10,000. But after conversion the $10,000 will grow tax free, and if you are not going to use that money for a long time -say, 15 or more years- giving the account plenty of time to grow in the market, you could possibly reduce taxes over your lifetime by paying a larger tax bill now.

February 13th –  Inflation: Friend or Foe? It depends when you are asking.

Seemingly lost in the chaos of stock market volatility this week, a report from the Bureau of Labor Statistics says that inflation, as measured by the Consumer Price Index, had risen 0.5% in January, which was higher than analyst estimates of 0.3%. The CPI rose 2.1% over the last 12 months.

Which begs the question: Is that good? Well, it depends.

Are you still working? Inflation can help get you that raise you’ve been hoping for. Selling a house soon? Inflation can help you get a top dollar offer.

But if you are retired, that 2.1% can be a problem. It could represent a 2.1% increase in how much you spend at the grocery, or how much a tank of gas costs. It could mean you need to take 2.1% more out of your retirement accounts this year to maintain your lifestyle.

Inflation means prices are going up, which is a good thing. If we did not have confidence that prices would go up in the future, we would be incentivized to wait to spend money. Think about it: Would you spend money today if you thought you could get the item cheaper tomorrow?

The 2.1% increase in inflation last year was right in line with what we typically expect inflation to be. When putting together a retirement income plan, we often use an even higher projection of 3.4% per year. Inflation is a critical variable in long-term planning, and here’s why.

At a 2% annual growth rate, money will increase by 50% in approximately 30 years. At 3.5%, it will double.

A $100,000 account would grow to $200,000 in 30 years at 3.5%. But inversely, a family spending $100,000 per year would need to spend $200,000 to maintain that lifestyle. That little bitty 1.5% difference in inflation can make an enormous difference in your life and how much money you spend.

Is that good or bad? Well, that depends on what your plan is to grow your money in retirement. 

Inflation can erode your purchasing power – Don’t let it erode your confidence too!

February 9th – Three Questions to Ask Yourself BEFORE Changing Your Investment Plan

Market volatility returns. What do we do now?

Before you react, we suggest you evaluate. Here are three questions to ask before you make changes to any investment.

1.      Has your time frame changed?

When will you need the money from this account? If the time frame has not changed from when the account was established, then we probably are not going to recommend a change to your investments right now.

2.      Have your goals changed?

Let’s make sure we have a clear understanding of what this money is for. Many times, lack of a clear goal can create uncertainty. So be sure you have a clearly defined goal for this account, and if that goal has not changed, then your investment allocation probably should not change.

3.      Has your risk tolerance changed?

This one is the hardest to answer. As you’ve aged, maybe you’ve developed a lower risk tolerance, meaning that market downturns are more unsettling to you than in the past. If that’s the case, then maybe it IS time to make some changes, and move your accounts to an allocation that can help protect your principal.

We can walk you through these questions and determine if now is the right time to make changes.

Give us a call, we’re here to help.

February 6th, 2018 – How do I even START planning for retirement?

 For most of us, our days tend to blend together. We wake up after fighting the universal urge to hit the snooze button, get a quick shower in before getting dressed, and head out the door with a cup of coffee in our hands. One car ride later, and we’re facing the daily grind for 8 hours or more. Once that’s over, we can count on a long commute back home to eat a quick dinner, maybe try and pretend we’ll catch up on some chores, and then back to bed only to wake up and start it all again tomorrow. It’s a rinse-and-repeat most of us do for decades until we finally ask ourselves:

Can I retire?

After spending decades wrapped up in our nine-to-five schedule, the prospect of finally being able to kick back and relax has an undeniable appeal. But the prospect of figuring out how, or if it’s even possible, is a daunting one. But it doesn’t have to be—if you know what the right questions to answer are. This week, I want to give you a simple guideline on what my experience and planning style has me focusing on for my clients and friends. One of the biggest focuses your plan needs to have is in one word: INCOME.

When I think of retirement, the first thing that comes to mind is INCOME.  Where is my income going to come from when I stop working? Can investments replace that paycheck I’m used to getting? Where do I even start on figuring out how much income I need in retirement?

Firstly, we need to figure out where your retirement income can come from. There used to be 3 main sources of income in retirement: pensions, Social Security Income, and personal savings.  With only 13% of the population still having pensions, most of us must rely on Social Security Income and our personal savings.  We’ve spent the last 30 to 40 years of our life building a nest egg to retire on, but how do we take income from it? Here are 2 questions you need to ask yourself when creating your income plan:

  1. How much money do we need to support our lifestyle?
    Our lifestyle is something that we have grown accustomed to—and usually not something we’re wanting to lessen. I know that when I retire, I don’t want to go from spending time at the lake to sitting at home and wishing I had planned things out better.  Knowing how much we spend per month to do the things we love in retirement gives us our “number”, meaning how much income we need.  This breaks down to an easy equation:

Lifestyle Expenses – Social Security Income – Pension (if you have one) = Income Gap

The “Income gap” is how much we need to take from our personal savings to fund our lifestyle.

  1. Can my income fluctuate, or does it need to be steady from month-to-month?
    This is completely a personal preference.  Some people I meet with want a steady and reliable paycheck from month to month.  On the other hand, some people are fine with an income that might change from month to month.  This is dependent entirely on your own goals, and your “number”, but once you answer this question you can determine what type of investments you need to create your income plan.

During the planning process, there is much more we must take into consideration such as future medical expenses, inflation, losing a spouse (and their income), and market fluctuation. These questions are all equally important, but the main two we’ve discussed are the most important ones to answer as you start thinking about taking your first steps into making your retirement dreams a reality.


February 2nd, 2018 – All-Time High. Will it go higher, or is the bull run over?

The single most popular question we get right now from clients is about the stock market—or, more precisely, how long can the current stock climate last? In other words, investors want to know…is the party over?
It’s impossible to say, and I certainly don’t have a crystal ball to predict short-term activity in the stock market. But let’s look at some facts:
Fact #1: The stock market hit all-time highs this month. The Dow Jones Industrial average topped 25,000 points in early January, then went even higher to 26,616 later in the month.
Fact #2: The S&P500 had never had a full year in which every month was up…until last year. In 2017, every month ended higher than the one before. Every. Single. Month. Talk about smooth sailing.
Fact #3: While interest rates are still at historically low levels, they’re starting to be on the rise. The Federal Reserve Board’s committee raised rates again in 2017, but it was just the fifth time since 2009. The forecast for 2018 has held steady at a projected 3 rate hikes.
Fact #4: You are 10 years older this year than you were in 2008. In that 10 years, we have had gains that may have replaced the losses. That said, are you prepared for another crash? Do you remember your experiences 10 years? How would you protect yourself now?
No one knows what the markets are going to do, or when they are going to do it. But given the facts above, I encourage all investors to take some time to think about what level of risk they are willing to take going forward.
·    Is now a time to lock in some gains?
·    Is it time to rebalance an account and re-set your allocations?
·    Is staying the course, with no change, the best option?
We have no way of knowing if the party truly is over. But now, rather than later, is the right time to ask the question.

January 28th, 2018 – We Don’t Know What We Don’t Know

We don’t know what we don’t know.

There are so many facets to retirement income planning, it’s hard to pin down just one or two that are most important. But I think it boils down to the vaguely specific statement above: We don’t know what we don’t know.

I’ll give you an example. We don’t know how inflation is going to affect the economy. Sure, we can look back and see past inflation rates. But predicting future inflation rates is just an assumption. No one knows for sure.

We don’t know what our health care costs are going to be. For some of us, those costs will be significant. Memory care facilities are springing up like dandelions in my part of town. The average cost for a two-year stay is estimated at $144,000. Not everyone will need that level of care, obviously. But if you (or maybe, more importantly, your spouse) need it, it’s likely you do everything in your power to make them comfortable and well cared for.

We don’t know what the market is going to do. That’s obvious, right. But we still get the question, “so what are you guys seeing out there?”  We always make the joke that we don’t have the crystal ball charged up. We know the market is going to go up and down, we just don’t know when. And if it does go down, how would that affect your retirement paycheck?

And then there’s the big one: We don’t know how long we are going to live. I’ve worked with clients who are convinced they won’t make it to 80. Others who are overly cautious in their spending through their early retirement years because they had a great aunt who lived to 102 and they are just certain that longevity runs in their family. Bottom line, nobody knows for sure. We must plan for the worst, hope for the best.

There are more, but this hopefully gives you an idea of the assumptions that we help our clients work through as we develop a retirement income plan. It’s not a perfect science by any stretch. But with a little thought and a lot of planning, we can help you reduce the number of questions that we just don’t know the answer to.

Is there anything that we DO know? Yes. We know that people who work with an advisor and have a plan are more likely to not worry about their finances. And isn’t that what it’s all about?

January 14th, 2018 – How Long Will $1 Million Dollars Last?

The days of picking up a pension check are now becoming an exception rather than the rule. As time passes and industry standards change, it’s now becoming more important than ever to find the best ways to self-fund your retirement goals.

The previous standard was to aim for having one million dollars in the bank. One million, most agreed, would be able to keep you comfortable during your sunset years. In the past, that one million nest egg would yield a yearly income of $40,000. But with inflation constantly on the rise, that million dollars won’t stretch so far anymore. For example: If you are currently 42, that million dollar savings will yield $19,000 per year; and if you are currently 32, that income will put you at the poverty line.

These predictions are scary but also serve as a reminder that saving alone isn’t enough. Knowing the right tools that can grow and protect your wealth is key to making sure your retirement is a successful one. While planning is essential, you must be able to take a realistic look at your budgeting. You need to determine if you are making truly healthy choices about your spending, whether necessary (mortgage, utilities, credit cards, student loans) or discretionary (dining out, vacations, luxury toys, etc.)  When creating your budget for the first time, use this TOOL to track your spending habits. Take the last three months of transactions and account for every dollar spent.

If you feel your current retirement plan might not be able to meet your goals, there are solutions. The first being work longer, or as long as you can. Even in retirement, many find value (not just income!) in having part-time employment. It provides time for socializing, keeping your mind active and engaged, and answers the, “Well, what now?” question some retirees face with an abundance of free time.

Another option is choosing the best financial vehicles for you and your family. Whether that is an annuity, investments, or life insurance, there are many avenues to explore in order to find the best fit for your retirement plans. No matter your personal goal, there are diverse ways to achieve it.


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