Tag Archives: financial advice

12 Retirement Investment Factors That Are Frequently Overlooked

My Comments: They say money is the root of all evil. While that may be a fundamental truth, it’s also true that in our 21st Century society, having more money is better than having less money.

As I develop my online course focused on helping people achieve a successful retirement, the idea behind having more money when you retire depends to a large degree on making good investment decisions along the way.

Here are 12 ideas that might help you make better decisions about your money than you are making right now.

Mar 6, 2018 Forbes Finance Council

Preparing for retirement is a lifetime process. Your clients are constantly wondering if there will be enough money to survive, and it is up to you to ensure their investments earn in a way that they are happy with. You need to stay abreast of the trends, tips and long-term investment options that can help them achieve their financial goals.

With many people worried they will not have enough money saved for retirement, it is your job as a financial professional to calm their fears and help them put their money where it makes the most sense. But, are you really aware of all the aspects that affect their ability to save enough for retirement?

To answer this question, 12 members of Forbes Finance Council share the one facet of retirement investing that is most often overlooked. Here is what they had to say:

1. Risk Mitigation
Target retirement funds are a great option, as they automatically adjust risk based on age and relative distance to retirement age. Employees often use the risk assessment tool when establishing their employer-sponsored 401(k) plan but fail to maintain these settings. This poses a risk to both account rebalancing and age-risk correlation. – Collin Greene, ShipHawk

2. Purpose
Research shows that those who don’t have a purpose in life tend to have poorer health. This means that, despite a good investment portfolio, if there isn’t a life plan to go along with it, you will be rich but depressed. Make sure life planning is done in conjunction with investment planning. – Darryl Lyons, PAX Financial Group LLC

3. Life Expectancy
People underestimate how long retirement can last, and with advances in medicine and science, the “problems” from living longer are only getting worse. If you retire at age 65, you may have about a 25% chance of living past age 90, for instance. That’s why I often advise clients to invest as if they’ll live to be 100. Your plan should be conservative and make similar assumptions. – Elle Kaplan, LexION Capital

4. Behavioral Finance
The 2017 Nobel Prize in Economic Sciences was awarded to Richard Thaler, the father of behavioral finance. Having clients understand the emotions and psychology of money can be the determining factor in success or failure when it comes to investing. Many investors act under the influence of behavioral biases, often leading to less than optimal decisions. Teach clients how to correct these actions. – Lance Scott, Bay Harbor Wealth Management

5. Annual Portfolio Rebalancing
During the year, some assets will outperform others, and an annual rebalance of the portfolio should occur. This allows the investor to take profits from the investments that did very well and invest the proceeds in investments that did not perform. This process reaffirms the mantra “buy low, sell high,” and will help you grow your retirement portfolio over the long term. – Alexander Koury, Values Quest

6. Safe Money Options
Fixed annuities have caps that limit growth, but the trade-off is safety. Diversifying with fixed annuities provides a way to accumulate savings with peace of mind that your hard-earned money is safe from a market correction. Yes, it takes longer, and yes, the market could outperform it, but at the end of the day, you need to know there are safe retirement options with guarantees. – Drew Gurley, Redbird Advisors

7. Inflation
A 1% rise in inflation barely shutters an eye in one year. If this continues for the next 20 years, when you may have planned for $60,000 per year for your retirement, your purchasing power will have declined to the equivalent of $49,000. And, that is assuming inflation doesn’t rise to more than 1%. Taking this into consideration, saving more than you need to live off becomes a necessity. – Stacy Francis, Francis Financial, Inc.

8. Aging In Place
Studies have shown that 83% of retirees wish to stay in their own homes. A much smaller number consider using their home equity as a source of income. There are many ways to tap into wealth accrued through home ownership. Some of these include home equity loans, reverse mortgages and sale-leasebacks (typically to a family member or heir). Consider leveraging home equity to age in place. – Ismael Wrixen, FE International

9. Medical Expenses
Inevitably, no matter their economic background or their age, very few of the people I speak with think about the medical circumstances they are going to face. That’s why I am such a proponent of a Health Savings Account (HSA). It is like a quasi-retirement account that we can put money in and use going forward until we start to retire. – Justin Goodbread, Heritage Investors

10. The IRA Account
I’m a big fan of the individual retirement account, or IRA, but it’s an obvious way of saving that often gets overlooked. Many working adults make contributions to their IRA, but they don’t think about how it will see them through retirement. IRAs give you more flexibility than the 401(k) you can get at work. You’ll have the opportunity to diversify with CDs, annuities, stocks and bonds. – Shane Hurley, RedFynn Technologies

11. Diversification
People often overlook diversification; as a result, their investments are subject to unnecessary risk. Many believe they are diversified because they invest in mutual funds, but the truth is they are investing in a single asset class: equities. True diversification can be achieved only with truly self-directed IRA, which allows investments in alternative assets, such as real estate or private lending. – Dmitriy Fomichenko, Sense Financial Services LLC

12. Market Crash
Everyone plans on positive returns in their retirement portfolios, but what will you do when the market crashes and a large chunk of your money disappears? You need to plan for this inevitability and have a strategy on how to bounce back. Without a strategy, you might be inclined to make decisions based on fear rather than sound investment advice. – Vlad Rusz, Vlad Corp. USA

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Filing for Social Security Benefits

My Comments: For millions of us, a predictable monthly income from Social Security has become critical for sustaining our standard of living. For many reasons, we should be increasingly worried about it. But that story is for another day.

Right now, I’m sharing with you what I hope is a simple overview if you have not yet applied for benefits. You can choose from any one of 97 months. The first one is when you turn 62 and the last one is when you turn 70. (you can wait beyond that but it’s pointless…)

Know this too: regardless of when you sign up, we’re talking about essentially the same amount of money spread over your lifetime. Starting early means you’re getting a smaller check for a longer period of time. Starting late means you’re getting a larger check for a shorter period of time.

The optimal month for most of us, is, in my opinion, the month when you reach what is known in Social Security jargon as your FULL RETIREMENT AGE or FRA. Unless you plan or expect to die before your full life expectancy, that date is your first target for signing up.

There are dozens of good reasons to sign up early. And there are dozens of good reasons to wait until your FRA. There are far fewer good reasons to extend your wait beyond your FRA. Here’s a summary of what you can expect.

by Maurie Backman / Apr 10, 2018

Age 62
Age 62 is the earliest point at which you can file for Social Security, and it’s also the most popular age for seniors to claim benefits. The advantage of filing at 62 is that you get your money sooner. The downside, however, is that you’ll face the greatest reduction in benefits by going this route.
If you’re entitled to a full monthly benefit of $1,500 at age 67, for example, then filing at 62 will knock each payment you collect down to $1,050. That said, if you’re unemployed come 62 or need the money for another reason, you’re better off taking benefits than resorting to credit card debt.

Age 63
Filing for Social Security at 63 still means taking benefits early and having them significantly reduced. Still, if you’re desperate for cash, it often pays to take that hit, which won’t be quite as bad as it would if you were to file at 62. Using our example above, a $1,500 benefit at age 67 would be whittled down to $1,125 at 63 — not ideal, but better than collecting just $1,050.

Age 64
Claiming Social Security at age 64 will also result in a sizable reduction in your full monthly benefit. But it won’t be as drastic as filing at an earlier age. In the case of a $1,500 benefit at 67, you’d only lose about 20% by filing at 64, thereby resulting in a $1,200 monthly payment.

Age 65
Once you turn 65, you’re eligible for coverage under Medicare. As such, some people get confused and assume that 65 is the age at which they’re able to collect their Social Security benefits in full. Not so. Still, if you retire at 65 once Medicare kicks in and decide to file for benefits simultaneously, you won’t face such an extreme reduction. Following the above example, a $1,500 monthly benefit at 67 would only be reduced to $1,300 at 65.

Age 66
Age 66 is a significant one from a Social Security standpoint because it’s when workers born between 1943 and 1954 reach full retirement age and are thereby eligible to collect their monthly benefits without a reduction. Your full retirement age is a function of your year of birth, as follows:

Year of Birth       Full Retirement Age
1943-1954                  66
1955                            66 and 2 months
1956                            66 and 4 months
1957                            66 and 6 months
1958                            66 and 8 months
1959                            66 and 10 months
1960                            67
Data source: Social Security Administration.

Therefore, if you were born after 1954 but before 1960, your full retirement age is 66 and a certain number of months. If you were born in 1960 or later and have a full retirement age of 67, filing for Social Security at 66 will reduce your benefits by about 6.67%. That means a full monthly benefit of $1,500 would go down to just $1,400 if you were to take them a year earlier.

Age 67
If you were born in 1960 or later, this is perhaps the age you’ve been waiting for, since it’s when you get to take your monthly benefits in full. In our example, age 67 is when you’d get that $1,500 we keep talking about. That said, you don’t have to file for Social Security at full retirement age. You can hold off and grow your benefits for a higher monthly payout.

Age 68
Though 68 is hardly a common age for taking Social Security, it’s a strategic one nonetheless. That’s because for each year you delay your benefits past full retirement age up until age 70, you get an 8% boost in payments, which, in our ongoing example, would take a full monthly benefit of $1,500 at 67 up to $1,620 at 68. That increase then remains in effect for the rest of your life. Of course, not everyone wants or can afford to hold off on benefits all the way until 70, but waiting until 68 is a decent compromise — you get a modest boost without having to wait too long.

Age 69
Age 69 is a good time to take your benefits if you don’t need them sooner. Doing so will boost our aforementioned $1,500 benefit to $1,740, thus guaranteeing a higher payout for as long as you collect Social Security.

Age 70
The credits you accrue for delaying benefits past full retirement age stop accumulating once you reach 70. Therefore, it’s considered the latest age to file for Social Security. Granted, you don’t have to sign up for benefits at that time, but there’s really no financial incentive not to. If you’re dealing with a full retirement age of 67, filing at 70 means boosting your benefits by 24%, which would turn a $1,500 monthly payment into $1,860 — for life.
Which of the above ages is the right one for you to take benefits? It depends on a host of circumstances, from your savings level to your employment status to the state of your health. The key is to understand the pros and cons of filing at various ages so you land on the one that works best for you.

Your Retirement Money

My Comments: If you’ve read my blog posts these past few months and years, you know that I have no idea what is coming next.

What I do know, however, is that anyone who says “it’s different this time” is full of s**t. It’s the nature of the beast for there to be corrections, and it’s just a matter of time for one to appear. On the other hand, telling everyone ‘the sky is falling’ soon gets old, and essentially useless.

My entire focus these days is helping people retire with more money, the opposite of which is to retire with less money. Personally, I’d rather have more money.

If you have any money fully exposed to what I call downside risk, and are uncomfortable with simply ‘staying the course’, here are three articles that appeared in my inbox in the past few days.

You should be interested in preserving your nest egg from a potential downturn, one that will make it harder to pay your bills in the future.

Making informed decisions about your money starts with paying attention and being able to tuck in your tail before the door slams shut.

I make no apologies for any political implications associated with the three articles.

Economics are never 100% divorced from politics. It doesn’t matter who is pulling the strings.

What matters is that the strings are being pulled, and how that pulling will affect you and your bank accounts. These three articles are worth reading if you have any doubts about having enough money when you retire…

The Albatross of Debt: a $67T Nightmare

6 Reasons For Another $6 Trillion Stock Market Correction

Enjoy The Final Ride, Because The Expansion Is Nearing An End

The Market Is Finally Getting the Joke

My Comments: I struggle, day to day, just like you, to figure out what the markets are going to do because so many of my friends and clients are exposed to market risk. Are you exposed to market risk? Does it worry you at all?

If not, you don’t need to read this. But if it does worry you, then perhaps a few minutes reading these comments from Scott Minerd will be good for you. And oh yes, there are ways to shift the risk of a downward correction to an insurance company and by so doing, preserve your principal and market gains from a crash.

Scott Minerd, February 21, 2018

The last two weeks have been pretty exciting, certainly a lot more interesting than anything we’ve been through over the last year. Given the recent market dislocation, there is a basis to rebalance portfolios and do trades to take advantage of relative repricing. At a macro level, it should not surprise anyone that rates have begun to rise—we have been talking about the Federal Reserve (Fed) tightening, we have been talking about how the Fed is behind the curve, how the market has not believed the Fed, and that someday this was going to have to get resolved, probably by the market having to adjust to the Fed’s statements. The market has now gotten the joke. I still don’t think the yield curve is accurately priced, but it is a lot closer today than where it was at the beginning of the year.

The concern, as I explained in A Time for Courage, is that now the market is moving from complacency—where it really did not believe the Fed was going to do what it said it was going to do—to a time when it has begun to realize that the Fed may be behind the curve. The market is now coming to believe that the Fed is not going to make three rate increases this year, it is going to make four. And so, rates start to rise and the whole proposition that the valuation of risk assets is based upon, which is faith in ultra-low rates and continued central bank liquidity, comes into question. As markets lose confidence in that view, investors have started to rearrange the deck chairs by repositioning portfolios.

Anytime we see strength in economic data, we are going to see upward pressure on rates. Upward pressure on rates is going to result in concern over the value of risk assets, and we are going to have a selloff in equity markets, or the junk bond market, or both. Credit spreads will widen. The reality of the situation, however, is that the amount of fiscal stimulus in the pipeline, the U.S. economy fast approaching full employment, the economic bounceback in Europe, and the pickup in momentum in Japan and in China are all real. Against this backdrop, even a harsh selloff in risk assets is not going to derail the expansion.

The Fed knows this, and for that reason the Fed is shrugging its shoulders and saying, “Okay, we don’t have a mandate around risk assets, but we do have a mandate about price stability and full employment. And it looks like we’re at full employment or beyond full employment, and the thing that seems to be at risk now is price stability. We’ve got to raise rates.”

What does that mean for investors? Markets are engaged in a tug of war between higher bond yields and the stock market. In the near term, the two markets will act as governors on each other: Higher bond yields will drive down stock prices, and lower stock prices will cause bond yields to stop rising and to fall.

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“The market is moving from complacency about the Fed to realizing that it may be behind the curve.”

Scott Minerd

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An analogue to today may be 1987. That year began against the backdrop of 1985/1986, which had seen a collapse in energy prices. In 1986 oil prices were very low, and concerns around inflation had diminished. The Federal Reserve had dragged its feet on raising rates. As we entered 1987, in the first few months of the year the stock market took off. By the time we got to March, stocks were up 20 percent. In April there was a hard correction of approximately 10 percent. As fear overtook greed, market participants became cautious on stocks. Going into that summer the stock market rallied another 21 percent from the April lows. By August we were at record highs; interest rates started to move up; the Federal Reserve was raising rates; the dollar was under pressure; and there were increasing concerns over inflation. The concern was the Fed was behind the curve as it accelerated rate increases. By October things were becoming unhinged. Bond yields had risen in the face of an extended bull market in stocks. The market reached a tipping point and began its infamous slide. By the time we got to the end of the year, the stock market for the year was up just 2 percent. That was the stock market crash of 1987, which wiped out about a third of the value of equities in the course of a few weeks.

Today, investors have the same sorts of concerns they had in 1987. For now, the market has gotten a reprieve. Soon, investors will start to have confidence in risk assets again. Risk assets like stocks will start to take off. Eventually, the perception will be that the Fed is falling behind the curve because inflation and economic pressures will continue to mount. Eventually the Fed will acknowledge that three rate hikes will not be enough, but it is going to raise rates four times in 2018, and market speculation will increase that there may be a need for five or six rate hikes. That will be the straw that breaks the camel’s back.

This is a highly plausible scenario for this year, but who knows how these things play out in the end. The reality today is that the economy is strong, interest rates are rising, and equities look fairly cheap. The Fed model right now would tell you the market multiple should be 34 times earnings. That is just fair value, not overvalued. And based on current earnings estimates for the S&P this year, the market multiple is closer to 17 times earnings. If stocks go down by 10 percent, the market multiple would drop to 15 times earnings. This would be getting into the realm of where value stocks trade. If there were a 20 percent selloff, you’re at a 14 times multiple. These market multiples don’t make sense. Markets do not price at 14 times earnings in an accelerating economic expansion with low inflation.

What should I do with the $300,000 I am about to inherit?

My Comments: What would you do if you just found out you were getting an extra $300,000? And to whom is this question posed?

The article appeared in a news feed on my phone this morning as I was drinking coffee and getting ready for the day. You can find it HERE.

I’m sharing it with you for other reasons, none of which should imply I’m about to have an extra $300k, because I’m not. Unfortunately.

Since it appeared in a public forum, there are financial advisors across the country, who when asked this question by someone, will immediately think of answers like these:

1. Buy stocks and bonds (I make a commission.)
2. Buy an annuity (I make a commission)
3. Invest in a managed portfolio (I earn a fee or % of the assets invested)
4. Buy a portfolio of mutual funds and let me manage them (I make a commission and a fee)
5. I’m a realtor also, so buy a property and hope it appreciates (I make a commission)
6. Buy a life insurance policy and gain tax advantages (I make a commission)
7. Etc., etc., etc….

To be fair, some of those thoughts crossed my mind since for the past 41 years, I’ve called myself a financial advisor and earned a living from commissions and advisory fees.

On the other hand, offering someone a litany of options, all of which might be valid choices, begs the question that should immediately follow the above question, which is “What are your strategic goals?”.

This implies that someone has developed and articulated their strategic goals, all of which surface when you ask yourself certain questions. For example:

1. I’m a long way from retirement, so do I want to spend it now or do I want to grow it and spend it in the future?
2. I’m close to retirement and this money will help a lot but I have an immediate need to pay down debt. Should I use it for that or perhaps pay off my home mortgage?
3. How much money do I make now and how significant is this $300k in the grand scheme of things when it comes to living my life the way I want to?
4. I know that receiving this money has no current income tax implications for me but if I successfully turn it into $400k, what are the future tax implications?
5. Does having this money present opportunities to limit other existential threats to my financial future like bankruptcy, my future health needs, living too long and being broke, paying more taxes than I need to pay?
6. How much risk am I willing to accept without getting really nervous?
7. Etc., etc., etc….

The lesson learned by me from the article is that there are people who are only in the ‘answer’ business and there are people in the ‘question and answer’ business and if this happens to you, you should first find someone in the ‘question and answer’ business that you can trust and enjoy working with, who will help you first define your strategic goals.

Forecasting the Next Recession

My Comments: I may have retired from providing investment advice but I’ve not yet left the building. What happens in the world of money still interests me both professionally and personally.

Attached to this post, by way of a link to a 12 page, downloadable report, is a projection from Guggenheim that says we’ll experience a recession roughly 24 months from now.

Whether they are right or wrong, the next one is somewhere on the horizon. Knowing in advance when it might happen will help manage the financial resources you have that pay for your retirement.

Just don’t confuse the timing of a recession with the timing of market corrections of 10% or more. While there is some correlation, it is far from 100%. Also keep in mind the stock markets price things based on what people THINK will happen, not what actually does happen.

Here’s the link to download a copy of the report: Forecasting the Next Recession.

The Perfect Storm (Of The Coming Market Crisis)

My Comments: We do not live in a perfect world. Flaws are all around us. As responsible adults, we always try to make good decisions, and mostly we succeed. Until we don’t.

If you expect to live another 20 or 30 years, the money you’ll need to pay your bills has to come from somewhere. If you’ve already turned off the ‘work for money’ switch and retired, you’re dependent on work credits and saved resources. Maybe you have a pension that sends you money every month. Good for you.

If you are still working, you’re probably setting aside some of what you earn so you can someday retire and get on with the rest of your life without financial stress. At least that should be your plan.

This article from Lance Roberts, a professional money manager, needs to be read and understood. I’m not going to copy everything he says, but I do encourage you to follow the link I’ve put below. Make an effort to understand what he’s telling us. Your financial life may depend on it.

Know also there are ways to shift the risk of loss to a third party. For a fee, you get to enjoy the upside and avoid the downside. If you do live for another 20 – 30 years, where is your money going to come from?

Lance Roberts published this today, November 28th, and it can be found HERE.