Retirement: The New Status Symbol

A lack of savings among many U.S. households could mean a change in the perception of retirement. It used to be a foregone conclusion that once you were too old to work, you retired. That’s not always the case anymore.

More than a third of U.S. households in prime earning years or later have no retirement savings and no access to a traditional pension.1 It’s become increasingly uncommon for people to retire in their early 60s, and those who fail to plan ahead for their future retirement income needs could end up with a retirement lifestyle worse than the one they had while working.

This doesn’t mean these middle-aged households are broke. Retirement income planning may just not be a priority yet. No matter your age, it’s never too late to start building strategies so you can enjoy your post-working years, and as financial professionals, that’s what we’re here for.

It takes diligence and focus to create a retirement income plan. Dwight D. Eisenhower once said, “Plans are worthless, but planning is everything.”2 This reiterates the point that planning for retirement should be strategic and committed, while at the same time fluid and flexible. Nobody knows what will happen in the future, but we can help you create a retirement income strategy designed to help meet your specific goals.

It can be difficult in the moment, but turning your back on pricey, impulse purchases, such as an expensive car, an outdoor kitchen or backyard pool, can help improve the prospects of your retirement down the road. Many people with good credit can borrow money to purchase these things, but good credit doesn’t fund a long retirement.3

Some workers might argue it’s not worth giving up indulgences today for a better (and earlier) retirement lifestyle. It’s a matter of examining individual priorities. One grandmother did just that when her 8-year-old grandson asked if she would be around when he got married. She had to rethink her priorities for what it might take to accomplish that goal. This led to a stronger pursuit of healthier living, including wholesome food, daily exercise and supportive social connections.4

While it may sound daunting to put in the years of hard work it takes to reach retirement, in some ways long hours at the office is a status symbol of its own. In Italy, the leisure class is perceived to have a higher status than the working class. But in the United States, there’s a certain prestige associated with working long hours and constantly being busy.5

Some people work 70+ hour weeks, not to earn more money and buy more things, but because that is what the working elite do.6 While this may not be the way all people wish to align their priorities, it does offer the distinct advantage of being able to save more money for retirement. For some, retiring is the ultimate status symbol.

Content prepared by Kara Stefan Communications

1 Stan Choe. The Denver Post. Nov. 18, 2016. “Easy retirement for Americans? It’s only for a privileged few.” http://www.denverpost.com/2016/11/17/easy-retirement-privileged-few/. Accessed July 10, 2017.

2 Jonathan Look. NextAvenue. June 23, 2017. “What I Did to Stop ‘Awfulizing’ Retirement.” https://www.forbes.com/sites/nextavenue/2017/06/23/how-i-stopped-awfulizing-retirement/#1d5429451baf. Accessed July 10, 2017.

3 Holly Johnson. Club Thrifty. May 15, 2017. “My Plan to Achieve the Ultimate Status Symbol.” http://clubthrifty.com/my-plan-to-achieve-the-ultimate-status-symbol/. Accessed July 10, 2017.

4 Jane E. Brody. The New York Times. April 20, 2016. “Thriving at Age 70 and Beyond.” https://well.blogs.nytimes.com/2016/04/25/thriving-at-age-70-and-beyond/. Accessed July 10, 2017.

5 Lisa Tolin. NBC News. April 3, 2017. “The Busy Trap: How Keeping Busy Became a Status Symbol.” https://www.nbcnews.com/better/careers/busy-trap-how-keeping-busy-became-status-symbol-n742051. Accessed July 10, 2017.

6 Ben Tarnoff. The Guardian. April 24, 2017. “The new status symbol: it’s not what you spend — it’s how hard you work.” https://www.theguardian.com/technology/2017/apr/24/new-status-symbol-hard-work-spending-ceos. Accessed July 10, 2017.

We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Strategic vs. Tactical Asset Allocation

In recent years, the markets, the economy and the global political scene have evolved considerably. We’ve witnessed both remarkable volatility and remarkable resilience in these areas. The reality is that less predictability in today’s economic landscape requires more vigilant risk diversification, coupled with the ability to adapt to a fast-changing environment.1

We work with our clients to set financial goals and make strategic and tactical recommendations to help them reach their individual financial objectives. Equally as important, we want to encourage clients to work with us to monitor their financial progress and let us know when their personal or financial situation changes. Investing mirrors life in many ways: You make plans, but they often get disrupted, waylaid or delayed. By closely monitoring your financial strategy, we can help you determine if and when it’s time to make changes.

To this end, it may be beneficial for you to understand the distinction between strategic asset allocation and tactical asset allocation. Strategic allocation establishes and maintains a deliberate mix of stocks, bonds and cash designed to help meet your long-term financial objectives.2

Tactical asset allocation, on the other hand, is more market focused. While an investor may set parameters for how much and how long he wants to invest in a certain asset class, he may want to then increase or decrease his allocations by 5 percent to 10 percent over a short time based on economic or market opportunities.3

It is important to be aware that tactical asset allocation strategies present higher risks but also the opportunity for higher returns. It’s a good idea to set percentage limits on asset allocations and time benchmarks for when you may want to exit certain positions.4 Tactical asset allocation is, in fact, a market timing strategy, but its risk lies more in asset categories rather than individual holdings, and a crucial key for this type of allocation is to actively manage that risk.5

To help diversify and manage risk, some financial advisors recommend exchange traded funds (ETFs). These are passively managed funds that can be bought and sold throughout the trading day. While ETFs are passively managed, they provide a means for an investor to tactically expand or shrink exposure to a specific asset class in her own actively managed portfolio. Proponents of ETFs favor them because of their low cost, tax efficiency and trading flexibility.6

Content prepared by Kara Stefan Communications.

1 Nasdaq. June 26, 2017. “Asset owners must be more innovative to fulfill investment missions.” http://www.nasdaq.com/press-release/asset-owners-must-be-more-innovative-to-fulfill-investment-missions-20170626-00612. Accessed July 8, 2017.

2 Chris Chen. Insight Financial Strategists. July 1, 2017. “Tactical asset allocation can enhance a long term strategy.” http://insightfinancialstrategists.com/asset-allocation/?utm_source=ReviveOldPost&utm_medium=social&utm_campaign=ReviveOldPost. Accessed July 8, 2017.

3 Ibid.

4 Ibid.

5 Girija Gadre, Arti Bhargava and Labdhi Mehta. The Economic Times. June 19, 2017. “5 smart things to know about tactical asset allocation.” http://economictimes.indiatimes.com/wealth/invest/5-smart-things-to-know-about-tactical-asset-allocation/articleshow/59189407.cms. Accessed July 8, 2017.

6 Robert Powell. MarketWatch. June 9, 2017. “Why financial advisers prefer ETFs over mutual funds.” http://www.marketwatch.com/story/why-financial-advisers-prefer-etfs-over-mutual-funds-2017-06-09. Accessed July 8, 2017.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Retirement Plan Fees: Know What You Are Paying

Many large companies offer employees a 401(k) plan with some degree of matching contribution. Although this is a good employee benefit to have, you always should pay attention to the fees involved in your plan. Your plan provider charges various fees to invest, manage and administer the plan, and those fees are passed on to the participants who invest.

The Center for Retirement Research at Boston College reports that, in recent years, the fees charged by actively managed mutual funds — including those in 401(k) plans — have dropped. Since 2015, the average fee dropped from 0.78 percent to 0.75 percent. Around 15 years ago, fees averaged about 1 percent. However, fees for passively managed index mutual funds, generally referred to as index funds, average significantly less at 0.17 percent. Index funds passively track the investments of a specific market index; there is no manager actively choosing investments for the fund on a day-to-day basis.1

If you have a 401(k) plan through a current or former employer, we’re happy to help you determine what you are paying in fees and help you assess your financial situation. In many cases, the more investors learn about fees, the more they start choosing investments that cost less. The Center for Retirement Research suggests this by sharing that U.S. investors withdrew $627 billion from actively managed funds that charged the highest fees and invested $429 billion into lower-fee index funds in 2015 and 2016.2

The Department of Labor’s fiduciary rule, which took partial effect in June, has made it easier for investors to know what they are paying for by requiring the disclosure of all fees and commissions. This information must be in dollar form.3 In addition, FINRA, a self-regulatory organization that regulates broker-dealers in the United States, offers a Fund Analyzer tool on its website that can help investors estimate the impact of fees and expenses on an investment and research applicable fees and available discounts for specific funds.4

Are fees really that important? It can depend. If you are paying a money management firm to select investments and it does a great job of providing consistent performance over time, it may be worth what you pay in fees. But it may also be worth considering how your investments compare with the overall market. For example, over the past three years, the S&P 500 has increased by 26 percent (as of mid-June 2017).5 If you were invested in a low-expense S&P 500 index fund, you would have experienced impressive returns. But if you had been paying a high fee for an active manager yielding the same performance, it may not have been worth the expense.

Speaking of fees, be aware that the IRS permits investors to deduct certain expenses incurred on taxable investments, such as:6

  • Fees for investment counsel, including subscriptions to financial publications
  • IRA or Keogh custodial fees (if paid by cash outside the account)
  • Transportation to your broker’s or investment advisor’s office
  • Safety deposit box rent if you use it to store certificates or investment-related paperwork

If you have a 401(k) plan through a current or former employer and would like help determining what you are paying in fees, we’re happy to help you assess your financial situation. Using a variety of investment and insurance products, we can create a financial strategy that can help put you on the path toward your financial goals.

Content prepared by Kara Stefan Communications.

1 Center for Retirement Research at Boston College. June 29, 2017. “Mutual Fund Fees: Here’s What Matters.” http://squaredawayblog.bc.edu/squared-away/mutual-fund-fees-heres-what-matters/. Accessed July 5, 2017.

2 Ibid.

3 Investopedia. July 5, 2017. “DOL Fiduciary Rule Explained as of July 5th, 2017.” http://www.investopedia.com/updates/dol-fiduciary-rule/. Accessed July 13, 2017.

4 FINRA. “Fund Analyzer.” http://apps.finra.org/fundanalyzer/1/fa.aspx. Accessed July 5, 2017.

5 Dayana Yochim. Atlanta Journal Constitution. July 5, 2017. “This May Be Why You’re Down in an Up Market.” http://www.ajc.com/business/consumer-advice/this-may-why-you-down-market/hQWTwwUWlBhEKX8tJoyNHL/. Accessed July 5, 2017.

6 Rande Spiegelman. Charles Schwab. March 15, 2017. “Investment Expenses: What’s Tax Deductible?” http://www.schwab.com/insights/taxes/investment-expenses-whats-tax-deductible. Accessed July 5, 2017.

Neither the firm nor its agents or representatives may give tax advice. Be sure to speak with a qualified professional about your unique situation.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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3 Common Questions About Social Security

While Social Security shouldn’t be relied upon to be the sole source of income during retirement, it can play an important role in your overall retirement income strategy. But making sense of the basic ins and outs of Social Security can be overwhelming. Here are three questions people commonly ask as they approach retirement age:

When can I start taking benefits?

While full retirement age is 66 for people born between 1943 and 1954 and gradually increases to age 67 for those born in 1960 or later, you can start receiving Social Security benefits at age 62.1 Keep in mind, however, that there is a cost to early distribution; your benefits are reduced by about 0.5 percent for each month you receive benefits before full retirement age.2 For example, those born in 1955 with a full retirement age of 66 and two months who start taking benefits at age 62 will receive about 75 percent of the full benefit.3

On the flip side, delaying benefits past full retirement age, up to age 70, increases your distribution amount. If the same individual in the previous example waits until age 68 to take benefits, his or her benefit will increase 8 percent each year after full retirement age. This increase continues until you reach age 70 or you start taking benefits, whichever comes first.4

 What happens to my benefits when I die?

It depends. If you are married and your spouse is age 60 or older, he or she may be eligible to collect a survivor’s benefit. The benefit amount remains the same as the deceased’s amount, although that amount is reduced if benefits are started before the surviving spouse’s full retirement age.5 A spouse cannot collect both survivors benefits and retirement benefits based on their own work record. They will collect whichever benefit is higher.6

If you have a minor child or children, your surviving spouse (regardless of age) may also be eligible for a survivors benefit until the minor child turns age 16. If you have no surviving spouse or minor children, your benefit remains in the Social Security trust fund and is not paid out to any other named beneficiaries, unless they qualify under the Social Security survivors benefits eligibility rules.7

 Can I work while receiving benefits?

Yes. However, if you haven’t reached full retirement age, your benefit amount will be reduced if your earnings exceed the limit. Starting with the month you’ve reached full retirement age, your benefits will not be reduced no matter how much you earn.8 The earnings limit and reduced amount vary according to your age. To find out how much your benefits might be reduced, use the Social Security earnings calculator at https://www.ssa.gov/OACT/COLA/RTeffect.html.9

 Understanding Social Security can be challenging, but you don’t have to go it alone. Contact us today to learn more about how to incorporate your Social Security benefits into your complete retirement income strategy. We may be able to identify potential retirement income gaps and may introduce insurance products as a potential solution.

Content prepared by Amy Ragland.

 1 Social Security. January 2017. “Understanding the Benefits.” https://www.ssa.gov/pubs/EN-05-10024.pdf. Accessed June 21, 2017.

2 Ibid.

3 Social Security. “Retirement Planner: Benefits By Year of Birth.” https://www.ssa.gov/planners/retire/agereduction.html. Accessed June 21, 2017.

4 Social Security. “Retirement Planner: Delayed Retirement Credits.” https://www.ssa.gov/planners/retire/delayret.html. Accessed June 21, 2017.

5 Joseph L. Matthews. Caring.com. Dec. 24, 2016. “What happens to the rest of a person’s Social Security money after they die?” https://www.caring.com/questions/social-security-benefits-after-death. Accessed June 21, 2017.

6 Ibid.

7 Ibid.

8 Social Security. June 15, 2017. “What happens if I work and get Social Security retirement benefits?” https://faq.ssa.gov/link/portal/34011/34019/Article/3739/What-happens-if-I-work-and-get-Social-Security-retirement-benefits. Accessed June 21, 2017.

9 Social Security. “Retirement Earnings Test Calculator.” https://www.ssa.gov/OACT/COLA/RTeffect.html. Accessed June 21, 2017.

 Financial professionals are able to provide you with information but not guidance or advice related to Social Security benefits. We are not affiliated with the U.S. government or any governmental agency.

 We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Tips for Bargain Hunters

For many of us, retirement means living on a fixed income, and that often means making a budget and watching expenses. One way to help stay on budget is to shop for the best prices on items that fall within our discretionary income budget.

According to Consumer Reports, even though consumers can now buy just about anything they want online at any time of the year, deep discounts for many products still tend to be seasonal.1 For example, the best time to buy summer clothes is halfway through the summer, when stores cut prices to move inventory and make room for the next season’s stock.2

The following list from Consumer Reports details the best months for buying certain consumer items.3

  • January — bathroom scales, ellipticals, linens and sheets, treadmills, TVs, winter sports gear and clothing
  • February — humidifiers, mattresses, winter sports gear and coats
  • March — boxed chocolates, digital cameras, ellipticals, humidifiers and treadmills
  • April — carpet, desktop and laptop computers and digital cameras
  • May — baby high chairs, desktop and laptop computers, interior and exterior paints, mattresses, strollers and wood stains
  • June — camcorders, ellipticals, indoor furniture, summer sports gear and treadmills
  • July — camcorders, decking, exterior and interior paint, siding, summer clothing and wood stains
  • August — air conditioners, backpacks and back-to-school goods, dehumidifiers, outdoor furniture and snow blowers
  • September — desktop and laptop computers, digital cameras, interior and exterior paint, lawn mowers and tractors, printers and snow blowers
  • October — desktop computers, digital cameras, gas grills, lawn mowers and tractors
  • November — camcorders, gas grills, GPS and TVs
  • December — Blu-Ray players, camcorders, e-book readers, gas grills, GPS, headphones, kitchen cookware, major appliances and TVs

According to US News & World Report, the best time to buy a car is not when you see all those ads on TV for Presidents Day, etc. Rather, the best months to shop for good deals are May, October, November and December. The best days to shop are Mondays, New Year’s Eve and New Year’s Day.4

When it comes to holiday gift giving, some of the spoils go to those who procrastinate. If your gift list doesn’t include popular items that will sell out, waiting until the last 10 days before Christmas frequently can net the highest savings. Looking for holiday lights and decorations? The best time to shop is just after the big day, when you can stock up for next year at clearance prices.5

If you’re in the market to buy or sell a house, note that the best time for sellers to list a home is in May, when the supply of houses is tight, thus commanding the highest prices. The best time to buy is at summer’s end, when sellers are cutting house prices that have been on the market for several months.6

As for where to find the best bargains, you’re probably already familiar with local discount stores and volume warehouses. If you’re a member of Amazon Prime, be on the lookout for “Prime Day” each year when the online retailer drastically reduces prices on select items for 24 hours for Prime members. If you’re not an Amazon Prime member, “Prime Day” is the time to join because the annual membership fee is usually reduced as well.7

Of course, one of the best ways to stay on budget during retirement is to help ensure your income is ongoing and reliable, which is something we can help with. Give us a call so we can talk about how we can help you create strategies using a variety of insurance products to help you work toward your retirement income goals.

Content prepared by Kara Stefan Communications.

1 Consumer Reports. “Best Time to Buy Things.” http://www.consumerreports.org/cro/money/best-time-to-buy-things/index.htm. Accessed June 22, 2017.

2 Nikki Willhite. All Things Frugal. “Shopping the Seasonal Sales.” http://www.allthingsfrugal.com/s_sale.htm. Accessed June 22, 2017.

3 Consumer Reports. “Best Time to Buy Things.” http://www.consumerreports.org/cro/money/best-time-to-buy-things/index.htm. Accessed June 22, 2017.

4 Eric C. Evarts. US News & World Report. March 31, 2017. “6 Best Times to Buy a Car.” https://cars.usnews.com/cars-trucks/6-best-times-to-buy-a-car. Accessed June 22, 2017.

5 Denise Groene. The Wichita Eagle. June 16, 2017. “When is the best time to buy a grill, and other stuff.” http://www.kansas.com/news/business/biz-columns-blogs/article156570289.html. Accessed June 22, 2017.

6 Susie Gharib. Fortune. June 21, 2017. “Do’s and Don’ts for Buying and Selling a House.” http://fortune.com/2017/06/21/zillow-tips-for-buying-and-selling-a-house/. Accessed June 22, 2017.

7 Matt Swider. TechRadar. June 28, 2017. “Amazon Prime Day deals 2017 in the US: Find the best sales for July 11.” http://www.techradar.com/news/amazon-prime-day-2017-usa-when-is-it-and-how-can-you-find-the-best-deals. Accessed June 30, 2017.

Guarantees and protections provided by insurance products including annuities are backed by the financial strength and claims-paying ability of the issuing insurer.

We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Divorce During Retirement

A funny thing happens when you get busy with trying to achieve all the things you want out of life: You lose a few along the way. Unfortunately, some people lose their marriage.1 However, for those who are truly unhappy and can’t see a way back to blissful partnership, a “gray divorce” isn’t necessarily all negative. Even in retirement, leaving a spouse can open up new avenues to be explored, the chance to pursue activities perhaps not supported before and new opportunities to reinvent yourself.

With that said, you also must deal with a myriad of details when it comes to dividing assets to help ensure each ex-spouse has enough income to live comfortably during retirement. Just as it takes a village to raise children, it can take a team of experienced and qualified professionals to help you do this, from attorneys to financial advisors to tax planners and perhaps even a therapist. The goal is to emerge confident about your financial future, and we’re here to help both spouses on this journey should you need it.

When it comes to Social Security, there are certain rules that apply to benefits for a divorced spouse based on the ex’s earning history. For example, the marriage must have lasted for at least 10 years, the couple must be divorced for at least two years and the claiming ex must be currently unmarried – if the claimer gets remarried, the ex’s spousal benefits will stop. Furthermore, the ex-spouses must both be at least age 62 to begin drawing spousal benefits, and the spouse/divorcee must be full retirement age to be eligible for the full spousal benefit.2

Another important component to address is life insurance. If there are alimony payments involved, life insurance can help cover the loss of that income should the payer die first. Depending on their circumstances, divorcing couples may want to update their named beneficiaries on their respective policies. If a policy has a cash value, that money belongs to the owner. While the policy is active, the owner may forgo the death benefit and instead take the cash value, a process known as cashing out your life insurance policy.3

Research has found that divorce may be a reason why many people are working long past traditional retirement age.4 Because of this, it’s important to set aside animosity and work on an equitable agreement for both spouses’ retirement. Divorcing spouses should be cognizant that if one ends up struggling financially, their adult children may have to pick up the slack.5

 Content prepared by Kara Stefan Communications

1 Linda Melone. Next Avenue. July 11, 2016. “Why Couples Divorce After Decades of Marriage.” http://www.nextavenue.org/slideshow/why-couples-divorce-after-decades-of-marriage/. Accessed June 6, 2017.

2 Social Security Administration. “Retirement Planner: If You Are Divorced.” https://www.ssa.gov/planners/retire/divspouse.html. Accessed June 6, 2017.

3 Greg DePersio. Investopedia. Nov. 25, 2015. “How Life Insurance Works in a Divorce.” http://www.investopedia.com/articles/personal-finance/112515/how-life-insurance-works-divorce.asp. Accessed June 6, 2017.

4 Ben Steverman. Bloomberg. Oct. 17, 2016. “Divorce Is Destroying Retirement.” https://www.bloomberg.com/news/articles/2016-10-17/divorce-is-destroying-retirement. Accessed June 6, 2017.

5 Charlotte Cowles. The Cut. May 12, 2017. “My Mom Is Broke. How Can I Help Her?” https://www.thecut.com/2017/05/my-mom-is-bad-with-money-how-do-i-help-her.html. Accessed June 6, 2017.

Our firm is not affiliated with or endorsed by the Social Security Administration or any governmental agency and does not provide tax or legal advice.

Life insurance policies are contracts between you and an insurance company. Life insurance product guarantees rely on the financial strength and claims-paying ability of the issuing insurer.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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Taxes and Retirement Planning

The White House recently introduced what it billed the “biggest tax cut” in U.S. history. While a presidential tax proposal is not likely to get passed without significant changes, the fact that Republicans dominate both chambers of Congress suggests 2017 may well be a year in which significant tax reform is engineered.1

One thing should be perfectly clear: The U.S. tax code is highly complicated.2 There may not be anyone who understands it all off the top of their head. CPAs and tax professionals must conduct thorough due diligence to tailor strategies and complete returns for taxpayers with complex situations.

Because of this, we recommend our clients who require tax advice work directly with an experienced and qualified tax professional. However, we also believe financial and tax professionals should not work in a vacuum, and therefore are more than happy to work in concert with our clients’ tax advisors to help align their financial strategy with their tax situation.

This is particularly important when it comes to retirement planning, because you want to save as much as possible before you retire, which may include tax-deferred financial vehicles such as a 401(k) or IRA, but you don’t want to get hit with a big tax bill on untaxed earnings once you’re in retirement.3 This is a delicate balance that requires experience and collaboration from both a financial professional and a tax professional.

One tax issue each of us deals with is the federal income tax rate. Our annual earnings determine which federal tax bracket we land in, but that tax bracket isn’t the tax rate applied to our entire income. Instead, we pay every tax rate on income blocks up to our individual bracket. Like many things about filing taxes, this can be highly confusing for many people.

It may be easier to understand this through a hypothetical example. Let’s say Joe, who is single, had $92,000 of taxable income in 2016, which landed him in the 28 percent tax bracket. This is how his total tax is calculated:4

  • He pays 10% on the first $9,275 (tax of $927.50)
  • He pays 15% on the next $28,375 (tax of $4,256.25)
  • He pays 25% on the next $53,500 (tax of $13,375)
  • He pays 28% on the final $850 (tax of $238)
  • Total tax bill of $18,796.75

As you can see, Joe doesn’t pay 28 percent on the full amount of his taxable income; his taxable amount progresses through each income bracket and their respective tax rates until it reaches his total taxable income for the year. Therefore, a person who falls in the highest tax bracket is only paying that higher tax rate on a portion of his or her income.

This is an important distinction to remember as the U.S. works toward tax reform. On one hand, reducing the number of tax rates from seven to three (Trump’s proposal: 10 percent, 25 percent, 35 percent)5 looks to simplify tax filings, but for many people, this could mean paying a higher tax rate on larger blocks of income. Let’s take the hypothetical example of Joe again, using the same income brackets (to date, no tax rate income brackets have been proposed). Here’s how Joe’s scenario might break down:

  • He pays 10% on the first $9,275 (tax of $927.50)
  • He pays 25% on the next $81,875 (tax of $20,468.75)
  • He pays 35% on the final $850 (tax of $297.50)
  • Total tax bill of $21,693.75

This example simply illustrates how a progressive income tax works. Obviously, it doesn’t take into consideration credits and deductions, which vary substantially among taxpayers. Nor does it include payroll taxes.6

Federal income brackets and their respective tax rates are the most fundamental issues Americans are subject to when filing taxes. But as you can see, there’s nothing straightforward about them. This is worth remembering as tax reforms continue to be proposed and debated moving forward: Nothing concerning taxes is simple, and there are usually layers that impact us that the average layperson isn’t likely to see.

Content prepared by Kara Stefan Communications

1 Fox News. April 26, 2017. “Mnuchin vows ‘biggest tax cut’ in US history, confirms plan to slash business rate.” http://www.foxnews.com/politics/2017/04/26/mnuchin-vows-biggest-tax-cut-in-us-history-confirms-plan-to-slash-corporate-rate.html. Accessed May 5, 2017.

2 Vanessa Williamson. The Atlantic. April 18, 2017. “How the Tax-Filing Process Confuses Americans about Tax Policy.” https://www.theatlantic.com/business/archive/2017/04/paying-taxes-confusion-policy-1040/523287/. Accessed May 5, 2017.

3 Fidelity. March 1, 2017. “How to invest tax efficiently.” https://www.fidelity.com/viewpoints/investing-ideas/tax-strategy. Accessed May 5, 2017.

4 Tina Orem. Nerd Wallet. Sept. 8, 2016. “2016 Federal Income Tax Brackets.” https://www.nerdwallet.com/blog/taxes/federal-income-tax-brackets/. Accessed May 5, 2017.

5 Martha C. White. NBC News. May 2, 2017. “Even Families Making $100K Won’t Be Better Off Under New Tax Plan.” http://www.nbcnews.com/business/taxes/even-families-making-100k-won-t-be-better-under-new-n753941. Accessed May 5, 2017.

6 NPR. 2017. “On Tax Day, an Economist Outlines How the Payroll Tax Works.” http://nhpr.org/post/tax-day-economist-outlines-how-payroll-tax-works#stream/0. Accessed May 5, 2017.

These hypothetical examples are for illustrative purposes only. This information is not intended to provide tax advice. Be sure to speak with qualified professionals about your unique situation.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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What Is Evidence-Based Investing?

The evidence-based approach originated in the medical field to promote the use of clinical experience and the best available research to make decisions about individual patient care.1

In the investing world, this translates to a goal of using current evidence to help maximize an individual’s investment returns while minimizing risk from market downturns.2 In more simplistic terms, evidence-based investing (EBI) means that whatever you decide to do, make sure you have an evidence-based reason for doing it, and always be prepared to amend your plan when the evidence necessitates a change.3

While we’re happy to explain to our clients various investing and wealth management approaches, including EBI, please keep in mind that our advice is tailored to each person’s needs. What works for one client may not work as well for another. We’d love to talk with you about our individual approach to investing – give us a call toll-free at 1-888-272-1099 and we’ll be happy to set up an appointment.

Financial professionals who use evidence-based investing typically take a four-step decision-making process:4

  1. Eliminate meaningless questions.
  2. Ask meaningful questions.
  3. Apply the evidence.
  4. Monitor for effectiveness.

Another significant distinction about EBI is that it is commonly misinterpreted as passive investing. However, EBI is not so much about active versus passive management but rather is about keeping an eye on how much you pay for each investment and determining if what you’ve gotten in return is worth the price.5

Please remember that investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Content prepared by Kara Stefan Communications.

1 Michael Chamberlain. Investopedia. March. 28, 2017. “Comparing Traditional to Evidence-Based Investing.” http://www.investopedia.com/advisor-network/articles/comparing-traditional-evidencebased-investing/. Accessed May 26, 2017.

2 Michael Finke. ThinkAdvisor. Spring 2017. “The Rise of Evidence-Based Investing.” http://www.researchmagdigital.com/researchmag/april_2017?utm_campaign=Q22017%20Thought%20Leadership&utm_content=52019654&utm_medium=social&utm_source=twitter&pg=14#pg14. Accessed May 26, 2017.

3 Robin Powell. The Evidence-Based Investor. April 25, 2017. “Bob Seawright: Behavioral Finance Is as Much a Part of EBI as Indexing.” http://www.evidenceinvestor.co.uk/bob-seawright-behavioural-finance-much-part-ebi-indexing/?platform=hootsuite. Accessed May 26, 2017.

4 Michael Finke. ThinkAdvisor. Spring 2017. “The Rise of Evidence-Based Investing.” http://www.researchmagdigital.com/researchmag/april_2017?utm_campaign=Q22017%20Thought%20Leadership&utm_content=52019654&utm_medium=social&utm_source=twitter&pg=14#pg14. Accessed May 26, 2017.

5 Corey Hoffstein. Newfound Research. Nov. 18, 2016. “What I Learned at the Evidence-Based Investing Conference.” https://blog.thinknewfound.com/2016/11/4-lessons-ritholtz-wealth-evidence-based-investing-conference/. Accessed May 26, 2017.

 

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

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