All posts by Jim Girlando

John Oliver talks retirement

Clicking on the link below will take you to some text and some tweets about a YouTube video from John Oliver talking about retirement on his HBO show, “Last Week Tonight”. The video is also there.

I highly recommend that you click on and watch the video. It is a very funny way to tell the truth. He says what I believe and have been telling my clients since I’ve been in this business. By the way, since Oliver’s show is on HBO, he is free to use language that some may find offensive – some is bleeped out.

In simple terms, being a fiduciary means that your financial advisor has to put your interests above their own.

By the way, if your financial advisor is a CERTIFIED FINANCIAL PLANNER™️ professional, then he or she IS a fiduciary. If you are working with a financial planner who is a CERTIFIED FINANCIAL PLANNER™️ professional, and you feel they are not acting as a fiduciary, you have the right to report them to the CFP Board – go to http://www.cfp.net.

Here’s the link – enjoy and let me know what you think about John Oliver’s take on things. (Cut and paste the link into your browser if clicking on the link doesn’t work.)

http://m.wealthmanagement.com/blog/john-oliver-takes-retirement-plans?NL=WM-27&Issue=WM-27_20160614_WM27_797&sfvc4enews=42&cl=article_2&utm_rid=CPG09000007858483&utm_campaign=6267&utm_medium=email&elq2=899815d4cc4d4a87ae6a923db5fa0ed9

Tips: Saving For Retirement

1. Have a plan – When you are saving for retirement you need to have a plan, whether that plan is developed on your own or with a financial planner.

It’s easy to read (hey – you’re reading this, right?) or hear about what to do to save for retirement, however, in the end you need a personalized plan that tells you how things will look, for you, financially, in retirement.

Once you’ve decided to save for retirement and you know where the money is going to come from, you have to decide where you are going to save the money.

2. Get company match/use Roth IRA – If you have a 401(k)* plan where you are employed you should contribute enough to get the company match – that’s free money you should make sure you are getting. Once you’ve contributed enough to get the company match, you should start or add to a Roth IRA the amount you are able to, up to the maximum allowed each year. For the tax year 2016, the maximum is $5500 if you are less than 50 years of age and $6500 if you are 50 or older. (You must have earnings equal to or greater than your Roth IRA contribution.)

If you still have money you’d like to set aside for retirement, after making the maximum Roth IRA contribution, you should increase the percentage of your salary that is being contributed to your 401(k). The maximum you can add to a 401(k) per year is $18,000 if you are less than 50 years of age and $24,000 if you are 50 or older.

If you have a Roth 401(k) available where you are employed, select this option. There are a few advantages to Roth IRAs and Roth 401(k)s. One of the most important is that although you give up the tax-deduction for your contribution, your earnings are never taxed.

If your company doesn’t provide matching funds to what you contribute to a 401(k), start with the Roth IRA and then use the 401(k). Even if there isn’t a company match there are still advantages to using a 401(k) for your retirement savings.

If your company doesn’t provide a 401(k), I would start with a Roth IRA and then use a taxable account. Self-employed individuals can save even more for retirement in a SEP IRA or a SIMPLE IRA. Taxable accounts and plans for the self-employed are discussions for another time and won’t be covered here.

3. Take advantage of compounding – However you save, the earlier you start the better, so that you can harness the power of compounding. If you start saving at age 25, and earn 6% per year on your savings, every dollar you invest will become approximately $5.75 by the age of 55 (almost 6 times what you invested) and will become approximately $10.25 by the age of 65 (more than 10 times what you invested).

4. Don’t be afraid of the stock market – In most cases you won’t be able to save enough for retirement unless you put your long-term savings at risk. The most conservative way to do this is with low-cost, broad-based index funds. You don’t want to try to beat the market, you want to own the entire market.

* NOTE: 403(b) plans are similar to 401(k)s and are typically provided by non-profit entities.

 

John Bogle, Vanguard Founder, on webinar

If you would like to hear John Bogle speak on his 65 years in the industry, click the Register now button below. John Bogle started Vanguard to introduce investors to index funds. He created the first index fund (it still exists today) called the Vanguard 500, which tracks the S&P 500 – the 500 largest US-based corporations.

His mantra was if you can’t beat the market (which even professional money managers have failed to do over a long time-frame), then you should OWN the market. Hence the evidence for using index funds for your long-term investments.

The webinar is on Wednesday, June 15, 2016, at 1:30 MDT.

Register_Now

 

Fed raises rates-depositors have to wait

It’s not news anymore that the Federal Reserve raised the federal funds rate about 4 months ago and that the nation’s largest banks then raised their prime lending rates. The prime rate, among the most widely used benchmarks in setting home equity lines of credit and credit card rates, is based on the federal funds rate.

The banks, however, didn’t rates their rates for savers and you shouldn’t expect increases on your deposits any time soon.

The common wisdom is that it will take a couple of rate hikes before the banks raise their interest rates on your deposits. There are a couple of reasons for this. One is that the rate the banks offer on your deposits is not directly tied to the federal funds rate and bank margins have been very thin in the current rate environment.

The way to get the best interest rates available on bank deposits is to go to bankrate.com and search for the highest yielding CDs (Certificates of Deposit) and/or money market accounts. Online only banks are fine and many times offer higher interest rates because they save money by not having brick and mortar branches staffed with tellers and other bank officials. Whether the bank is online only or not, use bank that has a 4 or 5 star rating, so you know they are currently in good financial condition. Check your bank every month on bankrate.com and if its star rating slips below 3, you may want to consider moving your money.

Currently rates on money market accounts and short-term CDs are very close. Which begs the question, why would you open a CD that has penalties for early withdrawal, when you can open a money market account with no penalties and about the same interest rate?

Well … it may be worth checking the rate on longer term CDs, such as CDs that mature in 5 years, even if you’d like to have the money available in less than 5 years. Check the penalty for early withdrawal. Sometimes you can come out ahead by taking an early withdrawal if the penalty is less than the extra amount you made opening the CD with the longer term and higher interest rate.

Remember, that bank deposits are best for short terms needs like an emergency fund or something you think you may need this year or maybe next. Even though your principal is insured, you lose purchasing power as inflation outstrips the interest the bank gives you on your deposit.

Saving for retirement or other longer term goals are best accomplished by putting your principal at risk. The most conservative way to do this is with broad-based index funds.

Rolling over your 401(k)

In most cases when you leave a job you should roll over your 401(k) into an IRA. One of the main reasons to do this is the flexibility of investment options (and potential lower cost ratios). There are some instances (in the minority) when you shouldn’t perform this rollover and your financial advisor is best equipped to help you make this decision. Here’s  an article about rollovers that discusses some of the pros and cons:

Roll over or not? Smart 401(k) moves when you quit your job

Jeff Reeves, Special for USA TODAY 11:02 a.m. EDT March 25, 2016

In 2016, the U.S. labor market remains strong across many measures. That includes the number of employees voluntarily leaving their current jobs in pursuit of greener pastures.

According to December data from Bureau of Labor Statistics, the rate of “quits” has at last surpassed pre-recession readings from the end of 2007 — hinting that qualified workers have more job options than in roughly a decade.

But while a new job can be full of exciting opportunities (and hopefully a bigger paycheck) there is also uncertainty that comes with such a change. And for many, that includes uncertainty over what happens to their previous employer’s 401(k) plan.

First things first: While there are several options for what to do with an old 401(k), you should remember that the money is still all yours, said Andrew Meadows, a vice president at online benefits provider Ubiquity Retirement and Savings. And if you have more than $5,000 in your account, it can stay where it is as long as you like.

“Just because you’ve left an employer, you don’t have to move it,” Meadows said.

The only catch is if you have a balance of less than $5,000. In these cases, it is legal for employers to force you out of their 401(k) either by cutting you a check or automatically rolling your funds over into a third-party IRA, depending on their policy.

Of course, there are drawbacks to simply leaving your cash where it is.

“You may be charged higher fees as a former employee,” said Ken Moraif, a certified financial planner at investment advisory firm Money Matters in Dallas. Also, you don’t have a benefits representative down the hall anymore to explain changes in investment options that might take place over the coming years.

So, if you do choose to stay put, Moraif said, “It is important that you know the rules.”

Rolling over your 401(k) to an IRA

If you’d prefer to part ways with your old 401(k) plan, however, there can be big benefits to rolling over those funds into an individual retirement account.

Moraif notes that rolling over your cash from a 401(k) to an IRA can unlock a host of new investment options instead of just the five or 10 mutual funds your employer offered.

“You have almost unlimited choice, maximum control and flexibility,” he said.

Also, if this isn’t the first mothballed 401(k) from a previous employer, wrapping your arms around your retirement outlook can be a challenge, said Kimberly Foss, a certified financial planner and president of Empyrion Wealth Management in Roseville, Calif.

“If you change jobs multiple times over your lifetime, you may end up with numerous 401(k) plans, which can be confusing when evaluating your entire investment plan and reviewing performance statements,” Foss said. “Holding all of your retirement funds within one IRA may make monitoring your investment strategy much simpler.”

Foss is quick to point out, however, that anyone rolling over a 401(k) to an IRA should do so via a “direct rollover” from one financial institution to another, and avoid touching any of the money as it is transferred. That’s because if you take possession of these tax-sheltered retirement funds and don’t follow IRS guidelines to the letter, the money may be seen as an early withdrawal instead of a rollover.

And that can result in steep penalties.

“You’ll not only lose a significant portion of your funds to income taxes, but you will also be required to pay a 10% penalty for early withdrawal — and you would lose out on the opportunity for future tax-deferred growth,” Foss said.

In fact, those costs are one of the big reasons why few financial advisers ever recommend taking a cash distribution from an old 401(k) if you move on to a new job.

It’s also worth remembering the lost growth potential and retirement security in addition to any penalties, Foss notes. After all, the purpose of saving in a 401(k) to begin with is to provide for your golden years, and taking a cash distribution now is reducing both your nest egg and your future investment returns over the next few decades.

“Just $25,000 held in an IRA for 30 years, even at a conservative rate, can make a huge difference in your lifestyle when you retire,” she said.

Jeff Reeves is executive editor of InvestorPlace.com.

AUM fees may be on their way out

As my clients know, my philosophy has always been for the client to keep and invest all their money themselves and not pay a percentage of what they have to an advisor to manage their money for them. In the financial industry, this is called AUM or Assets Under Management. History tells us that a professional money manager, over a long time frame, can’t beat a broad-based index fund, which is why I recommend broad-based index funds to my clients. Future blogs will talk more about this.

Advisors who charge fees for assets under management can call themselves fee-only planners, because they aren’t selling you products and making a commission from those sales. When commissions are involved there is an incentive for the advisor to sell you the products that they have available to them and/or make them the most commission. What’s best for you, may not carry as much weight as it should.

For an advisor who charges you a percentage of your investable money (AUM), they have an incentive for you to not do anything else with your money if it reduces the amount of money (assets) they can invest (manage) for you, thereby reducing the amount of money they are charging you.

As you can see from the article at this link, things may be changing …

http://www.usatoday.com/story/money/personalfinance/2014/04/12/wrong-way-to-pay-for-financial-advice/7522619/

401(k) Saving Tips

Here is a link to an article that talks about ways to maximize your savings in a 401(k):

http://www.usatoday.com/story/money/columnist/brooks/2014/10/07/401k-pension-retirement-boomer-savings/16805667/

The article provides good advice that if you are still working at age 70 1/2, when RMDs are required for traditional 401(k)s and IRAs, it pays to keep your 401(k) and not roll it into an IRA, to avoid RMDs. Once you do retire or any time you leave a job and have a 401(k) from that job, I recommend you transfer the 401(k) to an IRA to give you more investment flexibility. There are some reasons to not do this and your financial advisor can help you sort this out.

The article mentions having an emergency fund, which I fully endorse, however, what takes precedent is getting your company match in your 401(k). It always pays to contribute the amount that gets you all of your company match, because that is free money you should never give up.

Enjoy the article!

Borrowing from your 401(k)

Normally, borrowing from a 401(k) is not recommended. Although this article (see the link below) is a bit old, it gives some examples of when you might want to borrow from your 401(k) and if you do, the advantages and disadvantages. Enjoy!

http://www.usatoday.com/story/money/personalfinance/2014/05/04/adviceiq-401k-loans-pros-and-cons/8632999/

End of some Social Security claiming strategies

Here is a link to an article that explains the claiming strategies that were eliminated recently: http://time.com/money/4105571/new-social-security-claiming-rules/

No one expected these changes to go into effect any time soon, if at all, even though President Obama had proposed these changes. Most thought these proposals were dead in the water. However, without any prior notice, they were included in a spending bill and approved by Congress.

If you would like a further explanation or if these strategies were included in your financial plan, please contact your financial advisor to see how the elimination of these strategies affects your long-term outlook.