Goldstone Financial Group's Blog
While having plenty of money at your disposal during retirement is a goal for many, it’s not the only secret to happiness and fulfillment during your retirement years. Findings from the 2010 Health and Retirement Study Survey found that life satisfaction for retirees goes beyond income and wealth to include health, retirement decisions, and the quality of their social life.
Making retirement decisions early and working towards these goals could just be the path to happiness for many retirees. Here are some important things to consider when planning your post-retirement career:
Prioritize Your Career
If you managed to set aside a few million dollars through savings and investments during your retirement years, you may not want to explore jobs or a new career. However, if work fulfills you in some way, you will want to secure a position you are interested in and get paid well for given your years of expertise and experience. Results from a Merrill Lynch study found 72 percent of people over the age of 50 want to work in retirement and 37 percent of pre-retirees who want to work in retirement have already taken steps to prepare for their post-retirement career.
Consider Your Earning Potential
If you plan on working full-time during retirement to cover your bills and expenses, you’ll need to evaluate how much you need and what your income potential is based on the current job market. This can be stressful for some — especially if you have been out of the job market for a while — so doing some research, interviewing for different positions and setting some income goals can help you make a decision that’s right for you.
Factor in Socialization Opportunities
Opportunities to socialize may be limited if you end up working from home or stay out of the job market altogether. If you are a surviving spouse and live alone, you may need to be even more proactive about maintaining a healthy social life. Experts say retirees need to participate in social activities to maintain a healthy and meaningful life through retirement and reduce their risk of death. If you aren’t meeting up with friends regularly or staying active in your community in some way, you may be compromising your health and missing out on some valuable opportunities to connect with people. Make sure an active social calendar is part your post-retirement plans.
Review Your Financial Portfolio
Whether you were a diligent saver or an ambitious stock investor during your working years, now is the time to enjoy the fruits of your labor. Meeting with a financial advisor or retirement planner can help you determine whether you are managing your wealth effectively and how to distribute funds. You may be able to buy annuities, make additional profitable investments, and save money with some smart financial moves before and during retirement.
Take Care of Your Health
You may already be taking care of health and medical issues and seeing a physician regularly for checkups. Make sure you’re also taking steps to take care of your health in natural ways, by eating a well-balanced diet and getting regular exercise. Take care of vision exams on schedule, keep up with dental visits, and explore natural health or alternative health remedies to manage stress. Your retirement years will be more fulfilling when you have the physical and mental abilities to enjoy it all. Be proactive about your health, talk to your doctor about wellness plans and take medication on schedule to set yourself up for a healthy lifestyle throughout retirement.
Mapping out your post-retirement plans can be overwhelming but there are several things you can do to set yourself up for years of happiness and satisfaction. From reviewing your financial portfolio to re-entering the workforce, use these tips to set some goals for yourself during your retirement years.
When planning for retirement, it’s essential to consider multiple sources of income. Social Security may not be as beneficial as expected, particularly after taxes. Outside of pouring money into savings, pre-retirees should look into options for non-taxable income well before the time comes to call it quits.
Here are four ways to start building towards a tax-free future in retirement.
One of the best options for retirees looking for tax-free income is the Roth IRA. Unlike most other retirement plans, a Roth IRA grants a tax break on withdrawals rather than contributions. Direct contributions can be withdrawn at any time, without worry of tax or penalty. Earnings can be withdrawn tax-free as well, after a five-year period, and for individuals 59 and a half years of age or older.
The Roth IRA has advantages over alternative tax-free options such as municipal bonds. Though munis have no income limit, the interest they pay is generally less than taxable bonds, and they may be subject to state income taxes. Also, municipal bonds may be counted as a source of income for early recipients of Social Security, potentially hurting their pay if they make $15,000 or more.
Unfortunately, the Roth IRA has income limits that disqualify some people from making contributions. Many people hold off until after retirement when they enter a lower income bracket, though financial experts advise making contributions as early as possible for greater benefits down the line.
Roth 401(k), 403 (b):
Plans such as the 401(k) can accumulate huge savings as the employer will match whatever the employee contributes. The IRS also allows for Roth contributions to 401(k) and 403(b) accounts. While the Roth IRA has an annual contribution limit of $5,000 or $6,000 (depending on age), the limits on Roth 401(k) contributions are much higher and are not restricted by income eligibility.
Regardless, pre-retirees should look to max out their contributions to company-sponsored plans each year. It will pay off in the future.
Health savings account:
Some employers offer an HSA-qualified health plan, allowing employees to contribute tax-deductible funds that roll over and accumulate each year. These funds can be withdrawn at a later date to pay for various medical procedures, some of which may not be covered by health insurance.
A health savings account can eventually become a useful source of tax-free retirement income as the funds can be used as reimbursements for past medical expenses, or to pay for current Medicare premiums and health costs. Withdrawals are not subject to income taxation if made for qualified medical expenses.
Though most people look at life insurance as something that will only be of benefit after they pass on, it can also become a potential source of retirement income.
A life insurance retirement plan (LIRP) allows owners to contribute funds beyond that required by the plan’s premiums and later withdraw the excess cash tax-free.
According to expert Kevin Kimbrough of Saybrus Partners, these funds accumulate similar to an annuity but come with an added benefit.
“Unlike the annuity, you’re able to take your basis out first and that comes out tax free,” said Kimbrough to ThinkAdvisor. “When you get into the gains, you’re able to switch over and start taking policy loans against the income-tax-free death benefit.”
This method is usually better suited for higher earners, due to the fees associated with such an investment. It’s highly advisable that pre-retirees examine their portfolio, research and adopt a plan best suited for their particular circumstances.
“There are only two options in retirement: You can be working for your money or your money can be working for you. You have to be realistic and ask yourself if you really can retire when you’d like,” said finance advisor Christopher Kimball to Turbotax. “During retirement, it is critical to monitor your investments and current tax law. You should be positioned to take money from whatever ‘bucket’ is most beneficial at the time.”
Did you know that you will probably live longer than you think? Average life expectancy has grown by three months every year from 1840 to 2007 and shows no signs of slowing down. Family history is also not necessarily indicative of how long someone may live. Lifestyle choices such as diet and exercise can have a dramatic impact on the length of life.
Longer lifespans mean we have more time to enjoy the things and people we love most. But they also pose a unique challenge. What is the best method to save enough money to retire and live comfortably and worry-free?
In order to help you choose the best options for you, we have put together information on the pros and cons of some of the most popular, “tried and true” retirement investment strategies and highlighted their effectiveness in today’s life changing times.
Fixed and Hybrid Annuities
Annuities are a great way to save for retirement because they can potentially generate interest over a fixed time on a principal amount that is guaranteed. Because you are not required to annuitize—to receive payments at a regular interval from the annuity—certain kinds of annuities also offer the flexibility to leave money for your heirs.
- Straight Life
This is the simplest, least expensive annuity. It pays benefits until the death of the annuitant—the person receiving the funds—without an option to appoint a beneficiary.
- Life with a Guaranteed Term
This somewhat more expensive option allows the annuitant to designate a beneficiary. If the annuitant dies within the guaranteed term, the beneficiary will receive the remainder of the annuity in one lump sum.
- Substandard Health
This type of annuity is advantageous for someone with a serious health condition. Although the annuity will cost more the less the annuitant is expected to live, the payouts are larger than in an annuity in which the annuitant is expected to live a long time.
- Joint Life with Last Survivor
This annuity allows the annuitant to select a beneficiary who will receive payments regardless of whether the annuitant dies within a certain term. However, because of the added insurance component of this product, this is the most expensive fixed annuity.
- Hybrid (a.k.a. Fixed Indexed)
Fixed indexed annuities are known as hybrids because they invest your principal in the market, allowing for higher rates of return, but still guarantee the principal amount. Therefore, even if the annuity does not generate any additional interest because the market tumbles, your initial investment remains safe.
Traditional and/or Roth IRAs
Investment retirement accounts are an excellent, tax-efficient tool for setting funds aside.
People who contribute to a traditional IRA are able to deduct the contribution from their annual federal and state income taxes. However, once they withdraw funds in retirement, the withdrawal will be taxed as income. Conversely, contributions to Roth IRAs are not tax deductible but future withdrawals won’t be taxed.
Choosing the right IRA depends on several factors. Roth IRAs have strict and specific income requirements. Additionally, depending on the difference between the current and potential future tax rate, one type of IRA may be more advantageous than the other. Finally, traditional IRAs require you to take mandatory taxable distributions beginning at age 70½ whereas Roth IRAs do not require you to take any money.
A 401(k) is an employer-sponsored retirement fund that invests your money in order to generate more. This savings strategy may yield excellent benefits but may also be the riskiest option.
The amount of your annual contribution to your 401(k) is tax deductible. Additionally, many employers will match your contribution up to a certain amount—usually 3% of your annual income—essentially giving you “free” money.
First, the IRS sets caps on the annual amount you can put into your 401(k).
After you retire, withdrawals are taxed as income and may be taxed at a higher rate than your present tax rate. You may also not be able to withdraw your employer’s contributions until after the vesting period concludes.
Additionally, should you find yourself in need of money before the age of 59½, you will be subject to a 10% withdrawal fee.
Finally, 401(k)s grow your money by investing it in mutual funds. Whenever money is invested in such fashion, there is a risk that stocks can crash and that your 401(k) will lose significant value. Fortunately, you have full control over how your money is invested, so this risk can be minimized with some education about the market and less risky investment strategies.
According to the Employee Benefit Research Institute, 37 percent of workers are confident that they have enough money saved up for retirement. The EBRI’s 2015 Retirement Confidence Survey reveals confidence about having enough money for retirement has increased steadily after reaching record lows between 2009 and 2013, but today’s numbers reveal that less than half of working America is still unsettled or even anxious about their financial future.
Fortunately, there are several attractive options available for soon-to-be retirees. Those who are within a decade or two of retirement may be especially interested in purchasing annuities, which can be a valuable addition to retirement planning.
What Are Annuities?
Annuities are a unique type of financial product because unlike savings and investments you would set up with a bank, annuities are sold by insurance companies and financial institutions. When you buy an annuity, you are socking away money for a few years that you don’t expect to touch until the surrender period — the length of the annuity — is over. Although, most annuities allow up to 10% to be withdrawn annually during the surrender period.
One of the reasons why people buy Fixed Indexed Annuities is because they are looking for a no-risk or low-risk investment opportunity and want to protect their hard-earned money from income taxes. If you have already made your full contributions to 401(k) plans and IRAs and have some extra money available for retirement, you may consider purchasing an annuity. You can buy an annuity for several thousand dollars and earn tax-free interest as long as you don’t make any withdrawals during the surrender period. Of course, you will need to consider the fee structure and overall cost of your annuity before signing the dotted line. In many cases, annuities earn higher interest than bank CDs and savings accounts.
Generating Income with Annuities
You get to play investor when purchasing annuities and can choose from several different types — including multi-year fixed income annuities (MYGA) where you receive a guaranteed payout or a variable annuity where you receive a payout based on performance. Variable annuities, naturally, are riskier investments but offer more attractive returns.
If you want to receive payments as soon as you make your investment because you are very close to retirement or are already retired, an immediate annuity will be your best option. If you are comfortable leaving your account alone to earn interest that you can enjoy later, you can purchase a deferred annuity to defer your payment to a certain time.
When exploring different types of annuities, it’s important to consider what type of insurance company is guaranteeing the plan, what types of costs are involved, and what stipulations there are for termination of your annuity contract.
As many Americans struggle with the idea of not having enough saved up for retirement or wonder if they will be able to get by on Social Security and pension funds during retirement, it’s never too late to start planning for the future. If you are looking for financial products for our retirement strategy, don’t overlook the benefits of annuities. Tax-free earnings and flexible buying and earning options make annuities an attractive option for soon-to-be retirees and those who are already in their retirement years.
Goldstone Financial Group: The Biggest Problem People Have When Planning for Retirement, According to Data
An HSBC survey found that only 40 percent of Americans are regularly saving money for their retirement. Additionally, two other surveys from the Consumer Federation of America (CFA) and Employee Benefit and Research Institute (EBRI), reveal that only about 50 percent of those Americans have focused retirement goals and around 40 percent are saving for a realistic, sustainable standard of living.
To many, the biggest obstacle is obtaining accurate advice about the options, risks, and benefits of retirement savings, but that is just one of the problems facing retirees today. There are 5 other major struggles:
No Employer 401(k)
An EBRI analysis of a recent Census Bureau data reported that under 50 percent of employed Americans have access to a retirement plan at work. Of those that do have access to a 401(k), only about 40 percent participate. According to President & CEO of EBRI Dallas Salisbury, this 40 percent are really missing out. “Those who have workplace programs and are participating, they are doing significantly better than those who are not.”
If you have access to an employer-sponsored retirement plan, we can’t stress enough what a valuable asset that is to your future. For those who don’t have this option, IRAs are a good place to put aside money.
Unforeseen Life Events
Even retirees who are careful about for their futures face unexpected life events such as deaths, life-threatening illnesses, and accidents. When this happens, what we often see is retirees ceasing to contribute to their accounts, or borrowing against their retirement due to costs associated with these unforeseen events. According to the HSBC, 27 percent who face these struggles say they would borrow against their savings, 13 percent were prevented from working due to accident or illness, and 6 percent ceased working to care for a spouse, therefore unable to afford monthly contributions.
Executive VP of retail banking and wealth management at HSBC Bank USA Andy Ireland reportedly stated that though retirement funds are a great nest egg for the future, they can also be a liability when life emergencies happen.
“Retirement savings are vulnerable to being raided to deal with serious financial hardship resulting from unforeseen life events.”
According to data from NerdWallet, the average American household has over $15K of credit card debt and over $130K in total debt. If broken down per year, each household is paying out nearly $7K in interest alone. To compound the debt problem further, the median household income has shown negligible gains while household debt continues to rise.
When retirees are trapped in this cycle of debt, they are often too busy keeping up with credit card, mortgage, and other varying payments to contribute to retirement funds. For those who are buried in debt, there are ways to effectively dig out as detailed in our previous blog post 6 Ways To Improve Your Relationship To Your Money. Though getting out of debt is no small feat, taking little steps right away can lead to a light at the end of the tunnel.
“Underemployment” and Employment Instability
According to the U.S. Bureau of Labor Statistics, unemployment has fallen to a 5 percent, but the statistics don’t tell the whole story. “Underemployed” individuals (those who can’t find full-time employment) are actually at 10 percent. Since the financial recession in 2008, many Americans are struggling to reach financial stability, often living hand-to-mouth and unable to save.
According to an article on MarketWatch:
“Those who once enjoyed a modicum of financial stability have settled into a new normal of ongoing financial vulnerability, while the struggles of those who were financially insecure before the recession have only deepened.The number of households below the poverty line has barely budged and millions of low- and moderate-income people live paycheck to paycheck.”
GoBankingRates research revealed that 1 in 3 Americans have a startling zero dollars saved up for retirement. In other words, one of the biggest obstacles to a robust retirement fund is the retiree.
Many retirees consider thinking about setting up retirement funds as an obstacle. This thinking is most likely lack of education according the GoBankingRates’ Kristen Bonner. Finding and obtaining that education can be a difficult challenge, especially for Americans who are already facing all the other obstacles we’ve just detailed. The daunting task of navigating the options of retirement can seem impossible; but employing a trustworthy retirement advisor greatly decreases the stress.
When attempting to get better at ensuring you will have a better quality of life in retirement age, obstacles can come in many forms, but the most detrimental is the belief that getting information about your options is impossible. If a retiree can first ask for help from a reliable source, preparation to combat the other obstacles can begin.
Many people spend most of their working years setting aside money in a retirement account. Whether this happens in the form of independent 401(k) contributions, employer benefits, IRAs, pension plans, or a combination of savings strategies, Americans have plenty of options available to build up their retirement fund during their working years. However, a recent GoBankingRates survey reveals that 23% of Americans have less than $10,000 saved for retirement and one-third of Americans report that they have no retirement savings at all. This means more than half of Americans have barely saved anything for retirement. So how confident are today’s retirees about their financial future? Here’s a closer look:
Making the Decision to Retire
One of the first things Americans need to consider as they approach retirement age is when they want to officially retire, or stop working and earning a paycheck. This is where the retiree would live off Social Security benefits, a pension plan, and any personal savings they have accumulated over the years. The full retirement age is 67 for those who were born in 1960 or later but it’s important to note that those who delay retirement until age 70 can qualify for more Social Security benefits. Deciding when to retire to claim Social Security benefits and when to stop earning money is important for financial planning since these decisions will influence how much money the retiree can save and enjoy during retirement.
Building Retirement Savings
Individual retirement accounts (IRAs) and 401(k) accounts are some of the most popular types of retirement plans among working Americans but there are several other options available for those looking to generate a steady stream of income through their retirement years. Getting the maximum 401(k) match from an employer through all working years is a smart way to build up retirement savings. Working for employers that contribute to Simplified Employee Pension (SEP) plans and Salary Reduction Simplified Employee Pension (SARSEP) Plans is another way to increase retirement savings.
Contributing to a Traditional or Roth IRA consistently over several years and decades will provide an attractive return on investment as long as the account holder doesn’t make any early withdrawals. Buying fixed-rate annuities before reaching retirement age or even during retirement can help to secure a guaranteed revenue stream for years to come. While these annuities provide a fixed income stream, it’s important to keep in mind that they will not adjust for inflation over the years. Those who want to take advantage of any signs of growth in the market may fare better with variable annuities. Working with an experienced financial planner can help to determine investment priorities and create an attractive retirement portfolio.
Low Confidence in Retirement
AARP recommends calculating living costs at 70 to 80 percent of preretirement income but many financial planners suggest planning for 100 percent of preretirement income for at least the first 10 years after leaving the workforce. According to the Employee Benefit Research Institute, 24% of workers were not at all confident that they had saved enough money for retirement while 36% were somewhat confident, as of 2014. Whether they’ve lived a long life of struggling financially and never made room for savings or simply had other financial priorities, it’s clear that many retirees cannot expect to live comfortably without a paycheck or other sources of income. Some may end up depending on family members for financial support while others will continue working during retirement to pay for basic expenses.
Individuals approaching retirement age who plan to work and earn through their retirement years may be able to recover any missed savings opportunities from their youth. Prioritizing finances and making an effort to cut costs can also help to reduce living expenses and maximize a retiree’s savings potential. With so many retirees dissatisfied with their retirement nest egg — and many without any retirement savings at all — it’s important for all Americans to make retirement planning a priority at an early age.
At Goldstone Financial Group, we stress a solid plan for your personal retirement, but a recent report may suggest that saving more for your personal retirement is also charitable.
A new study from Merrill Lynch and the Age Wave research firm proposes that Baby Boomers may be the most giving generation by an estimated $8 trillion. Through donations and volunteer work, the next 20 years could see boomers pulling ahead in philanthropy. According to the study, this generation’s life expectancy increase and solid planning for retirement means they are contributing more to their savings, and having more money to give back.
Says Head of Retirement and Personal Wealth Solutions for Bank of America Merrill Lynch, Lorna Sabbia, “Retirees have access to more savings and more time than younger people.”
Merrill Lynch came to the figure by using current charitable giving and figures from Boston College to arrive at the $8 trillion hypothesis. Ken Dychtwald, CEO & Founder of Age Wave, actually thinks the figure is too low if we factor that the $8 trillion is based on today’s dollars.
A 2014 Wall Street Journal article slated 10,000 boomers (aged 51 to 69) to retire every single day. As of 2 years ago, retirees made up 31 percent of the adult U.S. population and give 42 percent of their money to charity and 45 percent volunteer hours. “[…] in 20 years, 60 percent of all charitable giving will be by people over 65,” Dychtwald stated.
As people enter retirement age, they are more thoughtful about how they can make a difference and with more means to do so. People over 65 volunteer twice as much time than the generation before them (people aged 35 to 44), and also beat out their parents’ generation for more thoughtful giving.
None of these figures is a surprise to Giving USA Foundation who think we may be hard-wired to give back. “The big takeaway is that Americans continue to demonstrate that giving to causes they care about is part of our national DNA […}”.
If the study is accurate, boomers are in good shape for retirement. Because of that, they will leave a legacy of wanting to give more, with more money in which to do so in retirement.
People over 40 have the misconception that it’s too late for them to start saving for retirement. While having only 15+ years left to save a nest egg seems daunting, there are some accelerated retirement tactics that can help you earn as much money as quickly as possible.
401(K) to the Max – How powerful is a 401(K)? According to an Investopedia article, a 401(k) can provide you with a more savings that you’d expect.
If you’re 40 years old and donate $17,500 to a 401(k) yearly, with an 8% return (with no employer contribution), you could reap over $1.3 million in savings by age 65. The same person at age 50 can garner nearly $300,000 more with a catch-up amount of $5,500.
If you think you can’t spare fully funding your 401(K) every paycheck, you are doing a disservice to your livelihood come retirement. You get out of it what you put into it.
The Road to Roth IRA – A Roth IRA is similar to a traditional IRA with the potential benefit of being tax-free for qualified distributions. Because of that, Roth IRAs are a great way to increase your retirement savings on a tax-deferred plan. How much can you really sock away with a Roth? Quite a bit!
A 40-year-old who invests $5,500 each year and obtains an annual rate of return of 8% can potentially save over $434,000 by age 65. Even a 50-year old who starts saving $6,500 per year with the same rate of return can save an average of $190,000 by age 65.
Take Advantage of Allowable Deductions – Granted, standard deductions aren’t one size fits all. If you have a large amount of mortgage interest, deductible taxes, business-related expenses that weren’t reimbursed by your company, and/or charitable donations, it probably makes sense to itemize your deductions. However, it’s easy enough to find out through a CPA if this option is right for you. There is no harm in doing your research. Get some help combing over your specific situation to see if it makes sense to itemize. Whether to itemize or not to itemize, make it a habit to keep logs of where, what, how you’re spending. Keep receipts if need be. More than any other retirement advice we can give, know where your money is going so you can save it is a no brainer.
Catch-up using catch-up contributions if you are age 50 or older – If you’re over 50, there is some light at the end of the retirement tunnel, even if you’re late in your retirement planning. At 50, you become eligible to go beyond contribution limits to IRAs and 401(K)s. This is the best news for those desperate to catch-up and haven’t had the opportunity or time to consider their retirement early on.
It should be noted that individuals over 40 who have little to no retirement planning methods in place are at a disadvantage. However, with the proper planning and a willingness to save and invest, the odds are not insurmountable.
If you feel you are not where you want to be in the retirement planning game, don’t lose hope. It’s never too late to set yourself up better for retirement. Find some info, suggestions, and help at Goldstone Financial Group, and be sure to read up on some retirement strategies at Goldstone Financial’s blog HERE.
Those most successful at putting money away—whether through savings, investments, or retirement structures—most likely have at least one thing in common: They give regular attention to the picture of their finances and how they are managing them. Much like your physical health, your financial health is dependent upon taking a proactive, rather than a reactive, approach to its maintenance. For most investors this makes sense in theory, but when it comes to the actual implementation there is a lot of noise, all of which can be misleading if taken out of context, especially if the advice doesn’t necessarily pertain to your personal financial picture.
As we always remind our own investors, all good financial advisors will make sure to learn about your individual situation before providing any advice, so take this information with care. However, the four things we list below are crucial pieces of the financial puzzle, which apply to nearly anyone trying to grow wealth, in any amount.
Pay attention to your consumer-debt ratio: While pretty much a given, even the New York Times will tell you that you always want to be earning more than you are spending—probably because it bears reminding in this consumer-drive society. Your consumer debt ratio is determined by dividing your assets by your liabilities. Now, ideally, this number will be positive, indicating that you own more than you owe. More often than you’d think, however, the reverse is true. According to a study by popular Nerd Wallet, the average household is continually growing and currently at about $130,922. With social security disappearing, this is particularly concerning for the younger generations. More on that below.
Create an Emergency Fund: Like a savings account, this money sits aside in the event that you need access to an unusually large amount of liquidity, in a short period of time. The standard emergency fund amount recommended is the equivalent of three months salary, however, if you are a dual income home, make that the equivalent to 6 months of salary. Emergency funds ensure a certain amount of flexibility should something unexpected—a sudden accident or illness, or the need to take time off from work—befall you or your family.
Max out your retirement accounts: This is important at any age, and especially as you get closer to retirement, but its equally if not more important when you are young. In addition to the fact that social security is only guaranteed until 2035, this allows the younger generation to put money away when they don’t need to use it to care for dependents. It also encourages a habit early on, that will ideally compound over a lifetime. It’s also helpful to actively picture what your retirement looks like, so that you have some idea of the type of lifestyle you are saving toward, and what it will cost to support that. For more tips on saving for retirement read “Making the Most of Life After Work.”
Be respectful of inflation: This is true with regard to the national inflation we experience collectively, but should also be taken into account with the natural inflation that occurs in each of our lives as we age. Many people fail to track their earning and spending trajectories based on their future circumstances and situations, which can wreak unexpected havoc when significant shifts in spending are caused due to big life transitions, like moving or having a baby. Planning well in advance of the natural inflation of your life will also be helpful in protecting your financial health.
Credit Score: Of course, we can’t leave out the credit score. While bemoaned for its haunting qualities in many situations, your credit score can very easily be coaxed to work in your favor as long as you treat it right. And these days, it can dip or rise within a matter of days based on your recent financial activity. Some people simply ignore their credit score, allowing it to work entirely to their detriment by not paying attention, but those who are proactive about their rating can do infinitely more good. Just take a look at U.S. News and World Report’s strategies on quickly raising your credit score.
Studies show that those who are cognizant enough of their finances to be able to easily check in on and understand the above are far more likely to experience financial success because they are, in essence, conditioning themselves for it.
Visit Goldstone Financial for more information on how to ensure your financial health.
The great thing about investing and financial management these days is that there is so much information available to investors. This makes it easier for financially savvy individuals to make big strides financially, but it also opens up the potential for a very large amount of misinformation to be passed along as well.
The saying goes, you can’t believe everything you read, and this is especially true when it comes to information in the financial sector. Many individuals and organizations count on people trusting their advice, so that they can make a profit regardless of whether that advice pans out for the investor or not, which results in serious misconceptions regarding best financial practices. These misconceptions range from complex investment deals to simple money saving tactics. If you’re wondering what myths could possibly impact people who are simply trying to save, you’re not alone. There are many who aren’t aware, and fall victim to these common errors. Here are a few pieces of advice to steer clear of, or at least check out with your financial advisor before heeding:
Put all your money into a savings account: A U.S. News & World Report Article points out that “Interest is the primary reason for depositing cash into savings rather than a checking account or stowing it under the mattress. Every effort-free dollar earned via interest is a dollar you won’t have to earn the hard way: working.” To this point, it’s important to consider what the yield is when comparing the interest rates banks offer to other investment options. There may be some with significantly lower yields, which is compounded by the fact that savings accounts cause you to lose money over time because their low interest rates do not keep pace with inflation. Savings accounts also expose people to bank fees and other hidden costs, such as money withdrawal limits on savings and money market accounts.
Whatever you do, cut back on spending: Steve Siebold, author of How Rich People Think, points out that people actually make less progress accumulating wealth when they are focused solely on spending less. The bigger motivator to accumulating wealth is when people concentrate more of their energy on bringing in more money. “The real key is earning,” he says. No matter how much you save, you won’t acquire wealth unless you are making money, not just putting it away.
Follow in Your Parents Footsteps: Okay, so this is the one time your mom might be wrong. What worked for your parents in terms of saving money, might not necessarily work for you. The notion of saving money by investing in real estate and looking to traditional savings accounts to stockpile cash has changed significantly in the past decade. Many individuals, and even many investment firms, are slow to catch on to the changes in the marketplace, as discussed in our blog 60 Years the Same. This is a dangerous trend for individuals who fall prey to their outdated advice.
Pay with Cash: While it’s always important to avoid spending money you don’t have, believe it or not, using credit cards can open you up to potential savings opportunities you wouldn’t be able to take advantage of otherwise. Thanks to points and rewards, you are better of using your cards strategically each month to reap these benefits, as long as you can pay your balance off at the end of each term.
Saving isn’t necessary until later in life: Many young people starting out their careers fall into a pattern of living paycheck-to-paycheck, convincing themselves that they have their entire lives to save for retirement. While this may be true, it doesn’t account for the fact that the money you save—if invested properly—can compound at a much greater percentage the earlier you begin putting it away.
When it comes down to it, all these myths point to some very real shifts in the financial marketplace. The myth really lies in the idea that saving money will help you make money. It won’t. While it might prevent you from spending what you have, by comparison to other options it misses the mark on what your money can do for you when it’s not being spent. Standard savings accounts aren’t necessarily the best way to “store” your money, when it could have much greater returns living elsewhere.
A good financial advisor will not only keep you abreast of any misguided information, he or she will also be proactive about helping you realize when your money isn’t performing as well as it should. In most cases, keeping your money in a savings account or falling into one of the other misguided notions above can actually keep you from making money. One of our priorities at Goldstone Financial is helping our clients review the decisions they’ve made in the past with regard to their finances, as well as those they will make in the future. We are incredibly hands-on in the process of helping clients determine whether their sources of information are reliable, and good choices for their specific goals, at the given moment in time.
Finding a financial advisor is never easy. After all, it’s more than simply finding someone with proven skill and a reputation that is appealing to you. You have to find someone you can trust. Your financial advisor is going to be intimately aware of your finances and guiding you through several big decisions.
Whether you already have an advisor you trust, or are looking for one, these 5 must-ask questions will help you build a partnership with your advisor and maintain a positive relationship throughout.
Are you a fiduciary?
A fiduciary is simply someone who has to place their client’s interest ahead of their own. Fiduciaries also have to disclose what their fees are, how they are compensated as well as any other potential conflicts of interest that may influence their decisions. Non fiduciary financial advisors might receive a commission in exchange for selling you a particular investment that isn’t right for you, and not tell you how they profited from it.
How are you compensated?
If this information isn’t available on your advisor’s website, it’s important to ask in person. There may be an initial planning fee, as well as a percentage charged for assets under management. Some advisors may make money from selling you a particular product. Beyond finding out how much services will cost, this question will also help you determine if they have an incentive to sell you certain things.
What licenses, credentials and certifications do you have?
Certified financial planners (CFPs) are fiduciaries certified through a comprehensive ten-hour exam, and have multiple years of financial planning experience. A registered investment advisor (RIA) is a fiduciary who may be required to register with the Securities and Exchange Commission depending on how much money they manage. Asking your potential advisor about their certifications may be the difference between getting yourself a money manager or an advisor who will arrange a plan for you.
What types of clients do you specialize in?
Some financial advisors have a niche, or specialize in clients with a specific interest. Such as charitable giving or socially responsible investments. If you’re a newlywed or recently divorced, there are advisors who specialize in those areas too. Finding an advisor with whom you have things in common can often help build a successful relationship. An advisor who’s a similar age as you, or has business experience similar to yours can ensure that you’re always on a similar page when making decisions.
Ask to see a sample financial plan.
Financial plans don’t have a set structure. There is a wide variation in advisors’ approaches to plans, and asking to see a sample can help you understand that advisors workflow. Some advisors may give you 50+ pages with technical terms, charts and graphs, while others may simply offer a big-picture summation of your plan. Whether you want more information or less, it’s beneficial to see how an advisor works it out.
In addition to these questions, make sure to do lots of due diligence research on your own. Get recommendations from people you trust, particularly people with similar financial situations, needs, and outlooks are similar to yours. Make sure to Google them thoroughly, read through their LinkedIn and comb through their website. Goldstone’s website for instance, contains a breadth of information, including media materials and bios of our principle advisors. If your current or potential advisor’s info isn’t readily available on their website, you may want to ask why. We recommend you do the research.
Of course, these are only five suggested questions; don’t be afraid to ask as many as you need. The most important thing you can get from asking questions is peace of mind.
Mutual Funds have long been accepted as the preferred investment vehicle for investors who are looking to actively manage their stocks while strategizing about how to best play the stock market. For investors who prefer more predictable, safer returns with less daily maintenance, though, a vehicle called an Exchange Traded Fund, or ETF, may be a better fit.
ETFs, which have been around since the early 1990s but continue to gain traction in today’s market, are programmed to track and mirror the performance of stock indexes that are comprised of all different kinds of stocks. An ETF can be set to track the performance of an entire national economy, for example, or the performance of a physical commodity, like silver. There are even ETFs that represent the scope of a full index, like the Dow Jones, and track the movement of all of that index’s stocks as one body. Because of their wide range of applications, ETFs offer investors a great way to diversify their portfolios with a single investment for a mere fraction of the price and effort that it would take to track stocks independently.
To explain how an ETF works: say you wanted to start investing in the gold market. One way to accomplish this goal would be to purchase ten physical bars of gold and lock them away in a safe. However, a much simpler way to invest in gold would be to buy shares in an ETF called GLD, which tracks the market share of gold. Because ETFs are traded on stock exchanges globally, they possess some of the same appealing traits as shares: you can buy and sell ETFs from as little as one chain, you can see their accompanying order books, and you can see the real-time cost of these shares throughout the trading day. And like index funds, ETFs offer less portfolio turnover than more actively managed funds, which require daily or weekly maintenance and attention. By investing in the GLD ETF, you’d be entering a very promising and transparent market at a very low threshold and without much risk, which would mean that you could expect to reap the benefits of a booming gold market with relatively little chance for failure. It is this ease of use and transparency that make ETFs so viable and appealing to investors who care more about steady returns and passive management than playing fast and loose with the money that they’ve worked so hard to make.
Of course, as is the case with any investment vehicle, there are some aspects of ETFs that could be considered pitfalls. As a member of the Moneyweek team explains in this video, ETFs are rebalanced at the end of each trading day, which can cause the performance of your portfolio to quickly deviate from the index it is meant to be tracking if you are not paying enough attention. To avoid this issue from cropping up, beware of buying short or leveraged ETFs unless you understand the market beyond an intermediate level. Additionally, there are two types of what are known as Synthetic ETFs that you should absolutely not invest in unless you are an expert. Synthetic Stock ETFs are ETFs in which only some of the shares in a given index are purchased, not all, thereby rendering the EFT useless in tracking the movement of the original index. The second kind of Synthetic ETF to avoid is a Synthetic Commodity ETF, which does not buy any of the physical commodity in question (like gold bars), and, instead, tracks the price of that commodity by investing in future options that may never materialize. If you are just breaking into the world of Exchange Traded Funds and hoping to go it alone, it is best to stick with the basics and avoid these more complex ETFs.
Fundamentally, while there are dangers associated with every kind of investment, ETFs can provide you with a relatively safe, risk-free way to reap returns from stock markets all over the world. If you are looking to transition into retirement by dialing back on your stock maintenance, you should speak to your financial advisor about how ETFs can help give you the peace of mind you deserve as you move into this exciting new chapter of your life.
Debt is an albatross: school loans, credit cards, home loans. Too often people find themselves in a vicious financial cycle, unable to save. The difference between growing wealth and vying for it is following rules you should never stray from. It’s simple, not easy, but not impossible. The health of a person’s wealth can be compared to his or her relationship to it. If you want to grow old with your money, practice healthy relationship approaches to your finances.
Break Up With Debt — It won’t love you back
If you want to start a new, healthy relationship with your money, break up with bad habits – getting into debt being the worst. This is the first thing we recommend to anyone who asks how they can grow their wealth, retirement funds, or peace of mind: manage your debt. Getting out of debt is priority #1. Every dollar that you use to pay off your debt, you’re saving. Let’s say you are in $20,000. Even with a low interest rate loan, you will end up paying more before you pay it all off. That interest you are paying is money lost. If it’s credit card debt, pay more than the minimum every month. If you get into the cycle of just paying off the minimum, it’ll impact your credit score and your retirement plans.
Always Have Reservations — A lot of reservations
You should have reservations — about losing a handle on your assets that is. How you spend your money and your long-term goals for that money are connected. Savvy individuals don’t just have personal goals, they also have goals for where they see money going (and staying). The practice of visualization is helpful because the more you consider that your money is a tangible asset, the less you’ll see it as just bank statements, receipts, or numbers.
Go Dutch — First, know how to handle money on your own
Keep an eye on your own expenses first, as a couple second. The better your vision for your own spending, the more you can offer to your personal relationships. This is not to say that married couples shouldn’t discuss finances together, of course they do and should. However, each person has to come to the table with a sound understanding of how to handle their own financial affairs before sharing it with each other.
Save The Date — Plan for your retirement day
Last minute, unforeseeable expenses can occur. People lose jobs, things break down, and property can be affected by natural phenomena. Bad things can happen, so prepare for Murphy’s Law. Having a financial cushion for those potential disasters can mean the difference between getting by and getting into dire straits.
Figure out the amount you should have for retirement, it should be a long-term goal for everyone. Set an amount to put aside every month, and stick to it no matter what. You’ll be thanking yourself for this forethought when the rainy day turns into a tropical storm — and you’re left flooded with regret instead of money for retirement.
Don’t be too proud to ask (an expert)
Being wealthy doesn’t always translate to being money smart. However, staying connected to your money does. For the layman, portfolios, investments, the stock market are daunting to comprehend. Luckily, you don’t need to be a financial wunderkind in order to make the right decisions. Get a trustworthy, highly recommended financial expert to fill in the gaps. If you don’t know how to proceed, ask someone who has been handling money for years. It’s their job to make your money work for you. Ask for help if financial consulting isn’t your day job.
Journal everyday spending — Another helpful step towards staying in the black is to actually see how much you are spending on the little things. Keep a record of what you’re spending money on. A coffee here, a scone there; it adds up to unnecessary surprises at the end of the month. You can’t be expected to remember every single little daily expense, so keep a record.
The tiny little extravagances are not necessities and should be held to a pre-budgeted minimum. If you can’t live without your morning bagel, include an “miscellaneous fund” to your expenses every month and most importantly, do not spend above your means.
Creating a healthy relationship with your finances is akin to having a healthy one with your loved ones. People who have a lot of money love their money. They foster its growth, stay connected to it, and nurture its continued longevity. These practices work. You have nothing to lose trying out these 6 tips, except your money.
The game of money is changing before our eyes and yet very few investment firms are responding in kind. With several daily drops of greater than 1% already this year, people are certainly feeling hesitant about the market, and while not without cause, perhaps slightly without reason.
The real issue is not the behavior of the market, or even people’s concerned reactions to it—the problem is that too many investment groups aren’t dynamic enough to appropriately respond. There are ways to allocate investments that can protect you more than the not-so “tried and true” methods applied during the 2008 downturn.
The concept of being “well diversified” in today’s market is completely different than it was back then. Being exposed to uncorrelated and low correlated asset classes is a great start, but at Goldstone Financial Group we have learned that you have to position clients to be even more prepared. Then it becomes a matter not of living in fear of an economic downturn, but rather of being prepared for one.
With 78 million baby boomers heading into retirement, a lot of people are wondering how they will comfortably retire in a volatile market. At Goldstone Financial, principals and co-owners Michael and Anthony Pellegrino approach this through a combination of strategies that many investment advisors either don’t have the experience to employ, or don’t feel their clients will respond well to.
In a downturn market there are certain investments that people historically feel more comfortable with, like fixed income bonds. This is because historically these have been good conservative investments, especially for those with a low appetite for risk, like baby boomers going into retirement. But this isn’t necessarily the case today.
What many people don’t realize is that bonds “are a ticking time bomb” in today’s market, as Michael Pellegrino points out on Closing Bell. There is a current increase in bond yields that is expected to continue into 2016 and 2017 as the Fed executes interest rate hikes, which means that bond prices will only continue to drop. Ultimately, then, there will be limited opportunities for investors to make a capital gain by selling bonds at a higher price than what they initially paid for them, which will hit many investors right when they need it most—as they are entering retirement.
So where do you put money if you are taking it out of bonds and looking for consistent yield? At Goldstone Financial we’ll usually turn to strategies that have proven themselves in the past in similar situations, and are typically more involved on our part as the investment advisors.
For example, if we look back to the first quarter of 2015, when the country was at the height of unemployment, Goldstone Financial was moving investors away from bonds funds. One investment strategy they were implementing was an options spread strategy. While potentially more complex, this strategy was providing consistent, reliable returns, month after month, at 5%, versus the S&P, which was at ½ a percent. These option strategies allowed us to participate in the upside of a flat market, by accounting for pullbacks, which we could then set positions on so that when the markets run back up, we had the opportunity to take profits off the table before re-evaluating those positions. Obviously, past performance is never a guarantee of future results.
Fixed indexed annuities are another way we are providing consistently for our investors in retirement. Income annuities create a pension-like income, so we apply them to a portion of some of our investor’s assets, and then use another portion of their assets to hedge on inflation.
ETFs are a third option that’s predicted to bounce back in 2016, which Goldstone Financial applies as well. In an article in Investor’s Business Daily, Michael Pellegrino points out that iShares U.S. Preferred Stock ETF (PFF), for example, is comprised of domestic stocks that provide good dividends, which are attractive right now for the consistency of their returns. PowerShares Financial Preferred Portfolio (PGF) is another, with “a similar yield but with a heavier weight to financials.”
These approaches are indicators that the old concept of being “well diversified” isn’t really enough anymore, as Anthony Pellegrino points out in his CNBC interview. We’re using these options and annuities for parts of our clients’ asset positions to further their diversification. We have to evolve into the different strategies that are available right now so that we can attempt to stay ahead of a volatile market.
Of course, these types of strategies take a lot of involvement on our part as the advisors because we aren’t running a set-it-and-forget it method like many of our competitors. This is a commitment that we are more than willing to make on behalf of our clients’ financial security.
It’s also important to point out that our focus isn’t just on the investment savvy we bring to the table. If we relied on that alone we wouldn’t be working in service of our clients. The overarching problem is that many financial investment groups look at financial transactions alone, rather than the relationships that need to be built before those transactions are made. We would be doing a huge disservice to our clients if we worked this way. The most important part of every financial transaction is in understanding why that transaction is taking place, and how it serves our clients’ goals.
We work with our clients to develop and understand that purpose based on their goals. So while our primary focus at Goldstone Financial is making sure people can live well in retirement, we like to start working with our clients earlier than that, when they are still in a growth phase and can ease into putting their money away. We need to take into account a lot of variables to accurately predict where someone is going to end up including lifestyle choices and where they will peak in their earnings in correlation with midlife and retirement.
Our goal is always to help people protect and grow their wealth, because everyone deserves a financially secure and independent retirement, and everyone will come at that slightly differently than the person who came before them. Our job is to understand why and how we can account for what is happening in the market, by being as involved with our clients and with their investments as much as possible. You just don’t get that commitment at every firm.
A person’s appetite for financial risk—in other words how conservative or aggressive they are—is generally thought to correlate with the amount of return they have when investing. Of course, more risk doesn’t always mean more reward. In fact, the more effective application of risk appetite is in understanding your personal risk tolerance and how that should apply to your investment strategy—not the other way around. Understanding your appetite for risk is an important factor in making decisions about your portfolio, especially during times of change and volatility in the market.
There are many different approaches to assessing your appetite for risk, all which vary significantly from person-to-person. However, there are three factors that should be considered across the board:
Time Horizon: This metric looks at the amount of time your money will be invested. The shorter your horizon, the less likely the market has time to correct itself to allow you to recoup any potential losses. That means that for shorter-term commitments—for example, in the event that an investor is looking to withdraw the money for a large purchase in the near future—it’s generally smarter to go with more conservative investment strategies. A longer time horizon, on the other hand, is conducive to riskier or more aggressive investment strategies, because the market can go through multiple fluctuations before that money needs to be accessed.
Amount you have to risk: This is directly related to a person’s risk tolerance. Essentially, the more money you can afford to lose or, at the very least, tie up for a significant period of time, the higher your risk tolerance. It’s important to consider this in advance so that you avoid getting into a situation in which you have to sell off any stocks or investments, and get forced out of a position too early in order to have access to liquid funds.
The goal of the investment: What are your goals for your investments? This is a simple question that often gets overlooked. For many the goal is not to “beat the market” or raise as much money as possible. Some investors have a specific target in mind that correlates with a life goal, and targeting a specific return is often much more effective than trying to make the most money possible. Once you understand this, you may be better able to structure your investments with this knowledge in mind.
Of course, investors should also determine their personal comfort level with investing, as unrelated to the more tangible parameters of the time horizon and amount they have to risk. Even those with a relatively long time horizon and a significant amount to invest may find that they’re more comfortable doing so conservatively. In these instances, it becomes important to listen to your intuition because your relationship with your money is intensely personal. In considering your personal comfort, consider what keeps you up at night, and what you like or don’t like about your current financial situation. A proper assessment of your appetite for risk should take into account these very important factors, which are often a little more difficult to pin point.
As such, a good financial advisor or wealth manager will want a comprehensive account of your past investment experiences—what types of accounts you’ve held and what types of investing you’ve done. Your previous behaviors in these situations will help advisors work in partnership with you to determine the best approach moving forward. For example, many investors who are of retirement age are looking for conservative investment strategies based on their shorter time horizon, so they focus on more conservative strategies like fixed hybrid annuities and moderately positioned securities. A younger investor with a longer time horizon and greater income, may invest more aggressively—again, dependent on his or her goals and appetite for risk.
If you want to know more about your own appetite for risk, there are plenty of resources that can provide more insight into this area, such as, this Investment Risk Tolerance Quiz developed by Rutgers University, or another assessment developed by CNBC’s Money Control. However, the best approach is probably to work with a professional advisor or investment expert who can evaluate your appetite for risk in conjunction with an extensive understanding of the industry and market.
No matter what your risk appetite, the world of financial investing has changed a good deal over the last decade. This changes people’s relationship to money and as advisors we have to be cognizant of that, because it is ultimately what controls investors’ comfort level and their perception of their own success. A crucial piece of this involves understanding each client’s appetite for risk.
At Goldstone Financial Group, we believe that your financial future is far too important to leave to chance. We view it as our responsibility to thoroughly understand your goals and dreams so that we can leverage our experience and expertise to help you realize them. Rather than approach your finances with an outdated, transactional approach focused on particular products, we serve as your comprehensive financial solutions provider, forging a deeper relationship and creating a plan that can be adjusted as needed to help you reach your unique personal goals.