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Hound Dog

Hound Dogs and Retirement – Part 2

In our previous post, we discussed that when it comes to retirement planning, one way to eliminate the discomfort of what for many is a painful process is to make sure you have a plan in the first place. Most people don’t and instead focus their efforts are buying certain types of financial products.

In this post, we’ll discuss another important way of reducing the pain of retirement planning.

Dynamic Versus Passive Risk Management

Most folks coming us have a traditional buy and hold investment portfolio that uses a passive approach to risk management know as diversification*. The concept is that by taking my money and spreading risk around by investing in a number of asset classes within a portfolio, when times get rough in the market, some will ‘win’ and some will ‘lose’ but that ultimately, given enough time, you will come out ahead.

In contrast with this approach, dynamic risk management is a strategy that chooses to adjust portfolio weighting, holdings or even exit the market in part or sum-total based on market conditions and what’s best given your goals.

Those who went through the financial crisis starting in 2008 and following can tell you that there was no asset class in which to hide. In fact, I tell people who visit with us for the first time that the number one question I would ask a financial advisor during an exploratory evaluation is how their portfolios performed during the financial crisis.

In fairness, did the market recover? Yes! However, that only matters if you weren’t the person retiring in 2008. That is, you had time to recover. We have known many that had to postpone retirement for a number of years before coming to us due to their losses in 2008. Perhaps now your investment horizon is on a much shorter leash. My point is that no one knows when the next correction/bear market will happen. I can tell you that we are well beyond what is on average a seven-year bull run in the market and we are long overdue for a bear-market correction and cycle shift.

Maybe you’ve come to believe that most of your money must be in the market to have any chance of retiring or staying retired with any dignity. Have you bought into the media dribble that says you must accept the pain of the roller coaster-like stock market and that you should just “hang in there”? The truth is, dynamic risk management offers a different way to invest that takes a more proactive and defensive approach.

Investment Alternatives

Alternatives to investment portfolios, such as fixed index annuities,** rental real estate, and other such assets can help manage your market volatility exposure, work well along-side your investments and augment your overall investment, tax and income plan.

Obviously, you want to make sure you have gone over the positives and negatives with your planner as well as educate yourself on these different areas and how they may or may not be helpful to your long-range goals. However, stable income sources in many cases are much more attractive to my retiring clients than rate of return options. Over 20 years of our firm’s experience has proven to me that the only people who should always be 100-percent in the stock market are those who simply MUST (or so they think) or who can afford to lose.

If you feel like that hound dog in our story in the first post and you’re ‘yelping’ but not moving off the nail, give us a call or email me to schedule your complimentary consultation. We’ll do the analysis for you, give you a second opinion on your current financial situation and make helpful, common-sense recommendations on how YOU can get off the nail and get clear direction for your retirement.

* Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.

** Indexed annuities are insurance contracts that, depending on the contract, may offer a guaranteed annual interest rate and some participation growth, if any, of a stock market index. Such contracts have substantial variation in terms, costs of guarantees and features and may cap participation or returns in significant ways. Any guarantees offered are backed by the financial strength of the insurance company. Surrender charges apply if not held to the end of the term. Withdrawals are taxed as ordinary income and, if taken prior to 59 ½, a 10% federal tax penalty. Investors are cautioned to carefully review an indexed annuity for its features, costs, risks, and how the variables are calculated.

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Hound Dog

Hound Dogs and Retirement Planning – Part 1

I recall the story of a man walking down a country road who hears the awful sound of an animal in pain. As he nears an old shack along the dirt road, he spies an older gent on the front porch, calmly rocking in a creaky old rocking chair. Beside him his hound dog raises his head from time to time, belting out the most dreadful ”yelp” of pain. Why you’d have thought the old man was beating his faithful companion!

The traveler in the story approaches the picket fence, steps up to the gate, and asks “What’s wrong with your dog?”

Without breaking his rocking rhythm nor removing the corncob pipe from his mouth, he responded, “He’s lying on a nail.”

To which the curious traveler asks, “Why doesn’t he get off the nail and stop the pain?”

To which the wise owner retorted, “I guess it doesn’t hurt bad enough to move; just bad enough to yelp about it!”

Is your reaction to your retirement plan something close to that? Are you resting peacefully or ‘yelping’ about the pain? If you’ve had the opportunity to read some of our other articles, you know that many of the questions we field are from people trying to find ways to get rid of the pain of retirement planning and the markets. If you find you might be yelping and not moving off the nail that’s causing you the pain, in this article and the next, we’ll ponder what might help you find some relief.

First Your Plan Then Your Product

Perhaps, like many people we visit with, your experience with financial planning so far has really been nothing more than a sales process designed to sell you a financial product rather than actually helping to put together a financial plan that is unique to you, your goals and circumstances.

Before you begin picking investments and/or alternatives to them, here’s a thought: why not determine whether you NEED a particular product AT ALL? Aren’t your financial life and needs really unique to you? If that’s true, then a sales pitch for a financial product meets the needs of the investment or insurance salesperson more than your needs. You see, financial products of any type are tools to be used to solve a problem within a financial plan. If you don’t have a plan, you don’t know what the problem is and ergo you are simply being sold a product.

When you plan with purpose you will invest with purpose. Instead, most people are persuaded into buying financial products because of their estimated return, or advertised security, or other features. This is one of the biggest mistakes I watch people make with their money. If you’re going to place products in your shopping cart, do so based upon the plan you’ve developed that satisfies Y-O-U-R financial goals and future.

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Investing Disaster

Investing – Is Your Discipline A Disaster?

As of the end of 4th quarter 2018, the markets and everyone in them experienced a beating. The past has a way of repeating itself and it certainly did in the market last fall.

The bull market enjoyed for over nine years, which was and still is extremely overbought and in desperate need of a correction, experienced a correction…and then some. Interestingly, most of it happened in just one month, December. Was this a harbinger of a coming bear market cycle shift? It’s hard to tell but it certainly recovered quickly which was just as unusual historically as the speed in which it fell.

This correction and the specter of a bear market raises an important question: how do you seek to protect yourself from the inevitable big bear down-drafts? This is an especially critical question for those on the verge of retiring or who may have just entered retirement but is applicable anyone planning their retirement…which should be every working adult!

You don’t need much of a history lesson to recall the dramatic downturns that have followed periods of prolonged market gains. Need a few examples? How about the 2001 S&P *downdraft of almost 50%? What about the 2008 downdraft, which most remember best and for good reason. And here we are again, only this time, the down draft came much harder, much faster and with little to no warning.

Additionally, we don’t yet know if it’s really over, hanging out or just gearing up for another run south of the border based on the next news story. So, how did your investment portfolio fare? What was your written and defined strategy beforehand to make adjustments to your plan given the downdraft?

Our own strategies and portfolio disciplines have adapted and changed through these experiences over the years. Our quest for a better way started in 1994 and continues to adapt and change as our world changes. This should be the case with any good risk manager.

We’ve hired mutual fund** companies, really smart third party managers and a variety of other “traditional” portfolio management techniques over the years. We’ve been too conservative at times, but rarely too aggressive with the next ‘big drop’ right around the corner. I may not be the sharpest tack in the box, but it doesn’t take a genius to figure out that investing is about seeking to make and preserve money; not ‘holding on’ come what may. Burying ones head in the sand rarely results in a clear view of what’s headed your way.

The problem with these “traditional” institutional approaches lies in the fact that if you advisor tells you they are going to buy large company stocks located in the U.S., or any other asset class then that’s what they have to own – always; it doesn’t matter if that asset class is doing well or not. The “system” assumes you should just hold on.

Another problem lies in the fact that many in my industry are primarily commission-driven salespeople. People do what they are paid to do. If an advisor gets paid to sell financial products and not to build long-term relationships designed to help people manage their investments over the long-term, then you’ll get a lot of selling of products but very little money management advice.

There’s nothing wrong with selling financial products, mind you. But the emphasis on selling doesn’t create an environment where the average advisor ever thinks about really managing the money. It’s more for advisors to do what their corporate office, the mutual fund companies and third party managers teach them to do – send them the money and get good at telling the client to just hang in there and keep diversified.

What if you knew ahead of market events when you would exit or enter the market in your portfolio and you had a plan that specified all this? This doesn’t mean you won’t see volatility one way or another, it simply means you have a disaster plan that seeks to limit the volatility in ugly times. What if you seek to buy the areas of the market that show the best probability of performing well and get out of those that are underperforming? What if you built defensive indicators into your portfolio that signaled when probability of loss is high and that you should exit? Or, indicated when you should be entering markets during periods of bullish probability?

A retirement strategy with this kind of flexibility and contingency planning requires some work; however, the result could be less dramatic downturns over time, which means that you don’t have to fight to make up all the losses of the broad market with all its unmitigated risk.

What about terrorists or other black swan events? At best, market response is temporary to high emotion events while being more resilient in reflecting the value of believed future revenues of companies. When high emotion events occur, the fundamentals will eventually come back to the forefront.

So having just recently experienced yet another ugly market event, I’d suggest that you figure out how to best preserve current values the best you can. There will always be years of volatility up or down but bear markets don’t have to be scary.

If you need help in guiding your retirement plan in a clear direction, let us help. We’ll provide a complimentary, no-obligation assessment and some proactive recommendations that will help you get out of the “just hold on” mentality.


* Indices are unmanaged and investors cannot invest directly in an index. Unless otherwise noted, performance of indices do not account for any fees, commissions or other expenses that would be incurred. Returns do not include reinvested dividends. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market value-weighted index with each stock’s weight in the index proportionate to its market value.


**Mutual Funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing in Mutual Funds. The prospectus, which contains this and other information about the investment company, can be obtained directly from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.



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Working Retirement

How to Have A Successful Working Retirement

Over the years of meeting with people to help them plan out their retirement strategy, you tend to see a little bit of everything. In the process, I’ve learned a few things that can benefit others.

One of the things I’ve learned is that there are basically three types of retirees:

  1. Those who have a working retirement
  2. Those who must continue working in retirement; and
  3. Those who get to work in retirement.

I’ll get to my brief descriptions of these different types of retirees shortly but suffice it to say, there is a big difference between working because you want to and working because you have to. The latter tends to come with a little more stress than the other two and quite typically involves trading time and talent for a paycheck in a job that most don’t find very satisfying but which is necessary in order to survive. And while there are a few individuals that may fall into hybrids of these types above, they are the exception and not the rule.

According to a New York Times article, nearly a third of adults aged 65-69 are remaining in the workforce, and one-fifth of those 70-74 continue working. Two-thirds of working retirees have full-time jobs, as defined by the Bureau of Labor Statistics, working at least 35 hours per week. The labor force participation rate for the oldest segments of the population is expected to increase the fastest in the ten years between 2014-2024.

Why are more retirees working? One of the reasons is simply that people are living longer. According to the U.S. Census Bureau, as a percentage of the population, the number of people living past 90 has almost doubled since 1980 and is expected to double again by 2050. People are living longer because they are in better health and benefit from modern advances in medicine, over previous generations of retirees.

The increase in longevity along with healthier older adults undoubtedly contributes to staying in the workplace longer.

Let’s look at the three types of retirees and the major differences between them.

A Working Retirement

Those who have a working retirement are simply those who planned well, saved well and controlled expenses. Their retirement is working for them because they have worked a retirement plan.

While this may sound simple, that doesn’t make it easy. The discipline to do this tends to be a little bit harder to execute on the front end for people in our culture who have been trained to expect immediate gratification. But, it’s far better to put in the discipline needed to save and invest now than to be putting in the discipline required to get up and show up for a job every day for the duration of retirement, as required by those in group two.

Working in Retirement

Group two are those who must continue working in retirement and are typically (but not always) the opposite of number one. Sure, occasionally life throws some people a curve ball that is simply unavoidable. However, most of the folks in group two are simply there because they gave no consideration prior to retirement as to where they were going and how they were going to get there. In other words, they didn’t have a plan.

This is a stressful place to be entering retirement. It’s not all negative as I’ll state below but it’s also not optimal. Individuals in this situation don’t have a lot of choices.

Getting to Work in Retirement

Group number three is really where I believe it’s at. They have typically exhibited the same amount of discipline as group one but instead of hanging up the spurs, hopping in the golf cart and sipping Margaritas into the sunset…not that there’s anything wrong with that picture…they opt for a different type of working retirement. They are now working because they want to, from a desire to stay active or fulfill a purpose or an internal calling or just to have fun and try new things. In other words, they have plenty of good choices.

There’s nothing wrong with taking it easy in retirement. But, there are many advantages to working into your retirement years as several studies have shown.

According to the American College of Financial Services, here are just a few of the positives to be gained by adding just five years to a typical retirement age, going from 65-years-of-age to age 70:

  1. Increased likelihood of enjoying a sustainable retirement… going from 49% for individuals at age 65 to 85% for individuals at age 70.
  2. Increased Social Security benefits by deferring till 70.
  3. More time for savings to grow
  4. Enjoying better physical and mental health, as well as a death rate 11 percent lower than those who did not work.
  5. Remaining on employer-subsidized healthcare, which can be more affordable

Ultimately, you have to decide what’s best for you and which of these retiring groups you’d like to be a part of. There can be positives to working longer no matter how things turn out. However, honestly ask yourself, how much preparation have you done? Many people spend more time picking their cable TV package or re-arranging their sock drawer than evaluating their financial future? What about you?

Which of the three retirees I mentioned above do you believe describes your situation? Are you prepared to possibly live into your 90’s?

If you haven’t started yet or even if you’ve started but would like an independent second opinion, we’d like to help answer the questions you may have and provide clear direction for your retirement.

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401(k) Tax Mistakes – Part 2

This is the second part of a two-part article on 401(k) Tax Mistakes 

In the first part of this article on 401K mistakes (here), we discussed the fact that overdoing your 401k contributions can cause you tax troubles down the retirement road. Because this is not an obvious mistake, it tends to sneak up on you.

By way of review, in a typical pre-tax retirement plan, you benefit from laws providing a deduction when you make a contribution. You actually experience a double benefit: whatever you contribute serves as a deduction from your normal income and your savings and investments are tax-deferred earnings. Your money grows unscathed by taxation each year until you want it or need it (after age 59 1/2), and then you pay taxes at prevailing tax rates.

The problem arises when you’ve created a retirement plan that is out of balance; and, you do not have sufficient retirement resources in after-tax investments. When all your savings are in tax-deferred accounts, you’ve just sentenced yourself to pay taxes each and every time you need income or a withdrawal!

Don’t misunderstand, I am a proponent of saving taxes, but I believe even more in utilizing solid principles and planning to make sound financial decisions. Taxes are only one aspect of that process. So often I see the tax tail wagging the financial dog.

To retire with one million dollars in an IRA you rolled over from your employer is fantastic. However, a less than perfect retirement income plan is one where every dollar you need/want to maintain your lifestyle has a tax bill associated with it.

Here are Five Key Tips to Help You Avoid Making These Mistakes

  1. If your employer has a matching program, you should certainly contribute at least that amount in your 401k. Above the matching amount, consider your overall financial balance and consider a Roth 401k option if offered.
  2. After age 50, you can make “catch-up” contributions of up to $6,000 to your 401k. I’d urge you to consider saving this money in regular investment accounts, or in a ROTH IRA, if you qualify and depending on your situation.
  3. Wise financial decisions have more to do with options provided than with taxes or financial products.
  4. Build liquidity and flexibility into your retirement program by paying some tax now in order to provide yourself options later.
  5. Develop a coordinated retirement income plan that addresses the longevity of typical retirees.

The best advice I can offer is that you invest time into putting the retirement puzzle pieces in place. Our firm of fee-based, independent financial advisors provides a complimentary retirement planning review for readers. If you’re serious about making sure you’re headed in the right direction with clear direction, please call us to schedule a complimentary consultation.

Wootton Financial Group does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstances.


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401(k) Tax Mistakes – Part 1

This is the first of a two-part article on 401(k) Tax Mistakes.

Have you ever heard the story of the frog that was tricked into climbing into a kettle of nice, cool water by a hungry foe? Unbeknown to the comfortable frog, the kettle he was lounging in was really on a stove. Slowly but surely, the perpetrator of this dastardly deed, increased the heat, gradually warming up the water without ever calling attention to his real motive – to cook the frog! As the story goes, the frog didn’t realize he was in “hot water” until it was too late and he was “cooked.”

During the years I’ve paid close attention in seeking to help my clients retire and stay retired. I carefully note the victories and any mistakes of others who retired and try to prepare my clients accordingly. Most of my “professional” world centers around helping folks, both “young” and “old”, develop strategies that are aimed at building and sustaining the longevity of their retirement savings.

One huge retirement planning mistake that may cause you a great deal of pain down the road is “overdoing” your 401k contributions. That’s right. You may be investing too much of your savings into your 401k plan, IRA, or small business retirement plan. An unfortunate consequence of this typical strategy is that you needlessly lose control over your tax liability after retirement. This is not an obvious mistake, so it tends to sneak up on you over time. By the time you feel the heat, like our frog in the kettle, it’s too late to act.

In a typical pre-tax retirement plan, the participant benefits from laws providing a deduction when they make a contribution. These retirement plans provide a double benefit: a deduction from your normal income, coupled with tax-deferred earnings. Tax-deferred earnings allow your gains to grow unscathed by taxation each year until you want it or need it (after age 59 1/2), and then you pay taxes at prevailing tax rates.

Many articles and marketing messages tout the wonderful benefits of compounded growth. And those messages are valid to a great extent. However, the problem arises when you’ve created a financial house that is out of balance; and, you do not have sufficient retirement resources in after-tax or tax-free investments. When all your savings are in tax-deferred accounts, you’ve just sentenced yourself to pay Uncle Sam each and every time you need income or a withdrawal!

Sadly, I have seen that even though individuals may have the money, they will face every expense decision reluctantly because of the accompanying tax.

Here are Five Considerations about 401K’s to Keep in Mind

1.     Despite common thought, you won’t necessarily be in a lower tax bracket in retirement!

2.     Depending on the government’, it is very likely that future income tax rates could rise dramatically.

3.     The old-school philosophy of maxing out savings in a 401k plan solely to avoid today’s taxes simply doesn’t hold water any longer.

4.     Many retirees have fewer tax deductions to protect the income from their retirement plan.

5.     The more you maximize your funding today, the more your required distributions will be starting after age 70 1⁄2, whether you need them or not.

In part 2 of this article, we’ll look at five tips that will help you avoid 401K tax liabilities.

If you don’t have a retirement plan, it’s never too late to start. Contact us today and let us help you discover clear direction for your retirement future. We’ll provide a FREE analysis of where you currently stand against your goals and provide important recommendations for getting all the pieces of your retirement puzzle to fit together!

Wotton Financial Group does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstances.

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Retirement Nest

Hidden Pitfalls of IRAs and 401(k)s – Part 2

This is the second post of two on the Hidden Pitfalls of IRAs and 401(k)s.

In our last post here, we discussed the penalties associated with withdrawing money early from either IRA’s or 401(k)’s. In this second post on this subject, we’ll talk about another aspect of these plans that creates problems.

The rules-based conditions regarding early IRA or 401(k) withdrawals for various purposes can also create tax issues. You are allowed to withdraw funds for education costs or buying a new home for the first time (among others, but these two tend to be more frequent).

For the latter, IRA owners can escape the 10% penalty for a withdrawal for a first-time home purchase, while a 401(k) participant cannot. Furthermore, many lenders won’t allow a 401(k) loan to qualify as a down payment in the first place. One workaround for this, if allowable under your plan, is to do a tax-free rollover of the funds needed from your 401(k) to your IRA and then take the money for the home purchase. You’ll still owe income tax but not the penalty.

The same goes for education expenses. IRA owners using their funds for higher-education costs such as tuition, books and other items that are detailed in the code will not pay the 10% early withdrawal penalty whereas 401(k) owners will. Again, consider transferring funds on a tax-free basis to an IRA and then making the withdrawal as needed.

Another area of common misunderstanding is that of required minimum distributions (RMD’s). The IRS requires that IRA and 401(k) account owners begin mandatory distributions in the year they turn 70.5. They can defer the first-year distribution till April 1 of the following year but they then must take the first and second-year distribution in the same second year. Can you say “tax planning needed”?

There is a caveat here, however, for 401(k) owners. For the 401(k) account where you are still employed at 70.5 or older, you don’t need to take an RMD unless you own more than 5% of the company. You must still take RMD’s from any external IRA’s but not from the company plan where you are still employed and under 5% ownership. Once you retire (after 70.5), your first RMD due on the 401(k) account is due by April 1 the year following retirement.

Some 401(k) plans allow for other IRAs to be rolled into them and thus older employees who are still working can delay their RMD’s till retirement. However, the allowance of this is plan specific and not always permitted. Furthermore, it’s not always cut and dry from many perspectives as to whether this would be a beneficial move to the employee other than purely from a tax perspective. You should never let the tax tail wag the retirement dog.

I often get asked it’s a good idea to borrow from one’s retirement plan. Some, but not all, 401(k) plans allow participants to borrow. Competitive interest rates can be attractive and offer better terms than other consumer debt lenders. Conversely, borrowing against your IRA is not allowed, and doing so will terminate the account causing all kinds of trouble you really don’t want.

Although these two articles aren’t comprehensive in covering all the issues with IRAs and 401(K)’s that can get you in trouble, I hope this overview gives you a better understanding of the differences in your retirement accounts and some of the pitfalls you should avoid.

We want to help you find clear direction for your retirement. We offer personal fiduciary planning and investment services as well as corporate fiduciary 321 services to help companies properly design and implement corporate retirement plans in the best interest of their participants. Let us know how we can help you!

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Retirement Nest

Hidden Pitfalls of IRAs and 401(k)s – Part 1

This is the first post of two on the Hidden Pitfalls of IRAs and 401(k)s.

We hear a lot about them. In the world of retirement savings, the terms IRA and 401(k) are almost synonymous with the word retirement itself. According to ICI.org, as of the end of 2018 such accounts held over $16 trillion dollars, which is nearly triple the value held just two decades ago. To say they are popular would be an understatement.

Most folks know the basic similarities. For instance, they are both tax-deferred savings vehicles that are designed to help investors grow their nest egg as quickly as possible by suspending taxation in the present as long as one follows all the rules. However, there are differences between the two in terms of rules and allowances most people are unfamiliar with, including many advisors.

Violating the rules can be a nasty lesson in the differences between IRAs and 401(k)s. Get those rules mixed up and interchange them one for another and it can be very costly both in terms of the taxman and your retirement account savings plan. Let’s review a few of the differences and how making a mistake can be detrimental.

The biggest thing, and perhaps the simplest to keep in mind in terms of both of these accounts is the general rule that taking money out early, unless allowed by a rule, triggers both taxable income (which is always the case in an IRA or 401k withdrawal) as well as a 10% early withdrawal penalty. Tack on to this penalties and interest for not catching a tax mistake when made and the cost can be painful.

For the IRA, the penalty-free withdrawal age is 59.5. For the 401(k), it is also 59.5 unless you retire early between the ages of 55 and 59.5 and leave your funds in the 401k plan. You can withdraw early in this case without incurring the 10% early withdrawal penalty, assuming your plan allows for leaving the funds there after retirement.

If you make the mistake of rolling your entire 401k to an IRA in early retirement without contingency planning, you will owe the penalty tax on all withdrawals pre-59.5, unless they meet an exemption under IRS publication 590-B. This is where doing financial planning with a good retirement expert who knows their stuff would be helpful in determining exactly where and how you’ll receive income when retiring early without penalizing yourself and possibly jeopardizing your retirement.

I’ve heard, read and personally seen the fallout from advisors with many years in the industry getting these things wrong for their clients. Ask a lot of questions and do your research to double-check the advice you are getting from a financial advisor. A tax professional is a good source to verify tax-related advice on any retirement account moves involving withdrawals.

We want to help you find clear direction for your retirement. We offer personal fiduciary planning and investment services as well as corporate fiduciary 321 services to help companies properly design and implement corporate retirement plans in the best interest of their participants. Let us know how we can help you!

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The Next Step?

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Or give us a call at 866-416-1703 OR 936-449-5952