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Retirement Planning

How to Plan for Old Age

Thelma Sutcliffe turned 114 years old in April, making her the oldest living American and the seventh-oldest person in the world, according to the Gerontology Research Group. The Omaha, Nebraska, resident attributes her relative good health and longevity to the fact that she never had children, never smoked and made it a habit not to worry.1

Not many people make it to 114, but those who do outlive their friends and loved ones. That’s why it’s important to develop passions and hobbies you can enjoy for the rest of your life, no matter how long you live. It’s also a good idea to establish a plan that provides a confident retirement. That may include living below your means and casting a wide net of friends to help ensure you have close ones to grow old with. It also may include buying insurance policies that offer reliable income. If you’d like help planning, please give us a call.

One key factor to consider is where you want to live in retirement, particularly during the later years when you may need help. Paying for full-time care in your own home can be very expensive. However, COVID-19 has caused some hesitation moving to assisted living and nursing homes due to the potential for disease outbreaks in the future. You may want to start thinking and talking with family members about the possibility of moving in with them later in life, if necessary. You could even use proceeds from the sale of your home to build an accessory dwelling unit (ADU) next to their home. Also known as a backyard cottage or granny flat, an ADU can help cut expenses to pay for in-home care – so there is less burden on family members.2

Some ADU floorplans even feature two bedrooms, so you could hire a full-time caregiver and provide room and board. Later, your heirs can use the ADU for rental income or to plan for their own long-term care.

Apart from financial and housing plans, consider developing hobbies you can enjoy later in life. You may cultivate a love of history, art or music early in retirement through volunteer efforts. For example, work as a docent, usher or fundraiser for a local museum, art gallery or concert hall. A heartfelt appreciation of the arts has a way of eliciting joy, even if you develop mobility or cognitive issues.

1 Leah Asmelash. CNN. April 29, 2021. “She just became the oldest living person in the US and all she wants is to be able to eat meals with her friend again.” https://www.cnn.com/2021/04/29/us/oldest-living-american-trnd/index.html. Accessed May 3, 2021.

2 Zillow. March 18, 2021. “What is an Accessory Dwelling Unit (ADU) – and Tips for Building One.” https://www.zillow.com/resources/stay-informed/2021/03/18/how-to-build-accessory-dwelling-unit-adu/. Accessed May 3, 2021.

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

 The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions.

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Why Buy an Annuity When the Market is Up?

Perhaps you are familiar with an annuity. The basic premise is that you convert a lump sum of money into a stream of income. Unlike an investment, once you commit a fixed amount of money to the insurance company, that company is contractually obligated to provide you a minimum level of income with the option to continue receiving it as long as you live. All guarantees are backed by the financial strength of the issuing insurance company.

An annuity is similar to Social Security benefits or a company pension plan in that it generates income from money over which you have little or no control. However, an annuity gives you many options to design your own income plan. It can offer flexibility in terms of how much income you’ll receive, as well as how much and how long, based on the premium you pay and the terms of the annuity. Additionally, many annuities offer features that enable access to funds for emergencies, health concerns, a surviving spouse and even beneficiaries. That said, it’s generally not a good idea to put all of your eggs in this basket. Think of an annuity as a guaranteed source of income in a well-diversified financial strategy.

Annuities include many options, ranging from immediate annuities to fixed, fixed index and longevity annuities. Each policy varies by issuer, and many can be customized with optional features and riders, which may require an additional fee. Keep in mind that annuities are designed for retirement or other long-term needs. They provide guarantees of principal and credited interest, subject to surrender charges. That’s why it’s important to work with an experienced financial professional to help determine which option is appropriate for your situation.

A common question among those planning for retirement is: Why purchase an annuity when the market is performing well? Remember the adage: What goes up must come down. If and when the market experiences a decline, your potential profit is reduced and your income may drop. If you sell out of the market before it goes down, that’s some pretty good market timing. The problem, however, is that to take advantage of a subsequent market recovery, you might have to buy back in when prices are on the rise – which means you’ll lose some of that profit you earned.

The bottom line: Economic factors and the stock market fluctuate, but a guaranteed income annuity does not. Once you lock in income payments, that’s what you get. They are unaffected by market fluctuations. If you are near or in retirement, an annuity can help provide the income you need without your having to be concerned with day-to-day market moves that could potentially impact both your short- and long-term retirement income.

It’s also worth considering that when you purchase an annuity using profits from stocks sold when the market is up, you’ll have more money to purchase the annuity, thus yielding higher income in retirement. If you’re going to buy an annuity, that may be a good time to do so.

An annuity can also help provide income protection at the beginning of retirement. That’s because if you retire earlier than expected, converting a portion of your assets to an immediate annuity will enable you to begin taking income right away. In doing so, the rest of your retirement portfolio has the opportunity to continue growing and you may be able to delay drawing Social Security benefits so they continue accruing. This is important to consider because research reveals that 37 percent of older workers retired earlier than they had planned.1

An annuity also can provide income for loved ones after your death. One way you can do this is by choosing a “period certain” option. For example, instead of lifetime income, you may choose to receive income for 30 years. This means that even if you pass away after 10 years, your designated beneficiary would continue receiving that income for another 20 years.

An annuity can offer the flexibility to address several different needs, including retirement income, access to emergency funds (some annuities allow you to withdraw a certain percentage each year without a penalty), payouts to assist with the costs of long-term care, and even inheritance proceeds. With an annuity, these options can be included as part of the contract’s guaranteed structure at the time you purchase it. While an investment portfolio may be able to pay for these needs, you might have to sell when the market is in a decline. In such a case, you would lose both money initially and the opportunity to recover lost gains on those sold assets.

Many of those in the financial industry recognize the value of an annuity within a broader retirement strategy. One study found that by purchasing an annuity contract, a retiree can improve the chances of his portfolio lasting to age 95 by nearly 20 percentage points when compared to a pure investment portfolio.2 Another study found that a 401(k) plan investor with at least $65,000 would be better off if he put 10 percent of those assets into a deferred annuity.3

Keep in mind that with an annuity, it’s all about the guarantees. If you’re a planner and you want to know how much guaranteed income you can count on in retirement, purchasing an annuity may make sense for you.

If you’d like to learn more about how an annuity could fit within your overall financial strategy, please feel free to give us a call.

Alicia H. Munnell. Marketwatch. Feb. 27, 2019. “Why do 37% of older workers retire earlier than planned?” https://www.marketwatch.com/story/why-do-37-of-older-workers-retire-earlier-than-planned-2019-02-27. Accessed May 9, 2019.

Michael Finke, Ph.D., CFP®, and Wade Pfau, Ph.D., CFA®. Principal. “It’s more than money.” https://landing.principal.com/more-than-money. Accessed May 24, 2019.

Olivia S. Mitchell. Knowledge@Wharton. May 2, 2019. “Can Annuities Help Grow Your Retirement Nest Egg?” https://knowledge.wharton.upenn.edu/article/annuities-retirement-income/. Accessed May 9, 2019.

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

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

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Social Security Proposals and Strategies

As the Social Security Trust Fund approaches its expiration date, many existing entities are offering helpful suggestions for funding alternatives. For example, the Association of Mature American Citizens (AMAC) recommends a combination of changing how cost of living adjustments are made, delaying retirement age and updating the delayed credit strategy. Among its proposals, the AMAC also advocates establishing a new “Social Security Plus” account — a personal retirement savings account that begins paying out at age 62. Specifically, this account would:1

  • Be funded on a strictly voluntary basis by both employees and employers
  • Be owned by the individual
  • Provide a tax deduction for employer contributions
  • Allow after-tax contributions by employees with tax-free withdrawals (similar to a Roth IRA)
  • Be funded via payroll deduction

Alicia Munnell, director of the Center for Retirement Research at Boston College and a respected individual in the retirement income field, advocates a long-term approach to solving the pending Social Security shortfall. While she does not advocate cutting benefits, Munnell believes that the only way to fund full benefits for the next 75 years is to raise current payroll taxes.2

Those who have already retired are less likely to be affected by changes to the Social Security system than those who are currently preparing for retirement. It’s important to have your own plan for an independent retirement income stream, separate from government benefits, to ensure your needs will be covered. Feel free to reach out to learn more about current income vehicles that can help secure your financial future.

In a recent proposal for funding Social Security, President Biden proposed:

  • Raising the guaranteed minimum benefit to 125% of the federal poverty level
  • A 5% increase for retirees who have been drawing benefits for at least 20 years
  • Enhancing payouts to surviving spouses by 20%
  • Boosting the annual cost-of-living adjustment for benefits

Biden proposes paying for benefit increases by levying FICA taxes on workers who earn more than $400,000 a year. Other proposed ideas include imposing FICA taxes on income above $142,800 (which is currently the limit for this tax), gradually increasing the payroll tax rate from the current 12.4% to 14.8%, reducing benefits for those with higher lifetime incomes, reducing cost-of-living adjustments, and limiting benefits for spouses and children of higher-income earners.3

Those are all proposals that, in some form, may likely change the future Social Security landscape. Those nearing retirement can utilize a couple of strategies now that may not be as lucrative once proposed changes are made.

One option is the delayed credit that accrues if you wait until age 70 to draw benefits. Now that people are living longer, this accrual strategy, which was implemented by the Social Security Administration back in the 1950s, produces a substantially higher advantage for retirees who delay drawing benefits and then live to a ripe old age. In fact, waiting until age 70 can make lifetime benefits worth 76% more than claiming them at age 62. This actuarially enhanced perk is available only until benefits are adjusted to match to today’s longer life expectancy.4

Also be aware that widows and widowers do not necessarily have to wait until age 62 to begin taking Social Security benefits based on the earnings of an eligible spouse who passed away. A surviving spouse can begin drawing the deceased spouse’s benefit at age 60, then switch to his or her own benefit later (if higher). They can even wait until age 70 for the delayed credit and begin taking the enhanced benefit at that point.5

1 Association of Mature American Citizens. 2021. “The Combined Social Security Guarantee and Social Security Plus Initiative.” https://amac.us/social-security/. Accessed March 30, 2021.
2 Jane Wollman Rusoff. ThinkAdvisor. March 14, 2021. “Alicia Munnell: Biden’s Social Security Tax Hike Plan Falls Short.” https://www.thinkadvisor.com/2021/03/19/alicia-munnell-bidens-social-security-plan-falls-short/. Accessed March 30, 2021.
3 Bob Carlson. Forbes. Feb. 22, 2021. “Changes Must Come To Social Security.” https://www.forbes.com/sites/bobcarlson/2021/02/22/changes-must-come-to-social-security/?sh=50094aa115e4. Accessed March 30, 2021.
4 Investopedia. Dec. 21, 2020. “How Much Can I Receive From My Social Security Retirement Benefit?” https://www.investopedia.com/ask/answers/102814/what-maximum-i-can-receive-my-social-security-retirement-benefit.asp. Accessed April 14, 2021.
5 Social Security Administration. 2021. “Receiving Survivors Benefits Early.” https://www.ssa.gov/benefits/survivors/survivorchartred.html. Accessed March 30, 2021.
We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.
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Building Wealth and Income

Spectrem Group’s recent Market Insights Report found that millionaire investors in the U.S. achieved a new record last year. The number of households with a net worth ranging between $1 million and $5 million (excluding primary residence) increased by 600,000, reaching 11.6 million in 2020.

In addition:1

  • The number of households with a net worth between $100,000 and $1 million increased by 500,000.
  • The number of households with a net worth between $5 million and $25 million increased by 324,000.
  • The number of households with a net worth of more than $25 million increased by 214,000.

While many households have accumulated a substantial net worth, a way to finance your retirement is how you convert that wealth into income. According to the chief financial analyst at Bankrate, your chances of success are better if you are producing multiple streams of income at the same time. He lists consulting or other part-time income, rental properties and business ventures as ways to diversify your income streams.2

Real estate is another income-producing asset. Even if you finish paying off your own mortgage by retirement, another option is “buy to rent.” While renting and building equity via real estate has produced many millionaires, remember that the job of a landlord requires a variety of skills, from navigating tenant law to plumbing repairs. It’s also important to evaluate your financing options – including whether to mortgage a property or buy it outright. If mortgaging, your interest rate needs to be low enough to establish a competitive market rental fee that covers expenses and still yields revenues.

Be aware that interest rates on investment properties tend to be higher than for a primary residence. Also, rents charged need to cover more than the mortgage; they need to also pay for homeowner insurance, property taxes, potential HOA fees, ongoing maintenance and repairs. There’s also landlord insurance to consider, which can cover property damage, lost rental income and liability protection.3

1 SpectremGroup. March 15, 2021. “New Spectrem Study Reveals US Household Wealth Climbed to Record Levels in 2020 After Rebounding from the March Pandemic-Related Market Crash.” https://spectrem.com/Content_Press/spectrem-press-release-march-15-2021.aspx. Accessed March 15, 2021.
2 James Royal. Bankrate. March 4, 2021. “14 passive income ideas to help you make money in 2021.” https://www.bankrate.com/investing/passive-income-ideas/. Accessed March 15, 2021.
3 Tim Parker. Investopedia. Sep. 17, 2020. “15 Tips for Buying Your First Rental Property.” https://www.investopedia.com/articles/investing/090815/buying-your-first-investment-property-top-10-tips.asp. Accessed March 15, 2021.
We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice.
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New Status on Pension Plans

Financial professionals and economists have been talking about the “graying of America” and the retirement crisis for at least a couple of decades. Now, it seems, things have reached a tipping point.

Even labor union workers, largely beneficiaries of rich benefits and pension plans, have been hit hard. Throughout the past century, unions set up multiple-employer pension plans so that unionized workers in the trucking, trade, construction, ironworking, carpentry and other industries could change employers throughout their career while staying with the same union and continue accruing pension benefits from job to job.1 Despite that effort, more than 1,400 multiemployer pension plans covering about 11 million U.S. workers have fallen into a financial hole.

For example, a worker who retired in 2009 with 37 years paid into his pension fund was due $4,265 per month for life. However, in 2015 his pension benefit was slashed to $2,217 per month due to underfunding.2

This problem doesn’t just affect pensioners, it affects the nation’s overall economy. According to the National Institute of Retirement Security, each $1 spent on pension benefits supports $2.19 in economic output. In some coal-mining areas, entire towns are supported by union pensioners. In Detroit, nearly a third of income comes from pensions, union retiree health, Medicare and Social Security. If pension plans fail, communities throughout the heartland, including Ohio, Kansas, Pennsylvania, Michigan and Indiana, will suffer immeasurably.3

Union pensions are not the only plans under financial pressure. According to the 2020 Social Security Trustee report, the Social Security retirement trust fund was scheduled to run out of money by 2034. But that estimate was before the pandemic when unemployment and suspended FICA payroll taxes significantly reduced Social Security revenues while at the same time millions of people retired early and began tapping their benefits. The new trustee report, due in a few months, will likely update that depletion date to 2032 or sooner. Without changes, Social Security benefits soon will be funded solely by current payroll taxes, which would reduce benefits by as much as a quarter of previous estimates.4

It may be a good time to review your individual retirement plan to shore up any gaps that may be affected by reduced pension and government benefits. Feel free to contact us to discuss your situation and explore tax-efficient ways to provide more financial confidence to your retirement plans.

The recent $1.9 trillion stimulus bill took a first step to help stabilize pension plans. It authorized funding by the Pension Benefit Guaranty Corporation (PBGC) for eligible multiemployer plans to enable them to pay benefits at plan levels and remain solvent. The funding is being paid out from general revenues of the U.S. Treasury.5

1 Chris Farrell. Marketwatch. March 15, 2021. “The new stimulus bill will help shore up some shaky pension plans.” https://www.marketwatch.com/story/the-new-stimulus-bill-will-help-shore-up-some-shaky-pension-plans-11615586775?mod=home-page. Accessed March 22, 2021.
2 Teresa Ghilarducci. Forbes. March 15, 2021. “What Is The Pension Provision In The Stimulus Package? An Explainer.” https://www.forbes.com/sites/teresaghilarducci/2021/03/15/what-is-the-pension-provision-in-the-stimulus-package-an-explainer/?sh=7fdbc4c257d1. Accessed March 22, 2021.
3 Ibid.
4 Bob Carlson. Forbes. Feb. 22, 2021. “Changes Must Come To Social Security.” https://www.forbes.com/sites/bobcarlson/2021/02/22/changes-must-come-to-social-security/?sh=44501abc15e4. Accessed March 22, 2021.
5 Pension Benefit Guaranty Corporation. March 12, 2021. “American Rescue Plan Act of 2021.” https://www.pbgc.gov/american-rescue-plan-act-of-2021. Accessed March 22, 2021.
6 Jory Heckman. Federal News Network. Feb. 24, 2021. “USPS 10-year plan looks to redefine ‘unachievable’ service standards.” https://federalnewsnetwork.com/agency-oversight/2021/02/usps-10-year-plan-looks-to-redefine-unachievable-service-standards/. Accessed March 22, 2021.
7 Govtrack. Feb. 2, 2021. “H.R. 695: USPS Fairness Act.” https://www.govtrack.us/congress/bills/117/hr695. Accessed March 22, 2021.
We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
 The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.
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Vaccines and the Stock Market

If there’s one thing that can move the economy and stock market forward, it’s hope. This year, that hope is being presented in the form of COVID-19 vaccines. Economists and Wall Street analysts have long proclaimed that comprehensive economic recovery is not possible until we have contained the virus. The prospect of wide distribution of effective vaccines and herd immunity by the end of the year has put recovery in our crosshairs.1

What does this mean for investors? Review your investment portfolio and get your financial house in order. If we are due for improvement, it could be beneficial to get into the market when prices are low, rebalance often and take advantage of market dips for additional investment opportunities. As always, we are here to help guide on the best way to meet your financial goals.

This hopeful sentiment was echoed by CNBC’s ever-enthusiastic “Mad Money” host, Jim Cramer. He recently proclaimed that the U.S. stock market will be poised for even greater heights if President Biden is successful in forging a plan to quickly and widely distribute the COVID vaccinations.2

Phil Orlando, Federated Hermes’ chief equity market strategist and one of Wall Street’s bullish market analysts, advocates a combination of vaccine rollout and additional fiscal stimulus. He believes one of the surefire ways to boost economic growth is to help lower-skilled unemployed people find work. He predicted that by July 4, the U.S. will be coronavirus-free, setting the stage for a “monster market year.”3

Unfortunately, European stocks continue to struggle despite market exuberance in the U.S. over a new presidential administration. Part of this concern may be that many EU countries have suffered setbacks due to subsequent and more virulent strains of the coronavirus. As before, the U.S. continues to lag on the worst of the effects of the virus as they occur.4 This foreshadowing makes it all the more important that vaccines get into as many arms as possible in the next few months.

Market sectors that have suffered terribly from calls for lockdowns and social distancing are likely to benefit the most from widespread distribution of the COVID-19 vaccine. This includes the aviation and hospitality sectors, as well as the office and retail property market in Europe and the U.S. Of course, the opposite could be true: Pandemic beneficiaries could see a loss in revenues once people get out and about — for example, Amazon, Netflix and Zoom Video.5

Content prepared by Kara Stefan Communications.
1 Robin Wigglesworth. Financial Times. Dec. 2, 2020. “The ‘everything rally’: vaccines prompt wave of market exuberance.” https://www.ft.com/content/d785632d-d9a0-45ae-ae57-7b98bb2fb8d6. Accessed Jan. 25, 2021.
2 Kevin Stankiewicz. CNBC. Jan. 20, 2021. “Jim Cramer says the stock market could ‘explode’ if Biden improves Covid vaccine rollout.” https://www.cnbc.com/2021/01/20/jim-cramer-stocks-could-explode-if-biden-improves-covid-vaccine-rollout.html?recirc=taboolainternal. Accessed Jan. 25, 2021.
3 Stephanie Landsman. CNBC. Jan. 20, 2021. “Covid-19 vaccines will end pandemic in U.S. by early summer, Federated Hermes’ chief equity market strategist predicts.” https://www.cnbc.com/2021/01/20/covid-19-vaccines-will-end-pandemic-in-us-by-early-summer-federated.html. Accessed Jan. 25, 2021.
4 Jim Armitage. Evening Standard. Jan. 25, 2021. “FTSE 100 rises slightly as investors balance surging Wall Street with Covid worries.” https://www.standard.co.uk/business/ftse-100-rises-covid-joe-biden-quarantine-b900967.html. Accessed Jan. 25, 2021.
5 Sumathi Bala. CNBC. Nov. 23, 2020. “Hopes for a coronavirus vaccine are creating market winners – and losers.” https://www.cnbc.com/2020/11/23/investing-coronavirus-vaccine-creates-market-winners-and-losers-.html. Accessed Jan. 25, 2021.
We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial or investment advice. All investments are subject to risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
 The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.
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Incapacity and Advance Medical Directives

At some point in your life, you may lose the ability to make or communicate responsible health-care decisions for yourself. Without directions to the contrary, medical professionals are generally compelled to make every effort to save and sustain your life. Depending on your attitude toward various medical treatments and your views on the quality of life, you may wish to take steps now to control future health-care decisions with one or more advance medical directives.

What Is an Advance Medical Directive?

The laws of your state may allow you to adopt one or more advance medical directives to manage your future medical care. There are three main types of advance medical directives:

  1. A living will
  2. A durable power of attorney for health care
  3. A do-not-resuscitate order.

Each has unique characteristics and is useful under specific circumstances. You may find that one, two, or all three advance medical directives are necessary to express all your wishes regarding medical treatment.

Living Will

A living will is a legal document that specifies the types of medical treatment you would want, or not want, under particular circumstances. In most states, a living will takes effect only under certain circumstances, such as a terminal illness or injury. Generally, one can be used solely to decline medical treatment that “serves only to postpone the moment of death.”

Durable Power of Attorney for Health Care/Health-Care Proxy

A durable power of attorney for health care (DPAHC), also known as a health-care proxy, is a legal document in which you appoint a representative to make medical decisions on your behalf if you become unable to make or communicate them yourself. It allows you to exercise control over your health care through this representative, who will have the authority to make most medical care decisions for you.

You may want to appoint such a representative to act on your behalf. If you don’t, medical professionals will generally be compelled to do everything possible to save and sustain your life. A DPAHC can resolve conflicts and help ensure that your choices regarding medical treatment are respected. A DPAHC may not be practical in an emergency — your representative must be present to act on your behalf.

Do-Not-Resuscitate Order

A do-not-resuscitate (DNR) order is a legally binding order, signed by both you and your physician, that directs medical personnel not to perform cardiopulmonary resuscitation (CPR) or other invasive procedures on you if you stop breathing or your heart stops beating. A DNR is the only advance medical directive specifically intended for use in an emergency. There are two types of DNRs: One is effective only while you are hospitalized; the other is used by people outside the hospital. ID bracelets, MedicAlert® necklaces, and wallet cards are some methods of noting DNR status.

More to Consider

  • The laws on advance medical directives vary considerably from state to state. If you spend a significant amount of time in a state other than where you live, you may want to research that state’s laws as well.
  • Review your advance medical directives periodically to ensure they reflect your current wishes and attitude.
  • Discuss your advance medical directives with appropriate persons (perhaps your doctor, your DPAHC representative, your family, and your friends).
  • If you have multiple advance medical directives, make sure your instructions are stated consistently throughout. In many states, the most recent document prevails in case of a conflict
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Accumulating Funds for Short-Term Goals

Stock market volatility in 2020 has clearly reinforced at least one important investing principle: Short-term goals typically require a conservative investment approach. If your portfolio loses 20% of its value due to a temporary event, it would require a 25% gain just to regain that loss. This could take months or even years to achieve.

So how should you strive to accumulate funds for a short-term goal, such as a wedding or a down payment on a home? First, you’ll need to define “short term,” and then select appropriate vehicles for your money.

Investing time periods are usually expressed in general terms. Long term is typically considered 15 years or longer; midterm is between five and 15 years; and short term is generally five or fewer years.

The basic guidelines of investing apply to short-term goals just as they do for longer-term goals. When determining your investment mix, three factors come into play — your goals, time horizon, and risk tolerance. While all three factors are important, your risk tolerance — or ability to withstand losses while pursuing your goals — may warrant careful consideration.

Example: Say you’re trying to save $50,000 for a down payment on your first home. You’d like to achieve that goal in three years. As you’re approaching your target, the market suddenly drops and your portfolio loses 10% of its value. How concerned would you feel? Would you be able to make up that loss from another source without risking other financial goals? Or might you be able to delay buying your new home until you could recoup your loss?

These are the types of questions you should consider before you decide where to put those short-term dollars. If your time frame is not flexible or you would not be able to make up a loss, an appropriate choice may be lower-risk, conservative vehicles. Examples include standard savings accounts, certificates of deposit, and conservative mutual funds. Although these vehicles typically earn lower returns than higher-risk investments, a disciplined (and automated) saving habit combined with a realistic goal and time horizon can help you stay on course.

The FDIC insures CDs and savings accounts, which generally provide a fixed rate of return, up to $250,000 per depositor, per insured institution.
All investments are subject to market fluctuation, risk, and loss of principal. When sold, investments may be worth more or less than their original cost.
Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
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Stock Ownership Slow to Recover

Dynamic versus Static Investment Risk Strategy

This is the first of a two-part article on Dynamic versus Static Risk Strategy. 

Fifty-five percent of Americans said that they (and/or a spouse) had money invested in the stock market in 2019. Since this is the same percentage of Americans as was reported in 2018, it’s obvious stock ownership still has a way to go before it recovers to pre-recession ownership levels. Cleary, stock market investor caution remains high despite a decade of strong market recovery.

Where are people placing their investment bets? Most likely, they’re using a financial industry-standard method of managing portfolio risk, exemplified by the widely-used “60/40 portfolio.

A 60/40 portfolio refers to allocating 60% of asset investments to stocks and  40% to bonds. The “risk management” aspect of this strategy is the 40% of assets held in bonds, which are expected to act as a buffer to stocks during Bear markets. Bonds tend to hold up in times of stock distress.

The 60/40 portfolio is so common that investors can find a Balanced Fund by throwing a dart at the mutual funds page of their Sunday newspapers. This passive, unchanging method to manage risk is termed static risk management and it’s not the best approach.

We recommend a dynamic versus a static portfolio strategy. Why is that you ask?

In a bear market, when risk and losses are high, static risk-management measures are not enough. In a bull market, when stock risk is low, static risk-management measures are too much to minimize your risk and optimize your returns.

If you think about it, a STATIC portfolio – with its constant, unchanging allocations to stocks and bonds – is a bit like preparing for any weather you might encounter by dressing half your body for warm weather and the other half for cold weather. On average, you’ll be comfortable. But, as that analogy shows, an average like that doesn’t really make much sense.

For example, if for the 2008 and 2009 bear market, we had a static risk-managed balanced portfolio of 60% stocks and 40% bonds, we’d have a top-to-bottom loss of -34.70%.

This loss is well beyond the risk tolerance capacity of the vast majority of investors and would be deemed a disaster by any reasonable person.

Now, consider what would happen with a static risk management approach in the subsequent up years that followed the recession. The 60/40 allocation wouldn’t have performed as well as it could have because of the drag on performance caused by the 40% bond allocation.

As you can see, STATIC risk management would have supplied too little protection in the recession, but too much to keep you from capitalizing on significant gains during the good times that followed.

The goal of Dynamic Risk Management is to apply more risk management in the bad times – when the need is greatest – and less in the good times – when the need is reduced.

In the second part installment of this article, we’ll cover how can you accurately identify the conditions in which more or less risk management should be applied.

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SECURE Act passed by Congress in 2019

The SECURE Act – What You Need to Know and How It Changes Your Retirement Plans

In the past two years, Congress has passed two pieces of legislation that have made an impact on individuals. The first was the “Tax Cuts and Jobs Act”, the largest tax overhaul of the tax code in 30 years. The second, more recently passed (and effective January 1st, 2020) was the “Setting Every Community Up For Retirement Enhancement” Act or as is now known, the “SECURE” Act.

The SECURE Act brings about significant changes that impact retirement planning and retirement plans (IRA, 401k, etc.). In fact, it causing more sweeping changes than we’ve seen in decades.  And, there are some important things you need to know.

This article focuses primarily on the individual investor or plan participant but there are important considerations for corporate plan sponsors as well, which are not covered here.  Although we don’t have space here to cover everything in the Act, we’ve focused on some of the items that will have the most effect on individual retirement account investors.

New Rules for Retirement

There are a number of new retirement rules the SECURE Act implements:

  1. Elimination of the “stretch” IRA / Retirement account provision – For people passing away in and after 2020, their non-spousal beneficiaries have now lost the ability to “stretch” forced taxable required minimum distributions over their lifetime. They will now be forced to liquidate the beneficiary IRA or other inherited retirement accounts within 10 years.  This does not affect the spouse as a beneficiary and there are some other narrow exclusions to the new rule such as certain minors (till the age of majority) and the disabled (as IRS defined) but check with your advisor for more specifics as to whether any of those exclusions apply to your situation. For most, even if the spouse is the beneficiary of your retirement account, when your spouse is gone, they’re non-spousal beneficiaries will be subject to the new rule. Sooner or later it will affect every retirement account, so plan now to the extent you can. Also if you have a trust involved with your IRA at death, you’ll want to review this arrangement as well since certain “see-through” trust arrangements could be affected.
  2. Contributions to traditional IRA’s post 70.5 – The new law now allows contributions after 70.5 to your IRA as long as you have earned income.
  3. Required Minimum Distribution (RMD) age increase – If you turned 70.5 and were due to take an RMD in 2019, sorry, you will have to continue taking those taxable distributions as originally scheduled. However, if you weren’t 70.5 in 2019 then you now get to defer RMD’s till age 72. Congratulations! The round age will also help clear up the confusion many have as to exactly when the first RMD must be withdrawn and which life expectancy factor age to use.
  4. Qualified Charitable Distribution (QCD) unaffected – This is important to the charitably minded folks out there who are already 70.5 or will be in 2020 and beyond. If you’re already 70.5 the QCD rules don’t change. The law kept the QCD rules intact allowing them to start at 70.5 and satisfy RMD requirements but not count towards income. For those who can defer RMD’s to 72, this is giving you a 1-2 year tax planning or giving opportunity window where IRA distributions may be counted as a charitable contribution but not as an RMD.
  5. Ten-percent early withdrawal change – For those seeking a distribution before 59.5 from a retirement account for a Qualified Birth or Adoption distribution, the typical 10% penalty you would incur doesn’t apply up to $5000 as long as you follow the timing rules for the withdrawal. Get with an advisor for more details on this change.

Non-Retirement Account SECURE Act Tax Benefits

The SECURE Act also makes several tax benefits available that don’t pertain directly to retirement accounts but may have an impact on a retirees income:

  1. Mortgage Insurance premium deduction – Retroactive to 2018 and through 2020.
  2. Medical expense deduction – The AGI threshold has been kept at 7.5% of AGI for 2019 and 2020.
  3. Qualified Disaster Distributions from retirement accounts – If meeting the qualifications in the Act, distributions up to $100,000 would be exempt from the 10% early withdrawal penalty, be treated as distributed evenly over 3 years if desired, be exempt from mandatory withholding requirements and may be repaid within 3 years of the distribution.

To be sure, the SECURE Act will require some adjustment and repositioning of many financial plans. It is important that you visit with a fiduciary advisor and review your financial plan to see how this may affect you, your spouse and most importantly, the beneficiaries of your retirement accounts, as they are the ones that will be most impacted.

If you’ve not done financial planning with a professional in the past, now’s a good time to start. Give us a call or come see us for an initial, no-obligation review so we can help you set Clear Direction for Your Retirement.

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