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Kenny Landgraf is founder and Chief Investment Officer at Austin-based Republic Wealth Advisors

How A Roth 401(k) Could Keep You Wealthier In Retirement

How A Roth 401(k) Could Keep You Wealthier In Retirement

What is a Roth 401(k), how taxes differ from the traditional 401(k), and other considerations for your retirement savings. 

There are many retirement savings options for people today. One of the lesser-known options is the Roth 401(k). Since January 1, 2006, U.S. employers have been allowed to amend their 401(k) plan document to elect Roth IRA type tax treatment for a portion or all of their retirement plan contributions.

Let’s cover why a Roth 401(k) may be right for your situation. Special thanks to NerdWallet for some of the details on this article.

What Is A Roth 401(k)?

According to Investopedia

A Roth 401(k) is an employer-sponsored investment savings account that is funded with after-tax money up to the contribution limit of the plan. This type of investment account is well-suited to people who think they will be in a higher tax bracket in retirement than they are now. 

The Roth 401(k) can be a great investment vehicle for the right person. The key is whether you want to pay taxes on your contributions now or on your distributions during retirement. The contribution rules for a Roth 401(k) are exactly the same as for a traditional 401(k). Currently that limit is $18,000/year or $24,000/year for those 50 or older – indexed each year (n

Note: that this is the maximum contribution for either or a Traditional and Roth 401k; in other words, you cannot fund $18,000 into a Roth 401k and also $18,000 into a Traditional 401k).

More Money Now Or Later?

Contributions to a Roth 401(k) can hit your budget harder today because of the additional tax withholdings. That’s because after-tax contribution takes a bigger chunk of your current paycheck than a pretax contribution to a traditional 401(k). So it often costs you more to use a Roth 401(k) on the front end.

On the back end, the Roth account can be more valuable in retirement. That’s because when you pull a dollar out of that account, you get to keep that entire dollar. In addition, growth is compounded tax free in a Roth. However, when you pull a dollar out of a traditional 401(k), you only keep the after-tax value of the dollar. 

Pros & Cons of the Roth 401(k)

One reason to opt for a Roth 401(k) relates to tax rates before and during retirement. If your tax rate is low now and you expect it to be higher in retirement, you can make contributions with after-tax dollars — which you can do with a Roth 401(k). At that point, you won’t pay taxes at that higher rate when you take qualified distributions in retirement. 

Another reason to go with the Roth 401(k) is the potential for tax rate increases. Because government expenses tend to continue to grow, there’s a possibility of future legislative tax increases; current tax rates are low historically-speaking. That would be an incentive to pay taxes now in a Roth account compared to later with a traditional 401(k).

A final reason to go with a Roth 401(k) is you can roll your funds into a Roth IRA which is not subject to Required  Minimum Distributions (RMDs). With a traditional 401(k), you are required to take distributions at age 70 ½. Not so with the Roth 401(k) if it’s properly managed.   

However, if your tax rate is higher now than you expect it to be in retirement, then a traditional 401(k) may make more sense. You’ll then pay taxes at that expected lower rate when taking distributions in retirement. Many retirees often live frugally, resulting in a lower tax burden so the traditional 401(k) is often the best option.

Roth vs. Traditional 401(k)

Image from NerdWallet

Check With An Experienced Advisor To Discuss Your Options

If you anticipate higher income in your retirement years because of deferred compensation or other income you’re expecting, it might make sense to start contributing to a Roth 401(k). There are several options to consider besides current tax rates, and because future assumptions are unknown, there is not a simple or “right” answer. 

To chat with an experienced advisor at Republic Wealth Advisors about whether contributing to a Roth 401(k) may be appropriate for your situation, please reach out today. We’ll be happy to walk you through the pros and cons of different retirement savings options, including the Roth 401(k).

 


 

IMPORTANT DISCLOSURE INFORMATION: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Republic Wealth Advisors), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Republic Wealth Advisors.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Republic Wealth Advisors is neither a law firm nor a certified public accounting firm and no portion of this blog content should be construed as legal or accounting advice.  If you are a Republic Wealth Advisors client, please remember to contact Republic Wealth Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Republic Wealth Advisors’ current written disclosure statement discussing our advisory services and fees is available upon request.

 

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‘Death Tax’ Repeal Proposed In Trump’s New Budget

‘Death Tax’ Repeal Proposed In Trump’s New Budget

Trump’s proposed estate tax repeal, details of the ‘death tax’, and how you should prepare your estate for generational wealth transfer.

 

President Donald Trump will include the estate tax repeal in his tax reform proposal, the administration's top economic advisor has confirmed. This relates to the Federal, not any state-level estate taxes. 

Gary Cohn is Chief Economic Advisor to President Trump. He spoke in the White House Press Briefing Room on April 27, 2017. According to Think Advisor, 

"We're going to repeal the death tax," Cohn said. "The threat of being hurt by the death tax leads small-business owners and farmers in this country to waste countless hours and resources on complicated estate planning to make sure their children aren't hit with a huge tax when they die. No one wants to see their children have to sell the family business to pay an unfair tax."

Details of The ‘Death Tax’ Repeal And Why It’s In The Budget

According to IRS.gov, the estate tax, also known as the “death tax”, is “a tax on your right to transfer property at your death.”    

Estates are now taxed at 40 percent at the time of a person’s death. The tax applies to all assets after $5.49 million per individual and $10.98 million per couple. With proper planning, the average effective rate can be lower under the current tax system. The death tax repeal would not be aimed at lower and middle class families, instead it’s focused on higher net worth individuals and couples.

According to Cohn, the reason for the estate tax repeal is to spur on the American economy. Upper class families provide the capital to invest in business development. Capital infusion often spurs job growth and opportunity for all Americans, which is a major push in Trump’s administration. 

The budget was delivered to Congress in May and has yet to pass the House or Senate. The budget is not expected to pass as proposed and the death tax is still in force for now. Depending on the political climate and future Congressional votes, the death tax may remain. However, we are hopeful that some cut of the estate tax cut will eventually pass.

Estate Planning With or Without The Death Tax

Regardless of what happens with the death tax, it’s prudent to consult with an estate planning attorney about your situation. Whenever there are significant assets to transfer to the next generation, there are inevitable complications for every family. This includes issues with some state-level estate taxes.  

If you need a good recommendation for an estate planning attorney, please reach out. We love helping clients achieve all their financial goals including helping with legacy planning.
 


 

IMPORTANT DISCLOSURE INFORMATION: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Republic Wealth Advisors), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Republic Wealth Advisors.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Republic Wealth Advisors is neither a law firm nor a certified public accounting firm and no portion of this blog content should be construed as legal or accounting advice.  If you are a Republic Wealth Advisors client, please remember to contact Republic Wealth Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Republic Wealth Advisors’ current written disclosure statement discussing our advisory services and fees is available upon request.

 

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Three Quick Steps To Protect Seniors From Fraud

Three Quick Steps To Protect Seniors From Fraud

One in five elderly people will be financially exploited. Here are three quick steps to minimize the exposure to senior fraud. 

Seniors are a prime target for swindlers. 

According to the National Adult Protection Services Association, one in five elderly people will be financially exploited. However, only 1 in 44 cases are reported. That means 20% of all elderly people are victims of fraud, but only 2% of actual cases are reported. 

These are several reasons for this growing epidemic. 

  • For one, elderly people have resources. They’ve worked their entire lives and have often built a substantial nest egg.
  • However, society has become much more complicated than it was years ago, so seniors are less familiar with sophisticated scams.
  • In addition, seniors can suffer from diminished capacity issues, something they didn’t have to deal with in their early years.
  • Finally, technology has advanced so there are more ways to bilk seniors from their hard-earned savings.  

In short, seniors are often preyed upon by scam artists. 

Fidelity Investments put together a short document to help seniors in this situation. We have highlighted the top action items for seniors you may know to protect them from future scams. 

Step 1: Create Oversight

Ideally, it’s best for more than one person to have oversight in a senior’s financial affairs. That way the elderly person is not dealing with new and sophisticated frauds alone. There would be another person there to help with the added complexities of life in 2017. So encourage your loved one to have a family member or trusted advisor act on their interest. 

Step 2: Setup Alerts

Setup alerts whenever significant financial transactions occur. This will help catch problems as they are occurring. You can also monitor credit card and bank card statements to catch suspicious recurring charges. These steps help minimize the potential for scams for some of the elderly you know.

Step 3: Act Quickly

Finally, act quickly. If you are concerned about potential fraud, seek assistance early—problems will only get worse over time. Contact the financial institution involved as soon as soon as you notice something is wrong. That will help fix these problems quickly and prevent future issues.   

Share With A Senior

Do you know a senior? 

This would be a good article to share with them. Please forward along to a loved one and let’s protect one another from scam artists who prey upon elderly people.  

 


 

IMPORTANT DISCLOSURE INFORMATION: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Republic Wealth Advisors), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Republic Wealth Advisors.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Republic Wealth Advisors is neither a law firm nor a certified public accounting firm and no portion of this blog content should be construed as legal or accounting advice.  If you are a Republic Wealth Advisors client, please remember to contact Republic Wealth Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Republic Wealth Advisors’ current written disclosure statement discussing our advisory services and fees is available upon request.

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Seasonality Triggered: Sell In May In Effect At Republic Wealth Advisors

Seasonality Triggered: Sell In May In Effect At Republic Wealth Advisors

Seasonality recent history fared well, what seasonality is, a brief history, and what clients need to do moving forward.

As the market adage goes, “Sell in May and Go Away”.  For the past week, we have been monitoring our technical indicators for signals that the favorable market season for equities was coming to a close.  With yesterday’s waterfall drop in major equity asset classes, that drop triggered our seasonality technical indicators.  This change in our seasonality indicator led us to reposition to more conservative positions in our investment portfolios for now.  

Seasonality From November 2016 To Present

Looking back to last fall, our buy indicator for seasonality came after the conclusion of the Fall Presidential election.  The election conclusion brought some certainty to the markets about our political landscape.  Since entering our seasonality position (IVV – S&P 500 or alternative) on November 11th, that position gained over 9% through Tuesday’s close – not a bad gain for six months work.  

Major market indexes including the Dow and the S&P 500 have been trading sideways since topping in early March although they have been scratching back to record highs in the last week.  Conversely the tech dominated NASDAQ has continued to trade higher on the strength of technology leaders posting strong earnings such as Apple, Microsoft, Amazon, Facebook, and Google.   Late news on Monday about the Trump / Comey controversy caused investors to sell during Tuesday’s session.  Nothing changed economically, but the market is sensing the Trump agenda for tax and healthcare reform are in jeopardy with fractures in the Republican Party.

Seasonality Overview

As a refresher, the seasonality pattern started after World War II and has continued into the present.  With seasonality, most market gains in the equity markets occur from late October and into late spring.  Just like the weather can vary from year to year, seasonality in the equity markets vary from year to year and there are years when it rewards an investor to stay fully invested through the unfavorable period.  But over a multi-year period there is no denying the research that major market advances do not occur in the summer months.  

In fact, research from Stock Trader’s Almanac reflect that from 1950 to early 2016, there was no reward for investors being invested in the equity market during the unfavorable months.  Additionally, most bear markets end in the unfavorable months of May through October with October being the “bear killer” month.  

A Short History Of “Sell In May”

Here’s a brief history of the strategy from Stock Trader's Almanac®…

Sell in May is an old British saw, soundly based on inherent behavioral finance patterns and the collective cultural behavior of the investment community, but it did not truly become a tradable investment strategy until after WWII…

Prior to about 1950, farming was a major portion of the U.S. economy and from 1901-1950, August was the best performing month of the year, up 36 times in 49 years (market closed in August 1914 due to World War I) with an average gain of 2.3%. July was the second best month, up 31 of 50 with an average gain of 1.5%. June was fourth best, averaging 0.9%. Why, you may ask? Simply: planting, sowing, reaping and harvesting. As crops were planted and then brought to market and sold, cash began to move and so did the stock market. 

Agriculture’s share of GDP began to shrink post World War II as industrialization created a growing middle class that moved to the suburbs where hard-earned salaries would be spent filling new homes with all the modern conveniences we all take for granted now. Farming became more efficient and fewer and fewer people worked on the farm. 

Suddenly, summer was less about the hard work of harvesting crops and more about vacations and relaxing.  As the economy evolved and peoples’ lives changed, the market evolved.  June and August went from being top performing months to bottom performing months.  August went from #1 to #10 in 1950-2016 with an average DJIA loss of 0.2%.  June went from #4 to #11 (–0.3% average loss).  The shift in DJIA’s seasonal pattern is clear in the following chart. “Sell in May” is a post WWII pattern, prior to then it would have been “Buy in May”.

Image from The Stock Trader's Almanac®

As you can see from the chart, the black line representing 1901-1949 shows that equity market continued to rise throughout the summer.  Conversely on the blue line, from 1950-2016, there is no market gains from late April to late October (aka the “Bear Killer” month).  

What This Means For Our Clients

If you’re invested with Republic Wealth Advisors, you don’t need to do anything.  Our team of portfolio managers has or is in the process of adjusting allocations to more conservative positions as appropriate.  We will continue to monitor the markets and make adjustments as things play out in the next few weeks and months.

Our goal is for you to concentrate on what you do best in work, retirement, or your other projects, not worry about the ever-shifting financial markets.  

Please feel free to reach-out if you have any questions about your individual situation. 

 


 

IMPORTANT DISCLOSURE INFORMATION: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Republic Wealth Advisors), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Republic Wealth Advisors.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Republic Wealth Advisors is neither a law firm nor a certified public accounting firm and no portion of this blog content should be construed as legal or accounting advice.  If you are a Republic Wealth Advisors client, please remember to contact Republic Wealth Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Republic Wealth Advisors’ current written disclosure statement discussing our advisory services and fees is available upon request.

 

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Are You Making These 5 Email Security Mistakes?

Are You Making These 5 Email Security Mistakes?

Phishing attacks, weak passwords, password changing, virus scan issues, and more. Check out the details to help avoid future email hacks and identity theft. 

Data security is pretty important these days.  

According to Identity Theft Resource Center, an industry watchdog group, the number of U.S. data breaches hit an all-time in 2016 with 1,093 breaches. That’s up over 40% from the previous year (780)! Identity thieves are after your personal information. If they can get to it, they can wreak havoc on your personal finances for months and possibly years.

One of the chief ways thieves hack into your personal information is through your email account. That’s why it’s so important to practice good email security. With help from Network Doctor, here are the top 5 mistakes people make with their email security:

Mistake #1: Not Recognizing Phishing Attacks

Scammers use phishing emails to deceive users into providing sensitive information. Recipients often get redirected to a website where they're asked to update personal information (like a password or banking information). Sometimes the email message contains malicious software that hacks into your computer. Phishing emails can be identified with:

  • Grammar or spelling discrepancies.
  • Usually include some kind of link.
  • Often describe a type of threat. Ex. Warning - Your Account May Have Been Compromised
  • Use familiar graphics from trusted companies. Note: Don’t trust every logo in your email inbox.
  • Slightly altered Web addresses that resemble recognizable company names.
    Ex: Securitys.wellllsfargos.com instead or WellsFargo.com (note the  misspelling in the first URL)

Phishing scams can be reported in several different ways. For example, email clients almost always have a “report as spam” option to help eliminate threats. However, if you already clicked through to a suspicious website, report the website as a scam through your browser.

Mistake #2: Using a Weak Password

There are many several “don’ts” for creating and using passwords. Here are a few best practices:

  • Never use the same password twice.
  • Each password should be unique.
  • 15+ characters long
  • Use symbols, numbers, capital and lowercase letters.
  • Capitalize a middle letter, use the @ symbol for the letter “a” or the number “0” in place of the letter “o.”
  • Never use keyboard walks (like 12345678 or qwerty).
  • No dog’s name, mother’s maiden name and other easy-to-find information.

Mistake #3: Forgetting To Change Your Password Every 90 Days

Passwords should be changed every 3-4 months (90-120 days). They should also never be repeated within an 18-month period. Set a reminder for yourself to change your email password 3-4 times per year if your email program doesn't make you do that automatically.

Mistake #4: Not Staying Current with Your Virus Scan Program

Free antivirus and anti-spyware protection helps. But it usually doesn't cut it with the growing list of cyberattack tactics used to infiltrate email accounts. 

Make sure to configure your settings to automatically perform scans on a regular basis. The frequency at which you scan for viruses will depend entirely on your computer usage. If you spend a lot of time on the internet, your research can take you into uncharted territory. So scan daily. Otherwise, set it to scan weekly.

Mistake #5: Answering Spam Messages

People sometimes reply to spam messages in an attempt to be removed from the email list. Big mistake. What you may be doing is telling a spammer you have an active email account. Instead, block, delete or mark the email as spam.

Bonus: Not Logging Out & Saving Passwords On A Public Computer

Using a public computer carries its own risks. If you don't log out after using a public computer to check your email, you could be putting your account at risk. One click of the back button may lead a stranger directly into your account. Don't save passwords on a public computer and always logout before you step away.

Avoid these 6 mistakes on email security and you’ll be ahead of most internet users. That will help keep your financial records secure though one of the most vulnerable channels: your personal email account. 

 


 

IMPORTANT DISCLOSURE INFORMATION: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Republic Wealth Advisors), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Republic Wealth Advisors.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Republic Wealth Advisors is neither a law firm nor a certified public accounting firm and no portion of this blog content should be construed as legal or accounting advice.  If you are a Republic Wealth Advisors client, please remember to contact Republic Wealth Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Republic Wealth Advisors’ current written disclosure statement discussing our advisory services and fees is available upon request.

 

 

 

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Eye on Money: 529 College Savings Plans

The May/June 2017 Eye On Money is now available on Republic Wealth.com, featuring stories on:

  • 529 College Savings Plans
  • How Working Past Age 65 May Affect Your Benefits
  • Three Ways to Prepare Financially for a Natural Disaster
  • Five Things Recent Grads Should Know About Saving for Retirement
  • What Are Callable Bonds?
  • The Revocable Living Trust
  • Danube Valley, Austria
  • Museum of the American Revolution
  • Where in the World Are You? Quiz

Download PDF: Eye On Money May/June 2017 (1.6 MB)

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4 Steps On Deciding When To Take Social Security

4 Steps On Deciding When To Take Social Security

Understand your estimated Social Security benefit, analyze the best time to start taking it, chat with a trusted advisor, and decide. 

A common question we receive in meeting with clients is the question, “When should I start taking Social Security”?  The short answer to the question is, “it depends”.

For individuals and couples nearing the age of 62, deciding when to claim Social Security benefits will have a permanent impact on the benefit you receive. Here are four steps which can help with this important decision:

Step #1: Understand Your Estimated Social Security Benefit  

First, it’s a good idea to understand your estimated benefit.  You can obtain this information by requesting a copy of your Social Security statement.  This can be done online by visiting www.ssa.gov/myaccount

After getting a better understanding of your current benefit, you may need to dig deeper into your personal situation. For instance, you may want to research your Social Security benefit as an ex-spouse.

Regardless of your individual circumstances, keep in mind your current statement only provides estimated benefits and will change with future cost of living adjustments (COLA).  

Step #2: Analyze When To Start Taking the Social Security Benefit

Once you have your estimated benefit, the next major decision is to analyze when to start taking payments.  You can begin to understand the best approach by looking at the timing tradeoffs.  

Access to retirement benefits can start as early as age 62 or as late as age 70.  Your Full Retirement Age (FRA) is determined by your birth year.  For those born in 1954 or earlier, full retirement is age 66 while for those with a birth year of 1960 or later, full retirement is age 67.  For those born between 1955 and 1959, full retirement falls between age 66 and 67.  Full Retirement Age (FRA) is the age at which you would receive 100% benefit from Social Security once started.

 

Two Examples: Mary (older) & John (younger)

Looking at the chart above, let’s review two examples:

Assume Mary was born in 1954.  She can start her benefits four years earlier at age 62, but her benefits will only be 75% of the 100% benefit that she would have received had she waited until she was 66.  For each year she delays taking the benefit, her payout increases a compounded 7.3%.  

Based upon her financial situation, Mary could also choose to wait up until age 70 to take her benefits.  If she does so, her benefits are 132% of the original benefit amount.  

Now consider John who is younger. John was born in 1960 (this situation applies to anyone born after 1960). The reduced benefit at age 62 is only 70% of the full retirement benefit.  John loses 6% average per year by starting early.  Again, at age 67, John receives 100% benefit.  Waiting until age 70 results in the benefit increasing 8% per year with a maximum benefit of 124% of full retirement benefit.

One other note on the chart above.  The cost of living adjustment (COLA) for 2017 was only 0.3% since inflation has been low.  Considering a longer time period from 1985 – 2017, the average adjustment was higher at 2.6%.  So, when looking at your Social Security statement, realize that you are looking at benefits in today’s dollars which will likely be adjusted in the future for increases in the cost of living.

The benefit of taking Social Security at a younger age is that you start receiving funds earlier.  The negative is that the amount of benefit is reduced.  So how long do you have to live to justify delaying taking the Social Security?  

There are some assumptions of the “crossover age”.   In this example, the crossover in terms of taking at age 62 versus at FRA is around age 76 and 2 months.  Given that an individual has a high probability of living to this age (73% for men and 81% for women), based on probabilities a person would have a higher benefit by waiting until full retirement age.  Secondly, if you compare taking at FRA versus at age 70, the person has to live to age 80 and 5 months to receive the full benefit of waiting until age 70 to start receiving benefits.

Step #3 – Talk To A Trusted Advisor

After you have a good understanding of various details of Social Security, we recommend consulting with a trusted professional for a second opinion. Your investment advisor or CPA can help provide some needed perspective.  An good advisor should assesses your entire financial situation including your overall assets and other sources of income to help you make an informed decision. 

Step #4: Decide When To Start Taking Social Security

After you visit with your financial advisor or CPA, understand your Social Security benefit, and analyze your particular situation, you should have adequate information to make a decision. A word of warning: You you can’t undo your benefit once you start.  As such, we strongly encourage you to gather enough information and appropriately consider your options before locking in the benefit. 

Deciding when to take your Social Security benefit is not easy. If we can be of assistance in helping you to answer any questions, we are happy to help you navigate these sometimes-confusing waters. Please reach-out to talk with us today.

 


 

IMPORTANT DISCLOSURE INFORMATION: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Republic Wealth Advisors), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Republic Wealth Advisors.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Republic Wealth Advisors is neither a law firm nor a certified public accounting firm and no portion of this blog content should be construed as legal or accounting advice.  If you are a Republic Wealth Advisors client, please remember to contact Republic Wealth Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Republic Wealth Advisors’ current written disclosure statement discussing our advisory services and fees is available upon request.

 

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10 Biggest Estate Planning Mistakes

10 Biggest Estate Planning Mistakes

Here are some of the most common estate planning mistakes we see in the business. 

Estate planning may be a difficult topic to discuss, but it’s vital. How you will distribute assets after death or plan for incapacitation is an important component of every financial plan.

The Financial Planning Association recently published a helpful article on common estate planning mistakes by Caroline Demirs Calio, J.D.  Here are some of the most common estate planning mistakes we see in the business.

Mistake #1: Not developing an estate plan.

If you don’t direct how your assets will be distributed at your death, your state will decide. Formalizing your wishes may also save your family some heartache after you are gone and could help prevent inter-family arguments, which could cost more in legal fees.

Mistake #2: Failing to create a complete list of assets and keep good records.

A complete list of your assets and an approximation of their value will aid in crafting an appropriate estate plan that takes into account potential estate tax exposure and other issues that arise in estates of your size.

Mistake #3: Failing to update beneficiary designations.

Life insurance proceeds and retirement plans can comprise a large portion of a person’s wealth. Life insurance, IRAs, pensions, and other employee benefits do not pass under your will or trust but are governed by beneficiary designation. Update all your beneficiary designations to make sure they match your current wishes and are consistent with your other estate planning documents.

Mistake #4: Failing to name appropriate fiduciaries.

Acting as a fiduciary is oftentimes consuming and complex. As your life and circumstances change, your views of who would be best in each capacity may change. An essential aspect of creating and updating your estate plan is regularly reviewing the individuals and institutions you have appointed in fiduciary roles to take on these responsibilities after you are gone.

Mistake #5: Failing to correctly title assets.

Incorrect or haphazard titling of your assets can have unintentional consequences. For example, certain ownership arrangements (such as trusts) will avoid probate on your assets at your death.  In addition, as part of the estate planning process, your assets can be titled to take advantage of any state estate tax exemptions and federal estate tax exemptions that are available.

Mistake # 6: Failing to consider incapacity.

When most people consider estate planning, they automatically think of death. However, in addition to covering the distribution of your assets, your estate plan should set forth who will make decisions for you if you are incapable of making them yourself. Things to consider: durable power of attorney, medical power of attorney, and living will.

Mistake #7: Failing to structure gifts and inheritances appropriately.

Estate plans are not one-size-fits-all. Your estate plan should not be cookie-cutter, but rather designed for the state in which you live and to consider your beneficiaries’ needs and circumstances. For example, minor children’s assets may be managed in a trust or a special needs beneficiary may need special consideration. Make your estate planning fit your family structure.

Mistake #8: Failing to properly administer an irrevocable life insurance trust.

Life insurance proceeds will be includable in your estate if you own the policy at the time of your death. If the value of your estate (including the life insurance proceeds) exceeds the applicable estate tax exemption amounts, it may be prudent to create an irrevocable life insurance trust to hold the policy, thereby sheltering the proceeds from estate taxes at your death.

Mistake #9: Failing to consider gifting techniques during life.

It is not uncommon for an older person to ask for estate planning advice. Although some techniques can be employed at older ages, in most cases better results (for example, lower estate taxes) could have been achieved through an earlier gifting program. Properly implemented, this technique can save tens of thousands in taxes later.

Mistake #10: Failing to review and update your estate plan.

It is tempting to prepare an estate plan and put it on a shelf and forget about it. However, because of various changes, estate plans should be reviewed after significant changes in federal or state estate tax laws, when life events occur (marriage, divorce, birth of children and/or grandchildren).  And, in any event, every three to five years.

If you have any questions about the above or need specific advice regarding estate planning, we recommend speaking to a board certified estate planning attorney. If you need a referral to one, our team at Republic Wealth Advisors is happy to help you find someone who can meet your needs.

 


 

IMPORTANT DISCLOSURE INFORMATION: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Republic Wealth Advisors), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Republic Wealth Advisors.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Republic Wealth Advisors is neither a law firm nor a certified public accounting firm and no portion of this blog content should be construed as legal or accounting advice.  If you are a Republic Wealth Advisors client, please remember to contact Republic Wealth Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Republic Wealth Advisors’ current written disclosure statement discussing our advisory services and fees is available upon request.

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The Stock Market & The New President

The Stock Market & The New President

Market behavior under new presidents, post-election year performance by party, and the post-election years.

The Stock Trader’s Almanac is a great market research tool. Since 1967, the Almanac has provided backwards looking research on how markets have performed under various conditions. History may never repeat itself, but it often rhymes. With that in mind, here’s a possible preview of coming attractions for the stock market and the new Trump Administration. 

(Hint: The stock market tends to do worse with Republicans in office.) 

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Article Reprinted from The Stock Trader’s Almanac:

Market Behavior Under New Presidents

For 50 annual editions of this Almanac, we have had to look ahead 6 to 18 months and try to anticipate what the stock market will do in the year to come. Predictable effects on the economy and stock market from quadrennial presidential and biennial congressional elections have steered us well over the years. Also, bear markets lasting about a year on average tended to consume the first year of Republican and second of Democratic terms. 

Prognosticating was tougher in the 1990s during the greatest bull cycle in history. Being bullish and staying bullish was the best course. Bear markets were few and far between and, when they did come, were swift and over in a few months. Market timers and fundamentalists, as a result, did not keep pace with momentum players. The market has come back to earth and many of these patterns have re-emerged.

 

Data from The Stock Trader’s Almanac

Looking at the past, you can see that new and succeeding Democrats fared better in post-election years than Republicans. Democrats have tended to come to power following economic and market woes. Republicans often reclaimed the White House after Democratic-initiated foreign entanglements. Both have fallen to scandal and party division.

Wilson won after the Republican Party split in two, Carter after the Watergate scandal and G.W. Bush after the Lewinsky affair. Roosevelt, Kennedy, Clinton and Obama won elections during bad economies. Republicans took over after major wars were begun under Democrats, benefiting Harding, Eisenhower, and Nixon. Reagan ousted Carter following the late 1970s stagflation and the Iran hostage crisis.

Truman held the White House after 16 years of effective Democratic rule. Hoover and G.H.W. Bush were passed the torch after eight years of Republican-led peace and prosperity.

A struggling economy, ongoing foreign military operations and a divided Republican make handicapping this November’s winner elusive at press time. Prospects for 2017 improve should the market decline further in 2016.

Post-Election Year Performance by Party

It is clear that during the first two years of a president’s term, market performance lags well behind the latter two. After a president wins the election, the first two years are spent pushing through as much policy as possible. Frequently, the market, economy, and country experience bear markets, recessions and war. Conversely, as presidents and their parties get anxious about holding on to power, they begin to prime the pump in the third year, fostering bull markets, prosperity and peace.

There is a dramatic difference in market performance under the two parties in post-election and midterm years over the last 16 administrations. Since 1953, there have been 19 confirmed bull and 20 bear markets. Only 6 bear markets have bottomed in the pre-election or election year and 10 tops have occurred in these years, as the bulk of the declines were relegated to the post-election and midterm years. However, more bear markets and negative market action have plagued Republican administrations in the post-election year, whereas the midterm year has been worse under Democrats.

Republicans have mostly taken over after foreign entanglements and personal transgressions during boom times and administered tough action right away, knocking the market down: 1953 (Korea), 1969 (Vietnam), 1981 (Iran hostage crisis), and 2001 (Lewinsky affair). Democrats have usually reclaimed power after economic duress or political scandal during leaner times and addressed more favorable policy moves the first year, buoying the market: 1961 (recession), 1977 (Watergate), 1993 (recession, and 2009 (financial crisis). 

 

Data from The Stock Trader’s Almanac

Post-Election Years: Paying The Piper

Politics being what it is, incumbent administrations during election years try to make the economy look good to impress the electorate and tend to put off unpopular decisions until the votes are counted. This produces an American phenomenon: the Post-Election Year Syndrome. The year begins with an Inaugural Ball, after which the piper must be paid, and we American have often paid dearly in the past 103 years.

Victorious candidates rarely succeed in fulfilling campaign promises of “peace and prosperity.” In the past 26 post-election ears, three major wars began: World War I (1917), World War II (1941), and Vietnam (1965); four drastic bear markets started, in 1929, 1937, 1969, and 1973; 9/11, recession and continuing bear markets in 2001 and 2009; less sever bear markets occurred or were in progress in 1913, 1917, 1921, 1941, 1949, 1953, 1957, 1977, and 1981. Only in 1925, 1985, 1989, 1997, and 2013 were Americans blessed with peace and prosperity.

 

Data from The Stock Trader’s Almanac

Republicans took back the White House following foreign involvement under Democrats in 1921 (WWI),  1943 (Korea), 1969 (Vietnam), and 1981 (Iran); and scandal in 2001. Bear markets occurred in these post-election years. Democrats recaptured power after domestic problems under  Republicans in 1913 (GOB split), 1933 (Crash and Depression), 1961 (recession), 1977 (Watergate), 1993 (sluggish economy), and 2009 (financial crisis). Post-election years have been better under Democrats.

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Please remember we can’t predict future market fluctuations. Reviewing historical price movements based on crop seasonality, full moons, or presidential elections is a complicated enterprise fraught with complexities. But it can serve as a thought-provoking exercise. Hence the reason for republishing The Stock Trader’s Almanac’s insightful research. 

If you have any questions related to your personal situation and how it may be affected in the first year of the Trump Presidency, don’t hesitate to reach out.  

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IMPORTANT DISCLOSURE INFORMATION: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Republic Wealth Advisors), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Republic Wealth Advisors.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Republic Wealth Advisors is neither a law firm nor a certified public accounting firm and no portion of this blog content should be construed as legal or accounting advice.  If you are a Republic Wealth Advisors client, please remember to contact Republic Wealth Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Republic Wealth Advisors’ current written disclosure statement discussing our advisory services and fees is available upon request.

 

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Ultra-Wealthy Financial Goals & How It Helps Your Goal-Setting

Ultra-Wealthy Financial Goals & How It Helps Your Goal-Setting

People with $30+ million in investible assets rated the importance of financial goals for themselves and their families – and how that can guide your 2017 goals.

Goal setting is usually a hot topic in January. The turn of the calendar typically means a new reset point in life and it’s why we explored goal setting for a 30-year retirement a couple weeks back.  

The ultra-wealthy are no different. 

They set goals and execute them year-in and year-out. Seeing how the ultra-wealthy track their goals can be an enlightening exercise. It can even help you plan your goals for 2017 and beyond.  

Most Important Goal: Wealth Preservation

Those heading ultra-high-net-worth households – $30 million or more in investable assets – may take certain financial goals rather more seriously than others. According to a 2016 Family Decision-Making Survey by Morgan Stanley and Campden Wealth Management, wealth preservation is the most important goal for both the participant and their family members. 

But that’s not the only financial goal important to the ultra-wealthy and their family members. Other items like stewardship and family education, growing family wealth, legacy and continuity, and managing taxes also rank very highly. 

Here’s a breakdown comparing participants’ goals and their family members’ goals:  

Source: Morgan Stanley & Campden Wealth Management

How the Ultra-Wealthy Goals Helps Your Goal Setting

Perhaps you can borrow a page from the ultra-wealthy playbook. Here are some survey findings that can help your goal setting starting now…

1. Spend less than you earn.

61% of survey participants thought wealth preservation was extremely important – it was the #1 goal. The ultra-wealthy do not want to spend down their principle, but preserve what they made. You can have the same mindset. As you earn, spend less than you earn. Moreover, find ways to not dip into your savings so you can preserve your wealth. That will help preserve and grow your wealth.

2. Implement a long-term savings plan.

Those with $30 million in investible assets don’t simply live for today. They’re considering their financial situation in the distant future. You can also take a long-term view of your finances. Are you saving enough to enjoy your golden years? If you’re not there yet, it’s probably not too late to start. Create a long-term savings plan that will work for your situation.

3. Create an investing plan to match your risk tolerance and time horizon.

The ultra-wealthy think about multiple generations. Their investment decisions reflect that longer-term outlook. In fact, some investments may not play out for many years. You can do the same thing. Make sure you pick investments that match your risk appetite and time horizon. The longer-term your horizon the more assets you can save and grow.  

4. Get educated about financial planning as it relates to your situation.

Education is the 2nd most important goal for the ultra-wealthy. That includes financial education. In a sea of ever-increasing options, they want to know the best fish to catch – and that happens through education. Much of that education is available to you as well. Whether it’s through seminars, YouTube, podcasts, blogs, or good old-fashioned books, you can learn many of the same lessons the ultra-wealthy do about finances.   

Financial Goal Setting for 2017

How are you doing on your financial goal setting this year?

If you need help setting financial goals for your family, it may be helpful to chat with one of our advisors as your situation is likely unique. Call us at Republic Wealth Advisors or another trusted financial professional. 

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IMPORTANT DISCLOSURE INFORMATION: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Republic Wealth Advisors), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Republic Wealth Advisors.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Republic Wealth Advisors is neither a law firm nor a certified public accounting firm and no portion of this blog content should be construed as legal or accounting advice.  If you are a Republic Wealth Advisors client, please remember to contact Republic Wealth Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Republic Wealth Advisors’ current written disclosure statement discussing our advisory services and fees is available upon request.

 

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