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It’s Important to Keep Saving After Retirement

Posted by Frank McKinley on

February 26, 2021

Just because you’re retired doesn’t mean you should stop saving. Carefully managing your money and looking for ways to save will help ensure you remain financially fit during retirement. Consider these tips:

Construct a financial plan.
Most retirees fear that they’ll run out of money during retirement. To ease those fears, create a financial plan detailing how much money will be obtained from what sources and how that income will be spent. Make sure your annual withdrawal amount won’t cause you to deplete your savings. Review your plan annually to ensure you stay on course.

Consider part-time employment.
Especially if you retire at a relatively young age, you might want to work on at least a part-time basis. Even earning a modest amount can help significantly with retirement expenses. However, if you receive Social Security benefits and are between the ages of 62 and full retirement age, you will lose $1 of benefits for every $2 of earnings above $18,960 in 2021. You might want to keep your income below that threshold or delay Social Security benefits until later in retirement.

Contribute to your 401(k) plan or individual retirement account (IRA).
If you work after retirement, put some of that money into a 401(k) plan or IRA. As long as you have earned income and meet the eligibility requirements, you can contribute to these plans.

Try before you buy.
Want to relocate to another city or purchase a recreational vehicle to travel around the country? Before you buy a home in an unfamiliar city or purchase an expensive recreational vehicle, try renting first.

Keep debt to a minimum.
Most consumer loans and credit cards charge high interest rates that aren’t tax deductible. During retirement, that can put a serious strain on your finances. If you can’t pay cash, avoid the purchase.

Look for deals.
Take the time to shop wisely, not just at stores, but for all purchases. When was the last time you compared prices for auto or home insurance? Can you find a credit card with lower fees and interest rates? When did you last refinance your mort-gage?

Evaluating P/E Ratios

Price/earnings (P/E) ratios are a common measure of stock value, both for individual stocks and the overall market. Calculating a P/E ratio is straightforward — it is simply the price of a single share of stock divided by the company’s per share earnings.

When considering public companies, it seems reasonable that well-established businesses growing in a fairly predictable pattern would command a higher P/E ratio than a small private business. Typically, companies with higher growth rates command higher P/E ratios.

The difficulty is deciding what a reasonable P/E ratio is for a particular company or for the overall stock market. It generally helps to follow the P/E ratios of stocks that interest you, along with companies in similar industries, to develop a feel for how the P/E ratios fluctuate.

Reviewing a company’s P/E ratio for prior years can also be helpful. If a company’s growth rate in the past is expected to continue in the future and market conditions are similar, you might not expect much change in P/E ratios. But you also must evaluate whether changes to the company, its industry, or the overall stock market would cause an increase or decrease in the company’s P/E ratio.

Financial Thoughts

Researchers found that investors with larger accounts follow more contrarian strategies, reflect the news in their trades, and experience subsequent gains, while smaller accounts tend to follow momentum-based strategies, fail to account for the news when placing trades, and incur trading losses. They also found that these trends were stronger for younger men. The study’s authors found that all groups of individual investors lose money, though individual investors with larger account sizes lose significantly less on average (Source: AAIIJournal, August 2020).

Another study found that investors with a high level of financial literacy take too many risks, overborrow, and hold naive financial attitudes. However, this high level of financial literacy also lends itself to better retirement planning, since people with more financial literacy are more likely to have a retirement savings plan. In addition, financially literate households earn higher financial returns than illiterate ones. (Source: AAIIJournal, August 2020).

If you would like more information or to discuss your financial concerns

Categories : Financial Services, Retirement, Savings

5 Facts about Estate Planning

Posted by Frank McKinley on

February 19, 2021

When it comes to the future, most Americans have a blind spot: estate planning. Maybe it’s because of an unwillingness to think about mor-tality or a sense that wills and trusts are only for the wealthy that people put off this important financial planning task. Whatever the reason, there are a lot of estate planning slackers out there. That’s a problem, because not having an estate plan could put your family’s financial future in jeopardy and cause other serious consequences. Here are five facts everyone should know about estate planning.

1. Everyone Needs an Estate Plan

Yes, estate planning is absolutely necessary for the wealthy. But the rich are far from the only ones who need to think about the future. Pretty much everyone needs an estate plan, regardless of how old they are or how much money they have, and can benefit from putting documents in place that clarify who should receive their property after they die, what kind of healthcare they’d like to receive if they were incapacitated, how surviving family members will be provided for, and more. Estate planning is especially important for those who have children, complicated family situations, special needs family members, or own certain types of assets (like art, intellectual property, or a small business).

2. A Will Is Not Enough

Wills are an important part of estate planning, but they are just one piece of a larger puzzle. Wills clarify who should receive your assets after you die. But you may also need other documents, like a living will, which explains what kind of medical treatment you’d like to receive if you can’t make decisions on your own, a healthcare proxy (a person who will make

healthcare decisions on your behalf) and a power of attorney (a person who is authorized to make legal decisions on your behalf when you’re not able to). In some cases, you may want to set up trusts to provide for your heirs or charities. An estate planning attorney can help you understand which estate planning documents are necessary in your situation.

3. Your Beneficiary Designations Supersede Your Will

Many people assume that the instructions in your will take precedence over any other directions regarding their estate. That’s not always the case. Beneficiary designations on retirement accounts, life insurance policies, and bank accounts aren’t superseded by your will. So, even if your will leaves your entire estate to your surviving child, a retirement account that names your brother as the primary beneficiary will still go to your sib-ling. That’s why it’s important you review your beneficiary designations regularly and update them when your life changes (birth of a child, divorce, etc.).

4. You Can Leave More to Your Heirs if You Structure Your Estate Properly

If you have a sizable estate —

one that exceeds the $11.7 million federal estate tax exemption in 2021 — you may want to look into strategies that will allow you to pass that money to your heirs in a way that avoids estate taxes. There are numerous legal techniques you can employ to do this, such as transferring assets and property to a trust, making gifts during your lifetime, setting up family foundations, or leaving money to charity. Even those with smaller estates should keep taxes in mind. Did you know, for example, that life insurance proceeds pass tax-free to beneficiaries? That’s important to keep in mind when you’re considering how to make sure your spouse and children will be provided for if you die unexpectedly.

5. It’s Important to Talk to Your Family about Your Estate Planning Decisions

Disagreements among family members about how to distribute an estate are far from uncommon. Often, those squabbles break out over unexpected or unclear provisions in the deceased’s estate plan. If one member of your family feels he/she isn’t getting his/her due, it can make the process difficult for everyone. Drawn out legal battles that eat away at the wealth you’ve accumulated — and wanted to leave to your heirs — may result. Even if you think your family can handle your estate civilly, it may still be a good idea to sit down as a group or with individual family members to discuss your wishes and explain your estate planning choices. If you plan to leave more of your wealth to one child than the other, make sure your children know about that so they don’t end up feeling blindsided and betrayed after your death.

If you would like more information or to discuss your financial concerns

Categories : estate planning, Financial Services

How to Avoid Credit Card Dependence

Posted by Frank McKinley on

February 12, 2021

Ask yourself these questions to evaluate your dependence on credit cards:

Do you rely on credit cards to make it until your next paycheck?

Does it seem you always have to put unexpected expenses on your credit card?

Do you think you spend more than you would with cash because your card has rewards or discounts?

Do the holidays leave you with a mountain of credit card debt?

If you answered yes to these questions, you are probably relying too much on your credit cards. If you are concerned you are too dependent on credit cards, there are steps you can take to become credit card independent.

Put your credit cards somewhere for safekeeping to reduce the temptation to use them as your regular form of payment.

Become more disciplined with spending by enacting a cash only policy. While many people use debit cards as a convenient way to pay cash, be careful. Many financial institutions will allow you to overdraft your account when you use a debit card and may charge a large fee for this overdraft privilege.

Consolidate your balances to the cards that have the lowest interest rates and close the rest of your credit card accounts to reduce the amount of available credit and, thus, the potential amount of debt you could incur. While closing credit cards can have a negative impact on your credit score, it’s
still better to have a temporary credit score setback than to go deeper into debt if you can’t control your spending. To reduce the impact to your score, you should also consider keeping your oldest credit card in addition to a lower interest-rate card.

Shock yourself into reality by looking at a few important things on your credit card statement, including: how much you are paying in interest on an annual basis, how long it will take you to pay off the balance, and how much
you will pay in interest if you are only making the minimum monthly payment. This information can be a real eye-opener.

If you would like more information or to discuss your financial concerns

Categories : Credit Card Debt, Financial Services

Six Ways to Get Your Financial House in Order During the Virus

Posted by Frank McKinley on

February 9, 2021

Many families think they have a sound “financial plan” because they own investments or have established a saving strategy for retirement. This is a good start but it’s incomplete. There are many components to ensuring your financial future and getting your “house in order” is the first step. What do I mean by that? I’d like to share 6 ways you can accomplish this. Let me explain…

Do you know what the three leading causes of death are in the United States? Many people correctly guess cancer and heart disease as numbers one and two. What is number 3? Accidents? Alzheimer’s? Strokes? You may be surprised to learn that the third leading cause of death in America is medical malpractice! The doctor’s fault? Nope- our fault. We go to the hospital totally unprepared. The average American over the age of 65 will take 11 different prescription drugs this year. You’re in an accident and brought to the hospital, the hospital administers a pain reliever and the combination of what you are taking and what they have given you- kills you. Have you ever had a heart attack? Do you carry nitroglycerine with you? Have you been warned that the combination of Cialis and Nitro will kill you? Is this a risk you are willing to take? Or maybe when they ask you what prescriptions you are taking you mispronounce Omicor when you meant Amicar. Yes, medical malpractice is third leading cause in America. We don’t want this to happen to you, so it is time to get your house in order!

Resolution number 1. Don’t go to the hospital unprepared!

Do you remember the story about Terri Schiavo? At 26, Terri had a massive coronary, was resuscitated but experienced irreversible brain damage that left her in a coma. Fifteen years later, the Supreme Court made the final decision to remove the feeding tube. This long-term ordeal would not have happened if a simple healthcare directive and a living will had been in place. A misconception we frequently encounter is that healthcare directives are only for older adults. We’ve seen clients experience unexpected, lifechanging circumstances at all ages and believe that health care directives should be a priority for everyone. Please don’t let this happen to you or a loved one; get your house in order!

Resolution number 2. Sign a healthcare directive and living Will.

What do Steve McNair, Abraham Lincoln, Pablo Picasso and the musician Prince have in common? They all died without a Will. Steve McNair’s mother was removed from the house he had given her because there was no Will to prove he had given it to her- I’m pretty sure that was not his intent. Having this document is essential to ensuring your wishes are carried out but it is one of the most frequently postponed documents to be put in writing. Your Will protects you and ensures that your future wishes for your estate are carried out. According to the Virtual Attorney, 32% of Americans would rather do their taxes, get a root canal, or give up sex for a month than create or update their Will! Even though I am not an attorney, I can help you facilitate this- let me help you get your house in order!

Resolution number 3. Create or update your Will.

In 2005, Anne Friedman, a former school principal, died suddenly of a massive heart attack. She had accumulated over $900,000 in her Teachers’ Retirement Fund but never named anyone as her designated beneficiary. By law, her surviving spouse would have been entitled to the money. However, in 1978, in a previous job, before she was married, she had filled out a designated beneficiary form naming her mother, her uncle and her sister as her designated beneficiaries. Her mother and uncle had since passed away, but her sister was still living. By law, the sister was entitled to the money, which she received, and didn’t share a dime with the now destitute husband. We see this every day. Proceeds from Life Insurance, 401(k) plans, and IRAs are being left to the wrong beneficiaries because the owners never thought to update them. Your financial documents must be regularly reviewed and evaluated as your life evolves, particularly when it comes to your beneficiaries. Marriages, divorces, births, deaths and other major life events can all warrant changes. These documents are too important to leave unattended. Let me review these for you.

Resolution number 4. Review and update beneficiary designations with life changes.

How many of you own a business? How about those of you that have a real estate investment? Better yet, how many of you have children driving a car? Do you have proper insurance? Have you fully limited your liability? Are your investments titled properly to limit liability? If you have trust documents, titling of property, insurance coverage(s) and other liability documents, also need to be regularly reviewed. I can help you do this.

Resolution Number 5. Regularly review legal/liability documents.

Frederick Vanderbilt, J.D Rockefeller, JP Morgan, Franklin Roosevelt, and Elvis Presley all died without an estate plan. Please re-read that list. Some of the most successful, intelligent, and powerful people in America did so much for so many- they failed, however, to protect all the wealth they had created. Although we can’t predict the future, it’s important to have a comprehensive plan in place for how your money and other assets should be distributed when needed. Your life stage will determine the needs of your estate plan. If you’re young and single, your plan may only include a few items, such as a Will, beneficiary designations and medical and financial powers of attorney. If you have substantial wealth, you may need one or more trusts to control how your assets are taxed, managed and distributed.

Resolution Number 6. Establish an Estate Plan.

It’s critical to remember that financial planning is not solely based on investment planning or picking the right insurance coverage. While this must be done properly, there are many other vital areas that get overlooked or forgotten. Keep your financial house in order by regularly reviewing your plan and ensuring that you have the fundamentals in place. By this time next year, you’ll be glad you did.

If you would like more information or to discuss your financial concerns
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Categories : Blog, estate planning, financial planning, Financial Services

Pump Up Your Retirement Savings

Posted by Frank McKinley on

February 5, 2021

Don’t give up on your retirement goals if you find you’ve entered middle age with little to no retirement savings. Sure, it may be harder to reach your retirement goals than if you had started in your 20s or 30s, but here are some strategies to consider:

Reanalyze your retirement goals. First, thoroughly analyze your situation. Calculate how much you need for retirement, what income sources will be available, how much you have saved, and how much you need to save annually to reach your goals. If you can’t save that amount, it may be time to change your goals. Consider postponing retirement for a few years so you have more time to accumulate savings as well as delay withdrawals from those savings. Think about working after retirement on at least a part-time basis. Even a modest amount of income after retirement can substantially reduce the amount you need to save. Look at lowering your expectations, possibly traveling less or moving to a less expensive city or smaller home.

Contribute the maximum to your 401(k) plan. Your contributions, up to a maximum of $19,500 in 2020 and 2021, are deducted from your current year
gross income. If you are age 50 or older, your plan may allow an additional $6,500 catch-up contribution, bringing your maximum contribution to $26,000. Find out if your employer offers a Roth 401(k) option. Even though you won’t get a current year tax deduction for your contributions, qualified withdrawals can be taken free of income taxes. If your employer matches contributions, you are essentially losing money when you don’t contribute enough to receive the maximum
matching contribution. Matching contributions can help significantly with your retirement savings. For example, assume your employer matches 50 cents on every dollar you contribute, up to a maximum of 6% of your pay. If you earn $75,000 and contribute 6% of your pay, you would contribute $4,500 and your employer would put in an additional $2,250.

Look into individual retirement accounts (IRAs). In 2020 and 2021, you can contribute a maximum of $6,000 to an IRA, plus an additional $1,000 catch-up contribution if you are age 50 or older. Even if you participate in a company sponsored retirement plan, you can make contributions to an IRA, provided your adjusted gross income does not exceed certain limits.

Reduce your pre-retirement expenses. Typically, you’ll want a retirement lifestyle similar to your lifestyle before retirement. Become a big saver now and you enjoy two advantages. First, you save significant sums for your retirement. Second, you’re living on much less than you’re earning, so you’ll need less for retirement. For instance, if you live on 100% of your income, you’ll have nothing left to save toward retirement. At retirement, you’ll probably need close to 100% of your income to continue your current lifestyle. With savings of 10% of your income, you’re living on 90% of your income. At retirement, you’ll probably be able to maintain your standard of living with 90% of your current income.

Move to a smaller home. As part of your efforts to reduce your pre-retirement lifestyle, consider selling your home and moving to a smaller one, especially if you have
significant equity in your home. If you’ve lived in your home for at least two of the previous five years, you can exclude $250,000 of gain if you are

a single taxpayer and $500,000 of gain if you are married filing jointly. At a minimum, this strategy will reduce your living expenses so you can save more. If you have significant equity in your home, you may be able to use some of the proceeds for savings.

Substantially increase your savings as you approach retirement. Typically, your last years of employment are your peak
earning years. Instead of increasing your lifestyle as your pay increases, save all pay raises. Anytime you pay off a major bill, such as an auto
loan or your child’s college tuition, take the money that was going toward that bill and put it in your
retirement savings.

Restructure your debt. Check whether refinancing will reduce your monthly mortgage payment. Find less costly options for consumer debts, including credit
cards with high interest rates. Systematically
pay down your debts. And most important — don’t incur any new debt. If you can’t pay cash for something, don’t buy it.

Stay committed to your goals.
At this age, it’s imperative to
maintain your commitment to saving.
Please call if you’d like help reviewing your retirement savings program.

Frankly Speaking

When then Fed Chairman, Alan Greenspan used this phrase 12-5-96 the DJIA closed at 6318; by 12-5-99 it was at 11,225, nearly double. Nobody knew the Tech Wreck was only three months away…

My friend Mark Zinder helps me add perspective to this column: ‘Yes, horrible things have happened this year, but let’s also remember the events that made us pause and chuckle, for example, the Pentagon finally released the UFO videos (and nobody really cared), San Francisco
voted to ban cigarette smoking in apartments but smoking marijuana in your apartment is still OK, and to top it all off, Oregon passed a bill that prohibits stores and restaurants from providing single-use plastic straws but this year decriminalized cocaine.’

Or as the great philosopher and Yankee catcher, Yogi Berra once said, “It ain’t over til the fat lady sings”.

So, remember to maintain perspective and that it ain’t over yet! If you or someone you know needs to be reminded of this, PLEASE contact me!

If you would like more information or to discuss your financial concerns

Categories : Financial Services

Long-Term Portfolio Management

Posted by Frank McKinley on

January 25, 2021

If you’re in the markets for the long haul and look to capture the benefits of long-term trends, you should focus on the tools that maximize your long-term rate of return while managing the risks you take:

Asset allocation. A long-term asset allocation strategy aims at determining an optimal mix of stocks, bonds, and cash equivalents in your portfolio to suit how much risk you’re willing to take. The benefit of investing in all three asset classes is diversification — spreading investments among assets that have different cycles of return.

Portfolio rebalancing. This may be the most overlooked technique for potentially boosting returns and control-ling risk. Yet the technique is relatively simple: once a year (or some other pre-determined time period), compare the percentage of your assets in each class to your strategy. Then sell some assets from the categories that are larger than your strategy calls for and use the pro-ceeds to buy more of the assets that decreased in value. The principle is that rebalancing forces you to sell high and buy low.

Dollar-cost averaging. This technique actually puts market downturns to work in your favor. The

method is to invest a set amount of money on a recur-ring basis in each asset class. By continuing to make purchases when prices decline, you buy more shares than you do when prices are high. Keep in mind that dollar-cost averaging neither guarantees a profit nor protects against loss in a prolonged declining market. Because dollar-cost averaging involves continuous investment regardless of fluctuating price levels, investors should carefully consider their financial ability to continue investment through periods of low prices.

Between the strategies of trading actively and managing your portfolio strictly for the long term is a technique called tactical asset allocation. This involves moving significant chunks of your portfolio from one asset class to another, depending upon your reading of the changing prospects for risk and reward.

Trading involves market timing, which in turn depends on reading market and economic indicators with precision. Is watching the indicators for the right moment to move in a new direction the right approach for you?

To determine the approach right for you, please call me at 973-515-5184.

Borrow Wisely

Use debt only for items that have the potential to increase in value, such as a home, college education, or home remodeling.

Consider a shorter term when applying for loans.

Make as large a down pay-ment as you can afford. If you can make prepayments without incurring a penalty, this can also significantly reduce the interest paid.

Consolidate high interest-rate debts with lower-rate options. It is typically fairly easy to transfer balances from higher-rate to lower-rate credit cards.

Compare loan terms with sev-eral lenders, since interest rates can vary significantly. Negotiate with the lender. Although most lenders have official rates for each type of loan, you can often convince them to give you a lower rate if you are a current customer or have an outstanding credit score. Review all your debt periodically, including mortgage, home equity, auto, and credit card debt, to see if less expensive options are available.

Review your credit report before applying for a loan. You then have an opportunity to correct any errors that might be on the report.

Financial Thoughts

Based on data from the Survey of Consumer Finances, older adults with more outstanding debt commonly respond to liquidity constraints by working longer, delaying retirement, and postponing claiming Social Security benefits. The researchers found that more household debt translates to an expectation of about an extra 2.5 months of full-time work and an additional year of overall work. Individuals with a negative net worth (or more debt than financial assets) work for an additional two years. The study deter-mined that mortgage debt remains the most significant and common source of debt among older households, representing 69% of total debt in 2016. Older adults with a mortgage are 4.8% less likely to be retired and 3.1% less likely to receive Social Security benefits (Source: AAIIJournal, June 2020).

Emerging research on cognitive aging found declines in financial capability and concurrent lower investment performance among older individuals. Investors older than 75 on aver-age experience investment returns that are 3% lower than those of middle-age investors. The return disparity rises to 5% among older investors with greater wealth (Source: AAIIJournal, July 2020).

If you would like more information or to discuss your financial concerns

Categories : financial planning, Financial Services, Investing, Investments

It isn't how much you make
. . .It's how much you keep!

It’s Important to Keep Saving After Retirement

Evaluating P/E Ratios

Financial Thoughts