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October’s Online Retirement Class: The Key to Retirement Success

Retirement income is different.

A comprehensive retirement plan means you can relax and enjoy retirement.

In this free online retirement class we’re going to discuss the retirement risks that you can’t control such as longevity, market returns, inflation, the economy, and how they affect how much money you will need in retirement. (see drawing to the left for an example.)

Then we’re going to show you how you can adjust the items you can control, such as spending, tax management, investment risk, and your retirement date, to maintain a stable life-long standard of living.

This class will be live. It will run about one hour followed by questions and answers. It will be offered on a Tuesday near lunch time, and on a Saturday morning. Specifics below.


  • Tuesday, October 7th, evening, 5 PM PST/6 PM MST/7 PM Central/8 PM EST
  • Saturday, October 11, morning, 8 AM PST/9 AM MST/10 AM Central/ 11 AM EST

Registration Required

What You Will Learn

In addition to learning about retirement risks and what you can do about them you will learn:

  • The 10 worst money mistakes near-retirees make.
  • Why investing the same old way doesn’t work in retirement.
  • Decisions that can help protect your income well into your later years.
  • Why paying attention to taxes is critical between ages 55 and 70.
  • Investment strategies that protect you in a down market.
  • The retirees that will be most affected by inflation.


  • You: Those of you age 50 – 70 with who are within 5 years of your desired retirement date will benefit the most from this class.
  • Your presenter: This is a live one hour presentation followed by Q&A hosted by retirement expert Dana Anspach.

Additional Classes

Our November class topic will be Investing Basics. It will be for anyone who feels like they don’t understand investing, stocks, bonds, mutual funds, “the market”, and such. We’ll cover essentials like what is a stock, what is a bond, what is a mutual fund, how markets work, and how you can use the information to make better investment decisions. Dates will be announced soon. To receive announcements about our free online investment classes scroll all the way to the bottom of any one of our web pages and sign up for our Financial Sense newsletter.



Investment Sense – Short Term Memories

Index Returns Through June 30, 2014

Index Returns Through June 30, 2014

The conference room was full with over 100 financial advisors in attendance. The speaker asked a simple question. What were two of the biggest items in the media in the last few years that all your clients were asking about?

I guarantee many of you reading this asked us about these things – and considered moving your portfolio to cash – just in case.

Can you remember? They were:

  1. Greece
  2. The Government Shutdown

We fielded numerous questions about these things and spent a lot of time “talking people off the ledge” so to speak; meaning encouraging them to stay invested.

Turns out, today, no one can even remember what it was they were so worried about.

Long term portfolio strategy is not – and should not – be dictated by current events. As we stand today, risk is long forgotten (which is worrisome) but no doubt soon enough the media will find something to pontificate about and you may begin thinking “Should I cash out?”, “Should I buy gold?”, “Should I put it all in the safe….?”

If your portfolio was built with a long term goal in mind the answer will be “You should stick with the plan.”

You make the plan when you are in a sound, stable, unemotional mindset. It gives you a path to follow when current events throw you into an overly emotional or less-than-stable mindset.

As things stand right now, you may feel your plan is too conservative. In the first half of this year stocks of all kinds have seen gains with the S&P 500 up about 7% for the year and other equity asset classes delivering increases between 3% (U.S. Small Cap) and 17% (U.S. REITs). (The graph at the top shows results for each asset class through June 30th, 2014, for the month, past five years, and past ten years.)

Just as negative current events engender fear, positive current events elicit greed. When markets climb, it is easy to get greedy and feel like you could have gotten more.

I will never forget practicing in Colorado in 1998 and sitting down for a review with a client who owned a bond fund, a blue chip stock fund, and a science and technology fund. Their bonds and blue chip stocks had floundered, while science & tech was up over 90% for the recent 12 months.  They insisted on moving all their money to the science & technology fund. I made them sign a statement saying this was against my advice. Over the next few years science and tech experienced unprecedented losses. Getting greedy is not part of a well-designed long-term plan.

Now is not the time to get greedy and take on more risk. Now is the time, just as during any other time, to stick with the plan.

The plan we have built for you will take into account current market gains. For those of you in retirement and taking regular withdrawals, we will be determining if we should take gains off the table. This involves measuring your accounts against your plan, assessing future withdrawal needs, and evaluating tax consequence – before any changes are made. This is our job. This is part of the plan.

*Returns data in graph above from Advisor Intelligence. When possible we report index fund returns to show performance net of fund fees. As such in the graph:

  • Total Bond Market Index is: Vanguard’s Total Bond Market Index Fund(VBMFX)
  • US Large Cap is: Vanguard’s 500 Index Fund (VFINX)
  • US Small Cap is: Vanguard’s Small Cap Index Fund (NAESX)
  • Real Estate is: Vanguards’s REIT Index (VGSIX)
  • International Large cap is: Vanguard’s Total International Stocks Index (VGTSX)
  • International Small Cap is: MSCI World Ex USA Small Cap Index (not a fund)
  • Emerging Markets is: Vanguard’s Emerging Market’s Index Fund (VEIEX)

(Investment Sense is an almost-monthly posting of market commentary with a common sense twist. For all our latest commentary follow us on Facebook.)

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What Should a Retirement Withdrawal Plan Include?


Retirement income planning involves knowing how much to pour each year, and out of what bottle.

Imagine you are headed out on a hike. If it’s going to be a long hike, you’ll likely wear a Camelback and maybe even fill up a few extra bottles to take with you. This process of filling up your bottles represents the savings, or accumulation phase, of your financial life.

Once retired, the process changes. Now you need to determine how much you can drink from each bottle, and over what time frame, to make sure you have enough to last throughout the adventure. This is the decumulation phase.

This is the point in time where you need a withdrawal plan. It’s no longer about filling up the bottles as fast as you can – now it’s about using the water at an appropriate pace, without over or under-consuming as you go. At this point in time you need a different way of measuring success.

A few upcoming retirees recognize that their needs will change and they outline the new criteria they should use to measure against. I met with a man recently who came to his appointment with typed notes that outlined what he expected a retirement withdrawal plan to include. His notes included these five points he expected us to cover in our planning process:

  1. The income goals to be met via withdrawals (core vs. discretionary).
  2. The assets to which the withdrawal strategy applies that will fund those income goals.
  3. The initial withdrawal rate taking into account the tax implications of distributions from the qualified accounts and the pending required minimum distributions.
  4. The method for determining the source of each year’s withdrawal income from the portfolio.
  5. The method for determining the withdrawal amount in subsequent years, including both the trigger points for adjustments (other than an inflation based-increase) and the magnitude of the adjustment itself.

I was impressed! He said he had compiled his list from various articles he had read about retirement income planning. I am going to expand up on each of his five items, and describe how we incorporate each into our process.

1. The Income Goals

It all starts with what you want to spend. We have to identify the amount of money you need to maintain a comfortable lifestyle in order to see if that goal is achievable. We use budget forms, bank statements, and conversations with you to determine this. First we need to identify essentials, like a roof over your head, health care, food, etc. Once essentials are covered, we can see if there is room for you to spend extra on things like more travel, hobbies, or gifting to children and grandchildren.

2. Assets to Be Used

A smart retirement plan should not require you to use every available asset you have. There are some assets that should be carved out as reserves. We like to set aside an emergency fund that we do not include in your plan as an asset that is available to produce retirement income. We also think it makes sense to set aside home equity as “Plan B”. Life happens and it makes sense to set aside assets for things that may come up that could not have been anticipated. We show you which assets are and are not included in your plan.

3. Withdrawal Rate and Taxes

Your withdrawal rate is a measuring device. It can be used as a rule of thumb (as in the 4% retirement rule), but it should not be the final factor in determining your withdrawal amount each year. It needs to be put in perspective of your entire plan – your expected withdrawals over retirement – not just your starting withdrawal rate.

Taxes also have to be factored into this analysis. Some retirees pay almost no taxes so they keep every dollar of IRA withdrawals. Other retirees will pay 35% or more in income taxes in retirement, so they only keep .65 cents of every dollar of IRA withdrawal. Simply taking your account balance multiplied by a withdrawal rate of 4% doesn’t tell you how much after-tax money you’ll have available to spend. Your plan must factor in taxes.  We do this by projecting an annual tax return for each year of your retirement – something we call a multi-year tax projection.

4. Source of Each Year’s Withdrawal

There are numerous methods for managing retirement income portfolios. A few common ones are:

  • interest only, where you only spend the interest and dividends generated by the portfolio,
  • systematic withdrawals, where you follow a withdrawal rate process
  • time segmentation, where you use a short term investment ‘bucket’ for money you’ll need in the first 5 years of retirement, and mid and long term buckets for money you won’t need to touch any time soon.

The important thing is that you understand the methodology and stick with it. Jumping between methodologies is not an effective strategy.

Our approach is most closely aligned with time segmentation. In partnership with an investment firm, Asset Dedication, we build an income ladder that secures your near-term withdrawal needs, so you need not worry about what that markets are doing this month, or even this year. With this process for the first 5 to 10 years of retirement we have each account’s withdrawal sourced to a bond, CD, or other safe investment that is maturing. The remainder of the portfolio can then be invested in long-term growth choices.

Then there is a monitoring process to measure your accounts against your plan. This monitoring process tells us when to harvest the growth portfolio and add on to your income ladder. This process helps manage both sequence risk and interest rate risk. It is not a process designed to get every extra bit of return – that is not the goal in retirement. It is a process designed to secure a desired level of spending for life.

5. Method for Determining Withdrawals in Subsequent Years

Planning is not a one-time event. Each year we update the analysis we do for our clients. We use a few things to determine subsequent withdrawals. The first thing we look at is an annual tax projection. This helps us figure out what account withdrawals should come from, and if we can realize capital gains at a zero percent tax rate. This must be done each year, and when employed consistently can save a retiree thousands in taxes over the years.

The second measuring device we use is your plan. Did you spend more or less than our projections? Did accounts exceed your target rate of return or not? If you spent more, we discuss this. If accounts exceeded the target rate of return, we might take profits. If we go through a prolonged period of time where accounts underperform (like 2008-2009) then we may ask you to forego inflation raises, and take out no more than you withdrew the year before. If your spending was greater than we projected and the markets are poor, we may suggest a pay cut.

This dynamic monitoring process allows us to identify potential problems fifteen years in advance, and take action now to prevent those problems from materializing.

All of the above components are part of a well-constructed withdrawal plan. Does every retiree need each component? No, probably not. But every upcoming retiree can reduce stress, and increase their peace of mind by engaging in the planning process.

-Written by Dana Anspach

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Investment Sense – The Value of Ongoing Advice

Index Returns Through March 31, 2014

Index Returns Through March 31, 2014

2014 got off to a rough start… of course now that things have stabilized, it is hard to recall the rough start. That is an example of “recency bias” in action. Recency bias is our tendency to use recent experiences as the baseline for what will happen in the future.

When the market is down, we become convinced it will remain at a permanent low. When the market is up, we become convinced it should keep going up. When interest rates are dismally low, we become convinced they will stay low forever. Although at the time we may feel convinced of it, that doesn’t make it so.

Reviewing what has happened helps bring perspective so we don’t get quite as caught up in recent events. To review, let’s take a quick look at this past quarter.

At the beginning of the year, the market did go down (the S&P 500 was down about 5% and the Dow Jones Index was down about 7% as of the first few days of February), then, despite Russia’s annexation of Crimea, evidence that growth is slowing in China, and a changeover in Federal Reserve leadership, U.S. stocks managed to accrue a mild gain for the quarter. U.S. large cap stocks were up 1.8% and small caps up 1%.

These first quarter fluctuations should serve as a solid reminder that short term market fluctuations have no impact on your long-term financial success. When times get turbulent, if you find yourself watching a lot of financial news and getting caught up in it, try a different tactic.

One client told us that about a year after he hired us he and his wife simply stopped watching any shows that focused too much on financial news. They report they have found life to be far more relaxing now. This sounds like a smart approach.

You don’t have to keep up on financial news because we do keep up on it – but not the kind you see reported on TV or in Money Magazine. The reports we read each month are put together by institutional investment firms and cover financial data at a level of depth that far exceeds what can be reported on TV.

This past month, here are some of the near-term (one year out) future economic expectations included in the research we read:

  • Inflation to remain subdued
  • Business spending/investment to pick up
  • Increased consumer spending due to improvement in income growth, job gains, and replenished household balance sheets
  • Leading economic indicators signal modest economic expansion
  • Interest rate increase expected around spring 2015

This all sounds positive. After the past five years, stability and continued growth are welcome.

With this positive news, we have many clients who have asked about increasing their allocation to the growth (equity index fund) portion of their portfolio. Once again, this is recency bias in action.

Current economic news should not drive your personal investment decisions. If you are a business owner, current news may affect how and when you expand and market your business, but it shouldn’t affect the level of risk you take in your portfolio.

Here’s an example: if consumer spending is likely to increase, a business owner might decide it is a good time to open a new location. This is logical.

But if that same business owner also decides it is time to put a lot more of their IRA money in stocks – that is where the logic breaks down. The equity market is a leading economic indicator, so the stock market is likely to go up months and months in advance of this potential increase in consumer spending. Economic forecasts cannot be used to time market moves.

Despite what the media may lead you to believe, the economic data that the media focuses on has little relevance to your own level of financial security. This point is well made in GMO’s Investing for Retirement whitepaper (April 2014) where they say,

“An investor for retirement has fairly well-defined needs, both in terms of how much wealth he needs to accumulate and his pattern of consumption in retirement. An investor’s portfolio should be driven primarily by his needs and circumstances – what does he need and when does he need it.”

Your needs and circumstances should always be the foundation of your portfolio decisions – and that is exactly the approach we take. Does this approach pay off? Research studies report that it does. Here’s a sampling of what Vanguard and Morningstar say about the value of ongoing advice.

Vanguard’s March 2014 Advisor’s Alpha whitepaper says,

“Based on our analysis, advisors can potentially add “about 3%” in net returns…”

On a $1,000,000 portfolio, 3% net returns adds up to $30,000 a year.

Morningstar’s September 2012 Alpha, Beta, Gamma paper says,

“We focus on five important financial planning decision/techniques… each of these five components creates value for retirees, and when combined, can be expected to generate 29% more income…”

For a retiree with $100,000 of income, 29% more income stacks up to $29,000 a year.

What types of decisions lead to such results? All of the following items have been shown to contribute to improved results in terms of after-tax returns, future retirement income, and total wealth:

  • Cost-effective implementation (using low expense ratio funds)
  • Rebalancing
  • Behavioral coaching
  • Asset location (which funds go in which types of accounts)
  • Spending strategy (withdrawal order)
  • Capital gains management (harvesting gains and losses)
  • Strategic Roth conversions (converting IRA money to a Roth when appropriate)

Notice not one of these things has to do with the latest economic data. Most of these things have to do with your personal circumstances.

We find it silly that so much of the investment world focuses on external factors that have no proven ability to add returns to an individual investor.  That’s why we’ll continue to focus on the personal factors that have been proven to deliver results.

*Returns data in graph above from Advisor Intelligence. When possible We report index fund returns to show performance net of fund fees. As such in the graph:

Total Bond Market Index is: Vanguard’s Total Bond Market Index Fund(VBMFX)
US Large Cap is: Vanguard’s 500 Index Fund (VFINX)
US Small Cap is: Vanguard’s Small Cap Index Fund (NAESX)
Real Estate is: Vanguards’s REIT Index (VGSIX)
International Large cap is: Vanguard’s Total International Stocks Index (VGTSX)
International Small Cap is: MSCI World Ex USA Small Cap Index (not a fund)
Emerging Markets is: Vanguard’s Emerging Market’s Index Fund (VEIEX)

(Investment Sense is an almost-monthly posting of market commentary with a common sense twist. For all our latest commentary follow us on Facebook.)

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