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May’s Online Class: The Key to Retirement Success

May's Class: The Key to Retirement Success

The Key to Retirement Success – Click pic above to register.

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.

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 evening. Specifics below.


  • Tuesday, May 19th, 5 p.m. PDT (and AZ time)/6 p.m. MDT/7 p.m. CDT/8 p.m. EDT

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 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.

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Investment Sense – Feb 2015 – Diverging Returns

Index Returns Through 12-31-14

Index Returns Through 12-31-14

This month we want to provide a quick snapshot of 2014 results and talk about how things are shaping up as we begin 2015.

Diverging Returns

In 2014, while U.S. equity returns were high relative to those of other regional markets, returns within various U.S. market segments diverged. U.S. large cap stocks significantly outperformed small cap stocks.

In addition, for the third year in a row the U.S. large cap market avoided a 10% market correction (which historically on average occurs about every 8 months). This unbroken streak of positive U.S. large cap performance is unusual; it has only happened three other times since 1951.

Non-U.S. developed stock markets experienced negative performance across almost all major indices. Over the past two years, U.S. large cap stocks outperformed international markets by a significant amount. The relative outperformance of U.S. stocks vs. international stocks is also unusual; it has occurred less than 20% of the time (going back to 1970 for developed international and 1988 for emerging markets).

Considering that markets go in cycles, now is not the time to change strategies and overweight U.S. large cap stocks.

As a matter of fact, as I am writing this (Feb. 3rd, 2015), so far for the year U.S. stocks are down while international and emerging markets stocks are showing positive returns for the year. (Granted we are barely one month into the year. We don’t know how the year will turn out.)

U.S. markets comprise about half of the world’s total investment opportunity set. By only investing in U.S. markets we would miss the other half. Last year, that may have worked out well, but given a long-term view (looking back to all 10 year periods going back to 1970) over 70% of the time a globally diversified portfolio would have delivered higher returns than the S&P 500. Countries are in different stages of their market cycles and at any one point in time one market can and will outperform others.

Declining Oil Prices

Oil prices fell by almost half during 2014. This is largely attributed to an excess supply due to rising production—particularly in the U.S., where production soared to its highest level since 1986. In the U.S. prices dropped from $107 per barrel in June to just over $53 at year-end. That downward trend has continued into 2015, with oil at about $44.50 a barrel at the end of January.

Overall this is viewed as a positive sign, as it means both consumers and businesses have additional money available to spend.

Soaring Dollar

In 2014, the U.S. dollar rose against every developed markets’ currency. Overall, it gained 12.5% against a basket of widely traded currencies, measured by the Wall Street Journal dollar index. This was the dollar’s best gain since 2005 and second-best on record. The rise was attributed to stronger U.S. economic data, falling global oil prices, expectations of higher interest rates, and weakened currencies resulting from monetary easing by the Japanese and European central banks.

This trend has continued into 2015 with the dollar experiencing additional gains through January of this year.

As discussed in our quarterly printed newsletter, a strong dollar may reduce the price of imports for us, and reduce the cost of traveling abroad. It may also hinder U.S. exports and thus corporate profits of U.S. companies. Thus, another reason to maintain a globally diversified portfolio.

Weak Inflation

Average US inflation remained low throughout 2014. In November, year-over-year inflation fell to 1.3%.

Across the world’s largest economies, inflation eased for the sixth straight month in November, with the Organization for Economic Cooperation and Development (OECD ) reporting average annual inflation for its 34 members at 1.5%.

Overall, this is viewed as a positive for the U.S. economy, although deflation is a concern for overseas economies.

Diverging Economic Policies

While the Fed (the U.S. Central Bank) is indicating a tighter monetary policy (quantitative easing has ended and the Fed may initiate a rate hike later in 2015), other major central banks are heading the opposite direction. The Bank of Japan increased its quantitative easing (purchasing of bonds), the Bank of China cut interest rates, and the ECB (Eurpean Central Bank) announced new actions in 2015 to stimulate the Eurozone economy.

Slightly higher interest rates would be welcome for retirees, as cash would begin to earn something more than zero.

Focus on the Orange Bars

While we stay up-to-date on what is going on in the market, our focus remains on the darker orange bars you see in the graph at the top of this page. Those represent the ten year annualized returns of each asset class. You can see how the one month returns (in dark gray) and even the five year returns (in lighter orange) vary from the ten year returns.

We don’t know which asset class will deliver the highest return over the next month, five years, or ten years, which is why we maintain exposure to many asset classes. What that means is we are not betting with your retirement money.


*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 a monthly posting of market commentary with a common sense twist. For all our latest commentary follow us on Facebook.)

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Investment Sense – 2014 Year-End Edition

Asset Class Performance Diverges

Different parts of “the market” do not always deliver the same results.

To share our approach on portfolios and the current investment climate, we thought we’d present this edition of Investment Sense in a Question & Answer format, reflecting some of the questions our clients have asked recently.

Q. I have not been watching our accounts real closely but I did notice something that seems very strange to me. In early September the DOW was around 17300. Later in September and October the DOW dropped to about 16000 and the account dropped accordingly. Today the Dow is at 17800 but our account did not recover with the DOW. I understand that we also withdrew money during this time. Nevertheless, I would expect based on past history that our account would have gone up more. Did I miss something or am I not looking at this right? Did one or more of the funds take a big hit? If you can enlighten me.

A. It is a great question. Let’s start by looking at your household equity allocation. (By equity we typically mean mutual funds that own stocks). Of the amount you have allocated to stocks about 47% is U.S. stocks, 14% international, and 14% emerging markets. (Each client’s household allocation is slightly different.)

The Dow represents only 30 stocks in the U.S. market. There are about 6,500 publicly traded stocks in the United States. Your allocation includes exposure to most all of the publicly traded stocks in the U.S. which provides exposure to small and mid-cap stocks as well as to the larger companies (such as those in the DOW).

The graph above was created on Yahoo Finance and shows the performance of several asset classes over the last few months. You see the DOW represented by ^DJI, then EEM which represents emerging markets, ^RUT (which represents US small cap stocks), and EFA which represents developed international.  You can see on this graph how the DOW shot up while the other indices did not.

Your portfolio has all these asset classes in it… it is not weighted toward the 30 stocks in the DOW.

This is one of those times where on a short term basis, diversification delivers a rather sluggish result.

Q. If diversification delivers a sluggish result right now, why don’t you change the allocation? Can’t you move things around to capture better returns?

Our equity allocations are designed for a long-term time horizon; meaning seven years or more. We believe sticking with a long-term approach increases the odds of success.

Each investment manager has their own approach. Many (or most) have a much shorter-term time horizon than we do. One firm may make investment decisions based on what they think will happen tomorrow, another is looking at next week, and yet another is looking at next year. Each of those manager’s decisions will be based on data relevant to the time frame and risk/return objectives they have established – which are often very different than the time frame and risk/return objectives set for your family. That’s why it can be confusing deciphering the investment advice you read on the web – you don’t know the time-frame and risk objectives behind the advice.

The last thing we want to do is chase what’s been working recently – which means buying high and selling low. This leads to tepid long-term returns. 

Q. For what period of time should clients anticipate returns lower than the benchmark as a result of diversification, or risk-reduction? 

To answer this question, we’ll quote Advisor Intelligence, one of the research companies we subscribe to,

“This question kind of reminds us of the old saying: Tell me where I am going to die so I won’t go there. In other words, if we knew the answer as to what period of time we anticipate lagging a benchmark, then we would position our portfolios differently now, i.e., we’d take on more risk right up to the point where being more aggressive won’t help us and then we’d become defensive and benefit from it. But of course we don’t believe that type of market timing is possible on a consistent basis.

We have no conviction in how all of these variables will play out over any short-term horizon. However, we do have conviction that our investment process and positioning will add value over a long-term investment horizon. Investing is a long-term process, or at least it should be in our view, typically spanning decades for most of us. Those who are seeking certainty with regard to short-term investment results are likely fooling themselves.”

Q. What should we expect over the long-term?

There is a perception that over time stocks should deliver higher returns than safer choices like bonds or cash. This is not a certainty. Stocks give you the possibility of earning a higher return, but if it were a sure-thing then risk would be irrelevant.

The best twenty years in the S&P 500 Index ended in March 2000, and over that time frame you would have averaged gross returns of 18% a year. The worst 20 years ended in February 2009 and over that time frame you would have averaged gross returns of about 7% a year. (Gross means no fees, trading costs or taxes have been subtracted out.)  That represents a broad range of possible outcomes you could experience over the next twenty years.

We base your planning projections on the low end of that possible range of outcomes, because that is one of many realistic possibilities.

From where we are today, if we had to guess, we’d say it makes more sense to expect long-term results (over the next 7 – 10 years) that are closer to the lower end of historical ranges. But that tells us nothing about what to expect next month, or next year.  And, it’s just a guess. As you well know by now, we don’t believe in our ability to predict the direction, timing, or magnitude of market moves. We believe in a more balanced approach to portfolio construction.

Q. I’ve seen transactions in my account lately. What is going on?

Near year-end there are many things we look at. Here are a few of them:

  • Tax gain/loss harvesting. If you have a taxable account (meaning it is not an IRA or other type of retirement account) we look at intentionally harvesting capital gains if you will be in the 0% capital gains rate, or intentionally harvesting capital losses if that will benefit you. You can read more about why we do this in: Capital Gains Tax Management.
  • Tax projections. We finalize tax projections to determine if an additional tax payment may be needed, and to estimate cash flow needs for taxes next year.  If needed, we place trades to raise cash for these distributions.

All of the above items can result in transactions that are needed in your accounts.

We wish you all a happy holiday season.

As always, feel free to call or email us at any time with questions, and be sure to keep us in the loop on any changes in your financial circumstances.

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The Key to Retirement Success – Online Class – Q&A

Key to Retirement Success - Recorded Video Class

Key to Retirement Success – Recorded Video Class

Sensible Money’s founder and MoneyOver55 Expert Dana Anspach hosted a live online retirement class in October. You can view the recorded version on YouTube at Key to Retirement Success.

Below are a collection of questions that were asked by attendees. Dana has provide a written answer to each question and when applicable provided links to additional articles and resources.

Questions and Answers

Question: My question is what is the best way to cover the “gap” if you retire early before you are eligible for access to Retirement accounts, pensions and social security? -Jonathan

  •  Answer: It all depends on your individual situation. If you are going to be in a low tax bracket during the gap years it may be best to take withdrawals from retirement accounts. If you have after-tax savings and investment (meaning not inside a retirement account of any kind) it may be best to use that – but if you will realize capital gains from spending this type of account down that has to be factored in. What we see most often is the income need in the gap years can vary from year to year depending on if pensions start mid-year or Social Security starts mid-year. If it was a nice even amount, like $30,000 a year for 5 years, and if you had cash sitting around, then a fixed immediate annuity would be an option.  In our process the way we cover the gap is we calculate the projected gap each year, determine what type of account it will likely come out of, and then buy a CD or bond that matures that year in that amount.

Question: Are 7- or 10-year fixed deferred indexed annuities with riders for lifetime income that includes spouse a good investment (ages 60 & 58)? -Susan

  • Answer: Without knowing your entire financial situation and income needs it is difficult to know what investment fit into your plan. Rather than thinking in terms of “good” I prefer to think of the different choices as tools. Then it is a matter of determining what job your money needs to do for you – and what tool is best suited to accomplish that.  You’ll find additional info related to your question in this article of mine When Are Annuities a Good Investment?

Question: What are other investments that are on the conservative side for retirement? We have money from 401(k) that we pulled out of the market and is currently held as IRA in cash basis. -Susan

  • Answer: Everyone defines “conservative” a bit differently. There is always a trade-off between safety of principal, current income, and potential for growth. If you want safety of principal and are willing to take less interest income and no potential for growth then check out the article 5 Safe Investments.

Question: What is your opinion on investing a bulk of your retirement savings in Treasury Inflation Protected Securities (TIPS) –T

  • Answer: For a higher income retiree I question the need for future income that keeps direct pace with inflation. Research shows that retirees may not need income that forever goes up at the same pace as inflation. However, if that is a primary concern, and safety of principal is a primary concern, and if you are talking about investment money that is all inside of retirement accounts like an IRA, then TIPS can be a good solution. TIPS are not very tax efficient so they may not be the best choice for investments that are not inside of a retirement account. Inside of a retirement account that won’t matter as all taxes are deferred and you only pay income tax as you take withdrawals.

Question:  In retirement how does a person learn to be a spender rather than a saver? -Lawrence

  • Answer: This is a great question. It is difficult for most retirees to spend their money, even when we tell them they can and that they are not at risk of running out. It helps to have a plan in place and to know that you have stress-tested it against various things like over-spending, higher inflation, low returns, etc. Then it can help to start by withdrawing a set monthly amount and have it direct deposited into your checking account. You are essentially giving yourself your retirement paycheck. As long as you are within the withdrawal amounts established by your plan, you should be fine.

Question: What is the key trigger to retire once you have reached your number, completed a plan, and formalized a post retirement spending budget? -Bob

  • Answer: If you have done all of that the key trigger is when you are ready! You’ll want to think about what you plan on doing with your time. Career-oriented “A types” and business owners often have trouble with traditional retirement. They have a need to feel like they are productively contributing to something. Others have no problem transitioning to more free time as they fill it with family time, hobbies and volunteer work that they have been wanting to do. If the financial are in order, this would be what to think about. I had one retiree who knew he could retire any time. He really liked his current manager and decided he would work until the next big reorganization. A few years later his manager was replaced and he retired as soon as that was announced.

Question: Can you give an example of a couple who saves taxes by paying at 15% rather than 25% – is this a Roth conversion? -Vincent

  • Answer: Suppose you are 62 and have not started Social Security. You are retired and are going to spend $50,000 from a CD that matures to use for your living expenses this year. You have enough other non-retirement savings to use to get you to age 70 when you plan to start Social Security and IRA withdrawals. You have almost no taxable income other than a bit of interest income from the CD. You have your standard deduction and exemptions to use on your tax return. Your tax rate for the year will be zero percent as you have more deductions than income. Now fast forward to your age 70. Suppose now you have $34,000 a year in Social Security income and a required $45,000 IRA withdrawal. You now have $89,000 of income. Even after deductions you still have about $75,000 of taxable income, putting you in the 25% tax bracket. You could have taken small IRA withdrawals between age 62 and 70 and paid taxes at a lower rate (10% or 15%). From age 70 on your income will now be high enough that all withdrawals will be taxed at 25% or higher. As a matter of fact you may have been able to withdraw about $150,000 over that 8 years – and paid tax at least a 10% lower rate than you will pay after age 70. That represents about $15,000 in tax savings.

Question: Explain using a 403b as a bridge when delaying social security -James

  • Answer: See question above. Basically you are choosing to withdraw money from retirement accounts (such as a 403b or 401k) to use for living expenses in early retirement while delaying Social Security so you can get your higher age 70 Social Security amount. For some people this approach has substantial benefits. For others, this approach may not be the best one. It all depends on your entire financial situation, other sources of income, age, taxes, etc.

Question: I need income from my portfolio and am a conservative investor.  What are some of your recommendations for getting income from a portfolio without taking on a lot of risk?  I am currently invested in four index funds; US total stock index, Total International stock index, US total bond index and Total International bond index.  –Unknown

  • Answer: There are three main approaches to generating income from a portfolio. They are the Total Return Approach with Systematic Withdrawals, an Interest Only approach, and a Time-Segmented Approach.  Typically with an index fund portfolio people use a total return approach with systematic withdrawals. I discuss these approaches and provide links to additional details in my article 5 Retirement  Income Portfolios.

Question: It seems inevitable that US interest rates will only go up in the future.  Assuming this is true, does it make any sense to keep funds in a bond mutual fund?  Does it make more sense to sell bond holdings now, put them in cash and then reinvest in bonds once rates have risen?

  • Answer: I agree it seems inevitable that US interest rates will rise. This has been the consensus since about 2009. If we had held money in cash this entire time, we’d still be waiting. I don’t think sitting in cash is the right thing to do. Our preference is to ladder individual bonds instead of using bond funds. With an individual bond I know what I’ll get when it matures – regardless of the movement of interest rates. When the bond matures if interest rates are higher at that time I can buy a new bond that is paying a higher coupon rate. In a bond fund, there is no option to hold the bond to maturity -  if interest rates go up, your share price will go down. It is better to put together an acceptable strategy that delivers a reasonable outcome regardless of the direction of interest rates – this will deliver far more certainty than an approach that only pays off if certain things happen within a certain time frame.

Question: If my tax bracket is the same pre and post retirement, are Roths the best way to leave money to my kids?  Should I convert my regular IRAs to Roths? -Boyce

  • Answer: If there is no meaningful difference in pre and post retirement tax brackets then the question to ask is “Do you want to pre-pay taxes for your children?”  A Roth is a great way to leave money for your kids. If that is a primary goal of yours there is nothing wrong with paying taxes today to convert money to a Roth. My article 5 Questions to Determine if a Roth Conversion is Right for You will provide additional information on this.

I retired at 55 in march 2011 and my CFP has had me in 100% index bond funds ever since….I don’t think about how much i lost out by not being in stocks…but I trust my advisor…trying to keep a positive attitude for a long term plan till I’m 95 will work out. -Donald

  • Answer: There is nothing wrong with choosing a conservative approach. Every choice has trade-offs. When you choose a very safe approach you will miss out on gains. If you choose an approach that has the potential for higher returns it will come with more volatility.  The important thing is not to change approaches every few years! Pick a disciplined time-tested approach and stick with it.

The majority of my assets are in 401k, for at least the next 5 years until retirement.  Would your plan included a recommendation on how to allocate that money until I retire? As a follow-up to my previous question, would you make a recommendation on whether I should switch to roth 401k for the next 5 years (I have not taken advantage of the roth 401k yet) -David

  • Yes, our plans typically include advice on these types of things.  We discuss your planning needs and come up with a pricing estimate at a complimentary introductory meeting. We work with clients across the country and so these meetings are frequently conducted via the web. Let me share a little more about how we work with clients,

Including myself I have 5 CFPs (Certified Financial Planners), 4 of whom are also RMAs (Retirement Management Analysts) that work with clients. We work as a team with each client being assigned a primary advisor. The team approach works well as we each have different areas of expertise. My time is spent on the operational and marketing aspects of the business so I no longer serve as the primary advisor for new clients. Here is a link to frequently asked questions about our services. With any new potential client we offer a no-obligation complimentary meeting. Prior to scheduling that we ask that you first fill out an online questionnaire. Once you have completed the questions, you receive a copy and we automatically receive a copy. I review those and talk to the team about who might be the best fit for you, and who has capacity. Then Jody reaches out to set a complimentary introductory meeting – much like a mutual interview – where we discuss specifically what you are looking for and agree on pricing, and then let you take whatever time you need to decide if we are a good fit. If you would like to complete the online questions, we would be happy to reach out and set up an introductory meeting. How do RMD divisors change each year? -Robert

  • Answer: Here is a link to my article on RMDs which contains a portion of the divisor schedule:  At the bottom of the article you will see a table that shows you how the divisor works.

Question: What is the best way to know how much one should have saved in order to consider retirement? -Tony

Question: Has Kitces done some additional analysis of glide paths? It seems I have seen a recent update that suggests that a fixed 60/40 might be a reasonable fit for many retirees, given both returns and degree of complexity in portfolio maintenance. – Alan

It all comes down to what risks you are hedging against. His conclusion was that the standard decreasing equity glide path was just fine. I believe that is based on probabilities. So far example, it may be just fine in 85% of market conditions (I am making these numbers up as an illustration – I don’t know the exact probabilities). We prefer a particular methodology because of the advantages in a worst case market scenario – and we find retirees feel very comfortable when they can see the bonds that will be maturing to meet their cash flow needs – it helps hedge against the behavioral risks and concerns that come with watching account values fluctuate in volatile markets. If we are responsible for the results we must use an approach that we think will allow us to deliver those results even in poor market conditions. But for the do-it-yourself investor managing their own portfolio I agree in most market conditions a standard 60/40 approach with systematic withdrawals will probably be quite sufficient. It is less complex, easy to manage, and if it is re-tested each year you would spot any potential problems many, many years in advance. If problems were spotted the adjustments that would need to be made would be less spending – and if problems are noticed many years in advance it is usually only a minor adjustment in spending that is need. Question: How much should I spend for a twice a year retirement advisor? -Tim

  • The answer depends on what it is you expect them to do and how much time it may take.  Here is a link to an article I have on the various ways that financial advisors charge. We work with people across the country via web meetings and structure our planning services as a package of hours to create the initial plan. When we package the hours the hourly rate is about $150. This link to Frequently Asked Questions about our services provides more detail. The more experienced the advisor, the higher the hourly rate or project fee will be. I don’t think retirement planning is the time where you want the cheapest solution.

Can you provide a link to the report mentioned by Wade Pfau? -Mark

Question: My retirement portfolio is only out of whack by about 1 to 2 percent from my 60/40 target allocation. It is at 61.5/38.5 percent  (stocks to bonds).  Do I still want to re-balance when there is so little difference?  I re-balance each  June and December. Also when a manager says to re-balance when you are off by at least 5%, does that mean the spread is off by 5% or one of the allocations is off by 5%.  Such as 65% stocks vs 35% bonds when I really want 60/40.  The spread here is 10%.  Can you please clarify? – Gerald

  •  Answer: It is unlikely we would rebalance if we were at 61.5/38.5. Everyone does rebalancing differently – most rebalancing software allows the manager to set tolerance ranges. So if using 60/40 it might be a tolerance range of +/- 3 points – so the portfolio could be 63/37 or 57/43 before rebalancing was triggered. Some rebalancing software uses a range in % terms – so +/- 10% would be 66/34 on the high equity side or 54/46 on the low equity side. The decision for each client depends on the size of the portfolio, the asset location (which assets are in what types of accounts) and the tax treatment. If equities need to be sold but they are all in a taxable account and the client has a lot of realized cap gains already, we would tend to use a wider tolerance range and wait to rebalance until we were in a new tax year. If the trades generated were small and there were trading costs involved we might determine the rebalancing amount was too small to warrant the cost of the trades and thus use a wider tolerance band. I think this paper on rebalancing by Vanguard does a great job of going into details:

Question:  I wonder if you could talk about ways of generating income for those folks (like me) who could not survive another 2007-2008 crash.  I just don’t have the runway since I am 60. I am told about Variable Annuities and Special Bond Funds using real bonds so you don’t lose principal.  I have your book and read it.  I am also a Kellogg MBA ’84, but all that cool stuff we learned fell apart in 2007-2008.  Unless you’re 20.  And as I said, I am not. All I can say is there is no “sure thing.”  But I knew that. I want to generate about $70K annually from a $2.9M portfolio ($1.9M already taxed, and about $1M in traditional and Roth 401K, mostly non-Roth), and not touch the principal.  That would be my goal and I wonder if it’s possible to do in an extremely risk averse way.  -B

  •  Answer: I think the challenge is people get locked in to ideas like “I don’t want to spend any principal.”  If you own a house, you may not want to lose any home equity. As long as you didn’t sell your house when the real estate market bottomed out – you didn’t lose your home equity. When you put together an investment plan it is similar. It is designed to generate a certain outcome – but the principal value will still fluctuate along the way. At a certain point you have to either accept that if you want something 100% safe you will accept low returns and will almost certainly need to spend some principal, or you accept some risk and give yourself the possibility that your portfolio will be able to maintain itself while generating the inflation adjusted income you want. Your goals are realistic. We would feel quite confident that a $2.9 million portfolio could generate $70k of inflation adjusted income for life with a very high probability that the principal would maintain itself.

 Question: Do you have an opinion on, and/or ever utilize the “secondary market annuities” ? – Abe

  • Answer: I have never utilized a secondary market annuity – but I would think if I would evaluate one it would be on the same basis as any annuity. What are the contractual guarantees you are receiving and what are you paying for them? My understanding is the secondary market annuities are typically sold by someone who is getting monthly payments but they want a lump sum. If you can buy the payment stream at a better price than with other options it may be a good option. I would want to carefully investigate the company brokering the transaction and make sure that you were in fact contractually entitled to the future benefits.

Question: With a pending divorce and in my mid-50s, are there any “must-do’s”.  Obviously this is a complex topic, but any thoughts would be welcome.  Thanks. – Paul

  • Answer: The biggest thing is not to get caught up in the emotion of the divorce. Bob Burger, one of our advisors, is a Certified Divorce Financial Analyst. He works with couples who want to work together during their divorce and figure out a fair, legal and equitable split of the assets. This process makes far more sense to me than fighting it out with attorneys. Here is an article of his called Divorce After 50 – 5 Things to Consider. That might give you a starting place!

Question: “If I have a pension income, SS income, and interest income only, and do not work, can I deduct property taxes and mortgage interest against those types of income?” –Barrett

  • Answer: The deductions against income works the same as it does while you are working. You total up all your income. Calculate your adjusted gross income (AGI). Then your reduce your AGI by the amount of your itemized deductions and personal exemptions to end up with your taxable income. But if you can afford to pay cash for the house with after-tax funds (meaning you don’t take it out of retirement accounts) and assuming you don’t have a lot of capital gains taxes to raise the cash, then paying cash is often the best option.

Question: Where can we download your free report of the worst money moves for near retirees?

Question: Do you favor a particular drawdown method? – Ted

  • Answer: Yes, we do. If we are managing the money we view it as our responsibility to deliver the retirement paycheck outlined in your plan. We thus choose an approach that we think provides the highest probability of achieving that goal over a variety of market conditions – not just over good or average market conditions. That leads us to create an income ladder for the first 5 to 10 years of cash flow needs and pair that with a growth portfolio of index funds.  If it was a 10 year ladder we would know the retiree could enter retirement knowing 100% of their cash flow needs were covered for the next ten years. That growth portfolio would then occasionally be harvested to add year on to the income ladder as money was spent. To implement this strategy we work with Asset Dedication, a portfolio manager that specializes in this approach. For clients who are managing their own portfolio we think the best approach for them is to use systematic withdrawals from a balanced portfolio. Here you can read more about our investment approach.

Question: What is your opinion on purchasing life insurance with a long term health care rider verse purchasing a long term health care policy?

  • Answer: I think all financial products are tools. The challenge is figuring out what the job is and which tool is best suited for that job. I would have to know your financial situation as it was projected to be in your early 80’s, and then compare the costs and benefits offered by one tool (life insurance with a long term care rider) vs another (traditional long term care policy) to form an educated opinion.

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