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Green Innovation and Investors

By | Food for thought

President Trump may have announced his intention to drop the U.S. from the Paris Agreement last June,1 but that didn’t stop commerce from pressing on with “green” innovation. Drawing from lessons learned from the emerging renewable energy industry, many global corporations have found there is money to be made by saving the world from pollutants.

More than 2.5 million Americans work in the “clean tech” sector, with employment in the solar industry alone boasting a 123 percent increase over the last six years. Even in sectors that are experiencing high research and development costs, profits are possible because the market for renewables grows stronger each year.

For investors, fossil fuels versus green innovation doesn’t have to be an either/or decision. Investment portfolios can hold stakes in tried-and-true blue-chip companies, many of which are expanding to include renewable divisions, as well as pure green startups.3

However, as with any investment, it’s important to consider investor goals, timelines and tolerance for risk with market opportunities. We work with clients every day to establish an asset allocation strategy that reflects both their circumstances and their interests. If you’re interested in a comprehensive review of this nature, we’d be happy to schedule a time to discuss this with you further.

We all know that the basis of solar power is exposure to the sun. While in the past, solar companies have focused on harnessing this exposure with roof panels, new innovation is exploring energy-harvesting windows and solar glass blocks in place of traditional brick siding. Both advances offer both light and heat sources for buildings and residences.4

As far as the new tax bill goes, there’s good news on the green front. The legislation retains existing tax credits for renewable energy and includes a $7,500 federal tax credit for the purchase of new electric vehicles.5

While clean energy may still cost more on some fronts than traditional energy sources, the cost comparisons are inconclusive. For one thing, they do not represent the cost of addressing pollution and health concerns generated by fossil fuels. If the price of coal, for example, included these ancillary expenses, cleaner renewable energy would appear much more affordable.6

And that doesn’t even include benefits to the environment.

 

Content prepared by Kara Stefan Communications.

1 Michael D. Shear. The New York Times. June 1, 2017. “Trump Will Withdraw U.S. From Paris Climate Agreement.” https://www.nytimes.com/2017/06/01/climate/trump-paris-climate-agreement.html. Accessed Jan. 18, 2018.

2 Brian La Shier. Environment and Energy Study Institute. Feb. 1, 2017. “Going Green in 2017: The Business Case for Renewable Energy.” http://www.eesi.org/articles/view/going-green-in-2017-the-case-for-renewable-energy. Accessed Jan. 18, 2018.

3 Jeremy Berke. BusinessInsider.com. Dec. 17, 2017. “The world’s largest oil and gas companies are getting greener after fighting with shareholders for months.” http://www.businessinsider.com/exxon-shell-bp-announce-renewable-energy-and-climate-initiatives-2017-12. Accessed Jan. 18, 2018.

4 Ben Coxworth. New Atlas. Aug. 16, 2017. “New glass blocks may be a clear choice for solar power.” https://newatlas.com/solar-squared-glass-blocks/50925/. Accessed Jan. 18, 2018.

5 Cathy Proctor. Denver Business Journal. Dec. 21, 2017. “Wind, solar, oil and gas — What the federal tax overhaul does for them.” https://www.bizjournals.com/denver/news/2017/12/21/wind-solar-oil-and-gas-what-the-federal-tax.html. Accessed Jan. 18, 2018.

6 John J. Berger. The Huffington Post. Dec. 21, 207. “Fostering Clean Energy Innovation — Financial Advisor Explains How To ‘Put A Stake in Fossil Fuel Industry’s Heart’.” https://www.huffingtonpost.com/entry/fostering-clean-energy-innovationfinancial-advisor_us_5a3c374fe4b0df0de8b063dc. Accessed Jan. 18, 2018.

 

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

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

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Evolution of the 401(k)

By | Investments

When employer-sponsored 401(k) plans were introduced in the 1980s, an unexpected consequence occurred: Pensions stopped being the norm. One reason is that companies found 401(k) plans less expensive than traditional defined benefit plans.1

At the time, 401(k) plans were touted as an opportunity for greater earnings and a richer retirement lifestyle. While it’s true that potential exists, it has not come to fruition for many of America’s workers. Analysis of data compiled by The Pew Charitable Trusts indicates that only about half of American workers participate in an employer-sponsored retirement plan, including 401(k) plans.2

As a result, many Americans are woefully short on retirement funds and savings. According to recent data from the Economic Policy Institute, households in which wage earners are between ages 50 and 55 years old have a median savings of only $8,000. It’s somewhat better — $17,000 — for those ages 56 to 61. Worse yet, a 2016 GOBanking Rates survey found that 35 percent of all U.S. adults have only a few hundred dollars in their savings account; 34 percent have none at all.3

These are averages, of course, but the numbers are bleak. Thirty percent of baby boomers will start retirement with less than $50,000 in savings — indicating many will rely almost exclusively on Social Security benefits.4 If you could use some retirement planning advice, please give us a call. We help our clients make decisions about generating retirement income, using both funds accumulated in employer plans and through individual portfolios, as well as insurance products.

In 1978, Congress passed the Revenue Act of 1978, which included a provision for Section 401(k) plans, offering a means for employees to defer compensation from bonuses or stock options from current taxes. The law went into effect in 1980. The following year, the IRS issued rules permitting workers to make tax-deferred contributions to their 401(k) plans directly from wages, which is when their popularity began to explode. By 1983, almost 50 percent of large employers were offering or developing plans.5

It was an easy sell. Employers liked them because they were cheaper to fund with matches, and the expense was more predictable than indefinite pension payments. Employees felt they were in the driver’s seat and could make better investment decisions for higher earnings. These projections turned out well for companies, but perhaps not as well for many employees, as 401(k) accounts rise and fall with the financial markets.6

Automatic enrollments in 401(k) plans, as well as automatic contribution increases each year, appear to have the potential to help Americans save more. According to a study by J.P. Morgan: 7

  • Among workers who automatically enrolled in their 401(k) plans, only 1% opted out and 96% were happy with the feature. Nearly a third of those surveyed said they would not have enrolled in the plan without the automatic enrollment feature.
  • Among those whose contributions were automatically increased each year, 97% were satisfied, and 15% said they likely would not have increased contributions on their own.

In 2006, a new rule allowed employers to offer Roth 401(k) plans, either as a separate plan or as part of their retirement program. The Roth 401(k) is funded with already taxed income, the earnings grow tax-free and qualified withdrawals made during retirement are not taxed.8

For now, 401(k) plans are a primary retirement savings vehicle for American workers. However, one of the caveats is that those tax-deferred income contributions and earnings deprive the government of revenues that could be used to reduce the deficit or for new spending programs. With new deficit concerns on the horizon, the tax status of 401(k) funds could be subject to greater scrutiny in the future.9

 

Content prepared by Kara Stefan Communications.

1 Kelley Holland. CNBC. March 23, 2015. “For millions 401(k) plans have fallen short.” https://www.cnbc.com/2015/03/20/l-it-the-401k-is-a-failure.html. Accessed Dec. 29, 2017.

2 The Pew Charitable Trusts. January 2016. “Who’s In, Who’s Out.” http://www.pewtrusts.org/~/media/assets/2016/01/retirement_savings_report_jan16.pdf. Accessed Jan. 11, 2018.

3 Ester Bloom. CNBC. June 13, 2017. “Here’s how many Americans have nothing at all saved for retirement.” https://www.cnbc.com/2017/06/13/heres-how-many-americans-have-nothing-at-all-saved-for-retirement.html. Accessed Dec. 19, 2017.

4 Suzanne Woolley. Bloomberg. Dec. 13, 2017. “Retirement, Delayed.” https://www.bloomberg.com/quicktake/retirement-redesigned. Accessed Dec. 19, 2017.

5 Kathleen Elkins. CNBC. Jan. 4, 2017. “A brief history of the 401(k), which changed how Americans retire.” https://www.cnbc.com/2017/01/04/a-brief-history-of-the-401k-which-changed-how-americans-retire.html. Accessed Dec. 19, 2017.

6 Ibid.

7 Dan Kadlec. Money. July 27, 2016. “The 401(k) Features Employers Can No Longer Ignore.” http://time.com/money/4422533/401k-features-employers-can-no-longer-ignore/. Accessed Dec. 19, 2017.

8 Denise Appleby. Investopedia. Nov. 30, 2015. “Roth 401(k), 403(b): Which Is Right for You?” https://www.investopedia.com/articles/retirement/06/addroths.asp. Accessed Dec. 14, 2017.

9 Suzanne Woolley. Bloomberg. Nov. 15, 2017. “Why Republican Lawmakers Are Eyeing 401(k)s for Their Tax Plan.” https://www.bloomberg.com/news/articles/2017-11-16/why-senate-tax-cutters-have-an-eye-on-big-401-k-s-quicktake-q-a. Accessed Dec. 29, 2017.

 

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

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

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The Federal Reserve’s Role in the Economy

By | Featured

The U.S. government’s system of checks and balances applies not only to its distribution of power but also to its economic viability. The Securities and Exchange Commission regulates the investment industry, the Consumer Financial Protection Bureau safeguards the interests of consumers and a banking supervisory system regulates U.S. monetary policy. That’s where the Federal Reserve Board comes in.

For example, the Federal Reserve is expected to step in if the newly passed tax reform legislation does what Congress projects it will do — spur a jump in economic growth. If growth is considered excessive, it frequently leads to higher levels of employment, increased wages and higher prices. When that happens, it’s up to the Federal Reserve’s Federal Open Market Committee (FOMC) to regulate interest rates to help tamp down the negative impacts of high inflation — such as another recession.1

The Fed has a dual mandate to maximize employment while maintaining a stable price growth rate. To do this, the Fed targets a 2 percent inflation rate. If inflation rises above that threshold, the Fed is likely to increase the benchmark federal funds rate. This is the interest rate that banks charge one another for overnight lending. The trickle-down effect of this action is to dampen economic growth by raising the cost of credit to consumers.2

These government actions are interwoven so that no one agency can drastically impact the U.S. economy without some form of checks and balances. And this is a good thing. It’s like managing a household budget. If you spend too much in one area, you won’t be able to save enough. If you need helping keeping your own personal budget in check, we’re happy to look over your spending to establish a financial strategy designed to meet your retirement goals. Please contact us to schedule a consultation.

Over the past six months, there’s been a fair amount of disruption among the Fed’s board members. William Dudley, president of the Federal Reserve Bank of New York, announced that he will retire in mid-2018, several months before the end of his term in January 2019. Jeffery Lacker, president of the Richmond Fed, resigned unexpectedly in April 2017, and his post remains vacant. President Trump recently nominated another sitting Fed governor, Jerome Powell, to succeed Janet Yellen as Fed chair when her leadership term expires on Feb. 3, 2018. Although her term as a governor doesn’t expire until 2024, Yellen announced she would resign from all Fed posts as soon as Powell was confirmed and sworn in as Fed chairman.3

On a final note, the FOMC made its final interest rate increase for 2017 in December and projected three increases in 2018. Yellen told reporters, “This change highlights that the committee expects the labor market to remain strong, with sustained job creation, ample opportunities for workers and rising wages.”4

 

Content prepared by Kara Stefan Communications.

1 Arthur Delaney and Daniel Marans. Huffington Post. Nov. 30, 2017. “How the Federal Reserve Could Rain on Trump’s Tax Cut Parade.” https://www.huffingtonpost.com/entry/donald-trump-federal-reserve-offset-tax-cuts_us_5a2076cae4b03350e0b55f99. Accessed Dec. 4, 2017.

2 Ibid.

3 Michael Ng and David Wessel. Brookings. Nov. 27, 2017. “Janet Yellen and Bill Dudley are leaving the Fed. Who’ll be next to go?” https://www.brookings.edu/opinions/whats-next-for-central-bank-turnover-after-jay-powells-nomination-bill-dudleys-retirement/. Accessed Dec. 4, 2017.

4 Christopher Condon and Craig Torres. Bloomberg Markets. Dec.13, 2017. “Fed Raises Rates, Eyes Three 2017 Hikes as Yellen Era Nears End.” https://www.bloomberg.com/news/articles/2017-12-13/fed-raises-rates-while-sticking-to-three-hike-outlook-for-2018. Accessed Dec. 18, 2017.

 

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

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

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Exclusive vs. Inclusive Investing

By | Investments

There are many different approaches to investing in the stock market, but most fall under two categories: exclusive and inclusive. Exclusive means conducting thorough research on prospective companies and investing in a portfolio of select, thoroughly vetted securities. One of the advantages of this approach is that if an investor’s research pans out, he could have quite a cache of high-performing “winners.”1

An unfortunate disadvantage is that most big “winners” in the market have at some point suffered declines of up to 50, 60 or even 90 percent on their way to success. That type of risk can be difficult for the average investor to stomach.2

The inclusive strategy is quite the opposite. This encompasses ETFs, mutual and index funds, wherein the idea is to diversify across securities to help reduce volatility, yet still yield a positive return on investment. The advantages are that this is usually a lower cost way of investing in a wide array of stocks, and diversification may offer a better defense against capital losses. On the flip side, however, stellar returns can get whitewashed by a batch of underperformers.3

Many factors should be considered in developing an investment strategy. We have the tools to help clients determine how much risk they are willing to take on and what types of investments are appropriate for their financial goals, investment timeline and individual circumstances.  We’re here to help you analyze your personal financial situation and create strategies utilizing a variety of investment and insurance products that can help you work toward your financial goals.

One way to gauge risk tolerance is to recognize how we each react when the markets start to fall. It’s a very common, natural instinct to want to sell holdings to “stop the bleeding,” but, in fact, the opposite may be more productive. Buying when prices drop — at least well-vetted securities that are expected to recover – can be a means of achieving higher performance. But that’s not generally how human nature works. And, unfortunately, how investors react can have far more impact on performance than the economy or individual stock fundamentals. In fact, Robert J. Shiller, Sterling Professor of Economics at Yale, believes that markets are more prone to move when investors think they know how other investors will react.4

The one thing about significant market moves, whether up or down, is that they can throw a portfolio off your carefully designed plan. This is why rebalancing a portfolio, at least annually, can be an important investment strategy. However, a recent Wells Fargo/Gallup survey found that less than half of investors rebalance to restore their portfolios back to targeted stock and bond allocations on an annual basis. A bull run can be pretty satisfying as you watch your account’s market value continually increase. However, the problem with this is that an investor could be generating a far more aggressive portfolio than suited for his or her circumstances. In the event of a correction, losses could be significant.5

One suggestion is that investors should consider diversifying any position that climbs higher than 5 to 10 percent of their overall portfolio.6

Another possible strategy is to position some portfolio assets into an annuity. While the approach is slowly starting to catch on, the recently released 2017 “TIAA Lifetime Income Survey” found that only 50 percent of respondents reported being familiar with how an annuity works. However, even that finding can be deceiving. About 63 percent of participants who were invested in a target-date fund thought that it would provide a guaranteed income stream. While this is true of annuities*, it is not the case with most target-date funds. Half of those surveyed expressed interest in having an annuity option in their employer-retirement plans.7

*Annuity guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Annuities are insurance products that may be subject to fees, surrender charges and holding periods which vary by company. Annuities are not a deposit of nor are they insured by any bank, the FDIC, NCUA, or by any federal government agency. Annuities are designed for retirement or other long-term needs.

 

Content prepared by Kara Stefan Communications.

 

1 Barry Ritholtz. Bloomberg. Sept. 26, 2017. “So Few Market Winners, So Much Dead Weight.” https://www.bloomberg.com/view/articles/2017-09-26/so-few-market-winners-so-much-dead-weight. Accessed Nov. 28, 2017.

2 Ibid.

3 Ibid.

4 Robert J. Shiller. The New York Times. Oct. 19, 2017. “A Stock Market Panic Like

1987 Could Happen Again.” https://www.nytimes.com/2017/10/19/business/stock-market-crash-1987.html?smid=tw-share. Accessed Nov. 28, 2017.

5 Walter Updegrave. Money. Oct. 4, 2017. “Do This One Thing Each Year If You Want a Better Retirement.” http://time.com/money/4964526/do-this-one-thing-each-year-if-you-want-a-better-retirement/. Accessed Nov. 28, 2017.

6 Donald Jay Korn. Financial Planning. Aug. 22, 2017. “Convincing clients to let go of huge holdings.” https://www.financial-planning.com/news/convincing-clients-to-let-go-of-huge-holdings. Accessed Nov. 28, 2017.

7 Karen Demasters. Financial Advisor. Oct. 17, 2017. “Annuities Are Misunderstood, TIAA Says.” https://www.fa-mag.com/news/annuities-are-misunderstand–tiaa-says-35249.html. Accessed Nov. 28, 2017.

 

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

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

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Study Proves Aging a One-Way Process

By | Planning

As you may have already suspected, aging is not a reversible process. This was confirmed in a new study titled “Intercellular Competition and Inevitability of Multicellular Aging,” in which researchers concluded it’s impossible to halt the aging process in multi-cellular organisms like humans.1

Scientists have found a cellular mechanism that enables a reverse aging affect in mouse DNA, which also protects it from future damage.2 But alas, our cell system is different, and what works for one doesn’t always work for another.

This is also true for financial strategies. Some individuals are constantly on the lookout for the next big thing, hoping to invest early for strong rewards when a company grows. Others are more risk-averse, happy to make regular, automatic contributions to the same investments over the long haul. While each strategy may have its pros and cons, the important thing is to match strategy to investor within the context of their goals, risk tolerance and investment timeline.

Everyone needs a plan that helps address personal objectives — whether it’s determining how to invest as part of your overall financial strategy or finding the next big scientific discovery. We can help you devise a financial strategy, using a variety of investment and insurance products, based on your particular circumstances.

There are some places where the worlds of science and finance intersect, especially when it comes to big-dollar contributions. Microsoft founder Bill Gates recently invested $50 million in the Dementia Discovery Fund, a private fund specifically devoted to exploring outside-the-box ways to treat dementia.3

Other scientific studies are working to aid the aging process by repairing hearing loss. People generally become hard of hearing gradually due to overexposure to noise, damage to neuronal processes and/or the degeneration of auditory neurons — which do not regenerate once lost. Current studies are looking at ways to convert inner-ear stem cells into auditory neurons that could reverse deafness. Unfortunately, scientists have found that, while effective, this process also poses a significant cancer risk.4

A little closer to home, some studies are looking at whether muscle strength, which peaks by age 25, can be improved later in life. Nearly half of the muscle in our body disappears by age 80. One study compared four strength-training routines for people over age 60. The most effective routine was to train three times a week, inserting a low-intensity workout between two high-intensity workouts.5

From finances to personal health, we often feel at a loss to what we can control as we age. But there are things we can do to improve our chances of aging well. Although genetics play a part, eating healthy, staying active, keeping our brains challenged and remaining socially engaged with friends and family can help each of us become more resilient as we grow older.6

 

Content prepared by Kara Stefan Communications.

1 Leslie D. Monte. LiveMint.com. Nov. 1, 2017. “You will grow old, live with it.” http://www.livemint.com/Science/WeHZhePY2BkKI36txSdeGJ/You-will-grow-old-live-with-it.html. Accessed Nov. 22, 2017.

2 Ibid.

3 Bill Gates. GatesNotes. Nov. 13, 2017. “Why I’m Digging Deep into Alzheimer’s.” https://www.gatesnotes.com/Health/Digging-Deep-Into-Alzheimers. Accessed Nov. 22, 2017.

4 Todd B. Bates. Rutgers Today. Nov. 6, 2017. “Inner Ear Stem Cells May Someday Restore Hearing.” https://news.rutgers.edu/research-news/inner-ear-stem-cells-may-someday-restore-hearing/20171102#.WhXNS7aZOfV. Accessed Nov. 22, 2017.

5 Alex Hutchinson. The Globe and Mail. Nov. 2, 2017. “How should you train to retain muscle as you age?” https://www.theglobeandmail.com/life/health-and-fitness/fitness/how-should-you-train-to-retain-muscle-as-you-age/article36816684/. Accessed Nov. 22, 2017.

6 Debbie Reslock. The Oakland Press. Nov 3, 2017. “Do you have these skills to age well? Some strengths help us roll with the punches easier as we grow older.” http://www.theoaklandpress.com/lifestyle/20171121/do-you-have-these-skills-to-age-well-some-strengths-help-us-roll-with-the-punches-easier-as-we-grow-older. Accessed Nov. 22, 2017.

 

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

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

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Innovation Around the World

By | Technology

Digital music service Spotify and the popular electronic games Minecraft and Candy Crush Saga all originated in Sweden. The country is home to some of the world’s largest technology companies and is second only to Silicon Valley for tech giants.1

Sweden provides free health care, free higher education and outstanding infrastructure with the third-fastest internet speeds in the world. Income taxes are high, reaching 60 percent in some cases, but there are experts who believe Swedes enjoy mutual trust with their government — a recognition that it will spend their tax dollars wisely. Furthermore, the social “safety net” of health care and support for small businesses appears to spur a high rate of new entrepreneurs.2

The environment in Sweden is certainly different from the U.S., but that doesn’t mean we can’t replicate some of its more successful elements. On an individual level, for example, having a financial “safety net” may allow us to take more risks — for example, starting a business — which can potentially provide more financial opportunity but also a higher sense of purpose and satisfaction. These components can help each of us live a more fulfilling lifestyle, both before and during retirement. If you’d like help creating a financial strategy designed to put you on the path to meeting your financial goals, please give us a call.

While Sweden is a leader in IT startups, it ranks 7th in the World Economic Forum’s 2017-2018 Global Competitiveness Report for the most innovative economies. Countries ranked in the top six are: Switzerland, U.S., Israel, Finland, Germany and the Netherlands. Japan, Singapore and Denmark round out the top 10.3

There is a big reason that innovation is important at this juncture in history — demographics. We often hear about the “graying” of America, but the situation is further along in Europe.4 With more seniors and fewer people in the workforce, countries may feel a strain on health care systems, pensions and the overall economy.5

Because the aging population is a global issue, several countries are working on innovations to help tackle the problem. For example, China is leading the charge in precision medicine. This is the discipline of screening a person’s genes, living environment and lifestyle factors to help determine which type of drugs and treatment options would work best for their medical conditions.6

Japan, the oldest society in the world, is tackling its demographic challenge in a variety of ways, including the development of robots to help its aging population. For example, researchers have created robots that can help calm dementia patients and aid caregivers.7

 

Content prepared by Kara Stefan Communications.

1 John McKenna. World Economic Forum. Oct. 12, 2017. “Why does Sweden produce so many startups?” https://www.weforum.org/agenda/2017/10/why-does-sweden-produce-so-many-startups/. Accessed Nov. 13, 2017.

2 Ibid.

3 Alex Gray. World Economic Forum. Oct. 11, 2017. “These are the 10 most innovative countries in the world.” https://www.weforum.org/agenda/2017/10/these-are-the-10-most-innovative-countries-in-the-world/. Accessed Nov. 13, 2017.

4 Jeff Desjardins. Business Insider. Nov. 8, 2017. “The populations of Europe and the Americas are aging at an incredibly rapid rate.” http://www.businessinsider.com/animation-how-europe-and-the-americas-are-aging-rapidly-2017-11. Accessed Nov. 13, 2017.

5 H.S. Borji. Investopedia. July 25, 2016. “4 Global Economic Issues of an Aging Population.” https://www.investopedia.com/articles/investing/011216/4-global-economic-issues-aging-population.asp. Accessed Dec. 4, 2017.

6 Genya Dana. World Economic Forum. Nov. 2, 2017. “3 ways China is leading the way in precision medicine.” https://www.weforum.org/agenda/2017/11/3-ways-china-is-leading-the-way-in-precision-medicine. Accessed Nov. 13, 2017.

7 Iain Marlow. The Globe and Mail. Nov. 12, 2017. “Japan’s Bold Steps.” https://www.theglobeandmail.com/globe-investor/retirement/retire-planning/how-japan-is-coping-with-a-rapidly-aging-population/article27259703/. Accessed Dec. 4, 2017.

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

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

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Taking Required Minimum Distribution

By | Uncategorized

Retirement savings accounts that allow employees to make pretax contributions have a caveat: At some point, taxes must be paid on that earned income. The Internal Revenue Code generally requires that retirement account owners take a certain amount of money out of those accounts each year, starting when they reach age 70 ½. This is what is referred to as “required minimum distributions,” or RMDs.1

The main reason for this requirement is so that the U.S. government can collect taxes on this previously untaxed money. Therefore, the account owners must take the annual distribution whether they need the money for retirement income or not. If retirees are using these accounts for retirement income, there’s a good chance they are already meeting the requirement and don’t need to take out any more.2

Decisions about when and how much to draw down from retirement accounts should all be part of a carefully crafted distribution strategy. RMDs play a big role here, because they are taxed as regular income. If you don’t need the RMD for living expenses, you could consider reinvesting it in tax-efficient financial vehicles.3 If you’d like some help determining whether to use your RMD as income or to reinvest it, please give us a call.

The IRS has specific rules about how to calculate the annual RMD amount and provides tables to help account owners determine the appropriate amount for their situation. In general, you can figure your RMD by dividing the account balance as of Dec. 31 of the preceding year by the applicable distribution period (life expectancy), as specified in the IRS tables.4

Account owners still working after age 70 ½ may qualify for an exception to the RMD age requirement. They may be able to waive the RMD mandate, but only for the plan of their current employer. If they have other tax-deferred company retirement plans or traditional IRAs, they must take RMDs from those.5 Also, if they own 5% or more of the business sponsoring the plan, they must take their first RMD when they reach age 70 ½, whether they are retired or not.6

The penalty for not taking the RMD each year is steep – 50 percent of the amount that should have been withdrawn. For example, if the RMD is $10,000 and the owner withdrew only half that amount, he or she may owe an additional tax penalty of $2,500 on the $5,000 that wasn’t withdrawn – in addition to the taxes on the amount that was withdrawn.7

Remember, RMDs and a comprehensive distribution strategy are key components of retirement income planning. We believe how and where retirees withdraw money is just as important as how and where they invest it to help build their nest egg.

 

Content prepared by Kara Stefan Communications.

1 Michael Kitces. Nerd’s Eye View. Oct. 11, 2017. “Rules for Calculating Required Minimum Distributions (RMDs) During Life.” https://www.kitces.com/blog/required-minimum-distribution-rmd-calculation-tax-rules-ira-401k-403b/. Accessed Nov. 9, 2017.

2 Ibid.

3 Fidelity. July 3, 2017. “Smart strategies for required distributions.” https://www.fidelity.com/viewpoints/retirement/smart-ira-withdrawal-strategies. Accessed Nov. 28, 2017.

4 IRS. Aug. 26, 2017. “Retirement Topics – Required Minimum Distributions (RMDs).” https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds. Accessed Nov. 9, 2017.

5 Liz Weston. Bankrate. March 13, 2015. “Take 401(k) required minimum distributions if working?” http://www.bankrate.com/retirement/401k-required-minimum-distribution-rules/. Accessed Nov. 28, 2017.

6 Marlene Y. Satter. Benefits Pro. April 17, 2017. “10 things to know about RMDs.” http://www.benefitspro.com/2017/04/17/10-things-to-know-about-rmds?ref=hp-news&page_all=1&slreturn=1510256659. Accessed Nov. 9, 2017.

7 Ibid.

The content provided in this blogpost is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market or recommend any tax plan or arrangement. You are encouraged to consult your personal tax advisor or attorney.

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

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

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Year-End Tax Tips

By | Planning

As of this writing, Congress is attempting to reform our tax code. While changes are common with every new presidential administration, an initiative so transforming as to be called “tax reform” is quite unusual — the last major tax overhaul happened during the Reagan administration in 1986.1

According to Fox News, some who may benefit from the proposed President Trump/GOP tax plan could include the highest and lowest income households as well as corporations with high tax rates. Residents in high-tax states, beneficiaries of social programs, and tax accountants and others who help people prepare their taxes each year are more likely to be negatively affected.2

Taxes are a complicated matter, and like all personal financial planning, no strategy is going to work for everyone. For people who have complex components to their tax situation, it’s a good idea to get professional advice from a qualified tax professional — particularly when it comes to year-end strategies that may be beneficial come tax season. We are happy to help our clients consider the possible tax ramifications of recommendations we make regarding their financial portfolios. If you’d like more information, please give us a call.

You still have time to take steps to address your 2017 tax situation, including considering factors regarding an IRA account. For example, income earners may want to maximize their 2017 IRA contributions to help save for retirement. Bear in mind that you have until April 17, 2018, to make 2017 IRA contributions.3

For people age 70 ½ or older this year, remember to take your 2017 required minimum distribution (RMD) by Dec. 31, 2017. If you turned 70 ½ in 2017, you have until April 1, 2018, to make the RMD. Also note that you must calculate the RMD separately for each IRA you own (not including Roth IRAs). However, the IRS does permit the full withdrawal to come from just one non-Roth IRA account. Those who fail to make RMDs by the deadline may be subject to a 50 percent excise tax on the undistributed amount.4

If you have a health care flexible spending account (FSA), check to see how much money you have left to spend this year. If you don’t use it up you could lose it, so consider scheduling end-of-year appointments and buying a new pair of prescription glasses or contact lenses, hearing aids or eligible medicines you’ll need in 2018. Be sure to submit those receipts for eligible expenses by your plan’s deadline to get reimbursed with 2017 funds. Also note that some employer plans permit an extra 2.5 months to continue using flexible spending account funds, but you’ll need to confirm whether yours does or not.5

If you’re considering investing a large sum in a mutual fund by year-end, check the fund company’s website to find out when that fund declares its dividend. If you buy shares before the dividend is declared, this will increase your income and subsequently your tax liability.6

If you’re looking for a state tax deduction, consider contributing to a 529 college savings plan for a child or grandchild by the end of the year. However, you’ll need to see if the state sponsoring the 529 allows a tax deduction, and the amount permitted. Note that 529 contributions are not deductible on federal tax returns.7

Taxpayers who were victims of one of this year’s declared disasters who need copies of previous tax returns can get them free via the IRS Get Transcript tool at IRS.gov or by calling 800.908.9946 to order them by phone.8

 

Content prepared by Kara Stefan Communications.

1 Lisa Desjardins. PBS NewsHour. Sept. 12, 2017. “America’s long, complicated history with tax reform.” https://www.pbs.org/newshour/politics/americas-long-complicated-history-tax-reform. Accessed Nov. 21, 2017.

2 Kaitlyn Schallhorn. Fox News. Oct. 26, 2017. “Trump’s tax reform plan: Who are the winners and losers?” http://www.foxnews.com/politics/2017/10/26/trumps-tax-reform-plan-who-are-winners-and-losers.html. Accessed Oct. 31, 2017.

3 IRS. Oct. 24, 2017. “IRA Year-End Reminders.”  https://www.irs.gov/retirement-plans/ira-year-end-reminders. Accessed Oct. 31, 2017.

4 Ibid.

5 H&R Block. 2017. “Year-End Tax Tips.” https://www.hrblock.com/tax-center/filing/year-end-tax-planning/. Accessed Oct. 31, 2017.

6 Ibid.

7 eFile. 2017. “Year-End Tax Estimate and Planning Tips for Tax Year 2017.” https://www.efile.com/tax-estimate-and-tax-planning-tips/. Accessed Oct. 31, 2017.

8 IRS. Oct. 4, 2017. “Tips for Individuals Who Need to Reconstruct Records After a Disaster.” https://www.irs.gov/newsroom/tips-for-individuals-who-need-to-reconstruct-records-after-a-disaster. Accessed Oct. 31, 2017.

The content provided in this blog post is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market or recommend any tax plan or arrangement. You are encouraged to consult your personal tax advisor or attorney.

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

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

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Falling Assets

By | Annuities

Here’s some good news: The Center for Retirement Research (CRR) at Boston College reports that between 2013 and 2016, households led by someone between age 55 and 64 in the second-highest income quintile had an increase in retirement income. These wealthy households more than doubled their combined 401(k)/IRA assets – to a median total of $335,400.1

Further, those in the top income quintile saw a nearly 75 percent increase, to $780,000 in retirement savings. Overall, the median value of combined 401(k) and IRA assets rose 24 percent to $135,000 for everyone in this age group, for all levels of income.2

Here’s some bad news: $135,000 isn’t enough savings for most people approaching retirement.

According to the CRR, the average working couple looking to replace 75 percent of their pre-retirement income by age 65 will need to accumulate assets equaling 8.5 times their annual income at age 60. For perspective, the $135,000 median value is only 2.5 times the savings needed in this scenario when based on average annual household income.3

There typically are two income challenges for pre-retirees and retirees: amassing enough money to retire, and then not running out of it. Reasons for a lack of savings include low contribution levels, less-than-full participation in savings plans, high fees and “leakages” – taking out loans and premature withdrawals from retirement accounts, the CRR reports.4

Certainly, the less you have when you start retirement, the greater your risk of running out of retirement income. However, even those individuals who have saved diligently may want to consider a fixed income component to their financial strategy. By purchasing an annuity, even if they’re not ready to retire yet, pre-retirees can lock in a certain level of guaranteed income while still earning, saving and allowing other assets more time to grow. In fact, studies have shown that retirees experience more satisfaction in retirement if they are receiving guaranteed income from pensions or annuities, a feeling that is likely brought on by the certainty of continuous income.5 If you’d like to learn more about the role an annuity can play in your overall financial strategy, please give us a call.

Interestingly, many people aren’t aware of the role annuities can play in a retirement income plan. A recent survey found that more than 50 percent of consumers did not know that annuities can provide guaranteed lifetime income. The survey found that 42 percent incorrectly believed that an IRA provides this feature, and 26 percent thought mutual funds did.6

But perhaps the most disconcerting finding was that more than half of advisors surveyed believed that some of their clients who did not own annuities would run out of money during retirement.7

1 Bernice Napach. ThinkAdvisor. Oct. 10, 2017. “Retirement Assets of Many Households Fell Between 2013 and 2016: CRR.”  http://www.thinkadvisor.com/2017/10/10/retirement-assets-of-many-households-fell-between. Accessed Oct. 24, 2017.

2 Ibid.

3 Ibid.

4 Ibid.

5 Walter Updegrave. CNN. Aug. 23, 2017. “Do you need an annuity?” http://money.cnn.com/2017/08/23/retirement/retirement-annuity/index.html. Accessed Oct. 24, 2017.

6 Michael S. Fischer. ThinkAdvisor. Sept. 22, 2017. “Clients Like Guaranteed Lifetime Income but Not Annuities: Report.” http://www.thinkadvisor.com/2017/09/22/clients-like-guaranteed-lifetime-income-but-not-an. Accessed Oct. 24, 2017.

7 Ibid.

 

Content prepared by Kara Stefan Communications.

Annuities are insurance products that may be subject to fees, surrender charges and holding periods which vary by company. Annuities are not a deposit of nor are they insured by any bank, the FDIC, NCUA, or by any federal government agency. Annuities are designed for retirement or other long-term needs. Annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.

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

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

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Monetary Systems

By | Technology

In the days before cash, people bartered goods and services. Then we established various forms of “cash” payments, from paper bills and coins to checks, credit and debit card payments. It seems that the more we progress, the less we use physical cash.

Naturally, just because we’re not breaking out a wad of bills doesn’t mean we don’t want to have our assets stored elsewhere – perhaps some of it in savings, some of it in investments and some of it in insurance products. In fact, it’s a good idea to position our assets with the goal of generating several different income streams during retirement. We are happy to sit down with you to evaluate your current assets and design a financial strategy to help you pursue that goal.

The world continues to move in the direction of a more cashless society. In Sweden, digital payments represent as much as 80 percent of all transactions in shops. The country is known for its innovation in technology, and consumers have been quick to embrace and utilize non-cash options with a high degree of confidence.1

Another trend moving us closer to cashless is the growing popularity of cryptocurrencies. This started with bitcoin in 2009, but today there are more than 900 different types of digital cash. They are used to make secure electronic payments for goods and services. And yes, they can increase in value. In March 2017 the value of a bitcoin, at a high of $1,268, exceeded that of an ounce of gold ($1,233) for the first time. However, because of the level of anonymity they offer, cryptocurrencies are unfortunately often connected with illegal activity.2

One of the reasons there is so much innovation in new monetary systems is due to the onslaught of fraud and security breaches in recent years, such as the Equifax data breach. In that situation, the personal data of more than 143 million customers was potentially compromised. The apparent inability to prevent breaches has led to consumers having to freeze credit reports, enact fraud alerts and be more vigilant about monitoring bank and credit card accounts to verify charges.3

Then again, the more sophisticated we become, the more we seem to revert to the “old ways” for security. For example, some states are considering augmenting their electronic voting systems with paper backups.4

 

Content prepared by Kara Stefan Communications.

1Alex Gray. World Economic Forum. Sept. 21, 2017. “Sweden is on its way to becoming a cashless society.” https://www.weforum.org/agenda/2017/09/sweden-becoming-cashless-society/. Accessed Oct. 17, 2017.

2 Cara McGoogan and Matthew Field. The Telegraph. Sept. 27, 2017. “What is cryptocurrency, how does it work and why do we use it?” http://www.telegraph.co.uk/technology/0/cryptocurrency/. Accessed Oct. 17, 2017.

3 Jeff Blyskal. Consumer Reports. Sept. 12, 2017. “How to Lock Down Your Money After the Equifax Breach.” https://www.consumerreports.org/equifax/how-to-lock-down-your-money-after-the-equifax-breach/. Accessed Oct. 17, 2017.

4 Elizabeth Weise. USA Today. Sept. 19, 2017. “Paper ballots are back in vogue thanks to Russian hacking fears.” https://www.usatoday.com/story/tech/news/2017/09/19/russia-hacking-election-fears-prompts-states-to-switch-to-paper-ballots/666020001/. Accessed Oct. 27, 2017.

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

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

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