Heard on the Street…

True story: this week my 7-year old son and I were driving home from church in a silent truck.  Then, all of a sudden, he yelled out “Everybody knows that!”.   Of course I replied asking, “Everybody knows what?”  His answer: “In 15 minutes you can save 15% or more on car insurance.”  Admittedly, this was not quite what I expected.  Then a few seconds later came his follow-up, “Dad, what’s a percent?

Many times we believe something just because we hear it over and over, regardless of whether we fully understand it or take time to research its validity.  Believe it or not, this happens in the investment world as investors buy into the “hottest stock tip” or become frightened after listening over and over to doomsday predictions.  Regardless of their specific situation or well developed plan, it somehow becomes easier to stray off path when the “noise” gets louder – whether from family, a friend’s so-called “successful investment story” or the news and media.  Remember, you must maintain faith in your plan.

Playing the “what-if” game can be dangerous just like following the latest trend can leave you at risk.  There’s a time to turn down the volume… and when things seem just too good to be true, don’t hesitate to ask your advisor.  It can be good to get a second opinion or an objective viewpoint before making a clouded or emotional decision that you come to regret down the road.

Saving early enough?

I attended a brief seminar last week that featured a former Department of Labor investigator.  As current trends in the qualified retirement plan area were discussed, the following statistic came up among pre-retirees: “the largest regret about my retirement is that I didn’t save enough (or at all) during the first five years I worked” – Did you know that by beginning to save when you get your first job, especially during the first 5 years, you can dramatically increase your retirement success rate?  Two key factors come into play: 1) your investments have longer to compound and grow, and 2) most who do so develop a positive habit of disciplined saving.  If this window has passed by, do you have loved ones you need to encourage to start investing now?  And if you are late, why not start now anyway?  Call us and we can help.

A look back

A look back reveals how far we have come since 2008 – consider these eight event-driven headlines that were seen in the 4th quarter of 2008:

  1. Dow falls below 10,000 (Oct. 6)
  2. Dow finishes worst weekly slide (Oct. 10)
  3. U.S. to buy preferred stake in 9 Financial Institutions (Oct. 13)
  4. Obama Elected President (Nov. 4)
  5. Auto Execs ask Congress for help (Nov. 18)
  6. Madoff charged with fraud (Dec. 11)
  7. Fed cuts Fed Funds rate to a range of 0%-0.25% (Dec. 16)
  8. Oil closes at $30.28 per barrel (Dec. 23)

Considering these and other major headwinds we have recovered from since the crash of 2008, we’ve survived some major events.  Sometimes it’s beneficial to look back can consider what we’ve been through as we continue to look ahead and plan for the future. [Source: Morningstar, Inc.]

Well-equipped for retirement?

According to the Population Reference Bureau, 76.4 million Americans were born in the period 1946–1966.  For retirement, a majority of these Baby Boomers must rely on the 401(k) system or equivalent defined-contribution plans (where the worker does a majority of the savings and, in many cases, may receive matching contributions from their employer).  This is because the key retirement predecessors, “defined-benefit” plans (such as pensions), have increasingly become a thing of the past.

What’s troubling is the Quantitative Analysis of Investor Behavior 2014 DALBAR survey results indicate that investors are not very effective in managing their own investment portfolios.  And among other things, the survey shows that workers aren’t saving enough for retirement.  To quote Dr. Olivia Mitchell, Executive Director of Wharton’s Pension Research Council “more than half of U.S. retirees will rely on Social Security for more than 50% of their total income.”  This will sadly leave them with the painful choice of a significant drop in their standard of living, or even more concerning, the risk of outliving their retirement savings.  One simple conclusion, workers should seek help to review and plan for their retirement – a second set of eyes to help them get, or even stay, on track.

Unused 529 Contributions

From time to time concerned parents share that they don’t want to save toward college in a tax-free 529 savings plan because they don’t want to incur any penalties if their child gets a full scholarship or doesn’t use all of the savings in the plan account.  Many times the potential penalties are misunderstood.  Below are a few things to consider regarding unused 529 account savings that may help you determine if the 529 plan is appropriate for you:

  • Federal law imposes a 10% penalty on “earnings” (not principal) for non-qualified withdrawals.  These distributions are allocated between principal and earnings on a pro-rata basis.
  • If you withdraw funds not needed for college because the beneficiary has received a scholarship, you may be able to qualify for an exception to the IRS penalty on non-qualified distributions.
  • There is an exception on non-qualified distributions if you terminate the account because the beneficiary has died or is disabled.
  • Remember that any earnings portion of non-qualified distributions come back to the 529 account owner (typically the parent) as ordinary income and taxed at the owner’s tax rate.
  • When the original beneficiary (the student) doesn’t need the funds in the account, don’t forget that you can change the “beneficiary” to another qualifying family member in order to maintain the account and avoid or delay taking a non-qualified withdrawal.

Remember to review current tax law with your financial advisor, CPA or accountant prior to making any non-qualified withdrawals from a 529 account to help determine what penalty or negative tax consequences you may incur.  Source: IRS.gov

Improving your Retirement Picture

In a recent national retirement plan survey conducted by Matthey Greenwald & Associates of Washington, D.C., employer retirement plan participants shared some interesting facts. Here is a clip of some of the key findings provided by American Century Investment Services: 

  • A majority of participants, particularly older participants, have at least some regret about not doing a better job saving for retirement. In fact, participants gave themselves roughly a C+ on putting money away for retirement and on investing. 
  • The large majority of participants across all age groups wish they had saved more in the first five years of their working lives. 
  • Only one in ten strongly agrees that they knew what they were doing with their investments. 
  • Seven in ten are at least fairly interested in having a program that would increase their savings by 1%. 
  • Roughly two-thirds in each age group expect the financial advisor to play a major role going forward when it comes to preparing for retirement. 

Does all this make sense to you?  If we can help you or someone you know have enough for retirement please give us a call now.  We are ready to help.