3 Steps You Can Take to Minimize Risk

The year is flying by. It may be hard to believe, but we’re already halfway through 2019. Did you set financial goals at the beginning of the year? If so, how are those goals looking at the halfway point?

The good news is you have six more months to hit your objectives. Whether your goal was to save more money, pay down debt, or simply organize your financial strategy, you still have time to make it happen before the end of the year.

This also may be a good time to review your retirement plan. Generally, the financial markets have had a good year. As I write this, the S&P 500 is up more than 13 percent year-to-date. However, that hasn’t come without turbulence. The index lost nearly 5 percent in May.1

If you’re approaching retirement, it’s important to periodically review your retirement strategy to make sure it aligns with your risk tolerance and time horizon. If you suffer a loss, you may not have time before retirement to recover. Below are a few tips to help you reduce your risk exposure in the second half of the year.

Rebalance your allocations.

 

It’s possible that your target allocation is perfect for your risk tolerance and time horizon. However, it’s also possible that your actual allocation doesn’t match your target.

Investment portfolios naturally become unbalanced over time. Some asset classes perform better than others. Some increase in value while others decline. This happens all the time with investments and financial markets.

However, as asset classes increase and decrease in value, they also become unaligned with your target allocations. For instance, an asset that was supposed to account for only 5 percent of your allocation, may account for much more if it increases in value. Similarly, an asset that declines in value may account for much less than its target percentage. The result is a portfolio that doesn’t match your desired allocation and may even have more risk than you want.

Fortunately, you can correct this issue by rebalancing your allocation back to the desired target. In fact, it’s good to do this regularly, even on a quarterly basis. Many financial professionals can set up your account to automatically rebalance so you know you’re always aligned with the right strategy.

Shift to more conservative assets.

 

When was the last time you reviewed your allocation? If it’s been a while, you may need to do more than rebalance. It could be time to change your allocation altogether.

As people get older and approach retirement, they tend to become more conservative. This is because your time horizon has shortened. You have fewer years until you retire and actually need to use your money. A more conservative allocation reduces the odds of a sizable loss. It helps you protect what you have while still potentially growing your assets.

Review your strategy and discuss it with your financial professional. Is it time to move to a more conservative allocation? If so, consult with your financial professional to determine what types of strategies are right for you.

Consider an annuity.

 

Finally, you may want to consider additional risk protection tools. One possible tool is an annuity. Some annuities, like fixed indexed annuities, offer upside potential without the downside risk that exists in the equity markets.

With a fixed indexed annuity (FIA), you receive interest that is tied to the performance of an external index, like the S&P 500. If the index performs well, you receive a portion of the upside performance as an interest payment. If the index performs poorly and loses value, you don’t receive interest, but you also don’t lose any money. In other words, your principal is protected from loss.

An FIA can be an effective tool to minimize risk in your portfolio. There are a number of different FIAs available, so it’s important to explore your options. Your financial professional can help you determine if an FIA is right for your circumstance.

 

Ready to reset your strategy for the second half of 2019? Let’s talk about it. Contact us today at Sage Financial Partners. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.

 

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, no representation is made as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice, or specific advice for your situation. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

 

1https://money.cnn.com/data/markets/sandp/

 

18924 – 2019/5/29

 

4 Trends That Are Changing Retirement

There was a time when retirement was fairly simple. Workers stayed with one employer for most of their career. When they decided to retire, they could enjoy a healthy pension from their employer and Social Security benefits from the government.

Today’s retirees face a much different set of circumstances. Many employers no longer off pensions. Instead, workers are responsible for funding their own retirement by contributing to 401(k) plans and other retirement accounts. Social Security is still a valuable resource for retirees, but it’s unlikely to fully fund a comfortable retirement.

There are other trends and changes that are creating challenges for future retirees. Below are a few of the biggest. If you haven’t planned for these issues, now may be the time to do so.

Longevity

Today’s retirees are living longer than ever. According to the Society of Actuaries, there’s a 50% chance that one member of a 65-year-old couple will live to at least age 94. There’s a 25% chance that one spouse will live to 98.1 If you retire in your mid-60s, your retirement could last 30 years.

Usually, a long lifespan is a good thing. However, it can create some planning issues in retirement. The longer you live, the longer your money has to last. If you spend too much in the early years of retirement, you may not have enough left in the later years.

Rising Health Care Costs

According to Fidelity, the average 65-year-old couple will need approximately $285,000 to pay for medical expenses in retirement.2 Think that number sounds high? Consider the costs of items like premiums, deductibles, and co-pays.

You’ll likely have Medicare coverage in retirement after age 65, but Medicare doesn’t pay for all medical expenses. Your coverage depends on your specific plan. While some plans are robust, others may only cover the basics, like hospitalizations and visits to the doctor.

You can prepare for significant healthcare costs by putting away more money today. You may want to consider a health savings account (HSA), which allows you to grow assets tax-deferred and make tax-free withdrawals for qualified medical expenses.

Job Changes

The average baby boomer has held nearly 12 jobs in their career. Granted, nearly half of those are between ages 18 and 24. However, that’s still means the average baby boomer held nearly six jobs after age 24.3 That’s a far cry from the time when people worked for one employer for nearly their whole career.

A new job usually means a new 401(k) plan, and it may also mean an old 401(k) balance with the former employer. Research suggest that nearly 41% of people cash out their 401(k) plan when they switch jobs.4 Those cash outs can be costly. They’re taxable and may result in a 10% early distribution penalty.

Changing jobs may be the norm these days but cashing out your 401(k) plan doesn’t have to be. The next time you change jobs, explore all your options, including rolling your plan into an IRA. If you cash out, you may expose your retirement assets to unnecessary taxes and fees.

Family Dynamics

Family structures have been changing in America for decades. From 1960 to 2016, the percentage of children who live with married parents dropped from 88% to 69%.5 Blended families are on the rise, with more kids living with single parents or stepparents.

These changing dynamics can complicate retirement plans. If you remarry, you may not only add a new spouse, but also new children who need support. You and your new spouse may also have different views on retirement or different approaches to supporting children.

Estate planning can also be a concern in a blended family. You may want to protect your spouse, but also leave a legacy for your children from a previous marriage. It often takes careful planning and delicate conversations to address these issues. A financial professional can help you and your new spouse develop the right strategy for your goals.

These trends demonstrate why it’s more important than ever to have a retirement income plan: money you can count on to cover expected – and unexpected – bills. A financial professional can help you determine answers to questions such as, “Do I have enough saved?” and “Am I going to be okay?”


Ready to tackle the challenges you might face in retirement? Let’s talk about it. Contact us today at Sage Financial Partners. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.

1 https://www.fidelity.com/viewpoints/retirement/longevity

2 https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs

3 https://www.bls.gov/news.release/pdf/nlsoy.pdf

4 https://www.workforce.com/2018/02/14/retirement-account-bank-account-employees-cash-401ks-record-numbers/

5 https://www.census.gov/newsroom/press-releases/2016/cb16-192.html

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, no representation is made as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice, or specific advice for your situation. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

18768 – 2019/4/11

Late on Retirement Planning?

Tips to Jumpstart Your Savings

 

It’s graduation season. Do you have a graduate who finishing up on college? If so, this is a time to celebrate your child’s accomplishment and their entrance into adulthood.

 

It also may be a time to celebrate your new freedom. You have one less dependent in the house and one less tuition bill to pay. You might see a healthy boost in your bank account and budget in the near future, especially if you’re now an empty-nester.

 

Before you start spending all that extra cash, this could be a good time to review your retirement strategy. If you’re behind on your savings, you’re not alone. Many people wait until after their kids graduate and leave the home before they get serious about saving for retirement.

 

The good news is there’s still time to get back on track. Below are three steps you can take today to boost your savings and take back control of your retirement strategy. If you’ve waited until your kids were grown to get serious about retirement, now is the time to take action.

Use a budget.

 

Do you use a budget? If the answer is no, you have company. According to a recent survey, 60% of Americans don’t use one. ¹ That’s an unfortunate statistic because a budget is one of the most powerful financial tools at your disposal.

 

A budget is especially important if you now have a boost in cash flow because you’re no longer supporting a child or making tuition payments. You can use your budget to plan and analyze your spending so that additional cash flow goes toward retirement instead of unnecessary purchases.

 

There are a variety of online tools you can use to create your budget. A spreadsheet can also be effective. The key is to set spending goals for each type of purchase and then regularly review your budget to make sure you hit your targets.

Boost your contributions.

 

The most effective way to boost your retirement assets is to simply contribute more money to your retirement accounts each year. Once you turn 50, you have an opportunity to increase your savings rate through something called “catch-up contributions.” A catch-up contribution is simply an extra allowable contribution amount for those approaching retirement.

 

In 2019, you can make a regular contribution of up to $19,000 to a 401(k). However, if you are 50 or older, you can contribute an additional $6,000, giving you a total allowable amount of $25,000. You can contribute up to $6,000 to an IRA, plus an additional $1,000 if you are 50 or older. ² Catch-up contributions can help you boost your savings and get your retirement back on track.

Guarantee* your assets and income.

 

As you approach retirement, you may find that you have less tolerance for risk. That’s natural. After all, you don’t have as much time as you once did to recover from a substantial market loss.  Of course, you also need to keep growing your assets, so you can’t avoid risk completely.

 

How do you balance a need for growth with aversion to risk? One way is with an annuity. Many annuities offer growth opportunities with downside guarantees*. For instance, a fixed indexed annuity allows you to earn interest that is linked to a market index. If the index performs well, you may earn more interest. If it performs poorly, your principal is protected from loss.

 

Annuities also offer ways to create a guaranteed retirement income stream. You can convert a portion of your assets into a cash flow that will last for life, no matter how long you live. That could provide some certainty and predictability as you head into retirement.

 

Ready to get your retirement on track? Let’s talk about it. Contact us today at Sage Financial Partners. We can help you analyze your needs and goals and implement a strategy. Let’s connect soon and start the conversation.

 

1 https://money.cnn.com/2016/10/24/pf/financial-mistake-budget/index.html

 

2 https://www.irs.gov/newsroom/401k-contribution-limit-increases-to-19000-for-2019-ira-limit-increases-to-6000

 

*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.

 

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, no representation is made as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice, or specific advice for your situation. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

 

18775 – 2019/4/16

How to Find Hidden Assets in Your Strategy

Remember hunting for Easter eggs as a child? There were few thrills more exciting than racing around the yard or a park to find as many eggs as possible. Your eggs may have contained candy, money or other prizes.

As an adult, you may be too old to participate in a traditional Easter egg hunt. However, there may be another egg hunt that could be far more lucrative. It’s a hunt for hidden retirement assets. Many people fail to inventory their available retirement assets. In doing so, they fail to identify assets that could play an important role in their retirement strategy.

Below are four often-overlooked retirement assets. Some of these eggs may be hiding in plain sight. If you haven’t created an inventory of your retirement assets, now may be the time to do so. You could have some valuable eggs waiting to be found.

 

Old 401(k) Plans

 

There was a time when workers stayed with one company for most of their career. Those days are long gone. According to data from the Bureau of Labor Statistics, wage and salaried workers have been with their current employer for a median of only 4.6 years. In fact, the average worker changes jobs 11 times from age 18 to 48.1

When you leave a job, you also may leave behind a 401(k) balance. It’s possible that you still have balances held in former employers’ plans. Make a list of old employers and identify the ones where you may have participated in a 401(k) plan, profit-sharing plan or other qualified retirement plan. If you have an old balance, you could roll it over into an IRA and invest it according to your strategy.

 

Life Insurance Cash Value

 

Do you own permanent life insurance policies? If so, those policies may have a cash value that you can use in retirement. Permanent life insurance policies have a death benefit, but they also have what’s called a cash value account. When you make a premium payment, a portion of that payment is allocated toward the cash value.

Your cash value account grows on a tax-deferred basis. The method of potential growth depends on the type of policy. Whole life insurance pays dividends, while universal life policies pay interest. Variable universal life policies allow you to invest in the financial markets. Depending on your type of policy and how long you’ve owned the insurance, you could have a significant amount of cash value.

You can use that cash value to provide supplemental income in retirement. For instance, you can withdraw your premiums tax-free. You can also take tax-free loans from the policy.. Review your life insurance policies and see whether you’ve accumulated cash value that you can use in retirement.

 

Home Equity

 

Thinking of downsizing in retirement? That could be a smart move. When you downsize to a smaller home, you may be able to reduce your costs for housing, taxes, maintenance, insurance and more.

If you have substantial equity in your home, you could also give your retirement savings a nice boost. For example, you could pocket the equity from the sale of your home and add it to your retirement assets.

 

Delaying Social Security

 

Technically, this strategy doesn’t represent an asset, but it is a simple way to increase your retirement income. You can file for full Social Security benefits once you reach full retirement age (FRA). Most people’s FRA lands between their 66th and 67th birthdays.2

However, you don’t have to file at your FRA. If you choose to delay your filing, Social Security will increase your benefit by 8 percent for each year that you wait up to age 70. That 8 percent increase is a permanent credit, so it could represent a significant pay raise, especially if you delay your benefit filing for several years.3

 

Ready to find the hidden eggs in your retirement strategy? Let’s talk about it. Contact us today at Sage Financial Partners. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.

 

1 https://www.nerdwallet.com/blog/investing/leaving-401k-behind-job-change-costly/

2 https://www.ssa.gov/planners/retire/retirechart.html

3 https://www.ssa.gov/planners/retire/delayret.html

 

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, no representation is made as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice, or specific advice for your situation. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

 

18692 – 2019/3/26

Do You Have Enough Income to Survive a Rainy Day in Retirement?

Everyone is familiar with the popular saying “April showers bring May flowers.” The arrival of spring also means the arrival of rainy weather. While rainy days are never fun, they signal the end of winter and the coming arrival of blossoming flowers and warmer weather. In retirement you might be able to avoid rainy weather by moving to a tropical climate.

Of course, you may not be able to avoid rainy days with regard to your financial strategy. Emergencies happen at all stages of life, including after you retire. Taxes could be a challenge and may stretch your budget. Medical expenses and long-term care costs could pose a financial threat. Market risk is always a concern.

One way to protect yourself from emergencies and unexpected costs is to boost your guaranteed* income in retirement. The more predictable, guaranteed income you have, the less vulnerable you’ll be to unplanned costs.

Not sure whether you have enough guaranteed income in retirement? Below is a three-step process you can use to evaluate your income and take action. If you haven’t projected your retirement income, now may be the time to do so.

Step 1: Establish your income floor.

 

Your income floor is the minimum amount of income you need to cover your most important expenses. The best way to determine your income floor is to develop a retirement budget. Granted, you can’t predict every cost you’ll face in retirement. However, you can probably make a reasonable projection based on your current expenses and your desired standard of living.

Highlight the expenses that are most important. These will include all your fixed expenses, which are the bills that have to be paid every month no matter what. You also may include a few discretionary costs, which are expenses that could fluctuate from month to month. For example, your most important expenses may include:

  • Housing
  • Utilities
  • Insurance premiums
  • Debt and credit card payments
  • Car payments
  • Medical costs
  • Food
  • Clothing
  • Cellphone bill
  • And more

Total up your most important expenses and see how much they cost on a monthly basis. Also, don’t forget inflation. It’s likely that prices will rise slightly between now and your retirement date. The sum of your most important expenses is your income floor. That’s the minimum amount of income you need each month to live in retirement.

Step 2: Project your guaranteed* income.

 

The next step is to project your guaranteed income in retirement. Guaranteed income is cash flow that will last no matter how long you live and that isn’t affected by market performance or other economic factors.

Social Security and pension benefits are good examples of guaranteed lifetime income. The amounts don’t fluctuate from month to month, and the income lasts for life. Distributions from 401(k) plans, IRAs or other investment vehicles may not be guaranteed, so you don’t want to include them in this calculation.

Add up your projected guaranteed income. Does it exceed your income floor? If so, you have enough to meet your bare minimum expenses. If it doesn’t, you may want to increase your guaranteed retirement income.

Steps 3: Fill in the gaps.

 

Ideally, you don’t just want your guaranteed income to match your income floor. You want it to exceed your income floor by a substantial amount. That way you can build a rainy day fund to cover life’s unexpected costs. Extra guaranteed income could help you pay for medical bills, home repairs or other emergency costs.

One effective ways to boost your guaranteed income is to include an annuity in your retirement strategy. Many annuities offer optional riders known as guaranteed minimum withdrawal benefits. These benefits allow you to withdraw up to a certain amount each year. As long as your withdrawal stays within the limits, the distribution is guaranteed for life. It doesn’t matter how long you live or how the market performs. Your income remains consistent and predictable.

Talk to a financial professional about how to use an annuity to boost your guaranteed retirement income. They can help you determine your income floor, project your retirement income and take action to protect yourself from financial rainy days.

 

Ready to boost your retirement strategy? Let’s talk about it. Contact us today at Sage Financial Partners. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.

 

*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.

 

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, no representation is made as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice, or specific advice for your situation. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

 

18686 – 2019/3/25

Do NCAA Tournament Winners Predict Market Returns?

If you’re a college basketball fan, this is your favorite time of year. March Madness is in full swing. That means a full schedule of games every weekend, buzzer-beating finishes and unbelievable upsets. If you’re like many fans, your bracket is already a mess.

 

It’s nearly impossible to predict the outcome of the NCAA Tournament. According to a Duke University professor, the odds of predicting a perfect bracket are 1 in 2.4 trillion.1 Even getting the Final Four correct can be difficult: In last year’s Capital One Bracket Challenge, only 54 entries had the Final Four teams correct.2

 

It may also feel like it’s impossible to predict the movement of the financial markets. The major indexes can swing in any direction on any given day, influenced by an infinite number of events and updates from around the world. In the short term, it’s virtually impossible to predict where the markets are headed.

 

But can you use the winner of the NCAA Tournament to make a market prediction? Researchers from Schaeffer’s Investment Research recently studied S&P 500 index returns from April to December along with past NCAA Tournament champions to see if there’s any correlation between the two.

 

The research found that the market has consistently had positive annual returns when the NCAA Tournament champion has come from the Southeastern Conference (SEC). That’s happened 11 times. The S&P 500 has gone on to have a positive return the rest of the year in each of those instances. The median return from April to December when the champion is an SEC team is 9.56 percent.3

 

The market has also had positive returns at least 75 percent of the time when the champion has come from the ACC, Pac-12 or Big East. The ACC and Pac-12 have produced the most champions, with each conference winning 16 times. During years in which the ACC has won, the market had a positive return 75 percent of the time, with a median return of 9.59 percent. When the Pac-12 wins, the market has been positive 88 percent of the time, with a median return of 8.91 percent.3

 

When does the S&P 500 have a negative return from April to December? When the NCAA Tournament winner comes from the Big Ten Conference. In those years, the market has been positive only 36 percent of the time, with a median return of -4.76 percent.3

 

Coincidence Isn’t the Same Thing as Correlation

 

Of course, just because these patterns exist doesn’t mean there’s an actual correlation between the tournament winner and the returns of the market. There’s no factor tying the championship outcome to the S&P 500, so these patterns are entirely coincidental. They shouldn’t be used to try to make any kind of market predictions.

 

If you want to stabilize your investment performance and reduce volatility, there are other steps you can take besides relying on the outcome of a basketball tournament. Below are a few steps to consider:

 

Review your allocation. As you get older and approach retirement, it’s natural to become less tolerant of risk. You may not be able to stomach the ups and downs of the market like you used to. That’s understandable. After all, you’ll need to rely on those savings for income in the near future.

 

Now could be a good time to review your allocation with your financial professional. It’s possible that your current allocation isn’t right for your goals, needs and risk tolerance.

 

Rebalance. The market moves up and down, but not all asset classes move in the same direction at the same time. As some asset classes increase in value, others decline. That means your actual allocation is always in a state of flux. Over time, it may become far different than your desired allocation.

 

It’s helpful to regularly rebalance your portfolio so it always adjusts back to your target allocation. When you rebalance, you sell some of the assets that have increased in value and buy those that have declined. That can help you lock in gains and stay aligned with your desired strategy.

 

Use an annuity. An annuity can be an effective tool to potentially increase your assets but also limit downside risk. For example, a fixed indexed annuity pays an interest rate based on the performance of an index, like the S&P 500. The better the index performs over a defined period, the higher your rate. If it performs poorly, you may get little or no interest. However…

 

In a fixed indexed annuity, your principal is guaranteed*. There’s no risk of loss due to market performance. That means you get upside potential without the volatility.

 

Want to take steps to make your portfolio less volatile? Don’t look toward coincidental trends. Instead, implement a thoughtful strategy. Contact us today at Sage Financial Partners. We can help you review your portfolio and find areas for improvement. Let’s connect soon and start the conversation.

 

1https://ftw.usatoday.com/2015/03/duke-math-professor-says-odds-of-a-perfect-bracket-are-one-in-2-4-trillion

2https://www.ncaa.com/news/basketball-men/bracketiq/2018-03-26/54-ncaa-brackets-correctly-predicted-final-four

3https://www.schaeffersresearch.com/content/analysis/2017/03/23/march-madness-indicator-why-the-stock-market-should-root-for-kentucky

 

*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.

 

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, no representation is made as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice, or specific advice for your situation. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

 

18583 – 2019/2/27

4 Tax Tips to Consider for 2019

The deadline for filing your 2018 tax return is right around the corner. Have you filed your return yet? If so, were you satisfied with the outcome? Or were you surprised by how much you paid in taxes last year?

The recent tax law dramatically changed the tax code. For many Americans, the law means reduced taxes. If you don’t plan properly, however, it’s possible that you could owe money to the IRS after your filing. It’s also possible that you could pay more in taxes than necessary.

Now is a great time to review your strategy and identify action steps that could reduce your tax exposure. If you haven’t reviewed your financial plan recently, you may be missing out on a number of tax-efficient tools and strategies. Below are a few tips to consider as you prepare your taxes:

Review your deductions.

 

One of the biggest changes of the Tax Cuts and Jobs Act is the elimination and reduction of a wide range of deductions. Most itemized deductions were eliminated, including those for alimony payments and interest on many types of home equity loans. Caps were also implemented for state, local and property tax deductions. The law also eliminated personal exemptions.1

To make up for these changes, the law more than doubled the standard deduction.1 For many people, that means it will be more advantageous to take the standard deduction than to itemize deductions. If you’ve planned your spending based on the ability to itemize and deduct certain expenses, you may want to reconsider your strategy. Those deductions may no longer be allowed under the new law.

Check your withholding amount.

 

The law also reduced tax rates across the board and changed the income brackets for each rate level. As a result, many employers adjusted their withholding amounts. Not all did, however. And some may have adjusted their withholdings incorrectly.

In fact, according to a study from the Government Accountability Office, 30 million people, or just over 20 percent of taxpayers, are not withholding enough money from their paychecks to cover taxes.2 Are you part of that group? If you’re not sure, talk to your tax professional about whether you should increase your withholdings.

Maximize your tax-deferred savings.

 

Tax deferral is a great way to reduce current taxes and save for the future. In a tax-deferred account, you don’t pay taxes on growth in the current year as long as your money stays in the account. You may face taxes in the future when you take a distribution.

Many qualified retirement accounts, such as 401(k) plans and IRAs, offer tax-deferred growth. In 2019 you can contribute up to $19,000 to your 401(k), plus an additional $6,000 if you are age 50 or older. You can put as much as $6,000 into an IRA, or up to $7,000 if you’re 50 or older.3

Want more tax deferral beyond your 401(k) and IRA? Consider a deferred annuity. Annuities offer tax-deferred growth. They also offer a variety of ways to increase your assets. Some pay a fixed interest rate and have no downside risk. Others let you participate in the financial markets according to your risk tolerance and goals. A financial professional can help you find the right annuity for your strategy.

Develop sources of tax-efficient retirement income.

 

Taxes don’t stop when you quit working. If you’re approaching retirement, now may be the time to plan ahead and minimize your future tax exposure. You can take steps today to create tax-efficient income for your retirement.

For example, distributions from a Roth IRA are tax-free assuming you’re over age 59½. You may want to start contributing to a Roth or even consider converting your traditional IRA into a Roth.

You can also use a permanent life insurance policy as a source of tax-efficient income. You can withdraw your premiums from your life insurance cash value tax-free. Also, loans from life insurance policies are tax-free distributions. You may want to discuss with your financial professional how life insurance could reduce your future taxes in retirement.

Ready to take control of your tax strategy in 2019? Let’s talk about it. Contact us today at Sage Financial Partners. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.

 

1https://www.thebalance.com/trump-s-tax-plan-how-it-affects-you-4113968

2https://www.cnbc.com/2018/08/01/30-million-americans-are-not-withholding-enough-pay-for-taxes.html

3https://www.cnbc.com/2018/11/01/heres-how-much-you-can-sock-away-toward-retirement-in-2019.html

 

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, no representation is made as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice, or specific advice for your situation. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

 

18582 – 2019/2/27

 

 

Volatility on Valentine’s Day: How Couples Can Overcome Disagreements About Investment Risk

Valentine’s Day is supposed to be a day for romance and reconnection. For many couples, however, this time of year could be marked by disagreements about money. Nearly half of all married couples argue about financial issues.1

With the new year just starting and tax season right around the corner, many people use this time to evaluate their spending, earnings and financial performance over the previous year. That analysis could reopen sore spots about money management.

The performance of the financial markets over the past few months could also be a source for disagreement among couples, especially those who have differing investment styles. After starting strong for the first three quarters of the year, the S&P 500 finished with an epic meltdown in the fourth quarter. The index ended the year down 7 percent, the first time in history it’s finished the year negative after being positive for the first three quarters.2

Do you and your spouse disagree about investing styles? Does one of you take a more aggressive stance while the other prefers to play it safe? Below are a few helpful tips on how you and your spouse can meet in the middle and get past your investment-related disagreements:

 

Draft an investment policy statement.

 

Many couples disagree about their investment approach because they’ve never developed a formal investment strategy. They generally know they want to save for retirement, but they’ve never discussed their specific objectives or tactics. An investment policy statement does just that.

Your investment policy statement is a written document that states your goals, acceptable risks and the steps you will take to reach your objectives. It outlines which types of investments are appropriate for your strategy and which are not. You can use your investment policy statement as a guide for making future decisions.

The process of developing the investment policy statement could be beneficial for many couples. You’re forced to share your differing opinions and compromise to reach a strategy. Those conversations could help you work out differences and find areas where you agree, which could diffuse future arguments.

 

Develop a retirement income plan.

 

Often, arguments are fueled by uncertainty about the future. You’re unsure of when you’ll be able to retire or how much more you need to save, so that heightens your anxiety and sharpens disagreements. You may be able to avoid arguments by eliminating the uncertainty.

Work with your financial professional to develop a retirement income plan. You can project your future retirement income from sources such as Social Security, an employer pension and even your own savings. You can also build a retirement budget to estimate your spending. These two projections should give you an idea of how close you are to reaching your goals, how much more you need to save and how much risk you should take to achieve growth.

 

Don’t avoid the conversation.

 

Have you and your spouse agreed to disagree about your differing investment styles? Do you avoid the conversation? Or do you go it alone with your individual accounts so you don’t have to discuss issues that may lead to disagreement?

While you may not want to disagree or argue, it’s also not helpful to avoid the conversation. If you each have differing styles and don’t have a cohesive plan, you could be missing out on opportunity.

For example, assume your spouse is aggressive with his or her investment style and takes on a substantial amount of risk. Perhaps you’re conservative and choose assets that offer little return potential but also have little chance of loss. You may feel that the “go it alone” approach works because you each invest according to your comfort level and you avoid arguments.

By avoiding the conversation, however, you may be missing out on opportunities to meet in the middle and achieve better performance. For example, you could find an allocation that has growth potential and reduced risk. You could use tools such as equity index annuities that offer growth without downside exposure. The only way to find these opportunities is to discuss your differing approaches and look for middle ground.

 

Work with a professional.

 

Finally, you may find it helpful to bring in a third party, like a financial professional, who can give objective, impartial feedback and also provide information and analysis that may make it easier to reach agreement. An experienced advisor can also help you develop a retirement strategy and an investment policy statement to guide your decision-making.

 

Ready to overcome your investment differences with your spouse? Let’s talk about it. Contact Sage Financial Partners. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.

 

1https://nypost.com/2017/08/03/the-reasons-most-couples-argue-about-money/

2https://www.cnbc.com/2018/12/31/the-sp-500-will-make-history-when-it-ends-the-year-with-a-loss.html

 

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, no representation is made as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice, or specific advice for your situation. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

 

18408 – 2019/1/14

What Do January’s Market Returns Mean for the Rest of the Year?

It’s that time again. A new year is here, which means a volatile 2018 is in the rearview mirror. The markets suffered a steep drop at the end of last year after climbing steadily through the first three quarters. A number of factors contributed to the markets’ fourth-quarter tumble, including tariffs, interest rate hikes and trouble in the tech sector.

A new year doesn’t mean those challenges are gone, but it does represent a fresh start. And if history is any guide, January can be a strong month for investors. According to a study from LPL Research, in the 68 years from 1950 through 2017, January has been a positive month for the S&P 500 41 times. It’s been negative 27 times.1

As any investor knows, history doesn’t guarantee future performance. However, there does seem to be a correlation between market performance in January and the rest of the year.

 

How do January returns impact the rest of the year?

 

According to LPL Research, there’s a relationship between January returns and market returns over the remainder of the year. Its research showed that during years in which there was a positive January return, the market had an average return of 12.2 percent over the next 11 months. When the January return was negative, the S&P 500 returned only 1.2 percent the rest of the year.1

If January returns are more than 5 percent, the correlation is even more pronounced. In those years, the market had an average return of 15.8 percent over the next 11 months. In fact, when January has a return of more than 5 percent, the rest of the year is positive 91.7 percent of the time.1

 

What is the January effect?

 

Why has January been positive more often than not? And why does January’s return seem to impact the rest of the year? There are no definitive answers to these questions, but there are theories.

There’s an idea called the “January effect,” which suggests that January returns may be the product of tax strategy. Investors sell stocks in December to harvest tax losses before the end of the year. That depresses prices and creates a buying opportunity in January. Because investors sold at the end of the year, there’s cash on the table to buy in the beginning of the next year.

Of course, this is just a theory. There’s no way to conclusively prove whether the January effect is a real phenomenon. Even if it could be proved, it’s never wise to change your long-term investment strategy based on short-term prospects.

If you’re concerned about the volatility of 2018 or in the coming year, now is a great time to meet with a financial professional. They can help you review your strategy and possibly make changes that reduce your risk exposure protect your assets.

 

Ready to evaluate your retirement strategy? Let’s talk about it. Contact us today at Sage Financial Partners. We can help you analyze your needs and goals and implement a safe and secure retirement plan. Let’s connect soon and start the conversation.

 

1https://www.thestreet.com/story/14469889/1/stock-market-s-strong-january-performance-bodes-well-for-the-rest-of-the-year.html

 

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, no representation is made as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice, or specific advice for your situation. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

 

18345 – 2018/12/31

What Can You Expect From the New Tax Law in 2019?

A new year is here, and with it comes a flood of year-end tax documents like W-2s, 1099s and others. Before you know it, the April 15 tax filing deadline will be upon us, and it will be time to submit your return.

It’s always wise to meet with your financial professional at the beginning of the year. It gives you an opportunity to discuss the past year, your goals for the coming year and your tax strategy. That advice rings especially true this year, with a number of tax changes about to kick in.

The Tax Cuts and Jobs Act was signed into law in late 2017 by President Trump, and 2018 was the first full calendar year under the new law. The return you file in April will likely be the first that reflects much of the law’s changes. Below are a few of the biggest changes and how they could affect your return:

 

Increased Standard Deduction

 

The new tax law impacted a wide range of credits and deductions, from the deduction of medical expenses to credits for child care. Those who itemize deductions may have felt the brunt of these changes.

However, the tax law significantly increased the standard deduction. In 2017 the standard deduction was $6,350 for single filers and $12,700 for married couples. The new law increased those numbers to $12,000 and $24,000, respectively.1

Given the changes to itemized deductions and the increased standard deduction, you may want to consult with a financial or tax professional before you file your return. If you’ve traditionally itemized deductions in the past, that may no longer make sense.

 

New Tax Brackets

 

The new tax law also made significant changes to the tax brackets. There are still seven brackets, just as there were before the passage of the law. And the lowest rate is still 10 percent. The top income tax rate is down to 37 percent from 39.6 percent.2 There are similar cuts to other brackets as well.

Under the old tax code, for example, a married couple earning $250,000 would be in the 33 percent bracket. Under the new law, that same couple is in the 24 percent bracket. A single individual earning $80,000 was in the 28 percent bracket under the old law but is now in the 22 percent bracket.2

 

Itemized Deduction Changes

 

As mentioned, the new tax law increased the standard deduction qualification amounts. And many itemized deductions were eliminated or reduced including those for state and local taxes, real estate taxes, mortgage and home equity loan interest, and even fees to accountants and other advisers.

However, there could be other opportunities to boost your itemized deductions above the standard deduction level. Charitable donations are still deductible, as are medical expenses assuming they exceed the 7.5 percent threshold. If you’re a business owner, you can deduct many of your expenses, including up to 20 percent of your income assuming you meet earnings thresholds.3

 

Ready to build a sound tax strategy? Our founding partner is a chartered accountant. He can show you how taxes impact your entire retirement picture. Contact us today at Sage Financial Partners.

 

1https://www.nerdwallet.com/blog/taxes/standard-deduction/

2https://www.hrblock.com/tax-center/irs/tax-reform/new-tax-brackets/

3https://money.usnews.com/investing/investing-101/articles/know-these-6-federal-tax-changes-to-avoid-a-surprise-in-2019

 

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, no representation is made as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice, or specific advice for your situation. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

 

18326 – 2018/12/26