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Divorce and Your Investments

Divorce is a process that can be exhaustive emotionally, physically and mentally for those who go through it. As amicable as one would hope and like for things to go there many times may be a lot of emotion, consideration and disagreement that can take place during the process. I say this not only from what I have witnessed in the clients that I’ve helped over the years but as someone who has gone through the trials and tribulations of the divorce process first hand myself.

“It is important that we look deeper in these efforts (or consider working with someone in regards to the financial aspect) to ensure that we aren’t on face value seeing 50/50 ‘split’ as completely fair or equitable. Remember: its not what you get from your settlement, its what you keep & where what you keep will position you for the many years to come.”

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Published: 3/23/20

Recently retired

Recently retired individuals and those nearing their time to retire are suddenly flooded with unexpected market losses care of COVID-19. This leaves many who recently retired wondering if they’ll have to return to work, and those planning to retire soon considering if they need to push plans back. If you are in either of these two groups it’s time to evaluate your positioning.

Now, you may be asking “do I need to change plans?” and you wouldn’t be alone in asking that question. However, the honest answer is: it depends. Because everyone’s situations, wants and needs are different the question is impossible to answer without additional information. Think of it this way: you bump into your neighborhood physician, mention in passing that you’ve had a few symptoms and ask what is wrong with you. You’ll be told to either make an appointment or seek immediate medical attention. The reason for this (and why our article can’t fully answer the question) is because it would not be in your best interest to have someone diagnose you physically or financially “off the cuff” without proper testing. But let’s take a look at some scenarios and discuss if they need immediate attention or an appointment:

1: Your retirement planning only involved electing your 401(k) savings amount and what investments to buy within the account.

Seek immediate attention.

There are two skill sets that it takes to have a successful retirement. The first is accumulation, aka retirement saving. The second is distribution aka: income/withdrawal planning. Both present challenges however, withdrawals have significantly more variables to plan for. It would be worth the time to sit with a professional to see where you stand.

2: Your retirement plan uses a “bucket” strategy or you have significant cash reserves.

Set an appointment for a check-up

The “bucket” strategy approach constructs 3 separate accounts: cash (right now), bonds (a little later), and stocks (growth/long-term) to purposefully prepare & visualize each accounts purpose. Similarly, a larger cash reserve will also allow you to have the flexibility while riding out volatility. It’s important you review either of these to ensure you have proper positioning across your net worth. Recently retired individuals may enjoy the spoils of having cash on hand now, but considering current interest rates and long-term inflation against cash. Make sure to rebalance the buckets.

3: Your increasingly concerned about if you will be ok (for both the pre & post-retiree).

Seek immediate attention

First, we don’t ever want anyone loosing sleep because things feel “unknown”.  The recently retired investor may have some panic looking at the years ahead while starting in a downturn. Piece of mind goes an extremely long way. Much like someone who waits to see if their symptoms will pass, its better to get ahold of things before they progress. There are many different things an experienced professional can consider and use to help. But if left without attention, it can compromise the amount of options that you have if any.

4: You’ve recently retired and have started to take money out.

Set an appointment for a check-up

(If you haven’t professionally set a plan seek more immediate attention)

So this one has two different attention levels because if you have planned this is still an important time to team with your planner to regroup. If you haven’t planned, it’s worth your time to ensure that you aren’t causing any future problems. A professional will be able to account for the sequence of returns risk, taxes, inflation and additional setbacks that you may have missed.

5: 50% or more of your retirement relies on your savings/investment accounts.

Seek immediate attention

If half of your monthly expenses or more rely on checks from your investment accounts running out of money is not an option. Because of the larger reliance on these accounts there is limited flexibility to make lifestyle changes to lower expenses. It also means that as prices increase over time (inflation) your reliance on the savings will grow. Pensions don’t traditionally offer cost of life (COLA) adjustments, and the COLA for social security does not make significant strides to cover this gap.

Conclusion:

We understand that these are extremely trying times both financially and emotionally for most people. Although it may be intimidating, it makes the most sense to know where you stand and if any action is necessary. A little planning can go a long way in these times, and together we are here to help. Schedule a Call With Us to review your situation.

Free Webinar: The SECURE Act and Your Retirement

Estate planning considerations also covered, register by clicking the “register now” button.

SECURE Act Webinar

SECURE ACT Retirement & Estate Impacts

What Is the SECURE Act?

The SECURE act stands for Setting Every Community Up for Retirement Enhancement and was signed into law on December 20, 2019. The act focuses mainly on retirement legislation and has been argued to have been the largest piece of retirement legislation to have been passed in the last 13 years. However, within the act there are benefits for College Loan Payments in 529 educational savings accounts and an exemption for birth or adoption expenses from retirement accounts that previously hadn’t existed. Because of these changes it is important for you to be aware how they may impact you or your previous planning approaches to these financial goals. In this update we will explore what has changed and what action steps you should consider as an investor. (more…)

 

Retirement Risk - Coastal Wealth Planners

There is a retirement risk that every pre and post retiree may not be seeing right in front of them. Its not always the same risk for each person, and in some cases its all three. I have had the pleasure of working with many different people of different backgrounds, needs and goals over the years that I have been a Financial Advisor. One of the most common reasons that people not only save but seek planning is for their retirement, and why not? No person wants to work for their whole life without the ability to retire and enjoy the fruits of their labor. As a result, we do our best to adhere to some of the basic principles: work hard, save early and watch our spending. However, there are constant forces that we need to account for when we transition into spending the savings, we worked so hard for: inflation, taxes and sequence (order) of returns. Let’s take a look at this through the eyes of a retiree who we will call Jane.

Retirement Risk 1: Taxes

Jane worked until she was 65, saved and considered what she will need to spend every month. She put away $500,000 in her retirement savings and has budgeted for expenses of $20,000 per year. Jane understands that if she keeps her expenses at 4% or less of her savings there is a higher likelihood that she will have her money last, and she also feels comfortable with a portfolio allocation that has an average return of 5%. So, the math seems simple to Jane: if I only need 4% of the value of my account and on average, I have a portfolio that returns 5% I will be able to maintain my portfolio value with a slight potential for growth. Unfortunately, this is wrong and all to commonly assumed. The truth of it is that to get the $20,000 from her retirement account after taxes (approx. $5,900 in this case) her total withdrawal starts at $25,900 – this is a 5.18% withdrawal rate from the $500,000 portfolio. Surprised, she still feels confident that although her numbers were slightly off the difference of 0.18% vs her allocations average rate of return would take a long time to be a real threat to her savings…unfortunately this too was a risky assumption and we will explain that next:

Retirement Risk 2: Inflation

Costs don’t stay level over time, just think back to what a movie ticket, loaf of bread or soda from a vending machine used to cost in the past as compared to today. The same holds with your expenses over the years in retirement, basic needs expenses have historically gone up just above 2% per year while medical expenses have shown to inflate at just over 5%. This means that within the first 11 years your healthcare costs can be two times the cost from where they had started, while your basic needs expenses can be 27% higher than when you started! This can be a very eye-opening realization for clients that hadn’t accounted for these considerations before coming in to formally plan.

Retirement Risk 3: Sequence (Order) of returns

The average return on a portfolio is often taken too literally when planning for a withdrawal strategy. We become hard wired to the average rate of return during our accumulation of investment savings because it can be a way to forecast the potential future value of investments that are not withdrawn from. What this means is that if the money is left to ride out the ups and downs of the markets along the way these peaks and dips will average out over time. However, when we are starting to take from the balance of these savings it can be very important to understand the difference in how these affect our ability to make them last. Having a portfolio downturn in the earlier years can prove to be a larger risk to the ability for your savings to last, in our example with Jane she decided to retire at 65 and will fund her retirement fully for one year until she takes Social Security at her FRA (Full Retirement Age) of 66. Due to all her previous assumptions (not counting for taxes, assuming level costs without inflation) she feels that the extra expense is worth starting on this journey she worked so hard for her whole life. Let’s look at how all these factors together lead to Jane’s retirement running out:

© MoneyGuide, Inc. Reproduced with permission. All rights reserved.
© MoneyGuide, Inc. Reproduced with permission. All rights reserved.

Conclusion:

If you haven’t taken these considerations into account, you are not alone. Starting an open conversation with a professional who specializes in retirement planning can help to address these risks as well as provide guidance on what you can do to improve your situation. We are here to help at Coastal Wealth Planners and you can schedule a free consultation or call us at (732)554-1099 to discuss your concerns and needs.

 

Take your vitamins, get plenty of exercise, eat well, brush your teeth. These are simple tenants of our basic care along with keeping up on an annual physical or any other milestone tests that are recommended for preventative care. As a result, there is a greater likelihood that medical issues can be found and addressed earlier on or prevented all together. So, the big elephant in the room is why aren’t we treating our money in the same way? The same simple concepts can easily be translated into healthy money habits however knowledge is only half the battle and action is needed to make a difference in your financial outcomes. Let’s talk a little about the similarities and what you can do: (more…)

 

Planning for retirement can feel like a daunting task. Not only does it involve thinking about many unknowns such as what you might be spending in 20-30 years or when to take social security but there are also things that you can forget to include as part of your retirement planning.Today we will cover six things that you may have forgotten to consider when planning for your retirement. (more…)

 

Recently I’ve seen a number of financial articles around Millennialslack of retirement savings as well as Seniors working longer because both groups expressed feelings that they can’t afford to save for retirement (see linked articles from Business Insider as well as CNBC). As we previously covered the topic in our 5 Simple Things You Can Do To Save More even the smallest of events can lead to serious savings. (more…)

 

Studies show that investors who partner with a professional to plan have less stress, anxiety and overall, they can show to have higher success rates in achieving goals they have set. There are many reasons why this is and we outlined some of them in previous posts such as Why You Should Partner With a Financial Planner (Even if You’re a Pro) as well as Why Your Goals Are the Only Index to Measure Against. But one of the things that can be nagging investors in their relationship is that they feel like they are being sold when they work with their professional, and there can be many reasons for this such as the style of the professional’s delivery. However, one of the bigger topics over the last few years can also answer why things may feel this way: is the professional a fiduciary or not? (more…)

 

The partnership with a Financial Planner can go a long way in order to keep things on track, make you feel more at ease and give an opinion that is more objective on your progress to the goals that you’ve set.Our recent post Why You Should Partner With a Financial Planner (Even if You’re a Pro) covered some of these topics in more depth. During this partnership there should be periodic collaboration to spot check where things stand and make sure everything is on track while resolving any questions or concerns. However,sometimes there are instances that should have you pick up the phone and set up an appointment sooner than later that we will cover here. (more…)

 

Partnering with a financial planning professional offers much more than just the Financial Plan itself. Taking the time to invest in this relationship creates strength in many ways that you may not often times associate with engaging a financial planner, and in today’s article we are going to look at a few of those ways. (more…)

 

Savings is the foundation of what I work with my clients on. It may take many forms such as retirement savings, college savings, wealth transfer, executive compensation strategies, or emergency savings but all roads started with saving. I’ve said it many times as my father said to me: “When it comes to saving start early and often.” (more…)

What is an Index (or Benchmark)?

The term “Index” is widely used in financial conversations, publications and news broadcasts. Often the conversation goes something like “Investment X is outpacing the S&P 500 Index year to date”, however what does this really mean to the average investor? Indexes are the reflection of a segment of the financial markets such as: S&P 500, Dow Jones Industrial Average, Nasdaq Composite and Barclay’s Capital Aggregate Bond Index. These are only a very small sampling of the indexes available both Domestically and Internationally, what they tell us is the relative performance of the companies or bonds that they track. (more…)