You’re Never Too Old!

I work with a lot of retirees, or those who are about to retire. One common question I get is, “when is the proper age to transition from a stock portfolio to a bond portfolio”? The answer is:
You are never too old to own stocks, or equity mutual funds, which I prefer, in your portfolio. Let’s look at some reasons why equities are always a good thing.
History has proven that equity funds outperform income funds over the long term (and of course, there is no guarantee that will continue; however, for the past 80+ years, that is the history of equity performance). Many retirees under estimate how long they will live in retirement. If equities can add, conservatively, 4% annually to your balance, your portfolio may last an additional ten years.
Many stocks can be safe. There are a number of very old, stable companies that have modest growth and pay regular dividends. AT&T is one that comes to mind. Most of us are very familiar with AT&T and we probably use their services. While the stock value has been very stable over the past five years, the current dividend it pays is 5.73% (according to
Through diversification, stocks can make up a portion of your portfolio, but should not make up the whole portfolio. Bond funds and cash should be part of your mix to provide some stability that the stocks may not.
Cash and bonds provide some safety, but they can be boring. Stocks can be more fun to watch, and through mutual funds you can own a piece of the pie.


Don’t let your emotions get the best of you.

Stock markets have been pretty volatile this year, and it’s only April. If you are worried that turbulence is getting to be too much, I’ll ask you to take a moment, sit down, and let’s talk emotions and their impact on investing.
According to DALBAR (a well-respected research firm), most investors tend to buy high and sell low causing them to significantly underperform versus the larger markets over a 20 year timeframe. Why? Most investors tend to follow the crowd. I strive to do the opposite. I like to buy when the markets are in the red, things are on sale, and sell when the markets are in the green. Most investors will panic when the markets are in the red and sell, so please try to resist following the crowd in the action.
We always talk about being diversified because it is so important. Being diversified is investing in different asset classes, sizes of companies, equities, and income items. Mutual funds provide one of the easiest ways to diversify your portfolio. Diversification is not holding the same fund in different accounts. I had a client that had CD’s in a number of banks and thought they were diversified until I explained it was just the same asset in a number of locations. Please, check your diversification.
F.O.M.O. This new term is “fear of missing out.” I had a number of clients experience FOMO when bitcoin first started trading. In my opinion for my clients, bitcoin and other cyber currencies were more of a gamble vs. an investment. Influence from the news and friends can cause FOMO. I ask you to step back and think of your own plan before acting on this emotion.
There are often a number of emotions attached to money and investing. A quality financial plan can help keep those emotions in check.


What message are you sending to your kids?

In many households, discussing money is taboo. Some think it is crass, some think it is a burden and sometimes self-esteem is associated with money. Kids pick up on how you feel and think about money. We need to have some frank, and positive discussions with our kids. No matter what your economic status is, we worry about money. I believe in facing fears head-on so the worry can be lessened.
Wealthy people may not lose sleep over paying everyday bills, but they do have concerns about passing on wealth prudently, a reversal in the stock markets wiping them out, or making bad choices in professional help. These may not seem like problems to some, but they are real problems that prevent people from talking to their kids about how to manage their money, and how to make sure that their future families, and communities are cared for upon their passing.
The uses of money is often not discussed either. How much do you save regularly? How do you establish credit? What is the difference between saving and investing? Basic money knowledge can lead to confidence and self-esteem when it comes to managing your money.
If the topic of money was taboo in your household, you can change the money story for your family. Have real conversations with your kids. Think of money as your tool – we control our tools, they do not control us.


It’s an uncomfortable conversation, but one that must be discussed.

Many people have all of their basic estate planning issues taken care of, but have you spoken to your kids about any of it? Most people have not. Most people think it is crass or depressing to discuss these issues. Take it from me, it is not, and it is necessary. Your heirs need to know your final wishes and where to find all of your information. Here are a few of the most common problems that occur when a loved one passes on:
What happens to their IRA?
As a non-spouse, you cannot rollover an IRA. You must open an Inherited IRA if you chose not to cash the whole account out and pay tax upon receiving the IRA. Once you open the Inherited IRA, you must then start taking out annual withdrawals based on your life expectancy. These withdrawals will be taxable. If you inherit a Roth IRA, the same rules apply.
What is step-up in basis?
We often use the term “cost basis”, but many people do not know what that means. Further, when you inherit non-retirement assets, you receive a step-up in basis. Here is an example of how it works:
If you paid $250,000 for your home, but it is worth $500,000 when you pass, the $500,000 value is what the home steps-up to for sale and estate tax purposes. This rule applies for mutual fund investments also.

Who knows where all of this financial stuff is?
Contact information for all of your financial professionals should be stashed in the same place as you would keep your final papers. If you would like a Financial Organizer to help you put all of this information together, please contact me at


I have to pay taxes on that?

Most of my clients are surprised to find that their tax bill does not go down in retirement. Often, their tax bill can be higher than in their working years. Let’s take a look at some of the retirement incomes that carry a tax surprise.
While we know that while saving into qualified plans during our working years, many retirees underestimate what percentage of tax they will have to pay on the withdrawals. Roth accounts are the exception, assuming that your funds have been on deposit for five years or more.
Once upon a time Social Security benefits were tax-free, but that all ended with the signing of the Social Security amendments in 1983. Currently, depending on your “provisional income,” up to 85% of your Social Security benefits are subject to federal income taxes. To determine your provisional income, take your modified adjusted gross income, add half of your Social Security benefits and add all of your tax-exempt interest.
If your income is between $32,000 and $44,000 ($25,000 to $34,000 for singles), then up to 50% of your Social Security benefits can be taxed.
If your income is more than $44,000 ($34,000 for singles), then up to 85% of your Social Security benefits are taxable.
Most pensions are funded with pretax income, and that means the full amount of your pension income would be taxable. Payments from private and government pensions are usually taxable at your ordinary income rate, assuming you made no after-tax contributions to the plan.

Plan carefully, as taxes never seem to go away.


OMG- I’m Rich! Part 2.

So, we have gotten over the shock of our sudden wealth, and have bought those items we just could not live without. Now back to reality. Here are a few pointers on how to hang on to your sudden wealth:

Build a great team for yourself.
Chances are good that you are not a financial expert and now is when you really need people who are. First you need to find someone like me, a Certified Financial Planner Professional, who works for a fee. Why fee based? We put you and your needs first, and offer unbiased services. Next, you need to find a CPA because your tax picture is going to change. Lastly, you will need to hire an Estate Planning Attorney so that your final wishes will be granted with the least amount of stress for those left.
Address your debts.
Before you spend any more than you have, look at your current debt and pay off what you can. If you still reap a tax benefit from your home mortgage, you may not want to pay that off. Look at how you have spent money in the past to make sure you do not accumulate un-necessary debt in the future.

Remember your values.
Before spending think about your value system. How do you want to spend your time and money going forward? Your values will keep you the person you anre and want to be remembered as.


OMG! – I’m rich!

In my 35 years in business, I have seen people come into wealth from many different sources. Many people inherit wealth, some have lottery winnings and others settlements. But what is wealth? To some, it is an extra $5000, to others, there are many more zeros after that. It does not matter as sudden wealth can be hard to survive for many people.
Receiving a lot of money can be confusing and stressful. Some people may treat you differently or you may feel different about your “new” life. Take a breath and remind yourself you are the same person as before. Money cannot change you – only you can change you.
I always advise people to sit on the new wealth for a while. Deposit your funds in a savings account while you gather your thoughts.
What is your wish list? While you are taking a step back, write down those wish list items. Determine if those items are worth spending some of your new found wealth on or not.
Later this week, I will have more pointers for handling your sudden wealth.


Did I really make that much?

2017 was a banner year for the markets and the statement above is one said to me recently by two clients. I cannot take total credit for their capital gains being as large as they were in 2017, but I will take some. My clients are having to re-adjust the withholding tax applied to the areas of income they are receiving due to the increase in capital gains credited to them. Will you have to also?
One client said he was “crying with two loaves of bread in his arms.” Things could be worse.
As you work on your 2017 tax returns, see if you need to adjust your withholding tax for a possible repeat of the markets in 2018.


How much can I contribute?

Many of us have completed, or are close to completing, our 2017 tax returns. As we finish this fun task, thoughts turn to 2018. Many of my clients want to know with the new tax laws, if the amount they can contribute to their retirement plans has changed. Let’s take a look at the contribution limits for 2018:

Traditional or Roth IRA accounts: $5,500 or if you are over age 50, the limit is $6500.
SEP IRA: 25% of your compensation up to a max of $55,000. This is an increase.
401(k): $18,500, this is an increase. The over age 50 increase is still an additional $6000.
Simple IRA: $12,500 or if you are over age 50, you can contribute an additional $3,000.

Don’t sell yourself short, contribute the maximum that you can comfortably contribute. Use all of the time you have on your side.


You didn’t lose $20k.

At a recent meeting with a client, I was asked if I noticed that she lost $20k. I asked what she was looking at, she said her February statement. My next comment to her was, ”I didn’t sell anything, did you?” My explanation for this comment was, her market value went down because the markets had a bad month in February. We did not sell anything, therefore, nothing has been lost. True, her market value went down, but also true was that by the time of our meeting, her value was back up $10k.
As we always say, “We are not trying to time the markets. It is time in the markets that matter.”