Categories
Financial Planning Retirement Planning

Has 2020 Volatility Thrown Your Allocation Out of Whack?

Has 2020 Volatility Thrown Your Allocation Out of Whack?

The financial markets have been on a wild ride in 2020. The year began with a continuation of the bull market that started in 2009. The longest bull market in history, however, came to an abrupt end with the arrival of the COVID-19 pandemic.1

From February 20 to March 23, the S&P 500 fell by 33.67%. From that lowpoint through August 14, the index has climbed 50%. In fact, the S&P 500 has recouped all earlier losses and is now in positive territory year-to-date.2

However, that doesn’t mean your portfolio is back where it started at the beginning of the year. Your portfolio is probably allocated across a variety of asset classes. The exact allocation should be based on your specific needs, goals and risk tolerance.

Diversification, or the allocation of funds across many different assets, helps to minimize risk exposure. If one asset performs poorly, only that portion of the allocation suffers. The loss may be offset by gains in other asset classes.

Your various asset classes are always moving in different directions. For example, consider a few asset classes and their index performance through July of this year:3

BloomBarc US 1-5 Yr Government Idx (Short-term Government Treasuries): 4.36%

Bloomberg Commodity Index TR (Commodities): -14.80%

S&P 500 Index (Large-Cap U.S. Stocks): 2.38%

S&P 600 Smallcap (Small-cap U.S. Stocks): -14.48%

That’s just a sampling of some common asset classes that are often included in diversified portfolios. Over time, your allocation becomes out of balance. For example, your allocation to small cap stocks may have declined this year as the asset class has declined in value. Similarly, your allocation to short-term treasuries may have increased as those assets have risen in value.

The result is an allocation that may be very different than what you intended.

One strategy is to review and rebalance your portfolio regularly. In fact, you can set your account up for automatic rebalancing, so at regular periods, assets will be sold and purchased to get back to your original allocation.

If you haven’t reviewed your allocation lately, it’s possible it doesn’t align with your current goals and risk tolerance. We can help you implement the right allocation for your needs and continue to rebalance the portfolio on an ongoing basis.

Let’s connect soon and start the conversation. Contact us today at Benefit Resource Partners.

1https://www.cnn.com/2020/03/11/investing/bear-market-stocks-recession/index.html

2https://www.google.com/search?q=INDEXSP:.INX&tbm=fin&stick=H4sIAAAAAAAAAONgecRowi3w8sc9YSntSWtOXmNU5eIKzsgvd80rySypFBLnYoOyeKW4uTj1c_UNDM0qi4t5FrHyePq5uEYEB1jpefpFAAAU6wGESAAAAA#scso=_StQ2X43rM4q_tQadupGwDA1:0

3https://personal.vanguard.com/us/funds/tools/benchmarkreturns

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 authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. 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, presenting insurance professional makes no representation 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. 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. 20364-2020/8/20

Share on facebook
Share on twitter
Share on linkedin
Categories
Financial Planning Retirement Planning

Fourth Quarter Preview: What to Expect for the End of 2020

Fourth Quarter Preview: What to Expect for the End of 2020

It took just under five months for it to happen. On August 17th, the S&P 500 closed at 3389.78—an all-time record. That record is also significant because it means the index officially recouped all losses from the downturn that happened in March.1

This year has been a rollercoaster ride for investors. The S&P 500 dropped 33.92% from February 19 to March 23 as the COVID-19 pandemic hit the United States. Since March 23, the index has increased 51.51%, triggering a new bull market.2

However, a sharp increase in the stock market doesn’t mean the U.S. economy is out of the woods. In fact, other metrics would indicate that the economy is still struggling. In the second quarter, gross domestic product contracted at an annual rate of 32.9%, the largest quarterly contraction on record. That contraction is more than three times the previous record—a 10% contraction in 1958.3

Also, not all sectors of the stock market have participated in the recovery. The increase over the last five months has been fueled by growth in the Information Technology (IT) and Consumer Discretionary sectors, each of which are up more than 23% year-to-date. However, other sectors, particularly Financials and Energy, are negative on the year. In fact, of the 11 S&P 500 Sectors, five are still negative on the year.4

The 4th Quarter is historically the best quarter for S&P 500 performance, with the index up an average of 3.51% from October through December over the past 30 years.5 However, 2020 is not like other years. There are factors and risks that could threaten the market’s recovery. Below are a couple things to watch as the year comes to a close:

Election

We’re only a couple months away from the election, as if 2020 needed more uncertainty. Everyone has their own preferred candidate. However, some investment managers are saying the real risk isn’t one of the candidates winning, it’s an unclear outcome.

Bridgewater Associates, which manages more than $140 billion, recently told clients the real risk is if there is “material concern over the legitimacy of the process.” Analysis of recent options transactions show that many investors are taking protective stances through January 2021, possibly an indication they are concerned about post-election volatility.6

However, UBS notes that post-election volatility is often short-lived. They point to the most recent example of an election with an unclear winner—the 2000 election between Al Gore and George W. Bush. During that time, the S&P 500 fell around 6% in the weeks after the election as litigation mounted. However, those losses were erased as soon as the election reached resolution.7

COVID

Of course, the other major risk to the economy and financial markets in the fourth quarter is developments related to COVID. The pandemic is now in its seventh month. As of mid-August, the death toll in the United States exceeded 168,000, with more than 5 million confirmed cases.8

The development of a vaccine in the fourth quarter could deliver a boost to the economy. The government has implemented Operation Warp Speed, an initiative to deliver 300 million vaccines by January. Moderna has a vaccine in phase 3 trials, but it is uncertain whether the company will be able to meet the government’s target date.8

Ready to protect your portfolio from fourth quarter uncertainty? Let’s talk about it. Contact us today at Benefit Resource Partners. We can analyze your needs and goals and implement a plan. Let’s connect soon and start the conversation.

1https://www.cnbc.com/2020/08/17/stock-market-futures-open-to-close-news.html

2https://www.google.com/search?q=INDEXSP:.INX&tbm=fin&stick=H4sIAAAAAAAAAONgecRowi3w8sc9YSntSWtOXmNU5eIKzsgvd80rySypFBLnYoOyeKW4uTj1c_UNDM0qi4t5FrHyePq5uEYEB1jpefpFAAAU6wGESAAAAA#scso=_iyc9X5L9Eq6E9PwPt8m4mAM1:0

3https://www.npr.org/sections/coronavirus-live-updates/2020/07/30/896714437/3-months-of-hell-u-s-economys-worst-quarter-ever

4https://www.cnn.com/2020/08/17/investing/premarket-stocks-trading/index.html

5https://stockanalysis.com/average-monthly-stock-returns/

6https://www.foxbusiness.com/markets/2020-election-wall-street-stock-market

7https://fortune.com/2020/08/18/trump-biden-stock-market-2020-election-contested-results-what-could-happen-investors/

8https://www.washingtonpost.com/nation/2020/08/19/coronavirus-covid-live-updates-us/

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 authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. 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, presenting insurance professional makes no representation 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. 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. 20365 – 2020/8/20

Share on facebook
Share on twitter
Share on linkedin
Categories
Financial Planning Retirement Planning

COVID Economic Update: Is a Second Stimulus on the Horizon?​

COVID Economic Update: Is a Second Stimulus on the Horizon?

As the COVID-19 pandemic stretches into its seventh month, leaders in Washington are debating a second stimulus bill. On August 8, President Trump signed executive orders that extended the federal unemployment benefit, but reduced the amount from $600 per week to $400. The orders also suspended the payroll tax through the end of the year, and suspended interest on federal student loans.1

However, even as President Trump signed the orders, Republicans and Democrats continued to negotiate terms for a second stimulus package. Democrats support a $3 trillion package known as the HEROES Act, while Republicans have their own $1 trillion HEALS Act.1

It’s unclear whether the final bill will include direct stimulus payments to Americans. Both Republicans and Democrats have endorsed the idea. However, it’s difficult to predict at this point what stimulus payments may be included in the final legislation.

Market Update

Despite the uncertainty surrounding COVID, the election, and the overall economy, the financial markets continue to climb. After suffering deep losses earlier in the year, two of the three major market indexes are in positive territory. Through August 10, all index year-to-date returns are:

S&P 500: 3.53%2

DJIA: -2.57%3

NASDAQ: 22.24%4

While the markets have mostly recovered from their losses earlier in the year, volatility can strike at any time. That’s especially true should the COVID pandemic worsen or if the economy suffers continued damage. There also may be increasing uncertainty as the election approaches.

If you’re concerned about risk, let’s talk about it. There are a wide range of strategies and tools we can implement to minimize risk and help protect your financial future. Let’s connect today and discuss your needs, goals and concerns. At Benefit Resource Partners, we welcome the opportunity to help you implement the right strategy for your objectives.

1https://www.forbes.com/sites/advisor/2020/08/10/does-trumps-executive-order-mean-theres-no-second-stimulus-check-coming/#170371841d71

2https://www.google.com/search?q=INDEXSP:.INX&tbm=fin&stick=H4sIAAAAAAAAAONgecRowi3w8sc9YSntSWtOXmNU5eIKzsgvd80rySypFBLnYoOyeKW4uTj1c_UNDM0qi4t5FrHyePq5uEYEB1jpefpFAAAU6wGESAAAAA#scso=_N64yX_KZKca7tQawrZbwAg1:0

3https://www.google.com/search?q=INDEXDJX:.DJI&tbm=fin&stick=H4sIAAAAAAAAAONgecRozC3w8sc9YSmtSWtOXmNU4eIKzsgvd80rySypFBLjYoOyeKS4uDj0c_UNkgsry3kWsfJ6-rm4Rrh4RVjpuXh5AgAzsV5OSAAAAA#scso=_h64yX9HyDLOO9PwPrMKg2Ac1:0

4https://www.google.com/search?q=NASDAQ:NDAQ&tbm=fin&stick=H4sIAAAAAAAAAONgecRoyi3w8sc9YSmdSWtOXmNU4-IKzsgvd80rySypFJLgYoOy-KR4uLj0c_UNzKtyzQyKeRaxcvs5Brs4Blr5AQkAEbRSnEgAAAA#scso=_7a0yX-q3AcyxtQbPt7HICg1:0

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 authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. 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, presenting insurance professional makes no representation 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. 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. 20363 – 2020/8/20

Share on facebook
Share on twitter
Share on linkedin
Categories
Financial Planning Retirement Planning

Are “Penalty-Free” 401k Withdrawals Free?

Are "Penalty-Free" 401k
Withdrawals Free?

On March 27, the government passed the Coronavirus Aid, Relief, and Economic Security Act, otherwise known as the CARES Act. The Act had a wide range of provisions to provide Americans and small businesses with economic support during the coronavirus pandemic. The bill provided stimulus payments, enhanced unemployment, and various forms of business loans.

One provision that flew under the radar was the ability for qualified individuals to take distributions from their 401(k) plans and IRAs without paying early distributions penalties. Normally, you face a 10% early distribution penalty if you take a withdrawal from these accounts before age 59 ½.1

However, under the CARES Act you can take up to $100,000 as a penalty-free distribution from your qualified accounts, assuming you are a qualified individual.2 Are you qualified? And even if you can take a distribution, is it wise to do so?

CARES Act Qualified Plan Distributions

Under the CARES Act, you can take up to $100,000 in qualified plan distributions if you are a qualified individual. Who is qualified? Anyone who meets the following criteria:

  • You are diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention;
  • Your spouse or dependent is diagnosed with SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control and Prevention;
  • You experience adverse financial consequences as a result of being quarantined, being furloughed or laid off, or having work hours reduced due to SARS-CoV-2 or COVID-19;
  • You experience adverse financial consequences as a result of being unable to work due to lack of child care due to SARS-CoV-2 or COVID-19; or
  • You experience adverse financial consequences as a result of closing or reducing hours of a business that you own or operate due to SARS-CoV-2 or COVID-19.2

If you meet any of these criteria and you decide to take a distribution, you won’t have to pay the 10% early distribution penalty, even if you are under age 59 ½. However, you will still have to pay income taxes on the distribution. You can spread the taxes out over a three-year period, but you still have to pay them.2

Should you take a CARES Act distribution?

A CARES Act distribution may be the right strategy if you are in a financial crisis and have limited avenues available for relief. However, just because the distribution is “penalty-free” doesn’t mean it comes without consequences.

In addition to paying taxes on the distribution, you’ll also forego any future growth on the assets you withdraw. Tax-deferred growth is one of the biggest advantages of a qualified account. However, if you pull out funds, you lose all future tax-deferred growth on that amount. That could lead to a substantial reduction in your future assets at retirement.

Instead of dipping into your 401(k) or IRA, consider what other options you may have available. For instance, perhaps you could tighten your budget. Maybe you could refinance mortgages or other loans, or even renegotiate new payment terms. You may even consider picking up additional work until the crisis passes. It may be tempting to take an IRA distribution, but you’re only taking money from your future self.

Let’s talk about strategies to help you get through this period. Contact us today at Benefit Resource Partners. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.

Share on facebook
Share on twitter
Share on linkedin
Categories
Financial Planning Retirement Planning

Investing After Retirement: Tips to Protect Your Nest Egg

Investing After Retirement: Tips to Protect Your Nest Egg

Saving for retirement can often feel like climbing a mountain. It takes immense planning and discipline to reach the summit – the moment when you can finally retire and leave the working world behind.

Much like climbing a mountain, though, the summit isn’t the end of the story. You still have to get back down the mountain. Often, climbing down the mountain can be more dangerous than the ascent. It requires just as much planning and focus.

The same is true of continuing to grow your savings after retirement. Technically, you’ve reached the summit and retired, but you still have a long way to go. According to the Society of Actuaries, a 65-year-old man has a 50% chance of living to 87 and a 25% chance of living to 93. For a woman, those ages are 89 and 95.1 If you retire in your mid-60s, it’s very possible that you will live another 20 to 30 years.

How do you make your savings and income last for that period of time? Your strategy should be based on your unique needs and goals, but there are a few good practices to keep in mind. Below are a few tips to keep in mind:

Be mindful of inflation.

Inflation is the increase in prices of goods and services. Annual inflation is usually modest. In fact, it hasn’t exceeded 5% since the 1980s.2

Even modest inflation can impact your strategy over the long-term, though. Consider an average 3% inflation rate. Over 24 years, that means a doubling in prices. Could you afford to see your expenses double throughout retirement?

A strategy that leaves room for growth potential can help offset the effects of inflation. As your assets grow, you may be able to take increased income to cover the increase in prices.

Many retirees opt for strategies that have little risk exposure. However, it may be wise to allocate some portion of your savings to assets that offer growth potential so you can keep up with inflation. A financial professional can help you find the right mix.

Take the “Goldilocks” approach.

Do you remember the story of Goldilocks, the girl who finds her way into the home of a family of bears? She tries their porridge, their chairs, and even their beds until she finds the one that is just right.

A “Goldilocks” approach to growing your savings may not be a bad idea, especially after retirement. Don’t look for the portfolio that offers the most return or the least risk. Rather, look for the mix that is “just right” for your needs and goals. For instance, it may be that your “just right” strategy is one that limits risk but also offers growth potential and consistent income. A financial professional can help you find your “just right” strategy.

Have a withdrawal strategy.

If you’re like many retirees, you’ll receive Social Security and possibly even a defined benefit pension in retirement. But you also may need to take withdrawals from your savings to supplement those income sources.

What’s the right amount of income to take? If you take too little, you may not live the type of lifestyle you desire. Take too much and you could drain your savings. Before you enter retirement, you may want to plan your income strategy. Determine the right level to take without draining your savings.

Also develop backup plans. For example, how will you adjust your income if your investments decline? What if you have a costly emergency? How will you cover that expense? Should you look at tools to guarantee* your income? Again, a financial professional can help you answer these questions.

Ready to develop your post-retirement strategy? Let’s talk about it. Contact us today at Benefit Resource Partners. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.

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

2https://inflationdata.com/Inflation/Inflation_Rate/HistoricalInflation.aspx

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 authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. 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, presenting insurance professional makes no representation 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. 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.

*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. 20113 – 2020/5/26

Share on facebook
Share on twitter
Share on linkedin
Categories
Financial Planning Retirement Planning

What’s Next for a COVID-19 Economy?

What's Next for a COVID-19 Economy?

The economic fallout from the coronavirus pandemic continues, even as states start to reopen restaurants, retail stores, and other businesses. The crisis brought an end to the bull market that started in 2009 and threatens to usher in a recession.1

What does the future hold for the stock market and the economy? When will the economy recover? And how will this crisis impact your retirement and your financial future?

It’s impossible to definitively answer those questions. In many ways, this event is unprecedented. We don’t know how long the virus will present a threat, so it’s impossible to predict how or when the economy may recover.

However, it is possible to make adjustments to your strategy to minimize risk and take advantage of potential opportunities. It’s also helpful to keep in mind the long-term nature of the economy and the financial markets. Nothing lasts forever, including recessions and bear markets.

Stock Market Performance

The financial markets have been a rollercoaster since the onset of the pandemic. On February 19, the S&P 500 closed at 3386. On March 23, it closed at 2237, a drop of 33.93%. Since that time, the market S&P has climbed to 2863 as of May 15.2

It’s important to remember that the stock market isn’t the same as the economy. A drop in the stock market doesn’t necessarily signal a recession, just like a rise doesn’t necessarily spell an economic recovery.

It’s also helpful to remember that bear markets are a natural part of investing. They aren’t always caused by global pandemics, but they do happen. There have been 16 bear markets since 1926. On average, they last 22 months and are followed by a 47% gain in the year following the market’s lowpoint.3 We can’t predict when the market will hit its low point, or if it already has, but if history is any guide, the market will recover at some point.

Economic News

While the stock market has bounced back somewhat since its March decline, the overall economic news continues to be negative. More than 36 million people have filed for unemployment since late March. In 11 states, more than a quarter of the workforce is unemployed.4

In the first quarter, the economy contracted for the first time since the 2008 financial crisis. GDP declined by an annualized rate of 4.8%. That’s not as steep as the GDP decline of 8.4% annualized decline in 2008. However, it’s possible the economy could face a greater decline in the second quarter. Consumer spending, which accounts for 70% of GDP, fell by an annualized rate of 7.6% in the first quarter. That’s the steepest drop for that metric since 1980.5

While states may be starting the reopen process, there is still significant uncertainty surrounding the crisis and the economy’s future. The good news is you can take action to minimize risk. Contact us today at Benefit Resource Partners. We can help you analyze your goals and needs and implement a strategy. Let’s connect today and start the conversation.

1https://www.cnn.com/2020/03/11/investing/bear-market-stocks-recession/index.html

2https://www.google.com/search?safe=off&tbm=fin&sxsrf=ALeKk01UjyvpIcf62vDAgyulZ3dZuL1GWg:1589832165005&q=INDEXSP:+.INX&stick=H4sIAAAAAAAAAONgecRowi3w8sc9YSntSWtOXmNU5eIKzsgvd80rySypFBLnYoOyeKW4uTj1c_UNDM0qi4t5FrHyevq5uEYEB1gp6Hn6RQAAItD1MEkAAAA&sa=X&ved=2ahUKEwikycWrmr7pAhWWU80KHfhUBrcQlq4CMAB6BAgBEAE&biw=1536&bih=754&dpr=1.25#scso=_JerCXv0o9o70_A-NwLLYBg1:0

3https://www.fidelity.com/viewpoints/market-and-economic-insights/bear-markets-the-business-cycle-explained

4https://www.nytimes.com/2020/05/14/business/economy/coronavirus-unemployment-claims.html

5https://www.npr.org/sections/coronavirus-live-updates/2020/04/29/847468328/tip-of-the-iceberg-economy-likely-shrank-but-worst-to-come

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 authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. 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, presenting insurance professional makes no representation 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. 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. 20093 – 2020/5/19

Share on facebook
Share on twitter
Share on linkedin
Categories
Financial Planning Retirement Planning

Should You Leave Money in Your 401(k)?

Should You Leave Money in Your 401(k)?

There’s a growing trend among new retirees. With increasing frequency, Americans are choosing to leave their retirement savings. According to data from Fidelity, 55% of workers leave their retirement savings in their former employer’s 401(k) plan for a full year after retirement. That’s up from 45% just four years ago.1

Why are retirees leaving their assets in their old 401(k) rather than rolling those funds to an IRA? There could be a variety of reasons. Workers may be happy with the plan’s investment options and administration. They may feel comfortable with the plan’s online access and other management tools. They might not need the money immediately, so they don’t have urgency to do anything with it. It’s also possible that some retirees may not be aware that they can roll their funds into an IRA tax-free.

While there are certainly benefits to keeping your assets in your employer’s 401(k), there are also good reasons to roll the assets into an IRA. If you’re approaching retirement, now is the time to consider your options for your 401(k), which may be your largest retirement asset. Below are a few factors to consider:

Investment Options

If you’ve been in your 401(k) plan for a significant amount of time, you are likely familiar with the plan’s investment options. You may feel comfortable with your allocation and perhaps you even like the plan’s fee structure and performance.

However, your goals and risk tolerance won’t always be the same as they are today. Just as your investment strategy has evolved through your career, it will likely continue to evolve through retirement. What you’re comfortable with today may not be something you’re comfortable with in the future.

Generally, IRAs offer significantly more investment options than most 401(k) plans. That’s not necessarily true with every IRA and 401(k), but it is often the case. While a 401(k) plan may offer dozens of options from select providers, an IRA will often allow you to choose from a wide universe of stocks, bonds, mutual funds, ETFs, annuities, and more. That greater diversity of options can help you develop an allocation that is just right for your goals and risk tolerance, no matter how it changes in the future.

Management and Administration

You also may be comfortable with your 401(k) plan’s management and administration tools. Perhaps the website is easy to use. Maybe you have a dedicated support person within the plan administrator’s office. You know how to make changes and review your account, and you may not want to make changes at this time.

Again, though, consider whether it will still be convenient in the future to keep your assets in your old 401(k). If you’re like many retirees, you may have multiple 401(k) plans from old employers. You also might have IRAs and other investment accounts. It’s difficult to manage and adjust your strategy when you have accounts spread across multiple custodians and institutions. You could simplify the process by consolidating your qualified retirement assets into one IRA.

Also, when you reach 72, you’ll have to take required minimum distributions (RMDs) from your 401(k) and IRA. Again, that process may be inconvenient if you have to pull distributions from multiple accounts. If you consolidate your qualified assets into one IRA, you simply have to make withdrawals from one account to satisfy your RMD each year.

Income Protection

While you may not need to tap into your 401(k) assets today, it’s possible that at some point in the future you will need to take withdrawals from your retirement savings. Of course, it’s difficult to know how much you can safely take in a withdrawal each year. What if you live longer than you anticipate? What if the market takes a downward turn? How can you be sure your assets and income will last for life?

In most IRAs, you can use financial vehicles like annuities to convert a portion of your savings into guaranteed* income. You receive a regular consistent check that is guaranteed* for life, no matter how long you live or how the markets perform.

Historically, annuities with guaranteed income benefits have been more available in IRAs than in 401(k) plans. However, the passage of a new law, called the SECURE Act, creates the possibility for 401(k) plans to start offering these vehicles. Whether it’s through your IRA or 401(k), guaranteed income could give you a base level of financial stability confidence in retirement.

Ready to implement a plan for your 401(k) assets? Let’s talk about it. Contact us today at Benefit Resource Partners. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.

1https://www.marketwatch.com/story/more-americans-are-leaving-their-money-in-401k-plans-after-retirement-should-you-2019-10-31

*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 authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. 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, presenting insurance professional makes no representation 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. 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.

19563 – 2019/12/16

Share on facebook
Share on twitter
Share on linkedin
Categories
Financial Planning Retirement Planning

What in the World is an Investment Policy Statement?

What in the World is an Investment Policy Statement?

For decades, some of the world’s largest institutional investors have used one tool to guide their decision-making. Mutual funds, educational endowments, defined benefit pensions, and more all use this document to focus on their long-term goals and select only the investments that meet their specific criteria. It’s an investment policy statement (IPS).

An IPS isn’t just for institutional investors though. Individuals are now often using their own IPS to set long-term strategy and develop a formal process for choosing investments. While the format of an IPS can vary, most involve the following elements:1

  • Goals – A description of the purpose of the investment and the investor’s specific objectives.
  • Risks – The various risks that may threaten the strategy and a statement about the maximum acceptable risk that the investor is willing to accept.
  • Strategy – A description of the portfolio strategy and target allocation.
  • Current Investments – A list of all current assets and investments that are covered by the IPS.
  • Selection Criteria – The criteria that an investment must meet to be included in the strategy. The criteria could be based on past return, volatility, expense ratios, and more.
  • Monitoring Policy – A description of how the strategy will be monitored. When will reviews take place? When will the portfolio be rebalanced? What would need to happen to trigger a change in policy?

Do you need an IPS? It could be a valuable tool to help you maintain a long-term strategy and stick with a consistent investment approach. Below are a few ways in which you might benefit from an IPS:

It helps you avoid emotional decisions.

The average equity investor routinely underperforms the S&P 500 index. In fact, over the past 30 years, the average investor has had a 3.98% average annual return. The S&P 500 has averaged more than 10% annually over that same period.2

Why do investors underperform the market? There are many reasons but one of the biggest is that investors change their strategy based on emotional decisions and short-term impulses.

For example, you may get out of the equity markets if they take a downward turn. However, by the time the market has improved, you’ve already missed much of the recovery. These kinds of decisions cost investors return over the long-term.

An IPS helps you avoid short-term impulse decisions because all of your actions are guided by the document. If a change or adjustment isn’t specified in the IPS, you don’t make it. In many ways, an IPS protects you from yourself.

It clarifies risk.

What is your risk tolerance? Don’t know? You’re not alone. Unfortunately, many investors jump right into their strategy without considering their own tolerance for risk. That often leads to an allocation that isn’t right for their needs and goals.

Risk tolerance is an important component in IPS. Before you can establish your long-term strategy, you have to define the specific levels of risk that are or are not acceptable to you. You then develop an allocation that aligns with your acceptable level of risk. Without an IPS, you might choose an allocation that has far more potential for risk than is right for you.

Ready to create your own IPS? We can help. Contact us today at Benefit Resource Partners. We can help you document your goals, clarify your risk tolerance, and create a comprehensive policy that keeps you focused on the long-term.

1 https://www.morningstar.com/articles/808692/how-to-create-an-investment-policy-statement

2 https://www.marketwatch.com/story/americans-are-still-terrible-at-investing-annual-study-once-again-shows-2017-10-19

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 authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. 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, presenting insurance professional makes no representation 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. 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.  19564 – 2019/12/16

Share on facebook
Share on twitter
Share on linkedin
Categories
Financial Planning Retirement Planning

Year in Review: How Did the TSP Options Perform in 2019?

Year in Review: How Did the TSP Options Perform in 2019?

Do you contribute to the thrift savings plan (TSP)? For government workers, the TSP is a powerful savings vehicle. You benefit not only from agency contributions but also from tax-deferred growth. That means you don’t pay taxes on growth as long as the money stays inside the plan. Tax-deferral may help your assets compound at a faster rate than they would in a taxable account.

When you make a contribution to the TSP, you have the ability to allocate the funds across a range of investment options. They include the:1

  • G Fund: Government Securities Investment Fund
  • F Fund: Fixed Income Index Investment Fund
  • C Fund: Common Stock Index Investment Fund
  • S Fund: Small Cap Stock Index Investment Fund
  • I Fund: International Stock Index Investment Fund
  • Lifecycle Funds

The “alphabet funds” generally invest in the types of securities included in their respective name. For example, the G fund invests in government treasuries. The S Fund invests in small cap stocks.

The lifecycle funds invest in the other funds. However, the allocation of each lifecycle fund is automatically set to align with a future retirement date. For example, the L 2050 fund is for those who will retire in or near 2050, and invests more heavily in stocks because of the longer time horizon. The L 2020 fund is for those who are retiring in the near future, and it has a much more conservative allocation. Lifecycle funds are a convenient way to make sure you maintain an appropriate allocation at all times.

Through October 31, 2019, the TSP funds have the following year-to-date returns:2

  • G Fund: 1.93%
  • F Fund: 8.82%
  • C Fund: 23.14%
  • S Fund: 19.83%
  • I Fund: 17.28%
  • L Income: 6.06%
  • L 2020: 7.55%
  • L 2030: 13.47%
  • L 2040: 15.72%
  • L 2050: 17.61%

How will the TSP funds perform in 2020?

It’s impossible to predict future returns, especially in the short-term. However, there are steps you can take to minimize your exposure to risk and improve your odds for a successful outcome. Below are a couple steps you may want to take as you head into the new year:

Reassess your risk tolerance. What is your tolerance for risk and volatility? Do you know? If the answer is no, you’re not alone. Many investors haven’t really analyzed their feelings and comfort level with risk. As a result, they have an allocation that isn’t appropriate for their goals and needs.

A financial professional can use a variety of tools to determine your unique level of risk tolerance. They can then help you find the allocation that is likely to provide the best mix of risk and return for your needs.

Increase your contributions. In 2020, you can contribute up to $19,500 to the TSP. If you are age 50 and older, you can contribute an additional $6,500, for a total maximum contribution of $26,000.3

Of course, that limit doesn’t even include the agency automatic and matching contributions. If you contribute more than 5% of your income to the TSP, you get your contribution plus an additional 5% from your agency.4 Those contributions could help offset any investment downturns and keep your nest egg moving in the right direction.

Ready to get your retirement on track in 2020? Let’s talk about it. Contact us today at Benefit Resource Partners. We can help you analyze your needs and implement a strategy.

1 https://www.tsp.gov/InvestmentFunds/FundOptions/index.html

2 https://www.tsp.gov/InvestmentFunds/FundPerformance/monthlyReturns.html

3 https://www.tsp.gov/PlanParticipation/EligibilityAndContributions/contributionLimits.html

4 https://www.tsp.gov/PlanParticipation/EligibilityAndContributions/typesOfContributions.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 authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. 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, presenting insurance professional makes no representation 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. 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.  19522 – 2019/11/27

Share on facebook
Share on twitter
Share on linkedin
Categories
Financial Planning Retirement Planning

Give Yourself These 3 Retirement Planning Gifts This Holiday Season

Give Yourself These 3 Retirement Planning Gifts This Holiday Season

Have you finished your holiday shopping? It’s that time of year again. It’s the season to buy gifts for spouses, children, and all the other friends and family who play a meaningful role in your life.

This isn’t just the season for giving to others, though. You may also want to think about a gift for yourself. You could splurge on an expensive item you’ve had your eye on. Or you could give yourself a financial gift that will pay benefits long into the future.

This holiday season consider giving yourself the gift of a stronger financial future. Below are three retirement planning steps you can take to improve your finances today and in the future. If you aren’t currently implementing these steps, now may be the time to do so.

Increase your TSP contributions.

In 2020, you can contribute up to $19,500 to the thrift savings plan (TSP). If you are age 50 and older, you can contribute an additional $6,500, for a total maximum contribution of $26,000.1

Of course, that limit doesn’t even include the agency automatic and matching contributions. If you contribute more than 5% of your income to the TSP, you get your contribution plus an additional 5% from your agency.2 Those contributions could help offset any investment downturns and keep your nest egg moving in the right direction.

You may not be able to contribute the maximum amount of $19,500. However, any increase is helpful. You may want to gradually increase your contribution over time. For example, you could increase your contribution rate by 1% every few months. By doing it gradually, you may not feel a crunch in your budget.

Contribute to an IRA.

One of the biggest benefits to a career in government is the retirement plan. You can contribute to the TSP, earn annuity credits, and even participate in Social Security. You aren’t limited to those options, though. You can also contribute to an individual retirement account (IRA).

In 2020, you can contribute up to $6,000 to an IRA and an additional $1,000 if you are 50 or older.There are a few different types of IRAs but the most commonly used are the traditional and the Roth. With a traditional IRA you may be able to make tax-deductible contributions. Your contributions grow tax-deferred and then you can take taxable withdrawals in retirement.

In a Roth IRA, your contributions aren’t deductible. However, your withdrawals in retirement are tax-free. There are income limitations that restrict who can use a Roth. A financial professional can help you determine which type of IRA is right for you.

Contribute to an HSA.

In retirement, you’ll likely have the option of either enrolling in Medicare or staying in the Federal Employees Health Benefits (FEHB) system. Either way, you’ll likely have out-of-pocket health care costs above and beyond what is covered by insurance. In fact, Fidelity estimates the average retired couple will spend $285,000 out-of-pocket on health care in retirement.

You can start planning for those expenses today by contributing to a health savings account (HSA). With an HSA, you make a pre-tax contribution and allocate the funds according to your goals and risk tolerance. The money then grows on a tax-deferred basis. In the future, you can take tax-free withdrawals to pay for qualified health care expenses. It’s a tax-efficient way to pay for future medical costs.

Ready to take control of your retirement in 2020? Let’s talk about it. Contact us today at Benefit Resource Partners. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.

1 https://www.tsp.gov/PlanParticipation/EligibilityAndContributions/contributionLimits.html

2 https://www.tsp.gov/PlanParticipation/EligibilityAndContributions/typesOfContributions.html

3 https://www.irs.gov/newsroom/401k-contribution-limit-increases-to-19500-for-2020-catch-up-limit-rises-to-6500

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 authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. 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, presenting insurance professional makes no representation 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. 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.  19521 – 2019/11/27

Share on facebook
Share on twitter
Share on linkedin