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Retirement Checklist

There are many, many decisions to be made as you move from the working phase of your life to the retirement phase.  Retirement planning is a common discussion that we have with our clients – regardless of their age.  This article talks about some retirement considerations that seem to be universally applicable.

Retirement Date.  You may have been thinking about retiring at a particular age for some time.  Before actually taking the big step, see if your plans need any adjustments.  For example, delaying retirement a year or two can make a significant difference in your retirement finances.  This is because of two key factors.  First, you reduce the number of years that your savings need to last.  Second, you accumulate additional savings to help fund retirement.  Additionally, you should think about whether this is the right time to fully retire or to partially retire.  Not only does part-time employment provide additional income during retirement, but it may enable you to keep doing something that you love, but at a more relaxed pace.

Expenses.  It’s difficult to know whether you’re financially ready to retire if you don’t know how much you’ll need.  There are rules of thumb that you can use, but they vary quite a bit.  The old standard was that you’ll need about 80% of your pre-retirement income in retirement.  This was based on the elimination of several expenses such as commuting and saving for retirement.  However, certain other expenses will actually increase such as health care and travel expenses.  Many financial advisors now advise planning on having similar pre-retirement and post-retirement expenses.  If affordable, this is a pretty safe bet.  Another expense planning approach is to track your expenses now and adjust certain categories to see what your retirement expense might look like.  A previous blog called How to Manage Expenses in Retirement can fill you in on some of the details of this approach.

Health Care.  This is an expense that deserves special attention because it’s a very large portion of your total expenses and it will increase significantly as you age.  The initial cost of health insurance depends on your age.  If you’re 65 or older, things are pretty straightforward.  Most of us will sign up for Medicare and probably choose one of the supplemental plans.  After considering deductibles and co-pays, we have a pretty good idea of our initial medical costs. If we’re younger than 65, we’ll need to obtain private insurance to replace employer-supplied insurance that many of us had before retiring.  This is pretty dynamic and depends on future changes to the Affordable Care Act.  A special aspect of health care cost is long-term care coverage.  It used to be that people were encouraged to purchase long-term care insurance.  However, in recent years this coverage has become much more expensive and benefits have been reduced.  Other approaches are often superior now.  For example, see a previous blog called Life Insurance Policies That Pay For Long-term Care.

Interest Expense. Another expense you’ll want to spend some time thinking about is interest.  It’s interesting that many of the guidelines on interest are the same before and after retirement.  That is, it’s always best to retire high-interest rate debt (such as credit card debt).  Large debts also deserve some consideration, especially as you approach retirement.  Does this mean you should always have your mortgage payed off before retirement?  Not necessarily.  Some people may have greater peace of mind if their mortgage is paid off and that is an excellent reason to do so.  However, from a strictly financial point of view, there are arguments to be made both ways.  The main reason to retire your mortgage is to narrow any gap between your income and your expense projections.  There are several common reasons to not pay off your mortgage before retirement.  These include freeing up funds for other reasons such as maximizing 401(k) contributions before retirement or paying off higher-interest debts.  It may also be that you plan to move in the next few years, so it probably makes sense to maintain your mortgage until then.

Income.  Once you’ve figured out your expenses, you have a good handle on the income you’ll need.  You’ll need to add up all of your investment assets to see where you are on this.  For many of us, this will include Social Security, any pension or defined benefit plans we have, IRAs, 401(k)s or 403(b)s and our personal portfolio of investments.  A reasonable rule of thumb is to withdraw 3.0-3.5% of your nest egg annually to avoid outliving your savings.  So, how do your expense and income results compare?

Portfolio Review.  You probably know that you’ll want to decrease the percentage of your assets that are in the market as you age.  There’s considerable variability on the best way to do this.  Many advisors have their clients at 50% stocks and 50% bonds when retirement begins.  (In practice, this actually varies from a 40/60 to a 60/40 stock/bond position.)  A simple rule of thumb exists that can help you think about your asset allocation.  You simply subtract your age from 110 to determine the percentage you should have in the market at a particular age.  For example, at 70 years old you should have 40% in stocks.  Beyond asset allocation, you’ll want to be sure that your portfolio is properly diversified so that you can ride out the normal ups and downs of the market.

As you can imagine, there are many other financial considerations as you approach retirement.  We’d be glad to help you develop a retirement plan that makes sense in your situation.  If you’ve already put together a retirement plan, we’re able to review it and point out areas you may want to think about a bit more.  In addition, we can stress test your plan to see how it will hold up under a variety of market conditions over the coming decades (using Monte Carlo simulation).  So, whether you’re already retired or are still preparing for it, we’d be happy to sit down with you and review your situation in a no-charge, no-obligation initial meeting.  Just visit our website or give us a call at 970.419.8212 to learn more.

This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products.  Please consult your tax or investment advisor for specific advice.

The Three Phases of Retirement

Congratulations if you’ve already reached retirement!  This can be a wonderful time in your life. But just like pre-retirement, there will be different phases in retirement. In this article, I’ll introduce you to what many people call the three phases of retirement.

Phase One.  For many of us, this is the first decade or so of retirement.  Say 65-75 to make it concrete.  It’s the time that hopefully we’re still in excellent health and we still have a lot of energy.  It’s kind of like when we were working, except now we have the time and the money to do what we want.  For lots of us, we’ll travel, do some recreational things and generally just enjoy ourselves.  This is often the sweet spot of retirement.

To support it, you’ll typically spend more than you will later in retirement.  Let’s get specific here.  A commonly used rule of thumb is that if you withdraw 3-3.5% of your investments per year in retirement, you won’t outlive your funds.  In phase one, many people increase the withdrawal rate to about 4% to pay for the extra travel and other fun things.

You may wonder how you can afford spending more in phase one.  The reason this works is because you’ll spend less on just about everything else (except for health care) as you age.  That’s right, you’ll spend less on food, housing, clothing, transportation and entertainment in phases two and three.  In fact, the Bureau of Labor Statistics found that people who are 75 or older spend 23% less than those in the 65-74 group.

Phase Two.  You might call this the middle period.  Let’s say it covers ages 75-85.  This is when many of us slow down a bit.  Health issues and decreased energy are the usual causes of this.  We’re still enjoying retirement, just in a new way.  For example, we probably travel less.  The Bureau of Labor Statistics found that people who are 75 or older spend 35% less on transportation than those in the 65-74 group.  Medical expenses will probably increase.  If they get a lot higher than the previous decade, it might be worth reviewing the various Medicare plans and getting one with better coverage.  While the premium may be higher, it might save you money overall.

Phase Three.  Some people think of this as the home stretch.  It begins around age 85.  Many of us need some help in this period.  Whether it involves assisted living or hiring some in-home care, medical costs will rise.  Hopefully you made plans earlier in your life to fund these long-term care needs.  This is also a good time to be sure your estate documents are up to date.  Don’t forget to look at your medical directives to be sure your end-of-life wishes are clear.  Many of us will want to review our remaining assets and determine how we’d like to use them.  Maybe we want to help a grandchild with college.  Maybe we want to watch our final expenses so we can maximize the legacy we leave.  The “best choice” is as individual as you are!

Whether you’re already retired or are still preparing for it, we’d be happy to sit down with you and review your situation in a no-charge, no-obligation initial meeting.  Just visit our website or give us a call at 970.419.8212 to learn more.

This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products.  Please consult your tax or investment advisor for specific advice.

12 Tips for New Graduates – Part 2

Last month we discussed the first six of twelve financial tips for new graduates.  If you missed that post, please check it out.  These tips were developed through our interactions with CSU students who come in to establish a financial vision and to jumpstart their savings program.  This month we’ll go over tips seven through twelve.

  1. Automate your savings. If you have hard time putting money away, you can have it done for you. You just have your employer take out a percentage or fixed amount of your income from each paycheck and automatically have it placed into one of your savings vehicles such as your Roth IRA, traditional IRA, or just your bank savings account.  Alternatively, you can simply set up your bank account so that a fixed amount is automatically transferred to another account at whatever frequency you would like.  This is an effective method that quickly gets you used to living without that money, prevents you from deciding that you “need” it this month and it requires minimal maintenance or oversight from your end.
  1. Adjust your standard of living. A large portion of graduates received financial assistance from their parents in regards to their living situation. This means you are probably used to a relatively high standard of living.  Once you are no longer receiving assistance with your expenses, you may find that it is more of a stretch to do all things you were previously able to in college.  You have to get used to spending less than you make, otherwise it’s going to create a slew of financial problems in the future.  Simply put, if you spend more than you make, you’ll find yourself in a very difficult situation moving forward.
  1. Tax Planning. Although taxes can take a huge bite out of your paycheck, there are two great ways to decrease your tax liability and contribute to your retirement savings. First, you can avoid any taxes on up to $18,000 (2017 per-person contribution limit) by placing it into a 401(k) plan.  Such investments are not taxed until withdrawal which usually occurs in your 60s or 70s when you might well have a lower taxable income.  Second, making such 401(k) contributions can help lower your effective tax rate.  For example, if your earned income just advanced you to a higher tax bracket, you can pull back down into a lower bracket by putting money into your 401(k).  And, any money you can sock away for retirement will lead to a brighter future!
  1. Insurance. You really need health insurance. Yes, you’re in great shape now, but health insurance protects you and your savings when the unexpected occurs.  Now this doesn’t mean that you need to go out and get the most expensive policy that covers everything under the sun.  You simply need to set yourself up with basic coverage.  Most companies will pay for a portion of your health insurance premiums. Life insurance is not quite as clear cut.  If you’re not making much money to begin with, paying for those premiums may or may not be worth it.  If your spouse or partner also works, there’s no pressing need to have life insurance to protect them.  However, if you’re planning on having kids soon, then you should definitely consider getting life insurance for both parents.  If anything were to happen to either one of you, it might be very difficult for the remaining spouse or partner to raise children with a single income.
  1. Beware of payment plans! Payment plans can look so attractive when you’re getting something you really want for only a couple bucks a month. One thing you need to consider before you get all those micro subscriptions is your budget.  Of course, it seems like $15/month isn’t going to stretch your discretionary budget too much.  However, taking on multiple plans just might.  Cell phone plans today are upwards of $70 for just one person plus most people have car payments, rent/mortgage, cable/internet, and utilities.  Odds are that you already have substantial monthly payments.  On top of all that, you’re going to have student loans to start paying back as well.  Before adding to your monthly payments, consider taking a look at your budget and make sure you’re not stretching yourself too thin.  Remember, you’re supposed to be reducing your debt not adding to it.  Payment plans are a promise to pay, so you are obligated to pay the agreed amount.  If you realize you can’t pay for something anymore, you’ll have to default on it, or be sent to a collection agency, depending on the product or service.  Either way it is going to be a nightmare for your credit score.  If it’s something that you feel you really want in your life, consider saving up for it so you can buy it outright.  At least, at that point, you’re putting away money at your own rate and are not obligated to pay anything if a particular month is rough on the budget.
  1. Don’t be afraid to seek advice. At some point in your life you are more than likely going to need some advice on your finances. Nobody has all the answers, but meeting with a fee-only hourly planner can help guide you in the right direction.  Odds are you are going to end up paying for advice at some point or another regardless; it’s just a matter of how many mistakes you have made before seeking the help of a financial professional.  Developing a financial plan early on will help you avoid costly mistakes down the road.  This is not to say that just because you have an advisor that nothing will ever go wrong; because many things will, but it’s nice to have a plan for when they do.  A planner can help you cover many of the areas covered in this article.  If you think you will struggle with any of the above topics, than you should seriously consider speaking to a fee-only planner who can get you started on the right track with good spending habits.  If you don’t want to seek outside help, than I would recommend helping yourself and maybe taking some courses on personal finances.

We know a lot of this is new to many of you.   We’d be happy to help you apply these ideas to your personal situation (or talk about any other financial matters) in a no-charge, no-obligation initial meeting.  Just visit our website or give us a call at 970.419.8212 to learn more.

This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products.  Please consult your tax or investment advisor for specific advice.

12 Tips for New Graduates

Being located in Fort Collins, near CSU, we see quite a few new graduates who come in to talk about their financial future.  This is so outstanding!  It helps them develop a vision of where they want to go financially (which enables many other goals).  It also puts time on their side in terms of savings.  For example, $5,000 saved around graduation has about 45 years to grown until retirement.  Assuming a 4.5% growth rate, that nest egg will be worth about $36,000.  Seem like small change?  How about saving $5,000 a year during that period?  Then you end up with a half-million dollars at retirement!

Anyway, these meetings with graduates have established twelve tips that seem to be pretty much applicable to everyone.  We’ll talk about the first six this month and the other six next month.

  1. Establish Goals. In addition to retirement, there will be lots of things that you will want to do in your life that will require some saving. These things might include a new car, a boat or a down payment on your starter home.  All of these things take work and will require that you put money away early and often to obtain them.  Having a large down payment on a house will dramatically reduce your payments and can even increase what your able to save for your other goals.  Buying a house with little to nothing down is going to increase your monthly payments drastically and tighten your budget along the way.
  1. Know the difference between gross and net pay. Keep in mind that the job offer you receive is not actually the amount that you will be bringing home. The amount you see on paper is your gross amount and does not reflect your after-tax or net pay.  This is important because some people make the mistake of taking on a living situation under the assumption they are going to be making more than they really are.  For example, if you receive an offer that includes a $50,000 salary in the state of Colorado for a single tax payer with no dependents, that actually translates to roughly $36,244 after taxes.  That equates to a difference of nearly $14,000.  Simply put, make sure you are taking taxes and other withholding factors into account when you are planning your budget.
  1. Make a budget and stick to it. Budgeting can seem hard, but after you get started, it’s actually pretty easy. The 50/30/20 rule is a commonly accepted budgeting practice in which you base your spending off of the amount of money that you bring home (net pay).  You spend 50% of your paycheck on necessities, 30% on discretionary items such as clothes, entertainment and dining out and 20% on savings.  If one-fifth of your paycheck sounds like a lot to be kissing goodbye every two weeks, make sure you are taking advantage of any work-sponsored plans.  Many employers offer matches on 401(k) plans and other financial benefits.  If your employer offers a 5% match, take advantage of it.  Then you only have to put away 15% towards savings and your employer will take care of the rest!  The more you can capitalize on employer-sponsored benefits, the more you’ll have for other goals.  If you are especially savvy, consider the principles of billionaire Sir John Templeton.  John started out poor in the early stages of his life, but quickly changed that through hard work and a lot of dedication.  He regularly put in 60 hours a week and put away 50% of his pay towards savings.  Now this is way too aggressive for most of us, but we can apply variations of this principle based on the circumstances in our lives.  For example, if you receive a bonus at work, or if you have some kind of financial gain from a real estate endeavor, consider putting at least 50% of it into your savings.  This principle will have a massive impact on your savings if you apply it whenever you can. 
  1. Invest. Investing is scary, especially if it’s a completely new concept to you. Risk is an inherent part of investing that never really goes away.  However, if you are just lumping all of your money into a savings account or into government bonds, over time inflation is going to eat away at everything you’ve worked so hard for.  Growing your money is the only real way to mitigate inflation and to make sure that you’re financially stable 40 years down the road when it’s finally time to retire. It doesn’t have to be something you do alone; there are many professionals out there whose only job is to ensure your financial success. 
  1. Start an Emergency Fund. I know it seems like pulling from your paycheck never ends, but I promise you it pays off down the road. Start an emergency fund as soon as possible to account for unforeseen events.  This could be anything from your car breaking down to being laid off from work.  When surprises happen, you don’t want to have to hit up your savings to pay for random big-ticket events.  Having an emergency fund provides peace of mind knowing that if anything does go wrong, you can handle it without using the savings that you’ve worked so hard to put away.  Life is full of surprises, so make sure you’re prepared for them.
  1. Reduce your debt. Before you’re ready to make any major purchases, like a new car or buying a home, you need to get rid of any significant debt that you already have. This way you aren’t digging yourself a hole that you can’t get out of.  If you are paying back things like student loans or credit card bills, getting rid of them should be your primary objective coming out of school.  Once your debt decreases you’ll notice your credit score will begin to improve, which provides you with a huge benefit when you do decide to start making some major purchases.  A healthy credit score can significantly affect the interest rate applied to your purchase.  Over the life of the loan, this can save you thousands of dollars which would have been wasted paying off inflated interest.  Keep in mind that you don’t have to go crazy trying to pay things off.  A good strategy to use is what’s called a debt waterfall.  To implement this strategy you will begin paying things off one at a time.  Pick your debt with the highest interest rate and increase your payments towards that while making minimum payments towards all of your other debt obligations.  If the minimum payment is $50, make payments of $100.  Obviously, what you are able to pay will vary from person to person, but this principle can be applied by anyone.  Keep this up until eventually all of your unwanted debt is gone.  This won’t take as long as you might think if you stick to it.

Next month, we’ll cover the remaining tips for recent grads.  We know a lot of this is new to many of you.   We’d be happy to help you apply these ideas to your personal situation (or talk about any other financial matters) in a no-charge, no-obligation initial meeting.  Just visit our website or give us a call at 970.419.8212 to learn more.

This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products.  Please consult your tax or investment advisor for specific advice.

Should High-Income People Apply for College Aid?

It’s not a newsflash to note that college is expensive.  One year at CSU is about $25,000 and at CU it’s about $30,000. (That’s for in-state tuition, room and board and other expenses such as books.) Whether you’re a high-income family or not, it’s good to know that the Department of Education says that “most people are eligible for financial aid for college or career school.” That’s right, most people are eligible for financial aid. Despite this fact, many high-income families assume they won’t qualify for financial aid and so they don’t apply. In most cases, this is leaving money on the table.

Still wondering if you’re too wealthy to qualify? Okay, let’s get specific on eligibility.  A Wall Street Journal analysis determined that a family making less than $350,000/year, with assets of under $1 million with more than one student attending a more expensive school or with more than one child in college should apply for financial aid.

The most important step you can take in applying is to complete the Free Application for Federal Student Aid (FAFSA). FAFSA enables access to all forms of federal aid – Pell Grants are one example.  Each year, the Department of Education provides more than $120 billion in federal grants, loans and work-study funds to more than 13 million students paying for college or career school.  So, lots of people receive aid.

Finally, some parents are concerned that applying for financial aid may decrease the chances that their child will be granted admission. This can be a factor, so it’s worth checking to see if your target schools do consider financial aid in their admissions process. Schools are either need-blind or need-aware. Need-blind means that acceptance is not tied to financial aid. Need-aware means that financial aid may be taken into consideration. In practice, even in need-aware situations, aid only seems to be a factor in borderline situations.  As a reference point, both CSU and CU are need-blind.

Financing college is a challenge for most of us. There are many ways to prepare for this expense such as 529 plans. We’d be happy to help you think about funding your kids’ college education or any other financial matters in a no-charge, no-obligation initial meeting.  Just visit our website or give us a call at 970.419.8212 to learn more.

This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products.  Please consult your tax or investment advisor for specific advice.

Financial Spring Cleaning

The weather is turning warmer and we look forward to a beautiful spring.  But first, perhaps some “financial spring cleaning” would help you enjoy the summer a bit more.  While this task may not be the most exciting, it usually is rewarding in the end.  This spring, while you’re tidying up your home, consider getting a fresh-start with your finances as well.  This article includes three helpful ways to do a quick financial spruce-up.

Break Out the Highlighters

Spring is a great time to take a closer look at your budget and one way to do this is to go old-school.

Find your credit card statements from the past six months and a few highlighters.  Use one to highlight necessary expenses (monthly bills, groceries, tuition, etc.), another to highlight items bought because you really wanted them (Netflix subscription, a new TV, new kitchenware, etc.) and another to highlight less thought-out purchases (fast food, drinks at happy hour, Starbucks coffee, etc.).

This exercise proves to be eye-opening as to how much people are spending on stuff they really don’t need or really didn’t want that badly.

After highlighting each of these areas, consider setting up a budget spreadsheet or physical folders with separate categories and spending limits for each one.  For example, you can spend up to $100 on pet supplies, $300 on groceries, $100 on miscellaneous/entertainment and obviously however much your monthly necessary bills are (utilities, mortgage, etc.).  Keep track of spending records/receipts/ statements and throughout the month see if you are sticking to the budget or overspending in certain areas.  Then, come next spring, you will have a record of the year’s spending and can see how your spending has trended over time.  (As a bonus, it will also be extremely helpful in planning next year’s expenses!)

Make it Automatic         

If you haven’t made your savings contributions automatic, consider doing it now.  Utilizing this free and easy system may make your life simpler.  Having a deduction taken out of every paycheck for savings before you see it makes it easier to not spend and easier to accumulate a savings.

Another automatic system to take advantage of is changing your bills to auto-pay, if available.  As always, you should review your bills each month, but having some of them set up on auto-pay quickens the process and also ensures payments are on time.  To help avoid surprises, stick with only automating bills that are the same every month like insurance or rent.  Also important to keep in mind, is to not have all your auto-payments around the same day/pay-period.  Keeping them spread out will ensure you always are left with money for other important necessities and unexpected expenditures.

Go Paperless

You know that amazing feeling when you finally get rid of clothes you haven’t worn in two years?  Well, getting rid of that filing cabinet filled with old bills and credit card statements can feel just as freeing.  Consider both scanning your important documents into a folder on your desktop and going paperless with your statements going forward.  This will allow you to find them quickly, protects them from loss, and makes your home less cluttered.

Of course, do not just start tossing.  A general rule to go by is to hang onto tax records for seven years and if it is easier, just hold onto hard copies of those.  But everything else, including bank and credit card statements, pay stubs, could be scanned and stored in a cloud-based filing provider, such as Dropbox or Google Drive.

We’d be happy to help you think about expense management, realistic savings goals, record retention or any other financial matters in a no-charge, no-obligation initial meeting.  Just visit our website or give us a call at 970.419.8212 to learn more.

This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products.  Please consult your tax or investment advisor for specific advice.

Fiduciary Duty Rule Delayed

The Obama administration passed a rule that required investment advisors to adhere to fiduciary standards.  Simply put, this means recommending investments that are in the client’s best interests.  Previously, advisors merely had to recommend suitable investments.  This often led to them recommend investments that, while suitable, offered the advisor the highest possible commission which was derived from very high customer fees.

This rule was set to go into effect in April 10.  However, President Trump issued an executive memorandum on February 3 that delays implementation of this rule.  The memorandum directs the Department of Labor to delay implementation until June 9 to understand the rule’s impact on investment firms and investors.  Conflict-of-interest disclosures and special rules for selling annuities will be delayed until January 1, 2018.

As in most legislation, there are arguments for and against these rules.  Ignoring the details of these arguments, many reporters conclude that the investment industry is against the Fiduciary Rule and that consumer advocacy groups support it.  For example, AARP Executive Vice President Nancy LeaMond says that “It is time that all Americans can count on retirement investment advice that is in their best interest, not the interest of Wall Street.”  Kevin Keller, who heads the Certified Financial Planner Board (of which Guidepost Financial Planning is a member), says that “Advisers should be required to put their clients’ best interest first.”  You can learn more about this legislation by reading our previous blog posts on New Fiduciary Rule for IRAs, Push to Protect Investors and The Future of Financial Advice.

However this legislation turns out, you can be assured that Guidepost Financial Planning voluntarily adheres to fiduciary standards.  We’re one of the Fee-Only professionals that always put your interests first.  If that kind of trustworthy financial advice sounds good to you, just visit our website or give us a call at 970.419.8212 so that we can set up some time for a no-charge, no-obligation initial meeting.

This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products.  Please consult your tax or investment advisor for specific advice.

Are ETFs or ETNs Right for You?

What is an ETF?

An ETF is an Exchange Traded Fund.  ETFs are similar in many ways to traditional mutual funds, except that shares in an ETF can be bought and sold throughout the day like stocks on a stock exchange through a broker-dealer.   An ETF holds assets such as stocks, commodities or bonds.  It trades throughout the day at a market price that approximates the net asset value of the underlying assets.  Most ETFs track an index, such as a stock index or bond index.  So, in short, an ETF is like a mutual fund, but it trades like an individual stock.

How do ETFs and mutual funds differ?

The main differences between ETFs and mutual funds are costs, trading and tax efficiency.  Let’s take a brief look at each.

Costs:  ETFs have a reputation for lower costs than traditional mutual funds.  Since most ETFs are index funds, they are much simpler to run, since it does not require some security selection, and can be largely done by computer.  Mutual funds can charge 1% to 3% or more while ETFs are almost always less than 1%.

Trading:  A mutual fund is bought or sold at the end of a day’s trading, whereas ETFs can be traded whenever the market is open.  Since ETFs trade on the market, investors can carry out the same types of trades that they can with a stock.  For example, investors can sell short, use a limit order, use a stop-loss order, buy on margin, and invest as much or as little money as they wish.

Taxes:  You may know that whenever a mutual fund realizes a capital gain that is not balanced by a realized loss, the mutual fund must distribute the capital gains to its shareholders.  ETFs on the other hand generally only realize capital gains when they sell their own shares or when the ETF trades to reflect changes in the underlying index.

What are ETNs?

An ETN is an Exchange Traded Note.  ETNs are unsecured debt obligations of financial institutions that trade on a securities exchange.  ETN payment terms are linked to the performance of a reference index or benchmark.  For example, they might be linked to well-known broad-based securities indexes or based on indexes tied to emerging markets, commodities, volatility, a specific industry sector (e.g. oil and gas pipelines), foreign currencies, or other assets.

ETNs are more complex than ETFs and include higher levels of risk.  The SEC notes that “You should understand that ETNs are complex and involve many risks for interested investors, and can result in the loss of your entire investment.”

Does Guidepost Financial Planning like ETFs or ETNs?

In general, we like ETFs, but are cautious regarding ETNs.  For both types of securities, you should ensure the fund has sufficient volume (high volume is good, as spreads and trade execution are better) as well as reasonable costs.  As with all investments, your personal situation and objectives are central factors.  We’d be happy to sit down with you and discuss ETFs and investments generally in a no-charge, no-obligation initial meeting.  Just visit our website or give us a call at 970.419.8212 to learn more.

This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products.  Please consult your tax or investment advisor for specific advice.

Baby Boomers Retire

Are you a boomer?  This generation was born between 1946 and 1964.  They’re currently between 53 and 71 years old and they’re in various states of financial preparedness for retirement.  Unfortunately, the AARP reports that 49% worry about financial matters followed by 42% worrying about health challenges.  It’s easy to understand this concern when you consider that about half of all boomers have only put aside $100,000 or less for retirement.

Fortunately, there are steps that can be taken.  These are most effective if you’re on the 53-year-old end of the spectrum, but there are things that can be done even if you’re near the 71-year-old end.  The best approach depends very much on your situation.  It can include accelerated savings plans, working full- or part-time past 65 and adjusting your expenses.  We’ll tell you how to develop a plan that’s suited to you at the end of this article.

What I really want to talk about here are the many wonderful and challenging lifestyle changes that can come with retirement.  It seems like the biggest gift that retirement offers is time.  Your kids are raised and you no longer have predefined 9-to-5 responsibilities.  By in large, you can decide what most days will look like and that’s huge.

What people do with this time is as varied as the boomers themselves.  Early in retirement, many people do the traveling they never had time for.  Renting a house in Tuscany for a few weeks actually doesn’t sound too bad!  Another popular use of the newly found free time is the pursuit of a new skill.  Learning how to play a musical instrument, learning a foreign language and woodworking are just a few of the wonderful options people choose.  People are thrilled to be able to spend more time as grandparents.  Many find they can leverage their pre-retirement skills in a satisfying volunteer job.  Some have joined a group of like-minded people – maybe a walking club, a cycling group or a cooking group.

Health also takes more time.  Walking, gardening, going to the health club, yoga, tai chi or water aerobics are all good ways to try and preserve you health.  You’ll have time for doctor visits and even a restful nap when you want it.

As retirement progresses, most of us start thinking about our mortality.  Fortunately, if we made it to 65, we’re very likely to make it to at least 80!  Nonetheless, friends, and even spouses, will start passing away.  As painful as this aspect of aging can be, it’s also a good reminder to enjoy each and every day to its fullest.  And while we’re on this topic, please remember to have your will and advanced directives in place.

Okay, we’d promised that we’d tell you how to develop a plan that’s suited to you and here’s how.  Just visit our website or give us a call at 970.419.8212 so that we can set up some time for a no-charge, no-obligation initial meeting.  We can talk about your financial situation and outline some actions that you can take to make your retirement enjoyable!

This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products.  Please consult your tax or investment advisor for specific advice.

Financial Planning Resolutions

Well, we’re one month into 2017.  If you haven’t made any financial resolutions yet, now is a great time to review your financial scorecard for last year and then look for ways to improve in 2017.  Here are some financial goals you could take in to consideration this year.

Calculate Your Net Worth

If you haven’t done so already, The New Year is as good a time as any for determining what you’re worth (financially, of course). Calculating your net worth is a key step in assessing your financial health and reaching your financial goals. Looking closely at all your assets and liabilities helps create a clear picture of where you are prioritizing your current spending and saving and where you need to make changes in your spending and saving habits.

It’s a good idea to recalculate your net worth each year to keep on top of your progress towards your financial goals and correct any mistakes you’re making before they create overwhelming debts.  The resolutions you need to make will become more obvious after making this calculation.

Reset Your Retirement Savings

At work, you probably have the opportunity to save for your retirement through a 401(k), 403(b) or 457 plan sponsored by your employer. If so, consider that most people find it easier to max out their retirement contributions by budgeting to contribute a set amount each month.

Employer Plans:  If you have access to a 401(k), 403(b) or 457 plan at work, consider instructing your employer to withhold enough through salary deferrals to ensure that you reach the maximum limit each year. If you’ll be 50 or older by December 31, bump up that amount to account for the additional catch-up contributions you’re allowed to make. If you are paid on some other frequency, such as weekly or bi-weekly, simply divide the contribution limit by the number of your pay periods for the year.  Of course, you should save only amounts that you can realistically afford, as contributing more than you can afford may result in having to incur debts to cover everyday expenses. To determine how much you can save each period, incorporate your retirement savings into your regular budget.

Self-employment Plans:  If you are self-employed, depending on your income, you can contribute to a SEP IRA, profit-sharing plan, or independent 401(k) plan.

IRAs.  Even if you’re covered under a retirement plan at work, you and your spouse can each contribute to a Traditional IRA or Roth IRA, as long as you’re combined taxable wages and net self-employment income is not less than the total amount contributed. Anyone 50 or older can contribute an extra $1,000, increasing the total allowable contribution to $6,500, or $541.66 per month. Keep in mind, however, that a modified adjusted gross income of $60,000 to $70,000 ($95,000 to $115,000 for married couples filing jointly) puts you in the phase-out range for deducting your IRA contributions.

Update Your Savings and Debt Reduction Goals

Creating easy access to your funds can be quite tempting, and if you are like most people, you will spend money that you can easily attain. Therefore, to help you reach your goal, be sure to transfer amounts earmarked for savings from your checking account to a separate savings or investment account that is not easily accessed, making it less tempting for you to spend the money that you have managed to save.

Take a few minutes now to set new savings goals for 2017, including how much you would like to add to your retirement nest egg, your children’s education fund or the down payment on your home. You should also reset how much you plan to pay on your personal loans, debts and home mortgage accounts.  And don’t forget about paying some extra principal toward your mortgage payment each month. By doing so, you’ll earn a risk-free return on that money equal to your mortgage interest rate. Plus, you’ll cut down on the number of years it will take to pay off your mortgage. However, if you must choose between adding to your retirement nest egg and paying extra on your mortgage, talk to your financial advisor to determine which option is more suitable for you.

Other Resolutions

Rebalance Your Investment Portfolio:  The previous year was no different from any other year: some sectors over-performed and some sectors under-performed. Chances are that the sectors that did the best last year may not enjoy a repeat performance this year. By rebalancing your portfolio to its original or updated asset allocation, you take steps to lock in gains from the sectors with the best returns and purchase shares in the sectors that have lagged behind last year’s leaders.

Pay Down Your Credit Cards:  If you owe money on your credit cards, determine how much you can realistically afford to pay off during the year. For best results, try not to charge additional purchases on those cards while you’re trying to pay down what you owe. If you have high-interest credit card balances, consider whether it would be more beneficial to pay off those high-interest debts or to add to your savings.

Review Your Credit Report:  Review your credit report, and take steps to repair any negative aspects. Now that you’re entitled to three free credit reports each year, there is no excuse for not reviewing your most important financial reports, especially since errors in these reports are not uncommon. That said, obtaining a truly free credit report isn’t as easy as some companies claim, so be sure you know all the terms and conditions before requesting a report. A poor credit report could adversely affect the amount you are able to save, as it could result in you paying higher interest rates on loans, which reduces your disposable income.

Review Your Life Insurance and Disability Insurance Needs:  As you move through your career, your life and disability insurance needs to continue to change. Give some thought as to how much protection you need and compare it to the coverage you currently have through your employer’s benefit package. Consider whether you need more or less life insurance, and whether your needs would be better satisfied by term or permanent life insurance. Also, review your disability insurance coverage to determine whether you have enough coverage.

The Bottom Line

Be cautious about setting too many or unrealistic financial goals. Otherwise, you may be unable to accomplish any of them. Take this opportunity to restate your financial resolutions simply and clearly for the New Year. It may be a good idea to maintain a checklist to keep track of how you are doing throughout the year, so that you can make any necessary modifications. 

Good luck achieving your 2017 financial goals! If you have any questions on how to best achieve your resolutions or on other financial matters, we’d enjoy getting together. Please visit our website or give us a call at 970.419.8212 so that we can set up some time for a no-charge, no-obligation initial meeting.

This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products.  Please consult your tax or investment advisor for specific advice.