If you've ever wondered about how financial planning firms harness technology to better serve their clients, here are some thoughts we recently shared with Tom Groenfeldt and Forbes Magazine.
Senin, 29 Januari 2018
Selasa, 23 Januari 2018
Accumulating assets for retirement is only one phase of preparing for retirement. Decumulating retirement assets is the means by which one will try to spend down a portfolio in an effort to make it last potentially thirty years or more in retirement. Here is a brief summary of some of the methods that exist for spending down a portfolio. I'd like to thank Dr. Wade Pfau for providing some of the categorization that has influenced my thinking.
FIXED AMOUNT METHODS
1.) Constant dollar amount (adjusted for inflation each year). One method to accomplish this has historically been the creation of an "Income Portfolio" designed to spin off a fixed dollar amount every year; another iteration is a reverse systematic withdrawal from a portfolio, which is where one simply sets up an automatic deduction for a fixed amount, often selling equally across various holdings in the account to create the cash available for withdrawal.
2.) Fixed percentage amount - A fixed percentage of the portfolio (adjusted for inflation each year) is withdrawn each year. An example would be William Bengen's well-known 4% rule. Designed to address sequence of returns risk, the idea is that withdrawing 4% of a portfolio's total value each year resulted in the portfolio safely lasting for 30 years (spends down principal. 3.8% is the safe withdrawal rate if one does not want to spend down principal). The down side is that simply because a portfolio will last 30 years doesn't mean that it will meet one's income needs if that 4% is significantly too low. This simply represents a helpful point-of departure when beginning to frame the retirement income discussion.
3.) Evensky's Cash Flow Reserve Strategy - With a total return investment approach, this is a needs-based approach that is a fixed dollar amount, but is also in conversation with the fixed percentage amount. Typically a retirement planner works with a client to determine a realistic dollar amount that can be withdrawn (but this dollar amount can also be viewed as a percentage for discussion purposes). Then, 1-2 years of income needs and/or any additional short-term liquidity needs (e.g. a new home, car, wedding) are set aside in a cash reserve "bucket". This cash bucket can either sit statically as an emergency reserve for bear markets to prevent liquidating positions that have lost value, or it can be set up to pay out the client's actual income needs (most often the case). The rest of a client's retirement assets are invested in an investment portfolio "bucket" that is segmented to be able to provide for an additional three years of income in fixed income holdings and the rest of the portfolio in an equities portfolio designed to provide long-term growth. This approach is implemented with a total return approach that takes into account taxes (both in the types of accounts and liquidations), costs, goals, and other financial planning priorities.
4.) Annuity Methods - These range from putting small to significant amounts into immediate or deferred income annuities (SPIAs and DIAs). The idea is to protect against longevity risk and to ensure that a certain level of one's income needs are met in the form of an annuity income stream.
DYNAMIC AMOUNT METHODS
5.) Floor and ceiling - This results in a variable percentage spending amount. It starts with a fixed percentage, but the percentage can decrease to a fixed dollar "floor" that is 15% below the initial amount or increase to a "ceiling" amount that is 20% above the initial amount depending on market factors.
6.) Guyton and Klinger's Decision Rules - Variable percentage amount. Withdrawals are a percentage, but can vary based on 4 rules:
- The withdrawal rule: Withdrawals are adjusted for inflation each year unless the portfolio loses money, in which case no inflation adjustment is allowed.
- The portfolio management rule: Extract the gains from an asset class that has performed best in the previous year to provide the income, and move excess portfolio gains (beyond what is needed for the withdrawal) into a cash account to fund future withdrawals.
- The capital preservation rule: If the current withdrawal rate rises above 20% of the initial rate, then current spending is reduced by 10%.
- The prosperity rule: Spending in the current year is raised by 10% if the current withdrawal rate has fallen by more than 20% below the initial withdrawal rate. Doing this means the client does not miss out on higher sustainable spending when markets are doing well.
7.) Kitces' Ratcheted 4% Rule - Another dynamic spending approach that allows spending to be increased ("ratched up") if the portfolio grows to a certain level but, unlike the Guyton approach, manages the increases in such a way that it does not necessitate spending cuts.
8.) Zolt's Glide Path Spending Rule - Retiree would like spending to keep pace with inflation, but is willing to forego spending increases above and beyond inflation-adjusted modifications to spending.
9.) RMD Method - Follow a formula similar to the IRS' RMD formula so that each year's changing portfolio balance and remaining life-expectancy are taken into account when calculating how much can safely be withdrawn.
10.) Endowment Formula 1 - Weighted Average of Bengen's 4% Rule
11.) Endowment Formula 2 - Fixed-Percentage of Three-Year Moving Average Portfolio Balance
If you'd like assistance with navigating this complex landscape of retirement income strategies, please contact Dunston Financial Group, and one of our retirement income specialists will be happy to help.
Originally Posted on: Creating a Retirement Income Strategy
Sabtu, 20 Januari 2018
This book is not for the faint of heart as it is written by an attorney for attorneys and retirement plan professionals, but this is the Bible when it comes to planning that relates to group retirement plans and IRAs. IRAs and 401(k)s may seem simple, but when it comes to death, RMDs, and inheritance options, they are anything but simple. This is evidenced by the fact that this book is 624 pages of legal information related to these plans. If you ever inherit a retirement plan, please be sure to talk to a qualified professional. There are a lot of things that can go wrong when it comes to making smart decisions with inherited retirement plans.
Article Source here: The Legal Bible for Retirement Plans
Jumat, 19 Januari 2018
For today's blog post, we thought we'd share a letter that we sent to our investment management clients at the start of the year. It contains some reflections on 2017 as well as some thoughts about what 2018 might have in store.
Dear Friends and Clients of Dunston Financial Group,
As a firm, we want to sincerely thank you for placing your trust in our team. We are dedicated to your success, and we consider it an honor to work with you.
In 2017 our organization continued to grow, and we now have six people dedicated to serving you. Stephanie McElheny, CFP®, EA, ChSNC, came to us from PNC Investments where she served as Director of Financial Planning and oversaw the financial planning activities of 13 financial planners. Stephanie is an Enrolled Agent, a designation that allows her to prepare tax returns and legally represent our clients before the IRS. She is also a specialist in special needs planning and can assist our clients who have family members with special needs. Ryan Bowman, CFP® joined us from the largest independent investment advisory firm in St. Louis, and he brings to us a tremendous amount of financial planning and investment expertise. Ryan is also a U.S. Army veteran, and he served two active-duty tours in Iraq. Finally, Rosanna Sabian joined us as our new administrative assistant. Rosanna came to us from the bay area in California where she served as office manager for a successful CPA firm.
Year-End 2017 Market Review
As we approach 2018, it‘s time to reconcile the past 365 days of 2017. We are sending off a very exciting and tempestuous year. The stock market is at an all-time high. Volatility is at a record low. Consumer spending and confidence have passed pre-recession levels.
As a firm at Dunston Financial Group, we would like to wish all you a happy and prosperous 2018. It's almost certain that the coming year will be as electrifying and eventful as the previous one!
The New Tax Plan
The new tax plan is finally here. After heated debates and speculations, president Trump and the GOP achieved their biggest win of 2017. In late December, they introduced the largest tax overhaul in 30 years. The new plan will reduce the corporate tax rate to 21% and add significant deductions to pass-through entities. It is also estimated to add $1.5 trillion to the budget deficit in 10 years before accounting for economic growth.
The impact on the individual taxes, however, remains to be seen. The new law reduces the State and Local Tax (SALT) deductions to $10,000. Also, it limits the deductible mortgage interest for loans up to $750,000 (from $1m). The plan introduces new tax brackets and softens the marriage penalty for couples making less than $500k a year. The exact scale of changes will depend on a blend of factors including marital status, the number of dependents, state of residency, homeownership, and employment versus self-employment status. While most people are expected to receive a tax-break, certain families and individuals from high tax states such as New York, New Jersey, Massachusetts, and California may see their taxes higher.
Affordable Care Act
The future of Obamacare remains uncertain. The new GOP tax bill removes the individual mandate, which is at the core of the Affordable Care Act. We hope to see a bi-partisan agreement that will address the flaws of ACA and the ever-rising cost of healthcare. However, political battles between republicans and democrats and various fractions can lead to another year of chaos in the healthcare system.
The euphoria around the new corporate tax cuts will continue to drive the markets in 2018. Many US-based firms with domestic revenue will see a boost in their earnings per share due to lower taxes.
We expect the impact of the new tax law to unfold fully in the next two years. However, in the long run, the primary driver for returns will continue to be a robust business model, revenue growth, and strong balance sheets.
Momentum as an investment strategy was the king of the markets in 2017. The strategy brought +38% gain in one of its best years ever. While we still believe in the merits of momentum investing and include it in our portfolios, we are expecting more modest returns in 2018.
Value stocks were the big laggard in 2017 with a return of 15%. While their gain is still above average historical rates, it’s substantially lower than other equity strategies. Value investing tends to come back with a big bang. In the light of the new tax bill, we believe that many value stocks will benefit from the lower corporate rate of 21%. And, as S&P 500 P/E continues to hover above historical levels, we could see investors’ attention shifting to stocks with more attractive valuations.
With a return of 14%, small-cap stocks trailed the large and mega-cap stocks by a substantial margin. We think that their performance was negatively impacted by the instability in Washington. As most small-cap stocks derive their revenue domestically, many of them will see a boost in earnings from the lower corporate tax rate and the higher consumer income.
It was the first time since 2012 when International stocks (+25%) outperformed US stocks. After years of sluggish growth, bank crisis, Grexit (which did not happen), Brexit (which will probably happen), quantitative easing, and negative interest rates, the EU region and Japan are finally reporting healthy GDP growth.
It is also the first time in more than a decade that we experienced a coordinated global growth and synchronization between central banks. We hope to continue to see this trend and remain bullish on foreign markets.
If you had invested in Emerging Markets 10-years ago, you would have essentially earned zero return on your investments. Unfortunately, the last ten years were a lost decade for EM stocks. We believe that the tide is finally turning. This year emerging markets stocks brought a hefty 30% return and passed the zero mark. With their massive population under 30, growing middle class, and almost 5% annual GDP growth, EM will be the main driver of global consumption.
Fixed Income (Bonds)
It was a turbulent year for fixed income markets. The Fed increased its short-term interest rate three times in 2017 and promised to hike it three more times in 2018. The markets, however, did not respond positively to the higher rates. The yield curve continued to flatten in 2017. And inflation remained under the Fed target of 2%.
After a decade of low interest, the consumer and corporate indebtedness has reached record levels. While the Dodd-Frank Act imposed strict regulations on the mortgage market, there are many areas, such as student and auto loans, that have hit alarming levels. Our concern is that high-interest rates can trigger high default rates in those areas, something which can subsequently drive down the market.
2017 was the best year for gold since 2010. Gold reported 11% return and reached its lowest volatility in 10 years. The shiny metal lost its momentum in Q4 as investors and speculators shifted their attention to Bitcoin and other cryptocurrencies. In our view gold continues to be a solid long-term investment with its low correlation to equities and fixed income assets.
It was a tough year for REITs and real estate in general. While demand for residential housing continues to climb at a modest pace, the retail-linked real estate is suffering permanent losses due to the bankruptcies of several major retailers. This trend is driven on one side by the growing digital economy and another side by the rising interest rates and the struggle of highly-leveraged retailers to refinance their debt. Many small and mid-size retail chains were acquired by Private Equity firms in the aftermath of the 2008-2009 credit crisis. Those acquisitions were financed with low-interest rate debt, which will gradually start to mature in 2019 and peak in 2023 as the credit market continues to tighten.
In the long-run, we expect that most public retail REITs will expand and reposition themselves into the experiential economy by replacing poor performing retailers with restaurants and other forms of entertainment.
On a positive note, we believe that the new tax bill will boost the performance of many US-based real estate and pass-through entities. Under the new law, investors in pass-through entities will benefit from a further 20% deduction and a shortened depreciation schedule.
What to Expect in 2018
After passing the new tax bill, Congress will turn its attention to other topics of its agenda – improving infrastructure, and amending entitlements. Further, we will continue to see more congressional budget deficit battles.
It will be important to talk to us as well as your accountant to find out how the new bill will impact your taxes.
With markets at a record high, we'll want to keep an eye on the possibility of capturing some of your capital gains and, as always, maintaining a well-diversified portfolio will be paramount.
We might see a rotation into value and small-cap; however, the market is always unpredictable and can remain such for long periods.
We will monitor the Treasury Yield curve. In December 2017 the spread between 10-year and 2-year treasury bonds reached a decade low at 50 bps. While not always the case, a flattening yield has often predicted an upcoming recession.
Index and passive investing will continue to dominate as investment talent is ever more scarce, and it will be an important part of building a diversified portfolio. Mega large investment managers like iShares and Vanguard will continue to drop their fees.
Thank you again for another great year. We look forward to serving you in 2018.
The Dunston Financial Group Team
First Posted on: 2017 Market Review and Thoughts on 2018
Senin, 15 Januari 2018
Dunston Financial Group is excited to share that we've been named one of the top 13 financial planning firms in Colorado. Summarizing their analysis, AdvisoryHQ writes,
As a fee-only fiduciary, Dunston Financial Group represents the golden standard of Denver wealth managers, ensuring trust between clients and their advisors. Additionally, the firm boasts a diverse and talented team, with professional certifications including MBA, CFP®, CFA, and ChSNC®, enabling each Denver financial advisor to tackle a variety of financial and investment challenges. With a solid financial planning strategy, a fiduciary commitment, and an accredited team of Colorado financial advisors, Dunston Financial Group has earned a 5-star rating on our list of the best financial advisors in Denver.
We would like to thank all of our wonderful clients and professional colleagues for helping us achieve this exciting accomplishment!
You can read a detailed review of our firm as well as find tips about how to select the best financial advisor here.
First Seen over here: Dunston Financial Group Considered Top 13 Best Financial Advisors in Colorado
Senin, 08 Januari 2018
Did you know there's a tax credit available for small businesses that set up a new retirement plan? As a small business owner, which includes a self-employed business of one, you can claim a tax credit for part of the ordinary and necessary costs of starting a SEP IRA, SIMPLE IRA, or other qualified retirement plan. The credit equals 50% of the cost to set up and administer the plan and educate employees about the plan, up to a maximum of $500 per year for each of the first 3 years of the plan. You can even claim the credit for a prior year or carry it forward if needed. The credit is claimed on IRS Form 8881. More information about the credit can be found on the IRS website. Setting up a retirement plan is fantastic way to save and invest for retirement, and it can also provide helpful tax deductions.
If you'd like to talk with one of our CERTIFIED FINANCIAL PLANNER™ professionals about setting up a SEP IRA, SIMPLE IRA, or other qualified retirement plan, please feel free to contact us.
Original Post on: Monday Quick Tip: Tax Credit for Small Business Retirement Plan Setup
Jumat, 15 Desember 2017
The holidays can be an exciting and joyous occasion or stressful depending on how you prepare for them. But, using the Griswold’s situation in National Lampoon’s Christmas Vacation as a learning experience, you can take some steps to make the holidays more bright. So, grab some eggnog and your moose mug, and consider the following as you prepare for the year ahead:
- Don’t write a check you can’t cash – Or, as the saying goes, “don’t count your chickens before they hatch.” By relying on a source of income that you haven’t yet received, you put yourself at risk of financial catastrophe. For example, if you decide to put in a pool, make sure to wait until you receive your bonus check.
- Make sure you have an emergency reserve – Should the unexpected occur (for example, getting fired after your crazy cousin kidnaps your boss), it is important to have a liquid source of funds available to meet your monthly expenses until you can recover. This account is normally recommended to cover approximately 3 – 6 months’ worth of expenses.
- Save some of your year-end bonus – While bonuses can be a nice surprise and should be enjoyed, we recommend saving at least a small portion. This could mean padding your emergency reserve, depositing money into a brokerage account, or contributing to an IRA.
- Consider pet insurance – Should your feline companion chew on a cord and get electrocuted, chances are the vet bill will be fairly high. Much like human health insurance, pet insurance allows you to set deductibles and coinsurance based on an agreed-upon monthly premium. While not cheap, in circumstances where your pet requires more expensive care, this coverage can help greatly reduce the cost of your vet bill and save you money in the long run.
- Give to charity (or family) – It truly is better to give than to receive. Whether it’s helping those less fortunate or purchasing gifts for family members who don’t have the funds, the joy of helping others is priceless. In addition, should you decide to give to charity, you may receive the added benefit of a potential tax deduction.
- Make decisions together – Prior to making any major purchase, be sure to speak with your spouse first to avoid potential conflict. This could include asking their opinion on installing a pool or purchasing gifts for other people’s children. Financial disagreements account for a great deal of marital strife, so clear communication is imperative.
In the new year...
- Have your insurance coverage reviewed – This includes disability insurance should a loved one take a tumble off the roof while hanging lights and homeowner’s insurance in case your home is destroyed by the neighbors’ zealous anticis. In addition, don’t forget about your auto coverage should you wreck while narrowly avoiding a run-away-sled, liability insurance if someone gets hurt (yourself or others), and health insurance if holiday planning causes high blood pressure and puts you at increased risk of a heart attack.
- Keep your estate plan up-to-date – Should one of your family members make the unfortunate decision to light a match in the vicinity of flammable material and the worst were to occur, it is extremely important to have current legal documents. These can help ease the estate distribution process and reduce family conflict in an already stressful time.
Original Post on: What The Griswolds Can Teach Us About Our Finances