More Smart Financial Moves to Make Before Year-End


We just flipped to the last page on the calendar. There are a limited number of shopping days left before Christmas, and you are probably busy attending a variety of holiday events and parties. The hustle and bustle of the holiday season makes it difficult to remember some of the financial moves you should make before you hang up the new calendar. The purpose of this post is to remind you of some to get done before you ring in the new year. And please make sure to check out our previous post on year-end financial moves for more ideas.

Watch out for capital gain distributions. If you own mutual funds in a taxable account, keep an eye out for distributions that can impact your tax bill. Mutual funds are required to distribute any gains that the fund realized through the year, and most of them do so in early to-mid December. These distributions are taxable to you even if you reinvest the distribution. With the rally we have had in the markets over the last several years, some of these distributions will be sizable. If you are faced with a taxable distribution, review your other holdings to see if there are any which have declined in value that you could sell and trigger a loss. You can use losses to offset gains and reduce your tax burden.

On a related note, if you are planning to buy a fund before the end of the year, make sure to check whether they are going to be making a distribution. You don’t want to buy the fund just before the distribution and end up paying taxes on gains that occurred before you owned the fund.


Check your retirement accounts. If you have access to a 401(k), 403(b), or Thrift Savings Plan (TSP), you can contribute up to $18,500 for 2018. If you are over 50, you can kick in an additional $6,000 for a total contribution of $24,500. If you haven’t maxed out your contributions yet, you have a couple of paychecks left to increase your contribution. Or, you may be able to contribute part of any bonus you may receive. 

If you are making pre-tax contributions, any extra money you contribute before year-end will reduce your taxes. If making your contributions to a Roth plan, your contributions won’t save you on current taxes, but the future distributions will be tax-free. If you don’t have access to an employer-sponsored plan, you can contribute to a traditional or Roth IRA (subject to some income limitation rules). You have until April 15 of 2019 to make that contribution. Another thing to keep in mind is that even if you can’t max out your contributions, every little bit that you can contribute will help.

Consider a Roth conversion. The previous two suggestions are designed to reduce your tax bill for this year. A Roth conversion will increase your tax bill—but it may be well worth it. By converting some of the money you have in a traditional IRA to a Roth, you’ll pay taxes now on the amount you convert. Why would you do such a thing? Because it gives you an opportunity to turn tax-deferred money into tax-free money. You should only convert funds that will get you to the top of your current tax bracket. We are particularly fond of this strategy this year because with the tax cuts that went into effect this year, we think you will be paying taxes now at rates that we expect will only increase in the future.


Consider prepaying college expenses. If you have a child in college, you could prepay the first tuition costs of 2019 at the end of this year. This way, you can claim the American Opportunity tax credit on this year’s return. This is a tax credit, a dollar-for-dollar reduction in your tax bill if you are below the income limits ($160,000 adjusted gross income for married couples get the full credit, partial credit for those with adjusted gross income up to $180,000). If you are continuing your own education, you might be able to claim the Lifetime Learning Credit for this year. Another dollar-for-dollar credit, this one is worth 20% of your costs, up to $2,000. The full credit is available for married couples with modified adjusted gross income up to $112,000. A partial credit is available for those with MAGI up to $132,000.

A few other ideas that don’t necessarily have an end-of-year deadline, but they are just good to get done include freezing your credit, checking your credit report, and redeeming some of those credit card points you’ve accumulated to buy some of those presents you’ll be putting under the tree!

Smart Financial Moves to Make Before Year-End


OK, it’s official. While watching televised football games this weekend, I noticed that every other commercial advertisement had something to do with the holiday season. We are within weeks of turning the calendar into a new year. Lucky for you, it’s not too late to do some things that will help to improve your financial situation. Not all the following ideas will be appropriate for your situation, but if even one can help you save money, it will be worth the read. I should also note that these are just a few of the things you should consider before the end of the year. I will address some of the others in a follow-up post.

Let’s start with one that if you don’t get it right, it can really cost you. If you are over 70 1/2 and have an IRA account, you must make your required minimum distribution (RMD) by the end of the year. This is one deadline you don’t want to miss because missing it really makes the IRS unhappy. If you fail to make your RMD, the tax penalty is a huge 50% of the amount you were supposed to take out of the IRA. That means that, if your RMD amount is $10,000 and you miss the deadline, you owe the tax on the $10,000 plus a $5,000 penalty!


It’s such an ugly penalty that you shouldn’t test it. Make your RMD now. If you are a client of our firm and you haven’t made your RMD yet, we will be processing it within the next week or so. We don’t want to take a chance on some paperwork error. We want to get it done with plenty of time to spare. I do need to point out that there is an exception to the RMD rule. If you turned 70 1/2 in 2018, you have until April 1, 2019, to take your distribution. That could be good planning, but you’ll need to make two distributions in 2019.

While we are on the subject of RMDs, you might also want to consider a qualified charitable distribution (QCD) if you are charitably inclined. The new tax law that went into effect this year gave us all an expanded standard deduction. That means that most of us will no longer be able to itemize and deduct our charitable contributions. However, if you are required to make a required minimum distribution, you can make your charitable contribution directly from your IRA. The amount you donate to charity counts toward your RMD and does not count as income, which means you are effectively getting a tax deduction for your gift in addition to the standard deduction.

For those of you who are not retired yet, there are still some moves you can make. If you have a flexible spending account (FSA) through your employer, you’ll want to spend down that account. An FSA allows you to make pre-tax contributions into an account that you can use to pay medical expenses. In effect, it allows you to pay health care expenses with tax-free dollars. The catch is that you must use it all before year-end, although some plans allow you to carry over up to $500 into the following year. So, if you still have cash in the account, figure out where you can spend it. Buy new glasses, go for an end-of-year checkup, get your teeth cleaned. Don’t let the money disappear. Use it or lose it.


Somewhat related to the FSA is a health savings account (HSA). If you have a qualified high-deductible health insurance plan, you can contribute to an HSA. It works similarly to an FSA: You make pre-tax contributions into an account that you can use to pay eligible health care costs. However, the HSA gives you an unlimited amount of time to reimburse yourself. So, gather your medical expense receipts that you paid throughout the year. If you like, you can reimburse yourself this year. However, for many folks we recommend letting the account grow, paying expenses out of pocket, and letting the account grow all the way into retirement, when you will typically have larger medical expenses. You’ll still need to prove the expenses, so get those receipts together now.

These ideas will have a varied degree of impact on your financial situation. If you miss your RMD, it will be a big impact. Not reimbursing yourself for an FSA expense might be a smaller impact. It’s important to note that the people who are financially successful get that way by making a lot of good decisions, whether the impact is large or small.

Time to Review Your Employee Benefits


’Tis the season! No, not that season—although you may already be seeing holiday decorations being displayed. I’m talking about open enrollment season, the time of year to review the benefit package that you receive through your employer. Open enrollment has become an annual tradition. The HR department sends you an email with the details on how the benefit packages are changing. Most people only scan the email, keeping their fingers crossed that the health insurance premiums didn’t go up too much. Please don’t be one of those people—this is too important.

Health insurance is usually the employer benefit that gets the most attention. It’s important to make sure you and your family are protected against illness or injury. But health insurance plans can also be confusing, and they are certainly expensive. Open enrollment season is a great time to review how you use your health insurance. Did you hit your deductible last year? Does your employer offer a choice of plans? Are your doctors still part of the plan(s) being offered? Should you consider a high-deductible plan, which will mean lower premiums?

More and more companies are offering health savings accounts (HSAs). If you have a high-deductible health insurance plan, make sure you enroll in the HSA. A health savings account is one of the best accounts you can have because it offers triple tax advantages. The contributions you make are made with pre-tax dollars, they grow tax-free, and if used to pay for qualified medical expenses, the distributions are tax-free. For 2019, you can contribute up to $3,500 to an HSA if you have single coverage or up to $7,000 for family coverage, which is slightly more than the 2018 limits. If you are 55 or older, you can contribute an extra $1,000. One more thing to note on your HSA: While you can make tax-free withdrawals at any time to pay health care costs, we generally recommend paying what you can out of pocket and letting your HSA grow over the years, accumulating tax-free money that you can use in retirement when you will most likely have higher health care costs.


If you do not have a high-deductible health plan, you should consider a flexible spending account (FSA) if one is offered. An FSA account is like an HSA but has lower contribution limits ($2,650 per year per employee), and only $500 can be carried over from one year to the next. Both plans offer you the opportunity to use tax-favored funds to pay deductibles, copayments, and other qualified health care costs.

Don’t take your group life insurance for granted. This is a great time to compare costs and review the amount of coverage you have. Most people think that because it’s group coverage, it’s the best rate available. You might be able to get an individual policy for less, and an individual policy is yours to keep if you ever leave your employer. And don’t forget to review your spousal coverage if applicable.

Make sure to review your disability insurance. Buying your disability policy through a group is usually the least expensive way to get coverage. Don’t forget that there are two types of disability policies, short-term and long-term. I generally recommend having both, but if you are going to pick one, you should consider long-term.

What about accidental death and dismemberment (AD&D)? I’m not a fan. This type of policy only provides benefits in the event of a very specific cause of death, like an accident that leads to death or the loss of a limb or eye. These are rare events, and that’s why the premiums are so low. You might think about beefing up your life insurance coverage with the few dollars you would save. Group life policies pay death benefits no matter the cause.


Finally, as you are reviewing your benefit package for next year, it’s a good time to review your 401(k). Can you increase your contributions? Should you consider the Roth option? Is your account invested properly?

When you receive your open enrollment package from your employer, don’t just let your benefits from last year roll over into next year. While it might be tempting to do so, it may cost you. If you would like a second opinion on the benefits you are considering, don’t hesitate to reach out to our office. We would be happy to help.

The Grass Isn’t Always Greener: Is the Marijuana Industry a Good Investment?


The green wave is underway. The cannabis industry is in hyper-growth mode. Whether you are for or against the use of marijuana doesn’t really matter anymore. The green train is rolling down the tracks and it is gaining speed. The marijuana industry has always been profitable in the underground economy. Now it is starting to bring those profits to legitimate, and often publicly traded, companies. So, should you invest in this fast-growing industry?

Voters have been paving the road to riches for the legal marijuana industry. In the last few years, we’ve seen more and more states approve the use of cannabis in some form. Medicinal use is now legal in 31 states and the District of Columbia. Recreational use is legal in nine states and D.C. Support for legalization is at an all-time high, with 60–65% of Americans thinking it should be legal. Our Canadian neighbors have voted in full legalization effective October 17.


Legal marijuana sales in North America exploded to $9.7 billion in 2017, a 33% increase over 2016. It is projected that sales will reach $24.5 billion by 2021—a 28% annual growth rate. Those are impressive growth numbers that will attract a lot of investors. Just last week, Coca-Cola, Constellation Brands (owners of Corona beer, Svedka vodka, and many other alcohol brands), and Molson Coors all reiterated their interest in the cannabis drink market. Those public announcements brought a lot of attention to the industry and its investing potential.

But despite all the attention, the favorable trends among voters, and the growth projections, the cannabis category is still small, fragmented, and volatile. A quick look at the trading in the shares of Tilray (TLRY) will tell you a lot of what you need to know. On Monday of last week, the shares were trading around $150 per share. Just a month ago, it was trading at $25 per share. On Tuesday, the CEO made some positive comments about future growth after the U.S. Drug Enforcement Agency (DEA) announced that it had approved Tilray’s plan to import a marijuana product and test its potential in treating a neurological disorder. The stock jumped sharply, briefly trading at $300, doubling the previous day’s price. As of this writing, less than a week later, the stock is trading around $100 per share. That’s a 20% loss for the week, after a 100% one-day gain. Can you stand that kind of volatility?

The rest of the marijuana sector has seen similar volatility as investors try to figure out which companies will be the winners and which will be the losers. Besides the volatility, the stock prices don’t line up with the earnings of the companies. It’s also important to note that marijuana is still illegal at the federal level, which is preventing traditional banks from providing lending that a growing industry often needs. Wild volatility, misaligned earnings, and a lack of traditional funding sources are not a good combination for investors. Speculators? Maybe. Investors? Definitely not.


This is a great example of how the emotion of greed can wreck an investment plan. The fear of missing out leads usually rational people to make irrational decisions. We saw the same type of investor behavior when the dot-com bubble burst earlier this century. And we saw it more recently with the bitcoin and cryptocurrency mania over the last year or so.

With the green wave of legalizations likely to continue, and the changing public perception about marijuana, some investors will do very well and will make millions. Others will lose their shirt. Are you willing to take that chance?

No Surprise—the Fiduciary Rule Is Officially Dead


This post is going to be a bit of a rant. I apologize in advance if you are offended. It might also be a little more “inside information” about the financial industry than you want to know. But it’s something that you should know. It’s not overly dramatic to say that your financial future could depend on it. I strongly believe that if you are paying for financial advice, you deserve to know whether the advisor you are paying is looking out for your best interest.

I am referring to the “fiduciary rule,” the on-again, off-again attempt by the government to protect investors from conflicted advice. But first, some background. A fiduciary is a person in a relationship who is expected, and obligated, to act in the other party’s best interest. A fiduciary has the power and responsibility to act for another in situations regarding total trust, good faith, and honesty. Common examples of professionals who are held to a fiduciary standard are lawyers, who have a fiduciary duty to their clients; doctors, who have a fiduciary duty to their patients; and teachers, who have a fiduciary duty to their students. Accountants, real estate agents, priests, trustees, and many other professionals are required act as fiduciaries.

But it’s different in the financial services world. That’s because the financial services industry has been, and largely remains, a business built upon the sale of financial products. In the early days, stockbrokers sold stocks and bonds. Over the years, they came up with more and more creative products. The commissions earned on the sale of mutual funds, unit investment trusts, annuities, exotic derivatives and structured products built many a Wall Street firm into household names.


Their commercials and other marketing material make it look like their role is to make sure that the goals and dreams of all their customers are achieved. In reality, their focus is on sales. I understand that all sales are not bad and that selling is the grease that keep the wheels of capitalism turning. But a sales relationship is different from a fiduciary relationship. There’s an inherent conflict of interest when one party is “selling” to the other. Commissions on products that are opaque and confusing to most people can lead to a variety of dishonest sales practices.

The government, in its infinite wisdom, has tried to put rules in place that protect the individual investor. The Investment Advisers Act of 1940 provided some framework for the regulation of financial advisors. Under the law, advisors are required to provide their services under a fiduciary standard. However, there’s a huge hole in the law. It depends on how you define advisors.

Advisors whose advice is merely “incidental” to their business are not considered to be advisors. Wall Street firms have always maintained that any advice from their brokers or agents is incidental to the sale of their financial products. Therefore, they are not subject to the fiduciary rules that apply to advisors … even though they often call those brokers and agents by a different name … advisors. There have been many challenges to their view over the years, but their lobbying efforts and campaign contributions have kept our legislators from eliminating the loophole. And yes, you can color me cynical!

Because of the inability, or refusal, of Congress to act, in 2016, the Department of Labor released its version of a new fiduciary rule. It required anyone providing any financial advice on retirement accounts to act as a fiduciary. Despite the protests from Wall Street, the rule began to be phased in, with “full compliance” required in 2018.

We started to see positive changes. Even as the Wall Street firms appealed through the courts, they started moving toward compliance. Several firms stopped allowing their brokers to charge commissions in retirement accounts. We saw sales of annuity products drop dramatically. Maybe the small investor would finally be protected against sales abuses.


Unfortunately, that is not the case. In the appeal process, Wall Street found a friend in the Fifth Court of Appeals, which ruled that the Department of Labor overreached its authority in establishing the rule. I can’t say that I disagree with the fact that the DOL overreached—it would seem more appropriate for the Securities and Exchange Commission (the SEC) to develop and enforce a financial services rule. The SEC did release a “proposed” rule in April of this year, but it falls short of calling for all financial advisors to act in a fiduciary manner.

It didn’t take long for the large Wall Street firms—which had suspended commissions in retirement accounts two years ago when it looked like the fiduciary standard would become law—to reverse course. Now they are allowing commissions again. And not surprisingly, sales of variable annuities have surged since the fiduciary rule died.

It’s important to know that fee-only advisors are, and always have been, held to a fiduciary standard. We get paid for the advice and guidance that we provide, not for selling a product. Isn’t that the way it should be?

Are Your Investments Really Diversified, or Do You Just Think They Are?


We all know that we’re supposed to diversify our investments. It’s the “Don’t put all of your eggs in one basket” rule. If you spread your investments around, you’ll reduce the risk of losing money because when one of your holdings moves lower, another is likely moving higher. For example, bonds usually move higher when stocks move lower, and vice versa.

We know we are supposed to diversify, but a lot of investors don’t do it very well. As a financial planner and investment advisor, I’ve reviewed thousands of portfolios over the years. I often find that the account owner thinks that their portfolio is diversified, when in fact it is not. Of course, this doesn’t apply to the owner of the portfolio I recently reviewed who was 100% invested in the stock of the company he works for. He knew he wasn’t diversified but was comfortable with his (high-risk) allocation decision. This post will highlight some of the most common diversification mistakes investors make without realizing the error of their ways. Then I will give some ideas on how we think a portfolio should be constructed.


One of the most common diversification mistakes I see is when someone owns several mutual funds and thinks that, because of the number of funds they hold, they are diversified. They might hold a S&P 500 fund, a large-cap growth fund, a large-cap value fund, and a dividend growth fund. Four different funds should provide good diversification, shouldn’t it? Not really. If you looked at the stocks that are held in each of those funds, you would find that they are all invested in the same asset class—large U.S. companies.

Another common mistake I see is when someone owns an S&P 500 fund and a bond index fund and thinks that they have a good mix of stocks and bonds. This example is better than the first one, but the mix is still not providing good diversification benefits. The S&P 500 fund provides exposure to the 500 largest companies in the U.S. but none of the 2,500 or so other publicly traded U.S. companies. There’s also no exposure to international stocks or bonds.

When building a portfolio, it’s important to look beyond the borders. “Home country bias” refers to the tendency of investors to focus on the investments within their own country. For example, U.S. companies make up about 50% of the total market capitalization in the world, yet the average U.S. investor holds about 70% of their portfolio in U.S. holdings. A recent study in Sweden showed that investors in that country put their money almost exclusively into investments from Sweden, even though their country makes up about 1% of the world’s capitalization.

When building an investment portfolio, we focus on diversifying across the various asset classes. The first step is to determine the percentage that should go into the largest, broad-based asset classes—stocks and bonds. A conservative investor might have 30–40% of their money in stocks; a more aggressive investor might have 60–80%. The balance would be allocated to the bond side of the portfolio.


The next step would be to allocate geographically. We like to see about 50–60% of the stock allocation go into U.S. stocks, representing the U.S. capitalization mentioned earlier. Next, we would allocate between 25 and 30% of the stock allocation into international developed countries in Europe, Australia, Asia, and the Far East. We invest the remaining stock allocation into the emerging-markets asset class, which gives us exposure to companies in China, India, and other developing countries. We would follow a similar approach with the bond side of the portfolio, with more exposure to the U.S., which makes up about 60% of the world bond market.

Finally, we want to diversify within the geographical asset class. We want to spread our investment dollars across companies of different sizes. We want to make sure we have exposure to large, medium, and small companies in domestic, international, and emerging markets.

Diversification reduces risk in a portfolio by allocating investment dollars across asset classes, countries, and industries. The goal is to maximize returns by lessening the chance that a major market event would have a devastating effect on an entire portfolio. That’s why it’s so important to get it right.

Fake News? No, Just Headlines After Your Eyeballs


Despite the first thing you probably thought of when you saw the title of this post, this is not a political article. While I am a self-admitted news junkie and very interested in politics, this post is about the damage that headlines can cause to your investment portfolio—if you allow them to.Over the last week, I’ve captured some of the headlines that have appeared in major financial publications and websites. While I am sure that the writers of these articles do not intend to bring financial harm to their readers, the possibility of doing so exists.

First and foremost, we need to remember that a financial newspaper, magazine, or website has one main goal: to capture your eyeballs. The more people who view their publications or site, the more they make from their advertisers. When they publish an article with an attention-getting headline, they are trying to draw you in. They do so with scary headlines about why the financial markets are about to crash, or warnings that you better go “all in” soon or you’ll miss the next big bull run.

Before we go any further, it’s important to understand the perspective that I bring to the discussion. Our firm has long believed that any attempt to predict, or time, the markets is a waste of time and money. And the academic evidence supports our position. So, it is frustrating when I read articles that could lead investors to make decisions that hurt them.

I’m going to list several of the headlines that I’ve seen over the last week and try to provide a little perspective. I think it’s important to do so, especially when I see a headline like this: “Half of Americans See Market Swings as an Opportunity to Cash In.” This article says that 48% of Americans see volatility in the markets as a chance to get rich quick. That approach is gambling—not investing. However, the article does include a quote from Greg Anton, a CPA and chairman of the AICPA's National CPA Financial Literacy Commission, that puts things in perspective: "Investing is not a get-rich-quick scheme and trying to time a volatile market with hopes for huge gains is a serious financial risk." Truer words have hardly ever been spoken.


We’ll begin our look at some of the headlines with the ones that are calling for Armageddon in the markets. “Behold the ‘Scariest Chart’ for the Stock Market” is a pretty technical article that highlights similarities between 2018 and 2000, the year of the tech-wreck in the markets. It’s difficult to look at the chart presented and not see the similarities, but that doesn’t mean it’s going to play out the same way moving forward. A lot has changed since 2000. The writer of the article “A Duo of Factors Signal That a Stock-Market Downturn May Be at Hand” is at least coy enough to use the word “may” in the headline. This article is another technical one about some market indicators that could be looked at as data mining, or selecting the data that helps “prove” a point. With enough data, you can make the indicators say almost anything you want them to. Another article on the same subject uses a much scarier headline, “A Bearish Market Warning from the Tech Bubble Is Back.”

This article, “Market Bull Braces for 5-10 Percent Pullback, Sees Compelling Reasons to Buy the Dip,” says that a slight pullback in the market is “conceivable.” Really? Of course, it is conceivable! Five to ten percent is not even considered a market correction.

This Chart Says Stocks Are About to Run Out of Gas in a Big Way” compares the chart of the S&P 500 with the index for silver. I don’t understand the connection, but at least the author hedges his bets by saying, “We are in the slower summer months, and price moves are more likely to reverse than continue.” (My emphasis.)

How to Predict the Next Market Downturnacknowledges that predicting the market is a fool’s errand, but goes on to let readers know about the tool the publication has developed to help do so.


Of course, it’s not always gloom-and-doom predictions. “Stocks to Pop Another 10% or More from Here, Despite Trade War, Rising Rates” predicts that stocks will rise and that any pullback should be used as a buying opportunity. No wonder investing can be confusing.

Here’s another: “Obscure Market Statistic Could Point to Record Highs for S&P 500 by Year-End.” This article points out that the S&P 500 was higher in April, May, June, and July. That has happened only 10 times since 1950, and the market moved higher by year end all 10 times. That is pretty obscure. Not something I would recommend betting on.

This article, “Traders Are Expecting a Big Stock Market Soon,” doesn’t say that stocks will move higher or lower, just that they are set for a big move. Well, that’s not very helpful.

I’ve attempted to use a little humor to illustrate the mixed signals we are all subject to and how difficult it is to predict how the financial markets will move. The above articles represent only a fraction of those written by the so-called “expert” market prognosticators. If you pay attention, you might notice that there seems to be a lot more articles written about the coming fall in the markets than the possibility of a rally. Remember why they write the headlines. They want your eyeballs. And fear sells.

Roth IRAs and 401(k)s—Why All the Fuss Lately?


Have you noticed the increased attention to Roth IRAs and 401(k)s recently? It seems that, every day, I see a new article promoting the advantages of using a Roth for your retirement planning. Sure, a Roth is a great way to fill up the tax-free bucket of funds available for you at retirement. But as of this year, the Roth option of retirement savings has been around for 20 years. Why the fuss lately?

Before I get into the reasons for the attention that the Roth is getting, it’s important to make sure we understand how the Roth is different from a traditional IRA or 401(k). Contributions that you make into your traditional IRA or 401(k) are made with “pre-tax” dollars. That means that you get to reduce your current taxable income by the amount of your contributions. Lower income means a lower tax bill. When you retire and take money out of the IRA or 401(k), the distributions are taxable.

On the other hand, contributions you make into a Roth IRA or 401(k) are made with “after-tax” dollars, so you do not get the benefit of a reduction on your current tax bill. However, when you take money out of your account at retirement, the funds are tax-free.


Two things have occurred within the last several months that helped boost savers’ awareness of the Roth. The new tax law that was passed at the end of last year and went into effect this year was the first trigger. Suddenly, most of us found ourselves in a lower tax bracket. That meant that the deductibility of a contribution into a traditional IRA or 401(k) wasn’t worth as much.

Shortly after the new tax law went into effect, Congress passed a $1.3 trillion spending bill, averting a government shutdown. The new spending will mean an increase in our national debt, which is already an outrageously big number. It is widely assumed that in order to pay down that massive debt in the future, taxes will have to eventually go higher. This spending bill is the second trigger for the new popularity of a Roth account.


The reason you use a Roth as part of your overall retirement and tax strategy is to take advantage of tax arbitrage, which means that you pay tax at a lower rate at the time of the contribution than you would when you take the funds out of the account. With relatively low income tax rates and the expectation that they will be higher in the future, the Roth becomes a more attractive option.

Another way of getting funds into your tax-free retirement bucket is to do a Roth conversion. This means that you convert the pre-tax deductions in a traditional IRA or 401(k) to a Roth account. To accomplish this, you must pay current tax on the amount you are converting. Once again, with low current tax rates and higher rates anticipated in the future, the Roth becomes more popular than ever. A Roth conversion can also be a good way to get funds into a Roth account if your income is too high to make a Roth contribution.

It’s important to keep in mind that this article is very general and that the ideas may not be applicable to your personal situation. However, it is also important to have a tax and cash flow strategy in place that does match your situation. Are you contributing to a 401(k) through your employer? You should at least investigate whether it would make sense for you to redirect some or all of those contributions to the Roth option in the plan, if one is offered. Do you have an IRA that you might be able to convert some or all of it to your tax-free bucket? It doesn’t cost anything to run the numbers, and it may save you some tax dollars in the future.

We Are Team Florida 2018!


Usually my posts are on a topic related to money. This one is not. If you’ve known me or my family for any length of time, you know that we have a very strong tie to the Special Olympics program in our area. We just completed our 12th year of coaching the central Brevard County Special Olympics Track and Field team. Every Saturday morning, from January through May, we work with over 40 special athletes, helping them improve their fitness and performance in competitive games. As rewarding as that part of our involvement has been over the years, it’s not the subject of this post.

Special Olympics is celebrating its 50th anniversary this year. In fact, July 20 was the anniversary of the first-ever Special Olympics Games, started by Eunice Kennedy Shriver and held in Soldier Field in Chicago. The organization, founded to give athletes with intellectual disabilities an opportunity to compete, has come a long way.

Several years ago, the organization wanted to create a way for special athletes to compete at an even higher level. They established the Unified Sports Program, which brought together athletes with and without intellectual disabilities to compete on the same team. Brevard County’s Special Olympics program has enthusiastically embraced the Unified Program and nine years ago started a Unified Softball team. When I was offered an opportunity to become a Unified Partner and play on the softball team, I jumped at the chance. Little did I know the impact the program would have on my life.


Coach Tonya Snodgrass started putting together a team of athletes and partners who she knew would work well together. Our season would start in July of each year and culminate with the State Championship games at Disney’s Wide World of Sports in November. We have some very high-functioning special athletes on our team and would always be in the hunt for the gold medal at State Games. We won several of them.

In 2014, we were invited to represent Team Florida at USA Games in New Jersey. We participated at a very high level and went 8-0 on our way to a gold medal on the national level. We received a police and fire escort on our way back into town and later received recognition from U.S. House Rep. Bill Posey, the Brevard County Commissioners, and the Mayor and City Council of Melbourne. I thought it would be the highlight of my Special Olympics athletic career. I was wrong.

The makeup of our team changed slightly over the years. In 2015, my son, Adam, joined the team as another of our Unified Partners. We were one of two father-and-son combinations on our team. It’s pretty special to be able to play catch and compete with your son. Our team improved over time, and from 2015 to 2017 we won three State Championships in the Unified Division. And then we were invited to the 2018 USA Games in Seattle.

It was a chance for us to defend our gold medal from the 2014 Games. Winning one gold medal is pretty cool. Having a chance to win a second was going to be awesome! We started practicing in January of this year to prepare for the USA Games at the beginning of July.

On June 29, our Unified Softball team became part of Team Florida, a delegation of 237 who would participate at USA Games. We boarded a flight to Seattle with the Team Florida athletes who would participate in 14 sports, from basketball, flag football, and volleyball, to bowling, swimming, and track and field—and many more.

Opening Ceremonies for USA Games were held at the University of Washington’s Husky Stadium on Sunday, July 1, and were broadcast live on the ABC network. Those welcoming us to Seattle included the Governor of Washington, the President and CEO of Microsoft, University of Central Florida football sensation Shaquem Griffin, several musical stars, the Salish Seas People, an indigenous Indian tribe from the area, and many more. The event included the Parade of Athletes, over 4,000 athletes from all 50 states. We were proud to march on to the stadium field representing Team Florida. The event also included the Lighting of the Special Olympics Torch, marking the official opening of the games. It’s a pretty big deal. ESPN provided coverage of the games all week.

Our softball team began our competition on Monday. The first couple of days were spent in a round-robin format, with the medal rounds starting on Thursday. In the opening rounds, we beat Team Arkansas by a score of 14-2. In our second game of the day, we lost a heartbreaker to Team Indiana 11-10. On Tuesday, we beat Team Texas in extra innings in a tense and wild game. We were 2-1 in the preliminary round.

We had a rest day on July Fourth and were able to celebrate Independence Day in the cool and comfortable temperatures of the Pacific Northwest.

On Thursday, we got back to competition. Our first game in the medal round was a rematch against Team Indiana. We played better this time and won 14-11. That put us in the gold medal game against the host team, Team Washington. We played well and won the game and the gold medal! The final play of the game was a ground ball to Adam, who threw to me at first base for the final out. It was a father-and-son moment I will always cherish. We had defended our gold from the 2014 Games!

The celebration was emotional for all of us. In a very poignant moment, Coach Tonya and I participated in a special retirement ceremony. She was retiring from coaching after 30 years, and I was retiring as a player. We met at home plate, hugged, and then took off our cleats and left them sitting on the plate as we walked away. Hugs were everywhere as we all realized that we wouldn’t be together like this again.


On Saturday, we proudly wore our gold medals to the airport as we said goodbye to Seattle. We were welcomed home at the Orlando airport by a cheering crowd of supporters. And, even though it was late, we received another police and fire truck escort as we arrived back in Brevard to meet our family members and friends.

It was a special week with a lot of special moments. Special Olympics has been very special to me and my family. Thank you, again, to all of you who helped make this possible.

Should You Make Traditional or Roth Contributions to Your 401(k)?


More and more 401(k) plans are offering a choice on how you make your contributions. You can make deposits into the plan in the traditional way, which means that your money goes into the account before taxes are paid on that money. In recent years, many plans have begun offering another choice. If your plan allows, you can now make a Roth contribution, which means that the money goes into your account after-tax. Which option is best for you? As with most financial questions, the answer is “It depends on your personal situation.” I’ll try to help you decide which option is best for you in the paragraphs ahead, but first we need a little more detail about the choices.

Most people are familiar with the way that traditional contributions work. First, you decide how much you would like to have withheld from your paycheck, usually a percentage of your pay. That amount is deducted from your paycheck before income taxes are withheld. For example, if you make $75,000 per year and decide to contribute 10% of your pay, $7,500 goes into your account. Pre-tax means that, in this example, you would reduce your taxable income (before deductions) to $67,500 ($75,000 less the $7,500). So your traditional contributions result in a lower current tax bill. However, when you withdraw the funds, they are taxed as ordinary income.


Roth contributions work just the opposite way. Using the above example but making your contributions to the Roth option instead, your taxable income would be the full $75,000 you earn (less regular deductions). But when you withdraw the funds at retirement, they are tax-free. Contributing to the Roth option means that your current tax bill will be higher because you are paying tax on the entire amount of your income now, and you will receive tax-free income later.

Roth IRAs and Roth contributions in 401(k) accounts have been growing in popularity recently because of two reasons. First, the new tax law passed last year means that most of us will be in a lower tax bracket. That means that traditional, or pre-tax, contributions will be slightly less attractive. Shortly after the new tax law went into effect, Congress passed a $1.3 trillion spending bill, which results in a large increase in the national debt. That debt will eventually have to be paid, and most “experts” agree that it will mean higher taxes in the future. If that’s the case, your tax-free dollars will be worth even more.

It becomes a bit of a balancing act to determine whether you should make traditional or Roth contributions to your retirement plan. Do you take advantage of lowering your current taxable income by making contributions to the traditional option? Or do you pay a little more in tax now to have tax-free income at retirement? If you are just getting started in your employer’s plan, I say it’s a no-brainer—go with the Roth. If you’ve been in the plan for a while, you should consider redirecting at least a portion of your contributions to the Roth option.


Many people have been contributing to the traditional option for years and find it hard to give up that current tax break. After all, a dollar in your pocket now feels better than one in the future. There’s a good way to help you make the decision. Take the information from your 2017 tax return and run it through a 2018 calculator like this one, 2018 Tax Reform Calculator offered by the Tax Foundation, an independent tax policy nonprofit.

We’ve run the analysis for several of our clients and find that most will have a lower tax bill for 2018. We are recommending that they reduce their traditional contributions to the level that would keep their tax bill about the same, and start making Roth contributions with the tax savings. Over time, we recommend increasing the amounts going into the Roth. After all, tax-free is almost always better than tax-deferred.

If You Only Knew This, Planning Would Be Easy


How long are you going to live? That’s an impossible question to answer. But when you are planning for your financial future, it’s a very important question that needs an answer. Well, maybe not an answer, but as least a good guess. One of the main reasons for putting together a financial plan is to make sure you don’t run out of money before you run out of breath. But trying to figure out when that’s going to happen is at best a guess.

When putting a financial plan together, we need to make a lot of assumptions. We make assumptions about our lifestyle, the financial markets, inflation, tax laws, and many other things. This is why financial planning is not an exact science. Markets will change, tax laws will change, inflation rates will change, and our life and goals will change.

Our life expectancy is another assumption we have to make in a plan. I’ve often said that planning would be easy if we knew when our life was going to end. We could plan our finances perfectly. We would know that we have enough money to comfortably live out our days, and feel free to spend money on things we enjoy without worrying about leaving behind a big pile of money once we are gone. We could achieve what I consider to be the “perfect” retirement plan, the one where the check to pay the funeral expenses bounces.


So, when working on our financial plan, how do we address our life expectancy? First, we can start with statistics. According to the Social Security Administration, a man reaching age 65 today can expect to live, on average, until age 84.3. A woman turning age 65 today can expect to live, on average, until age 86.6. That’s a good starting point.

Then we need to consider our current health. Do we exercise regularly? How about smoking? How’s our weight and eating habits? We should also consider the depth of our gene pool. I always ask clients about their parents. How old are they, or if they have passed away, how long did they live? If mom and dad lived into their late 80s or 90s, we want to make sure to use a higher-than-average expectancy in our plan.

There are tools available that can help. One of my favorites is the website It is a site developed by Dr. Thomas Perls, founder and director of the New England Centenarian Study, the largest study of centenarians in the world. There is a calculator on the site that can help you estimate your life expectancy. There are 40 questions related to your health and family history. It only takes about 10 minutes to complete, and it will give you a guesstimate of your life expectancy. Having done it myself, I admit that it’s a little disconcerting as you wait to see your “number.” But it’s good information.


Once you have a number, it’s important to add a few more years to the estimate just in case. You don’t want to plan as if your life expectancy is 90 and then run out of money when you live until age 95. Also, with advances in medicine and medical technology, our life expectancies are likely to increase. I recently attended a conference on retirement income planning, and one speaker said that we should be planning as if our clients will live to 110 or 120 years of age!

Just like the other assumptions we build into a plan, our life expectancy estimate isn’t a set-it-and-forget-it number. As we age, we will want to adjust most of the assumptions built into the plan as we have new information. If we suffer a decline in health, we might want to adjust our life expectancy assumption downward. If we hit 80-plus and are still going strong, we might want to increase it.

Financial planning is not a static process. It’s not something we do once and then leave alone. It should be revisited at least annually and updated as life changes. Because it certainly will.

Find A Penny, Pick It Up?—How Little Things Add Up for Financial Success


You probably remember the children’s rhyme “Find a penny, pick it up, all day long you’ll have good luck.” Ever wonder where that originated? There’s a surprising amount of information on that rhyme available with a simple Google search. It turns out that it may have originated from the belief in ancient ­­times that metals would protect from evil spirits. Once we started using coins as currency, those who had more coins were considered wealthy, which translated into good fortune, or luck.

I’m not a very superstitious person, but when I was walking across a field the other day and saw a penny lying on the ground, I bent over and picked it up. Then I started thinking about why I did. It should be noted that the penny was heads-up. There are those who believe that a tails-up penny shouldn’t be picked up but instead should be turned over so that the next person who finds it will have good luck. But I digress …


When I picked up the penny, I didn’t do so because I believed that it would somehow bring me good luck for the rest of the day (although I did win two items at the silent auction I attended later that day). I picked it up because doing so fit into my financial philosophy. It wasn’t the value of the penny that was important; it was the idea that if you pick up the figurative pennies in your financial life, you’ll increase the odds of being a financial success.

What are these “figurative” pennies that I refer to? I will illustrate with several examples, but the principle basically comes down to doing a lot of little things correctly. Our firm is not going to be able to identify the next Amazon or Apple stock that could make a huge difference in your financial future. Instead, what we try to do is to help you do a lot of little things right. If you do a lot of (seemingly) little things right, you’ll be on the right track financially. So, what are these little things?

I have always used the example of a convenience store. If I stop in to get a drink that costs me 95 cents, I’ll give the clerk a dollar and wait for my change. The nickel that I get back certainly isn’t much, but in my mind, it’s a return of 5%. Once again, 5% isn’t a huge return, but it’s a guaranteed 5%—and there are no investments that will offer us a guarantee of that amount.

What about the interest rate you are earning on your savings? If you have an account with the traditional brick-and-mortar bank, you’re probably earning less than 0.30%. A quick search of the interest rate being paid by an online bank shows that it’s pretty easy to get 1.5–2%, and the account is still FDIC insured. That’s a difference of a little more than 1% to move the account to an online bank. Again, that’s not a lot, but over time, those 1% differences add up.


How about the expenses you are paying for your investment accounts? Unfortunately, a majority of people don’t know what they are paying in fees. I have reviewed many portfolios that are being charged fees that range from 1.5% to over 3%. Investment fees are like a headwind for your portfolio, and the larger your portfolio, the more high fees are slowing you down. Costs are one of the main factors that we consider when making investment decisions because they are relatively easy to control. And they save our clients a lot of money. If you can reduce your investment expenses by 1% or more, you’ll save a lot of money over the years.

There are several other “little” things that can add up to make a big difference in your financial situation. Make sure that you have the proper insurance coverages in place to protect you, your family, and your assets. You should have the proper estate documents in place to for the same reason. Make sure your portfolio is well diversified. Don’t leave free money on the table by not participating in your company’s retirement plan.

Like the penny I picked up in the field, it doesn’t seem like any of these changes would make a big difference in the grand scheme of things. But when you put them all together, they can make a very positive impact on your financial situation. So maybe we can change the rhyme to “Find a (figurative) penny, pick it up, and all life long you’ll have good luck!

Improve Your After-Tax Return with an Asset Location Strategy


You know how important it is to diversify your investment portfolio. You spread your investment dollars across several types of investments because you don’t want to have all of your proverbial eggs in the same basket. We suggest diversifying across several categories, or asset classes, because the different asset classes perform differently. But it’s also important to diversify your portfolio by diversifying across account types.

There are several types of accounts you can invest in. For example, there are individual and joint accounts, trust accounts, IRAs, 401(k)s, and Roth IRAs. In a previous post, “The 3-Bucket Approach to Retirement Savings,” I discussed the importance of having different “baskets” of money to draw upon in retirement. It’s good to have a pool of after-tax, tax-deferred, and tax-free funds to draw on. It’s a strategy that allows you to exert some control over the taxes that you pay.

Another way to control the taxes that you pay is to use a strategy called “asset location.” It involves diversifying your investments according to the type of account. To implement this strategy, we must understand a couple of things. First, it’s important to know the different ways we make money on our investments. Fixed-income, or bond, investments typically pay interest and/or dividends. Stock-based investments may pay some dividends, but the main way we make money on them is through capital gains. We buy them at one price and hopefully sell them at some point at a higher price.


Next, it’s important to understand that different types of income are taxed in different ways. Interest and dividends are taxed at ordinary income rates. This means that the total amount you earn in interest or dividends is added to your other sources of income (employment, pension, IRA distributions, Social Security benefits, etc.) to determine your tax bracket. Capital gains are taxed differently. If you hold an investment for over a year and sell it for a profit, it is considered a long-term gain. Depending upon your tax bracket, capital gains are taxed at 20%, 15%, or possibly 0%.

The strategy works by placing the investments that are going to be taxed at higher, ordinary income rates inside a tax-deferred account, like an IRA or 401(k). The investments that will generate capital gains should be in your post-tax accounts, like your joint or trust account. This means that your bond-type investments will be in your tax-deferred accounts, and the regular interest and dividends you earn will not be currently taxed. Your stock-type investments will be in your taxable accounts, where any gains are taxed at the lower capital gains rates.


It’s important to note that this is an oversimplified example to illustrate the concept of asset location. In reality, it’s not that simple. It’s rare that your accounts are the exact size that you need so that your IRA doesn’t hold stock-type investments. And your taxable accounts will need to have some cash and bond-type investments to meet your liquidity needs. You also need to understand that the performance of the accounts will be dramatically different. If you put growth-oriented investments in your taxable account, and fixed-income investments in your IRA, your IRA will likely lag from a performance standpoint. But this turns into a benefit later, when you start taking your required minimum distributions at age 70. A smaller account balance results in lower distributions—another way to control your tax consequences.

The goal of the strategy is to place your investments in the type of account that will maximize your after-tax return. After all, it’s what you end up with after taxes that you get to spend. Asset location is not an easy strategy to implement or maintain, but if it can increase your spendable income in retirement, it’s worth it. For help in seeing how it would work in your case, don’t hesitate to reach out.

Retiring with a Pension? You Have Some Decisions to Make


It used to be that a retirement pension was common. It was typical for someone to work for a company for 20 or 30 years and retire with the proverbial gold watch and a pension. The so-called “three-legged stool” of retirement income was made up of personal savings, Social Security benefits, and a pension. The pension and Social Security benefits provided a guaranteed monthly income for the rest of the retiree’s life.

Times have changed quite a bit over the last couple of decades. Driven mostly by employers’ desire to reduce their long-term liability exposure, pension plans have become increasingly rare. They have been mostly replaced by 401(k)s or other employer-sponsored savings plans. But some people are lucky enough to still have a pension, and it will be a big part of their retirement plan.

If you are one of the fortunate ones, you will have some decisions to make when you are ready to retire. First, you have to decide when to start receiving your pension benefits. Some plans offer payout options that work similarly to Social Security benefits. You can start receiving benefits early—say, at age 62—but you will receive a smaller amount. Or you can wait until a later date, like age 65, and receive a larger payout.

Perhaps the biggest decision you will need to make is how you will receive your benefit payment. You might have a lump sum option that allows you to cash out of the plan. You will also have a couple of options that offer you monthly payments.


If you take a lump sum payout, you eliminate the possibility that your employer may default on your pension. With all the reports of unfunded pension obligations, this is a real risk. There is some protection provided by the Pension Benefit Guarantee Corporation, a government agency that “insures” your benefit up to federally determined limits. But that means that there is a possibility you would not receive your full benefit.

On the other hand, if you cash out, you take on the investment risk of managing those funds. Most people who take a lump sum do so by rolling over the proceeds into an IRA. This allows you to control the tax consequences of your distribution.

If you decide not to take a lump sum, or if your plan doesn’t allow for one, you will need to decide how to receive your monthly payments. You usually have the choice of receiving payments for the rest of your life (a single life annuity) or selecting from a variety of survivor options (joint and survivor annuity) that allow for your beneficiary to continue to receive payments after your death. If you choose payments for your life only, your monthly income will be higher. The survivorship options result in a reduced payment. For example, you might qualify for a $1,500/month payment for the rest of your life, but if you choose the survivor option, your payment might be $1,000/month. That’s because the payment is now guaranteed to cover two lives. It should be noted that if you are married, the IRS requires that the benefit from a qualified retirement plan be paid out as a survivorship option unless both you and your spouse authorize another form of payment.


At first blush, the survivorship benefit is the logical choice. After all, you want to make sure that your spouse is provided for after your death. But is that really the best decision? The answer, as with most financial decisions, is that it depends on your personal situation. There are times when it makes sense to take the single life payout, and times when the survivorship option is best.

When trying to decide which is best for you, you should consider several things. How old are you and your spouse? What about your respective life expectancies? How is your health? Your health history? Your spouse’s health and health history? What other sources of retirement income might be available to you or your spouse after one of you passes? Do you have life insurance? What would be the impact of the death of one spouse on your combined income? What about the impact on your combined expenses?

As you can tell, there is not an easy answer that is right for everyone. The purpose of this post is to highlight some of the things that need to be considered as you prepare to move into the retirement phase of your life. If you are lucky enough to have a pension, you need to get this right the first time because you don’t get a second chance once you start receiving benefits.

The 3-Bucket Approach to Retirement Savings


What tax bracket will you be in when you retire? Unless you are retiring within the next year or two, this question might be a difficult one to answer. Predicting future tax rates can be as difficult as predicting the stock market, interest rates, and the weather. Taxes can have a huge effect on your retirement income, so having a strategy to minimize them is important. One strategy that can help is what I call the three-bucket strategy.

The idea is to have three different buckets of retirement money. The first bucket consists of money that you have saved outside of any IRA or employer-sponsored plan. We’ll call that the “post-tax” bucket, consisting of money that has already been taxed. The second bucket is the “tax-deferred” bucket, containing money that you have saved in a traditional IRA or 401(k)-type plan. It’s money that will be considered taxable income when you withdraw it for cash flow.


A lot of people have the first two buckets under control. The key to the strategy is that third bucket, the “tax-free” bucket. You fill up this bucket by making post-tax contributions into a Roth IRA or Roth 401(k). The money goes in after tax and comes out tax-free—including all of the growth and income that has occurred in the account over the years. This bucket has become a much bigger part of retirement planning because of the new tax laws that went into effect this year. The new laws cut the tax rates for now, but projected increases in government deficits have many believing that tax rates will be much higher in the years ahead. If that’s the case, tax-free cash flow would become even more valuable.

By putting the three-bucket strategy in place, you can effectively control the tax consequences of your retirement income. I’ll use an oversimplified example to illustrate how it can work. For a married couple, filing jointly, the 2018 tax rates increase from 12% to 22% once your taxable income goes above $77,400. For our example, let’s assume that you need $90,000 of cash flow each year in retirement.


Here’s how the three-bucket approach could work. Let’s say that between your Social Security benefits and the interest, dividends, and capital gains from your post-tax account, you have $48,000 in taxable income. Next, you withdraw $29,400 for the year from your IRA or 401(k), your tax-deferred bucket. Remember, everything from that bucket is taxable, so you are now at $77,400 in taxable income. To get to your income need of $90,000, you withdraw $12,600 from your Roth IRA or 401(k) accounts, your tax-free bucket. By following this plan, you have accomplished your income goal and did not push yourself into the next tax bracket.

Implementing this strategy will rarely be as clean as our simplified example, and it will vary from year to year. But managed properly, you can get the cash flow you need and control the tax consequences. After all, a dollar saved in taxes is another dollar that you can use however you want in retirement.

How Do I Replace My Paycheck When I Retire?


While it doesn’t seem like it, saving for retirement is easy. You set aside a certain amount each month, or each paycheck, and invest it in your IRA or 401(k). That is, of course, an oversimplification. But once you retire and need to figure out how to replace your paycheck, the process becomes a lot more difficult.

While you are working, you are in what is known as the “accumulation phase.” You have a couple of big decisions to make: how much you can afford to save for your future, and how you’re going to invest those savings dollars. If you are lucky enough to have an employer-based retirement plan, you simply decide what percentage of your paycheck you can put into the plan and then choose from the menu of investment choices that the plan offers. If you are saving for retirement outside of an employer plan, saving is a bit more involved. You must be disciplined to put money away on a regular basis without the benefit of payroll deduction, and you need to develop an investment strategy.

There is obviously more to “accumulating” than that. You want to make sure that you build a portfolio that is properly diversified. Your mix of investments should reflect your tolerance for risk as well as your need for risk. You should also keep an eye on the costs of your portfolio, which isn’t always easy. Mutual fund expense ratios, trading costs, account fees, and management fees can all add up and hurt the performance of your portfolio. You also need to manage the portfolio so that it stays appropriate as you move through the stages of your life.


But all of that is a piece of cake compared with what it’s like when you finally retire and get to the “decumulation stage.” Before retirement, you receive a paycheck. When that paycheck stops, you need a plan to replace the income that you have been living on. There may be several pieces of the retirement income puzzle that you will need to put together.

Most of us are eligible for a Social Security benefit. The timing of when you begin your benefit will be a big part of your retirement income plan. Most people begin receiving benefits at age 62, even though they know they will receive a smaller benefit. It often makes more financial sense to wait until you reach your full retirement age, which is 65 to 67, depending upon your year of birth. At least then you will be getting your full benefit. You can also receive a higher benefit by delaying it until you reach age 70. Each year you delay, your benefit will increase by 8%, up until the time you turn 70. When should you start your benefit? That, of course, depends upon your situation.

Pensions used to be a big part of the retirement puzzle, but not many of us are lucky enough to have one these days. If you happen to be eligible for a pension, you may need to decide when to start receiving benefits. Like the Social Security decision, many plans allow you to take a reduced benefit at an earlier age and a full benefit at another. You will also typically have to decide whether to take a benefit for the rest of your life, or to take a reduced benefit and provide for your spouse at your death. Your best strategy? Again, it depends.


Finally, you’ll need to come up with a plan on how to start drawing cash flow from your investment accounts. You should note that I said “cash flow” and not “income.” It might simply be a semantics issue, but I’ll explain. All too often, I see retirees trying to generate enough income from their investment portfolio to meet their spending needs. They think of “income” as interest and dividends and will tend to focus on investments that pay higher levels of both. Unfortunately, that mindset can often lead to problems with their portfolio. When “chasing higher yields,” investors are taking on more risk. When they go after higher dividends, we often find them heavily concentrated in large dividend-paying stocks. This approach leaves them with little or no exposure to other important asset classes. I recommend taking a cash flow approach, where the cash flow is made up of a combination of interest, dividends, capital gains, and occasionally principal, from the investment portfolio.

The tax status of your retirement investments will also have an impact on your cash flow decisions. You may have some money in after-tax investment accounts, some in tax-deferred accounts like an IRA, and some in tax-free accounts, like a Roth IRA. By properly managing your distributions, you can exert some control over the taxes that you will pay in your retirement years.

It’s easy to see that making the transition to retirement involves a lot of planning. You have several decisions that need to be made, and many of them will have long-lasting effects on your retirement lifestyle. Make sure you understand the implications of each decision. And if you would like some help, feel free to reach out. This is what we do, and we are happy to help.

Investing in Your Company’s Stock—Good Idea?


We all want to feel confident in the company we work for. We also like to think that we are contributing to the company’s success. If possible, we also like to share in that success. Some companies allow you to share in their success by allowing you to own some of the company’s stock—then, if the company does well and the stock price goes up, you build wealth along with the company. It’s a win-win. You are motivated to do your job well so that the company does well.

But can it be too much of a good thing?

There are several ways that you can invest in your company. A lot of companies will offer their employees a discount on the company stock. They will allow you to have some money deducted from your paycheck and will use that money to buy shares of the company stock. They usually offer it at a discounted price that can range from 5 to 15%. Other companies may offer their stock as part of a match that they make to your qualified retirement plan. And other companies make the stock available as a choice in the menu of investment choices in their 401(k) profit and/or profit sharing plans.


So, what can go wrong? Just like most things in life, moderation is key. A little bit of something can be good. Too much of something can become a problem. Owning too much of your company’s stock can become a real problem. If the company runs into a rough patch, your personal wealth can suffer. In fact, it can be a bigger problem because your paycheck and your investment accounts both depend upon the success of your company. History has many stories of companies that at one time seemed solid and in a short period ran into hard times—think Enron, Kodak, and Lehman Brothers, just to name a few. A lot of employees in those companies lost their jobs and their retirement because they never would have imagined the hardships that hit their company.

We all know that one of the most basic rules of investing is to not put all of your eggs in one basket. We know that we should be diversified. But when it comes to our company stock, we sometimes let our emotions replace our logic. We want our company to do well. We think we are helping it be more successful. Whether it’s through an employee stock ownership plan (ESOP), discounted shares, or shares we’ve purchased in our retirement plan, we accumulate small pieces of our company over a period of many years. It can often become a much larger part of our overall investment plan without us even realizing it.


Don’t get me wrong; I’m not against owning company stock—although I admit I’m not a real fan either. If you are confident in the future of your company and you want to take an ownership stake, there’s nothing wrong with that. But just make sure to diversify. If 5–10% of your overall investment portfolio is invested in your company, that is probably OK. It’s when the stock becomes a bigger piece of your investment pie that you are taking on more risk than you might know.

I’ve seen several situations recently when company stock made up 20, 30, 40, even 80% of someone’s investment portfolio. That’s extremely dangerous—no matter what company it might be. Think about it another way. There are around 4,000 actively traded public companies in the U.S., and that number doesn’t include private companies that have employee stock available. Of all those companies, which one would you invest nearly all of your money in? Amazon? Apple? Starbucks? Your company? It’s a big risk to put too much of your money in one basket. Would you take that risk with any other company?

Volatility Is Back—with a Vengeance


OK—now it’s obvious that we’ve been spoiled. For most of the last year and a half, it seemed like the markets only went up. Deep down, we all knew that’s not how it works. Markets go up, and markets go down. They always have, and they always will. Over the long term, the trend has always been for markets to move higher. But in the short term, there’s no telling what’s going to happen. Last year seemed to lull us into a false sense of security.

This is a top-of-mind subject for a lot of folks right now because of the recent activity in the market. As I write this, we are coming off the worst week in the markets since January 2016. We saw a 700-plus point drop in the Dow on Thursday, and a 400-plus point drop on Friday. By the time you read this, we could be well on the road to recovering that lost ground.Or we could be lower.

Markets are historically a lot more volatile than we’ve seen recently. A good measure of volatility is a daily move of more than 1% in the S&P 500. Looking at market data all the way back to 1901, we see that the markets have averaged about 53 days per year with moves of more than 1%. That’s the average. In 2008, during the financial crisis, we had 134 days, and in 2009, there were 118 days.


In 2017, we had 10 days of 1% moves. Ten. There’s only one other time in history that comes close to the calm we enjoyed last year. During the years 1963 through 1965, markets experienced similar stability.

So far this year, we’ve already had 23 days of moves more than 1%. It’s not even the end of March, and we almost have twice as many as last year. Recency bias makes the moves of the past week seem even more dramatic. It’s like we’ve been sitting in a nice, lukewarm bath when someone suddenly douses us with ice water.

We shouldn’t be surprised by the market moves, but we are. We’ve had the perfect storm of events to get us here. We’re nine years into the longest bull market ever, and even a strong bull gets tired. We’re finally seeing an uptick in inflation, which has led to an increase in interest rates. That’s usually bad news for stocks. Saying that we are in a volatile political environment would be an understatement, and the unpredictability of the current administration just provides more fuel for the fire. All that, and now the potential danger of a trade war, has put investors on edge.


It’s not all bad news, though. The recent tax cuts have put more dollars in most paychecks, and corporate earnings are still pretty good. And while inflation is back, it doesn’t appear to be problematic yet.

So, what’s an investor to do? My advice is always the same. First, make sure that you have adequate cash reserves so that you can stay invested during tumultuous times. Don’t let moves in the market, no matter how big, lead to reactionary moves with your portfolio. Make sure that you are properly diversified across the major asset classes and that you have an appropriate mix for your personal situation. Finally, rebalance your portfolio when it’s necessary to maintain your mix.

Keep Mediocrity at Bay—in Running or Finances


“You gotta fight every day to keep mediocrity at bay.” That’s the opening line of one of my favorite Van Morrison songs. If you are reading this and you happen to be under 50 years old, you may have just thought, “Who is Van Morrison?” And even if you do recognize the name of this classic rocker, your next thought might be to wonder why I’m writing about him. I’m not. I’m writing about his song.

I ran a 10-mile road race this morning. If you’ve known me for any time at all, you know that running is a part of me. My wife and I have made running our main form of exercise for almost 15 years. We used to travel the country with the goal of running a full marathon (yes, that’s 26.2 miles!) in every state. Unfortunately, some knee issues have made me stop the marathon quest, but thanks to modern medicine, I am still able to do some pretty good distances and participate in some fun events.

Usually when I run I listen to podcasts or audiobooks. I enjoy the opportunity to learn something, or be entertained, while I’m getting in some miles. I started the race this morning listening to an audiobook. But I quickly found that it wasn’t going to be a day for learning. It was a day for music. I’ll listen to music on my runs when I want to be entertained and lose myself in thought, or when I need some motivation. I’ve been recovering from an injury, so this morning I needed motivation.


It took me almost an hour and 50 minutes to cover the 10-mile course. (No, I’m not very fast!) You can listen to a lot of songs in that time. About six or seven miles into the run, when my body was starting to hurt and ask why I was out here running 10 miles, the song “Keep Mediocrity at Bay” came up on my running playlist.

Music can make you feel happy or sad. It can make you feel love or mourn a lost love. It can also make you motivated (think “Rocky’s Theme”). A lot of the messages we get from music depends upon where we are and what we are doing. I’m sure that when you hear certain songs, you are transported to a different time in your life, when the song had a special meaning, creating an important memory. Van Morrison’s song had an impact on me this morning.

“You gotta fight every day to keep mediocrity at bay.” I don’t want to settle for mediocrity—in any area of my life.

As I listened to the words and message of the song during my run, it gave me the answer that my body wanted. I run because I want to stay fit. I want to stay fit not only to look and feel better, but so that I can age well. It’s also the reason that my wife and I get up at oh-dark-thirty every morning to work out. We’re fighting every day to keep mediocrity at bay.


I don’t want to be mediocre when it comes to my family’s financial situation. My wife and I both work hard to save for our future and to make good financial decisions. We are willing to do the things necessary to provide us with a secure financial future.

And, I don’t want to be mediocre when it comes to helping the clients of our firm. It’s the reason I attend numerous educational conferences each year—so that I can help clients make good financial decisions. It’s the reason we invest in the tools that we need to help keep our clients on track and to provide them with an experience that helps keep them focused on their financial future. We don’t want mediocrity for our clients either.

“You gotta fight every day to keep mediocrity at bay.” So now you have an example of some of the stuff I think about when I run. The inspiration for this post came to me as I struggled through the last few miles of a tough run. Thinking about the message of the song got me through miles seven and eight. It also helped that the next song on my playlist was “Stronger” by Kelly Clarkson. You know, the one that goes, “What doesn’t kill you makes you stronger …”

Emotions—You Can’t Avoid Them, but You Can Control Them


Emotions can be a good thing. There are positive emotions like love, joy, surprise, excitement, amusement, and gratitude. Emotions can also be a bad thing. Negative emotions include fear, panic, anxiety, anger, sorrow, greed, and hate. We would obviously prefer to experience positive emotions, but sometimes life’s circumstances get in the way and we face the negative ones far too often.

When it comes to money, it’s best to leave your emotions out of the mix. You should note that I said that it is “best” not to mix money and emotions. I didn’t say it was easy. Money is a very emotional issue. It is possible to have positive emotions about money. You can feel surprise and joy when you get an unexpected bonus at work, or you can feel gratitude or thankfulness when you think about your life compared to others. However, most of the emotions that surround the topic of money are negative. You might experience anxiety about your job status; fear that you won’t have enough money to meet your long-term goals; or even panic when your investment portfolio takes a sudden and unexpected hit.

In the first two months of this year, we’ve seen investors experience a wide range of emotions, and they are all negative. Many of us have experienced the emotion of greed as we’ve watched the financial markets rise steadily over the last several years. We might have wished that we had a more aggressive allocation in our portfolio because those darn bonds were just holding us back from those big gains in stocks. And that cash we’ve been sitting on certainly hasn’t been earning us anything for years!


I learned a new term as I listened to the financial pundits try to explain what was driving the markets higher recently. It was FOMO or the "fear of missing out." It’s just another, less negative way of describing greed. For those of us old enough to remember, we saw it in the stock market during the dot-com era at the turn of the century, we saw it in the real estate markets in 2005, and we've seen it recently in the cryptocurrency markets. When you are investing because you are afraid of missing out on the big gains going on around you, it usually doesn't end well.

After a year like 2017, when it seemed like the stock markets only knew one direction, it didn’t take long for us to be reminded that what goes up, can also go down. In 2018 we have already experienced more volatility in the markets that we did in all of 2017. And with the sudden return of volatility, we’ve also seen an increase in the emotions that can wreak havoc on a long-term financial plan.

We need to keep that volatility in perspective. When the Dow Jones Industrial Average (the Dow) is at 25,000, a 300-point move is only a little over 1%. It’s never been unusual for stock markets to move up or down by 1% in a day. So, while the number looks big, and the media will do everything they can to make it sound big, it’s not that big of a change.

Here’s what normally happens to individual investors: They see the big gains that are going on in the markets and they want in, so they buy; then, when the markets go through a quick and seemingly severe drop, fear kicks in and they sell. Buying high and selling low is not how to make money in the investing world.


We need to accept the fact that we are going to be emotional about our money. We can’t avoid it. Once we know that we can’t avoid the emotions that surround money, we need to learn how to control them. How do we do that? We put a plan in place. Your plan will be different from everyone else’s because you have your own individual goals and circumstances. Your plan should consider your tolerance and capacity for risk, your investment time horizon, and your liquidity or cash flow needs.

But putting a plan in place is only helpful if you have the discipline to stick to it. When the markets are hitting record highs, you must ignore the noise and stick to your plan. And when it seems like the markets are in free fall, you have to ignore those pundits and the headlines and stick to your plan. In fact, if your portfolio is properly diversified, and you rebalance your holdings when market moves affect your allocations, you will be forced to buy low and sell high. And that is how you win at the investment game.