Author: Korving & Company

When to Collect Social Security Benefits

When to Start Collecting Social Security Benefits

You have three main options:

  • Start collecting early
  • Start collecting at full retirement age
  • Start collecting after full retirement age

“Full Retirement Age” depends on your date of birth.

Year of birth

Full retirement age

1943-1954

66

1955

66 and 2 months

1956

66 and 4 months

1957

66 and 6 months

1958

66 and 8 months

1959

66 and 10 months

1960 or later

67

Full retirement age is the age when you qualify for 100% of your Social Security benefits.   You’ll want to consider several factors such as your marital status, your health, your plans for retirement and your retirement income sources.

  • If you begin collecting at age 62. 

You can start collecting between age 62 and full retirement age and receive reduced benefits.  The reduction can be up to 30% depending on your age.

Collecting early means you receive benefits longer.  On the other hand, your benefits are reduced for you and your surviving spouse.

  • If you begin collecting at full retirement age.

At full retirement age, you receive 100% of your benefit for yourself and your surviving spouse.

Waiting to full retirement age gets you a larger monthly check from the Social Security Administration.  But you can increase your monthly check by waiting a little longer.    

  • If you delay past full retirement age. 

Delaying your benefit past full retirement age increases your benefits 8% annually up to 32% through delayed retirement credits.  Credits are available to age 70.

You have to weigh the pros and cons.  Waiting past full retirement age gets you a larger monthly payment.  However, you may receive checks for a shorter period depending on longevity.

Here’s a hypothetical example.  Let’s assume that your full retirement age is 66 and you are eligible for a benefit of $1000 per month at full retirement age.

If you start collecting at age

  • 62  you collect $750
  • 63 you collect $800
  • 64 you collect $866
  • 65 you collect $933
  • 66 you collect $1,000
  • 67 you collect $1,080
  • 68 you collect $1,160
  • 69 you collect $1,240
  • 70 you collect $1,320

Social Security benefits can get complicated, especially if you are married and you need to make decisions about spousal and widow benefits.  For more information, get our free brochure “Making Smart Decisions about Social Security.”

Women Aren’t Planning for Retirement Early Enough

Women Aren’t Planning for Retirement Early Enough

Everybody knows that women outlive their male counterparts, on average by 6 to 8 years. They are often caregivers to their ailing spouses or elderly parents. Despite this, too many women are not planning nearly early enough.

It should not come as a surprise that men and women are different. Women, for some reason, tend to invest less. A recent study reported that over 70% of the money women have is in cash.  That’s a shocking number. Cash not only doesn’t earn a return, it actually declines in value over time because of inflation.  The stock market, on the other hand, has averaged over 9% for the past 90 years, including the great recession of 2007-2008.

Both men and women have a tendency to put off things that are not urgent … and learning the skill of money management takes time. If you have a husband or companion who does the planning and makes the investment decisions it makes sense to accept the division of labor. But by the time that financial decisions fall on the woman as the surviving spouse, it can often be too little too late.

There is another little secret that a lot of men would rather not admit: they’re often not the experts that they think they are. The men who lost half their 401k retirement plans when the market tanked in the Great Recession may not be the ones from whom women should take investment guidance.

Our advice for women (and men who love their wives) is to find a knowledgeable financial advisor, preferably a Certified Financial Planner™ (CFP®) who specializes in retirement planning and is an independent fee-only RIA (Registered Investment Advisor).

They will provide the guidance, create the plan, and be there when the woman finds herself “suddenly single.” It’s the right thing to do and makes life so much easier.   

Do You and Your Spouse Bicker About Money?

Do You and Your Spouse Bicker About Money?

I recently read an advice column about a couple who frequently bickered about money. The husband and wife disagreed about whether to pay off their mortgage. One wanted to pay it off faster and have the peace of mind that comes with reducing debt. The other wanted to take advantage of the tax write-off the mortgage interest brings while spending money on current needs and wants.

Money issues, unfortunately, are near the top of the list for why marriages fail. This is because money, and how it’s spent, affects our lives on a daily basis. Money and the things it can buy have a big influence on the way we view ourselves and, often, on how others see us. Which is more important to you, a new car or more money in the bank? A home with more bedrooms or a bigger retirement account?   

Marriage is often about compromise. Communication is often the key.  But in many cases, there is conflict and spouses can’t come to an understanding or agreement. One spouse may be so focused on frugality that the family is deprived of simple pleasures. On the other hand, spending beyond the family’s means often leads to unnecessary debt and, ultimately, financial ruin.

If this is an issue with you or someone you know, this may be the time to consult with a financial planner. Financial planners have the tools and training to help couples develop financial guidelines that will help them come to an agreement that both can live with. Creating a financial plan together may show a way for a compromise between parsimony and extravagance.

If you find yourself arguing over money, give us a call. We may be able to help you resolved your differences.

Becoming Rich Is Not the Same Thing as Staying Rich

Becoming Rich Is Not the Same Thing as Staying Rich

What does the term “rich” mean to you?  Many of us are blessed with a great family, friends, good health and a lot of the things that make life worth living.  But as a financial advisor, my job is to help people achieve financial prosperity and keep it throughout their lives.  And that often means that the strategies they used to become “rich” in the monetary sense are not the same as the ones they need to stay that way.

Take the case of an entrepreneur.  Starting a business is inherently risky.  You typically have to commit your own capital or borrow it to get started.  Then, as the boss, you depend on yourself for a paycheck.  Successful business owners often find that they have become monetarily “rich,” but the majority of their net worth is tied up in the business.  If the economy or a competitor hurts their business, they can lose it all.

We have met people who have had very successful careers climbing the corporate ladder.  It’s not unusual to find that the successful executive is largely rewarded with company stock.  But being part of a successful corporation doesn’t come with a guarantee that the stock will retain its value.  Some of the best-known names in American industry have lost 50%, 75%, even 100% of their value over the last 50 years.

Both the business owner and the corporate executive become “rich” by focus and discipline.  To avoid losing part – or all – of their wealth requires a change in emphasis.  It means risk reduction via diversification.  It means finding a financial advisor who can create a portfolio that is robust enough to reduce the risk that the economy, competitors or unforeseen events destroy the financial future they have worked so hard to build.   

Of course, this also applies to those people who have benefited from a general run-up in the stock market and have achieved a measure of financial independence but who are now concerned about holding on to what they have.  Be sure not to confuse luck with smart investing.  The last decade has been good to all investors.  It’s important to remain prudent and remember the first rule of making money is to not lose it.

Call us to find out how we can help you keep what you have worked so hard to get.

Fearing Retirement Failure?

Fearing Retirement Failure?

Retirement planning is complicated.  It may not be rocket science, but there are a lot of variables that can affect how you are going to do financially 10, 20, 30 or even 40 years down the road.  As a result, too many people don’t do any planning.  Even worse, because they don’t have a plan they don’t give enough thought to saving for retirement.

A fifth of Americans don’t have even $5,000 saved.  Nearly half of all Americans now expect that they’ll have to work beyond the traditional retirement age.  Those numbers indicate that most people have put off retirement planning and saving, which brings to mind the old refrain “if you fail to plan, you are planning to fail.”   The truth is that you can do it, but most people need help.

There are so many variables in life that tend to make planning difficult.  How long will you live?  What will your health be like as you age?  What will returns be on stocks and bonds before and through your retirement?  How fast will the cost of living go up?  Will your income increase between now and your retirement?  How much income will you need when you retire?  What will the tax rate be in the future when you are retired?

That’s where having a financial planning advisor is so helpful.  They are not prophets, but they can create a plan with conservative assumptions that can be updated from time to time to provide guideposts and milestones on your way to retirement.  Advisors who specialize in retirement planning can begin a discussion with anxious individuals and couples and offer the appropriate level of support.   An advisor’s job is to help you create a path to financial success and to teach and encourage the behavior that helps get you to your goal.

A good advisor helps remove the fear of failure and encourages good financial habits.   Time is your most valuable asset and the clock is ticking.  Call us today to get started.

Don’t “Guess” Your Way to Retirement

Don’t “Guess” Your Way to Retirement

Participants in a recent study answered that they arrived at the appropriate amount they’d need to fund their retirement by guessing.

Retirement is too important and too final to go into with guesses.

When you tell the boss that you’re leaving your position, you should have a plan for what comes next.  If it’s a promotion, another job for more pay, or something that gives you more responsibility and a clearer career path, that’s a good thing.  On the other hand, if you’re leaving to start your retirement, with years (or decades) without a steady paycheck, you had better know what you’re doing and have a clear plan.

Retirement comes with more than just leisure time.  We continue to age, visit the doctor more often, and our skills get outdated, making it more difficult to get another job if we find ourselves in need of additional income.

True story: I knew a retired rocket scientist who got a job in the tool department of a hardware store to supplement his retirement pay to maintain his standard of living.

A financial advisor who specializes in retirement planning can help facilitate discussions on several key issues, enabling genuine retirement planning to take place.

If you or someone you know is contemplating retiring, give us a call.  We’d be happy to sit down over a cup of coffee and discuss what you need to retire.

The Real Value of Financial Advice

The Real Value of Financial Advice

Most investors who retain an elite financial advisor would agree that the value far exceeds the cost. They simply do not have the time and/or the expertise to navigate the complex financial world by themselves and see tremendous value in having a trusted, expert confidant who can answer questions and provide guidance when faced with uncertainty.

Clients often come to us with questions when they are making financial decisions. Should they take option A or option B? We frequently suggest that there may be other alternatives that they have not even considered. It’s gratifying to see a light go on when we explain that option C is better for them, they just didn’t realize it was there.

The Real Value of Financial Advice

A leading financial firm determined that “as much as 45% of the total value of an advisory relationship perceived by investors is derived from emotional elements, while the remaining 55% is derived from functional aspects of the relationship like portfolio management and financial planning.”

In other words, nearly half of the value of a financial advisor comes from services that have nothing to do with portfolio management.

Advisors have two primary tasks – helping people manage their wealth and helping people manage their emotions.

Korving & Company’s investment methodology is systematic and backed by technology that allows us to monitor hundreds of individual portfolios to keep then within their stated objectives. This allows us to spend more time with the subjective questions that our clients have. That’s where decades of experience in both finance and life help our clients to meet their own goals.

8 Steps to Choosing the Right Financial Advisor

8 Steps to Choosing the Right Financial Advisor

1. Hire an advisor who is a fiduciary. 

By definition, a fiduciary is always ethically bound to act in your best interest.  This obligation eliminates conflict of interest concerns and makes their advice more trustworthy.  If your advisor is not a fiduciary and is constantly trying to sell you products, find somebody who has your best interest in mind.

2. Don’t necessarily hire the first advisor you meet. 

While it’s tempting to hire the advisor closest to home or the first one listed in the yellow pages, you need to find the advisor who is most compatible with you.  Take time to interview a few advisors and pick the one who is the best match.

3. Choose an advisor who specializes in clients like you.  

Some advisors specialize in retirement planning, others focus on business owners or medical professionals.  Some are better for young professionals starting a family.  Ask the advisor what kinds of clients he focuses on and understand his strengths and weaknesses.

4. Pick an advisor whose strategy fits your personal style. 

Each advisor has a unique strategy.  Some focus on picking individual securities, while others use mutual funds.  Some are aggressive investors and try to beat the market, and others are conservative and focus on preservation of capital.  Choose the one with which you are comfortable.

5. Ask about credentials. 

Ask your advisor about their licenses, tests and certifications.  Financial advisor tests include the Series 7, Series 66 or Series 65.  Others have gone a step further and become a CERTIFIED FINANCIAL PLANNER™ practitioner, or CFP®.

6. Don’t assume that a major brand on the door is a seal of approval. 

Most advisors start their careers with one of the major brokerage firms like Merrill Lynch, Morgan Stanley, UBS or Wells Fargo.  What often happens is that new clients are referred to the newest rookie in the office.  In addition, the major firms view their advisors as their “salesforce” and provide them with incentives to generate fees and commission for the parent company.   Advisors working for the major firms generally are not held to fiduciary standards.

7. Understand clearly how your advisor is paid. 

Some advisors are “fee only.”  Others are paid commissions on the purchase of sale of securities, annuities or life insurance.  Still others receive fees, called “trailers,” from mutual funds.   Advisors who are paid from the sale of products have an inherent conflict of interest that you should be aware of before you enter a relationship with them.

8. Ask what happens if your advisor retires or leaves. 

An advisor should have a succession plan that makes sense for you.  Solo advisors could leave you without a trusted advisor at a critical time.  If you have an account with a solo advisor at a major firm, your account will be passed along to someone else, who will initially be unfamiliar with your goals and objectives.  If this is a potential concern for you, find an advisory team who will be there for you for the long term.

Strategies for Generating Retirement Paychecks

Strategies for Generating Paychecks During Retirement

Strategies for Generating Retirement Paychecks

How do you pay yourself when you’re retired?

When planning retirement investments, there are three approaches used to generate income for retirement:

  1. Income-focused
  2. Income and some capital gains
  3. Fully invested total return

Strategies for Generating Retirement Paychecks

Using this approach, investors focus only on investments that generate income. The growth of capital is largely ignored or not considered when making the investment. Those who focus on income will look at bonds, dividend-paying stocks, real-estate investment trusts (REITs), and Master Limited partnerships (MLPs). The interest payments or dividends will be paid into the retiree’s bank account.  

There are several risks with this approach. It may be difficult to get the income you want. Bonds have been paying very low interest rates for over a decade. People who bought bonds years ago are finding that, as their bonds mature, current interest rates are much lower. This reduces their retirement income just when they need it most.

To get more income some retirees to put their money in riskier investments. These riskier investments have been known to reduce their dividends, decline in value, or even default during the next recession.

Strategies for Generating Retirement Paychecks

This is a hybrid approach that uses capital gains to supplement interest and dividends. In this case, income from dividends and interests can be accumulated and held in cash until it’s paid out.

But on a quarterly or annual basis, some investment can be sold to generate additional cash for living expenses. Like many compromises, this approach suffers from the fact that it incorporates the negative aspects of the income-focused approach while reducing the opportunity for growth of principal.   

Strategies for Generating Retirement Paychecks

This approach seeks to generate growth of principal from which an annual income can be harvested. The return comes from growth in the value of the portfolio without reference to dividends or interest payments. This approach lends itself particularly well to mutual fund portfolios designed to reduce risk. It is designed to generate an acceptable level of income and meet the risk tolerance of the retiree in mind. It avoids the temptation to reach for high-yield securities that often expose the retiree to risks that he or she may not be aware of.

Money can be set aside in a cash account that the retiree uses for monthly expenses. When the cash account reaches a certain level, it is replenished by harvesting some of the gain from the investment portfolio.

Contact an RIA (Registered Investment Advisor) to create a portfolio designed to pay you a regular paycheck during retirement.

Pre and Post Retirement Financial Planning

Pre and Post Retirement Financial Planning

PRE AND POST RETIREMENT FINANCIAL PLANNING

I  get a lot of questions regarding pre- and post-retirement planning, but today I wanted to address one that is most frequently asked.

I’m retiring at the end of this year. I used a fee-based advisor five years ago to ensure I was on the right track to retire. Based on prior analysis and goals, I have accumulated enough assets to retire as planned. What are the top five areas that I should ask my advisor to focus on now that I’m changing from the accumulation phase to the drawdown phase?

Great question!

Well, first off congratulations on having a plan for your retirement!

Now that you have reached your asset goal, here is what you would look at as you enter retirement. Keep in mind that once your paycheck stops, you become totally dependent on your pension and social security plus the income from your investments.

The first thing you and your financial advisor should do is segment your planned spending between three categories: (1) needs, (2) wants, and (3) wishes. Put a price tag to each one.

  • Needs: What do you need to live on? (food, clothing, housing, utilities, etc.)
  • Wants: What would you like to spend money on? (travel, cars, recreation, etc.)
  • Wishes: What would you buy if you had the money? (boat, second home, etc.)

A good retirement plan will determine your probability of success. If the probability of running out of money is high, you can adjust your spending plans before problems arise.

Meet with your financial planner and discuss what worries you. Most people entering retirement fear major financial losses. Are you concerned about medical expenses? How would premature death affect you and your spouse? What if you lived too long? How will inflation affect your plans?

Determine the effect of these concerns on your lifestyle. Discuss what you can do to minimize these concerns.

How much risk are you taking? Many people don’t really know. As you enter retirement you are most vulnerable to sequence-of-return risks. Major financial losses just before or after retirement can ruin your plan.  

Ask your advisor to determine your portfolio’s Risk Number. This determines how your portfolio would withstand the kind of losses incurred during the last recession, for example. Should you be making some changes?

Ask your financial advisor to review the ownership and beneficiary designation of all your assets. That includes your financial assets as well as your home and anything else of value.

Your financial planner should be able to address these issues.  You have worked a lifetime to get to this point. You want to make sure that the retirement that you dreamed of will become reality.

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