Category: blog

Roth IRA vs Roth 401(k)

Retirement accounts, such as Roth IRAs and Roth 401(k)s, are confusing for most people. Whether you are preparing for retirement or are newly retired, it is important to make the right choices. It is essential to work with professionals who can explain all your options and help you weigh the pros and cons of each one. A financial planner provides the support and knowledge needed to guide you on the benefits of a Roth IRA vs a Roth 401k. Understanding these unique options can help you make the best personal finance decisions.

Korving & Company can help you understand your investment accounts to make informed choices. Call 757-638-5490 or use our contact page to discuss your investments with one of our experienced financial planners.

Roth IRA vs. Roth 401(k) – Understanding Your Options

Examine the differences between Roth IRA and Roth 401(k) plans to understand how they affect your retirement savings.

What Is a Roth IRA?

Roth IRA, named after William Roth, a senator from Delaware, is an individual retirement account (IRA) that allows you to take tax-free withdrawals when you meet certain conditions. First established in 1997, Roth IRAs are now a familiar retirement tool for millions of Americans. Roth IRAs resemble traditional IRAs in many ways. Both allow your retirement accounts to grow tax-deferred.  The difference is when you get a tax benefit.  Roth IRAs are funded by after-tax dollars, so you do not get a tax break from making a contribution. Instead, you do not pay taxes on qualified distributions when you take money out. That differs from traditional IRAs, which are funded with pretax dollars. Traditional IRA withdrawals during retirement are subject to income tax.  This tax-free withdrawal feature is the key tax benefit of Roth accounts.

Roth IRAs protect earners from future tax increases. When you contribute to a Roth IRA, it does not affect your income tax refund or payment for the current year. However, it could save you money during retirement. Savings in a Roth IRA do not have to be withdrawn at age 72 while traditional IRAs and 401(k)s require you to begin taking money out via Required Minimum Distributions (RMDs) and paying taxes on those withdrawals.

You can fund a Roth IRA as part of a personal retirement plan. There are three ways to do this, as follows:

  • Open a Roth IRA account and contribute to it directly.

  • Convert or partially convert a traditional IRA to a Roth IRA.

  • Rollover funds from your employer’s retirement plan.

Income limits apply to Roth IRA accounts. In 2021, single tax filers making more than $140,000 become ineligible for Roth IRAs [3]. For 2022, the income limit increases to $144,000. The limit for married couples that use the tax status married filing joint is $208,000 for 2021 and $214,000 for 2022. If you are below those income eligibility qualifications, the Roth IRA contribution limits are $6,000 for those under age 50 and $7,000 for those 50 years old or older.

It is important to partner with the right investment management team to open a Roth IRA or other individual retirement account. With a Roth IRA, you are contributing money that you’ve already paid taxes on, but you do not have to pay money on future withdrawals. If you want to reduce your taxes after retirement, you will want to consider a Roth IRA. If you are in a lower tax bracket today than you will be in the future, a Roth IRA makes sense.

To open an IRA, you will need to go to a brokerage firm, bank, credit union, savings and loan association, or other authorized institution. Additionally, if your employer has a retirement plan that offers a Roth 401(k), you need to understand how Roth 401(k)s work to determine whether it’s a better option for you than a Roth IRA.

What Is a Roth 401(k)?

Roth 401(k)s are retirement plans sponsored by your employer and funded through payroll contributions. Under certain circumstances, you can make tax-free withdrawals from your Roth 401(k). With a Roth 401(k), when your employer takes money from your paycheck to deposit into the 401(k) account, you have already paid taxes on it. Roth 401(k)s differ in this way from traditional 401(k)s, which are funded with pretax deferrals. With a traditional 401(k), your employer deducts the money from your gross income, and you pay taxes on it when you withdraw the funds in retirement.

Withdrawals of the contributions and earnings in your account remain tax-free as long as your withdrawal meets the following qualifications:

  • You have had the Roth 401(k) for five or more years and

  • You withdraw money due to the account owner’s death or have expenses related to a disability.

  • The account holder reaches or exceeds age 59½.

If you are at least 72 years old, you must make a minimum withdrawal from your Roth 401(k) account each year. There are exceptions to this rule. For example, if you still work at the company that manages the 401(k) and do not own more than 5% of the company, you do not have to make a minimum withdrawal. Otherwise, it would help to take out the first required minimum distribution by April 1st following your 72nd birthday. Note that you can take out more than the minimum distribution amount.  For this reason, many people choose to do a tax-free rollover from their Roth 401(k) account to a Roth IRA upon leaving their employer for retirement since Roth IRAs are not subject to required minimum distribution rules.

Not all companies sponsor retirement plans that include a Roth 401(k) option. According to the Transamerica Center for Retirement Studies, 43% of retirement savers choose a Roth 401(k) versus a traditional 401(k). Further, millennials are more likely to choose a Roth 401(k) than baby boomers or Gen Xers [7].

Roth 401(k)s have contribution limits based on your age, set annually by the IRS. For example, in 2021, the maximum contribution was $19,500, while the 2022 limit increases to $20,500. However, those aged 50 and above have higher contribution limits and can add another $6,500 as part of a catch-up contribution. Additionally, Roth 401(k)s don’t have a taxable income limit to prevent high income earners from using them.  This is a key difference between the Roth 401(k) and the Roth IRA.

How Are Roth IRAs and Roth 401(k)s the Same?

Both Roth IRAs and Roth 401(k)s are funded with post-tax dollars and do not require you to pay taxes on withdrawals. Neither will reduce your gross income since contributions are not deductible, but both do have Roth contribution limits. Take an in-depth look at some of the similarities between these two types of retirement accounts:

  • Tax-Sheltered Growth: Once you contribute money to your Roth IRA or Roth 401(k) and invest it, it will continue to grow tax-free. So, your money will grow more efficiently because you don’t have to pay taxes on the growth every year.

  • Compensation Required: You need to have earned income to contribute to either a Roth IRA or a Roth 401(k). You can use taxable alimony or earned income to fund a Roth IRA, which you can set up on our own or with the help of a financial advisor. The company you work for administers your Roth 401(k). If your job pays you $12,000 per year, you cannot contribute more than $12,000 to your Roth 401(k) with that company.  If your job pays you $120,000 per year, per our explanation above, you can not contribute more than $20,500 to your Roth 401(k) with that company (or $27,000 if you are age 50 or older).

  • Contribution Limits: Both of these accounts have annual contribution limits. The contribution limits appear in the individual sections above, but both include catch-up amounts that allow savers over age 50 to put aside more money for retirement. While Roth IRAs require individual contributions, your 401(k) plan will accept contributions from you or your employer.

  • Early Withdrawal Penalties: Knowing and understanding early withdrawal penalties can save you a lot of money. If you withdraw funds early, you face a 10% penalty on top of income taxes. So, if you are in the 15% income tax bracket, you would pay 25% of the money you withdraw when you prepare your federal taxes. The early withdrawal penalties for a 401(k) plan ends when you reach age 59 ½. The early withdrawal penalties for a Roth IRA ends at age 59 ½ or after you hold the account for at least five years. Additionally, you can take up to $10,000 out of a Roth IRA to purchase a first home. We typically recommend that you can hold off on taking any money from your Roth accounts if you can and wait to take and withdrawals after age 59 ½ penalty-free and tax-free.

  • Penalty Exceptions: Most of these retirement accounts also have early withdrawal penalty exceptions. If you have a permanent disability, inherit the funds in a retirement account as a beneficiary, or have considerable medical expenses, you may qualify for a penalty exception on both accounts. Early withdrawals from a Roth IRA to pay for higher education do not result in a penalty, and you can take advantage of a waived penalty for those leaving a job after age 55.

How Are Roth IRA and Roth 401(k) Plans Different?

When comparing key differences between a Roth IRA vs Roth 401(k), you also need to know how these accounts differ. For example, some people consider a Roth IRA a better choice because it typically has more flexible investment options than a Roth 401(k), which usually has a limited investment menu. However, if you have a high income, you may not qualify for a Roth IRA. In that case, if you want to save as much money as possible and take advantage of an employer match, a Roth 401(k) might make sense.

Here is a closer look at the significant differences between these two types of retirement accounts:

  • If you choose a Roth IRA, you make your own contributions and select your own investments or hire a financial advisor to do that for you. In a Roth 401(k), you usually have a limited menu of investment options, typically mutual funds chosen by your employer.

  • A Roth IRA makes early withdrawals slightly easier. Do you plan to retire before age 59½?  If this is a consideration, a Roth IRA may best meet your future needs.

  • A Roth 401(k) has higher contribution limits. If you want to invest more than $6,000 per year in a Roth account to fund your retirement, a Roth 401(k) might be the best option.

  • Roth 401(k)s offer paycheck deduction options and potential employer matching. Both of these options make a Roth 401(k)s attractive. Many employees choose to save at least the amount that their employers match. Also, having the amount taken out of your paycheck and never even hit your bank account makes it easy to save for retirement before you even miss the money.  (Keep in mind that any employer contributions to your Roth 401(k) savings will be made in a pre-tax account and will be considered traditional 401(k) savings.  Still, employer matches are essentially free money and are always a nice benefit that employees should take advantage of.)

  • Roth IRAs may offer more investment variety. If you want to diversify your retirement portfolio and you know a lot about investing or work with a financial advisor that you trust, a Roth IRA might give you more options and control.

Taxpayers can benefit from both types of Roth retirement accounts. If you can manage it, you might want to have both a Roth 401(k) and a Roth IRA. You can put enough into your 401(k) to take full advantage of your employer’s matching contributions limit. Then, put any additional funds into a Roth IRA. If you still have money available to invest after maximizing the Roth IRA, you can contribute even more to the Roth 401(k) sponsored by your employer. It is important to note that maxing out your contribution to either a Roth 401(k) or Roth IRA does not keep you from contributing to the other.  For example, if you are under age 50 and are able to save the full $20,500 in a Roth 401(k) in 2022, you can open a Roth IRA and save the max $6,000 this year, too.  If this is a consideration, it is important to review the income limitations on a Roth IRA we reviewed above to confirm that you don’t make too much to contribute directly to a Roth IRA.  Remember, there is no income cap to be able to contribute to a Roth 401(k).

Which Is Best?

Roth 401(k)s and Roth IRAs both give you an option for tax-deferred savings. If your employer offers a match for the company’s 401(k), it makes sense to contribute up at least up to the percentage they will match. While you don’t get any tax deduction for Roth IRA or Roth 401(k) contributions, you can withdraw them without paying taxes when you retire, which will be a long-term tax savings if you expect tax rates to be higher in the future than they are now.

So, which type of account is best for you between Roth 401(k) vs. Roth IRA? That answer depends on your investment goals and how much money you make. Therefore, it is essential to work with a financial advisor who can help you understand the differences between these two accounts and how each will affect your personal income now and in the future.

In reality, most investment strategies involve both Roth IRAs and Roth 401(k)s, assuming both are available to you. Your investment advisor can help you make the right decisions for you and your family. Whether you are a first-time investor or want help looking at your current retirement strategy, you can benefit from speaking with an experienced financial planning advisor.

If you are self-employed, Roth IRA contributions allow you to save for retirement, even if your company doesn’t offer a 401(k).

Talk to the professionals at Korving & Company who will help you evaluate your options and maximize your retirement savings plan.

Why Experience Matters

Age is no guarantee of wisdom.  But when you entrust your money to a financial advisor there are advantages to having at least a few gray hairs. 

1. The stock market runs in cycles. One thing that experience teaches is that markets are not escalators that always go up.  It helps to have a decade or three of experience to know what to expect when the Federal Reserve changes interest rates, when inflation takes off or when markets get over-priced.  It is good to have an advisor who has experienced similar markets before.

2. Bear markets happen. Was your advisor even alive during the crash of 1987? Was he around for the bubble or the Great Recession?   If not, he may not be prepared for the next one.

3. Clients value commitment. Clients value advisors who will be there for them not just today but for decades in the future.  The relationship a client has with an advisor is a long-term one.

4. Do what you love. Good advisors love their work.  They get satisfaction our of helping people accomplish the important things in their lives, allowing their clients to focus on the things that are important to them and managing their finances so that it is one less thing they need to worry about.   

Our team is made up of people who have worked together for decades with clients who have been with us for even longer.  We often find ourselves working with several generations of the same family.  Investing is usually a long-term relationship. People want to work with someone who understands their unique situation. They want someone they can call a week, a month, or a year from now and still find them at their desk.

Written by Arie J Korving

Baby Steps for Dave Ramsey Fans

We like a lot of things that Dave Ramsey has to say.  Last year Stephen joined the Dave Ramsey SmartVestor Pro program, where people who are ready for baby step 4 can contact investment advisors who are familiar with and aligned with Dave’s process.  Ramsey’s Financial Peace program has been presented in many area churches and we have conducted several of them ourselves.  At the core of Dave’s program is a seven-step process to eliminate debt and build wealth. 

Ramsey is a student of human behavior.  He calls out people who get into financial difficulty by “running around buying things they couldn’t afford with money they didn’t have to impress people they didn’t even like.”  He tells people to “live like no one else today, so you can live like no one else tomorrow.”

Because we get referrals from Dave’s program, we have met many people who are debt-free or have at least gotten their debt under control and are saving rapidly but are not totally sure about the next step.  They are putting money aside monthly, but they are not familiar with the mechanics or intricacies of investing.  Their savings in the bank are getting almost no interest.    

That is where we come in with our decades of investment and financial planning experience.  Part of our job is to teach and educate, helping to alleviate some of the fear, mystery and complexity of investing.  We listen to our clients, identifying their goals and concerns.  We offer them an opportunity to get a personal financial plan.  We help them establish the right kind of accounts they need in order to achieve their goals, including individual accounts, IRAs, Roth IRAs, 401k accounts, college funding plans or trust accounts.  And we create and manage investment portfolios customized to their goals and needs. 

Once the accounts are in place and the money is invested, we monitor their performance, make appropriate corrections and provide regular reports on their progress toward their goals.

We are a local, family-owned small business and treat our clients like family.  We believe in another one of Dave Ramsey’s sayings: “If you wouldn’t want your mother to buy the item or the service then don’t sell it.”   We realize that finance and investing is confusing to many people, so we watch out for our clients, advising them as if they were a member of our family who was asking for our help.  If you have questions about investing or financial planning, schedule an appointment to meet with us either in person, on the phone or via video conference.

Looking Back, Looking Ahead

2020 was a momentous year.  It was dominated by a new kind of war: a war against an invisible enemy that fought most acutely against the sick and the elderly.  It caused fear, unemployment and temporary shortages.  It was a war that tested the American people and the American economy. 

The good news is that we are winning; the American economy stood the test and survived.  The government’s initial reaction to the COVID-19 virus was to close schools and businesses and ask people to stay home to “flatten the curve” so that hospitals would not be overwhelmed.  The economy slowed dramatically, and the stock market dropped by 30%.   

Reacting to widespread economic distress, the Federal government passed the CARES Act, injecting several trillion dollars into the economy to protect jobs and put money into the pockets of workers and small businesses.  People used technology to work and learn from home. 

On the medical front, the government created “Operation Warp Speed,” a public-private partnership to develop vaccines and therapeutics to combat the virus in record time.    

As we learned more about the virus, businesses began re-opening and people began very slowly returning to more normal lives.  The economy achieved a record 33% annualized growth rate in the 3rd quarter, giving the U.S. a V-shaped economic recovery.  The stock market also soared, reaching record highs despite continued lockdowns in several important states. 

We referred to this as a war because it resembled the year following the surprise attack on Pearl Harbor.  Despite a string of defeats, the American people went on to win a decisive victory and the American economy rallied.  The attack of COVID-19 has been a test of the American people and the free market system.  We have survived the test and are confident of a looming victory over this enemy.

As we write this, the Presidential election is still undecided.  In Congressional elections, Republicans picked up some seats but the House of Representatives will remain in Democrat hands.  Democrats have picked some Senate seats, but Republicans will hold a majority.  This means that no matter who is President, the odds are strong against any radical changes in domestic policy.  The American people have voted for stability.  Free enterprise, entrepreneurship and great American companies will continue to thrive.  There is a lesson hidden in all of this for investors: don’t let your politics influence your investment decisions. 

As we close out the year and approach the Holiday season, we count our blessings.  For those who are looking for some guidance as we approach 2021, we invite you to call, email or drop by.  We look forward to meeting you.

While Changing Jobs, Simplify Your Financial Life

How many times have you said to yourself that you wish that investing was not so complicated?  It is a fact, investing is complex.  There are a huge number of choices and decisions that need to be made, investing becomes complex.  On top of this, unless you are an expert, the terms used are seldom clear and often hard to understand.

What To Do Financially When Changing Jobs

One of the best times to meet with a financial advisor is when you change jobs.  An advisor can often provide advice about benefits packages offered by your new employer.  They can also help you make sure that your beneficiary designations are correct and provide advice on your life and health insurance needs.  They can explain the investment choices in your new employer’s 401k and tell you how much you should contribute to take full advantage of your new plan. 

This is the ideal time to take care of something known as “orphan” 401k accounts.  When changing change jobs, people often leave their 401k accounts behind.  Changing jobs involves lots of paperwork: personnel forms, tax forms, benefit health insurance forms, retirement forms, etc.  This is often the time people do not want to go to the trouble of transferring the old 401k or rolling it into an IRA.  That means that the job-hopper often leaves a series of “orphan” 401k plans behind; each one of them representing a part of their retirement savings.  A financial advisor has the experience to guide you through the process.

When we first meet new clients, we often find that they have accounts with several investment firms.  Some do this because they believe they are diversifying.  In reality, that’s not what diversifying means.    They are just complicating their lives unnecessarily. 


Changing jobs is an ideal time to consolidate your investments, create a formal retirement plan and review your estate plan to ensure your family is taken care of. 

This is the role we play in our clients’ lives.  In fact, we have written the book on it: Before I Go, complete with a fill-in-the-blank workbook. Before I Go Workbook

If you have recently changed jobs or are planning to change jobs soon and you would like this kind of guidance, give us a call at 757-638-5490 or use our contact page for a free introductory appointment. You will be glad you did.

Preparing for the Biggest Transition of Your Life

Last month we wrote about one of life’s major transitions: changing jobs.  We recommend using that as an opportunity to organize and simplify your life. If you want a copy of that article, call me, or send me an email.

This month I want to talk about a much bigger life-changing event – your final exit – and what you need to do to care about those left behind.

One of the key roles we play in our clients’ lives is to ensure that when they pass on, those left behind are cared for and that their financial affairs are properly managed. 

Everyone is different but here are some of the questions we help our clients resolve in discussing their estate plans

  • Who gets your physical property: your home, car, collections, etc.?
  • Who gets your bank and investment accounts?
  • Who are the beneficiaries on your IRA and other retirement accounts?
  • Do you need life insurance and if so, who is the beneficiary?
  • What is going to happen with your pension and social security income?
  • Who will manage your investments if you become incapacitated or are no longer here?
  • Where are your estate documents?
  • What is the difference between a will and a trust?
  • What is an advance medical directive, and do you need one?
  • What is a Power of Attorney and do you need one?
  • Who will pay the bills when you no longer can?
  • What are your basic living expenses, and can your surviving spouse afford them?

When we began our practice over 30 years ago we were surprised at how many people had not prepared adequately.  As a result, those left behind often spent months trying to understand the departed’s financial affairs.  To help our clients we wrote a book to answer these questions.  It is called Before I Go.  We also created the Before I Go Workbook to give people a fill-in-the-blank guide. 

To order from Amazon, type “Before I Go Korving” in the search bar.  Or you can come to our office for a discounted copy.

If you have questions about financial planning, estate planning or investment management please call for an appointment.  We are always happy to be of service. 

The News is Bad, the Markets are Up

What a year.  We are living in an amazing time.

If we had told you at the beginning of this year that the S&P 500 would be up 3.5% and the NASDAQ up 25% by the end of the third quarter, you would not have believed us.  Heck, we would not have believed us!

COVID-19 has altered, in many ways dramatically, the way that we live our daily lives.  It has also had a huge impact on our economy due to decisions made by our government.  It is one thing for a Fortune 500 business to have hundreds or thousands of their employees switch to working remotely.  However, a local restaurant owner with only a handful of employees cannot go “remote” and cannot shift to a take-out only or partial capacity model without a significant drop in revenues.  Small businesses are the backbone of the economy.  Economists estimate that there are 30 million small businesses and they provide employment for about half of the American workforce.    

During the second quarter, as the economy shut down, economic activity dropped at a 35% annualized rate!  During the third quarter, as the economy gradually began to open back up, the economy is rebounding at about the same rate.   This will be the fastest increase in real GDP for any quarter since at least World War II.

We have just lived through the strangest recession and recovery we have ever seen.  Because it was a government-created recession in reaction to a health and medical emergency rather than an economic issue, we have seen an incredible V-shaped recovery to this point.  However, looking forward we do not believe it will continue to be V-shaped from here.  The rate of economic growth is going to slow from what it was in the third quarter.  Economists predict that it will take several years for the economy – including employment – to get back to where we were in late-2019. 

Despite the virus, the lockdowns, election risks and headlines, the stock market has continued to march upward.  The primary reason is that aggregate corporate earnings are rising, mostly led by several huge technology companies, and interest rates are near zero. 

Ignore the noise.  Many economists are predicting that corporate earnings next year will equal or exceed all-time highs.  Stock market investors believe that higher profits and lower interest rates outweigh the risks.  This is the basic reason that stock prices continue to rise. 

With this as background, we continue to be cautiously optimistic and our portfolios are constructed to participate in market advances and cushion market declines.  We welcome your questions and comments.

Looking Back on the First 5 Months of 2020 and Looking Ahead

The S&P 500 index has rallied more than 30% from its low on March 23—reinforcing the adage that it usually pays to stay invested over the long term instead of selling out during the dips.

Even with the recent uptick in the market, it is important to realize that the economy has quite a distance to go before it gets back to where it was at the beginning of the year.  We remain cautious but optimistic.    

The economy was shut down temporarily in response to the coronavirus pandemic.  The market reacted by dropping precipitously, with the Dow Jones Industrial Average losing 10,000 points in a month.  What started out as a medical concern became a financial crisis.   

Those that felt the economic impact the most included people like restaurant workers, retail employees, barbers and hairstylists, and other similar modestly paid workers.  Many small business owners found themselves unable to even open their shops because of a government edict.  Investors felt the impact when they saw their investment portfolios decline sharply.  Everyone has a financial pain threshold, and it becomes increasingly difficult to remember your long-term objectives when faced with increased levels of short-term pain.

The media focused on every bit of bad news.  A seemingly endless streak of negative statistics were highlighted.  There is no denying that shutting the economy down to reduce the spread of the infection had a massive economic impact.  Unemployment shot up.  Air travel and rail freight plummeted.  Restaurants, theaters, hotels, convention centers and sports venues closed.  Corporate revenues plummeted.

The government reacted by enacting the $3 trillion (with a T) dollar CARES Act that distributed relief checks to the vast majority of Americans.  The same legislation distributed money to small businesses via the Payroll Protection Program to encourage small businesses to continue to keep people employed.  There is talk about another round of stimulus – equally as large if not larger — to continue stimulating the economy.

We are not sure when or if the economy will resume its former track.  There is a very fundamental reason why this economic drop is different from any other.  This one was caused by a government decree based on medical fears rather than a structural economic problem.   Government decrees can be reversed nearly as quickly as they were implemented.  How the economy will react remains to be seen.  There will undoubtedly be lingering aftereffects.  But the stock market is a leading economic indicator.  The rapid recovery of the stock market thus far indicates that investors view the future with more optimism than the merchants of gloom.

Old Woman Drinking Coffee With Old Man Using Gadget

The Benefits of a Modern Retirement Plan

If you are like most people approaching retirement, you are probably wondering if you’re financially ready. You may have a pension. You plan on collecting social security. You may have put money into your employer’s 401k plan. You and your spouse may each have an IRA and some money in the bank. You may have some life insurance or an annuity or a long-term care policy.  

Does that mean you can retire when you want? The answer is: it depends.

There are lots of things that can happen in the 20 to 40 years you will be retired. Here are a few things that may cause you to ask questions.

Question #1: Is your Social Security safe? 

The Social Security trust fund is currently projected to be able to pay full benefits until 2035. How will it affect you if the funds run out? A retirement plan should answer that question.

Question #2: Is your pension safe?  

Company and public employee pensions are underfunded. What happens if your company, city, or state goes bankrupt? It could happen.

Question #3: How long will your retirement savings last?  

You may be planning on your investments continuing to grow at the rate they have in the past, but what if they don’t?  

Question #4: How risky are the investments in your portfolio?  

Many people have been lulled into believing that all they need to do is put their money into a low-cost index fund. The index lost nearly 50% in 2009 and 34% in March 2020. If you’re still investing in stock index funds as you near retirement just because they’re “cheap,” you may be taking on way more risk than you realize.

Question #5: How much will it cost if you or your spouse need to go into a nursing home?  

Long-term care insurance may pay for it, but the insurance is not free.  For some people buying a policy makes sense, while for others it might not.  A financial plan can help answer whether a long-term care policy is right for you.

Question #6: What happens if inflation comes roaring back?  

Living on a fixed income after you retire makes inflation a much bigger threat than when you were working.  

Question #7: How does living too long or dying too soon affect your retirement plan?

Critical decisions are often made during the retirement process without enough consideration of how long you will live. While a plan can’t answer how long you’ll live, it can project how your plan will be altered if you live longer or shorter than you think.  


In the past, retirement planning was a static process. Planners took the information supplied by their clients and provided a book of charts and graphs designed to show their financial condition for decades in the future. The technology limited what you could do.  

New computer programs allow Financial Planners to run thousands of tests to analyze a number of different scenarios. The new planning process also allows people to check, update, and re-review their plans as time passes and conditions change. These programs allow scenarios to be run in real-time and can be generated for a modest cost by Certified Financial Planners™ (CFP®s) who specialize in retirement planning.

Financial Decision Making in a Crisis (COVID-19)

Financial Decision Making in a Crisis (COVID-19)

The Coronavirus (COVID-19) is both a medical and a financial crisis. There is no question that the arrival of this virus and its effect on the entire world has had a dramatic effect. It recalls a famous poem by Rudyard Kipling:


If you can keep your head when all about you

Are losing theirs and blaming it on you,…

Yours is the Earth and everything that’s in it,

And—which is more—you’ll be a Man, my son!


Most humans overreact to bad news; it’s human nature. We don’t want to minimize a global pandemic but we are surrounded by viruses all the time and live to tell the tale. Most of us lived though the Swine flu, the Zika outbreak, Ebola as well as the annual flu for which we get shots yearly. In the 2017 – 2018 season the seasonal flu killed 61,000 people.

But this time, reacting to predictions of millions of deaths, government officials around the world shut down entire countries. 

The market reaction was immediate and sharp. Within three weeks the Dow Jones Industrial Average dropped 10,000 points. Economists are almost unified in predicting that we’ll see a recession during the second quarter.

There are a few important things to keep in mind.

  • Declines in market prices are perceived as losses. They are not, unless you sell. Then you lock in a loss and you’ll be out of the market when it rebounds as it always does.
  • Uncertainty, not fear of losses, is the largest driver of investor markets. When uncertainties are removed, confidence returns.
  • Avoid TV “Experts.” Remember that the networks are in the advertising business and they grab your attention with scary stories not to inform you but to sell you, the viewer, to their advertisers. 
  • Successful investors take a long view. Market panics are an opportunity to buy investments when they’re on sale.  

People hire financial advisers for their expertise and for a strategy aimed at reaching their goals. Having a strategy and sticking to it in good times and bad removes emotion from the investing equation. We create portfolios that will weather temporary storms like this.

Bear Markets are Painful but Markets Rise Over Time

A “Bear Market” is defined as a decline of 20% from recent highs.  By the time you read this, we may be in a bear market or we may have recovered from a mere correction that began in February.  For people seeking a better return on their savings than what the banks offer, the ups and downs of the stock market are a natural part of the investing process.  It comes with the territory in return for the long-term growth rate that defines owning a piece of American industry.

Bear markets can be painful, but overall markets are generally positive over time. The last 90 years of market history have been defined as bear markets for about 20 of those years. In other words, stocks have been on the rise 77% of the time.

From 1926 through 2019, the average annual stock market return was 10.2%.

For the five years ending 2019, the Dow Jones Industrial Average (DJIA) returned 12.2% annually (accounting for dividends).  Over that same time, the yield on CDs – after factoring in taxes and inflation – lost purchasing power.

One of the reasons our phones don’t ring off the hook when markets decline is because most of our clients have seen it before.  This isn’t their “first rodeo,” as they say in country songs. For those who are new to investing and who may get nervous, here’s a bit of history:

  • There have been 26 market corrections since World War II.
  • Those declines have averaged -13.7% over 4 months.
  • It took the markets an average of 4 months to recover from those declines.

To smooth out that ride, professional investors create diversified portfolios of stocks and bonds, domestic and international, creating portfolios that allow them – and their clients – to sleep well at night.

Registered Investment Advisors (RIAs) offer these money management services to individuals, families, and businesses who want help.  We are Certified Financial Planner™ professionals and have worked with hundreds of people just like you to grow and maintain their wealth.

We invite you to schedule a meeting to visit with us, have a cup of coffee and a chat.  We promise no sales pitches and honest answers to your questions.    

Thoughts on the Coronavirus

The Coronavirus has been in the news for a while now and fear in the press has started to spill into the financial markets as the disease spreads out of China.  If the virus lingers much longer, it could accelerate the move of production from China to other countries, maybe even encouraging American companies to bring manufacturing home.  Over the long term it could actually help our economy.

But what about the short term?  Here’s some commentary from First Trust that we think makes a lot of sense.

Time to Fear the Coronavirus?

Monday, fear over the Coronavirus finally gripped investors, as both the Dow Jones Industrial Average and the S&P 500 index fell over 3% – the largest daily declines in two years. These drops wiped out all the gains for the year.

Frankly, it’s amazing to us that the market had been so resilient! Maybe it’s because recent history with stocks and viruses is that markets overreact leading to significant buying opportunities along the way. Over a 38-day trading period during the height of the SARS virus back in 2003, the S&P 500 index fell by 12.8%. During the Zika virus, which occurred at the end of 2015 and into 2016 the market fell by 12.9%. There are other examples, but they all passed, and the market recovered and hit new highs.

Will this happen again? Our view is that it is highly probable.

We aren’t trying to be immunologists, and that may make our points moot, but there aren’t that many immunologists in the world and the World Health Organization says this is not yet a true pandemic. We’re just economists, but looking at the data, and having perspective is always important.

This whole thing is a human tragedy and we would never take human life and suffering lightly. And looking at data can make people appear cold, when in reality all they are trying to do is understand the situation. There are currently 80,088 confirmed cases and 2,699 deaths from the coronavirus COVID-19 outbreak as of Monday. This is a big number and is still growing, but the pace of growth looks to be slowing.

Much of the pessimism surrounding the virus focuses on the Chinese under-counting the number of infected to save face. However, it’s important to note that a shortage of specialized test kits has caused health officials in many countries to rely on observable symptoms for diagnoses, and because coronavirus mimics the flu and pneumonia in its early stages, it’s also possible that authorities may be over-counting as well.

Instead of looking at it from a total confirmed case perspective, we think the number of total active cases provides a better look into what is happening. This measure takes total confirmed cases and subtracts deaths and recoveries. This gives the total amount of people who have the potential to spread the virus further.

According to Worldometer, which aggregates statistics from health agencies across the world, total active cases peaked about a week ago at 58,747 and have since been declining. Even with all the new cases we are seeing in South Korea, Italy and Iran (where data is suspect). There have been 30,597 cases with an outcome (2,699 deaths and 27,898 recovered). In other words, the total active cases now stand at 49,923, a drop of 15% from the peak on February 17th.

One death is too many, but to put that number into a little bit of perspective, according to the World Health Organization, in the United States alone for the 2019-2020 season, there have been at least 15 million flu illnesses, 140,000 hospitalizations and 8,200 deaths. Imagine if everyone with an internet connection followed the spread of this annual flu, case by case, hour by hour.

It’s true that the death rate from Coronavirus appears to be around 2% in China, which is much higher than the death rate from the normal flu, but like the flu increases with age. However, outside of China the death rate is far less than inside China, roughly 1%. And, there is already a drug that will combat COVID-19 moving toward first phase clinical trials. It took three months for this to happen in 2020, versus 20 months for SARS back in 2002/03 – a testament to advances in drug technology.

From a macro-economic point of view, the real question is how will this impact the US economy over the coming year. In short, our view has not changed. The US we believe is relatively insulated, with a fantastic health system. The US started the year with solid economic data and so far, nothing has changed. In fact, with all the data we already have on hand, we are expecting around 2% growth in Q1. Most of the impact to the US from the corona virus will come in Q2.

Capital goods exports to China along with imports from China are sure to be depressed given the struggles to reopen factories abroad. Most Chinese factories are still only operating at about 50-60% of capacity. Shipping giant Maersk has already said it has cancelled more than 50 trips to and from Asia. With China being home to seven of the world’s busiest container ports there is bound to be some impact. Inventories in the US will be depleted more rapidly, but once the virus subsides, expect faster accumulation of inventories in the second half of the year.

Revenues and earnings from companies that are highly exposed to China will definitely be affected. China being shut down for a month will have a global impact. But lower earnings in the first half of the year should be made up by a strong rebound in the second half of the year with payback from lost months. Demand remains strong and there has been no visible impact yet on the job market as shown by initial unemployment claims. Supply disruption is the issue. We suggest looking through any earnings weakness as we expect it to be transitory.

One small nugget of good news is that many companies had already been shifting supply chains from China due to the Trump Tariffs. If they weren’t considering it before they will be now as they realize the importance of diversification. Expect this trend to accelerate moving forward.

The US consumer is on solid footing and will continue to be one of the key drivers to US economic growth in the year to come. We believe, just like all the other viruses we have seen over the past decades that have dissipated, the Coronavirus will be no different. Some have suggested that the 1918 Spanish Flu, which killed hundreds of thousands in the US could happen again. No one knows, but 2020, is not 1918. Technology and news move much faster and the US rebounded from the Spanish Flu when all was a said and done. We suspect that any drop in earnings or economic activity will be short lived, and more than made up for in the year to come. Don’t panic, stay invested.

Brian S. Wesbury – Chief Economist
Robert Stein, CFA – Deputy Chief Economist  

©  Korving & Company, LLC