It is a good idea to review this statement once a year while you are working. You want to be sure that your earnings record is correct. Plus, it is nice to see what your estimated benefit will be.

Social Security has some funding issues that need to be addressed, sooner rather than later. Small adjustments can be made in several areas to fix these funding issues. As long as these adjustments are made, I believe that we will be able to feel secure about the future of Social Security.

Without getting too bogged down in the rules for required minimum distributions (RMDs), you need to know the basics. First, if you have separated from the employer, you have to start your RMDs either the year in which you turn 70 1/2 or, you can wait until the year after you turn 70 1/2 to take your first RMD by April 1, but you also have to take another RMD by December 31 of that year. It may be better for your tax situation to take the first RMD in the year in which you turn 70 1/2 because these RMDs increase your taxable income. Also be aware, that if you have more than one type of retirement account, you may have to take an RMD from each type of account. For example, if you have a 401(k) and IRA, you could not figure your total RMD and withdraw it from just one account.

Depending on the type of employer-sponsored retirement plan you’re dealing with, you may have a few options as to how you take the distribution.

First, we’ll look at a pension plan and plans that offer an annuitization option. I like pensions and fixed annuities, especially when the owner also has other retirement savings. Having a pension or fixed annuity payment along with Social Security (if eligible) provides a nice base of income that, for many people, will cover their basic living expenses in retirement. However, unless there is a cost-of-living adjustment, on the pension or annuity payment, inflation will slowly erode the value of that payment.

What type of payout option should you choose with these types of plans? The quick answer is that it depends on your exact situation. However, there are some rules of thumb that may prove to be helpful:

• If it’s the type of plan that allows you to choose whether to annuitize or not, and you have other retirement savings, pension or annuity payments can be an excellent choice when you have longevity in the family.
• Conversely, if you have serious health issues that may affect longevity, this may not be the best choice for you if you are a single individual.
• If you have a spouse that is significantly younger than you, or if you have serious health issues and your spouse is in good health, your family will tend to be better off if you choose a pension or annuity option that gives you a slightly lower payment now, but that allows your spouse to have a larger survivor payment.
• If you are healthy and your spouse has significant health problems, it may make sense to choose the highest possible current payment amount. Again, this depends on your exact situation.
• If you and your spouse have similar life expectancies, a conservative approach may be best. Look at the financial resources that your spouse would have in the event of your death and base the decision on any remaining financial need.

For a defined contribution plan like a 401(k), the considerations will be slightly different. Before we look at any of the options, I want to mention a huge mistake that some people make with these types of accounts. Be very careful not to take a direct lump sum distribution. Some people tend to believe that they’re done with this account so they can take all the money out. And you can: if you want to pay tax on the entire distribution in one year. If you have $100,000 in the account and you take it all out, your income will be $100,000 higher for that year and you’ll pay tax on that entire income.

Here are a few better options (for most people):

• Set up a rollover IRA account at a discount broker and have the account balance directly rolled into this new account. Your current plan administrator should be able to help you to ensure that this is done correctly. Once this new account is funded, you can invest the money based on your risk capacity and your risk tolerance.
• If you need more income to cover your fixed expenses during retirement, annuitizing a portion of these savings while rolling the remainder into traditional IRA may be a good choice for you.

Very typically, I never like to see someone annuitize their entire retirement savings. By having a portion of their savings invested with enough risk where they should be able to keep up with inflation over the long run they should be protected from purchasing power risk. Also, if they need a lump sum for emergency needs or for a major expenditure, such as the replacement of a vehicle, they’ll have a source of funds for this.

There are many variables that you need to consider before you are confronted with having to take your RMDs. However, with the proper planning: You’re going to be just fine.

This piece is intended to be educational. Use it to explore the concepts you should understand and the considerations you should put into RMD decisions. Check with your financial or tax advisor for all the specifics and for advice tailored to your situation.

Who can you trust to give you unbiased investment advice?  If you are like most people, you assume that someone who provides investment advice to you must be required to act in your best interests.  Unfortunately, that’s only true for some advisors—those who are fiduciaries.

Financial laws and regulations have two sets of rules.  One set is for people who sell financial products, generally brokers and insurance company representatives.  These salespeople are contractually obligated to place the interests of their employer ahead of the interests of their clients. 

The other set of rules is for those who are registered as investment advisers with the federal Securities and Exchange Commission (SEC) or comparable state regulators.  Registered investment advisers are legally obligated to place your interests first.  They are fiduciaries.  That means they must not only be loyal to serving your exclusive best interests, they also must adhere to a high standard of professional competence.

Unlike in other professions, such as law and medicine, anyone can call himself an investment or financial advisor—even if he is really a salesperson whose primary loyalty is to his employer rather than to the person he advises.  This situation is confusing for investors, and it needs to change.

I am part of a grassroots organization of financial service professionals known as the Committee for the Fiduciary Standard.  The Committee’s goal is to educate legislators, regulators, and the investing public about the importance of protecting investors by extending the fiduciary standard to cover everyone who provides personalized investment advice.  Interestingly, the Committee includes a number of brokers and insurance representatives, in addition to registered investment advisers, who recognize how important it is to investors and society at large for advice to be truly trustworthy and based upon a uniform standard that requires advisors to be objective and competent.

The Committee has drafted the very straight-forward oath you will find on the next page that commits an advisor to adhere to a fiduciary ethic and, in so doing, to be accountable for the advice the advisor renders to you, the client.  I have signed this oath to you as an affirmation of my pledge to always act in your best interests. 

I strongly recommend that you insist that any advisor you work with be willing to sign this oath.  The commitment is as simple as “mom and pop and apple pie.”  If the advisor won’t sign the oath, you owe it to yourself to ask why you would trust your financial future to that advisor’s care. 

I encourage you to share this letter and the oath with your family and friends.

Please call me if you would like more information about why it is so vitally important to work with a fiduciary when you seek advice.  I would be delighted to discuss this subject with you further.

Sincerely,

William N. Duncan, CIS™

PUTTING MY CLIENTS’ INTERESTS FIRST



I believe in placing my clients’ best interests first. Therefore, I am proud to commit to the following five fiduciary principles:

I will always put my clients’ best interests first.

I will act with prudence; that is, with the skill, care, diligence, and good judgment of a professional.

I will not mislead clients, and I will provide conspicuous, full and fair disclosure of all important facts.

I will avoid conflicts of interest.

I will fully disclose and fairly manage, in my clients’ favor, any unavoidable conflicts.

Advisor:                          William N. Duncan

Firm Affiliation:           Duncan Financial Planning, LLC

Date:                                 April 8, 2012

You are being responsible and investing in your retirement plan at work, and managing it the best you can. What are your criteria or the procedure you use to select the funds in which you’ll invest? The Vanguard group did a study and found that most people don’t truly understand the difference between the various funds, and tend to be guided by a recent past performance of the funds. In other words, people look at the list of funds and pick funds that have had the highest returns for the last quarter or year. [FYI: this doesn’t work very well!] As I mentioned before; been there, done that. This method is known as bottom-up portfolio construction.

At a bare minimum, you should learn about the different types of investments. You need to know the difference between stable value funds, bond funds (fixed income), stock funds (equities) and target date funds. Drilling down just a little bit further, you should understand the sub asset classes, especially as these are applicable and available for choosing in your retirement plans. There are many wonderful books written for the layperson that describes these differences and the basics for constructing a portfolio.

If you did nothing other than following the advice in the paragraph above, you would be way ahead of the majority of the crowd. However, there is a method for constructing a portfolio that will serve you much better in the long run. That would be by using the top-down portfolio construction method. If you are well disciplined and have the proper motivation, you may be able to learn the basics of this and do it for yourself. However, it would probably be helpful for most people to work with a fee-only financial planner that works as a fiduciary (fancy word for “in your best interests”) for you.

Following is a basic overview of the top-down method of portfolio construction:

• First, you must have a well-defined goal. What are you trying to accomplish, how much will it cost and what is the timeline? Be sure to use financial calculators that will enable you to project the costs into the future.
• Second, how much money can you realistically save towards this goal and how sensitive are you to the fluctuations in the value of your portfolio? The sensitivity to the fluctuations of value can be described as your risk tolerance.
• Third, it is only after you work through these first two steps that you want to move on and develop the asset allocation for your portfolio. The asset allocation is the proportion of stock funds, bond funds and stable value funds (there may be alternative investment classes too) that you use to construct your overall portfolio. You want to build a diversified portfolio that will give you the best chance of meeting your goal while considering your savings rate and your risk tolerance.
• Fourth, within your asset allocation, you will have the sub asset classes. For example, in stocks, you will have domestic stock funds that can be further broken down into large-cap, mid-cap and small-cap stocks. You also have value, blend and growth stock funds. The various asset classes and sub asset classes have varying degrees of correlation to one another and certain combinations tend to help the long-term diversification of your overall portfolio. If you’re dealing with an employer-offered retirement plan, you will likely be limited to a smaller selection of funds.
• Finally, it is only at this point that you should choose the individual funds.

None of the above information is rocket science. If you have the time and inclination to educate yourself in this area, you may be able to go it on your own and produce excellent results. From my personal experience, knowing my friends and family members the way I do; most people don’t have the time and inclination. Sometimes they may have one but not the other. Developing a relationship with a financial planner is an option that should be considered by many.

If most of your retirement savings is invested in 401(k) or other employer-sponsored retirement plan you may not be able to obtain advice through many of the traditional financial planning service models. There are many excellent fee-only financial planners that are able to work with you on an hourly or project fee basis. Two national groups that are widely respected in the financial media may be able to help you. The first one is the Garrett Planning Network it has a national website through which you can find a planner that does hourly or project basis work in your area. That website is: www.GarrettPlanningnetwork.com. Some members of the National Association of Personal Financial Advisors (NAPFA) also work on an hourly or project basis, go to www.NAPFA.org to find an advisor in your area. Regardless of whom you choose to work with, be sure that they are working as a fiduciary for you.

If you are in the Las Vegas area and need help with your retirement planning process, I will be happy to speak with you about working together. Visit www.DuncanFinancialPlanning.com or call 702-835-6835 for more information.

The information in this post is meant to be educational and informative. It is not intended to be used as investment advice for your specific situation.

Because every situation is unique, certain assumptions have to be made. The authors assume an income replacement rate of 80% which is a reasonable number. However, one’s indivual required income replacement percentage will vary based on actual savings rates: if one is saving 25% of their income the replacement rate may only be 75%, at the high end. One also has to consider debt. If a mortgage is going to be paid off before retirement, the replacement percentage will be lower.

The authors consider Social Security retirement benefits too. They look  at low, medium and high income earners separately because Social Security will replace less of a higher income worker’s income than it will for a lower income earner. By subtracting the percentage of income that the Social Security benefit will replace from the suggested 80%, the percentage of  income that one’s retirement savings must cover is revealed.

Most people are familiar with the “miracle of compounding” and the dramatic effect that starting to save early can have on the size of one’s retirement nestegg. However, many have chosen to kick the can down the road and put off saving for retirement. The tables in the paper reveal the dramatic percentage increase that is required to make up for this lost time.

Even more frightening, are the impossible percentages of income that one would have to save if they started saving late combined with the desire to retire early. Take a look at those numbers in the brief. “Impossible” is not an exaggeration for the vast majority of the populace. However, good news is revealed by the fact that by working longer: think age 70+, one can make up for lost time and the required percentage of savings decreases to a much more manageable number.

I have one major caution regarding neglecting the start of retirement savings by planning to work longer. What if health issues derail that plan? The health issues may be such that one will still live for a good number of years but working full-time may not be feasible.

The best plan is to start young. If one has the ability to positively influence a young person regarding saving for retirement, they should do it. It may be the best gift a young person may ever receive. If however, a reader  is behind and has neglected his or her own retirement savings, they should get their cash flow under control in order to start saving for retirement as aggressively as possible. Do not count on being able to make up for lost time late in life.

The link to the brief is: http://crr.bc.edu/briefs/how_much_to_save_for_a_secure_retirement.html 

This is intended to be educational. Please consult your financial advisor for advice that is specific for your situation.

This is a dangerous day in the stock markets: but not the way you might think. For those of you that are investing for long term goals like your retirement, this day could be dangerous because it might scare you. The danger mainly lies in the possibility that you might become scared enough to sell out of your stock ETFs or stock mutual funds!

If you’ve held your funds through this drop, dumping them now is probably a bad idea. Many, otherwise, rational people tend not to hold onto this rationality where investing is concerned. They buy when the market is high and their friends are giddy with the recent advances in the market, then they sell when the market drops.

Think about this for a minute! How do you buy and sell other things in your life? The rational crowd buys when things are on sale (think: drop in the price – I should buy now!), and sell when you can make a killing (think: stocks have really gone up in price - I can make a mint by rebalancing my portfolio now!).

 This isn’t original thinking on my part. The great Warren Buffet says it best. “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” In other words, he buys low and sells high.

If you have additional money to invest and it fits with your investment or financial plan, you should think about buying now. If you’re not sure if this is the bottom and you have a big lump sum to invest, for your comfort, you could dollar cost average by buying once a month or quarter.

I just took a peek at a few of my clients’ portfolio values and was pleased that diversification is working exactly like it should. Yes, they’ve lost some money but the bond portion of the portfolio has gone up in value and is making this ride a little less frightening. Besides, they understand that the stock portion of their portfolios are invested for a longer term. This isn’t money that they’ll need to access for the next several years.

Could the market drop more tomorrow? Yes it could. Could it rise tomorrow with some good news? Yes it could. This post is not for short-term speculators. I don’t pretend to see the future. I do understand how the markets have worked over the past century. My advice is to keep a cool head and get some sleep tonight.

This is not financial advice because only you and your financial advisor are familiar with your situation. This is merely for educational purposes.