Value Provided by Financial Advisor Can Exceed Fee

Jane Young, CFP, EA

Jane Young, CFP, EA

Many things can trigger the decision to hire a financial planner.  You may need some direction on how to prioritize your spending and saving to better prepare for the future.  You may be too busy or uninterested in managing your own finances.   You may experience a sudden life change such as a marriage, divorce, inheritance or retirement.   Your situation may be getting complicated and you want a professional opinion or you lack the technical expertise to continue managing things on your own.

Although, you may need a financial planner you may be hesitant to pay the fee.   Fee-only planners can be compensated using a flat fee, a percentage of assets or an hourly rate.   The fee will typically be around 1% of assets for on-ongoing advice.   A recent Vanguard study may help put your mind at ease.   The study found that the added value provided by a fee-only planner can far exceed the cost.

In 2014 Vanguard published the results of a study they conducted on the value added by advisors.  The study found that financial advisors can add up to about 3% in net returns for their clients by focusing on a wealth management framework they refer to as Advisor’s Alpha©.  The study found that an advisor can add to a client’s net returns if their approach includes the following five principles: being an effective behavioral coach, applying an asset location strategy, employing cost effective investments, maintaining the proper allocation through rebalancing and implementing a spending strategy.  These are just a few of the practices and principles followed by most comprehensive fee-only planners.

The exact amount of added return will vary based on client circumstances and implementation.  It should not be viewed as an annual return but as an average over time.  The opportunity for the greatest value comes during periods of extreme market duress or euphoria.  Additionally, Vanguard found that paying a fee for advice using this framework can add significant value in comparison to what the investor had previously experienced with or without an advisor.

Vanguard’s framework places emphasis on relationship oriented services that encourage discipline and reason, in working with clients who may otherwise be undisciplined and reactionary.  Rather than focusing on short term performance there is a focus on sticking to the plan and avoiding emotional overreaction. Advisors, acting as behavior coaches, can help discourage clients from chasing returns and focus instead on asset allocation, rebalancing, cash flow management and tax-efficient investment strategies.

The study found that when advisors place emphasis on stewardship and a strong relationship with the client, investors were less likely to make decisions that hurt their returns and negatively impacted their ability to reach long term financial goals.  According to Vanguard “Although this wealth creation will not show up on any client statement, it is real and represents the difference in clients’ performance if they stay invested according to their plan as opposed to abandoning it.”

Working Part Time in Retirement Becoming the Norm

Jane Young, CFP, EA

Jane Young, CFP, EA

With the possibility of living another 20 to 30 years in retirement, many baby boomers are considering part time work in retirement.  According to a report by the Transamerica Center for Retirement studies, 82% of people in their 60’s either expect to work past 65, already are doing so or don’t plan to retire.   Likewise, a 2013 Gallop poll found that 61% of people currently employed said they plan to work part time in retirement.  While many seek part time work for financial reasons, working in retirement can also provide tremendous psychological and health benefits.

With the loss of traditional pension benefits many retirees need an extra cushion to cover retirement expenses.   Working part time can provide many financial benefits including the reduction of distributions from your retirement account.  Part time work can also help you avoid drawing from your portfolio when the market is down and the additional income can make you more comfortable increasing the risk in your portfolio, with the potential for higher returns.   Another benefit of working part time is the opportunity to delay Social Security benefits till age 70, when you can earn a larger benefit.  Additionally, part time earnings can be used to improve your future cash flow by paying off your mortgage, credit card debt, vehicle loans, and proactively address household maintenance and repairs.

Aside from the financial benefits, numerous studies have found that people who work in retirement are happier and healthier.  Part time work can give you a sense of purpose, identity and relevance.   It can also replace the social interaction that is lost when you retire.  A 2009 study in the Journal of occupational Health Psychology found that those who worked in retirement experienced better health.   Additionally, a study reported by the American Psychological Association in 2014 found that working in retirement can delay cognitive deterioration.

If you are considering part time work during retirement, start developing a plan before leaving your current position.  Leverage and expand your existing network while you are still working.   Your current employer may be interested in retaining you on a part time basis or may be aware of other opportunities for you.

Think of creative ways to utilize your skills, experience and passion to find or create a job that you will enjoy.  You may want to start your own business doing free-lance work or consulting.  Consider turning your hobbies or interests into a business such as tutoring, handyman services, party planning, programming or working for a golf course.  If you have management experience you may be able to fill a gap as a temporary executive while an organization is going through a transition.

Keep an open mind, be flexible and stay connected with your network.  Here are a few sites that can be helpful in finding part time work; Retirementjobs.com, Flexjobs.com and Coolworks.com.  Please use extreme caution when using internet job sites; many are scams that look legitimate.

Volatile Market Good Time for Retirement Savings

Jane Young, CFP, EA

Jane Young, CFP, EA

This is a great time to maximize your retirement contributions.  Not only will you save money on taxes but you can buy stock mutual funds on sale.  The one year return on the S&P 500 is down about 8% and market volatility is likely to continue throughout the year.

Dollar cost averaging is a great way to invest during a volatile market and it is well suited for contributing to your retirement plans.  With dollar cost averaging you invest a set amount every month or quarter up to your annual contribution limit.  When the stock market is low you buy more shares and when the market is high you buy fewer shares.  You can take advantage of dips in the market and avoid buying too much at, inopportune times when the market is high.

Ideally, the goal is to maximize contributions to your tax advantaged retirement plans however, this isn’t always possible.  Prioritize by contributing to your employer’s 401k plan up to the match, if your employer matches your contributions.   Your next priority is usually to maximize contributions to your Roth and then resume contributions to your 401k, 403b, 457 or self-employment plan.   Contributions to traditional employer plans are made with before tax dollars and taxable at regular income tax rates when withdrawn.  Roth contributions are made with after tax dollars and are tax free when withdrawn in retirement.   Some employers have begun to offer a Roth option with their 401k or 403b plans.

For 2015 and 2016 the maximum you can contribute to an IRA is $5,500 plus a catch-up provision of $1,000, if you were 50 or older by the last day of the year.  You have until the due date of your return, not including extensions, to make a contribution – which is April 18 for 2015. There are income limits on who can contribute to a Roth IRA.  In 2015, eligibility to contribute to a Roth IRA phases out at a Modified Adjusted Income (MAGI) of $116,000 to $131,000 for single filers and $183,000 to $193,000 for joint filers.  In 2016 the phase out is $117,000 to $132,000 for single filers and $184,000 to $194,000 for joint filers.

Your 401k contribution limits for both 2015 and 2016 are $18,000 plus a catch-up provision of $6,000, if you were 50 or over by the end of the year.  If you are employed by a non-profit organization, contact your benefits office for contribution limits on your plan.

If you are self-employed maximize your Simple (Savings Investment Match Plan for Employees) or SEP (Simplified Employee Pension Plan) and if you don’t already have a plan consider starting one to help defer taxes until retirement.

Regardless of your situation take advantage of retirement plans to defer or reduce income taxes on your retirement savings.  Current market volatility may provide some good opportunities to help boost your retirement nest egg.

Selecting the Right Asset Allocation

Jane Young, CFP, EA

Jane Young, CFP, EA

When investing money, one of the first decisions to be made is your asset allocation.  Asset allocation is the division of your assets into different types of investments such as stock mutual funds, bonds, real estate or cash.  In order to maximize the return on your portfolio it’s crucial to maintain a well-diversified asset allocation.  According to many financial experts, asset allocation may be your single most important investment decision, more important than the specific investments or funds that you select.

There is no one size fits all; the right asset allocation is based on your unique situation which may change as your circumstances or perspective changes.  Some major factors to consider include investment time horizon, the need for liquidity, risk tolerance, risks taken in other areas of your life and how much risk is required to achieve your goals.

Arriving at the appropriate asset allocation is largely a balance between risk and return.  If you want or need a higher return you will have to assume a higher level of risk.  If you have a long investment time horizon, you can take on more risk because you don’t need your money right away and you can ride out fluctuations in the market.  However, if you have a short time horizon you should minimize your risk so your money will be readily available.

If you want to minimize risk, invest in fixed income investments such as money market accounts, certificate of deposits, high quality bonds or short term bond funds.   If you are willing to take on more risk, with the expectation of getting higher returns, consider stock mutual funds.  Generally, avoid investing money needed in the next five years into the stock market.   However, the stock market is an excellent option for long term money.

Regardless of your situation, the best allocation is usually a combination of fixed income and stock mutual funds.  With a diversified portfolio you can take advantage of higher returns found in the stock market while buffering your risk and meeting short term needs with fixed income investments.

Once your target asset allocation is set, rebalance on annual basis to stay on target.   Rebalancing will automatically result in selling investments that are high and buying investments that are low.  Avoid changing your target allocation based on emotional reactions to short term market fluctuations.    Stick to your plan unless there are major changes in your circumstances.

If you are unsure where to start, a good rule of thumb is to subtract your age from 120 to arrive at the percentage you should invest in stock market.  In the past it was customary to subtract from 100 but this has increased as life expectancies and the time one spends in retirement have increased.   In the final analysis, select an asset allocation that meets your specific needs and gives you peace of mind.

What is Financial Planning?

Jane Young, CFP, EA

Jane Young, CFP, EA

I’m sure you hear the term “Financial Planning” on a regular basis but you may not be sure what it really means.  Financial planning is an on-going, comprehensive process to manage your finances in order to meet your life goals.  The process includes evaluating where you are today, setting goals, developing an action plan to meet your goals and implementing the plan.  Once you have addressed all the areas of your financial plan you should go back and review them on a regular basis.

Financial planning should be comprehensive – covering all areas of your financial life.  The primary areas of your financial plan should include retirement planning, insurance planning, tax planning, estate planning and investment management.    Depending on your situation, your financial plan may also address areas such as budgeting and debt management, college funding, employee benefits, business planning and career planning.  Comprehensive Financial Planning is very thorough and can take a lot of time and energy to complete.  I recommend breaking it into bite size chucks that can be easily evaluated, understood and implemented over the course of time.  

You can work through the financial planning process with a comprehensive financial planner or you can tackle it on your own.  If you decide to hire a financial planner, I encourage you to work with Certified Financial Planner who has taken an oath to work on a fiduciary basis.  An advisor, who works as a fiduciary, takes an oath to put your interests first.

The first step of the financial planning process is to evaluate where you are today.  Tabulate how much money you are currently spending in comparison to your current income.  Calculate your current net worth (assets less liabilities).  Evaluate the state of your current financial situation.  What is keeps you up at night and what should be prioritized for immediate attention?

The next step is to devise a road map on where you would like to go.   Think about your values and set some long term strategic goals.  Using this information develop some financial goals that you would like to achieve.  Once you have identified some financial goals, a plan can be devised to help you achieve them.

Select the area you would like to address first.  Most of my clients start with retirement planning and investment management.  There is a lot of overlap between the different areas of financial planning but try to work through them in small manageable chunks.  Otherwise you may end up with a huge, overwhelming plan that never gets implemented.

Once you have worked through all of the areas in your financial plan you need to go back and revisit them on a regular basis.  Some areas like investments, taxes and retirement planning need to be reviewed annually where other areas like insurance and estate planning can be reviewed less frequently.  Keep in mind that financial planning is an on-going, life long process.

Covering the High Cost of College Can Require Team Work, Diligence and Compromise

Jane Young, CFP, EA

Jane Young, CFP, EA

With soaring college expenses, few families can afford to cover the costs associated with putting their children through four years of college on top of daily living expenses and the need to save for retirement.   To avoid sacrificing your retirement savings and accruing large student loans, to finance your children’s college education, engage them in the process.  For most families, it is reasonable for the cost of college to be a shared responsibility between you and your children.

Start early by encouraging your children to get good grades, to participate in extracurricular activities, and to volunteer in the community.   While in high school, encourage your child to enroll in Advanced Placement and International Baccalaureate courses that provide high school and college credit.  Your child could have several college courses completed before graduating from high school.  This could save you thousands of dollars. 

Explore all forms of financial aid even if you think you may not be eligible.  You may be surprised, especially if you have several children attending college at once.  Additionally, do your research and be open-minded with regard to the colleges you consider.  Some schools that seem too expensive may have excellent financial aid packages for your situation.

If you find yourself in the common place where you earn too much for financial aid, but not enough to pay the full ride of four year college education, research the availability of merit scholarships.   While your child is still in high school, thoroughly research the availability of scholarships.  Talk to the high school guidance counselor and check with community organizations.  Once in college your child should talk to the financial aid officer, department heads and professors for potential scholarship opportunities.  Also check on-line resources including CollegeBoard.com, CollegeNet.com, and Fastweb.com.  Every year many scholarships go unused because qualified candidates don’t apply.  

Your child can dramatically decrease the cost of tuition by attending a community college for the first two years and then transferring to a four year university.  Many universities have arrangements with local community colleges to transfer credits earned toward the first two years of a bachelor’s degree.    The cost of tuition at a community college is usually less than one half of that at a four year university. 

Another way to reap tremendous savings is for the student to live at home and attend a local school.  In 2014 the cost of tuition and fees at the University of Colorado is about $12,600 and the cost of room and board is about $13,000. 

If after exploring the options above, the cost of college is still beyond your reach; your student may need to work while attending college.  To help pay for tuition, your student may need to work 30 hours a week and take a lighter class load.  Graduating in five years may be better than incurring huge student loans.

Are You Ready for the Unexpected?

 

Jane Young, CFP, EA

Jane Young, CFP, EA

The recent fires remind us how crucial it is to plan for unexpected financial misfortunes.  An important part of financial planning is ensuring you are adequately protected from life’s calamities.  You can’t control what life throws at you, but you can ease the blow by being prepared and keeping your financial life in order.

This may seem obvious, but we have a tendency to procrastinate when it comes to insurance and other precautionary measures.   You should always maintain an emergency fund of three to six months of expenses.  Even with good insurance, it may take time for the insurance company to reimburse you for a loss.   You should review your insurance coverage on a regular basis.  While most of us have home and auto insurance, things change and you may need some adjustments.  I encourage you to meet with your insurance agent at least once every three years or when there is a major change in your life.  Even if you are adequately insured, it is advisable to periodically get quotes from several reputable insurance companies. This can lead to considerable savings as your life circumstances change.

Make sure that you have adequate insurance to cover the current replacement value of your home and your personal property.  This is especially important if you’ve made significant home improvements.  You also need adequate insurance to pay for a place to live until you can buy or build a new home.   You may need a rider or additional coverage if you do business out of your home or you have collectibles, jewelry, art, or firearms.  It is prudent for most to have an umbrella liability policy equal to one to two times your net worth.  A good insurance agent can help you assess the risks that are unique to your situation and ensure you are adequately covered.

In addition to insurance you need an emergency plan to help you react quickly, should a disaster strike.  I recommend keeping all of your important documents in a safe deposit box.  Be sure to back-up important computer files at an off-site location.  Document all of your personal belongings and special features of your home with a video or pictures; this should also be kept in safe deposit box.

You also need to be prepared should something happen to you.  If others are dependent on your income, consider term life insurance to help them get by without your assistance.  If you are a primary wage earner, consider long term disability insurance to provide income if you are unable to work.  You should have a current will and health power of attorney.   When reviewing your will, be sure to review beneficiary designations for your retirement plans, annuities, and life insurance policies.

Generally, if you live within your means, stay out of debt and save 10–15% of your income, you will be better prepared to handle financial disasters that may arise.

The Importance of Planning for Widowhood

 

Jane Young, CFP, EA

Jane Young, CFP, EA

According to the Administration on Aging, in 2010 there were four times as many widows as widowers. Over half of all women over 75 live alone, and one third of all women who become widows are under the age of 65.   About one third of all women who reach 65 are likely to live to 90.  Twenty seven percent of unmarried women, between ages 65 and 69, are poor compared to only 7% for all married women.  Women frequently have erratic work experience, due to family obligations, resulting in lower pensions than men.   Only about one third of all women will receive a pension in comparison to about two thirds of all men.  

These are just a few statistics indicating why it is crucial for women to plan ahead for the uncomfortable, but very real possibility of becoming a widow.  Many couples spend years planning for retirement together, but avoid planning for the possibility of living alone.  Couples need to develop a plan that addresses issues that must be dealt with upon the death of a spouse, as well as a plan for long term financial security for the surviving spouse. 

Start by working with an Estate Planning Attorney, whom you both feel comfortable with, to draft your wills and powers of attorney.  Part of this process should include reviewing the beneficiary designations on all of your retirement accounts and insurance policies to be sure they are consistent with your estate planning goals.  This is also a good time to discuss end of life preferences with one another.

The next step is to organize your finances and ensure that you both know what you have, where you have it, and how it can be accessed.  Take an active role in managing your finances.  If you are uncomfortable or don’t understand your finances, do some reading, take some classes or ask your planner to help you better understand your financial situation.   If you decide to work with a financial planner, take the time to select someone with whom you have complete trust and confidence – someone you can rely on as a trusted resource, should you become a widow.

Ensure that you have adequate emergency reserves to cover funeral expenses and living expenses for several months while the estate is settled.   The loss of a spouse is extremely difficult and you don’t need money worries on top of the tremendous emotional hardship you will be experiencing.

Incorporate the possibility of losing a spouse in your long term financial planning.  Run retirement scenarios and develop a plan that meets your goals together and on your own.  Review and understand survivor benefits associated with Social Security and Employer Pension Plans.  If your projected cash flow falls below your expenses, consider purchasing term life insurance or developing contingency plans to reduce your expenses. 

Here Are Three Simple Secrets to Investment Success

Jane M. Young, CFP, EA

Build a Portfolio to Support Your Investment Timeframe

Investment timeframe is a major consideration in developing an investment portfolio.  Start with an emergency fund covering about four months of expenses in a cash account with immediate access.  Next, put aside money that is needed over the next few years into fixed income vehicles such as CDs, bonds or bond funds.  Invest long term money into a combination of “stock based” mutual funds and fixed income investments based on your tolerance for investment risk and volatility.  Historically, stock has significantly out-performed fixed income investments but can be volatile during shorter timeframes.  Stock is a long term investment; avoid putting money needed within the next five years in the stock market.

Diversify, Diversify, Diversify

Once your emergency fund is established and funds have been put away for short term needs, it’s time to create a well-diversified investment portfolio.   We cannot predict the next hot asset class but we can create a portfolio that will capitalize on asset categories that are doing well and buffer you from holding too much in asset categories that are lagging.  Think of the pistons in a car, as the value of one asset is increasing the other may be falling.  Ideally, the goal of a well-diversified portfolio is to have assets that move in opposite directions, to reduce volatility, while following a long term upward trend.  It is advisable to diversify based on the type of asset, investment objective, company size, location and tax considerations.

Avoid Emotional Decisions and Market Timing

The best laid plans are worthless if we succumb to our emotions and overreact to short term economic news.  Forecasting the short-term movement of the stock market and trying to time the market is fruitless.   We can’t control or predict how the stock market will perform but we can establish a defensive position to deal with a variety of outcomes.  This is accomplished by maintaining a well-diversified portfolio that supports our goals and investment time horizon. 

The stock market can trigger our emotions of fear and greed.  When things are going well and stock prices are high we become exuberant and want a piece of the action.   When things are bad and stock prices are low we become discouraged and want to get out before we lose it all.  The stock market is counterintuitive, generally the best time to buy is when the market is low and we feel disillusioned and the best time to sell is when the market is riding high and we feel optimistic.  We need to fight the natural inclination to make financial decisions based on emotions.   Don’t let short term changes in current events drive your long term investment decisions.

No one knows what the future holds so focus on what you can control.  Three steps toward this goal are to create a portfolio that meets your investment time horizon, create and maintain a diversified portfolio and avoid emotional decisions and market timing.

 

 

Financial Guidance for Widows in Transition

 
A workshop from the heart for women who are widowed

or anticipate becoming a widow in the future . . .

or those with a widowed friend or family member

 Friday, August 3, 2012 from 9:30am – 11:30am 

at Bethany Lutheran Church

4500 E. Hampton Avenue

Cherry Hills Village, 80113

OR 

  Friday, August 3, 2012 from 2:00 – 4:00 PM
 
at First Lutheran Church

1515 N. Cascade Avenue

Colorado Springs, 80907

 There is no charge to attendees, but advance registration is required.
Call 1-800-579-9496 or email Bob.kuehner@lfsrm.org

 Join us for a special presentation by Kathleen M. Rehl, Ph.D., CFP®, award winning author and speaker. She presents practical information in an engaging and entertaining manner, along with issues of the heart. The workshop is open to all . . . although it’s especially designed for women. So, bring your gal friends for an enjoyable morning out together.

   Kathleen’s world changed forever when her husband died. From personal grief experiences, her life purpose evolved-helping widows to feel more secure, enlightened and empowered about their financial matters. She is passionate about assisting her “widowed sisters” take control of their financial future.

 Dr. Rehl is a leading authority on the subject of widows and their financial issues. She is frequently invited to give presentations across the country on this topic.

 She and her book, Moving Forward on Your Own: A Financial Guidebook for Widows, have been featured in The New York Times, Wall Street Journal, Kiplinger’s, AARP Bulletin, U.S. News & World Report, Consumer Reports, Investment News, Bottom Line and many others. The guidebook has received 10 national and international awards.

 To devote more time to writing and speaking, Kathleen closed her practice to new clients some time ago. She was previously named as one of the country’s 100 Great Financial Planners by Mutual Funds Magazine.

 Please be our guest for this educational and enlightening workshop!

 This event is a sponsored gift to the community from
 Jane M. Young, CFP with Pinnacle Financial Concepts, Inc.
   

 (719)260-9800

www.MoneyWiseWidow.com

 
   
 

Learn More About Long Term Care Insurance at Our Next Fireside Chat on July 11th

Please join us for lunch, at Pinnacle, for our next Fireside Chat on July 11th at 11:30.  We will discuss Long Term Care Insurance.  As always this is purely educational and free of charge.  Please call Judy at 719-260-9800 to RSVP.  Please let us know if there are any topics that you would like us to discuss at future Fireside Chats.

Join us for a Fireside Chat on Annuities vs. Mutual Funds on May 16th

Please join us for lunch and an interactive discussion on annuities vs. mutual funds at Pinnacle Financial Concepts, Inc. on May 16th. Our Fireside Chat will run from 11:30 to 1:00. Please call 260-9800 to RSVP. There is no charge and our Fireside chats are always purely educational!!!

10 Financial Planning Tips to Start 2012

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Jane M. Young, CFP, EA

 

1. Dream – Take a few minutes to look at the big picture and think about what you want from life. How do you want to live, what do you want to do and how do you want to spend your time. Successful businesses have vision statements and strategic plans. Create your own personal vision statement and strategic plan.

2. Set Goals – What are your goals for the coming year? Start by brainstorming – fill a page by listing all the goals that come to mind. Think about different facets of your life such as family, career, education, finance, health and so forth. Review your list and prioritize three or four goals to focus on in the coming year.

3. Evaluate Your Current Situation – What did you spend and what did you earn last year? What was necessary and what was discretionary? Did you spend in a purposeful manner and do your expenses support your goals and strategic plan. How much did you save or invest in a retirement plan? Can you increase this in 2012? If you are like most of us, a category is needed for “I have no clue”.

4. Track Spending and Address Problem Areas – If you aren’t sure where you spent all that discretionary cash, track your expenses for a month or two. It can be very enlightening – Yikes! Identify a few problem areas where you can cut spending and really place some focus. Identify the actions you will take to cut spending in these areas. Set weekly limits and come up with creative alternatives to save you money.

5. Evaluate Your Career – Are you doing what you really want? Are you being paid what you are worth? Have you become too comfortable that you are settling for safe and familiar? Could you earn more or work in a more rewarding position if you took the time to look? Are you current in your field or do you need to take some refresher courses? Do you know what it will take to get a promotion or a better job? In this volatile job market you need to keep your skills current, to nurture your network and to maintain a current resume.

6. Maintain an Emergency Fund – Start or maintain an emergency fund equal to at least four months of expenses, including the current month. This should be completely liquid in a checking, savings or money market account.

7. Pay Off Debt – Establish a plan to pay off all of your credit card debt. Once this is paid off establish a plan to start paying off personal debt and student loans.

8. Save 10-15% of your income (take advantage of employee Benefits) – You need to save at least 10-15% of your income to provide a buffer against tough financial times and to invest for retirement. At a very minimum, you need to contribute up to the amount your employer will match. Additionally, be sure to take advantage of flex benefits or employee stock purchase plans that may be offered by your employer.

9. Maintain a Well Diversified Portfolio – Maintain a well-diversified portfolio that provides you with the best return for your risk tolerance, your investment goals and your investment time horizon. Be sure to re-balance your portfolio on an annual basis. Avoid over reacting to short term swings in the market with money that is invested for the long term.

10. Don’t Pay Too Much Income Tax – Avoid paying too much income tax. Get organized and keep good records to be sure you are maximizing your deductions. Make tax wise investment decisions, harvest tax losses and maximize the use of tax deferred investment vehicles. Donate unwanted items to charity – be sure to document your donations with a receipt.

“What is Modern Retirement and Will You be Ready?” Join us on September 7th for our next Pinnacle Fireside Chat.

Please mark your calendars for our next Pinnacle Financial “Fireside Chat”, to be held on Wednesday, September 7th from 7:30am – 9:00am.

Jane will discuss the characteristics of modern retirement and how to plan for it. She will explore different approaches to retirement and some of the factors to be considered. She will also explain the various plans available to help you save for retirement.

The Fireside Chat sessions are informational only (no sales!) and interactive — a great opportunity to learn new things and ask questions in a relaxed environment. These sessions are open to your family and friends, so please feel free to pass this email along to anyone that you think might be interested in attending.

Please call Judy (719-260-9800) if you would like to attend this session on September 7th, as space is limited.

We hope to see you on September 7th! Coffee and donuts will be served!

Attend a Financial Fireside Chat with Jane and Linda on December 2nd to discuss “Year End Financial Planning Tips and Money Saving Ideas for the Holidays”

 

You and a guest are invited to a Financial Fireside Chat with Jane and Linda at our office, from 7:30 – 9:00 am on Thursday, December 2nd to discuss “Year End Financial Planning Tips and Money Saving Ideas for the Holidays.”

A Financial Fireside chat is an informal discussion over coffee and donuts, where our clients and guests can learn about various financial topics in a casual non-threatening environment. This is free of charge and purely educational. There will be absolutely no sales of products or services during this session. We will provide plenty of time for informal discussion.

The Fireside Chat will be held at the Pinnacle Financial Concepts, Inc. offices at 7025 Tall Oak Drive, Suite 210. Please RSVP with Judy at 260-9800.

We are looking forward to seeing you on Thursday, December 2nd to learn about and discuss some great year end financial planning ideas.

A Money Moment with Jane – A Few Financial Planning Suggestions for the Fall

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By Jane M. Young, CFP, EA

 

  • Required Minimum Distributions were not required for 2009.  However, if you are at least 70½ you will be required to take a distribution in 2010.

 

  • If you are planning to convert some of your regular IRA to a Roth IRA, do so in 2010 to spread the taxes over 2011 and 2112.

 

  • Have you maximized your Roth IRA and 401k contribution?  The 2010 contribution limit for the Roth is $5,000 plus a $1,000 catch-up provision if you are 50 or older.  The 2010 contribution limit for 401k plans is $16,500 plus a $5,500 catch-up provision if you are 50 or older.

 

  • This is a good time to do some tax planning to make sure your withholdings or estimates are adequate to cover the taxes you will owe in April. 

 

  • Do you have any underperforming stocks or mutual funds that should be sold to take advantage of a tax loss in 2010?

 

  • Now is the time to go through your home for items to be donated to charity.  These can provide a nice deduction on your 2010 tax return.

 

  • Start planning for Christmas now and save money by working to a plan. 

 

Are You Paying Too Much for Financial Planning and Advice? by Jane Bryant Quinn

Here is a great piece by Jane Bryant Quinn.
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Are You Paying Too Much for Financial Planning and Advice?
By Jane Bryant Quinn | Sep 21, 2010 | 5 Comments

How much are you paying for the financial-planning advice you get? Some investors don’t know. Others think they know but don’t. “Fee-only” planners and registered investment advisors state their fees up front. “Fee-based” advisors appear to do the same but might be charging you in other ways. Brokerage house advisory accounts charge the most and can entangle you in costs you didn’t expect.

In short, a stated fee isn’t always what it seems. For that matter, neither is an advisor. I recommend fee-only planners but I’ve found some who are so new to the business or so limited in their skills that I wouldn’t go near them.

So how do you go about assessing what you’re paying for advice and what the potential conflicts or trouble spots might be? Here’s a rundown:

Fee-only advice. This is my choice, always. These advisors give you a price list up front, for work by the hour, by the task, or for ongoing management of your money. They don’t take sales commissions, so they’re not primed to push products. They sell only their planning and investment expertise.

Within this world, however, there’s a lot of variation.

A fee-only planner, with a CFP designation (for Certified Financial Planner) helps you establish your priorities and goals, create budgets, set savings targets, test your insurance safety net, establish retirement savings accounts, project future retirement income, plan for taxes, and make basic investment decisions. By “basic,” I mean simple asset allocation and picking no-load (no sales charge) mutual funds. That’s all that most families need. You can find some of these fee-only planners through the Garrett Planning Network, the Alliance of Cambridge Advisors, or the Financial Planning Association (when you search the FPA site, click on “How Planners Charge” and check the box for “fee-only”).

But some of these advisors — especially people who have been in business for only three or four years — might not have the knowledge or experience to analyze your investments in depth. Those with a brokerage-house background are familiar with securities, but others are still learning. They might be qualified to advise on mutual funds but not individual stocks and bonds. They might be taking clients before they’ve finished their CFP.

On average, you’ll find more experienced planners through the National Association of Personal Financial Advisors. Some NAPFA members deal only with people of higher wealth. Others take middle-class clients, too (see what their websites say).

Even planners with good paper qualifications might not serve you well if they don’t understand your life experience. For example, young planners who don’t own homes are not the best guide through mortgage decisions. Someone in his or her mid-30s will think more aggressively about investments than someone in late middle age. If you’re approaching retirement, you want a planner who can feel the same, cold wind of uncertainty that you do.

Fee-only planners typically charge 1 percent on accounts up to $1 million or so, and less on larger amounts. But fees have been going up, says Tom Orecchio of Modera Wealth Management and former president of NAPFA. Some firms charge 1.5 percent or more for the first $500,000.

“Advisors say they’re working harder, for less money, than at any time in their career,” Orecchio says. Accounts under management have declined in value, clients need more handholding, and more new products are coming to market that need evaluating. So they’re charging people more.

Normally, a percentage fee applies only to money that the planner has directly under management. A few planners assess the fee on your total net worth, including your 401(k) and home equity. “That’s for comprehensive financial planning,” says John Sestina of John E. Sestina and Co. “We advise on everything, including whether to refinance a mortgage and how to allocate a 401(k).” He charges $5,000 for accounts up to $1 million (that’s 0.05 percent, at the top) and larger fees for larger accounts. For younger clients, he offers “financial planning lite”– $1,000 for full planning and investment services on accounts of any size, but only two or three meetings a year.

Fee-based advice. Here, you have wolves in sheep’s clothing. It sounds as if they also give fee-only advice. In fact, they sell products and earn commissions. You might pay fees for some products and commissions for others. The size of the fees might depend on what else you buy. “Fee offset” means that the fee is deducted from the commission you pay. Commissions aren’t always visible, so it’s easy to pay more than you realize.

Brokerage house advisory accounts. You pay fees here, too. The broker provides an investment plan, developed and monitored by the firm’s advisory team. You get periodic reports. Small investors, with $25,000 to $50,000, might be charged in the area of 2 percent a year. These accounts don’t include packaged products such as variable annuities or unit trusts. Your broker might sell them to you on the side, earning a commission on the trade.

Skip these expensive advisory accounts if you’re a long-term investor who holds mutual funds and a few stocks. You’re much better off in a regular brokerage account that doesn’t charge fees–or, for that matter, with a fee-only planner.

Regarding conflicts of interest, I’m always careful about the commissioned-sales world because of its fondness for selling high-cost products. But the fee-only world has potential conflicts, too. Planners who charge on an hourly basis might stretch out the time it takes to complete your job. Planners who work on retainer might pay less attention to your account, because they’ve got the money anyway. Planners who charge a percentage of assets have an incentive to hold on to your money — for example, by recommending that you keep your mortgage rather than paying it off.

Always evaluate the advice, in terms of your advisor’s interest as well as your own. Advice isn’t always worth what you pay for it. You might do better by paying less.

Take Control of Your Life with a Personal Strategic Plan

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Jane M. Young, CFP,EA

At least once a year we need to step back from our daily routine to look at our lives from a broader perspective. We get so bogged down with daily responsibilities we lose track of where we are, and where we want to go. Take the time to do some personal strategic planning. Start by looking at what you are actually spending and saving. How much do you spend in a typical month, how much is necessary spending and how much is discretionary? How do your expenses compare to your income? How do your expenses and your savings line up with your goals?

Maybe you haven’t thought about your long range goals for awhile. I challenge you to make a list of 30–50 goals that you would like to accomplish over the next five years. I know… that’s a lot! Think of this as a brainstorming exercise. Don’t evaluate the importance of a goal, just write down what comes to mind. If you are having difficulty thinking of 30–50 goals, try thinking of goals in the following categories: friends and family, health, career, social and entertainment, money and finance, spiritual, education, and community. Once you have created your list, prioritize your goals by importance and timeframe. Develop an action plan for your high priority goals.

Now go back and review your expenses. Are your spending and saving habits congruent with your long term goals? Use the information you have pulled together to develop a spending and savings plan that supports your personal strategic plan. Once you have a clear picture of where you are and where you want to go, you can take control of your life.

“The future belongs to those who believe in the beauty of their dreams.”
– Eleanor Roosevelt