Can you fix a missing beneficiary designation?

If your loved one failed to name a beneficiary on their retirement plan, must the assets revert to the estate? Short answer, not always.

Unfortunately, this mistake still happens. A loved one or spouse passes and it comes to light that they forget to name their husband/wife as the primary beneficiary or their children as contingent beneficiaries on their 401k plan or their IRA. This is a mistake you should never make. Always name your beneficiaries on retirement plans, bank accounts, investment accounts, etc.

But, what if your loved one has already passed and beneficiaries were not designated. You may still have some options:

• Check the “default beneficiary” provisions of your retirement plan or your IRA documents - the Employee Retirement Income Security Act (ERISA) of 1974 requires qualified employer plans to automatically name a surviving spouse as the beneficiary after one (1) year of marriage;

• Consider a spousal rollover if the “estate” was the named beneficiary or the default provision under the plan documents names the “estate” - in such cases, if the surviving spouse is the sole or residuary beneficiary of the estate, the IRS will allow the surviving spouse to rollover the account to their own IRA; and/or

• Consider a disclaimer if two spouses die within a relatively short period of time for IRA assets - that way a contingent (younger) beneficiary can utilize their longer life expectancy payout period for the IRA assets.

If you have questions about the effects of a missing beneficiary designation, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

For additional information about this topic, please click on the title above.

David L. Hogans, Esq. is an author and the founder of Intelligent Investing, Inc., a registered investment advisor firm located in Albuquerque, NM.  He earned his Bachelor of Science in Chemical Engineering (ChE) from Virginia Tech and his Juris Doctorate (JD) from the University of Dayton.  Mr. Hogans is licensed to practice law in the states of Virginia and New Mexico, as well as, before the Federal Patent Bar.  For more information about Mr. Hogans and his firm please see his filing with the Securities and Exchange Commission (SEC) (https://files.adviserinfo.sec.gov/IAPD/Content/Common/crd_iapd_Brochure.aspx?BRCHR_VRSN_ID=602988).

Do you know how your bond portfolio should perform under different market scenarios?

Bonds are an important part of your overall investment portfolio. Their intended purpose is to smooth out your returns by exhibiting non-correlative behavior with stocks (provided you have chosen a high quality bond portfolio). However, is that always the case and how should you expect your bonds to act under Federal Reserve tightening or Federal Reserve loosening policy environments? Here are two different scenarios and how they may affect your bond holdings:

• What happens if the Fed lowers interest rates

  • cash holdings will suffer in a rate lowering environment while bond prices will rise, with the longest duration bonds seeing the largest increases.

• What happens if the Fed increases interest rates

  • cash holdings will benefit from a rising rate environment;

  • bond funds, while initially falling in value, will eventually reward bond investors with higher yields; and

  • lower quality bonds and bonds with a longer duration will likely suffer greater losses.

If you have questions about what role bonds should play in your portfolio, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

For more information about bond funds, see my earlier post here.

For additional information about this topic, please click on the title above.

What happens to your Social Security Benefit when you claim early?

A recent article by FOX Business provided the below listed percentages for how much your Social Security Benefit is reduced by claiming early. Before you claim early, it is important to realize that these reductions can be pretty significant. For example, in the case of someone claiming Social Security at age 62, their benefit can be reduced by as much as 25%. That’s a lot money lost towards your annual income. So, accordingly, think carefully before taking your benefit early.

Percent of Social Security Benefit lost by claiming early:

• at age 62 - benefit reduced by about 25%

• at age 63 - benefit reduced by about 20%

• at age 64 - benefit reduced by about 13.3%

• at age 65 - benefit reduced by about 6.7%

Now, when you contrast this with the fact that each year you wait past your full retirement age your benefit will increase by 8% a year, you can see why it pays to delay taking Social Security. Not only by waiting to claim at age 70 did you gain 8% per each year you delayed, but you did not lose 25% of your full retirement age benefit. To provide a rough example, if your benefit was $2,000 per month at full retirement age, it would be reduced to $1,500 per month if you claim at age 62, or rise to approximately $2,600+ if you wait to age 70.

If you have questions about when it is best to claim your Social Security Benefit, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

For additional information about this topic, please click on the title above.

A financial to-do list for the surviving spouse (3rd post in a series) . . .

In our last post (click here for prior post) we talked about making funeral arrangements, notifying employers and setting up a system to handle the household bills.

This post will cover the next steps of dealing with banks, insurance companies, and creditors. At this point, you may begin to feel overwhelmed by the sheer volume of things to handle. And, when you do (it is OK, as it is bound to happen), don’t forget to do this one thing: make a master “to-do” list in a notebook.

Keep your “to-do” list/notebook with you at all times, as it will act not only as your log of events “to-do,” but also as your record of the events completed. Keep notes on this master “to-do” list, such as: names of people you spoke with, dates, notes from the conversation, and any resolution, if achieved. Keep this notebook as a reference, as you can easily flip back through the pages at a later date to verify what you have done and who you spoke with.

As for the next steps regarding banks, insurance, and creditors:

• Contact all banks/credit unions about changing account holder information;

• Contact administrators of spousal investment and/or retirement accounts about transferring assets to beneficiaries - consult with a financial advisor before cashing out any investments;

• Contact the providers of active life insurance policies held by you and your spouse to initiate the death benefits process, as well as, to determine any continued needs for life insurance;

• Contact other insurance providers (e.g., auto, home, disability, etc.) to either close, modify coverage, or change the name on the policy;

• Procure necessary health insurance coverage for yourself and any dependents;

• Contact creditors to close any accounts that were in your spouse’s name only;

• Contact creditors to remove your spouse’s name from joint accounts;

• Destroy any credit cards issued in your spouse’s name; and

• Send a letter to TransUnion, Experian, and Equifax requesting your spouse’s credit report, as well as, a request to no longer issue credit to you spouse.

The next post in the series called “A financial to-do list for the surviving spouse” will cover applying for benefits, beneficiary designations, and various odds-and-ends. Although there are a lot of things to keep track of, your master “to-do” list will act as your North Star during this difficult journey. Please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients if you have questions about “what to do next” after the loss of a significant other.

A financial to-do list for the surviving spouse (2nd post in a series) . . .

As mentioned in my prior post, the difficulty of losing a significant other can fill one’s life with almost limitless sorrow. So, don’t face it alone. Reach out to a close friend and/or trusted family member for help. When doing so, share this checklist as it is meant to help with questions like: “What do I do next”? It is natural to feel confused, grief stricken, and uncertain about your next steps. But, just remember, a journey of a thousand steps begins with the very first one.

After coalescing your important documents (see prior post about Important Documents), you will need to handle the following.

Next Steps:

• consider organ donation wishes (check driver’s license or advanced health care directive)

• contact a funeral home (enlist the help of a pragmatic confidant to avoid overly elaborate funeral plans)

• ask the funeral director for help in obtaining 10-15 death certificates

• contact immediate family and those close to you about the loss

• contact employers about your spouse’s passing (check with your spouse’s Human Resources Department about benefits and healthcare coverage continuation)

• allow/assign close family and friends to grocery shop, answer the phone, and prepare food

• have a trusted family member remain at home during the funeral (as burglars are known to read the obituaries)

• contact an attorney to begin reviewing the will (have the attorney explain the probate process and any liability for outstanding debts)

• prepare their obituary and post-funeral gathering plans

• put a plan in place to handle household bills (e.g., mortgage, utilities, car loans, insurance premiums, etc.); consider automatic bill payment options, place necessary bills in your name, and print out a bills checklist (at least for the first few months)

The next post in the series called “A financial to-do list for the surviving spouse” will cover handling banks, creditors, and insurance. A burdensome next step, but a critical one. Please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients if you have questions about “what to do next” after the loss of a significant other.

A financial to-do list for the surviving spouse (1st post in a series) . . .

Losing a spouse can be one of the most traumatic events in one’s life. The ensuing checklist is meant as a guide that hopefully helps to ease some of the unrelenting heartache that can accompany the loss of a spouse by providing an organized process for handling the next steps during this time of sorrow, grief, and transition.

First things, first:

• find a helping hand, a good friend or family member can help ease the burden of your loss, as well as, help to keep you focused on the necessary/required tasks at hand

• gather all important documents and keep them together (e.g., purchase a large accordion file to retain the suggested documents below)

• Some important documents might include:

  • any will or trust documents

  • life insurance policies

  • birth/marriage/death certificates

  • funeral arrangements and/or instructions

  • social security cards

  • recent tax returns

  • retirement/investment/bank account statements

  • mortgage and loan documents

  • titles and deeds

  • safety deposit box information (and key)

Although the above list of necessary documents is not exhaustive, it will provide a good start and you can add to it as you see fit. The next post in the series called “A financial to-do list for the surviving spouse” will cover handling funeral arrangements, employers, and necessary bills. If you, or someone you may know, is in a time of transition after losing a spouse and you (or they) desire guidance during this period, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

Social Security and when to claim?

This is a common question that many people have: “When should I claim Social Security”? Understandably so, as there are many factors that go into making this decision, even excluding your overall lifetime benefit received. Sure we all want to maximize our Social Security money, but do we want to do this at the cost of losing some financial freedom (read as cash flow) early-on in retirement? So why is this decision so complex?

Let’s take a look at some of the factors that go into making this decision:

• Am I (or is my spouse) going to work past the age of 62 - noting that if an individual works and claims Social Security, part of their benefit can be withheld if income rises to high

• How long are you planning on living - this is a tough one to answer as none of us know how long we are going to live; however, if longevity runs within your family and you are the epitome of health, you may want to consider the longevity annuity aspect of delaying Social Security

• How much do you have saved and what are your goals or plans in retirement - if goals and money saved align correctly, you may be able to fund your early years of retirement with only your retirement savings, thereby, allowing your Social Security benefit to grow

• Are you invested correctly and what do the market’s sequence of returns project for your portfolio - you need to make sure you are not assuming too much or too little risk with your portfolio’s allocation to stocks and bonds, thereby permitting your retirement savings their best chance at funding your goals

• What is your marital status - can you take of advantage of claiming strategies, e.g., allowing the higher earner’s benefit to grow by delaying claiming

Are these some of the questions you are asking about when to claim Social Security? If so, you are on the right track. These are the very questions that we answer every day at Intelligent Investing. If you have questions like these, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients to begin your Social Security claiming discussion.

Ideas of what to do with last year's bonus or your 2019 pay raise . . .

Well, first off, maybe purchase yourself a one-time item that is not that terribly expensive. This helps to get the urge to spend out of your system and also helps to commemorate your achievement, i.e., the reason of your bonus or pay raise. It sounds kind of silly, but I used to purchase a painting or something that I needed for my office to make it more comfortable, e.g., a couch. You spend eight hours a day there, so you might as well enjoy it :-).

Once you’ve gotten that out of your system, it’s time to really decide what to do with the bulk of your windfall. Initially, it is very important to sock away 80% or more of this additional income. Don’t let the additional income lead to lifestyle creep, as can easily happen. Once you’ve cleared this hurdle, you can begin considering the following options:

• If you don’t have an emergency fund, start one, now! (try to set aside at least 6-12 months of household expenses in a savings account);

• Pay off any outstanding debts - focus on high interest debt first and move your way down til you are debt free; or

• Open or contribute to an IRA or a Taxable Investment Account - the earlier you start saving for retirement, the harder your money will work for you (noting compound interest is your friend).

If you have questions about how to best utilize your bonus or new pay raise, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients.

An interesting article about the "FIRE" (Financial Independence Retire Early) lifestyle! Frugality to the MAX?

Do you want to retire early? Do you have what it takes to retire early? Can you live (extremely) frugally while preparing for retirement? If so, and beans and rice for dinner 5 out of 7 nights a week seems acceptable for such a cause, then read on.

This “frugal” lifestyle can be best summed up as a minimalist lifestyle. If you don’t have a lot of possessions and/or expenses when heading into retirement, then your overhead (or cost of living) in retirement should be pretty minimal as well. Stated another way, if your household expenditures heading into retirement are around $100K annually, then your retirement investment portfolio may need to be somewhere between $1M and $2M to support your lifestyle (assuming a 4% withdrawal rate). However, if you overhead heading into retirement is $40K per year, then you may be able to retire with a nest egg of less than $1M and some intermittent part-time work sprinkled in throughout the year. This may not be an ideal retirement for everyone, but for some, it sure beats putting in 2,000+ work hours a year, in addition to their commute.

Here are some ideas for achieving such a goal:

1) Cut existing expenses to a bare minimum (no cable TV, streaming services, lattes, new clothes, etc.); during this phase your debt should decrease while your savings increase; utilize budget tracking software to help find unnecessary expenses and to help track your newly growing savings.

2) Now that you have cut all unnecessary expenses (and I mean ALL), you will need to find a second job or additional sources of income (added bonus, since you will have even less free time with your second job, you will probably spend less money); also, as you make more money, do not spend it, but save it (this part is key)!

3) Continue to learn as much as you can about the “FIRE” modus vivendi and join one or more groups that espouses such a lifestyle, as you may need their support and/or knowledge at some point.

Above all persevere. It won’t be easy and there will be some tough times but if it truly resonates with you, it can be done. A minimalist lifestyle is not for everyone, but for those individuals that it does appeal to, it is a way to financial independence and early retirement.

If you have questions about retirement or the minimalist lifestyle, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients.

For more information about this topic, click on the title above.

When the “free” dinner is not so free. Annuities…are they worth it?

For a select few (read as for not that many people), annuities can make some sense. For example, if you need an immediate annuity to help cover your basic living expenses and you are not comfortable with managing your own money, then (maybe) an immediate annuity should be considered. However, you will pay dearly for this consideration and perceived need.

Unfortunately (for investors), immediate annuities are not the only annuities being pushed at “free” dinners. With “free” dinners, investors usually see the more complex variety of annuities rolled out, e.g., variable and indexed annuities. Make no mistake, the folks putting on these “free” dinners are looking to sell something to you - something (read as variable and indexed annuities) they may not even fully understand themselves. It should go without being said that one should never purchase (nor sell) that which they do not understand.

And unfortunately, some of these variable and indexed annuity insurance policies can carry large sales incentives for the person “storyselling” you their product. Sometimes a commission or fee of 5% to 6% of the contract price. So if you purchase a quarter-million dollar ($250,000) variable annuity contract from a salesman, that salesman may stand to walk away with $15,000 of your money as soon as he cashes your check. That’s a pretty hefty fee for doing very little work. These kind of salesman incentives draw into question whose best interest is being served in these transactions. As such, my suggestion is, leave your checkbook at home.

That being said, here are some pros and cons of annuities:

Pros:

• A near guaranteed future income stream

• Permits additional savings for high-income earners

• Certain annuities can protect against loss of principal (but you will pay a hefty fee/charge for this protection)

Cons:

• Annual Fees of 1.25% of your total assets

• Surrender charges that can equal 10% of your assets if you cancel the annuity within the first 7-10 years of the contract

• High fees and commissions

• Insurance account riders that can be 1% to 1.5% of your account value each year

• Limited Investment options with high expense ratios

If you are thinking about an annuity, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients. Please note, Intelligent Investing does not sell annuities or any products, nor do we receive commissions for the sale of any products. We only provide unbiased fiduciary level service to our clients.

For more information about this topic, please click on the title above.

How do I withdrawal from my retirement accounts?

If this is a question you are considering, hopefully you are older than 59 and 1/2 years of age, Why? Because there is no penalty for money withdrawn from a tax-advantaged account if your older than 59.5 years. Generally, when recommending withdrawal strategies, pundits suggest spending from taxable accounts first; thereby, allowing the assets of your tax-deferred account(s) to grow for a longer period of time. However, this “one-size-fits-all” planning may not account for retirement balances of large value.

In these cases, it is best to do some advanced planning regarding cash flow form your Required Minimum Distributions (RMDs) of all of your tax-deferred retirement accounts. For example, if delaying withdrawals from your tax-deferred accounts until your RMDs must occur would place you in a significantly higher tax bracket, you may want to consider withdrawing from these accounts earlier. By planning your withdrawals in such a manner you can fully utilize the entire income range of your lower tax brackets and avoid paying the higher tax rate when your larger RMDs would have had to occur.

If these are questions you are asking yourself, then contact Intelligent Investing (www.mynmfp.com/new-clients) to help find the answers!

For more information about this topic, click on the title above.

Have you done your annual portfolio check?

It’s always a smart idea to check-up on your retirement plan, at least, annually. In this post, we are going to keep the annual check-up simple, i.e., keep it to four (4) main ideas. Although these four (4) main ideas are not the only factors to keep track of when monitoring your retirement plan, they are a good start that will heed you well if done.

Check-up #1) Is my portfolio on target? If you are in the accumulation phase, are you contributing 15% or more of your annual gross income? This rough metric is a good place to start. Notably, if you are a high-earner, you need to be contributing 20% or more of your annual income as Social Security will replace a smaller portion of your retirement “paycheck.” If you are already retired, is your total amount withdrawn from all retirement accounts in line with the often cited 4% withdrawal rule (adjusted for inflation annually thereafter)? If not, you may need to actively adjust your withdrawal rate to better match the IRS suggested withdrawal rates.

Check-up #2) Is my asset allocation OK? With this 10 year bull market, many portfolios are off-kilter. The 10 year run of the stock market has left many portfolios stock heavy. If you are a twenty-something than this high equity/stock exposure is probably OK. However, if you are nearing retirement or in retirement, you need to make sure your stock/bond/cash allocation is appropriate, not only for your age but your risk tolerance, as well. If you are not sure of an appropriate stock/bond/cash allocation for your age, you can just mirror the asset allocation of a life-cycle or target date fund by Vanguard. A good place to start is the old saw of subtract your age from 110 and that is how much you should have in stock. For example, a sixty (60) year old may have 50% of their portfolio in stock (110 minus 60). The remaining 50% of their portfolio would be divided among bonds and cash.

Check-up #3) Do I have enough cash? If you are still working, six (6) months to fifteen (15) months of cash should be enough to weather you through any layoffs or emergency fund needs. The higher your income, the closer you should be to fifteen (15) months of cash on hand. If you are retired, I recommend two (2) to three (3) years worth of living expenses in cash, so you minimize your chances of having to sell stock in a down market.

Check-up #4) There are only two certain things in life: death and taxes. If you are still working, make sure you max out your retirement contributions to your tax-sheltered accounts. 2019 contributions have increased to $19,000 for your 401k ($25,000 if you are 50 or older) and to $6,000 for your IRA ($7,000 of you are 50 or older). Contributions to these accounts reduce your taxable income. If you are retired, make sure you take your required minimum distributions from your retirement accounts (don’t get caught by the 50% penalty) and possibly use strategic withdrawals to maintain your appropriate asset allocation.

As mentioned above, these are not the only factors to check on when reviewing your portfolio. However, these provide a pretty good starting point. If you should have any questions about your portfolio, feel free to contact Intelligent Investing at www.mynmfp.com/new-clients for a no-obligation consultation.

For additional information about this topic, please click on the title above.

Last minute gift idea for your adult children . . . Pay for a financial plan!

If you are out of gift ideas for your adult children, maybe offering to pay for a meeting with an hourly rate financial planner just might provide the gift that “keeps on giving.” Why? Because some studies show that a comprehensive financial plan can boost your wealth by $234,000 (or more) when done by a financial planner - versus doing it yourself (see AARP The Magazine October/November 2018 issue). That is a pretty significant increase. That is the kind of gift that keeps on giving!

For more information on how financial literacy starts at home - click here to read an article by Vanguard.

If you have questions about how this would work, please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients.

For more information about this topic, click on the title above.

If your are not retirement ready, here are some ideas . . .

Roughly less than a third of folks nearing retirement believe they will have enough money set aside to maintain their lifestyle. That means 7 out of 10 people (i.e., 70%) believe they will not have enough money to enjoy the same standard of living in retirement. It does not need to be this way. Here is the first thing you should do to increase your chances of living the retirement that you dream of:

Put together a a retirement budget or a financial plan detailing your expected income and your desired goals (from where you want to live to how often you want to travel).

Once you have committed this budget to paper, then it is time to test drive your budget. Live on your retirement budget for a couple of month before beginning retirement and see how it goes. If it works, great! If you budget falls short of your actual expenses, you either need to cut back or find additional income.

Here are some ways to generate additional income in retirement:

• save more money while you are working (both taxable and tax-deferred accounts)

• retire later (this one provides the double benefit of not drawing down your retirement savings early on while also allowing for additional contributions to your retirement accounts)

• adjust your investments to reflect your appropriate asset allocation (stock/bond/cash mix)

• work part-time in retirement

• generate some rental income from properties you own

The truth is, retirement is going to cost more than most of us think (e.g., healthcare costs are increasing 5% a year). With the average Social Security benefit coming in under $18,000 per year, a $60,000 household has a $40,000+ shortfall to make-up. Assuming a 4% withdrawal rate, anything less than a $1,000,000 retirement portfolio will not meet your retirement expenses. If these are questions you are asking yourself, then contact a financial planner (www.mynmfp.com/new-clients) because we can help to put you on the right path!

For more information about this topic, click on the title above.

Should I borrow from my 401k? Not if you don't need to . . .

Why? Well, it might be considered a taxable event and, worse yet, it may be subject to a 10% penalty in addition to your normal tax bracket rate. By way of example, if you are in the 22% Federal Tax bracket and fail to pay back $10,000 worth of your loan, you could end up owing $2,200 in Federal Taxes, plus an additional 10% penalty of $1,000 if you are younger than 59.5 years of age. That $3,200 is quite a bit of taxes to owe for access to your money.

Here are some pros/cons of borrowing from your 401k (provided your 401k plan permits loans):

Pros

I pay interest back to myself (and not to a lender);

I have 5 years to pay back the borrowed money (and even longer if borrowed for a home); and

You can borrow up to $50,000 or 50% of your vested account balance.

Cons

My contributions to my 401k plan during my payback period may be limited or not allowed (also, matching employer contributions may be adversely affected as well);

Your 401k account balance will most likely be smaller at retirement; and

Acceleration of your note balance will occur if you quit your job or are laid off during the repayment period.

Sometimes, a loan from your 401k seems like your only option. But, before doing so, you may want to contact a financial planner (www.mynmfp.com/new-clients) to discuss what other options are available, e.g., do you have a Roth account that has been open for more than 5 years? For additional information about this topic, please click on the title above.

Want your child to be a multi-millionaire? Then open a custodial Roth IRA!

Can my child open a retirement account? Well . . ., not exactly. But you can, as their custodian. If you child has earned income for the year, they can contribute the lesser of their earned income or $5,500 in 2018 to a tax-deferred retirement account (the limit is $6,000 in 2019).

By way of example, maybe your child earned money from babysitting, mowing lawns, or from a summer job; if so, they have earned income. This earned income now allows them to make contributions to a retirement plan. And since your child will probably be in a very low tax bracket currently, a Roth IRA is the perfect choice. Remember, with a Roth IRA, the money that goes in is taxed, but your distributions can be tax free if done right.

Let’s say that your child has accumulated about $25,000 in their Roth IRA retirement account by age 21. Well, since Roth IRAs are not subject to Required Minimum Distribution rules, your child will have amassed approximately $800,000 by the time their other accounts are requiring withdrawals (assuming a 7.2% annual return on your money). What makes this even more intoxicating is that your child need not have contributed another dime to their Roth IRA after age 21 to reach this $800,000.

Now, some estimates also show that a child starting at age 15 and contributing the maximum contribution each year to their IRA until age 70 would have amassed almost $3,500,000 (assuming a 7% annual return). Start that child a decade later at age 25 and they will only have roughly $1,700,000. Not bad, but not nearly $3,500,000 good.

For more ideas about how to help your children, read my post here about gifting a financial planning session.

If interested in starting a Roth IRA for your kids feel free to contact me at www.mynmfp.com/new-clients. For additional information about this topic, click on the title above.

Don't let Divorce wreck your 401k!

Divorce is never easy. And mixing emotions with money can make it even harder. So, seeking the consultation of a financial planner can be very helpful during this stressful time.

What are some things you may want to consider?

• Do you live in a community property state or a common law state? Under community property laws, property acquired during marriage is to be split evenly. Under common law, various states apply various factors in determining equitable distributions, such as: length of marriage, education levels of each party, career earning potential, size of the accounts, etc.

• Craft your Qualified Domestic Relations Order (QDRO) carefully (with your 401k plan description in mind) - your Judge will sign off on this and your plan administrator will execute it in accordance with the Employee Retirement Income Security Act (ERISA).

• Remove funds only after your plan administrator has signed off on the QDRO - no penalties or taxes should be incurred at this point, as distributions of property under a properly executed QDRO are typically not seen as taxable events.

• How to take your distribution? Preferably as a direct IRA rollover or TSP rollover (if you were a federal employee), as a cash out (if the QDRO permits), or wait until your ex (the account owner) retirees. Needless to say, a cash out should be your last option.

Distributions from a tax-deferred vehicle, e.g., a 401k or a SEP IRA, pursuant to a QDRO can be very complicated and one should seek legal, tax, and financial advice before embarking on this endeavor. If you have a question about distribution of assets during a divorce proceeding please feel free to contact Intelligent Investing at www.mynmfp.com/new-clients. For more information about this topic, please click on the title above.

What is an appropriate withdrawal rate in retirement?

Seems like a simple enough question. But, alas, the devil is usually in the details. What details, you say? Well, details such as:

• How long are you going to live for?

• How much will you have saved for retirement?

• What will be your rate of return for you investment portfolio before and during retirement?

• What will be the rate of inflation over the next 20 years?

I know, I know. None of us are Carnac the Magnificent (a small nod to Johnny Carson) and we don’t possess the ability to divine the future (nor did Johnny, really, if you ever watched his show). But, in order to truly plan for the future, one needs to take the above into consideration and actively adjust their financial plan as the market’s fluid-like conditions are served up. This is where an hourly consultation with a financial planner can really help, At Intelligent Investing, we answer these questions everyday as fee only or hourly financial advisors (www.mynmfp.com/take-action/).

Short of factoring in the above virtual unknowns, one can also try the following (each having their respective pluses and minuses):

• Withdrawal 4% a year from your portfolio adjusting for inflation thereafter;

• Utilize IRS Required Minimum Distribution tables; however, these tables don’t allow for a 4% withdrawal rate until age 73; or

• Employ the dumbbell approach wherein one withdrawals at a higher rate during the early and late stages of retirement, then for the majority of the middle years they cut back.

None of us can actively divine the future, but a little annual planning can get you pretty close. For additional information, please click on the title above.

What is missing from most do-it-yourself retirement plans?

Not the amount of money you are going to have, but the “What am I going to do in retirement” question is often not answered. Most folks who are preparing for retirement have a pretty good grasp on their projected account balances and the amount they need to save to reach that goal.

However, that is only one piece of the retirement planning puzzle, i.e., having enough money to retire. But do you truly know how much money you will need to retire if you are not sure of your cash flow requirements in retirement?

For example, have you planned for the following:

• Are you downsizing or moving in retirement to be near grandchildren or to live on a golf course (think of cost of living adjustments)

• Are you traveling and how often (domestic travel, international, or both)

• Do you want to start a business or will you seek part-time work

• Are you going to purchase a major asset, e.g., a second home, an RV or a boat

• Do I want to help my children out financially

• Is charitable gift giving part of your estate plan

The point being: how can an individual know how much money they will need for their ideal/dream retirement, if they do not know what they are going to do in retirement. If your retirement plan does not include a future cash-flow analysis predicated upon projected spending needs to meet your retirement plan, then how good is your planning? This is where your financial advisor can help. If you have any questions about financial planning, feel free to contact me at www.mynmfp.com/new-clients. For additional information about this topic click on the title above.

How much do you need to save to reach $1M (broken down by your age group)!

I always like incorporating this idea (or some form of this chart) in my presentations to company employees when talking about their company 401k plan. In fact, I think it is one of the most poignant examples showing employees (or clients) why they should start saving earlier rather than later.

Simply put, it is easier to save $350 per month in your twenties than it is to save $2,000 per month in your forties. Some caveats regarding the values listed below: it is assumed that you save the same amount each year, you earn 7% on your investments each year, and that you have utilized a tax-deferred savings vehicle, e.g., a 401k or IRA.

How much do I need to save (each year) to reach $1,000,000?

20 years old - $3,270

30 years old - $6,760

40 years old - $14,770

50 years old - $37,200

60 years old - a depressing amount

Now you can see why I preach to my clients to “invest early and often” because the earlier you start, the more time you have on your side and the more compounding can work in your favor.

Now that you know how much you need to save, if you are interested in how to spend these savings in retirement, click here for a post about your retirement withdrawal rate.

If you have any questions about investing, shoot me a quick request here https://www.mynmfp.com/new-clients/. For more information about amounts needed for different age groups click on the title above!