Retirement Income Knowledge Less Than Believed

Jim Lorenzen, CFP®, AIF®

There’s seems to be a huge gap between perceived retirement income knowledge (how much people really know) and the knowledge people actually possess.

That appears to be the conclusion one can draw from the results of the American College’s National Retirement Income Survey.  The survey used questions commonly used to gauge financial literacy and the results of the quiz were pretty poor.  The mean retirement income literacy score was 47%… only 26% of older Americans passed the literacy quiz in 2017.

While only 12% of those with the lowest levels of wealth ($100,000 to $199,000) passed the quiz, the passing rate for those with $1.5 million or more in wealth was only 50%!

If  you would like to take the American College’s Retirement Income Literacy Survey for yourself and read the full report on the national survey results, you can do it here.

Enjoy!

Jim


Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and an ACCREDITED INVESTMENT FIDUCIARY® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Don’t Make These IRA Mistakes!

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Jim Lorenzen, CFP®, AIF®

Have you reviewed your beneficiary forms lately?  You should.  IRA mistakes there can’t be fixed after the IRA or plan owner dies.

The two biggest problem areas most prone to beneficiary form:  Divorce and trusts.  Problems often arise when someone erroneously believes that a trust takes care of naming the beneficiary for IRAs.   It doesn’t.

When someone names a trust in a will as the IRA beneficiary, a problem can arise when a new will is prepared with no trust named.    Most new wills revoke the old ones – so the trust under the first will no longer exists as a beneficiary leaving no named beneficiary.

Other problems arise when a trust is created to inherit an IRA but never named on the IRA beneficiary form.  The trust must be named on the IRA beneficiary form; and if a new trust is created to inherit the IRA, the IRA beneficiary form must be updated again.

Make sure your IRA beneficiary forms name the correct beneficiary – and contingent beneficiaries.  And, if the trust is named, make sure it’s still accurate.

If you want to learn more about IRAs, I’m never hesitant to recommend Ed Slott’s books and DVDs.  He’s one of a very minute number of ‘gurus’ (you’ll often find him on PBS) who is actually the ‘real deal’ (he’s also a CPA) when it comes to dispensing well-researched retirement and taxation knowledge.

Hope you find this helpful!

Jim

 


Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and an ACCREDITED INVESTMENT FIDUCIARY® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Three Quick Tips for Building Family Wealth

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Jim Lorenzen, CFP®, AIF®

Here are three quick tips you might find helpful:

Choose your beneficiaries wisely when allocating inheritance money.  Leave tax-deferred accounts (IRAs and non-qualified annuities, for example) to younger family members.  They’re likely in a lower tax bracket and have longer life expectancies for taking the required minimum distributions, which means the distributions will be smaller, as well.    Highly appreciated assets are best left to beneficiaries in higher tax brackets as long as the cost-basis can be stepped up to the current price levels.  This means wealthier recipients can sell the asset with little or no tax consequences.  The high-income beneficiaries would most benefit from the tax-free benefits from life insurance policies.  Talk with your advisors.

Don’t be too eager to drop older life insurance policies.  Some may wonder why keep the policy if they no longer need it.  Those older policies may be paying an attractive interest rate, which is accumulating tax-deferred.  Secondly, those small premiums may well be worth the much larger tax-free payoff down the road.   How to tell?  Start by dividing the premium into the death benefit.  Got the answer?  If you think you’ll pass away before that number (in years), you probably should keep paying.

Convert Grandpa’s IRA to a Roth IRA.    When grandpa passes away, his IRA assets will likely be passed down to children and grandchildren, which means they’ll have to begin taking taxable required minimum distributions (RMDs) – which means they’ll probably be taxed at a higher rate than grandpa would have paid on his own withdrawals.  If grandpa converted some or all of his traditional IRAs to Roth IRAs while alive, this problem wouldn’t happen.  Smart kids might want to encourage this and even offer to pay the tax bill on the conversion now!

Hope you find this helpful!

Jim

 


Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and an ACCREDITED INVESTMENT FIDUCIARY® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Are You Managing Money? Maybe you should be managing risk.

Jim Lorenzen, CFP®, AIF®

Markets are sensitive to risk.  We know that.  According to analysts at Lockwood Advisors, only 8% of global economies are now growing above recent averages; but, the U.S. is still the best; the G10 countries are the worst.   Headwinds do include politics:  Many market insiders are worried about a reversal of tax cuts and the anti-business stance of many incoming members of Congress.

Just like back in 1950 (remember?) the U.S. economy has been growing above recent potential, propelled by the growth spurt from major corporate and personal tax cuts; however these cuts just might have staying power since they’re not based on wealth redistribution.  The real headwinds just may be coming from two economic realities:  Demographics and the large U.S. government debt.

The aging population, increasing the percentage of the population in the decumulation stage, may apply downward pressure on growth for decades.  The Administration on Aging estimates that the population age 60 or older will increase by 21% between 2010 and 2020 and by 39% between 2010 and 2050.

Most people, it’s safe to say, think of future market returns using a frame of reference based on the past.  Indeed, most advisors – I’m guilty too – continually put-up mountain charts to show clients what’s happened before even as we tell them it’s no guarantee it will happen again.  But, the baby-boomers who remember the 1950s and 1960s – and especially the go-go 1990s – should be reminded the current is no longer flowing in the same direction.   Defensive allocations just might be the best defense going forward.

Hope you find this helpful!

Jim

 


Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and an ACCREDITED INVESTMENT FIDUCIARY® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Here’s Your 10-Point Financial Discussion Checklist!

Jim Lorenzen, CFP®, AIF®

How does your financial future look?  Your chances for financial freedom will depend on how well you’ve covered your bases!

Here’s a checklist for your kitchen table discussions:

  1. When do you plan to retire?  Your retirement age will impact how many years of spending your retirement assets will have to cover.  It will also likely affect just how much you may spend each year.
  2. What are your retirement goals?  Get them down in writing and sort them by needs, wants, and wishes – the prioritize each goal and put a dollar amount on each of them.  For those that are recurring, you’ll not only need to put a dollar amount on each event, but you’ll need to adjust for inflation, as well (car purchases are an example).
  3. When do you plan to file for and start Social Security payments?  How will this affect your tax picture when combined with other sources of income from retirement plans, etc.
  4. How will you design your investment portfolio to provide both income and inflation protection while mitigating downside risk?
  5. Will you need to reduce living expenses?  If so, where can you cut?  Not everyone will need to, but running out of money in your old age wouldn’t be a happy picture either.
  6. Should you get a reverse mortgage?  Does it really provide the security the commercials talk about or is it just a band-aid?
  7. Have you provided for the possible need for long-term care?  Long-term care policies are available, however many are concerned about not using the benefits after paying out high premiums for years.  Some policies also have many restrictions.  It’s worth reviewing the fine print.
  8. How will you protect yourself against financial fraud?  This can take many forms, from cyber threats to the Bernie Madoffs of the world.
  9. How can your spouse and children be protected when the main breadwinner is gone?
  10. Is creating a financial legacy important to you?   This can be accomplished for children and grandchildren, but they’re not the only ones.  Some people think giving is only for the rich; but affluent people often wish to do it, too.

Hope you find this helpful!

Jim

 


Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and an ACCREDITED INVESTMENT FIDUCIARY® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Here’s Your Important Document Checklist!

Jim Lorenzen, CFP®, AIF®

 

A fiduciary advisor is good to have; but, YOU are a kind of fiduciary, too!

Your family depends on you, which means you have the responsibilities a fiduciary would have.   Step one, of course,  is knowing where your important documents are.

Here’s a checklist to help you get your ducks lined up.

Hope you find this helpful.

If you would like help, of course, we can always visit by phone.


Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

How To Avoid the Family Business Wealth Evaporation Trap

Jim Lorenzen, CFP®, AIF®

Family business owners face wealth evaporation daily.  It’s like glaucoma.  You can’t tell it’s happening on a daily basis, but the cumulative results can be costly.

Many years ago – before the internet – I was in the business of publishing weekly newspapers and shopping guides.   It was a business that included advertising sales, ad layouts and graphic design, production and composition, printing and distribution, and (of course) all the financial disciplines of managing cash flow and credit lines.

I mention this simply to point out that I know the challenges the owners of closely-held businesses face… and also to point out that there are some common mistakes many such owners have in common.

It was during this period I remember reading an interview with Jack Nicklaus, who was then at the top of his game and was THE golfer that “moved the needle”, as they even said back then.  It was in that interview he pointed out one of the biggest mistakes he made had to do with his approach to cash management, pointing out just how costly his mistakes were – until he corrected them.

I learned from that article and it made a huge difference in my life.    That article, however, didn’t provide much detail; it was, after all, a golf magazine and didn’t have a financial focus.

Santa Barbara-based business expert George Issac, however, has written an excellent piece, entitled, Avoiding the Family Business Wealth Evaporation Trap.   If you own a family business, you just might find this information highly valuable.

I recommend it highly; and you can get your own copy when you subscribe to my ezine –  If you decide later you don’t want the ezine, you can unsubscribe immediately with a single click.  By the way, IFG never shares your email address with anyone.

I recommend this piece by George Issac.  I think you’ll be happy you read it.
Click Here
Enjoy!

Jim


Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Tips for Managing an Inheritance

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Receiving an inheritance? 

Not sure how to manage it?

Before you make decision, it’s good to do your homework.  You might find our report on managing inheritance money helpful.  You can access it below.

Get Your Inheritance LifeGuide here!

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Visit the IFG Website!

Arrange a brief 15-minute introductory phone call with Jim Lorenzen, CFP®, AIF® here.

 

Follow Jim on Twitter: @jimlorenzen

and also Jim’s MoneyBlog

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Become an IFG client!  Schedule your 15-minute introductory phone call here!

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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice.

The Independent Financial Group is a fee-only registered investment advisor with clients located across the U.S.  He is also licensed for insurance as an independent agent under California license 0C00742. Jim can be reached at 805.265.5416 or (from outside California) at 800.257.6659.

Interested in becoming an IFG client?  Why play phone-tag?  You can easily schedule your 15-minute introductory phone call!

The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

HAVE YOU CALLED A FAMILY MEETING?

6a017c332c5ecb970b019aff2c523c970c-320wiNo?  You’re not alone.

Very few families ever sit down together and talk over important issues.   Too bad; it’s important.   It should be considered an integral component in “the business of living”.

According to an excellent article in the current issue of the Journal of Financial Planning, there are four key areas every family should discuss:

  1. Legal issues:  Who has the durable power?  Who will be executor for the wills?  Do they have trusts?
  2. Health care:  What happens if mom and dad get sick?  Who takes care of them?  Where are they going to live and how are they going to pay for their care?
  3. Financial:  Are the parents financially secure?  Will they need help from the children?  It’s a tough conversation to have, but children need to know this stuff in advance.
  4. Legacy:  More than who gets what; it’s about what you want your children and grandchildren to remember about you.

Ideally, the meeting should have a good facilitator.  Your financial advisor, if s/he’s been at the center of your financial planning – which should be the case – might be the perfect person.  The facilitator doesn’t control or direct; but, can provide an objective and worthwhile service.  In addition, you may want to include your family attorney in the meeting to address legal issues and  provide valuable input.  And, one of the adult children should be the note-taker to follow up on who is to do what and by when.

One meeting isn’t a magic pill, and it won’t correct all past problems; but it’s a start.  After all, it’s about helping parents when they’ll need it most.

Jim

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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

RETHINKING PRIORITIES? SOME THOUGHTS FOR 2016

Time_Is_MoneyJim Lorenzen, CFP®, AIF®

The key to pursuing longer-term financial goals, such as retirement and education funding, is to have a well-thought-out plan that assigns actual dollar amounts to each goal — and a timetable for getting there.

Financial resolutions are only as good as your follow-through. Here are some planning considerations for the three key stages of your financial life — accumulation, preservation, and transfer.

Rethinking your financial priorities?   Here’s some food for thought for all of your goals:

Financial resolutions are only as good as your follow-through. Here are some planning considerations for the three key stages of your financial life — accumulation, preservation, and transfer.

These same resolutions often fall prey to the same procrastination that hinders personal aspirations. Yet current volatility in the financial markets along with other unsettling factors such as the impending presidential election and widespread geopolitical unrest may have led investors to pause, rethink their financial situations, and set new expectations for the future.

Resolutions typically fall into one of three financial “life stages” — accumulation, preservation, or transfer of wealth.  In order to establish action plans for these phases, you need to examine opportunities, identify challenges, and add a dose of reality to your planning efforts.

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The key to pursuing longer-term financial goals, such as retirement and education funding, is to have a well-thought-out plan that assigns actual dollar amounts to each goal — and a timetable for getting there. On this score, many investors are falling well short of the mark.

For instance, research compiled by the Employee Benefit Research Institute (EBRI) indicates that a sizeable percentage of workers say they have virtually no money in savings and investments.*  Specifically, among workers who provided this type of information, 57% reported that the total value of their household’s savings and investments, excluding the value of their primary home and any defined benefit plans, is less than $25,000. This includes 28% who say they have less than $1,000 in savings.*

If you find yourself behind in your accumulation efforts for major life expenses, such as retirement, don’t despair. There are many opportunities to jump-start your savings campaign.

  • Make the most of employer-sponsored plans. For participants in 401(k)s, 403(b)s, and 457 plans, the contribution limit stands at $18,000 for 2016 with an additional $6,000 in catch-up contributions allowed for those who are 50 or older.
  • Maximize IRA contributions. In 2016, you can contribute up to $5,500 to a traditional or Roth IRA (or split that amount between the two types of accounts). Add another $1,000 to that total if you are making catch-up contributions.
iStock Images

iStock Images

Preserving Assets      

Holding on to your assets requires a disciplined, long-term view. Most people plan for a retirement to span 25-plus years, but evaluate their portfolios’ performance over the last quarter. Particularly in volatile market environments, investors tend to move in and out of positions too quickly, potentially causing them to sell low, buy high, and abandon asset allocation fundamentals.

Short-term declines are inevitable and may tempt the most grounded investor to make impulsive investment choices. That is why maintaining an investment policy statement that reflects your long-term horizon is essential. Such a statement should reflect your current investment expectations as well as address the tax consequences of your portfolio.

For instance, many investors tend to hold on to a stock because of a low basis without evaluating what it may be costing them in missed opportunities (i.e., building a more diversified portfolio).  Alternatively, investors need to be mindful of the tax cost associated with buying and selling securities. Tax efficiency is important in asset preservation, so speak to your tax advisor now about your 2016 strategy, particularly if you plan to rebalance your portfolio.

Transferring Assets

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Fotilla Images

To leave the legacy that you envision requires significant advance planning. Questions regarding how much you want to leave to loved ones, how long your bequest will last, and how much will be eroded by taxes are difficult to address. But planning converts uncertainty into real opportunities to make a difference.

When crafting your estate plan, be sure that documents are written to be flexible and easily adapted to changing circumstances. For instance, if balances on investment accounts decline, you may need to rethink — and restate — your intentions, perhaps even change beneficiary designations to reflect changing market dynamics.

IFG Notes:

Not everyone agrees with conventional wisdom regarding the 401(k).   There might be other options, particularly for those who are concerned about future tax hikes and still have more than ten years before they begin drawing retirement income.

Don’t let procrastination get the better of your best-laid plans. Make 2016 the year you get serious about saving.  Are you on track?

You can find some tools on the IFG Resources website, which is different from The IFG main site, which you can find   here.  You might check-out the Home Page, too, for even more resources.

Jim Lorenzen, CFP®, AIF®

Jim Lorenzen, CFP®, AIF®

Let me know if I can be of help!

Jim

 
*Employee Benefit Research Institute, 2015 Retirement Confidence Survey, April 2015.2Asset allocation does not assure a profit or protect against a loss.

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