Getting Your Financial Ducks In A Row Rotating Header Image

Predicting the Market is Like Predicting the Weather

English: An early weather map produced by the ...

If you’ve ever planned for a day out, picnic, family day or relaxing day outside chances are you turned on your TV, radio or grabbed your smartphone app and got an idea of what the weather was going to be for the day of your trip.

When you looked you got a prediction, based on the probability of what the weather patterns have shown in the past and you got an idea of what your day would look like. And sometime in your life, what was predicted to be a bright sunny day was laden with storm clouds, rain and gloom.

Trying to predict the market is like predicting the weather, only more confusing, more expensive, and less likely to get your desired outcome.

Keep reading…

7 Questions About Divorcee Social Security Benefits

Photo courtesy of Gabriel Santiago on

Photo courtesy of Gabriel Santiago on

Included in the myriad of questions that I regularly receive from readers are questions about how a divorced person can collect benefits based upon his or her ex-spouse’s Social Security record.

For a divorcee (as with many married couples) sometimes the ex’s benefits represent the lion’s share of the couple’s SS record. Because of this, many divorcees are very interested in knowing what benefits are available to them, and when.

In addition, even when the divorced spouse in question is not the higher earner there are questions about benefits that can be quite difficult to find answers for.

Keep reading…

Why Spending a Little On You Is Ok

Piggy bank

Read any financial column or blog and chances are the writers (including yours truly) have advocated that readers save their income, reduce expenses and get rid of debt. Sometimes this valuable information can get interpreted as you can never spend any money on yourself for little things here and there such as a meal out or grabbing a movie with a friend.

These little things can help keep you on track for your bigger savings targets by allowing you a bit of autonomy and a chance to enjoy the money you’re working hard to earn and save.

Think of it this way: let’s say someone is going on a diet and they absolutely refuse to eat any type of sweet, junk food or anything that would keep them from getting to the proper fitness level or weight they are looking to achieve.

What can (and usually does) happen is by denying themselves even the smallest little treat or dessert they eventually cave in and break their diet and binge eat on sweets, junk food, etc., often ending in a worse situation than they started.

The same can happen if we deprive ourselves the pleasure spending a little something because we want to. If we deprive ourselves too long, we can binge spend and completely lose sight of our goals or worse, be tempted to swipe the credit card to make up for the deprivation.

Now, this isn’t a green light to simply spend, it’s more of a cautionary yellow that says it’s ok, but don’t spend out of control.

IRS provides advice for avoiding phone scams

Photo courtesy of Thomas Lefebvre on

Photo courtesy of Thomas Lefebvre on

There has been a rash of phone scams going on this year – scammers posing as IRS agents that is. I haven’t personally received any of the calls, but I’ve had calls from several clients who have gotten these calls.

They can be very disconcerting, to say the least. In the typical phone scam, the caller contacts you out of the blue, and seems to have information about your home address, or bank, or other somewhat personal information. They then tell you that you owe a pile of taxes and you have to pay up now or the local police will be on the way to see you. They will readily take your credit or debit card information right now, over the phone.

The flip side is that they’ll say you have a refund coming and will ask for your bank account information so that they can transfer it to you, right away!

Keep reading…

16 Ways to Withdraw Money From Your 401k Without Penalty

Photo courtesy of Lucas Theis on

Photo courtesy of Lucas Theis on

When you have a 401k plan and hard times befall you, you may wonder if there is a way to get your hands on the money. In some cases you can get to the funds for a hardship withdrawal, but if you’re under age 59½ you will likely owe the 10% early withdrawal penalty. (The term 401k is used throughout this article, but these options apply to all qualified plans, including 403b, 457, etc.)

Generally it’s difficult to withdraw money from your 401k, that’s part of the value of a 401k plan – a sort of forced discipline that requires you to leave your savings alone until retirement or face some significant penalties. Many 401k plans have options available to get your hands on the money, but most have substantial qualifications that are tough to meet.

The list below is not all-inclusive, and each 401k plan administrator may have different restrictions or may not allow the option at all.

Keep reading…

Not All Index Funds are Created Equal

bite-out-of-money1As readers of this blog know we believe that markets are generally efficient and any time they’re not we accept that we won’t be the ones to exploit such inefficiencies. Readers further know that our choice of investment vehicles for both our clients’ and our money is index funds.

But that doesn’t mean that just any old fund will do. Even index funds can be different and by that we mean the expenses they charge.

Generally, an index fund at least in theory should charge significantly less than its active fund counterpart. The reason being is that index fund manager really isn’t actively managing anything. They’re simply replicating whatever index they are supposed to be replicating according to the fund’s parameters.

So a person may logically think that all index funds should charge roughly the same expenses. But that isn’t the case. Take for example the well-known Vanguard S&P 500 Index Fund charging just .05% for expenses. A similar fund by State Farm charges .75% in expenses in addition to a 5% load (commission). The Rydex S&P 500 Fund charges 1.57% in expenses with an additional 4.75% load (commission).

Generally an index fund’s objective will be to mirror the returns of the index before fees and expenses. The paragraph above explains what happens to investors’ return after fees and expenses are paid. The result is a return far different than what the index did Disclosure: this also includes any fees deducted by fee-only advisors – such as our firm. But the same adage is true: generally the lower the fees and expenses, the better for your returns.

Even Morningstar says that fees and expenses are important considerations in looking at return. Finally, Morningstar has an excellent glossary of terms to help investors understand what many of the terms tied to fees and expenses mean.

If you’re a proponent of index funds that’s good; now, be a proponent of cheap index funds.

8 Questions: Social Security Survivor Benefits

Photo courtesy of Patrik Goethe on

Photo courtesy of Patrik Goethe on

In this previous article we addressed some of the most common questions about Social Security Spousal Benefits. Keeping with the theme of developing FAQ sheets, today I’ll go through some of the most common questions about Social Security Survivor Benefits.

Survivor Benefits are available when a Social Security recipient passes away and leaves surviving dependents – spouse, children, and other dependent family members.

Keep reading…

Should You Have Gold in Your Portfolio?

American Gold Eagle

American Gold Eagle (Photo credit: Wikipedia)

We had a great question come in by request this week that we address the question of whether folks should have gold in their portfolios.

Gold can be included under the umbrella of a larger asset class known as commodities. Think of commodities as items used to make or produce other items – such as gold is used to produce jewelry, circuitry and coinage, while timber is used to make lumber and paper, while coal is used to make electricity and disappoint not-so-good kids on Christmas morning (sorry, couldn’t resist).

Getting back to gold, the reason an investor may want to consider it as part of their portfolio is because gold is correlated differently from the stock market. Simply put; its pricing moves differently relative to the stock market. This does not mean I’m recommending investors buy gold. Here’s why.

Imagine a lump of gold sitting on your kitchen table. What does it do? Nothing. It simply sits there. It produces no income, and according to a 2013 article in the Financial Analysts Journal, there was little evidence that gold was a hedge against inflation.

Even the great Oracle of Omaha, Warren Buffett has this to say about gold:

“What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As “bandwagon” investors join any party, they create their own truth – for a while.”

My personal and professional opinion is that if an investor is bitten by the “gold bug”, consider putting your emotions aside and ask yourself why you want to invest in gold. Is it because everyone else is doing it, or is it because you know something the market doesn’t (likely rare)? I have joked with clients and students saying that if there’s an absolute “black swan” and the entire US and World economies collapse, what good is gold going to do us? We can’t eat it, can’t drink it, and it produces nothing in and of itself. Time to grow a vegetable garden as food will be a more valuable commodity at that point.

One area where gold may be a good investment is for numismatic purposes. Collecting various gold coins in various conditions and ages can be fun, rewarding and make an excellent hobby that can be passed on to heirs. Additionally, gold coins such as American Gold Eagles, South African Krugerrands, Canadian Maple Leafs and Chinese Pandas tend to hold their value more than the bullion will – simply because it has the numismatic value of collection, scarcity, and condition.

Finally, you may already “own” gold in your portfolio if you hold a broad based index such as a total stock market index fund or ETF (which our investment clients do). The reason I say you already “own” the gold is by owning broad index funds you’re already investing in companies that mine for and produce the precious metal. While you don’t technically own the asset; generally when the price of gold increases so does the stock of the companies that mine it.

There are even ETFs and index funds that hold commodities in general. While not specific to gold they hold gold, silver, timber and other commodities for additional asset allocation correlated differently to the market.

Other than starting a hobby or becoming a serious numismatist, there generally isn’t a need to own gold in order to achieve adequate diversification for potential long term portfolio success.

10 questions: Social Security Spousal Benefits

Photo courtesy of Dan Ruswick on

Photo courtesy of Dan Ruswick on

I recently had the pleasure of taking part in a live interactive event with Yahoo! Finance, where folks were able to ask virtually any question they wished. We received and responded to over 200 questions – they’re all on Facebook on the Yahoo! Finance page (click the link to go to the page). One recurring theme played out over and over: Social Security Spousal Benefits are not understood by a vast number of folks.

Naturally I find this to be disturbing.  Social Security Spousal Benefits often represent a large part of the total benefits available to a couple.  This benefit is even more important for many divorced spouses, as it might represent the only benefits available to many divorcees. Understanding this benefit is very important, as SSA staff often isn’t fully-conversant in the options that you have available.

Keep reading…

Social Security Wage Base Projected for 2015

Update 10/22/2014: The wage base has been set for 2015. See the article Social Security Wage Base Set for 2015.

According to the Social Security Administration trustees, the Social Security wage base for 2015 is projected to be $119,100.  This represents an increase of $2,100 from the 2014 wage base of $117,000.

This is an increase of 1.79% – and won’t be finalized until October when the other increases for Social Security amounts are announced. This is a relatively small increase when compared to recent annual increases we’ve seen.  The previous 3 years’ increases have averaged 3.09%.

This is different from the COLA (Cost of Living Adjustment), which has increased an average of 2.27% in the past three years. The 2014 COLA (applicable to 2015 benefits and other figures) will be released later in the year, typically in October.

What Keeps Your Planner Up at Night?

stressed and worried

stressed and worried (Photo credit: Wikipedia)

I thought I’d share some of the things that go through my mind, financially, even though I’m “in the business” of being a financial planner and teach classes on finance and investments. The goal is to help readers understand that although we give an objective point of view when working with you there are times with our own financial well-being that we too have worries and concerns. We’re certainly not immune.

Keep reading…

RMD Avoidance Scheme: Birthdate Makes All The Difference

Photo courtesy of Lizzy Gadd on

Photo courtesy of Lizzy Gadd on

As you may recall from this previous article, it is possible to use a rollover into an active 401(k) plan as an RMD avoidance scheme. Of course, this will only work as long as you’re employed by the employer sponsoring the 401(k) plan and you’re not a 5% or greater owner of the company. In addition, the rollover must be done in a timely fashion, prior to the year that you will reach age 70 1/2 in order to avoid RMD.

An example of where timing worked against a taxpayer (at least temporarily) recently came to me via the ol’ mailbag: Keep reading…

File For Part B Medicare – COBRA Isn’t Enough

Photo courtesy of Lukasz Szmigiel on

Photo courtesy of Lukasz Szmigiel on

For most folks, when you reach age 65 and have ceased regular work, filing for Medicare Parts A & B is an automatic thing. If you don’t file during the 3 months before or after your 65th birthday, you may have penalties to pay. This applies even if you have recently been laid off of work and are covered for health insurance under a COBRA plan. Part A carries no cost if you’re fully covered (40 quarters of coverage), but Part B requires a monthly premium.

When laid off from an employer who has provided health insurance coverage to you while employed, you have the option of continuing the health coverage for a period of time, up to two years. This continuation of coverage is called COBRA, named for the law that put it into place (Consolidated Omnibus Budget Reconciliation Act). You have to file in a timely manner for Medicare – COBRA coverage doesn’t remove that requirement.Keep reading…

Should a CFP® Be Required to Always Act as a Fiduciary?

English: Halo

English: Halo (Photo credit: Wikipedia)

Folks interested in engaging a professional for financial planning help and advice should generally seek out the advice of a CFP®. A CFP® has had the education, experience, ethics and exam (the Board’s 4 E’s) that qualifies he or she to hold the mark. We often encourage clients that they should look for this designation at a minimum before engaging with a financial planner and then meet with the planner to decide if the client and planner are a good fit.

Due to an excellent marketing campaign by the CFP® Board many clients understand what a CFP® is, what they do, and how they may be able to help. Many folks choose to work with a CFP® because they know that the CFP® is held to a higher standard. Some may believe that the CFP® is always a fiduciary – meaning the CFP® must always put the best interests of the client first. What a potential client may not know is that isn’t the case.

Keep reading…

Windfall Elimination Provision May Impact Spousal Benefits but not Survivor Benefits

danny and sandyWhen your Social Security retirement benefit is subject to the Windfall Elimination Provision (WEP), you’re likely painfully aware of the reduction to your own benefit by this provision. What you may not be aware of is that the effect goes beyond your own benefit – your spouse’s and other dependents’ benefits are also impacted by this provision. However, the impact of WEP does not continue after your death. Keep reading…

Don’t Let the Premium Tax Credit Hang You Out to Dry

Photo courtesy of Charles L. on

Photo courtesy of Charles L. on

When you are using the Health Insurance Marketplace for your family’s health insurance, you may be receiving assistance with the premiums in the form of a premium tax credit.  This credit is paid to the health insurance provider, allowing your monthly premium to be lower.

These premium credits are based upon your residence, income, family size, and eligibility for health insurance via other avenues, such as through a new employer.  If something has changed in your life, you may be receiving too much or too little in premium tax credits.  The IRS recently issued a Health Care Tax Tip designed to help you understand if you need to make a change to the premium credit you’re receiving to avoid unpleasant surprises at tax time. Keep reading…

Book Review – All In Startup

Pocket Aces

Pocket Aces (Photo credit: John-Morgan)

If you’ve ever had a million dollar idea and perhaps even pondered taking that idea to the next level and turning it into a business, then reading this book will help you correctly identify the right direction you need to take.

Set in the bright lights and big city of Las Vegas the book takes us into the life of a struggling entrepreneur contemplating whether to remove his business from life support while finding himself moving closer and closer to the final table at the World Series of Poker.

Author Diana Kander does a remarkable job of tying together the similarities to a successful poker strategy and a budding entrepreneurial startup.

What I really enjoyed about the book was not only its quick to-the-point chapters, but Mrs. Kander’s amazing ability to tell the risks and pitfalls of starting a business though story – a story that follows the whirlwind plight of a man struggling to make sense of the downfall of what he thought was a sure thing.

Mrs. Kander’s background makes her more than qualified to write such a book (just read the book jacket or do a Google search). As for me, a business professor (among other hats I wear), this book will be required reading for my students. Hopefully my students won’t feel it’s required once they immerse themselves in the logic and wisdom the book offers. I’m hoping they go all in.

3 Do Over Options For Social Security Benefits

do overs as easy as jumping in the lake

Photo courtesy of Brooklyn Morgan on

You’re allowed to file for your Social Security retirement benefits when you reach age 62 (in general). Most advisors recommend that you delay filing until some later date to better maximize your lifetime benefits. But what do those advisors know anyhow?

At least that is what you were thinking when you first filed. After all, you’ve paid into the system for your entire working life, you deserve to get the money back out, right? Plus, who knows when Social Security will go bankrupt, right? Gotta get the money while you can!

Then a couple of years pass and you realize that you short-changed yourself (and your spouse) by taking early benefits. Turns out that you didn’t need that money at 62 – you could have delayed. And you’ve come to realize that Social Security is not likely to go away, at least not in your lifetime. (Maybe those advisors were right after all?) Keep reading…

Retrieving a Prior-Year Tax Return Copy

my tax return copy is lost somewhere in this city

Photo courtesy of Philipp Henzler on

Sometimes you need access to a previous year tax return copy, and dadgummit you just pitched the box of tax copies from 2011, thinking you couldn’t possibly need it again!  There are ways to get this information – some easier than others.

First of all, if you prepared and filed your own return using one of the commercial programs, and you’ve maintained your access to the program over the years, you should be able to go back and re-print a copy of the return from that year.  This is the quick and simple method.

If you had a tax professional prepare and file the return for you, she should have a copy of your return – if not the fileable copy, then at least a client’s or preparer’s copy, which should be adequate for fulfilling most requirements.  Many preparers retain these copies, with supporting documentation, for many years for just this sort of purpose.  Our office maintains copies of all returns we’ve filed, for example.  Keep reading…

Should Insurance Agents Provide Financial Advice and Services?

see no evil

(Photo credit: McBeths Photography)

Over the last few weeks I’ve had the opportunity and fortune to work with graduate students on a number of financial and ethical issues presented to them in their classes. Of the many issues presented there was one issue that we discussed (argued) over more than any other topic; it was the suitability versus fiduciary standard.

Most of our readers know that our firm not only follows but embraces the fiduciary standard where we are legally bound to act in the best interests of our clients.

This brings me to the title question of this piece – should insurance agents provide financial, advice and or financial services?

Keep reading…