Retirement for savers and investors (

In today’s financial environment, what would it take to generate $10,000 in annual income? I see two main consumer categories here: savers and investors.

The savers aren’t risk-takers, and they focus mainly on fixed products. The risk for the saver is the uncertainty of future rates. Looking at the current average rates from, let’s see what lump sum would be required to generate $10,000 of annual income.

Now let’s look at an investor who may have a combination of fixed, bond and equity investments. Assuming a higher rate of return than the fixed products, the lump sum required for them is even smaller. But even though they need less money up front compared to the savers, investors risk the uncertainty of rate of return and longevity.

Here are two alternatives that eliminate return and longevity risks and require smaller lump sums:

1. A fixed index annuity with an income rider would need only $181,818 to generate $10,000 a year for a 65-year-old.

2. An immediate annuity would take approximately $160,000 to generate $10,000 a year with 10-year term certain for a 65-year-old.

The income from these solutions would be guaranteed for the rest of the client’s life, regardless of interest rates or how long they live.

You can secure your clients’ retirement income many different ways. However, both savers and investors can benefit from annuity solutions — and they would potentially save money up front.

Schankerman, Steve. “Retirement for Savers and Investors.” Weblog post.LifeHealthPro. N.p., n.d. Web. 12 Aug. 2015.

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When to file for Social Security retirement benefits early (

CY4M16 USA, New Jersey, Jersey City, Close up of woman's hand holding social security card. Image shot 2012. Exact date unknown.

Delayed gratification isn’t always the best bet when it comes to Social Security claiming strategies.

Retirees have been more willing to wait to claim Social Security in recent years. The number of men claiming benefits at age 62 dropped from 56 percent in 1996 to 35.6 percent in 2013, according to a recent analysis from the Center for Retirement Research at Boston College, which used unpublished Social Security Administration data. Among women, the rate dropped from 62.8 percent to 39.5 percent over the same period.

That said, 59 percent of retirees are still claiming before they reach full retirement age (for most workers, that’s 66 to 67, depending on your birth year), according to a March survey from Franklin Templeton.

That bucks the conventional wisdom among financial advisors and other experts that waiting is the best way to maximize benefits, especially with increasing longevity. “If you claim early and die later, you’re at greater risk of eating cat food,” said David Mendels, a certified financial planner and director of planning at Creative Financial Concepts in New York City. More clients are more worried about outliving their assets, he said, than leaving Social Security money on the table if they claim late and die early.

But early filers aren’t necessarily making a mistake. “In the last four years, everyone in the financial community has jumped on this bandwagon of defer, defer, defer,” said Mark LaSpisa, certified financial planner and president of Vermillion Financial Advisors in South Barrington, Illinois. “To my mind, it’s not so cut and dried.”

When to claim ultimately comes down to the individual worker’s situation. “The magic answer is that there really is no best answer,” said Everett Lo, a project manager with the Social Security Administration. He said consumers should start planning well before they expect to retire, estimating their benefit and strategizing possible scenarios.

Several factors in particular could make it worth reassessing an early claiming strategy:

Keep in mind, though, that if your situation improves—say, you find a new job, or receive an unexpected windfall—you may be allowed a one-time reset. You’ll have to make that election within 12 months of first filing and repay all your Social Security benefits received, among other hoops, said Catherine Seeber, certified financial planner and principal for Wescott Financial Advisory Group in Philadelphia. Then you can reapply for Social Security at a later age, she said.

Big retirement plans. “There are three phases of retirement,” said LaSpisa. “Go-go years, slow-go years and no-go years.” Clients who have planned well for retirement and aren’t counting on Social Security benefits to pay the bills may find filing early gives them the extra cash flow for bucket-list travel and hobbies while they still have their health and energy. “They think if they don’t do it now, they may never be able to,” he said.

Poor health. A 65-year-old man today can expect to live to 84.3, while a 65-year-old woman can expect to live to 86.6, according to the Social Security Administration. If you have a particular health concern or other good reason to think you won’t be around that long, that can warrant filing earlier rather than later, said Victoria Fillet, certified financial planner and founder of Blueprint Financial Planning in Hoboken, New Jersey. “You need to know your family history,” she said. “Is there longevity in the family? Are you healthy?”

It’s not just your health to consider. If you have a higher-earning, older spouse in poor health, it can be smart to claim your own benefit early, said Mendels. (The potential benefit of doing so depends on your ages and eligibility.) Then you can switch to the survivor benefit after he or she passes away, Mendels said.

Other beneficiaries. If you have dependent, underage children when you qualify for retirement benefits, they may also be eligible to receive a benefit based on your record, said Fillet. The value of that extra payout can make up for the reduction in filing early. “It could be a college fund,” she said.

Retirement assets. “The real question is, ‘If I defer, where is that money coming from?'” said LaSpisa. “The money is not operating in a vacuum.” If the alternative is to draw from your portfolio, it’s worth crunching the numbers to see how a bigger drawdown in the years you delay will affect your chances of outliving your money. The reduced compounding power in your portfolio might be more damaging than taking a lower Social Security payout, he said.

Marital status. Married couples have a number of strategies they might employ, but it’s widowed individuals and those who are divorced (after being married for at least 10 years) who may particularly want to take another look at claiming early, Mendels said. Surviving spouses can opt to claim either their own benefit or a survivor benefit first, and then switch later to the other (presumably more valuable) option. Divorced individuals might claim on the divorced spouse’s benefits and wait to claim his or her own at a later date.

Grant, Kelli. “When to File for Social Security Retirement Benefits Early.” Web log post. CNBC. N.p., n.d. Web. 10 Aug. 2015.


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Goals-based investing is a means to an end (

The “envelope system” is a well-known money-saving strategy.

The idea is to save for your goals—a down payment for a home, a new car, a vacation—using a series of envelopes. Every payday, you peel off a little cash and deposit it in your envelopes, slowly chipping away at your goals.

Things have gotten a little bit more sophisticated over time, but the time-honored envelope system is the same idea behind the growing trend of goals-based investing. In investing parlance, it’s known as “mental accounts,” where each of your financial goals are funded and invested independently. Each goal, because it has a unique time horizon, has its own asset allocation and its own risk profile.

Cash in envelope savings

Altrendo Images | Getty Images

“The reality is that most of us have multiple risk profiles for multiple goals,” said Jean Brunel, managing principal of Brunel Associates, author of “Goals-Based Wealth Management: An Integrated Approach to Changing the Structure of Wealth Advisory” and a practitioner of goals-based investing since 2004.

Rethinking risk

Financial advisors have been practicing goals-based investing for about 15 years, but the strategy really took off in the wake of the financial crisis, when even the most dedicated investors had a hard time stomaching extreme losses.

Goals-based investing, advisors say, quells nerves because investors can measure the severity of a drop in their portfolios to how it relates to their goals.

“When you don’t do goals-based investing, you’re kind of anchorless,” said Daniel Egan, director of behavioral finance and investing with online advisor Betterment. “‘I want to have more money in the future’ is not a goal.”

Goals-based investing tries to marry Modern portfolio theory—the foundation of most asset-allocation strategies, first introduced by Nobel Prize laureate and economist Harry Markowitz—with investor behavior.

Modern portfolio theory holds that an optimum portfolio is one that gets the most return for every unit of risk. If it does, it is considered to be on the efficient frontier.

“I can tell you that using goals-based investing makes periods like 2008 incredibly easy to handle.”-Jean Brunel, managing principal of Brunel Associates

“The problem is that most people can’t handle a portfolio that’s on the efficient frontier,” said Jonathan Scheid, president and chief investment officer of Bellatore Financial, which provides portfolio management for financial advisors.

Scheid, along with co-authors Sanjiv Ranjan Das, Markowitz and Meir Statman, co-wrote a paper, “Portfolio Optimization with Mental Accounts,” in the Journal of Financial and Quantitative Analysis in 2008.

What’s more, modern portfolio theory is not the way that most people understand investing.

“Now when you walk into any financial advisor’s office, they’ll tell you, ‘This is the right asset allocation you,'” said Ashvin Chhabra, former chief investment officer at Bank of America’s Merrill Lynch unit and author of the recently published book, “The Aspirational Investor: Taming the Markets to Achieve Your Life’s Goals.”

“What you should be thinking about is, ‘Will my kids go to college?'” he said.

Different goals require different risk profiles. For example, an emergency fund should hardly take on any risk and, in turn, provide very little return. But there’s no fear that its value will drop.

Polyak, Ilana. “Goals-based Investing Is a Means to an End.” Web log post.Inc. N.p., n.d. Web. 7 Aug. 2015.


For more information, contact our Recruiting Manager Allie Vossoughi at & 602-314-7580, or Thomas Shultz, Managing Director  at & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at & 602-314-7580.

Most Americans, rich or not, stressed about money (

It’s only natural to sweat the phone bill when there aren’t enough nickels to rub together. But what explains the millionaire who agonizes over the cost of new curtains, or the homeowner of sufficient means who can’t pull the trigger on a long-overdue family vacation?

Indeed, a surprising number of Americans who are otherwise financially secure are quite literally worried sick about money.

money stress

A 2015 survey by the American Psychological Association found that money is the leading cause of stress among Americans—especially for parents, younger adults ages 18 to 49 years old and, not surprisingly, those living in lower-income households. For the majority of Americans (64 percent), the survey found, money is a “somewhat” or “very significant” source of stress.

Anxiety of any shade can lead to unhealthy behaviors, such as checking one’s online bank accounts compulsively and sleep deprivation, which in turn can cause headaches and high blood pressure.

It can also create tension with loved ones. Almost a third of the adults with partners (31 percent) who were surveyed reported that money was a major source of conflict in their relationship.

Surprisingly, affluent Americans may be particularly vulnerable.

A 2015 survey of investors with a net worth of $1 million or more by UBS found that while millionaires derive significant satisfaction from the wealth they amassed, they also feel compelled to strive for more, spurred on by their own ambition, the desire to protect their families’ lifestyle and an “ever-present fear of losing it all.”

“With memories of the financial crisis still lingering, most millionaires don’t have enough wealth to feel secure,” the report stated.

Half of millionaires with less than $5 million—and 63 percent of those working with children at home—believe that one wrong move, such as a job loss or market crash, would have a major impact on their lifestyle, the survey found.

So what fuels the fear?

Fear factors

In some cases, it’s the by-product of income instability. The self-employed, business owners and those who work in industries with a high degree of turnover may be more inclined to worry about their financial future than others, said Masood Vojdani, founder and CEO of MV Financial.

Market volatility, political uncertainty and economic performance, however, can also trigger a money-under-the-mattress response, he said.

“The parents of today’s baby boomers lived a Depression-era lifestyle, and they passed that on to their kids,” said Vojdani. “We are creatures of habit, and they became savers.”

Vojdani recently worked with a client with assets of more than $5 million who was losing sleep over the economic instability in Greece and China. Specifically, he worried (without cause) that the value of his domestic real estate would be negatively affected and that a global economic meltdown would force him to go back to work.

“I often act as a therapist and tell them to spend a little because you are not coming back,” said Vojdani. “Enjoy some of this today. My job is to help them live the life they desire without worrying about every little bill.”

That requires a plan, he said.

If their primary concern is related to wealth transfer, tax reduction, succession planning or ensuring their children and grandchildren are provided for, Vojdani develops a financial plan to achieve that goal.

But he also coaches clients, especially those of means, to give some away.

“When I ask them how they want to make a difference in the world, it opens their eyes and it takes some of that anxiety away because now they have a purpose for their money,” he said.

Some anxiety surrounding money is a good thing, said Lynn Bufka, associate executive director of practice research and policy at the American Psychological Association.

“Worry can often prompt us to rein in spending or reconsider how we are allocating funds,” she said. “But if you’re adequately funding your retirement plan and saving for your kid’s college and you’re still completely stressed out and can’t stop thinking about it, it’s time to step back and determine whether your financial situation warrants that level of concern.”

Those who suffer from anxiety, she said, often make connections between things that may or may not be true. One client’s husband, for example, refused to let his wife throw a dinner party for his co-workers because he feared he would lose his livelihood if it went badly.

Schwartz, Shelly. “Most Americans, Rich or Not, Stressed about Money: Surveys.” Web log post. CNBC. N.p., n.d. Web. 5 Aug. 2015.


For more information, contact our Recruiting Manager Allie Vossoughi at & 602-314-7580, or Thomas Shultz, Managing Director  at & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at & 602-314-7580.

The downside of automatic 401(k) enrollment (

Nearly a third of Americans age 55 and over have no retirementsavings, and defined benefit pension plans are going the way of the dinosaur. So you’d think that employers would be doing a great thing when they automatically enroll employees in 401(k) plans.

Not exactly.

Auto enrollment, as the practice is known, does increase employee participation in retirement plans. A recent study by Towers Watson found that the share of employers with more than 80 percent participation rates in defined contribution plans increased from 50 percent in 2010 to 64 percent in 2014 as the share of companies offering automatic enrollment rose from 57 percent to 68 percent.

But the good news stops there. Employees participating in auto enrollment tend to contribute less than people who sign up for 401(k) plans on their own, often because their employers set a low default contribution level.

Vanguard has examined the defined contribution retirement plan assets it manages, and in a recent study the firm reported that average default contributions have decreased from 7.3 percent to 6.9 percent since 2007. “While automatic enrollment increases participation rates, it also leads to lower contribution rates when default deferral rate sare set at low levels,” the report concluded.

“Participation is much higher, but the savings rate is much lower, unfortunately,” said Rob Austin, director of retirement research at Aon Hewitt. He said that in the more than 140 plans Aon Hewitt recentlystudied, the rate of participation in defined contribution retirement plans reached an average of 85 percent for employers offering automatic enrollment, compared to 62 percent for those that do not.

Still, “over time, the average savings rate in plans with auto enrollment is lower than in plans that put in money themselves,” he said. “People who put in money at a default rate of 3 percent leave it there, whereas if people pick their own savings rate, they would probably pick something much higher.”

Austin said he knew of one employer that set a default contribution rate of 1 percent and then realized that employees were sticking at that low level, to their detriment, so employer dropped auto enrollment.

Employers matching less

Then there is the matter of employers’ matching contributions. A studyby the Urban Institute and Boston College’s Center for Retirement Research examined the effect of auto enrollment on the levels at which employers will match employee contributions. It found that when employees are automatically enrolled in 401(k) plans, employers set lower limits on the contribution level they match, an average of 3.2 percent, compared to 3.5 percent in plans without auto enrollment.

“Auto-enrollment policies are very successful at raising participation rates but may not boost workers’ total retirement saving if firms aim to keep their 401(k) compensation costs at a constant level,” the Urban Institute and Center for Retirement Research concluded.

Those lower match rates may in themselves affect what workers contribute. New research by T. Rowe Price suggests that roughly two-thirds of employees expecting an employer match determined their contribution rate to take full advantage of that match.

Employers have to balance several considerations when they design auto enrollment plans, experts said. For one thing, many are trying to keep their plan costs in check, so they look for ways to offset any costs resulting from increased participation.

“When we asked employers this question—why don’t you do more—two-thirds of employers said it was due to the cost,” Austin said.

In addition, setting the employees’ default contribution rate is complicated. If employers “set that number too high, it might lead people to just opt out, but if they set it too low, then people may not save enough,” said Richard Johnson, director of the program on retirement policy at the Urban Institute.

T. Rowe Price found that 60 percent of workers automatically enrolled in 401(k) plans said they would have opted out if the default rate were set at 6 percent or higher.

But that does not appear to be a danger. Some 63 percent of the automatically enrolled workers said they were enrolled at the 3 percent level or lower, and 24 percent said their default contribution rate was 1 percent. (Tweet this)

False security?

Some employers are trying to encourage employees to increase their savings by implementing automatic contribution increases, known as auto escalation.

But auto escalation has not caught on to the same extent as auto enrollment. Among the employers surveyed by Towers Watson, 54 percent offered automatic escalation of employee contributions, but only 28 percent mandated it.

Employees without features like that may be lulled into a false sense of security about their long-term financial healthy simply because they are putting something away, even if it is wildly insufficient.

“Automatic enrollment plans are a good thing. We know that they encourage individuals to save,” Austin said. “But sometimes, they can be so good that they work against you.”

Holland, Kelley. “The Downside of Automatic 401(k) Enrollment.” Web log post. CNBC. N.p., n.d. Web. 3 Aug. 2015.


For more information, contact our Recruiting Manager Allie Vossoughi at & 602-314-7580, or Thomas Shultz, Managing Director  at & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at & 602-314-7580.

Avoid these 3 Social Security mistakes (


Americans are an impatient bunch, at least when it comes to Social Security.

People who delay taking Social Security benefits will be rewarded with higher monthly payments, yet hardly anyone waits until 70, the age at which benefits are maximized. Many lock in reduced benefits by not waiting even until their full retirement age, which is between 66 and 67 for most people currently in the workforce. Some start at 62, locking in benefits as soon as they can.

Claiming benefits early is one of dozens of potential mistakes when it comes to Social Security. That should come as no surprise because the system is complex.

“The Social Security system has 2,728 core rules and thousands upon thousands of additional codicils” designed to clarify those rules, write the authors of Get What’s Yours, a new book on the topic. Here are three potential blunders.

Obsessing over the break-even point.

If you delay taking Social Security, the monthly benefit rises. Yet about 40% of participants begin around age 62, while fewer than 2% wait until 70. Some people need the money now or don’t think they will live long. Others wonder if Social Security will remain solvent. Still others fear getting shortchanged. They recognize that they would need to live a long time — often into their mid-80s — before receiving more money from the higher payments that come from delaying. This is a common Social Security break-even calculation, and some people pay too much attention to it.

“It’s very beguiling to think if you take benefits at 62 and invest them for eight years … you end up with a very nice pile of money, and it would take you a long time to earn that money back in the form of higher benefits that you would get if you waited until age 70,” Philip Moeller, co-author of Get What’s Yours, said in an interview that can be viewed at

But dying fairly early, and leaving some dollars on the table, might not be the biggest risk. A greater danger for most people, Moeller said, involves outliving one’s assets. “Don’t focus on the break-even date,” he and co-authors Laurence Kotlikoff and Paul Solman advise in their book. “Worry about the broke date — the date you can’t pay all your bills because you took benefits that were too low, too early.”

Failing to coordinate with your spouse.

One interesting feature of Social Security is that you might be eligible to receive benefits based on someone else’s work history — and they, potentially, can on yours. Joint planning thus becomes important, especially for spouses.

“You can collect spousal benefits instead of collecting on your own record,” said Boston law firm Margolis & Bloom in a report. “If your spouse earned considerably more than you, this can be an attractive choice.”

Married spouses thus should decide how each person should claim benefits. The exercise can get complicated, but it’s worth the effort. When married couples don’t carefully plan their strategies for claiming benefits, they could receive reduced payments.

For example, if one partner dies fairly soon after opting to claim early benefits, at a reduced dollar level, it can diminish the spouse’s survivor benefits.

According to Grimes, it can be wise for at least one spouse in a two-earner household to defer the receipt of regular retirement benefits. In that case, when the first spouse dies, the survivor would be able to collect a higher Social Security benefit. “Having one earner put off benefits until age 70 ensures that the surviving spouse collects the highest benefits possible,” he said.

Not realizing that you can change your mind.

Not every Social Security decision is set in stone. For example, people can do over, or withdraw, a decision to take benefits early, renewing their eligibility to qualify for higher monthly payments down the road.

Recipients who start benefits early have one year to change their minds. The drawback is that you must pay back any money already received. If you also have had Medicare premiums taken out of your Social Security benefits, you must repay those funds too, Moeller said.

A do-over (withdrawal) means you’re starting over, as if you never filed for benefits in the first place. For people who need short-term cash in the form of immediate Social Security benefits but then decide to do it over, “this essentially becomes a one-year, interest-free loan,” said Margolis & Bloom.

What if you can’t repay the benefits that you received after 12 months have elapsed? An option would be to suspend the receipt of further benefits so that you could start earning credits that would make you eligible for higher payments later. You can suspend benefits upon reaching full retirement age.

For example, said Margolis & Bloom, if you started benefits at 62 then suspend them at 66, you could build up delayed retirement credits from 66 to 70 that would qualify you for higher payments. Benefits rise by 8% a year from 66 to 70, so delaying over that stretch would result in a monthly payment that’s 32% larger.

The bottom line is, with Social Security, you have some flexibility. They’re among dozens of potentially helpful strategies available.

Wiles, Russ. “Avoid These 3 Social Security Mistakes.” Web log post. CNBC. N.p., n.d. Web. 30 July 2015.

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From rents to haircuts, Americans feel price hikes (

Apartment rents are up. So are prices for restaurant meals, haircuts, gym memberships and a cup of coffee.

For American consumers who have become used to flat or even falling prices for several years, an unfamiliar sight has emerged in many corners of the economy: Inflation is ticking up.

The price increases remain modest. And in many cases, they’re canceled out by price declines for other items that are keeping overall inflation historically low.

Yet the stepped-up price tags for a range of consumer items are the largest since the Great Recession ended six years ago. They actually reflect a healthier economy: Many businesses have finally grown confident enough to pass their own higher costs on to consumers without fear of losing customers. Employers have added nearly 5.6 million jobs the past two years, allowing more people to absorb higher prices.

redshorts | Getty Images

Signs of emergent inflation are a key reason the Federal Reserve, which is meeting this week, will likely raise interest rates from record lows later this year. Inflation has long trailed the Fed’s 2 percent target rate but is on track to return to that level in coming months.

“That should give the Fed a little more confidence that … they will meet their (inflation) objective,” said Laura Rosner, an economist at BNP Paribas.

In June, the price of haircuts jumped 1.6 percent, the biggest monthly jump in the 62 years that the government has tracked the data. Over the past year, they’ve surged 2.8 percent, the largest year-over-year gain since 2008.

That’s no surprise to Chrissie Crosby, a retired government worker in Alexandria, Virginia. She says her hair salon has started charging nearly $30 for a shampoo, blow dry and haircut, up from $22.

“It used to be a convenient place for a trim, because it was inexpensive, but it’s no longer very inexpensive,” she said.

Coffee prices jumped 6.1 percent in January from 12 months earlier, the most in nearly three years. Starbucks has responded by raising the price of a cup of coffee by between 5 cents and 20 cents.

And beef prices have soared nearly 11 percent in the past year, which has led Chipotle to raise prices for steak and its beef barbacoa by an average of about 30 cents per entree, the company says.

The biggest driver of inflation this year has been residential rents. They climbed 3.5 percent in June from a year earlier, the fifth straight month with an annual gain of that size.

Overall, consumers have yet to be hit by significant increases for everyday purchases. Inflation as measured by the consumer price index has barely risen in the past 12 months, mostly because cheaper gas has held down the index.

But prices are rising. If you exclude food and energy, which tend to fluctuate sharply, “core” inflation has risen 2.3 percent at an annual rate in the past three months. In April, the three-month annual pace was 2.6 percent, well above the Fed’s inflation target.

Economists expect the price increases to continue, in part because they’re occurring mostly in services, whose prices tend to be comparatively stable. Economists call these “sticky” prices. They include rent, insurance, haircuts, restaurant meals and utility bills.

Sticky prices are slow to change. Utilities typically must ask regulators to approve price increases, for example, and most restaurants don’t want to frequently reprint menus. But once prices in those categories do rise, they’re usually slow to change course.

The Federal Reserve Bank of Atlanta maintains an index of sticky prices, which has risen 3 percent at an annual rate in the past three months, the most since the recession ended.

Labor costs for many service-sector companies are rising, lifted by minimum wages in an increasing number of states. Chipotle just raised prices 10 percent in San Francisco partly because of that city’s minimum wage increase. Jack Hartung, the company’s chief financial officer, said Chipotle has seen “no reaction whatsoever” from customers.

By contrast, prices for goods in some cases keep falling. Clothing, furniture, and many appliances are cheaper than they were a year ago, a result of global competition that’s held down the costs of factory goods.

And gasoline and natural gas is much cheaper than they were last year. Through the first half of 2015, the average retail gasoline price is down 30 percent to $2.47 a gallon. Residential natural gas prices are down 9 percent, according to the Energy Information Administration.

A big reason prices for services have risen is that they’re increasingly where Americans are spending money. Consumers spent just 32 cents of every dollar on goods in the first quarter of this year, down from nearly 34 cents two years ago. Over the same period, services spending rose to 67.6 cents from 66.

“People are finally getting back to the comforts they may have afforded prior to the recession, including splurging on haircuts and home cleaning services,” says Jack Kleinhenz, chief economist at the National Retail Federation.

Still, for many families that remain squeezed by sluggish pay growth, even small price increases hurt. Average hourly earnings rose just 2 percent in June from a year earlier, well below the 3.5 percent pace typical of a healthy economy.

Jeremy Beck, a lawyer in Louisville, Kentucky, has noticed a jump in his water bill and said electricity costs were also rising. But he and his wife, Christine Ehrick, a professor at the University of Louisville, said the biggest problem has been flat wages.

“Neither of us have seen our pay increase much at all in the past few years,” Ehrick said.

“From Rents to Haircuts, Americans Feel Price Hikes.” Web log post. CNBC. N.p., n.d. Web. 29 July 2015.


For more information, contact our Recruiting Manager Allie Vossoughi at & 602-314-7580, or Thomas Shultz, Managing Director  at & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at & 602-314-7580.

How to avoid the tax traps of restricted stock units (

Restricted stock units are the shiny prize for countless employees in technology and other growing industries.

However, RSUs are taxed differently than stock options, and many employees who receive them simply don’t understand the serious implications.


Stock options have a tax advantage because they are taxed when you exercise your option. RSUs, however, are taxed at the time they are vested, not when you sell.

As RSUs grew more popular over the past five years or so, we’ve seen a problem emerging with how they’re handled. Too many recipients insist on holding on to their RSUs, even after they vest. In doing so, they are falling into the trap of concentration risk—otherwise known as putting all your eggs in one basket.

In and of themselves, RSUs are a good, solid equity compensation vehicle. An RSU is a grant valued in terms of company stock, but company stock is not issued at the time of the grant. Once the units vest, the company distributes shares, or sometimes cash, equal to the their value. Unlike stock options, which are worthless if share prices dip below the option price, RSUs maintain an intrinsic value unless your company goes out of business.

The challenge with RSUs grows out of how to use them. For most recipients, the correct approach is to cash the units out once they vest and then use the proceeds to build a diversified investment portfolio.

“Many employees cling to their RSUs because they’re afraid of being ‘left out.’ They’re haunted by premonitions of their co-workers getting rich while they sit on the sidelines.”

Diversifying your holdings across complementary asset classes allows you to balance risk and reward so that you have the best chance of reaching investment goals without worrying about getting cleaned out. It’s standard practice among people who have become financially successful and want to stay that way.

This isn’t to say that you shouldn’t keep any of your company’s stock—far from it. It’s exciting to be an owner and not just an employee. The key is to surround that company stock with complementary investments, such as bonds and stocks in other industries.

But too few RSU recipients are doing that; many hold on to their units, at their peril. This is happening because of the misunderstanding of RSUs’ tax treatment.

We recently added a client who wanted to use the proceeds from his RSUs to help build a house. The client’s plan was to wait a year, sell the vested units and then start building. After a year, he explained, his RSUs would be taxed at the long-term capital gains rate—which is lower than the short-term capital gains rate.

The client was laboring under a common misperception. RSUs, in fact, are taxed as soon as they vest. Often, employers will hold back an amount of shares equivalent to the tax bill upon vesting. That tax bill is onerous, by the way: Depending on where you live, the Internal Revenue Service, along with your state of residence, could end up taking nearly 50 percent of your RSUs’ value. And there’s not much to be done about it.

Back to that client: We explained to him that not only did he not have to wait to dip into his vested stock, but that waiting could actually be counterproductive. Should the price of his company’s stock fall before he sells, he’d lose twice. First, his shares will have lost value, and second—because RSUs are taxed as soon as they vest—he’ll have paid taxes on their higher, original value.

A more common reason that employees hold on to their RSUs is the straightforward hope of growing richer. When I suggested to one 20-something client that he sell his RSUs and invest the proceeds in a diversified portfolio, he basically accused me of being a buzz kill.

“Why would I do that?” he asked. His tech company’s stock had been appreciating fast, he explained, and there was no reason to believe it would stop.

My answer: You can’t see the future. Like all companies, tech firms have long periods of flat or falling stock prices—and yes, they often go bust. Just look at late, great firms such as, Webvan or Covad. And remember, recessions are a fact of life, and the havoc they can wreak on stock prices and on companies themselves is very real.

It’s natural to think that the company you work for is different. And maybe it is. But when you limit your investments to the stock of any one company, that’s really risky behavior.

If your company runs into trouble, not only will your stock crater but you might find yourself out of a job, as well. When your wealth is all in the form of your company’s stock, you’re not just putting all your eggs in one basket—you’re living in that basket, too.

Many employees cling to their RSUs because they’re afraid of being “left out.” They’re haunted by premonitions of their co-workers getting rich while they sit on the sidelines.

One way to deal with these kinds of jitters is to use a form of dollar-cost averaging. If your company is growing and its stock is rising, sell small portions of your RSUs at regular intervals and invest the proceeds in your diversified portfolio. That way, you’ll participate in at least part of your company’s gains while creating a solid financial foundation.

If RSUs have pushed you into the ranks of the wealthy, congratulations. But remember: You’ll need to make wise decisions in order to stay there.

Golkar, Bijan. “How to Avoid the Tax Traps of Restricted Stock Units.” Web log post. CNBC. N.p., n.d. Web. 21 July 2015.


For more information, contact our Recruiting Manager Allie Vossoughi at & 602-314-7580, or Thomas Shultz, Managing Director  at & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at & 602-314-7580.

As kids near college, keep watchful eye on 529 plans (


Investors aren’t keen on surprises, especially when they’re getting out their checkbooks to write a series of very large checks for their children’s college education.

When you’re in the midst of choosing bedding and organizers with your child for their college dorm, it’s not the time to find out that your 529 college savings account has plummeted by 20 or 30 percent.

Unless you’re careful, risks could be lurking in your 529, say financial advisors. Many families experienced drops like this in the 2008 and 2009 period, just as they needed to pay for college, because they were not carefully monitoring the asset allocation of their accounts.

“People take for granted that the asset-allocation changes will be appropriate to their risk posture,” said Andrea Feirstein, founder of AKF Consulting Group, an advisor to 529 plan administrators in 32 states.

College savings plans come in three varieties: age-based funds, static asset-allocation funds and a free choice of funds.

Look under the hood

Age-based funds move along a glide path as children grow and near college age. These funds start with big allocations of equities and gradually taper their stock exposure.

Most start out with a high allocation toward stocks, 80 percent on average, though some invest completely in stocks for the first few years. About two-thirds of self-directed 529 assets are housed in age-based funds, according to research firm Strategic Insights.

Static asset-allocation funds ask investors to choose one risk profile—conservative, moderate or aggressive—and then invest the money in the appropriate mix of stocks and bonds, never veering from the allocation as children age.

Finally, 529 accounts can also be invested in individual funds, provided the particular program allows for it.

“One of the things people discovered in ’08 and ’09 was that even when their kid was 17 years old, their account had a 40 percent exposure to equities,” said Feirstein at AKF Consulting.

Investment advisors to the 529s have since tamped down on their equity exposure in the years before college. “Most the plans remodeled their asset allocation to stocks so that it’s somewhere between 0 and 20 percent in those last years,” Feirstein noted.

On average, the funds invest 14 percent of their assets in stocks for students who are age 18 and just 11 percent at age 19, according to Morningstar. However, there is a wide range among plans.

“There is no industry standard for the glide path,” said Paul Curley, Strategic Insights’ director of college savings research.

Not all glide paths are alike

Some funds use a progressive glide path, much like a target-date fund. They reduce a small percentage of their stock exposures each year. More common in 529s is to use fixed tracks, reducing bigger allocations of stocks at set points in time.

For example, in Kansas’s Learn Quest 529 program’s aggressive fund managed by American Century Investments, the stock allocation drops from 90 percent to 70 percent at age 7. At age 18, the allocation goes from 50 percent in stocks to none.

“That could lead to a permanent loss of capital if the markets plunged shortly before the beneficiary’s 18th birthday,” wrote the analysts in Morningstar’s recent “529 College-Savings Plan Landscape” report.

This is particularly worrisome now, said Deborah Fox, president of Fox College Funding, given the strong investment returns of recent years. “Anytime we’re in the latter half of a bull market, investors need to be careful and have a Plan B if things don’t go as planned,” she said.

Polyak, Ilana. “As Kids near College, Keep Watchful Eye on 529 Plans.” Web log post. CNBC. N.p., n.d. Web. 20 July 2015.


For more information, contact our Recruiting Manager Allie Vossoughi at & 602-314-7580, or Thomas Shultz, Managing Director  at & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at & 602-314-7580.

Time for a retirement portfolio gut check? (

It’s an anxious time to be a patient investor. The roller-coaster Chinese stock market as well as the ongoing debt crises in Greece and Puerto Rico make it difficult to feel like your retirement portfolio is on strong footing. Now may be a good opportunity to review your asset allocation and tolerance for risk, financial advisors say, especially if you haven’t done so recently.

It’s time for a “gut check,” said Craig Cowles, a certified financial planner and partner with Cardinal Wealth Advisors in Dallas. Answer these questions: Are you properly allocated between stocks, bonds and alternative assets in the first place? Have you rebalanced your portfolio—that counterintuitive process of selling winners and buying losers to maintain your desired asset mix—in the past year? Do you have enough cash on hand?

“Most of all though, don’t become irrational and use fear as the guide, as selling low will hurt you,” Cowles said. If you’re tempted to sell now, he added, you most likely “had too much risk that you were not comfortable with in the first place.” So it’s worth taking a hard look at your investments.

It’s important to put all the recent turmoil in the financial markets in perspective though. “The important thing to remember is that market volatility is always with us,” said Kevin Gahagan, a certified financial planner and partner at Mosaic Financial Partners in San Francisco. “Specific to Greece and China, [that means] ignoring the `noise’ currently surrounding the news of these events. In practical terms, for most investors, these two countries represent only 1 or 2 percent of their total portfolio—at most.”

The 10 largest diversified international funds by assets have less than 9 percent of their portfolios allocated to Chinese stocks and minusculeamounts to Greek equities, according to mutual fund research firm Morningstar. (See table below.) Morningstar and Google Finance offer free tools to help investors analyze the exposure to international markets.

To be sure, stocks of multinationals, regardless of where they are based, have exposure to China and, to a far lesser extent, to Greece and Puerto Rico. But investors should focus on what they can control. “We need to step back and see what is actionable and what is not and for most investors, I don’t see actionable items here except for looking to rebalance their portfolio with equities still near record highs,” said Charles Sachs, a certified financial planner with Private Wealth Counsel in Miami.

Rebalancing your portfolio comes with trade-offs. It can cut the risk of your portfolio and help you stick to your financial plan, but you may incur capital gains taxes from selling appreciated assets in taxable accounts as well as transaction costs to execute your strategy.

“Just as there is no universally optimal asset allocation, there is no universally optimal rebalancing strategy,” according to a 2010 study on the benefits of rebalancing by The Vanguard Group. “The only clear advantage as far as maintaining a portfolio’s risk-and-return characteristics is that a rebalanced portfolio more closely aligns with the characteristics of the target asset allocation than with a never-rebalanced portfolio. As our analysis shows, the risk-adjusted returns are not meaningfully different whether a portfolio is rebalanced monthly, quarterly, or annually.”

So if you were happy with your investment strategy before the recent volatility, you may decide not to make any changes at all. “Often the best action in times of turbulence is no action,” said Molly Bernet Balunek, a certified financial planner with Laurel Tree Advisors in Cleveland.

Anderson, Tom. “Time for a Retirement Portfolio Gut Check?” Web log post. CNBC. N.p., n.d. Web. 14 July 2015.

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For more information, contact our Recruiting Manager Allie Vossoughi at & 602-314-7580, or Thomas Shultz, Managing Director  at & 602-314-7580, or Scottsdale Associate Managing Director Nancy Monaco at & 602-314-7580, or Scottsdale Associate Managing Investment Director Tom Bugbee at & 602-314-7580.

Thomas Bugbee

Futurity First Insurance Group

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