By Jane Young, CFP, EA
Colorado Springs, CO
www.pinnaclefinancialconcepts.com/
It is important for us to stay diversified and keep a prudent amount of our portfolio in fixed income investments - but where? We can avoid interest rate risk and default risk with CDs; however, we may sacrifice on return. Currently most short term CDs are paying less than one percent. We can get a slightly better return for a longer term CD but does this make sense in such a low interest rate environment? With CDs, the biggest downfall is the lost opportunity for a higher return.
If you want a higher return and you are willing to take some additional risk, consider short term bond funds. A short term bond fund that invests primarily in treasuries and government agency bonds has a very low default risk. However, there is some interest rate risk. Interest rate risk is due to the cause and effect relationship between bonds and interest rates. When interest rates rise, after the purchase of a bond or a bond fund, the value of the bond will decrease. For example, you purchase a $20,000, 10 year bond that pays 3% interest. A few years later interest rates go up to 5% and you decide to sell your bond that only pays you 3%. When you try to sell your bond you can’t get $20,000 for it because it pays 2% less than the market rate. However, several buyers may be willing to buy your bond for a discounted value to make up for the lower than market interest rate. If you hold your bond until maturity it should sell for the full purchase value of $20,000. The inverse is also true, if interest rates go down your bond will be worth more than what you paid. The degree to which this occurs is magnified by the term or duration of the bond. Short term bonds have less interest rate risk than do long term bonds.
Default risk is the risk that the company or entity issuing the bond will be unable to pay you back. In essence a bond is a loan made to a company or a government entity for a specified interest rate over an agreed upon period of time. US Government bonds and bonds backed by the US Government have an extremely low risk of default. Corporations, Municipalities, and other governmental entities have varying degrees of risk depending on their financial stability. Most bond issuers are assigned a rating to help investors assess the potential default risk of a bond.
A mutual fund has less default risk than an individual bond because you are buying an ownership share in several different bonds. However, you have less control over interest rate risk. If you own an individual bond you can hold it until maturity. If you own a mutual fund, the fund manager may be forced to sell bonds at an inopportune time due to a high rate of withdrawals. If the fund manager could hold all of the bonds to maturity there would not be an actual drop in value. However, bond funds must reflect a share price based on the current value of the bonds held in the portfolio.
If you want a higher return you may want to consider intermediate term bonds but be prepared for a corresponding increase in the level of interest rate risk. If you want to maximize return you could consider high yield or junk bonds. However, be very careful in this arena because high yield bonds are subject to both interest rate risk and default risk. In the current environment, interest rate risk and default risk are very high. Unless you are an expert in high yield bonds, this is a lot of risk to take on the portion of your portfolio that is designed to be less risky and serve as a buffer against the stock market.
Most of my clients are best served by investing in a combination of CDs, high quality short term bonds, and some high quality intermediate term bond funds. Unfortunately, there are few really good options in the current fixed income market.
November 29, 2010
November 25, 2010
Does Your Retirement Plan Aswere These Three Questions?
By Troy Von Haefen, CFP®
Nashville, TN
http://www.vhfinancialmanagement.com/
It seems that with the market downturn in 2008-2009, there has been concern over folks ability to retire. One of the probing questions I receive from new clients is “When can I retire?” Sounds like a simple question, and for the most part (at least on my end) it is. The difficulty usually stems from a lack of preparation by the client or a non comprehensive view. Here are a few things that often get over looked from the client’s standpoint when performing retirement projections:
1. What will retirement look like for you?
Transitioning from a full time employee or business owner to the life of leisure is a big step. It’s also a step that fewer retirees are taking in today’s world. The old picture of retirement has changed for many Americans….and not necessarily for the worse. The new picture of retirement involves a higher degree of engagement in life’s activities, whether it be part-time employment/business ownership, volunteerism, increased family involvement, or simply a schedule of engaged activities. This new picture is farther from the rocker chair on the front porch.
Understanding what retirement may involve will help to ascertain the needed nest-egg to take you to the next stage in life. While the market’s tenuous past put a damper on many retirement dreams, it doesn’t have to. There are many options to transition into a new phase in life, but this requires a little forethought and is essential to proper retirement planning.
2. What about Health Care Costs?
Now I bet I have your attention. This thought certainly drives fear into most people, especially since the media and advertisers do a wonderful job of painting a dark picture. While Medicare and Medicare supplements (Medigap policies) can do an adequate job for those 65 and older, younger retirees face the road of individual coverage. While challenging, this should not be a deal breaker for most folks. There are cooperative plans, high deductible plans, and high deductible plans tied to health savings accounts that deliver options.
Health care costs are on the rise and should absolutely be considered when planning for retirement. Living a healthy lifestyle and proactively addressing health care needs should be a critical part of the any pre-retirement plan.
3. How much will you pay in taxes?
Taxes are the single largest recurring expense most people have in their lives. Properly managing taxes during the accumulation phase of life can get you to retirement ahead of schedule. Preparing and maximizing retirement taxation can be a real difference maker when it comes to the bottom line need for retirement. Tax efficient withdrawals can save big dollars, especially for those in lower tax brackets. For example, the current ability of those in the 10-15% tax bracket to utilize a 0% capital gain tax (up to the 15% tax bracket max) can save thousands of dollars in taxes. Through proper tax planning and strategies many retirees can drop into lower tax brackets during retirement….even after populating higher brackets during pre-retirement.
A retirement plan without a solid tax plan is a mistake waiting to happen. Simply estimating what tax bracket you may fall into is not enough. A comprehensive tax picture that takes into account maximizing withdrawals by efficiently juggling the taxable and retirement account ( IRA, Roth, or other qualified plans) can mean the difference in retiring sooner than later.
The days of our grandparent’s retirement picture are dwindling, and, hopefully, the days of improper retirement planning is, as well. The simple calculation of yearly need multiplied by years of retirement (mix in inflation) is not enough. Utilizing the standard withdrawal rate of 4% against your nest-egg is not the answer either. A true retirement plan incorporates a comprehensive view to include the above topics and more. By utilizing a comprehensive view to develop a tax-efficient retirement plan that incorporates a realistic retirement picture may show you that you are closer to retirement that you realize.
If you are struggling to paint your retirement picture, you may want to seek guidance from an advisor. An organization of advisors that does a wonderful job in this area can be found on the internet at http://www.acaplanners.org/. ACA is an organization of fee-only planners that specializes is holistic financial planning, and, yes, in full disclosure I am an ACA member!
Nashville, TN
http://www.vhfinancialmanagement.com/
It seems that with the market downturn in 2008-2009, there has been concern over folks ability to retire. One of the probing questions I receive from new clients is “When can I retire?” Sounds like a simple question, and for the most part (at least on my end) it is. The difficulty usually stems from a lack of preparation by the client or a non comprehensive view. Here are a few things that often get over looked from the client’s standpoint when performing retirement projections:
1. What will retirement look like for you?
Transitioning from a full time employee or business owner to the life of leisure is a big step. It’s also a step that fewer retirees are taking in today’s world. The old picture of retirement has changed for many Americans….and not necessarily for the worse. The new picture of retirement involves a higher degree of engagement in life’s activities, whether it be part-time employment/business ownership, volunteerism, increased family involvement, or simply a schedule of engaged activities. This new picture is farther from the rocker chair on the front porch.
Understanding what retirement may involve will help to ascertain the needed nest-egg to take you to the next stage in life. While the market’s tenuous past put a damper on many retirement dreams, it doesn’t have to. There are many options to transition into a new phase in life, but this requires a little forethought and is essential to proper retirement planning.
2. What about Health Care Costs?
Now I bet I have your attention. This thought certainly drives fear into most people, especially since the media and advertisers do a wonderful job of painting a dark picture. While Medicare and Medicare supplements (Medigap policies) can do an adequate job for those 65 and older, younger retirees face the road of individual coverage. While challenging, this should not be a deal breaker for most folks. There are cooperative plans, high deductible plans, and high deductible plans tied to health savings accounts that deliver options.
Health care costs are on the rise and should absolutely be considered when planning for retirement. Living a healthy lifestyle and proactively addressing health care needs should be a critical part of the any pre-retirement plan.
3. How much will you pay in taxes?
Taxes are the single largest recurring expense most people have in their lives. Properly managing taxes during the accumulation phase of life can get you to retirement ahead of schedule. Preparing and maximizing retirement taxation can be a real difference maker when it comes to the bottom line need for retirement. Tax efficient withdrawals can save big dollars, especially for those in lower tax brackets. For example, the current ability of those in the 10-15% tax bracket to utilize a 0% capital gain tax (up to the 15% tax bracket max) can save thousands of dollars in taxes. Through proper tax planning and strategies many retirees can drop into lower tax brackets during retirement….even after populating higher brackets during pre-retirement.
A retirement plan without a solid tax plan is a mistake waiting to happen. Simply estimating what tax bracket you may fall into is not enough. A comprehensive tax picture that takes into account maximizing withdrawals by efficiently juggling the taxable and retirement account ( IRA, Roth, or other qualified plans) can mean the difference in retiring sooner than later.
The days of our grandparent’s retirement picture are dwindling, and, hopefully, the days of improper retirement planning is, as well. The simple calculation of yearly need multiplied by years of retirement (mix in inflation) is not enough. Utilizing the standard withdrawal rate of 4% against your nest-egg is not the answer either. A true retirement plan incorporates a comprehensive view to include the above topics and more. By utilizing a comprehensive view to develop a tax-efficient retirement plan that incorporates a realistic retirement picture may show you that you are closer to retirement that you realize.
If you are struggling to paint your retirement picture, you may want to seek guidance from an advisor. An organization of advisors that does a wonderful job in this area can be found on the internet at http://www.acaplanners.org/. ACA is an organization of fee-only planners that specializes is holistic financial planning, and, yes, in full disclosure I am an ACA member!
November 21, 2010
Top Five Year End Tax Saving Strategies
By Judy Stewart, CFP®, MBA, EA
Carlsbad, CA
http://www.stewart-financial.com/
We are only two and a half months away from 2011! Some families are realizing that they do not have a lot of time to enact some tax savings before the year is out. We're here to help! It appears that 2011 is headed for higher taxes, below are the top five ways to do some tax saving before the year is over:
1. Sell stock. A smart tax strategy is to sell some highly appreciated stock/stock funds before the end of the year and pay capital gains at the lower rates in 2010. Often, the tax bite can be mitigated by also selling some of your “losers” at the same time, thereby offsetting some of the gains with the losses.
2. Charitable giving. Charitable giving is always a great way to save on taxes and do some good! Gifting appreciated stocks to your favorite charity(s) is also a great tax savings tool. The charity gets the fair market value of the stock transferred and you get the tax deduction and it saves you the capital gains taxes.
3. Tax sheltered giving. Tax sheltered plans are one of the best gifts that Uncle Sam has ever given us. A person 50 and older can defer $22,000 into his/her 401k, 403b, and 457 plans for 2010 and everyone else can defer $16,500. This results in significant tax savings for you, the investor. Check your current pay slip and see how much you are on track to contribute for 2010. If you will not meet the above maximums, ask your HR department to increase the monthly amount so that you can take advantage of these limits and save BIG on taxes.
4. Invest in a Roth Conversion. Roth conversions are in the news this year. For the first time ever, folks making $100,000 or more can covert their traditional IRAs to Roths this year. Yes, taxes will be due on the converted money but Uncle Sam has also given us another nice gift. You can pay the taxes over a 2 year period. That really helps take the sting out of the tax bite. An interesting provision in the recently signed Small Business Bill is that employer tax sheltered plans can now allow their employees to do Roth Conversions of their 401k, 403b and 457 plans. If this is of interest to you, check with your HR department for the details.
5. 2010 Tax Energy Credits. The personal energy tax credits expire at the end of 2010. If you are planning on getting more energy efficient windows and/or doors or installing heating or cooling units, then please do so before the end of 2010 and get up to 30% of the purchase price as a tax credit for the year. Credit tops out at a generous $1500.
Carlsbad, CA
http://www.stewart-financial.com/
We are only two and a half months away from 2011! Some families are realizing that they do not have a lot of time to enact some tax savings before the year is out. We're here to help! It appears that 2011 is headed for higher taxes, below are the top five ways to do some tax saving before the year is over:
1. Sell stock. A smart tax strategy is to sell some highly appreciated stock/stock funds before the end of the year and pay capital gains at the lower rates in 2010. Often, the tax bite can be mitigated by also selling some of your “losers” at the same time, thereby offsetting some of the gains with the losses.
2. Charitable giving. Charitable giving is always a great way to save on taxes and do some good! Gifting appreciated stocks to your favorite charity(s) is also a great tax savings tool. The charity gets the fair market value of the stock transferred and you get the tax deduction and it saves you the capital gains taxes.
3. Tax sheltered giving. Tax sheltered plans are one of the best gifts that Uncle Sam has ever given us. A person 50 and older can defer $22,000 into his/her 401k, 403b, and 457 plans for 2010 and everyone else can defer $16,500. This results in significant tax savings for you, the investor. Check your current pay slip and see how much you are on track to contribute for 2010. If you will not meet the above maximums, ask your HR department to increase the monthly amount so that you can take advantage of these limits and save BIG on taxes.
4. Invest in a Roth Conversion. Roth conversions are in the news this year. For the first time ever, folks making $100,000 or more can covert their traditional IRAs to Roths this year. Yes, taxes will be due on the converted money but Uncle Sam has also given us another nice gift. You can pay the taxes over a 2 year period. That really helps take the sting out of the tax bite. An interesting provision in the recently signed Small Business Bill is that employer tax sheltered plans can now allow their employees to do Roth Conversions of their 401k, 403b and 457 plans. If this is of interest to you, check with your HR department for the details.
5. 2010 Tax Energy Credits. The personal energy tax credits expire at the end of 2010. If you are planning on getting more energy efficient windows and/or doors or installing heating or cooling units, then please do so before the end of 2010 and get up to 30% of the purchase price as a tax credit for the year. Credit tops out at a generous $1500.
November 17, 2010
A Money Moment with Jane - A Few Financial Planning Suggestions for the Fall
By Jane M. Young, CFP, EA
Colorado Springs, CO
www.pinnaclefinancialconcepts.com/
» Required Minimum Distributions were not required for 2009. However, if you are at least 70½ you will be required to take a distribution in 2010.
» If you are planning to convert some of your regular IRA to a Roth IRA, do so in 2010 to spread the taxes over 2011 and 2112.
» Have you maximized your Roth IRA and 401k contribution? The 2010 contribution limit for the Roth is $5,000 plus a $1,000 catch-up provision if you are 50 or older. The 2010 contribution limit for 401k plans is $16,500 plus a $5,500 catch-up provision if you are 50 or older.
» This is a good time to do some tax planning to make sure your withholdings or estimates are adequate to cover the taxes you will owe in April.
» Do you have any underperforming stocks or mutual funds that should be sold to take advantage of a tax loss in 2010?
» Now is the time to go through your home for items to be donated to charity. These can provide a nice deduction on your 2010 tax return.
» Start planning for Christmas now and save money by working to a plan.
Colorado Springs, CO
www.pinnaclefinancialconcepts.com/
» Required Minimum Distributions were not required for 2009. However, if you are at least 70½ you will be required to take a distribution in 2010.
» If you are planning to convert some of your regular IRA to a Roth IRA, do so in 2010 to spread the taxes over 2011 and 2112.
» Have you maximized your Roth IRA and 401k contribution? The 2010 contribution limit for the Roth is $5,000 plus a $1,000 catch-up provision if you are 50 or older. The 2010 contribution limit for 401k plans is $16,500 plus a $5,500 catch-up provision if you are 50 or older.
» This is a good time to do some tax planning to make sure your withholdings or estimates are adequate to cover the taxes you will owe in April.
» Do you have any underperforming stocks or mutual funds that should be sold to take advantage of a tax loss in 2010?
» Now is the time to go through your home for items to be donated to charity. These can provide a nice deduction on your 2010 tax return.
» Start planning for Christmas now and save money by working to a plan.
November 13, 2010
The Multiplicative Power of Goals
By Robert Schmansky, CFP®
Franklin, MI
http://www.nfa1040.com/
We all know if we commit seriously enough to our goals to write them down, we’ll probably have a better chance of achieving them. But have you ever considered the multiplying and powerful effect of goals on our finances?
Mark and Cindy [names changed] came to us seeking financial advice. From the start it was clear they needed more than simply a review for their retirement and investment plan. Although they are halfway through their working lives and both earn good incomes, they had almost no savings. Each had significant credit card debt, as well as a crushing tax obligation that caused immense stress as they struggled to pay every April 15.
By their lack of progress you might think Mark and Cindy were not working together on their finances, but you would be wrong.
It’s true they never discussed money, their goals, or concerns. As a result, it was certainly the case that they didn’t work toward positive ends. However, they did work together. When one would splurge on a new computer, for example, the other partner would feel he or she had received “permission” to spend too.
In working with Mark and Cindy, we came up with clearly spelled-out realistic small goals on saving, debt payoff, and discretionary spending. One year later they not only had concrete goals they both bought into, they had made a significant start on building a cash reserve to eliminate the concern that money “isn’t available”; a few credit cards were paid off; and the tax situation was no longer a crisis because they had a jointly conceived plan in place for saving to pay them. More importantly, thanks to regularly scheduled meetings, Mark and Cindy began to have conversations about money for the first time in their marriage.
The positive attributes of goal setting are truly multiplicative. The simple act of writing down thoughtful and attainable goals, as well as action steps to achieve them, is much more than an exercise. Mark and Cindy’s financial position today is better by several times what it was a year ago, and several more times what it would have been had they remained stalled in their prior status quo. Their future outlook no longer is one of debt – though there is still some to deal with for some time yet. A successful financial future is now more than just a dream.
Consider also these side benefits of working on goals:
1.Real dialogue, based on facts not resentments or hidden agendas, leads to a mutual understanding of financial goals and less individual anxiety.
2.An outline of the steps to success provides ‘real’ measurements to show what will sabotage the plan. It doesn’t rule out the daily latte, but when the trade-offs between long-term financial success and short-term desires are clarified, bad habits are forced out because there is no longer room for them!
3.The satisfaction of meeting short-term goals successfully and knowing the long-term picture is on track motivates us to stick with positive financial habits.
Here are a few tips to help develop your written goals:
Focus on the short to mid term. Goals aimed at more than five years from now require actions too but may seem either overwhelming or too uncertain. Even small steps in the right direction rather than toward debt will snowball and lead the way to financial success.
Include target dates and amounts. If your goal is to start a cash reserve fund, answer these questions: What will you need in cash reserves? By when realistically can you have this accomplished? How much will you start saving on a periodic basis to get there?
List the next action steps. What is the next step you need to take to make your goal a reality? If it is a longer term goal, list what you need to do in the short term (e.g., retirement goals: continue to save 10% of income and review asset allocation regularly).
It’s important to revisit and revise your goals and action plan periodically, and not just feel good about creating them to put them on a shelf.
The preceding blog was originally published by the Financial Planning Association®(FPA®). To view the original blog please visit the FPA Web site.
Franklin, MI
http://www.nfa1040.com/
We all know if we commit seriously enough to our goals to write them down, we’ll probably have a better chance of achieving them. But have you ever considered the multiplying and powerful effect of goals on our finances?
Mark and Cindy [names changed] came to us seeking financial advice. From the start it was clear they needed more than simply a review for their retirement and investment plan. Although they are halfway through their working lives and both earn good incomes, they had almost no savings. Each had significant credit card debt, as well as a crushing tax obligation that caused immense stress as they struggled to pay every April 15.
By their lack of progress you might think Mark and Cindy were not working together on their finances, but you would be wrong.
It’s true they never discussed money, their goals, or concerns. As a result, it was certainly the case that they didn’t work toward positive ends. However, they did work together. When one would splurge on a new computer, for example, the other partner would feel he or she had received “permission” to spend too.
In working with Mark and Cindy, we came up with clearly spelled-out realistic small goals on saving, debt payoff, and discretionary spending. One year later they not only had concrete goals they both bought into, they had made a significant start on building a cash reserve to eliminate the concern that money “isn’t available”; a few credit cards were paid off; and the tax situation was no longer a crisis because they had a jointly conceived plan in place for saving to pay them. More importantly, thanks to regularly scheduled meetings, Mark and Cindy began to have conversations about money for the first time in their marriage.
The positive attributes of goal setting are truly multiplicative. The simple act of writing down thoughtful and attainable goals, as well as action steps to achieve them, is much more than an exercise. Mark and Cindy’s financial position today is better by several times what it was a year ago, and several more times what it would have been had they remained stalled in their prior status quo. Their future outlook no longer is one of debt – though there is still some to deal with for some time yet. A successful financial future is now more than just a dream.
Consider also these side benefits of working on goals:
1.Real dialogue, based on facts not resentments or hidden agendas, leads to a mutual understanding of financial goals and less individual anxiety.
2.An outline of the steps to success provides ‘real’ measurements to show what will sabotage the plan. It doesn’t rule out the daily latte, but when the trade-offs between long-term financial success and short-term desires are clarified, bad habits are forced out because there is no longer room for them!
3.The satisfaction of meeting short-term goals successfully and knowing the long-term picture is on track motivates us to stick with positive financial habits.
Here are a few tips to help develop your written goals:
Focus on the short to mid term. Goals aimed at more than five years from now require actions too but may seem either overwhelming or too uncertain. Even small steps in the right direction rather than toward debt will snowball and lead the way to financial success.
Include target dates and amounts. If your goal is to start a cash reserve fund, answer these questions: What will you need in cash reserves? By when realistically can you have this accomplished? How much will you start saving on a periodic basis to get there?
List the next action steps. What is the next step you need to take to make your goal a reality? If it is a longer term goal, list what you need to do in the short term (e.g., retirement goals: continue to save 10% of income and review asset allocation regularly).
It’s important to revisit and revise your goals and action plan periodically, and not just feel good about creating them to put them on a shelf.
The preceding blog was originally published by the Financial Planning Association®(FPA®). To view the original blog please visit the FPA Web site.
November 9, 2010
Same Paycheck – More Retirement Savings
By Julie Lawrence, CFP®
Tampa, FL
http://www.lawrencefinancialplanning.com/
I am always amazed at the number of prospective clients who tell me they don’t contribute to their 401ks at work, often missing out on their company matching program. The first words out of my mouth are always, “if I can show you that your paycheck will stay about the same, will you contribute to your 401k?” Of course they usually say yes, and then I show them how this works.
For example let’s say your bi-weekly paycheck is $800 and your company matches up to 50% of your 401k contributions. If you are single, at this pay level you will fall in the 15% tax bracket. We’ll keep it simple and not worry about all the other deductions. I just want you to get the theory behind pre-tax deferrals to your 401k. This is you now:
Company Match $0
Pre-tax Deferral $0
Pay $800
Less federal taxes $104
Net Pay $696
Now let’s defer 1% of your pay into your 401k. This is $312 a year saved, but your paycheck only went down $182 a year.
Company Match $4
Pre-tax Deferral $8
Pay $792
Less federal taxes $103
Net Pay $689
Now let’s defer 3% of your pay into your 401k. This is $936 a year saved, but your paychecks only went down $520 a year; and look your taxes dropped too!
Company Match $12
Pre-tax Deferral $24
Pay $776
Less federal taxes $100
Net Pay $676
Now let’s defer 5% of your pay into your 401k. This is $1,560 a year saved, but your paychecks only went down $884 a year; and look your taxes dropped again!
Company Match $20
Pre-tax Deferral $40
Pay $760
Less federal taxes $98
Net Pay $662
I hope these examples encourage you to defer to your 401k and especially if you have a company matching program, do not walk away from free money!
Tampa, FL
http://www.lawrencefinancialplanning.com/
I am always amazed at the number of prospective clients who tell me they don’t contribute to their 401ks at work, often missing out on their company matching program. The first words out of my mouth are always, “if I can show you that your paycheck will stay about the same, will you contribute to your 401k?” Of course they usually say yes, and then I show them how this works.
For example let’s say your bi-weekly paycheck is $800 and your company matches up to 50% of your 401k contributions. If you are single, at this pay level you will fall in the 15% tax bracket. We’ll keep it simple and not worry about all the other deductions. I just want you to get the theory behind pre-tax deferrals to your 401k. This is you now:
Company Match $0
Pre-tax Deferral $0
Pay $800
Less federal taxes $104
Net Pay $696
Now let’s defer 1% of your pay into your 401k. This is $312 a year saved, but your paycheck only went down $182 a year.
Company Match $4
Pre-tax Deferral $8
Pay $792
Less federal taxes $103
Net Pay $689
Now let’s defer 3% of your pay into your 401k. This is $936 a year saved, but your paychecks only went down $520 a year; and look your taxes dropped too!
Company Match $12
Pre-tax Deferral $24
Pay $776
Less federal taxes $100
Net Pay $676
Now let’s defer 5% of your pay into your 401k. This is $1,560 a year saved, but your paychecks only went down $884 a year; and look your taxes dropped again!
Company Match $20
Pre-tax Deferral $40
Pay $760
Less federal taxes $98
Net Pay $662
I hope these examples encourage you to defer to your 401k and especially if you have a company matching program, do not walk away from free money!
November 5, 2010
Why I'm A Fee-Only Financial Planner
By Troy Von Haefen, CFP®
Nashville, TN
http://www.vhfinancialmanagement.com/
If you read my last blog post, you recall I discussed the different types of planners and how they are paid. Today, I will tell you why I am a firm believer in fee-only financial planning.
Fee-only financial planning is a wonderful way for clients to receive advice in a fiduciary manner. As a fiduciary, the planner puts the clients’ interest first. Fee-only planners receive their pay directly from the client, which virtually eliminates conflicts of interest. As a fee-only planner, I don’t sell anything, except maybe a good night’s sleep. I don’t receive any commissions, referral fees, or kickbacks, so, therefore, I don’t have a conflict with the advice I give to my clients. What I recommend to my clients is in their best interest….not mine.
Another wonderful aspect of fee-only planning is the ability to practice from a holistic viewpoint. This is my favorite part of my job. Financial planning is a process…not an event. Life changes, therefore I love having the flexibility to assist my clients as their lives change. It’s not about one particular piece of the planning puzzle: it’s about the entire puzzle and maximizing every piece. As a fee- only planner, my fees don’t change whether I am discussing investments or insurance, estate planning or cash flow, business planning, or tax planning. It’s all part of the big picture.
My business model allows me to serve my clients in a comprehensive fashion. With my simple retainer billing method, my clients pay me a fee, and I am their planner. I’m able to see the big picture and guide the client along life’s journey. This is why I am a fee-only planner, and I love my job.
Nashville, TN
http://www.vhfinancialmanagement.com/
If you read my last blog post, you recall I discussed the different types of planners and how they are paid. Today, I will tell you why I am a firm believer in fee-only financial planning.
Fee-only financial planning is a wonderful way for clients to receive advice in a fiduciary manner. As a fiduciary, the planner puts the clients’ interest first. Fee-only planners receive their pay directly from the client, which virtually eliminates conflicts of interest. As a fee-only planner, I don’t sell anything, except maybe a good night’s sleep. I don’t receive any commissions, referral fees, or kickbacks, so, therefore, I don’t have a conflict with the advice I give to my clients. What I recommend to my clients is in their best interest….not mine.
Another wonderful aspect of fee-only planning is the ability to practice from a holistic viewpoint. This is my favorite part of my job. Financial planning is a process…not an event. Life changes, therefore I love having the flexibility to assist my clients as their lives change. It’s not about one particular piece of the planning puzzle: it’s about the entire puzzle and maximizing every piece. As a fee- only planner, my fees don’t change whether I am discussing investments or insurance, estate planning or cash flow, business planning, or tax planning. It’s all part of the big picture.
My business model allows me to serve my clients in a comprehensive fashion. With my simple retainer billing method, my clients pay me a fee, and I am their planner. I’m able to see the big picture and guide the client along life’s journey. This is why I am a fee-only planner, and I love my job.
November 1, 2010
What Is a Fee-Only Financial Advisor?
by Troy Von Haefen, CFP®
Nashville, TN
http://www.vhfinancialmanagement.com/
While the push for consumer education regarding financial planning has grown over the last ten years or so, many folks still are confused about how financial planners are paid. Essentially, there are three types of planners: commissioned, fee-only, and fee-based.
Commissioned Advisors receive their pay from products they sell. This type of business model can create a conflict of interest. The dilemma starts when an advisor makes a recommendation of a product that will benefit his or her personal earnings. Is the product offered in the client’s best interest or in the interest of the advisor’s back pocket? This model can be extremely confusing for the client due to the lack of transparency of what the advisor is truly earning for the services rendered.
A fee-based advisor is an advisor who receives some commissions and charges a fee for other services. For example, a fee-based advisor may charge a flat fee for a comprehensive financial plan but may receive commissions for investment products sold. This business model is not conflict free. Again, confusion over the total fees earned by the advisor can be created by this model.
Fee-only advisors offer the easiest model when it comes to understanding fees. What the client pays the advisor is what the advisor earns for services rendered. This creates a clean and understandable relationship between client and advisor when it comes to fees. The client can rest at ease that the advisor is making a recommendation that is in the client’s best interest and not the advisor’s pocketbook. This model also allows the advisor to make referrals to outside professionals with the client’s best interest in hand.
Fee-only advisors don’t sell products, period. This knocks down walls between the client and advisor and allows for a better understand from a transactional view. This means the client will always know where they stand with the advisor in terms of fees. This puts the advisor in a fiduciary position and allows advice to be delivered with the client’s best interest in hand.
The National Association of Personal Financial Advisors (NAPFA) is a champion of fee-only financial planning and is a great place to get more information regarding fee-only planning, as well as finding a planner in your area. WWW.NAPFA.org
Nashville, TN
http://www.vhfinancialmanagement.com/
While the push for consumer education regarding financial planning has grown over the last ten years or so, many folks still are confused about how financial planners are paid. Essentially, there are three types of planners: commissioned, fee-only, and fee-based.
Commissioned Advisors receive their pay from products they sell. This type of business model can create a conflict of interest. The dilemma starts when an advisor makes a recommendation of a product that will benefit his or her personal earnings. Is the product offered in the client’s best interest or in the interest of the advisor’s back pocket? This model can be extremely confusing for the client due to the lack of transparency of what the advisor is truly earning for the services rendered.
A fee-based advisor is an advisor who receives some commissions and charges a fee for other services. For example, a fee-based advisor may charge a flat fee for a comprehensive financial plan but may receive commissions for investment products sold. This business model is not conflict free. Again, confusion over the total fees earned by the advisor can be created by this model.
Fee-only advisors offer the easiest model when it comes to understanding fees. What the client pays the advisor is what the advisor earns for services rendered. This creates a clean and understandable relationship between client and advisor when it comes to fees. The client can rest at ease that the advisor is making a recommendation that is in the client’s best interest and not the advisor’s pocketbook. This model also allows the advisor to make referrals to outside professionals with the client’s best interest in hand.
Fee-only advisors don’t sell products, period. This knocks down walls between the client and advisor and allows for a better understand from a transactional view. This means the client will always know where they stand with the advisor in terms of fees. This puts the advisor in a fiduciary position and allows advice to be delivered with the client’s best interest in hand.
The National Association of Personal Financial Advisors (NAPFA) is a champion of fee-only financial planning and is a great place to get more information regarding fee-only planning, as well as finding a planner in your area. WWW.NAPFA.org
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