One of the most important numbers most people consider when they plan their retirement is also the one that gets them in trouble: their age. The right way to consider age in financial planning is to use it to plan an effective retirement horizon – how many years will you need to fund and how likely are you to need to pay for some form of long term care. The wrong way to consider age is to use it to defend an otherwise random decision to stop working. It is extremely dangerous to base your retirement on the feeling that you are entitled to it. “Listen, I’ve worked hard for 35 years and I’m already five years older than my dad was when he retired,” goes the common though flawed rationale. “I’m done. I’m out. “ Asked what they intend to do when their money runs out (as it probably will), they respond, “I’ll figure that out when it happens.” Well, that won’t work. You can’t take out a loan to fund your retirement, and, as your money runs out you find yourself less and less in control of the life choices you took for granted. To establish the financial freedom you need to enjoy your retirement, you need to be proactive. Here are seven steps you need to take before you decide to retire (and none of them involves your age): Establish a budget. This tedious task yields a key number to consider when planning your retirement – how much money you will need each month. Of course your retirement budget will look a little different than your working budget – for one thing you’ll be withdrawing, not contributing, to a retirement plan. But the best place to start planning is by figuring out your outflow now. Develop disciplined spending habits. Don’t spend money you don’t have. Plan for large expenditures and try to keep debt under control. If… | Read More »
Many people list outliving their money as their greatest fear, but few are willing to lift the covers and coax that monster out from under their beds. “I’m not going to think about it,” they say to themselves on the toss-and-turning nights they spend doing just that. “If I don’t think about it, it won’t happen to me.” It does happen, though, and more often than they think. People who haven’t planned well do run out of money and, as a result, lose control over some choices they’ve taken for granted such as where to live, what to eat and how to spend their free time. The average cost of assisted living in Wisconsin is $4,004 per month, and, even if you’ve settled yourself comfortably into an assisted living facility, established great relationships with the staff, made friends and looked forward to the excursions and weekly Tai Chi, you will not be able to stay if you can’t make those payments. Medicaid does not pay for assisted living. It does pay some costs of nursing home care, but only for those who qualify financially. The average cost of nursing home care in Wisconsin is $8,430 a month, with costs rising an average of 3% annually. Would your budget withstand an $8,430+ hit each month and, if so, for how long? In the past, the only choice for people who wanted to protect themselves from skyrocketing nursing home costs was Long Term Care insurance. While these stand-alone policies remain valid options for some, they do not appeal to everyone. Many express concerns about pouring so much money into a policy on which they may never make a claim. Self- funding is an option, but only for those who can set aside nearly $2 million for that purpose. To generate $101,160 per year at 5% rate of return you would need $2,023,200 in order to maintain principal year after year. As strong… | Read More »
The single most important thing you need to know about risk as you plan your retirement is that you can’t avoid it. The less risk you’re willing to take in the stock market, the more vulnerable you make yourself to inflation risk. If you overweight your portfolio to bonds because you want to avoid market risk, you end up facing business and interest rate risk. In general, the financial planning industry lists seven types of risks all investors face: default, business, liquidity, inflation, interest rate, political and market risks. Each risk affects the balance of your retirement portfolio, but you control the position of the fulcrum. We call that risk tolerance and we ask all clients and prospective clients to answer a series of questions to determine theirs. Most people find that their risk tolerance decreases as the get closer to retirement for both practical and emotional reasons. They have less time to make up for any sudden dips in the market and probably should shift assets onto more stable ground as they anticipate withdrawing from them Additionally, their sleeping level decreases as they become more hyper-focused on their accounts. Other factors influencing risk tolerance include major life changes like marriage, divorce, promotions, job loss, birth of children, inheritance, home purchase, caring for elderly parents, medical disability etc. Because these dramatic changes can have a profound effect on your risk tolerance, it is important to check your risk tolerance periodically, particularly after experiencing any of these events. According to Finametrica, the risk tolerance surveyor to which we subscribe, the first part of the process is determining how much risk is required for you to meet your goals: What annual return will you need on your investments to meet them, given what you think you can save? Next, figure out your risk capacity, which is different from your risk tolerance. Given your budget, retirement timeline and financial assets, how much risk… | Read More »
Frederik B. Wilcox left a multi-layered legacy when he died in 1965. A champion of both risk and prudence, he famously wrote, “Progress always involves risk. You can’t steal second base and keep your foot on first.” Thanks to those oft-quoted words, Wilcox will be remembered for his wit, and, based on his financial wisdom, he’ll also be remembered for his will. Two years ago, a bequest by Wilcox granted the largest unrestricted gift to the Rhode Island Foundation in its 100-year-history. An investment banker who forged his way from humble beginnings, Wilcox left a trust of about $1 million, to be overseen by his daughter, Nancy W. Mattis. He specified that 60 percent of whatever it had grown to at the time of her own passing would be given to the Rhode Island Foundation. Due to her careful stewardship, the trust grew to $48 million by the time she died in 2016 at age 95. Based on his foresight and her care, the foundation received $28 million in unrestricted funds, a grand slam for the smallest state in the union and a testament to the lasting power of estate planning. The Wilcox plan worked beautifully for several reasons. First, he set up his legacy plan carefully and designated beneficiaries based on his own passions and beliefs. Then, he chose a capable (turns out gifted) trustee to manage the account. Lastly, he vetted his beneficiary carefully and understood that the Rhode Island Foundation would be solvent and prepared to handle his generous bequest a half century after he made it. Mr. Wilcox began his life impoverished, but he’ll be remembered for generations thanks to astute estate planning. At Winch Financial, we don’t just recognize exceptional legacies, we help build them. If you or anyone you know has any questions regarding estate planning, please contact us. We’re always glad to help.
In a digital age, it’s becoming easier to do away with the paperwork that accumulates through a lifetime. Still, the piles seem to grow each time you look away. We can’t tell you how to sort through the adorable artwork you’ve collected from children and grandchildren over the years, but we can help you navigate those ubiquitous stacks of financial forms. We’ve developed a quick-look chart to help sort, preserve and/or discard various financial items. If you don’t want to keep the paper receipts, you could scan them and store them in an external hard drive, or secure on-line file sharing service. Just make sure your passwords are also stored securely but can be accessed by your Power of Attorney should you become indisposed. As an additional convenience and to reduce the paperwork further, we recommend choosing on-line access to your accounts when possible. If you have any questions about how to dispose of your financial paperwork, please feel free to give us a call. We’ll help spring clean your paperwork, but you’re on your own when it comes to washing those windows. Type of Document How Long to Keep It Where to Store It Bank and brokerage statements; cancelled checks At least 1 year, longer if expenses are deductible Filing cabinet Social security card; birth and marriage certificates; passport Indefinitely Fireproof box or safe-deposit box Current insurance policies Indefinitely (toss outdated policies) Safe-deposit box or fireproof box Stock and bond certificates Indefinitely Safe-deposit box (keep a list of these items in a fireproof box) ATM receipts Until transaction is posted to statement Filing cabinet Tax returns At least seven years Filing cabinet Mortgage paperwork At least until paid off Fireproof box Loan paperwork At least until paid off Filing cabinet Property deeds Indefinitely Safe-deposit box Car titles As long as you own the car Safe-deposit box Credit card statements One year (longer if charges are deductible) Filing cabinet… | Read More »