Monthly Archives: June 2014

What is the retiree’s biggest fear?

The retiree’s biggest fear is running out of money.

According to a recent survey, six out of ten retirees say they’re worried about their finances.  Their two biggest fears are getting sick and losing their assets to pay for medical care.  Their next greatest fear is that they’ll stay healthy and outlive their money.

And little wonder.  Interest rates on savings accounts have been near zero for years.  The stock markets remain scary to many potential investors.  And while the official inflation numbers are low, anyone who has shopped for food, filled their gas tank or visited a doctor knows that prices are going up rapidly.

This is a daunting environment for people who are managing their investments on their own.

Still others think they have diversified by having several “financial advisors” and accounts at several major investment firms.  What they actually end up having are accounts with several investment salesmen who make their money by selling them investment products.

How do high-net-worth families manage their finances?  Most prefer to work with a single firm to manage all their financial needs.  It’s a mistake to depend on stock and bond salesmen when it comes to providing planning and guidance.  They want someone who acts as a fiduciary.  A fiduciary is someone who puts your needs and ahead of his own.  That describes a fee-only RIA (Registered Investment Advisor) like Korving & Company.  Our concerns are your concerns.  Our goal is to alleviate people’s fears of running out of money in retirement.

Check out our website and see what we offer to families approaching retirement and those already in retirement.  And download and read the first three chapters of BEFORE I GO, free.

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The value of an RIA (Registered Investment Advisor) as your financial advisor.

The value of having a financial advisor may not be what you think, unless you have the right kind of advisor. People don’t hire an advisor to beat the market, or to plan tax strategies. People hire an advisor to free them from worrying about their money and allow them to do what they want to do. Here’s an example from another advisor:

I had an appointment scheduled [with a couple], but the wife showed up first. Her husband was coming from work, and he had gotten stuck in traffic. The wife and I began talking casually as we waited for her husband to arrive. She started telling me some of the ways that working with a financial advisor had helped their family. She and her husband had taken several vacations as a couple and also gone on some trips with their kids. These were things they wouldn’t necessarily have felt comfortable doing before, because they would’ve considered them extravagant. Previously, they couldn’t have taken these trips without spending the whole time worrying about whether or not they could afford them. But thanks to our work together, they had felt free to do so — and they had made some really valuable memories.

I was surprised to hear all that, partly because I hadn’t known about these vacations, and also because the client seemed to value something in the advisory relationship that was different from what I would typically think of as being [my role].

If you think of a financial advisor as a stockbroker who’s going to sell you investments, you have the wrong idea. Registered Investment Advisors, like Korving & Company, act as the family’s “Chief Investment Officer.”  We provide people peace of mind about their finances, so that they can spend more time on the things in life that bring them the most happiness.

Check our new Korving & Company website and learn more about us.

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New Website for Korving & Company

Hello!

I’m excited to announce our newly redesigned website with lots of new features designed with our clients in mind. The address has not changed, it’s still www.korvingco.com.

It has a new look and many new features. Go there and you’ll find:

  • A link to our book: BEFORE I GO. You can even download the first three chapters.
  • My interview on “The Hampton Roads Show.”
  • Our latest blog posts. These are updated regularly. Our blog was recently recognized as one of the top financial blogs.
  • Our latest research paper “8 Tips for a Better Retirement.”
  • Online appointment booking – schedule phone calls or reviews with us online, when it’s convenient for you.
  • A form to send us a message.
  • A link to your Schwab account.
  • A link to your Lock Box.
  • Links to our social media pages.

We’ve worked hard to make this a website our clients can use and visit regularly. It has even been “mobile optimized” to show up better on your cell phone or tablet computer. Feel free pass this e-mail or a link to our website to family and friends. We still have some room for the right kind of clients.

If you belong to a group that’s looking for speakers, let us know. We’ll try to provide an entertaining and educational experience.

As always, we welcome your comments or suggestions for improving our service.

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More information on Social Security benefits.

Let’s face it, Social Security is a confusing mix of benefits.  Depending on your age, health, marital status and the age of your spouse, your benefits can vary significantly.  Once you make a decision, it’s often impossible to change your mind or correct a mistake.

For example, how do you determine the Social Security benefits available to a 50-year-old disabled divorcee whose ex-spouse is deceased?

We have a series of “Social Security Savvy” guides available for people in different stages of life to help answer those questions.  They are titled:

  • Making Smart Decisions if you are Married.
  • Making Smart Decisions if you are Divorced.
  • Making Smart Decisions if you are Widowed.

For copies of these brief, easy-to-read guides, contact us via our website or e-mail us.

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401k Distribution after Death

People who leave an employer frequently leave their 401(k) behind.  Usually, the wise thing to do is to roll that 401(k) into a rollover IRA.  But with so many other things to do when changing jobs, deciding what to do with the old 401(k) is often low on the list of priorities.

But there is another way of leaving an employer other than changing jobs.  Some people die while still employed.  And here is where the issue can get tricky.

When funds are left in a 401k after death, those must be distributed to the benefactor chosen by the participant. The way they are distributed depends on the choices of the company administering the 401k along with personal choices of the benefactor.

There are two rules that apply to an after-death distribution. One of the two must be used in all cases. The first allows for payments to be made within 5 years of the death of the participant. The second option allows a benefactor to received payments through his or her lifetime on a regular basis. The company administering the 401k may limit the option it will provide. Or, the benefactor may choose the preferred option. In any case, the election must be made by December 31 in the year of the death of the participant.

If the surviving spouse is not aware of this rule and decides to leave the 401(k) with the employer, it’s entirely possible that he or she will receive a check for the entire amount of the 401(k) five years after death, minus 20% federal tax withholding.  If the amount in the 401(k) is substantial the entire amount may be taxed.  It is possible to roll the proceeds into an IRA if it’s done in time, but to avoid paying an income tax on the federal tax that was withheld, the amount of the tax has to be added to the rollover.  This creates a very unpleasant surprise for the surviving spouse.

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What is the purpose of a stock market?

Before there was a stock market, there were stock companies.

A stock company allows individuals to pool their money to create an organization to operate and grow.  Stock is used to determine how much a person owns of a company.  Owning a stock does not necessarily create wealth.  Wealth creation can only occur if the stock can be sold to someone else who is willing to pay you more for it than what you originally paid.  This led to the creation of a market for people who owned shares in stock companies.

A stock market has two functions.  First, it allows the owners of stock to sell their ownership interest easily and quickly.  Second, it also allows people who would like to be owners to buy an ownership interest quickly and easily.  Now even people who do not have substantial financial resources can participate in the growth in value of large enterprises.

For example, the founders of Apple were able to raise money for their company by selling their shares of Apple stock to people who were willing to bet that the company would be successful.  That was 1976.  In 1980 the shares of Apple were first allowed to be publicly traded.  As a result, the founding shareholders were able to profit from their original investment and the company itself raised millions of dollars that it could invest in growth.  It also allowed people who did not personally know the founders to become partial owners and benefit from the company’s growth.  The stock market allowed people who believed in Apple computers to bet on the company’s future, and also provided them with a ready market for their shares if they needed to sell or decided they no longer believed in the company’s future.

The bottom line is that the stock market creates liquidity.  Without liquidity it becomes much harder for a company to raise the capital it needs to grow in a modern economy.

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What do younger investors want?

Schwab did a study about affluent investors aged 30 – 45.  The study wanted to determine what matters to this group, how they make decisions and their attitude toward investing.  That age group controls nearly $3.5 trillion in investable assets.  Schwab is interested because they are the top custodian for independent Registered Investment Advisors (RIAs) like Korving & Company and believe that RIAs are best able to service this group.

So what do these investors have in common?

  • The study revealed that they are anxious and insecure about the future because they have already experienced a couple of major economic crises, domestic terrorism, unemployment and several financial bubbles.
  • They don’t trust the industry, believing that they recite corporate talking points and don’t really care about them.
  • They are short-term focused and like to keep large amounts of cash as a safety net they can trust.
  • Success for them is “having the freedom to avoid hardship and to not be a burden to others.”

I should add that people in this age group are less likely to work for a company that offers a pension, making them more dependent on themselves for retirement.  Except for that, in many respects, this generation is not very different from preceding ones, except that they are more apt to rely on digital communication and the Internet, having grown up with computers.  Many in this group cannot differentiate between types of financial advisors, and do not understand the difference between the independent RIAs and the brokers that work for the “big box” stores.

Schwab’s conclusion:

“Our findings reveal that Generation Now investors want a trusted guide with expert knowledge who deeply understands them and their unique needs.  We believe independent advisors fit that need, but this generation just doesn’t know it yet.”

“Their ideal financial advisor relationship is with one whom they can build a trusted and transparent relationship, based on empathy and understanding of the whole person, not just their financial goals,” Schwab says.

“They want their advisor to provide planning and financial advice alongside expert advice in other related areas, such as tax or insurance.  Generation Now also expects to be heavily involved in decisions regarding their investment strategy.

“Advisor accessibility is important to this group.  They want to be able to communicate with advisors whenever, wherever, through a combination of in-person meetings as well as voice, text, e-mail and videoconferencing.”

It sounds as if this generation is looking for firms like ours.  Check out our new website.

Comments?

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Retirement income and the 4% rule

There is nothing that worries retirees more than the fear that they will outlive their money.  There has been a great deal of interest in how much a retiree can take from his investments “safely.”  The 4% Rule was based on analysis done by William Bengen, a Financial Planner who published an influential paper in the Journal of Financial Planning in 1994.  Simply put, the “Rule” states that

 A person entering retirement could begin by taking up to 4% of their initial portfolio value, adjusting it each year for inflation, without fear of outliving their money

His analysis assumed that a person would begin taking a distribution from his portfolio at retirement and live 30 years.

The “4% Rule” has been widely used by people specializing in retirement planning.  There have been quite a number of articles both supporting and questioning if this is still a good way for people to manage their retirement income.  We believe that it’s a good starting point because Bengen’s analysis is based on a study using rates of return that include some of the worst financial-markets crises in U.S. history.

In many cases, retirees don’t need to draw down their portfolios at 4%.  Many want to leave a legacy for their heirs.  Bengen’s analysis also assumes that the client retires in their mid-60’s and has an average life-span.  Each individual is different and has different objectives.  We are happy to respond to your questions on retirement investing.

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Getting to Retirement

The goal of just about everyone working for a living is one day to say goodbye to the daily routine of going to work. In the US the average age of retirement is 62. Unfortunately, many people will not have enough to retire at that age and live the life they want. If you are within 5 to 10 years of retirement and want to know if you’ll have enough, here’s a suggestion: get help.

Here’s why:

The age of the guaranteed pension are ending. For many it’s already gone. Much of the income you will spend in retirement will come from your own savings and investments. Mistakes can add years to the date you finally retire. Even worse, investing mistakes can force you back to work.

One of the most common questions is: how much should you be saving now to reach your goal? A second linked to it is: where should this saving come from? A third is: how should it be invested?

What’s more important: saving for retirement or saving for your children’s education? The cost of college is making that a dilemma these days. Every parent wants their children to get a head start in life, but what will that mean for your retirement?

What about Social Security? Will it be there for you, and when should you begin taking it? Take it early, just in time, or delay till later?

What kind of insurance will you need once you leave the workforce? If you are currently covered by a company policy what will happen once you retire?

We recently published a White Paper “Eight Tips for a Better Retirement.” For a free copy  (or to discuss your own situation), send a request to the link below.

 

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We’re Number 26!

The rankings for this list of the top 50 financial advisor blogs and bloggers are determined using website metrics measured by Moz Analytics, including page authority, external links to the blog, and total links. … Blogs must operate on a standalone advisor-controlled domain or subdomain to be considered (i.e., blogs published solely on a larger multi-blog platform will not be considered).

To be eligible, advisors must actually be registered as such, either through an SEC- or state-registered RIA, or as a registered representative of a broker-dealer.

Thank to our loyal readers.  Tell your friends and let’s get closer to the top next month!

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