Tag Archives: financial advice

Required Minimum Distributions from Inherited IRAs

If you inherit an IRA and are not a spouse of the deceased you have two choices:

  1. You can cash it in and pay income taxes on the proceeds, or…
  2. You can defer the taxes on it and allow it to grow tax deferred.

An Inherited IRA (also known as a Beneficiary IRA) differs from a regular IRA and the two should not be combined.  A key difference between the two types of IRAs is how Required Minimum Distributions (RMDs) are calculated. Specifically, a different IRS table is used (the Single Life Table) to calculate the first year’s RMD from an Inherited IRA, and this initial calculation is used for the calculation of RMDs in subsequent years.

A second difference is that you are not required to take RMD distributions from a regular IRA until you turn 70 ½.  However, you are required to take an RMD from an Inherited IRA by the end of the year after you receive it.  This is true no matter the age of the deceased or the beneficiary’s age.

The amount of the RMD is based on value of the IRA at the end of the previous year and the age of the beneficiary.  The rules can get quite complicated and it’s usually a good idea to consult a professional to insure that you don’t run afoul of the IRS.  Penalties for not taking the RMD can be as high as 50%.

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What Makes Women’s Planning Needs Different?

While both men and women face challenges when it comes to planning for retirement, women often face greater obstacles.

Women, on average, live longer than men.  However, women’s average earnings are lower than men, according to a recent article in “Investment News,”  in part because of time taken off to raise children.  What this means is that on average, women tend to receive 42% less retirement income from Social Security and savings than men.

The combination of longer lives and lower expected retirement income means that women have a greater need for creative financial advice and planning.  The problem is finding the right advisor, one who understands the special needs and challenges women face.

A majority of women who participated in a recent study said they prefer a financial advisor who coordinates services with their other service professionals, such as accountants and attorneys.  They want explanations and guidance on employee benefits and social security claiming strategies.  They want advisors who take time to educate them on their options and why certain ones make more sense.  Yet many advisors do not offer these services.

Men tend to focus on investment returns and talk about beating an index.  Women tend to focus more on quality of life issues and experiences, on children and grandchildren, on meeting their goals without taking undue risk.

If your financial advisor doesn’t understand you and what’s important to you, it’s time you look for someone who does.

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7 Services that a Registered Investment Advisor (RIA) Provides

Investing is serious business.  How well you manage your investments can make the difference between a comfortable retirement and working ‘till you drop.  Most people use a financial advisor of some kind.

Back in the day, people opened an account with a major investment firm and used a broker who would call and make recommendations to buy or sell.  They were essentially stock and bond salesmen whose loyalty was to their firms.

That has all changed.

The trend now is away from the major firms and toward Registered Investment Advisors – RIAs.  RIAs are fiduciaries whose duty is to put their clients’ interests ahead of their own.  They help people plan their future and take over the every-day investing decisions for them.

What can an individual expect from an RIA?

  • Asset management. This means creating a portfolio appropriate to the client, making changes in the best interest of the client, and reacting to market conditions.
  • Financial planning. Organizing a client’s financial affairs.  Determining the best way of achieving the client’s objective.  Reviewing the client’s insurance and estate planning needs.
  • Reporting and record keeping. Maintaining the organization of finances.  Performance reporting.  Maintaining cost and purchase data.
  • Life planning. Helping the client uncover what they really want to accomplish and creating a roadmap to getting there.
  • Retirement planning. Providing a path to living well once the paycheck stops and people are dependent on fixed income sources and their personal savings.  Retirement is a major life change.  RIAs typically offer comprehensive retirement plans that help people decide when to retire and what how well they can live.
  • Estate planning. Leaving money to heirs and charities must be carefully planned or large portions of an estate can go to taxes or the wrong individuals.
  • Concierge services. This can include attending meetings with attorney, accountants or bankers.  It can include services such as buying cars, arranging for travel or hiring someone to pay bills.  Relations between an RIA and a client are often so close that they are even consulted on issues such are marriage or divorce.
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On Recent Market Volatility. An Open Letter to Our Clients.

And you thought we saw volatility last Thursday and Friday?…

It is normal to for you to wonder how all of this volatility affects your wealth.  As we are hearing it, China seems to be the straw that broke the camel’s market’s back.  Other forces added to the weight, including uncertainty over the timing of the Fed raising interest rates and the Greek debacle.  However, we do not think that any of these things are cause for long-term concern regarding your portfolios.  If you are feeling some stress because of the recent market volatility, remember:

Stock markets are supposed to go up and down

There have been over a dozen market pullbacks of at least 5% since March 2009, so this isn’t unprecedented.  We all realize that stocks are inherently volatile investments, and we must accept the fact in order to earn the expected higher long-term returns.  You have all undoubtedly heard us preach asset allocation and the importance of having a long-term, strategic view.  Your portfolio is invested in a model based on your unique financial and personal circumstances.  It is important to take the long view and realize that it is typical for bull markets to have corrections of 5% – 10%.

Market timing is a sucker’s game

None of us has a crystal ball.  Not even the traders and speculators on TV that want you to think that they do.  Luckily, you do not need a crystal ball to be a successful investor.  In times like these, it is best to keep your cool and stay invested.  Studies consistently show that missing just a few days of strong returns can affect your performance dramatically.  It is important to stay disciplined and not make short-term trading decisions based on fear and emotion.

Your portfolios are properly diversified

This is our most important point.  As we mentioned, we have invested your money in an appropriate allocation for you, so those investments that have not done as well as the stock indices the past couple of years (looking at you, bonds) should help cushion the blow from this market correction.  That is exactly why they are in there.  Having a mix of different types of investments is like having shocks and struts on your car – these things provide a smoother and more stable ride for your portfolio.  When the stock markets are going great, these other investments do cause drag, but we do not invest to beat an arbitrary benchmark, rather we invest to help you achieve your financial goals with the least amount of risk possible.

The things that are causing this correction are just noise

China is slowing.  So what?  To say that their growth rate is slowing is admitting that they are still growing, just at a slower pace.  Did anyone really expect them to grow at 20% per year forever?  Moreover, if you look at it from a numbers perspective, exports to China only account for 0.7% of U.S. GDP.

The Yuan is falling.  Just a few months ago weren’t the talking heads lamenting the thought of the Chinese yuan as the world’s new reserve currency?  Now that talking heads who brought you that idea are being proven wrong, they want you to believe that this is supposed to be bad, too?  Which is it that we are supposed to fear again?  We wrote a blog piece about this last week, so we won’t go into great detail rehashing it here, but our general reaction is, again: So what?

The Fed is going to raise interest rates. (Eventually.)  It was not that long ago that tapering was supposed to bring financial ruin to us all…  Look, we all know that the Fed is eventually going to raise rates.  We can argue about the timing, but whenever it finally happens and the federal funds rate increases by 0.25%, does anyone really think that will keep Apple from introducing the latest re-iteration of their products?  Or keep anyone from buying them?

We realize that we have been having some fun with things that may cause some of you serious concern.  What we do not take lightly as your advisors and financial fiduciaries is the amount of concern and care we place on your financial well-being.  In times like these, it is important to stay calm and avoid making hasty decisions that could harm you financially.  We will continue to monitor your portfolios with vigilance, and as always, please do not hesitate to contact us if you have any questions or concerns.

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The Challenges in Achieving Financial Security

We put together a new research report that looks at the challenges in achieving financial security for today’s investors and how creating a financial plan can help.

It wasn’t that long ago that achieving financial security was a relatively minor challenge and that financial planning was thought of as a discipline that only applied to the very wealthy.  Consider the fact that, just a few decades ago, the average life expectancy was 74 years.  At that time, a three-legged stool of Social Security, personal savings, and guaranteed pensions supported the majority of retirees.  It is no wonder that so few people were concerned with outliving their money!  However, much has changed since then.

This easy-to-read research report looks at the current investment environment, the challenges most people face that, if not addressed, can impede their financial well-being, the importance of setting financial goals, what financial planning really is, and how creating a financial plan can help you achieve financial security for you and your family.

If you’d like a free copy of this report, click here now to download it.

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The Human Element of Financial Planning

Much of what I read in the Financial Planning press is based on statistics. Some of it is even useful. But much of it does not take the human element into consideration.

Humans don’t have a single goal. Would you rather have a lot of money in the bank, or a bigger house? If you’re like most people you can’t have both.

Life is a series or compromises. The husband may want a sports car; his wife may prefer a min-van to haul the kids around.

John Lennon once said “Life is what happens while you are busy making other plans.” How many people started out life planning to travel the world ended up finding the love of their life, settling down and having kids?

The New York Times quotes Barnaby Riedel “Every single financial decision is moving you toward or away from your ideal life.”

Most amateur investors, even high-net-worth people, require guidance from investment and planning professionals to fully understand the trade-offs they are making when they make financial decisions. Without informed analysis deciding to buy a new house, take expensive vacations, funding college, and a long list of other financial decisions all interact and can eventually force people to make trade-offs.

Many people take a seat of the pants approach and end up either spending too much or depriving themselves of things they can afford. To get a better idea of whether your financial decisions are moving you toward or away from your ideal life, call a financial advisor. 

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What are the least expensive cars to insure.

When you get ready to buy that new car one of the issues you should consider is: how much is it going to cost to insure? Insurance rates vary widely by state, the age of the driver, the driver’s accident history and the kind of car her or she drives. All things being equal, cars that are less expensive to repair and have fewer claims cost less to insure.

Below is a list compiled by “insure.com” for a 40 year-old male with a good driving record. The premium is the average of premiums throughout the country.

10.Ford Escape S 2WD
$1,190 average annual premium

9.Smart FORTWO Pure
$1,186 average annual premium

8.Ford Edge SE 2WD
$1,176 average annual premium

7.Subaru Outback 2.5i (tie with No. 8)
$1,176 average annual premium

6.Jeep Compass Sport 2WD
$1,164 average annual premium

5.Honda Odyssey LX
$1,163 average annual premium

4.Dodge Grand Caravan SE Plus
$1,162 average annual premium

3.Honda CR-V LX 4WD
$1,160 average annual premium

2.Jeep Patriot Sport 2WD
$1,136 average annual premium

1.Jeep Wrangler Sport 4WD
$1,134 average annual premium

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What to do if you win the lottery

Lottery winners so often end up broke that it’s become a common story. If you want to break the curse of the lottery winner here are a few simple things you can do.

1. Lottery winners usually go on a spending binge because they now have more money that they ever imagined. This leads them to believe their new-found wealth is endless. It’s not. Kings, potentates, even countries (see Greece) have gone broke; even billionaires can run out of money. The financial object of a lottery winner should be to insure that then never end up broke, even if they live a long time. There are ways of insuring that you won’t run out of money. The first thing you need to do after receiving that check is to get a good, honest financial advisor.

2. Lottery winners attract people like bees to honey. These can be relatives, friends, strangers who heard about the winner’s good fortune. They want gifts (and you want to give them), they expect you to pick up the check. The most dangerous are the people who come to you with “deals” that will make you even richer. One of the best ways to handle this is to refer everyone to your financial advisor; explain that he’s the person who’s handling your finances. That way you are not the one turning anyone away.

3. Lottery winners have tax issues that they never had before. Before accepting that check, it’s a good idea to organize a small team – quarterbacked by your financial advisor – that includes a including a CPA and an attorney.

Buying a lottery ticket is not a wise investment. If you beat astronomical odds and win, you are the same person you were before even though people will suddenly find you incredibly witty, smart and good looking. But if you must buy a ticket – and win – keep these ideas in mind.


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Does my financial advisor need to be local to my area to be successful with me?

The question in the headline was recently posted on a website which helps people get answers about basic financial questions.  It’s an interesting question.  Here is my answer:

The question is a good one and influences both clients and advisors. Because the majority of advisors have limited budgets, they have a tendency to focus their outreach on the city or region where they are located. From the perspective of people seeking financial advice, most assume that they will have greater confidence in advisors they have been able to meet in person.

After decades in the business I can attest that many of my client relationships began with a personal meeting. On the other hand, I have some clients whom I have never met. Today many of my clients live far enough away that personal meetings are not practical. Some have changed jobs and moved to another state, others moved to be nearer to their children. They have all remained clients and almost all have become friends. Regular telephone, e-mail and other forms of electronic communication have made the old-fashioned personal meeting much less necessary or even desirable. Why drive or fly when you can have the same meeting from the comfort of your home or office?

Many of the people we advise are retired and a fair number of them are widows.  For many of these we provide the investment management that was once the sole responsibility of the husband.  We provide this critical support no matter where the widow lives, even if she moves to be nearer her children.  We are frequently asked to mange the estate, and the investments of the children who inherit the estate, often despite the fact the we may never have met.

So the answer is: no; it’s not necessary to have a local financial advisor to have a successful relationship.  What it requires is confidence that the financial advisor will work in your best interest, no matter where he is located.

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The Unexpected Question

In the three decades I have been a financial advisor, there is one question that will remain in my memory forever. It was early in my career. I was meeting with a young couple who were making long term plans. Near the end of our discussion the wife asked me “What will happen to us when you die?” I was momentarily stunned. I mumbled something about not being that old.

Actually, while the question is unusual, it’s actually a good one. Advisors and clients beginning a relationship should expect it to last a long time. It’s often like a marriage: “till death do you part.” But what does a client do when someone who has been providing financial advice retires or dies?

When looking for advice, most people look for someone with experience. When I look for a doctor, I prefer someone who has been practicing for a while. I like my surgeons to practice and make their mistakes on someone else. A good financial advisor doesn’t have to be old, but it helps to know that he has been through several market cycles. Experience is mostly gained with time and that can be a problem. According to a recent study, 43% of advisors are nearing retirement. That means that if you are middle-aged, there’s a good chance you will lose your financial advisor at the very worst time: as you and your spouse enter retirement.   That’s not the time to have to find someone new.

There is an answer. If another couple were to ask me the same question I was asked nearly 30 years ago, I’d have a great answer. It just happened that my interest in investing carried over to my son, Stephen. He attended Virginia Tech, majoring in Finance with an emphasis on risk management. Upon graduation he became an analyst for one of the top investment management consulting firms in the world: Cambridge Associates. They provide advice and portfolio guidance to some of the country’s largest institutions and ultra-wealthy families.

I was able to persuade him to join me 10 years ago and put his expertise to work for my clients. We have been a great team ever since.   As a team, we manage money the way institutions do, with individual goals and emphasis on controlling risk. At Korving & Company we offer our clients a rare combination of age and experience that won’t be found at other investment firms.

Call us for our White Paper: “Eight Steps for a Better Retirement.”

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