What is Wealth Management?

May 12, 2016 by Sam Curmaci

Not many Americans will have enough money saved for retirement. Some will have to continue working in order to pay the bills. You don’t want that to be you, so you’ve shown an interest in wealth management and investment. But what exactly is wealth management? Where does investment fit in with wealth management? Continue reading to learn what wealth management is, how it benefits you, and clear up any misconceptions over the term.

Everything You Need for Reaching Your Financial Goals

Wealth management is a service that consists of financial advice, investment advice, accounting, tax preparation, retirement planning, and estate planning. For one payment, you have access to all of those services when you’re paying a wealth manager. How does the wealth manager know all of this information? He works with other financial experts in order to give solid advice. You can request that he listens to input from your accountant, attorney, or insurance agent along with the other experts. A few wealth managers will also advise on philanthropic activities upon request. Banking services isn’t offered by all wealth managers but you’ll find a few who do.

A Wealth Manager Can Address Any Financial Issue

Wealth management encompasses all areas of a person’s financial life. The goal of being a wealth manager is to address all financial needs of the client, so that he doesn’t need to hire numerous financial experts for each type of financial need. Isn’t it more convenient to consult ONE person for managing your money, setting and achieving financial goals, and planning for your family’s future?

What Happens When You Hire a Wealth Manager?

When you hire a wealth manager, usually the first thing he will do is draft a plan for you that is designed to maintain and increase your wealth guided by your comfort level with risk, current financial status, and financial goals. After the plan is written, the wealth manager regularly meets with the client to check his progress on his goals, review and rebalance the financial portfolio, update his goals, and determine whether or not other services are needed. A wealth manager strives to follow clients throughout their lives, which helps a person feel cared about.

Wealth Management is Not the Same as Investment Management

By now, you’ve probably realized that wealth management is not synonymous with investment management. Wealth management can include investment management, but it’s much more than that. Some people mistakenly think that wealth management is the same as investment management. An investment manager is concerned with finding the best stocks, ETFs, bonds, and other types of investments for clients. But he doesn’t stray from investments.

Benefits of Wealth Management

You can find good investments more efficiently.
Wealth managers are active with your retirement planning and can point out an ideal course of action for you based on your unique situation.
A wealth manager will help you effectively manage risk.
You’ll have enough money saved for retirement or can at least get more saved than you would have without wealth management.
Wealth management is goal-oriented, which encourages you to think about what you want and how to get it instead of going through life aimlessly.

Conclusion

Wealth management is a service you need if you want to be one of the few who can comfortably live after retirement. Unless you went to college for finance, then you’re not going to be the best person to handle your financial portfolio. You’ll want to consult with an expert who can guide you down the fastest path toward achieving your financial goals. If you go at it alone, it will take you longer and you will make mistakes that could have been avoided with a helping hand.

Schedule a chat with us to learn about how we can help you reach your financial goals.

Financial Planning to Fulfill Your Retirement Dreams

April 8, 2016 by Sam Curmaci

saving for retirement — It’s never too early to start financial planning for your retirement dream.

Many people think of retirement as some time in the distant future. They don’t realize that retirement is coming closer to them as time goes by. And since they keep putting off retirement planning, it might sneak up on them. And they may not have a plan about what they’re going to do or how much money they might need to do it.

You don’t want to be forced to keep working when you’re ready to retire. At the same time, you also want to have an idea of what you’d like to do with your time once you’re not working anymore. So it’s important to have a plan, both financial and otherwise. If you’re wondering whether you’ll have enough money to retire, here are a few things you may want to consider:

Ideally, What Would I Like to Do Once I Retire?

Do you have a dream of moving to Jamaica and lounging on the beach when you retire? Or do you want to have a home close to where your children live so that you can spend them with them? Have you been hoping to travel more? Or are there certain hobbies and interests that you would like to develop once you have the time to do so? You might even want to go back to school and finish that Ph.D. you started in your thirties.

Some of these dreams might seem impractical or even silly. However, they’re your dreams. So you have to do what you can to make them come true. However, the first step to actualizing your dreams is to know what they are. This means you need to sit down and think about what you’d really like to do. Write it all down if you want. Or just create a mental picture. Speak to your spouse about what they might want to do when they retire. This way, the two of you can come up with a plan together.

How Much Will It Cost?

Sometimes, the things that you want to do when you retire are pretty modest. Maybe you just want money to continue living the way you live and take a few art classes at the local community college. Or you might have bigger plans, such as moving to Jamaica.

It’s a good idea to do some research into how much everything is going to cost. If you retire at 65 and you come from a family of nonagenarians, you’re going to need to figure out how to live for 25 years, at the very least. You’ll also have to factor in the rate of inflation.

If you own your home, you’re in a good position. But if you have a mortgage that hasn’t been paid off or any other large loans, think about what you need to do to make sure that you aren’t plagued by these issues in your retirement years.

How Do I Prepare Myself Financially?

It’s a good idea to work with a financial advisor before you reach the age of retirement. Figure out what your options are. Does it make more sense to pay off your mortgage or other loans first? Or is it a better idea to make moderate payments and start investing the rest of your money? And if you’re thinking about investing, what types of investments would be best for you?

You can never go wrong with safer investments, even if they don’t yield too much in terms of interest. Your money will still be growing and you won’t risk losing it. At the same time, if you feel confident about moving into high-risk investments, with at least some of the funds at your disposal, it’s not a bad idea to do so while you’re still working. In general, a financial advisor will tell you to reduce the amount of risk you take on as you grow older and get closer to retirement age.

SEP-IRAs: Why Sole Proprietors and Small-Business Owners Should Consider Them

March 17, 2016 by Sam Curmaci

Simplified Employee Pension (SEP) IRA plan accounts are a common retirement plan choice for small businesses because of their simplicity.

In this post, we’ll explore SEP-IRAs in more detail, answering some frequently asked questions about what SEP-IRAs are, who should consider establishing them, and the mechanics involved in opening them.

Who needs a SEP IRA — SEP IRAs are a simple, flexible, and tax-deductible retirement plan option for sole proprietors and small businesses.

What are SEP-IRAs?

SEP-IRAs are retirement plans for sole proprietors and small businesses, funded entirely from employer contributions. These plans provide a way for small business owners to provide retirement savings for their employees (including themselves).

SEP-IRA accounts follow the same rules as traditional IRA accounts when it comes to taxation of growth and distributions.

Who can establish a SEP-IRA?

Sole proprietors, partnerships, and corporations (including S Corporations) can establish SEP-IRAs.

What are the benefits of establishing a SEP-IRA?

Some of the many benefits of SEP-IRAs include the following:

Your contributions, as an employer, are tax-deductible, and your business is not responsible for taxes on any of the earnings.
SEP-IRAs are easy to establish, and there are typically no forms or approvals required from the government.
Ongoing administrative costs are low.
You have enormous flexibility to decide whether to make contributions for any given year or not, and how much to contribute. However, if you do decide to make contributions, you must contribute to all employee accounts proportionally (as the same percentage of salary) and cannot discriminate.
In the first three years of your plan, you may be eligible for a $500 tax credit each year (talk to your tax professional to determine whether your business is eligible.)
Contributions made on your employees’ behalf are not considered taxable income to the employees.

How can a small business owner set up a SEP-IRA?

Setting up a SEP-IRA is actually fairly simple, especially when compared to the steps involved to establish many other business retirement plans:

Contact a retirement plan or investment professional (such as S.A.C. Investments) to establish the plan. Choose a provider who has experience working with small business retirement plans.
Complete the proper plan documentation to set up your plan. Most companies use the model plan contribution agreement provided by the IRS (Form 5305-SEP.)
Give a copy of the completed plan contribution agreement to your employees. Providing the document to employees is a required step in officially adopting a SEP-IRA plan for your business.

What else should business owners know about SEP-IRAs?

SEP-IRAs can be started as late as the due date (including extensions!) for taxes. So, if a business’ tax filing deadline for 2015 is April 15, 2016 but a 6 month extension is filed, the business actually has until September 15, 2016 to make the initial contribution for 2015 tax purposes.
Once you have established your SEP-IRA plan, you are responsible for forwarding plan contributions to the trustee (generally through your retirement plan professional or other investment professional.)
Your contributions, as an employer, to all of your employee benefit plans for each employee cannot be greater than the lessor of 25% of an employee’s compensation for the year, or $53,000 (for 2015 and 2016; this number is established by theIRS each year and is indexed for inflation.)
Remember that employees cannot defer their own salary and make contributions to their SEP-IRA accounts, however if you are a sole proprietor and you draw a salary from your company, you can establish and contribute to a SEP-IRA account for yourself.
If you establish a SEP-IRA, you must include all of your employees who are at least 21 years old and who have worked for you at least 3 of the last 5 years. This includes not only full-time employees, but also part-time employees and seasonal employees.

SEP-IRAs can be an important and valuable benefit for both your employees, and for your business. For more reading about SEP-IRAs, check out these resources:

To learn more about how S.A.C. Investments can help you with your small business retirement plan, contact us today!

Investing for retirement means overcoming the ‘stealth tax:’ Inflation

March 10, 2016 by Sam Curmaci

As a successful investor investing for retirement throughout your working years—accumulation phase as Forbes magazine refers to it—you always sought the right advice to build a balanced portfolio, the kind that brought you to retirement’s threshold in sound financial shape.

Now, you’re big concern is not only to make sure you have the income to support your retirement goals but that it is protected by that ‘stealth tax’ referred to as inflation.

Unfortunately, many investors nearing retirement with too little money to support their expected lifestyle may panic and begin taking unnecessary financial risks.

Obviously, such investors who are usually ‘late to the game,’ realize they no longer have the time horizons that younger investors enjoy to grow their assets.

Growing assets and total returns

With good advice along the way you structured the portfolio to achieve the highest asset growth and total returns. More importantly, you did so with investments and risk tolerance suitable to your age—the kind that let you sleep well at night if markets were to tank.

But the added risk of simply living longer puts even more stresses on these growing assets. What’s more, the idea of not outliving your investments heightens the need to invest smartly.

Keeping up with inflation

Indeed, aside from saving wisely during those working years, the portfolio must be designed to keep ahead of inflation: income streams must be there to help pay for living expenses, particularly increased health costs.

Searching for the ‘right’ number

But what is a good number, a reasonable percentage of pre-retirement income, that required for retirement?

Financial gurus have told us that we should look at replacing 75 to 85 percent of the income we had during our working years leading up to retirement.

Now, however, the Financial Planning Association, as noted in a WSJ piece, those percentages are on the lower end of the spectrum. Because of the ever-rising costs in healthcare, investors need to plan on “replacing 92 percent of theirpreretirement income (The Wall Street Journal, from A Guide to Financial Planning: “The Long Haul.”)

Three tactics for the long haul

Aside from a portfolio that reflects the age of the investor, retirement time-horizon and risk tolerance, the savvy investor must embrace a strategy aimed at protecting purchasing power. Moreover, the investor’s assets must not only be preserved, but considerations on how to reduce taxes should also accompany this game plan, notes the WSJ overview.

A 3% inflation rate can diminish purchasing power

We can never escape the escalation of consumer prices, health care costs and other retirement expenses. But a diminished purchasing power can deliver a wallop to any well-planned budgeting.

For example, if the annual inflation rate is 3%, then the cost-of-living will double over 23 years.

Holding ‘stocks’ can help fight inflation

The ideal portfolio should include stocks and stock mutual funds with a long-term outlook that will, most likely, be a good defense against inflation: The longer stocks are held in the portfolio, the better the chances for equities to come-back from down markets while allowing the reinvestment of dividends to increase total return.

In fact, the Wall Street noted back in 2013 that “stocks as a long-term investment” were ‘beating inflation for the first time since the 1990s.’ (Wall Street Journal, December 20, 2013.)

Dividend reinvestment: A smart way to counter inflation

Investing in large, stable companies, the kind that have a strong history of paying dividends, is another plus to the portfolio in battling inflation. Think of the ‘reinvesting’ as a smart way to see the power of compounding interest.

While bonds do have a place in the retiree’s portfolio to provide a stable source of income, stocks paying dividends bolster the chances of meeting or beating inflation.

Start taking the steps to secure your retirement. Contact us to schedule a chat.

Will I have enough money to retire, if the odds favor longevity?

March 3, 2016 by Sam Curmaci

will I have enough to retire — If you have a family history of health and longevity, it is especially important to plan carefully for your retirement.

Investing for retirement takes on a whole new sense of urgency if one’s gene pool favors longevity: Will I have enough money to retire? What’s more, will it be enough to live comfortably throughout those Golden Years, particularly if the odds favor living to 100?

A Consumers Report overview on aging (“Can You Afford to Live to 100?”) points out that lifestyle choices can ultimately influence how long we live—more so than our genes. What’s needed, then, is an investment portfolio that will provide the income needed to meet our daily expenses…and then some.

Retirement income: Looking for that magic number.

Just how much income depends on a number of variables during the run-up to retirement. For example, when do we plan to tap our Social Security benefits? Will we work part-time during retirement?

Another variable is our retirement tax rate, and if we are saving the maximum amount allowed in our 401(k), and will we be transferring funds to a ROTH IRA during our working years?

What can we expect to spend, notes the Wall Street Journal, can fall within “75% to 85%” of our pre-retirement income. Getting by on less, surprisingly, is quite doable: some of the pundits suggest it’s possible to do well enough on 55% of our pre-retirement working income.

How will you make up any ‘shortfall?”

Going to one of the many online calculators can, of course, provide a guesstimate on how we might fare. A key component in looking into the ‘financial future’ is to include any projected shortfalls—the difference between what we have versuswhat’s needed.

The Motley Fool’s article on saving for retirement (“The Average American Faces a $25,326 Retirement Shortfall…”) notes:

“In the aggregate, American households led by those between the ages of 25 and 64 face a total retirement shortfall of $4.13 trillion. That works out to $25,326 for each and every one of the more than 163 million Americans between the ages of 25 and 64, according to the most recent Census data.”

Protect the portfolio with reasonable ‘withdrawal rates.’

Early on, we may be tempted to withdraw sizable sums for travel, or buying that motorhome. One rule-of-thumb, according to a Money.USNEWS.com overview (“How to Make the 4 Percent Rule Work for You”) is to be flexible with the 4% withdrawal rate: Use it as a starting point, and confer with a financial expert before making adjustments to that number.

But a New York Times study (“New Math for Retirees Rule”) notes that we can possibly reduce the stresses on the portfolio if we keep it balanced as we age. In fact, a portfolio using 50% bonds and 50% stocks—and a 4% withdrawal rate—stand a reasonable chance of seeing it last through 30 years of retirement.

The importance of ‘fixed income’ streams.

Investors should consider anchoring their investments with a fixed income annuity. Generally, this provides a source of “guarantee income,” and is one of the strategies a recent article in the New York Times points to in their article, “6 Strategies to Extend Savings Longer.” In this instance an annuity is used to “ensure the basics (expenses) are covered” throughout retirement.

“The payout rate on an income annuity can be higher than bonds because it provides a source of return that investments cannot,” said Wade D. Pfau, a professor of retirement income at the American College of Financial Services, referring to the fact that annuity holders who live longer benefit from those who die earlier since their money is pooled together.”

Saving for the future, and developing a financial plan to help you meet your retirement goals, is the key to a successful investment portfolio. Schedule a chat to begin that first step in taking control of your financial future.