Why Having a Financial Professional Matters

A good professional provides important guidance and insight through the years.

What kind of role can a financial professional play for an investor? The answer: a very important one. While the value of such a relationship is hard to quantify, the intangible benefits may be significant and long-lasting.

There are certain investors who turn to a financial professional with one goal in mind: the “alpha” objective of beating the market, quarter after quarter. Even Wall Street money managers fail at that task – and they fail routinely.

At some point, these investors realize that their financial professional has no control over what happens in the market. They come to understand the real value of the relationship, which is about strategy, coaching, and understanding.

A good financial professional can help an investor interpret today’s financial climate, determine objectives, and assess progress toward those goals. Alone, an investor may be challenged to do any of this effectively. Moreover, an uncoached investor may make self-defeating decisions. Today’s steady stream of instant information can prompt emotional behavior and blunders.

No investor is infallible. Investors can feel that way during a great market year, when every decision seems to work out well. Overconfidence can set in, and the reality that the market has occasional bad years can be forgotten.

This is when irrational exuberance creeps in. A sudden Wall Street shock may lead an investor to sell low today, buy high tomorrow, and attempt to time the market.

Market timing may be a factor in the following divergence: according to investment research firm DALBAR, U.S. stocks gained 10% a year on average from 1988-2018, yet the average equity investor’s portfolio returned just 4.1% annually in that period.          

A good financial professional helps an investor commit to staying on track. Through subtle or overt coaching, the investor learns to take short-term ups and downs in stride and focus on the long term. A strategy is put in place, based on a defined investment policy and target asset allocations with an eye on major financial goals. The client’s best interest is paramount.

As the investor-professional relationship unfolds, the investor begins to notice the intangible ways the professional provides value. Insight and knowledge inform investment selection and portfolio construction. The professional explains the subtleties of investment classes and how potential risk often relates to potential reward.

Perhaps most importantly, the professional helps the client get past the “noise” and “buzz” of the financial markets to see what is really important to his or her financial life.

The investor gains a new level of understanding, a context for all the investing and saving. The effort to build wealth and retire well is not merely focused on “success,” but also on significance.

This is the value a financial professional brings to the table. You cannot quantify it in dollar terms, but you can certainly appreciate it over time.


1 – cnbc.com/2019/07/31/youre-making-big-financial-mistakes-and-its-your-brains-fault.html [7/31/2019]

Fixed Index Annuities

What are they? How do they work?

What is a fixed index annuity? Don’t let the investment jargon put you off, Fixed Index Annuities are simpler than they sound. A Fixed Index Annuity is a tax-favored accumulation product issued by an insurance company. However, unlike fixed deferred interest rate annuities, a Fixed Index Annuity’s annual growth is tied to a market index like the Standard & Poor’s 500 rather than an interest rate.

How do they work? A Fixed Index Annuity can be funded with either a large, one-time sum or regular payments over time. It may be attractive to those looking for an alternate retirement vehicle. That’s because certain index annuities are subject to rate floors and caps. In other words, an index annuity can’t exceed or fall below a predefined return level, even if the underlying market index performs outside of set parameters.

How is this possible? The insurance company that issues the annuity bears the risk of a potential stock market decline. That’s right! With a fixed index annuity, your original deposit can be structured, so it will not decline if the index performs negatively.

Another potential benefit is how fixed index annuities grow over time. Their growth is tax deferred, meaning you don’t pay income taxes until you withdraw money from the annuity. But keep in mind, if you make withdrawals before you reach the age of 59 ½, you may be required to pay a 10% federal income tax penalty.

Fees & Expenses. Sometimes, even the savviest investor could use a little guidance. After all, annuities can have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits.

Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contract.

So, if Fixed Index Annuities sound like something that may interest you, don’t hesitate to reach out to a financial professional soon. Who knows? This may just be the retirement vehicle you’ve been looking for.


  1. The Standard & Poor’s 500 Composite is an unmanaged index that is generally considered representative of the U.S. stock market. Index performance is not indicative of the past performance of a particular investment. Past performance does not guarantee future results. Individuals cannot invest directly in an index. Fixed Index Annuities also can be based on the performance of other stock market indexes.
  2. Fixed Index Annuities also can be based on a participation rate, which is how much of an index increase you actually receive.

3.Withdrawals and income payments are taxes as ordinary income. The federal income tax penalty may not apply under limited circumstances. State income taxes also may apply.




Everyone should have a will.

If you die without a valid will in place, state law will determine how your assets are distributed to your heirs.

The question is, when do you need more than just a will?

You see the ads all the time: “Should you have a living trust?” There is no pat answer. The more complex your estate becomes, the greater the need for an estate strategy. A living trust could play a role in that strategy.

While not everyone needs a living trust, some estates create them with an eye toward streamlining the transfer of specific assets.*

*Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.

Why a living trust?

Think of a living trust as a step up from a basic will. It is designed to carry out the basic functions of a last will and testament, and in addition, it also offers you (the trustee) four important potential benefits.

First, assets in a properly written and funded living trust are positioned to potentially avoid probate. Wills are commonly probated, especially if an estate is large or complex. In some states, the probate process can drag on for months, even years.

Second, a living trust is a private document. A will filed in probate court enters the public record, and may be examined by anyone. There may be financial circumstances and beneficiary decisions that you wish to keep private, especially with regard to your legacy or your reputation.

Third, a living trust strategy can incorporate a financial or health care power of attorney. These documents can instruct your loved ones on what to do if you become severely disabled, gravely ill, or incapacitated. They give a trusted party the power to act legally on your behalf. Additionally, with a living trust, your spouse (or other alternate trustee) can be instructed to manage your affairs as soon as you are unable to, without courts interfering.

(It must be noted that not all financial institutions will recognize a durable power of attorney by itself, especially if it was created some time ago. There are also occasions when they may not recognize a valid living trust.)

Fourth, a living trust lets you transfer assets to your heirs with conditions attached, if you so desire. You can control the way assets are distributed, even after you die.

Typically, a living trust is revocable. That means that you can make changes to its terms while you are alive. Upon your death, it becomes irrevocable, meaning its terms cannot be changed unless all the named beneficiaries of the trust approve the changes.

Why not a living trust?

Okay, so with all these potential advantages … why doesn’t everyone have a living trust? The fact is, some people have relatively simple estates, and not everyone needs a living trust – at least not right away.

A well-written will and durable power of attorney may suffice until you hit your sixties. If you are married and pass away before then, the assets you and your spouse hold in joint tenancy or as community property may transfer to your spouse without being probated.

Should you create a living trust in your forties or fifties, you may end up revising the trust again and again over the decades to come. Certain life events – such as a divorce or a marriage – may demand that the trust be updated. There is also another risk worth noting – the risk that you might forget to revise a trust created “eons ago.”

Some people do get lax with their living trusts in another way – they have one drawn up, but they never transfer any assets into it. They treat it like an “option” they can use in the future. If they die without placing their investment accounts, real estate, etc. into the trust, those assets could be exposed to probate. If so, the trust will be meaningless.

Why not a will and a trust?

You may want (or need) to have both. Chances are, you will not put 100% of your assets into a living trust; your will can direct where assets left outside the trust should go when you die.

Alternately, a pour-over will may be used to transfer designated assets held outside the trust into the trust, to help your estate distribute those assets according to the trust terms. So, wills and trusts can work hand-in-hand.

What’s right for you?

You may be wondering whether a living trust is appropriate. Or you may have one, but believe it needs revisiting. You may sense that you need to adopt an estate strategy, or expand one. Trusts are complex, and a professional can help. I can be your resource for ideas and answers. Contact me, so that we may begin our search for those answers together. I am happy to speak with you.

1 – smartasset.com/retirement/what-is-a-revocable-living-trust [7/18/19]
2 – investopedia.com/ask/answers/101915/when-are-beneficiaries-will-notified.asp [7/19/19]
3 – investopedia.com/articles/pf/06/revocablelivingtrust.asp [3/7/19]
4 – retirementwatch.com/power-attorney-vs-living-trust-pros-cons [7/29/19]
5 – info.legalzoom.com/power-attorney-vs-trustee-20627.html [8/13/19]
6 – investopedia.com/articles/pf/08/joint-tenancy.asp [5/28/19]
7 – thebalance.com/pour-over-will-3505584 [3/12/19]

Association Retirement Plans

A small business retirement strategy.

The U.S. Department of Labor has introduced the Association Retirement Plan, a new retirement savings opportunity for the employees of small businesses. The new rule will widen the field of retirement strategy choices for industries and regions where such plans may not have previously been affordable.

The Association Retirement Plan (ARP) is available to small businesses in the same city, county, state, multi-state metropolitan area, or simply in the same industry, who are connected through a professional organization. Think of, for instance, a chamber of commerce or a trade organization. The small business also qualifies if they are part of a Professional Employer Organization (PEO).

By allowing these larger groupings, small businesses are able to organize and offer their employees benefit packages normally associated with larger companies.

One additional benefit of the new system is a new opportunity – allowing employers additional negotiating power by uniting through their PEO, trade organization, or local chamber. Before, as much as smaller businesses wanted to offer these types of retirement strategy choices, they were likely expensive.

The Department of Labor has stated that as many as 38 million Americans have no available workplace retirement plan, such as the 401(k).

Employers who set up an ARP with their associated businesses offer their workers an opportunity to replace as much as 79% of their income once they retire, while those who don’t can only replace as little as 45%.

Retirement strategies for more employers and employees are a great opportunity. Exploring an ARP with your employer, or if you are running a small business, with your peers and employees, could be a valuable addition to that strategy.


1 – dol.gov/general/topic/association-retirement-plans [7/29/2019]
2 – investmentnews.com/article/20190729/FREE/190729937/dol-rule-enables-small-businesses-to-offer-retirement-plans-through [7/29/2019]


A Retirement Fact Sheet

Some specifics about the “second act.”

Does your vision of retirement align with the facts? Here are some noteworthy financial and lifestyle facts about life after 50 that might surprise you.

Up to 85% of a retiree’s Social Security income can be taxed. Some retirees are taken aback when they discover this. In addition to the Internal Revenue Service, 13 states levy taxes on some or all Social Security retirement benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia. (It is worth mentioning that the I.R.S. offers free tax advice to people 60 and older through its Tax Counseling for the Elderly program.)

Retirees get a slightly larger standard deduction on their federal taxes. Actually, this is true for all taxpayers aged 65 and older, whether they are retired or not. Right now, the standard deduction for an individual taxpayer in this age bracket is $13,500, compared to $12,200 for those 64 or younger.

Retirees can still use IRAs to save for retirement. There is no age limit for contributing to a Roth IRA, just an inflation-adjusted income limit. So, a retiree can keep directing money into a Roth IRA for life, provided they are not earning too much. In fact, a senior can potentially contribute to a traditional IRA until the year they turn 70½.

A significant percentage of retirees are carrying education and mortgage debt. The Consumer Finance Protection Bureau says that throughout the U.S., the population of borrowers aged 60 and older who have outstanding student loans grew by at least 20% in every state between 2012 and 2017. In more than half of the 50 states, the increase was 45% or greater. Generations ago, seniors who lived in a home often owned it, free and clear; in this decade, that has not always been so. The Federal Reserve’s recent Survey of Consumer Finance found that more than a third of those aged 65-74 have outstanding home loans; nearly a quarter of Americans who are 75 and older are in the same situation.

As retirement continues, seniors become less credit dependent. GoBankingRates says that only slightly more than a quarter of Americans over age 75 have any credit card debt, compared to 42% of those aged 65-74.  

About one in three seniors who live independently also live alone. In fact, the Institute on Aging notes that nearly half of women older than age 75 are on their own. Compared to male seniors, female seniors are nearly twice as likely to live without a spouse, partner, family member, or roommate. 

Around 64% of women say that they have no “Plan B” if forced to retire early. That is, they would have to completely readjust and reassess their vision of retirement and also redetermine their sources of retirement income. The Transamerica Center for Retirement Studies learned this from its latest survey of more than 6,300 U.S. workers.    

Few older Americans budget for travel expenses. While retirees certainly love to travel, Merrill Lynch found that roughly two-thirds of people aged 50 and older admitted that they had never earmarked funds for their trips, and only 10% said that they had planned their vacations extensively.

What financial facts should you consider as you retire? What monetary realities might you need to acknowledge as your retirement progresses from one phase to the next? The reality of retirement may surprise you. If you have not met with a financial professional about your retirement savings and income needs, you may wish to do so. When it comes to retirement, the more information you have, the better. 


1 – gobankingrates.com/retirement/planning/weird-things-about-retiring/ [8/6/18]
2 – forbes.com/sites/kellyphillipserb/2018/11/15/irs-announces-2019-tax-rates-standard-deduction-amounts-and-more [11/15/18]
3 – thestreet.com/retirement/18-facts-about-womens-retirement-14558073 [4/17/18]

A Bucket Plan to Go with Your Bucket List

A way to help you prepare.

The baby boomers redefined everything they touched, from music to marriage to parenting and even what “old” means – 60 is the new 50! Longer, healthier living, however, can put greater stress on the sustainability of retirement assets.

There is no easy answer to this challenge, but let’s begin by discussing one idea – a bucket approach to building your retirement income plan.

The Bucket Strategy can take two forms.

The Expenses Bucket Strategy: With this approach, you segment your retirement expenses into three buckets:

* Basic Living Expenses – food, rent, utilities, etc.

* Discretionary Expenses – vacations, dining out, etc.

* Legacy Expenses – assets for heirs and charities

This strategy pairs appropriate investments to each bucket. For instance, Social Security might be assigned to the Basic Living Expenses bucket. If this source of income falls short, you might consider whether a fixed annuity can help fill the gap. With this approach, you are attempting to match income sources to essential expenses.

The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contact. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59½, a 10% federal income tax penalty may apply (unless an exception applies).

For the Discretionary Expenses bucket, you might consider investing in top-rated bonds and large-cap stocks that offer the potential for growth and have a long-term history of paying a steady dividend. The market value of a bond will fluctuate with changes in interest rates. As rates fall, the value of existing bonds typically drop. If an investor sells a bond before maturity, it may be worth more or less than the initial purchase price. By holding a bond to maturity an investor will receive the interest payments due, plus their original principal, barring default by the issuer. Investments seeking to achieve higher yields also involve a higher degree of risk. Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost. Dividends on common stock are not fixed and can be decreased or eliminated on short notice.

Finally, if you have assets you expect to pass on, you might position some of them in more aggressive investments, such as small-cap stocks and international equity. Asset allocation is an approach to help manage investment risk. Asset allocation does not guarantee against investment loss.

International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risk unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.

The Timeframe Bucket Strategy: This approach creates buckets based on different timeframes and assigns investments to each. For example:

* 1 to 5 Years: This bucket funds your near-term expenses. It may be filled with cash and cash alternatives, such as money market accounts. Money market funds are considered low-risk securities but they are not backed by any government institution, so it’s possible to lose money. Money held in money market funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Money market funds seek to preserve the value of your investment at $1.00 a share. However, it is possible to lose money by investing in a money market fund. Money market mutual funds are sold by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.

* 6 to 10 Years: This bucket is designed to help replenish the funds in the 1-to-5-Years bucket. Investments might include a diversified, intermediate, top-rated bond portfolio. Diversification is an approach to help manage investment risk. It does not eliminate the risk of loss if security prices decline.

* 11 to 20 Years: This bucket may be filled with investments such as large-cap stocks, which offer the potential for growth.

* 21 or More Years: This bucket might include longer-term investments, such as small-cap and international stocks.

Each bucket is set up to be replenished by the next longer-term bucket. This approach can offer flexibility to provide replenishment at more opportune times. For example, if stock prices move higher, you might consider replenishing the 6-to-10-Years bucket, even though it’s not quite time.


A bucket approach to pursue your income needs is not the only way to build an income strategy, but it’s one strategy to consider as you prepare for retirement.

1 – kiplinger.com/article/retirement/T037-C000-S002-how-to-implement-the-bucket-system-in-retirement.html [8/30/18]

401(k) Loan Repayment

A longer repayment time can be an advantage.

The conventional wisdom about taking a loan from your 401(k) plan is often boiled down to: not unless absolutely necessary. That said, it isn’t always avoidable for everyone or in every situation. In a true emergency, if you had no alternative, the rules do allow for a loan, but they also require a fast repayment if your employment were to end. Recent changes have changed that deadline, offering some flexibility to those taking the loan. (Distributions from 401(k) plans and most other employer-sponsored retirement plans are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.

The new rules. Time was, the requirement for repaying a loan taken from your 401(k)-retirement account after leaving a job was 60 days or else pay the piper when you file your income taxes. The 2017 Tax Cuts and Jobs Act changed that rule – now, the penalty only applies when you file taxes in the year that you leave your job. This also factors in extensions.

So, as an example: if you were to end your employment today, the due date to repay the loan would be the tax filing deadline, which is April 15 most years or October 15 if you file an extension.

What hasn’t changed? Most of what transpires after a 401(k) loan still applies. Your repayment plan involves a deduction from your paycheck over a period of five years. The exception would be if you are using the loan to make a down payment on your primary residence, in which case you may have much longer to repay, provided that you are still with the same employer.

You aren’t just repaying the amount you borrow, but also the interest on the loan. Depending on the plan, you’re likely to see a prime interest rate, plus 1%.

If you do take the loan, a good practice may be to continue making contributions to your 401(k) account, even as you repay the loan. Why? First, to continue building your savings. Second, to continue to take advantage of any employer matching that your workplace might offer. While taking the loan may hamper your ability to build potential gains toward your retirement, you can still take advantage of the account, and that employee match is a great opportunity.

1 – kiplinger.com/article/taxes/T001-C001-S003-ex-workers-get-more-time-to-repay-401-k-loans.html [2/13/19]

What the SECURE Act Could Mean for Retirement Plans

If passed, it would change some long-established retirement account rules.

If you follow national news, you may have heard of the Setting Every Community Up for Retirement Enhancement (SECURE) Act. Although the SECURE Act has yet to clear the Senate, it saw broad, bipartisan support in the House of Representatives

This legislation could make Individual Retirement Accounts (IRAs) a more attractive component of retirement strategies and create a path for more annuities to be offered in retirement plans – which could mean a lifetime income stream for retirees. However, it would also change the withdrawal rules on inherited “stretch IRAs,” which may impact retirement and estate strategies, nationwide.

Let’s dive in and take a closer look at the SECURE Act.

The SECURE Act’s potential consequences. Currently, traditional IRA owners must take annual withdrawals from their IRAs after age 70½. Once reaching that age, they can no longer contribute to these accounts. These mandatory age-linked withdrawals can make saving especially difficult for an older worker. However, if the SECURE Act passes the Senate and is signed into law, that cutoff will vanish, allowing people of any age to keep making contributions to traditional IRAs, provided they continue to earn income.

(A traditional IRA differs from a Roth IRA, which allows contributions at any age as long as your income is below a certain level: at present, less than $122,000 for single-filer households and less than $193,000 for married joint filers.)

If the SECURE Act becomes law, you won’t have to take Required Minimum Distributions (RMDs) from a traditional IRA until age 72. You could actually take an RMD from your traditional IRA and contribute to it in the same year after reaching age 70½.

The SECURE Act would also effectively close the door on “stretch” IRAs. Currently, non-spouse beneficiaries of IRAs and retirement plans may elect to “stretch” the required withdrawals from an inherited IRA or retirement plan – that is, instead of withdrawing the whole account balance at once, they can take gradual withdrawals over a period of time or even their entire lifetime. This strategy may help them manage the taxes linked to the inherited assets. If the SECURE Act becomes law, it would set a 10-year deadline for such asset distributions.

What’s next? The SECURE Act has now reached the Senate. This means it could move into committee for debate or it could end up attached to the next budget bill, as a way to circumvent further delays. Regardless, if the SECURE Act becomes law, it could change retirement goals for many, making this a great time to talk to a financial professional.

1 – financial-planning.com/articles/house-votes-to-ease-rules-for-rias-correct-trump-tax-law [5/23/19]
2 – irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2019 [6/18/19]
3 – congress.gov/bill/116th-congress/house-bill/1994 [6/17/19]
4 – shrm.org/resourcesandtools/hr-topics/benefits/pages/house-passes-secure-act-to-ease-401k-compliance-and-promote-savings.aspx [5/23/19]

Should you… take your money and run?  


Based on Federal Reserve Policy and geopolitical risks a stock market crash may be virtually unavoidable. The recent 10 percent declines are a sign that the party is likely over. I think the February correction was a foreshock — and stocks could lose more than 20 to 25 percent of their value by year’s end or sooner.

All this volatility with the VIX [Cboe volatility index] having doubled is very, very disturbing. I am more than concerned with the trade wars and Syria and Trump’s rhetoric toward Russia is an additional source of anxiety.

In a tweet Wednesday, Trump wrote “Russia vows to shoot down any and all missiles fired at Syria. Get ready Russia, because they will be coming, nice and new and ‘smart!'” But on Thursday, he tweeted that a U.S. missile strike on Syria in response to its alleged use of chemical weapons may not be imminent.

Rising interest rates will inevitably put the economy under pressure. Fed rate hike cycles historically lead to recessions and deep market declines. This time is no different because the market is very overvalued.

John Hussman, president of Hussman Investment Trust, who describes himself as an economist and a philanthropist is concerned the stock market shows signs of unraveling on the back of the tech sector’s stumble. Hussman’s claim to fame includes forecasting the market collapses of 2000 and 2007-2008. In his most recent call, he argued that measured “from their highs of early-2018, we presently estimate that the completion of the current cycle will result in market losses on the order of -64% for the S&P 500 index, -57% for the Nasdaq-100 Index, -68% for the Russell 2000 index, and nearly -69% for the Dow Jones Industrial Average.”

He admits the numbers seem extreme but says they are backed up by what he refers to as the “Iron Law of Valuation.” “The higher the price investors pay for a given set of expected future cash flows, the lower the long-term investment returns they should expect. As a result, it’s precisely when past investment returns look most glorious that future investment returns are likely to be most dismal, and vice versa,” he writes. Check out Prepare for the biggest stock-market selloff in months. According to Hussman’s math, from 2009 to 2018, the S&P 500’s price sales ratio jumped from less than 0.7 to a multiple of 2.4 this year, the highest on record. And it’s not just that particular valuation metric that bothers Hussman. He also detects other signs of weakness.

“At present, our measures of market internals remain unfavorable, partly because of deterioration in interest/credit sensitive sectors, as well as tepid participation (the number of individual stocks participating in various market advances), divergent leadership (for example, a large number of stocks simultaneously hitting 52-week highs and lows), and the divergences we observe in an array of other sectors,” he said.

These trends suggest that investors are becoming less willing to take on risk, a bad sign for equities as stocks generally flourish when market participants are willing to make risky bets.

And he warns that the stock market won’t be able to escape this “danger zone” until it shifts to a less dangerous combination of valuations, internals and overextended conditions.

He provides numerous charts on valuations to back up his theory which can be found on his blog.

“The best time to protect money is while you have it.”  

                                                   ~Tom Penland