Two Strategies To Implement In Good Markets

Many investors are starting to get their investment statements for the first quarter of 2012. Have you opened your own statement yet? If not, go ahead, it’s probably good news. Wow, what an incredible start to the year the stock market had! The S&P 500 gained 12.6 percent (total return) during the first quarter of 2012. The last time the stock index gained at least 10 percent in the first quarter was 1998. (source: BTN Research). Two strategies the average investor can learn from the past to make smart financial decisions about the future are to rebalance and avoid chasing performance.

The problem for many investors is that when everything appears to be going well, it is easy to become complacent or worse yet, to chase performance. Remember, the past is history, it’s done and over with. Instead, apply what has been learned from the past to making better investment decisions in the future. Investments that went up recently already went up, and that doesn’t mean those investments will keep going up in the future. Remember how good technology stocks were in the late ’90s before the 2000 crash? Or how easy it appeared to be to make money in real estate in 2007, before the 2008 crash? Mark Twain once said, “History may not repeat itself, but it does rhyme a lot.”

If history continues to repeat itself, the stock market could do great the rest of this year. According to www.seasonalcharts.com, from 1900 through 2004 an election year has historically been a good year in the stock market. Further supporting a strong stock market in election years according to the Stock Trader’s Almanac, the S&P 500 has risen in the final seven months in 13 of the past 15 presidential elections years since 1950. Plus, overall, the stock market is still at a discount compared to its all-time high. As of March 30, the S&P 500 is currently 11 percent under its all-time closing high of 1,565 on Oct. 9, 2007 (source BTN Research). We hope history repeats itself this year and the stock market keeps going up. We recommend two strategies to follow even when the market is good.

First, investors should remember to rebalance their accounts in all markets. Rebalancing is the process of selling investments that have outperformed and buying investments that have underperformed to reset the allocation of the overall portfolio back to the original plan. This is an important but hard to follow strategy of buying low and selling high. Stick with this disciplined investment approach, even when emotions say otherwise. The emotional battle the average equity investor may be having right now is: Why change when everything seems to be making money? One easy way to remove emotions and accomplish rebalancing in a portfolio is to set it up on an automatic change cycle, such as monthly, quarterly or yearly. This could help the average investor keep the plan on autopilot. Another option is to rebalance when the desired asset allocation changes beyond a set point. For example an investor who starts with 50 percent stocks and 50 percent bonds, may need to rebalance if stocks get more than 60 percent and bonds are now only 40 percent. This approach involves keeping a closer eye on the asset allocation of the plan to help determine when it’s time to rebalance.

Second, avoid chasing performance results. We have heard over the years people say “Things look better now so I’m ready to buy,” or, “Look how good that investment has done recently, shouldn’t I buy that?” That is a good question, but we suggest that you step back for a minute before buying any investment. Is that the right strategy? Ask yourself, have the individual investment goals changed? A conservative investor, who changes investments and gets much more aggressive after seeing results already go up, can dramatically increase risk. Instead of making major changes, consider making gradual changes. Although last year’s top performing investments could be winners again this year and next, remember that at other times the best performing investments of last year turn out to be the worst performing investments the following year. Prime examples are the technology stocks before and after 2000 and the financial and real estate stocks before and after 2008. Instead, try and focus more on long-term investing based upon your own individual goals and objectives, and less on other short-term results. Chasing results can be like being the last one to show up to a party, realizing too late the party is going to end.

Four Ways To Get More Out Of Your Investments

In today’s fast-paced society, it can be easy to avoid looking at what seems like a long time away. But since time goes by so quickly, taking a little bit of time now can save the average family years of headaches in the long run. Today we are going to share with you four easy and quick ways to get more out of your investment accounts.

No. 1: Consolidate investment accounts. The goal of doing this is to reduce expenses and to make it easier to keep track of everything. Many families end up having several different accounts as they change jobs, buy new investments and make changes over the years. Normally, each custodian, the company that holds retirement accounts, has annual fees. By consolidating smaller accounts, an investor could avoid paying multiple custodian fees.

Also, the more accounts the investor has, the harder it can become to keep track of the performance and investment allocation of their total plan. By consolidating accounts, it can be easier to see the bottom line and keep track of everything.

No. 2: Take advantage of tax diversification. The three different ways to save and invest are taxable, tax-deferred and tax-free. Normally, a family builds up an emergency account in the taxable category. Then once someone gets a job or starts a business, they begin to save and invest in tax-deferred accounts such as traditional IRAs or 401(k) plans. This is usually where many families stop. As a family gets to this point, don’t forget to consider the long-term advantage of tax-free accounts. This can be done by shifting savings into accounts like Roth IRAs or other tax-free accounts. Instead of keeping the lion’s share of savings in one category, try keeping money spread out among the three different ways to save and invest.

No. 3: Max out early and catch up. Study after study has shown the impact and the importance of starting to save and invest early in life. It is so much easier to start out small and early than to try and catch up later in life, so start now. Parents and grandparents, it is a great idea to talk with children and grandchildren to get them involved in being financially self-reliant. For those who feel they are running a bit behind due to getting started later in life or the stock market performance during the past decade, don’t get discouraged. Keep on saving and investing and remember, catch-up provisions could allow you to save more and in ways you never knew were possible.

No. 4: Properly plan distributions. Proper distribution planning becomes more important as a person or family moves into retirement. Now that you have saved and invested and have built up several accounts, how and which investment account should be used first becomes very important. One piece of advice we have for seniors and retirees is to create separate “buckets” of money for different time frames and different risks. We also recommend keeping money set aside in an emergency account.

No matter if an investor is 20 or 70, following these four steps can be a great way to get more out of investment accounts this year and beyond.

What’s Your Retirement Number?

How much will you need to retire? This article by Jill Schlesinger talks about the amount of money that is necessary for retirement and gives you steps on how to figure it out. This is a breakdown of a retirement-needs calculation.

A former client once argued with me about his “retirement number.” He couldn’t believe that he needed $1 million in savings before he could retire. “That amount just seems like way more money than is necessary!” But after walking through the variables and calculations, he finally said, “Geez, a million bucks. … I guess that’s my number.”

Determining your retirement number is like getting on the bathroom scale: Sometimes it’s a pleasant surprise. However, more often than not it forces you to face an ugly truth. Just as taking the dreaded step onto the scale is a necessary part of the weight-loss process, so too is crunching the numbers for retirement planning. According to the Employee Benefit Research Institute (EBRI) 2011 Retirement Confidence Survey, only 42 percent of American workers have taken the time and effort to complete a retirement-needs calculation. Without going through that process, you’re flying blind into your retirement.

Please know that this is not rocket science, especially in an age when there are so many online retirement calculators available. I like EBRI’s Choose to Save Ballpark E$timate, which is easy to use, but your retirement plan/401(k) website probably has a tool available as well. The tricky part about using these calculators is that they ask you to estimate several factors that even economists can’t agree upon, like the future inflation rate or expected rates of return on investments. My crystal ball isn’t perfect, but here are some sensible estimates that should help:

• Inflation assumption: 4.5 percent (higher than where we are today, but most economists believe that inflation is headed up in the coming years).
• Rate of investment return both before and after retirement: Consider your risk tolerance and err on the side of being conservative. If you’re stuck, use 4-5 percent. Obviously, if you use a higher rate of return, the calculator will ultimately determine that you have to save a smaller amount. After our Great Recession and financial crash, I probably don’t have to tell you that higher return assumptions may not always work out as planned.
• Life expectancy: If you are younger than 50, use 95; if you’re older than 50, use 90. If you want a closer estimate, go to livingto100.com and use their Life Expectancy Calculator.

Many calculators will take a percentage of your pre-retirement earnings (most use 80 percent) as a baseline for what you will need in the future — sometimes called a “replacement rate.” A more precise way to determine that number is to figure out how much you spend today, isolate those expenses that won’t occur in retirement (for example: mortgage payments, if you are on track to pay it off before retirement; tuition; child care; commuting expenses) and – poof – you have your replacement rate.

When I was a young financial planner, it was common practice to remove Social Security and Medicare taxes from your anticipated future need, but now I think it’s probably best to assume that the money you were paying in FICA will be necessary to pay some or all of higher health care costs in the future, so leave that amount in for your calculation.

Then you will be asked to plug in the amount of money you have already saved, your annual contributions to your retirement plans and other investment accounts, any future pension amounts, and a Social Security benefit. While Social Security might change in the future, most of the revisions being contemplated would not affect people who are currently over 50. For those under 50, you might have to wait longer to collect benefits or the benefit amount could be reduced. To adjust for an altered Social Security landscape, you could simply raise your replacement rate by 5 percent.

Once you have entered in all of the information, the calculator is going to spit out your results. For many, this moment could be as stressful as stepping on the scale. But only when you are armed with the necessary information can you alter your course to a smooth retirement. So don’t be afraid to take the plunge and discover your retirement number.

See this article on Secondact.com

Checklist: 10 Toughest Retirement Decisions

This article by Emily Brandon talks about the decisions you need to make before retiring. It discusses things that you may or may not have already thought of when considering retirement.

The decision to retire can be sparked by a number of factors: reaching a specific age, hitting a savings goal, or being laid off in a tumultuous job market. To support yourself without income from a job, you’ll have to make a series of choices about Social Security, health coverage, and your investments.

Here are 10 of the toughest decisions you will make before you retire.

1. When to retire. For some people, it’s a financial calculation. You know you’re financially ready when the combination of your Social Security, traditional pension, and investment income produces enough cash flow to cover all of your anticipated expenses for the rest of your life. “Working two or three more years can make an incredible difference to your long-term plan if you continue to save in your 401(k) or 403(b) and continue to pay into Social Security,” says Mary Alpers, a certified financial planner and founder of Alpers and Associates in Colorado Springs, Colo. But retirement also often involves an identity shift from your former job title to a free agent. Sometimes this decision is made for you because of a layoff or buyout. Many people also like to coordinate their retirement with a spouse.

2. When to claim Social Security. You can sign up for Social Security beginning at age 62, but payouts increase for each year you delay claiming until age 70. “Wait as long as you possibly can, because the additional percentages that are added on are enormous,” says Jane Nowak, a certified financial planner for Kring Financial Management in Smyrna, Ga. “Since we are living longer, you certainly want your paycheck from Social Security to be as fat as possible.”

3. How to pay for health coverage. It’s essential to find affordable health insurance if you want to retire before age 65. “If you are not entitled to retiree medical benefits or if they are deferred to a later date, make absolutely certain you have access to and can qualify for individual coverage,” says Robert Henderson, president of Lansdowne Wealth Management in Mystic, Conn. “Also verify the costs. Health insurance can be prohibitively expensive in some cases.” Even after you qualify for Medicare, the decisions don’t end. You have to choose whether to purchase a supplemental policy and shop around for the Medicare Part D plan that best meets your prescription drug needs each year in retirement.

4. How much you can safely spend each year. If your nest egg isn’t sizeable enough to finance your retirement completely, you’ll need to calculate how much you can safely spend each year without depleting your savings too quickly. “Three to 4 percent is my comfort zone, and I hope less,” says Alpers. An annual draw-down rate of 4 percent on an investment portfolio with 35 percent in U.S. stocks and 65 percent in corporate bonds has an 89 percent likelihood of lasting 35 years or more, according to Congressional Research Service estimates.

5. How much investment risk. Retirees need to balance their investment needs for safety and continued growth. “Hold as little equities and higher-risk assets as possible, while still enough to meet your long-term goals,” says Henderson. “Most retirees need no more than 50 to 60 percent in equity and equity-like investments.” You’ll also need an emergency fund and several years’ worth of living expenses set aside in a safe place. “Always make sure that you have your first three to five years of withdrawals invested in very conservative investments. Good choices are CDs, money market accounts, short-term treasuries or mutual funds that invest in them, and fixed-immediate annuities,” says Henderson. “This way, regardless of what the stock market is doing today, you don’t have to worry about withdrawing assets that have dropped in value.”

6. When to pay taxes. After decades of deferring taxes on your retirement savings using 401(k)s and IRAs, the tax bill becomes due upon withdrawal in retirement. The timing of these withdrawals could affect how much you pay in taxes. “Try to balance out your withdrawals from taxable and nontaxable accounts each year so you are not kicking yourself into a higher tax bracket at some point,” says Henderson. Taking a large IRA withdrawal in a single year could result in an oversized tax bill. Withdrawals from traditional retirement accounts become required after age 70½.

7. Where to live. Once you are no longer tethered to a job, you can live anywhere that suits your tastes and budget. Moving to a place that costs less than where you live now can boost your standard of living and help stretch your nest egg. You could also test out a place with better weather, more opportunities for recreation, or move closer to family. [Read: Top 10 Retirement Towns of 2011]

8. Whether your home should help finance retirement. A paid-off mortgage can help finance your retirement because it eliminates one of your biggest monthly expenses. In some cases, downsizing to a smaller home or moving to a place where the cost of living is significantly lower can even give a significant boost to your nest egg. “Especially if you live on the East or West coast, where housing can be extremely expensive, you may have an opportunity to downsize and realize quite a bit of the appreciation you had in your real estate,” says Henderson.

9. Whether to keep working. A part-time job is increasingly becoming common in the retirement years. Many people downshift to a job with shorter hours and less responsibility before retiring completely, while other people return to work after a break. The income, and sometimes benefits, a part-time job provides allows you to withdraw less of your retirement savings each year. Some people also find jobs they enjoy that allow them to interact with former colleagues, consult on the occasional project, or learn a new skill.

10. What you will do. Retirement isn’t only about quitting your job. It’s an opportunity to have complete control over how you spend your time. Make sure you have a few ideas about how you will fill the eight or more hours per day you previously spent working and commuting. Some people miss the sense of purpose and friends that their job provided for them, while others finally have the time for hobbies and projects they have been waiting years to tackle.

See this article on Secondact.com

See The World

If you’re approaching retirement, or already in the retirement phase of life, time is flying by. Time is going by quick so let’s get to the getting. What are you waiting for? Tomorrow? None of us are guaranteed tomorrow and we all know in the back of our minds that anything could happen. The problem is many of us do not face reality. We all think things will continue on as they are and nothing will change, nothing bad will happen when we all really know that is not true. Should you live in fear? No! But while things are going okay, take advantage of it.

What have you been dreaming about doing all of your life? Seeing the world? Go see it! We are not saying to be foolish and blow all of your money. At the same time, you can’t take it with you. If you have worked hard for many years, raised a family, sacrificed, scrimped, saved, put your kids through college, etc., it is now your time. Time to enjoy the fruits of your labor. Time to see the world if you want to.

As The Retirement Guys, we talk with folks all the time who have similar concerns. The concern of having enough money to live out the rest of their lives and do it in an enjoyable way. Here are two important things to do to accomplish this. 1. Meet with a financial professional and get a handle on your financial situation. Understand it to the point that you know what your income needs are to not only live and pay the bills, but to also do some of the things you have always wanted to do. Analyze what your sources of income are and what you can reasonably expect as an income stream if you are taking money from your retirement savings. 2. Get out there and live life. Do not wait. If you wait it may never happen.

I (Mark) wrote recently about living five years of my childhood in the country of Korea. What an experience! Here are a few of the things I remember. Great food! I have never been a picky eater and loved the Korean food. I did however draw the line at squid and other unidentifiable things I used to see when we visited the Korean market. Things like Kim chi, bulgogi and kimbab were like delicacies. If you like spicy food and are adventurous you don’t have to go to Korea to experience it. Go visit Mr. Kim at Koreana right here in Toledo on Reynolds Road. He will take good care of you. Tell him The Retirement Guys sent you. If you like sushi be sure to order the kimbab. Excellent stuff, but I digress.

I also remember many differences in the culture. Some of the things I remember are pretty trivial, but somehow have stuck in my mind. Things like motioning to someone to come here is like we wave our hands goodbye. I can remember my mom, waving goodbye to a lady and every time she did the lady came back. We could not figure it out. Things like, if something was “number 1,” it was good. If something was “number 10,” it was bad. The custom of removing your shoes at the door, and back to the food for a moment, it was not rude to belch after a meal. This was a compliment to the person who prepared the meal.

This past year I got to do a lot of traveling and experienced a lot of fun, cool things. So many, that I had to sit down and make a list. I am extremely grateful for the year I had and realize that it will not be like that every year. Even so, in my appreciation for what I was able to experience, I have realized that time is short and it is time to just go do it. I hope to return to Korea some day to see how things have changed over the 35 plus years it has been since I was there. Think about what you want to do, where you want to go. If you can, go see the world.

Think Global

Many years ago, I (Mark) was a young kid of 9 years old and found myself being driven through the city of Seoul, Korea. I couldn’t believe I was there and was excited to find out more about a city and country that I had heard a lot about, but was now in the middle of. There were wall-to-wall people, taxicabs and city buses everywhere, and very heavy traffic on the city streets. Drivers honking their horns at each other (which in Korea is not considered rude), mothers carrying their babies on their backs amid the hustle and bustle of the big city. My parents had made the life-changing decision to go to this foreign country to become missionaries and to help various Korean communities start new churches.

In Korea there was such a different view of personal space and so many people packed into the area that it was not considered rude to bump into or brush against someone. My friend Lorne and I would later play a game that involved walking in a straight line down a busy street bumping into as many people as we could for a laugh. We Americans used to laugh at how many Korean people would cram into an automobile. When we thought the car had five more people than would be comfortable, they would cram in five more. To this day when I get into an elevator and the people inside seem to start getting nervous about their personal space, I laugh to myself and think of Korea. I left there in 1975 and if I remember correctly the population of the city of Seoul was about 6 million. The population today is more than 10 million. I guess they are cramming even more people into cars and elevators.

As you might expect, living for five years in a foreign country from age 9-14, had a profound effect on my life. First of all, while I was there I realized there were many things I took for granted in my home country. At that time, you could not pick up the phone and get a pizza. American food was not readily available. Ladies from our home church had canned for us what was supposed to be a four-year supply of Fritos corn chips that did not last a year. No more Fritos? Nope. You have to eat rice today. Aw, mannnn! Come on! American television? One channel on Armed Forces Television that was all the bad rejected boring documentaries that no one wanted to watch here in America. I was so desperate for American TV that when we did finally make the trip back to America five years later, my parents decided it would be a good idea to stop and visit beautiful Hawaii on the way. I stayed in the hotel room almost the entire time watching TV. I couldn’t tell you much about Hawaii.

We are now in a global economy rather than just limited to our own country. Amazing how a small country about the size of Indiana has affected us. I now own a Samsung TV (how ironic) and see Hyundai and Kia automobiles everywhere. As The Retirement Guys, we try our best to stay up on what is going on in the world to better advise our clients. We are now seeing an extremely high correlation between what is happening in foreign countries and our economy. Steve Hanley, who is in our portfolio management department, shared with me how it is now important to understand that everything globally can be correlated. It is important to know what is going on in places like Greece and the rest of Europe. We Americans think our country has a spending problem when we consider our current national debt, but Europe has had the same problem that is about five years ahead of our own. This continues to play itself out, affecting markets around the world. Steve said that even when considering American companies, close attention is paid to their international operations in order to get a better handle on what may be yet to come.

We can all learn things from our childhood and past experiences. It is amazing how an experience of a little kid living for a brief time in a foreign country can still have an effect on his life today. Time goes by quickly and the world seems to get smaller.

4 Financial Spring Cleaning Tips

Every year I, Nolan, take everything out of my garage and do a good spring cleaning. It is amazing how much junk builds up in the garage every winter. I donate unwanted items and generally anything I haven’t used in the last two years. I move the winter items back to the storage room in the basement and bring up the spring and summer items. I put together a list of items I’m running low or out of and run over to the local hardware store so I’m prepared for the year ahead. Getting started always seems like a daunting task, but when the job is done, what a rewarding feeling it is to look at my improvements. Financial spring cleaning should also be done once a year. Use these four tips to get started this year.

Rebalance investments annually.

Some investors constantly make changes to their accounts, while other investors seem to never make a move. Changing too often can lead an investor into chasing results and paying more in added fees and expenses. At the same time, taking a “set it and forget it” approach, can cause an investor to end up with an account that gets unbalanced that could increase risks and decrease long-term performance. A good rule of thumb is to, once a year, review all of the investments and look at the asset allocation and rebalance the accounts. This can help reinforce the long-term strategy of buying low and selling high and help maintain diversification. Ask a financial professional for a review or use online tools from sites like www.morningstar.com for an investment analysis.

Check into new or expiring law changes.

As it stands now, the Bush Era tax cuts are set to expire at the end of this year. It is our opinion that tax rates will go up in the future. Thus, for many of the people we talk with right now, we are discussing Roth IRA strategies. One strategy involves making contributions into Roth IRAs. Income limitation could come back into effect next year, making this a great year for high-income earners to look at this option. Other times, a Roth conversion strategy can make sense for current retirement accounts. The main advantage for an investor is they can pay taxes now versus later, which could be at a higher rate on what could be a higher balance. This strategy gets even more attractive for investors who can pay the taxes from a source other than the retirement account. For the investor who feels their family’s tax rates will be higher in the future than they are going to be this year, these ideas should be discussed with a financial professional and an accountant.

Dust off old policies.

Old life insurance policies can be another great area to review. More competition and longer life expectancies have driven down the cost of insurance at most insurance companies. Doing an insurance policy review can be an eye opening experience on how offers vary from one company to the other. Last week, for example, when we compared the offer for a client from two different insurance companies for the same cost, one company offered 50 percent more death benefit. Sometimes, older policies can be exchanged for a new “paid up” policy, eliminating future premium payments for a policy owner. Other times, newer policies can offer additional benefits. One common theme we have been seeing lately is insurance companies offering “chronic illness” as a new rider. This can be a way for someone to get a form of long-term care insurance without paying for traditional long-term care insurance. Usually an insurance comparison can be done for little to no cost to a policy owner.

Update documents.

New grandchildren, a loss of a loved one, a marriage, you name it, life changes occur all of the time. As life changes occur, not only is it important to make sure your legal documents, like wills and trusts, are up to date, it is important as well to make sure beneficiary designations get updated. Many families assume that their will or trust will cover all their assets; this is not always the case. Accounts such as retirement plans, life insurance policies and annuities should contain named beneficiaries. If these accounts do not get updated as life changes occur, an account owner’s assets may not be paid out the way the owner thought. Ask the company who holds your accounts to send you a copy in writing of who the current named beneficiary is. Update any changes that need to be made and make sure the changes have been acknowledged in writing.

Additional Options for 401(k) Owners

A 401(k) plan is one of the most common ways for an employee who works for a public company to save and invest for retirement. The 401(k) was created with the passage of the Tax Reform Act of 1978. Prior to the creation of 401(k)s, defined benefit plans, known as pensions, were a common source of retirement income for many Americans. In the past 40 years pension plans have been on the decline while 401(k) plans have continued to increase. This shift has left saving and preparing for retirement much more in the hands of the employee and less the responsibility of the employer. Over the years, additional rules and plan options were added that now offer greater control and flexibility to 401(k) account owners.

If account owners feel they are limited with the choices offered in their 401(k) plans, a review of the plan documents should be done to see if a self-directed brokerage account is an option. Normally, a standard 401(k) offers a list of approved choices a participant can direct their savings and investments into. Those options typically consist of large, medium, small, international stock and bond strategies as well as fixed income. A self-directed brokerage account offers hundreds if not thousands of additional options. Those options could consist of buying individual stocks, bonds, exchange traded funds and additional mutual funds. Moving funds to this option would allow the account owner to further customize the account with the new choices.

In-service rollovers to an IRA plan are another often little-known strategy and should also be considered. Not all 401(k) plans offer a self-directed brokerage account option as part of the 401(k). Yet, an in-service rollover to an IRA plan could be an option. This option is most common if you are older than 59 ½ or if the 401(k) has changed from one company to another over the years, either due to job changes or the company changing the plan. The advantage of doing this type of rollover is investment options in an IRA offer additional options that normally are not available inside a 401(k) plan. Those options could include insurance guarantees with annuities, alternative investments, absolute return strategies and professional money managers.

The other major advantage of an in-service rollover to an IRA is the fact that the account owner has the option to make tax decisions. For many people who feel their tax rates are likely to go up in the future, paying some or all of the taxes now may make sense.

If the money is moved from a 401(k) to a traditional IRA, a Roth conversion analysis can then be done. The advantage to the Roth IRA account owner is all future qualified withdrawals are tax-free*, including profits. Since taxes are usually one of the biggest impacts on retirement income needs, looking at the Roth conversion could be a great strategy.

*To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability or first-time home purchase ($10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.

Financial Blind Spot

The other day my wife and I were driving to lunch. We were just cruising along enjoying the day. I was obeying all the laws, going the speed limit, keeping a safe distance in front of us, and was staying in my lane. Then all of the sudden my wife said “watch out.” She even for a second went to grab the wheel and nudged us out of harms way, as the car in the other lane about side swiped us. I never even saw the car coming into our lane because it was in my blind spot.

Luckily we avoided getting into an accident. Instead of spending our lunch hour filling out a police report or spending the day in the hospital, besides a little elevated blood pressure, everything was fine thanks to my wife protecting my blind spot.

Often times the same thing happens financially for investors. Everything is going fine and an investor is just cruising along when all of a sudden, a danger appears out of nowhere in the blind spot. That is why it is a good idea to have someone along for the ride, someone who can see things from a different perspective. Many investors at this point cannot afford to have another wreck financially. To get a different view point, Investors should talk with a financial professional about risks they are facing in their blind spot.

FINRA, the Financial Industry Regulatory Authority, defines systematic risk “as market risk and relates to factors that affect the overall economy or securities markets.” A couple of main risks we see right now are interest rate risk, inflation risk, and geopolitical risk. Here are some ideas on how to deal with those risks.

Interest rate risk continues to affect many savers and investors who are living off fixed income investments, and according to recent talks by The Federal Reserve, this risk could continue for years. For those with debt, this is an opportunity to pay less on borrowed money. An example is the fact that I’m refinancing my mortgage to a 15 year fixed loan at 3% interest rate. Yet, for savers and investors, these decade low interest rates mean that after factoring in taxes and inflation, an investor in most fixed rate investments are losing money safely. A way to address this risk is to look at other alternatives that still can provide an investor with the correct amount of safety and income with more upside potential. Alternatives such as fixed-indexed annuities, structured FDIC insured CD’s, or government bonds are options to consider.

Inflation risk is affecting seniors and retiree’s. For many younger American’s, inflation is not a major risk right now. In fact, in several categories such as electronics, prices continue to decline. Where we see risk is for a senior, retiree, or someone who is approaching retirement is rising health and living expenses. One way to address this issue is purchase investments that mature at different time frames over the next 3 to 10 years. This strategy is known as laddering a portfolio, with a goal of giving an investor a “pay raise” along the way. To address the risk of rising health care cost use leverage. Although that is a word we created, it is one part leverage and one part arbitrage. Meaning an investor takes unproductive assets and immediately creates benefits in absence of time, taxes, and risk.

Geopolitical risk around the world is also important to pay attention to. The problems overseas that were headline news last summer still exist today. The worldwide debt time bomb is still ticking and may blow up. An investor could deal with this risk by using proper asset allocation, diversification, and having a clear exit plan in place when risk gets too high. The goal of diversification is to reduce risk, although it doesn’t guarantee an investor against loss. Diversification can be accomplished by increasing the number of holdings or purchasing investment that are different from one another.

Dealing with risk is a normal part of everyone’s day. We take risk getting out of bed and getting in our car to go to the store. Dwelling on risk can be very unproductive. It is best to deal with risk head on, be brave enough to face the risks, get knowledge from others to avoid blind spots, and take action to eliminate as much risk as possible. Even if things seem to be cruising along just fine, take some time this week to schedule a meeting with a financial professional to talk about the financial blind spots.

Avoid Costly Beneficiary Mistakes

It’s hard for people to imagine the time when they will no longer be here on Earth. When we do think about it, we automatically assume that our will and estate plans will take care of everything. This, in fact, is not always the case. Instead, oftentimes, financial assets such as life insurance, retirement accounts and annuities have named beneficiaries and are typically paid outside of the estate.

Having these forms updated and filled out incorrectly could mean some assets will go to someone other than who you thought. Those assets could also be subject to taxes, fees and additional expenses. Most of these common mistakes can be avoided by reviewing and updating beneficiary forms every few years and upon life changes. Unfortunately, many families find out too late.

One of the most famous cases of a beneficiary mistake is known as the Pension Pickle. Anne Friedman, a school principal in Brooklyn, N.Y., had been married to her husband, David, for nearly 20 years. Unfortunately, she had a heart attack and passed away. David assumed he was the beneficiary of his wife’s $900,862 state teacher retirement account.

Upon trying to collect as the spouse, he was shocked to find out that his wife had filled out her beneficiary form 27 years ago. This was four years before Anne and David even met. Anne never took the time to update her beneficiary form, on which she named her mother, uncle and sister as beneficiary.

Anne’s mother and uncle had already passed away, leaving the nearly $1 million to her sister. And as you might have guessed, Anne’s sister was not too inclined to give David the money.

The case went all the way to the Supreme Court, which ruled in favor of the sister, saying it could only go by what Anne had put in writing on her beneficiary form regardless of what her will stated.

Throughout the years, Mark and I have spent a lot of time educating local residents and advisers around the United States about the importance of properly named beneficiary designations. In meeting with hundreds, if not thousands, of people we have discovered some of the most common mistakes that people make with their forms.

A major mistake many people make is assuming the custodian or the company your account is with has the correct information on file. A family should keep copies of beneficiary forms along with their other important documents. If you don’t have the forms in a handy location for all of your financial and insurance accounts, call each company and request that they send you a copy of the beneficiary designation form they have on file. Don’t just ask them on the phone for the information, get it in writing.

Neglecting the recent law changes for retirement accounts could also be a major mistake. Under the old rules, when money was left to anyone besides a spouse, very limited payout options were available. This often created a lump sum fully taxable distribution, resulting in taxes of 41 percent or more of the retirement account. That is correct. In a blink of an eye, nearly half of the retirement account can be gone in the form of taxes.

New rules known as multigenerational or stretch-out options exist that can help avoid this tax trap. Yet these rule changes are voluntary, not mandatory. It is important to check with the custodian of the retirement accounts to find out if they offer multigenerational retirement accounts or stretch-out options upon death.

If the company does offer multigenerational options, it is important to check to see if your signed custodian documents are updated with the new rules. Just because they offer it now doesn’t mean the account that was set up before the rules existed will be automatically updated. Again, get it in writing.

Other common issues we see usually affect grandchildren, same-sex partners and blended families. Each situation is unique and wishes can vary from one family to another.

For a complete list of the 15 common mistakes we see families make along with a checklist you can use at home, visit www.retirementguysradio.com. Remember, beneficiary forms cannot be changed after the fact.