Financial Planning Tip of the Month

It's that time of year again!  The time most people dread.  Tax Season!!!

Our advice is to take advantage of the time and effort you invest in preparing your tax return.  Use filing your taxes as an opportunity to look for ways to improve your overall financial situation.  

Can you make a 2016 IRA, spousal IRA, or Roth contribution?  Would it make economic sense to perform a Roth conversion?  Should you consider directing a portion of your 401(k) or 403(b) contributions to Roth?

Did you make you charitable donations/contributions?  Could you benefit from using shares of appreciated stock as opposed to a check?  Should you consider a Qualified Charitable Donation (QCD) from your IRA?

If any of these ideas sound interesting, give us a call to discuss how it may fit your personal situation. 

We have been receiving a number of calls and emails asking about tax forms.

5498 (Contributions) and 1099-R (Distributions) forms for retirement accounts are available.  

Consolidated 1099s (Interest, Dividends and Capital Gains) for non-retirement account are still being updated.  This is very common.  We anticipate 1099s to be available online next week.

Sequence of Returns

One of the hottest topics in the Retirement Planning world today is "Sequence of Returns".  The simplest way we have found to water this concept down is to compare it to a slot machine.  Nobody, no matter how smart they are or rich they are or how great an investment advisor they have, can reliably predict exactly what 3 colorful characters or images will appear as a result of the next pull of the lever.  

This too is true of one's ability to know what the next year in the financial markets will look like.  We have been helping clients retire for over 20 years.  We have enough stories of real life examples to make you lose sleep at night.  We all lived through 2000 and 2008.  For those in the accumulation phase of a retirement saving plan, those 2 painstaking bears markets actually created opportunity.  For those that continued to follow their financial plan by contributing and rebalancing, the result today is not too shabby.  For those that were in the distribution phase of their plan withdrawing money for essential expenses, the results are much, much different.  

There have been numerous studies done on this topic.  One is shown below.  It is truly amazing how profoundly different the results can be by simply reversing the sequence of actual returns from 1969 to 1994.  The reason we like this example is because it does not include 2000 or 2008.   

A couple things to note:  A withdrawal rate of 6% is not something we would recommend but is commonly seen.  Being 100% invested in the S&P 500 is also not something we would recommend but this too is commonly seen.

Keep in mind that the AVERAGE return in both scenarios is exactly the same.

We would love to hear your feedback on this topic.

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