Goal Based Retirement Planning

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How do you plan your retirement? Goals based or settling? During the retirement classes I teach I often find most participants have not given any thought to their income goal in retirement. Instead, they are focused on calculating what their FERS or CSRS annuity will provide, Social Security benefit and the amount they need to withdrawal from TSP to pay their fixed expenses. I usually hear that their expenses will go down in retirement! What are you going to do with the time now that you are not working? Watch Netflix? Haven’t we been doing a lot of that during this pandemic?

I recommend quite the opposite. Start with not only determining your fixed expenses, but what are your wants and goals and what is the income you will need. Shoot for the moon to start! Whether it is traveling, volunteering, playing, golf, joining a gym or fitness studio, eating out, fishing, hunting, hobbies, and interests, getting together with friends, spending more time with your grandchildren, or your personal goals it that you would like to do during this next phase of your life. This does not necessarily mean that all your dreams will come true. This is when you decide what is most important to you and adjust, as necessary. For many of you, retirement will be 20 or 30 years. Do you want your income dictated your retirement or do you want to set goals and dreams and plan for your personal retirement?

The clients that I work with put their dreams and goals first. Once we do a retirement analysis based on personal goals, concerns and objectives we learn the likeliness of achieving them. The earlier this planning begins the more likely they can get to their goals. If you are one of those has not yet begun planning, it is never too early or too late.

New 401(k) Rules for 2021, Including Thrift Savings Plan​

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A 401(k) is a fabulous tool for savvy retirement savers, and it’s a great idea to get a jump on your retirement contributions early in the new year. With the beginning of 2021 comes a fresh start on a lot of financial things, so be sure you know the 401(k) rules for 2021 in order to make your plans.

A lot about your 401(k) doesn’t have to change at all in 2021, while a few other aspects will adjust somewhat. Know what the rules are regarding 401(k)s for 2021. That will help you plan ahead and figure out the best game plan for your retirement savings.

401(k) Contribution Limits for 2021

The total amount an individual can contribute to their 401(k) in the new year is the same as for 2020. You can put up to $19,500 of your income into a 401(k) account in 2021.

You’d have to save $1,625 each month to be able to reach the maximum contribution amount. In addition, the same goes for most of the retirement plans that are similar to a 401(k). Your 403(b) account, most 457 accounts, and the federal government’s Thrift Savings Plan (TSP) are included. They all come with $19,500 max contribution per person. Please click HERE to learn more.

FedSavvy Educational Solutions takes no responsibility for the current accuracy of this information. Securities offered through J.W. Cole Financial, Inc. (JWC) Member FINRA/SIPC. Advisory Services offered through J.W. Cole Advisors (JWCA). FedSavvy Educational Solutions and JWC/JWCA are unaffiliated entities. Securities are not FDIC insured or guaranteed and may lose value. Investments are not guaranteed and you can lose money. This presentation is for educational purposes only and is not an offer to buy or sell an investment. Neither FedSavvy and JWC/JWCA are tax or legal a

Rebalancing Your Portfolio

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Rebalancing Your Portfolio
Everyone loves a winner. If an investment is successful, most people naturally want to stick with it. But is that the best approach?

It may sound counterintuitive, but it may be possible to have too much of a good thing. Over time, the performance of different investments can shift a portfolio’s intent – and its risk profile. It’s a phenomenon sometimes referred to as “risk creep,” and it happens when a portfolio has its risk profile shift over time.

Balancing

When deciding how to allocate investments, many start by taking into account their time horizon, risk tolerance, and specific goals. Next, individual investments are selected that pursue the overall objective. If all the investments selected had the same return, that balance – that allocation – would remain steady for a period of time. But if the investments have varying returns, over time, the portfolio may bear little resemblance to its original allocation.

HOW REBALANCING WORKS
Rebalancing is the process of restoring a portfolio to its original risk profile.

There are two ways to rebalance a portfolio.

The first is to use new money. When adding money to a portfolio, allocate these new funds to those assets or asset classes that have fallen. For example, if bonds have fallen from 40% of a portfolio to 30%, consider purchasing enough bonds to return them to their original 40% allocation. Diversification is an investment principle designed to manage risk. However, diversification does not guarantee against a loss.

The second way of rebalancing is to sell enough of the “winners” to buy more underperforming assets. Ironically, this type of rebalancing actually forces you to buy low and sell high.

Periodically rebalancing your portfolio to match your desired risk tolerance is a sound practice regardless of the market conditions. One approach is to set a specific time each year to schedule an appointment to review your portfolio and determine if adjustments are appropriate.

SHIFTING ALLOCATION
Over time, market conditions can change the risk profile of an investment portfolio. For example, imagine that on January 1, 2010, an investor created a portfolio containing a mix of 50% bonds and 50% stocks. By January 1, 2020, if the portfolio were left untouched, the mix would have changed to 33% bonds and 67% stocks.

Shifting Allocation
Sources: DQYDJ.com, 2020 | TreasuryDirect.gov, 2020. For the period January 1, 2010, to January 1, 2020. Stocks are represented by the S&P 500 Composite index (total return), an unmanaged index that is generally considered representative of the U.S. stock market. Bonds are represented by data obtained by the U.S. Department of the Treasury. 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. When sold, an investment’s shares may be worth more or less than their original cost. Bonds that are redeemed prior to maturity may be worth more or less than their original stated value. The rate of return on investments will vary over time, particularly for longer-term investments. Investments that offer the potential for high returns also carry a high degree of risk. Actual returns will fluctuate. The types of securities and strategies illustrated may not be suitable for everyone.

A New $900 Billion COVID-19 Stimulus Package Passed By Congress Was Signed Into Law By President Trump on December 27, 2020

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What’s most important about the legislation is what’s not in it. It does not extend the CARES Act provisions for coronavirus-related distributions (CRDs) beyond December 30, 2020 and does not extend the RMD waiver beyond 2020.

The new law does include retirement plan disaster relief for non-COVID-19 disaster declarations. The relief is the same as the disaster relief we have seen in prior legislation. Individuals affected by a declared disaster can take up to $100,000 of “qualified disaster distributions” annually from IRAs and company plans. The distributions would be exempt from the 10% early distribution penalty, taxable income could be spread ratably over three years, and the distribution could be repaid within three years.

The legislation also includes the same relief for plan loans made on account of a covered disaster that we saw in the CARES Act. The limit for plan loans is doubled to $100,000 (but no more than 100% of the vested account balance). In addition, loan repayments due in the 180-day period after the disaster can be suspended.

The stimulus package also permanently extends the 7.5% threshold for deductible medical expenses. (The SECURE Act had temporarily extended the 7.5% threshold for 2019 and 2020.) This means that the 10% early distribution penalty will not apply to IRA or plan withdrawals for medical expenses to the extent the expenses exceed 7.5% of adjusted gross income.

CORONAVIRUS VACCINES AND THE ECONOMY

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As the United States sees a rise in cases of COVID-19 across the nation, news of two promising vaccines out of hundreds being tested has offered a ray of hope for a fatigued world.1

A positive reaction to these vaccines affects every aspect of human life, including the financial world. On Monday, November 16th, The Dow Jones Industrial Average rose 450 points on the news of a second effective vaccine, hitting a record high.2

Markets are not merely reacting to the positive news, but what a vaccine might mean for the economy. Investors are likely picturing people returning to something resembling their old lives. Stocks related to travel, such as airlines and cruise holidays, have seen an uptick. The properties of the vaccine itself might influence the markets – one of the vaccines spotlighted requires deep refrigeration, leading to a boost in trading for companies offering that service.3

While the hope the vaccine inspires feels reassuring, it’s crucial to maintain the long view, just as the markets are. Investors may now see life after COVID-19 on the horizon, but we aren’t there yet. Vaccines must be approved for use, distributed, and widely adopted before the full benefit can be realized. That will take time.4

1. The Associated Press, November 16, 2020

2. CNBC.com, November 16, 2020

3. Barrons.com, November 10, 2020

4. Seattle Times, November 16, 2020