As a financial advisor, something that I consistently run into when meeting with individuals (I am of course guilty of this too at times) is when people use tidbits of information they hear on the news (which is never biased) as fact. I’ve noticed that as we get closer to the election, I’ve begun hearing things like: “The market always goes down in an election year” or “If [fill in the blank] president is elected I’m going to cash because they are going to run our country into the ground.” When it comes to politics (regardless of which side of the political aisle you sit) a website I use to help settle the dust of campaign speeches, conventions, MSNBC, FOX News, and everything in-between is http://www.factcheck.org/. This site does a nice job taking the information candidates and their supporters use and asking the question: “Is this true?” It is a simple concept but one that is important for determining if a candidate is A.) telling the truth and B.) if the stats they use to back their initiatives are accurate.

With factcheck.org as inspiration I wanted to dive into some statements I’ve heard from people over the last month and hopefully provide some insight as to how best invest going into this election.

Quote #1: “The stock market is always down in an election year”

Fact check: As you may have guessed anytime a person speaks in absolutes they are often times wrong. Based on this article a few pieces of information stood out to me.

• “Excluding 2008, presidential election years going back to 1960 have seen an average return of 9.1% versus 8.8% for all years”

• “The S&P 500 has tended to gain in 76% of presidential election years, versus 71% of all years since 1948”

Advice: Of course these averages and historical returns are not necessarily indicative of future returns, but unless you are looking to utilize all of your retirement account dollars (which is hopefully not the case), this election should not cause you to drastically change your allocation. However, with the market hovering around all-time highs, this could be a good opportunity to ensure the risk in your portfolio aligns with your timeline.

Quote #2: “If [fill in the blank] president gets elected I’m moving all of my retirement account to cash”

 

 

 

 

Fact check: This great bar graph shows various combinations of party control of President, Senate and House of Representatives correlated to the average annual returns of the S&P 500 during these periods. Is it coincidence that, additionally, the best years have been with Republican House and Senate? Your guess is as good as mine.

Advice: As an investor, it is easy to get distracted by the media, rumors and political biases. Don’t let these things affect your investment decisions. Often trying to time the market combined with emotionally reactive decisions has the OPPOSITE of the desired outcome. Often times investors shoot themselves in the foot when it comes to timing the market and making emotional decisions.

Final Advice: Control what you can control, stay informed and stay disciplined. If you have questions Human Investing has a team of advisors ready to help. If you have questions on your retirement account and how to financially navigate this election, email or call anytime.

 

 

So you're seeing Brexit in the news? Here's what you need to know about your retirement account

I’ll be honest, before two weeks ago I had to Google what “Brexit” was. During that search I quickly learned that the term referred to Britain leaving the European Union. Fast forward to last night, Americans went to bed hearing doomsday scenarios on the news, on Twitter, etc. and woke up this morning seeing red numbers roll across the TV screen. When newsworthy things like this occur I ask the question what does it mean? What's the impact? Bottom line, how does this affect my day to day, the people closest to me, and my future? While it’s not my job or my place to speak into your personal lives and how an event like this affects you. It is my job to speak to how an event like this affects your retirement account because that’s what individuals, families, organizations, and companies hire our firm to do.

Before you scroll down to the info-graphic Will Kellar (our newest advisor) and I put together HEAR THIS THE LOUDEST. Being reactive in markets like this (aka Market Timing) is rarely a good idea. Instead, take this as an opportunity to evaluate your portfolio and the risk you are taking.  Saving for retirement is a long term strategy. Regardless of Brexit, you may be taking on too much or too little risk in your portfolio to meet your goals. Let us help you figure that out.

 

 

As always please do not hesitate to call or email us with questions. As Fiduciaries, our advice comes from a place to act in your best interest. Ultimately, this is money you’ve worked for and sleeping at night takes priority over most (if not all) other variables.

401k@humaninvesting.com

Andrew@humaninvesting.com

Will@humaninvesting.com

503-905-3100

 

 

At Human Investing our advisors talk a lot about retirement, but more and more so, health care is becoming a larger component of how we need to plan. Below are 3 ways you can prepare for the medical needs that come with retirement years as well as an illustration from my life of what happens when you take your health for granted. This past weekend I competed with a team of coworkers and friends in the Wild Canyon Games, a weekend long multi event adventure race that takes pride in pushing its competitors to “find their limits.”

 

 

My most anticipated event was geocaching. My teammate/coworker Andrew Nelson and I spent 4 hours running 17 miles in the rugged terrain near Antelope, OR hunting for and finding hidden objects (caches) by means of GPS. Leading up to this event we knew preparation was key so we diligently used google maps and GPS software to plot our course to find the most valuable caches. We printed off maps and purchased the necessary gear to compete in this event.

• GPS

• The Right Equipment

• A Winning Strategy

• Slight Insanity

• A Below Average Sense of Direction

We were as prepared as a team could be, or so I thought… Now fast-forward to the event. It was mile 13 of 17 total miles and the end was in sight. Andrew and I were running to the finish line, and this is when things started going south for me. My vision blurred, my hamstrings balled up, my mental determination faded and each step was more difficult than the previous one. I didn’t “find my limit,” my limit found me and hit me square in the jaw. I wanted to crawl into a hole and hide. My body was shutting down. In all my preparation, I didn’t take into account my physical health. I didn’t train enough, eat enough or drink enough I didn’t prepare accordingly.

 

 

When running the race of life, many make a similar mistake. We become so busy thinking about everything else that we forget to take care of ourselves. Our busyness may hinder our health, especially as we look to the future and see the reality of our situation. The reality: health care in the United States is becoming more expensive: • Premiums, deductibles and other out-of-pocket expenses could cost a 65-year-old couple retiring today a jaw-dropping $220,000 – and that’s in addition to Medicare premiums.” (AARP.org)

• “The cost of health care is rising faster than inflation” (Forbes)

• According to the World Bank the average life expectancy in the US is 79 years, meaning retirement is lasting longer than ever before.

As we look down the trail towards retirement we can expect the same trend of rising health care needs and health care costs. The more you know and plan for you and your family’s health care, the better off you will be in the long run. Here are 3 thoughts to help you make sure your golden years of retirement stay golden:

1. Take advantage of your HSA- Many companies today are going the way of a High Deductible Health Plan (HDHP), frequently paired up with a Health Savings Account (HSA). An HSA has a triple tax advantage when used to save for inevitable health care costs:

1) Contributions (money put into the account) are pretax. 2) Through interest, dividends or capital gains your account can grow tax free. 3) Any withdrawals for qualified medical expenses are tax free.

So how much can you save?

 

 

hi-chart

 

 

Some HSA’s also have an option to invest these dollars with the goal of growth for a later date, similar to a retirement plan. If you have access to an HSA don’t miss out on this great opportunity to save for future health care expenses.

2. Save accordingly- Control what you can control. • Start saving, keep saving and stick to your goals. • Take advantage of your company’s 401(k)! Sign up and contribute as much as you can. • Ask questions: call the 401(k) Advisors at Human Investing with questions regarding saving for retirement - 503.905.3100

3. Invest in yourself- Whether you plan to travel the world, spend time with family, or give back to the community you will need good health to achieve your goals and dreams. You can begin making healthy choices today by sticking to those New Year’s Resolutions, eating right and exercising. Invest in yourself - keep your mind and body active and healthy for years to come.

Just like geocaching, it’s necessary to make adequate preparation for your future, but unless you invest in yourself well it becomes difficult to finish strong in the race of life.

 

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Our solution to identifying your investment risk… and why it matters

This past weekend my wife and I went and visited two of our best friends in the hospital who just had a baby girl. When we got the text that the baby had arrived, we were in line at the Nike employee store. As we got up the counter, my wife became teary eyed with thoughts of happiness for our friends, as you can imagine the check in person didn’t quite know what to do! The cool thing about being at Nike at that time, was that we were able to pick up this little number as a gift for the newborn, which I would highly recommend simply because it's awesome.

Later that night we went to visit them, and I had not been to a doctor’s office/hospital in a while, and while I was there noticed the “pain tolerance scale” up on the wall in our friend’s room.

This scale has always made me laugh as often times it is usually relative and doesn’t define what the parameters are. What signifies a 10 on the pain scale? A broken leg? Something more painful? I know for me it was crashing my bike and meeting the gravel face first.

This got me thinking about a financial scale that many of us have seen before called the “risk scale”. Most people who have invested before have probably been asked the question, “Are you more of a conservative, moderate, or aggressive investor?” And most people say some form of, “Moderate, I think? I obviously want to make money but don’t want to lose it all”. Similar to the pain tolerance scale, the question needs to be asked; what does conservative, moderate, or aggressive mean? This is a reasonable question many people have a hard time answering. Human Investing has recently partnered with Riskalyze, a company that looks to provide tangible risk information that investors can act on.

risk 2

Here is how it works: After completing a simple risk questionnaire you are given a risk score from 1 to 100. This score acts as a benchmark (investor lingo for pain scale) and explains what to expect during different market conditions. For example, if you are invested in the S&P 500 your risk score is a 78 according to the assessment. It also shows you that generally in a given 6 month period of time you can expect a best case return of 28% and a worst case return of -18% with a historical average rate or return of around 9%. As the investor, YOU get to decide if you’re comfortable with that and can look at different investment options or portfolios that fit your goals and timeline best.

So why does this matter? Because over time investors typically under-perform the market due to things like lack of discipline, changing strategies, and trying to time the markets. We believe that a more informed investor who understands their risk and the upside and downside of their allocation can fair better. When I show this tool to 401k participants I often use the following sound bite to explain that most investors are emotional and have a short-term view; In 2014 the 20 year backward looking S&P 500 annualized return was 9.85% while the average US equity mutual fund investor annualized return was only 5.19%! Yes you read that right. Over a 4% difference per year the average investor missed out on.

Our hope is by equipping investors with information like this people can have a better understanding of which investment mix is best for them and how to stick to it over time. Thus, creating higher returns by increasing discipline.

If you are looking for an explanation about the pain scale, I am just as confused as you and probably can’t help. But, if you would like to have a conversation about your risk score and how to implement it, don’t hesitate to email someone from our team or give us a call!

 

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5 Ways to Leverage a Volatile Market for Tax Savings

When the market is volatile it can make investors feel uneasy. In a perfect world the market would never be down, but unfortunately ebbs and flows come with the territory. When the market does slow down, here are a few tax saving strategies that may be worth taking advantage of:

1. Sell the Losers – Investors who have assets in a taxable account might consider selling the assets on which they have unrealized losses. Capital losses generated can offset capital gains or up to $3,000 can be deducted against ordinary income. Additional losses can be carried forward indefinitely.

2. Contribute to a Retirement Plan – Contributions to IRAs, 401(k)s, and Roth 401(k)s are capped at specific amounts. Taxpayers can invest in their retirement accounts while values are lower and realize the benefits when the market recovers.

3. Convert to a Roth – Roth retirement accounts offer significant potential tax savings. IRA owners are allowed to convert to Roth IRAs but income tax would be due upon conversion. One strategy is to convert while the value of the assets are down in order to minimize the tax bill.

4. Exercise Employee Stock Options – Workers who received “non- qualified” options usually owe taxes on the difference between the grant price and the current value of the shares. Exercising stock options in a down market will lower the tax cost for the employee.

5. Make Gifts of Assets - If you are looking to gift stock to family or to a trust, you are limited to tax free gifts of $16,000 per year or $32,000 for married couples in 2022. A market when the cost per share has declined allows you to transfer more shares. When the value of shares rebound down the road, the IRS doesn’t assess gift tax on the increased value of the gift.

If you have questions on these strategies feel free to email or call and we would be happy to walk you through this blog post in more detail.

*Please note that Human Investing does not provide tax advice/guidance and you should contact your CPA with specific tax related questions.

Source

 

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When, for a variety of reasons, the stock market experiences downside pressure, I often spend a lot less time on the headlines and more time on the history. Because every market presents itself differently with no up or down move in the market looking exactly like another, I am compelled to look at what the market has shown us through data that goes back to 1825. After tearing up several drafts over the past few days, I pray I’ve struck the right tone in what you are now reading.  There are several key points I’d like to share after a long weekend of research.

Market Fluctuations Stock market fluctuations are an inevitable part of investing.  Declines in the market never feel good but are quite normal to experience.  History has shown us that declines have varied widely in intensity, length and frequency.

A History of Declines from (1900-December 2014) Dow Jones Industrial Average

Type of Decline        Ave. Frequency                          Ave. Length                 

-5% or more 3 times per year 46 days -10% or more 1 time per year 115 days -15% or more 1 time every two years 216 days -20% or more Approx. once every 3 1/2 yrs. 338 days

As a different point of reference, when observing the market between the years 1825-2013, I see the following:

• The market had 134 positive years and 55 negative years (the market was positive 71% of the time)

• 44% of the time, the market finished the year between 0% and +20%

• 60% of the time the market finished the year between -10% and +20%

• Only 14% of the time did the market finish worse than -10%

• Less than 5% of the time did the market finish worse than -20%

• The market was 5 times more likely to be up 20% or more in a year (50 out of 189) than down 20% or more (just 9 out of 189)!

Lessons learned from past markets:

1. No one can consistently predict when market declines will happen.

2. No one can predict how long a decline will last.

3. No one can consistently predict the right time to get in or out of the market.

4. The historical odds of making a gain in the market is good.

5. The historical probability of losing money in the market on any given calendar year is low.

Investing and Emotions In economics and decision theory, loss aversion refers to people's tendency to strongly prefer avoiding losses to acquiring gains. Most studies suggest that losses are psychologically twice as powerful as gains.  I’ve studied loss aversion in the classroom, taught on loss aversion in an academic setting and lived through how this plays out for investors during market declines.  In short, emotions have the potential to destroy an investor’s ability to achieve their financial goals.

In an annual Dalbar study, the research firm stacks up investor returns vs. those of stocks and bonds.  The study, published in early 2015, looked at returns from 1995-2014 which showed the stock market averaging 10% per year for the previous 20 years where the average investor returned around 2.5% - just a hair over inflation.  Much of this underperformance can be attributed to overly confident investors purchasing when the market is reaching new highs and panic-stricken investors selling when the market declines.

Lessons learned from emotions and investing:

1. Have a well thought out financial roadmap.

2. Review the roadmap during both good and bad market cycles.

3. Ask yourself, “Other than my emotions and the market, has anything changed with my financial plan and goals?” If not, stick to the plan. If things have changed, let’s talk.

4. Historically, selling investment to relieve anxiety about the markets can be costly.

Summary We know the markets will surprise us.  The consensus estimates of “where the market will go and why” are most often wrong.  History will not repeat itself in the market the same way, but we can learn a lot from both historical data and behavior.

When the market is volatile, particularly when it’s in decline, it can be unnerving for many investors. The concept of “buy and hold” never sat well with me. I prefer “invest and assess.” Whether in stocks or bonds, investing has to be with a purpose and a plan - period.  Our team’s work is to serve you by synthesizing your information into a plan with a purpose. Having the plan in place, we practice “invest and assess” with the goal of offering you confidence in how your plan will play out both in and through retirement.

 

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Fishing. The cool northwest air, sun peaking over the horizon, the roaring river sweeping in front of me.

Some of my favorite moments are spent in quiet, as I stand on the river bank rod in hand, waiting in anticipation. Moments like these bring me to life.

Yet if I am at all honest with you, I am not a good fisherman. I tend to be too impatient. I cast and by the time my fly lands in the water, I’m already casting in to a different spot. My timing is off. When it comes to investing for retirement, frequently investor’s timing is off. I find that there are many similarities between being a good fisherman and a successful investor. To be a wise investor it takes experience, discipline and sometimes a guide.

Now let’s think of these attributes in light of the current financial markets and the ‘doomsday’ media portrayal. It seems as if the waters of the market match up to a category 3 hurricane which are not typically conducive to catching fish or investing for retirement. So as a thoughtful investor, how should we react in moments like this?

Take into consideration the 3 aforementioned attributes: experience, discipline, and guidance.

Experience- Any experience in investing shows that the market is relentlessly in favor of the investor. Let us take into account the S&P 500. Over the last 20 years despite the “dot com bubble” and the “housing market crisis,” the S&P 500 is up over 300%.

 

 

 

 

Knowing the big picture statistics can help us understand the tendencies of the financial market.

Discipline- Don’t pull your line up! This goes for fishing and investing. When it comes to investing, people often miss out on market gains when they try to time the market. Taking money out of the market when it seems to be doing poorly you often times miss out on the biggest gains. In fact, 6 out of 10 of the market’s best days since 1995 have been within 2 weeks of the market’s worst days. Stay invested! It takes discipline.

‘If an investor stayed fully invested in the S&P 500 from 1995 through 2014, they would've had a 9.85% annualized return. However, if trading resulted in them missing just the ten best days during that same period, then those annualized returns would collapse to 6.1%.” (JP Morgan, 2015 Guide to Retirement)

Guidance- Fear of the future can be debilitating, especially when it comes to investing. These thoughts and emotions can prevent us from making wise decisions. When overcome by this uncertainty, it is good to remind ourselves to ask for help.

If you are looking for a guide with your retirement plan, your Human Investing 401k team would love be that just for you. This is one of the many benefits of being a Human Investing 401k client, is to access our 8am-5pm Monday to Friday call line.

Sometimes when the fish aren’t biting and frustration sinks in, emotions get in the way of the true enjoyment of fishing. These are the times when it is important to take a step back and assess what I know to be true. It is important to invite people that know what they are doing to come alongside me. I often times enlist friends who are great fishermen to guide me, stand on the bank alongside me and bring me back to the basics of what I love. I’ve found doing this greatly increases my potential for success.

 

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Retirement Savings Contribution Credit (Savers Credit)

For anyone who has made a contribution to a retirement account in 2015 or is considering contributing in 2016, you might be eligible for an additional tax credit. The Retirement Savings Contribution Credit, also known as the Savers Credit, is a special tax break to low and moderate income taxpayers who are saving for retirement. This credit, in addition to other tax benefits for saving for retirement, can reduce or even eliminate your tax bill if you qualify.

Interestingly enough, a recent survey showed that only 12% of American workers with annual incomes of less than $50,000 are aware of the Savers Credit. In other words, the population that should know about this Savers Credit the most is under-informed. With hopes of raising awareness and equipping savers on how they could potentially pay less in taxes, see below for a brief Q&A on the Savers Credit on how it works and what you should know.

How much could the Savers Credit cut from my tax bill?

You can claim the credit for the 50%, 20%, or 10% of the first $2,000 you contribute to a retirement account depending on your adjusted gross income and tax filing status. Note that the largest credit amount a married couple filing jointly can claim together is $2,000 and the credit is a “non-refundable” credit. This means that the credit can reduce the taxes you owe down to zero, but it can’t provide you with a tax refund.

What retirement accounts qualify?

The Savers Credit can be claimed for your contributions to a 401(k), 403(b), and 457 plan, Simple IRA, Traditional IRA, and ROTH IRA. Note that you cannot claim any employer contributions to employer sponsored retirement accounts.

Am I eligible?

In order to claim a Savers Credit you must be:

• Age 18 or older

• Not a full-time student

• Not claimed as a dependent on another person’s return

Additionally you must meet the necessary income requirements. In 2015 the maximum adjusted gross income for the Savers Credit is $61,000 for a married couple filing jointly, $45,750 for head of household, and $30,000 for all other filers. The maximum credit you can claim phases out as your income increases. See the below table that outlines how much you can claim and at what income levels:

2015 Saver's Credit Credit Rate Married Filing Jointly Head of Household All Other Filers 50% of your contribution AGI not more than $36,500 AGI not more than $27,375 AGI not more than $18,250 20% of your contribution $36,501 - $39,500 $27,376 - $29,625 $18,251 - $19,750 10% of your contribution $39,501 - $61,000 $29,626 - $45,750 $19,751 - $30,500 0% of your contribution more than $61,000 more than $45,750 more than $30,500

This information can also be seen at on the IRS website. If you are eligible use the Form 8880 to claim your credit and other best practices.

Example:

Dan and Kailey are married and file jointly. He contributed $1,000 to his 401(k) and she contributed $500 to an IRA. Their 2015 combined AGI is $35,000. Therefore, each of them is eligible to claim a 50% credit for their contributions and together their credits are worth $750.

If you have questions on if you are eligible for the Savers Credit feel free to email or call us and we would be happy to walk you through this blog post in more detail and how you can best take advantage of this credit.

*Please note that Human Investing does not provide tax advice/guidance and you should contact your CPA with specific tax related questions.

 

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It doesn’t seem to matter where we are, bumping into one another at the grocery store, meeting up over lunch to catch up, or standing in each other’s kitchen’s; when my girl friends and I get together we inevitably talk about relationships. From my single friends I want to hear the updates on their dating life. From my married friends I’m listening to how life impacts that relationship and how it can endure. Without a doubt, relationships are exciting. I’ll even go out on a limb to say that it’s relationships that make the world go round. And while it’s thrilling to feel the rush of a new love, the joy of a steady friendship, or the deep comfort of a long-time connection, why is it that the idea of relating in this same way to our money makes our stomachs turn?

 

 

 

 

While we all may have a different reason for the way we react to money, turning a blind eye, claiming we don’t understand finances or sticking our heads in the sand; none of this helps us in the short run or the long run, for that matter.

Financial Finesse, a firm researching financial trends, compiled its 2015 Gender Gap in Financial Wellness report stating: “Women have a higher risk of outliving their money due to longer life expectancies, greater healthcare costs, lower lifetime earnings, and smaller retirement plan balances compared to men.” This could be viewed as really bad news, but what it also says is there is great opportunity for us to learn and grow, to make a choice to have a real relationship with our money. For those of you who are ahead of the curve I applaud you! You are getting real and the results of that are greater financial understanding leading to greater confidence in how you save, spend and even give.

For those of you still struggling to look at your spending habits or ask a question like “how do I balance a budget?” there is hope! First off, this is not a perfect science. Similar to our personal relationships, it’s about choice and commitment. As you learn you will grow. The funny thing about learning more about your money is that this new found knowledge will raise your confidence and leave you feeling better equipped to make financial decisions. As your confidence grows so does your outlook and behavior towards money. You may be on a very restrictive budget but there is nothing better than knowing where you’re ‘at’ and what you’ve got to work with (I promise this is true, even if it doesn’t feel good at first). I’ve always struggled with the ‘just give up your latte’ approach to budgeting just as much as I don’t like ‘if you want it, get it, you deserve it’ form of money management because it feels like a gimmick or dieting, both of which I dislike. Somewhere in the middle of this is a great relationship with your money! To find that great relationship it takes entering in and participating in an active way.

Just like we’ve all heard from the flight attendant:

 

 

 

 

If you are taking care of yourself, you are better equipped to take care of the one’s around you. That’s what I call purposeful power! One day at a time, one choice at a time.

So today, make a point to begin thinking about how you view your money; what you like about it and what you’d like to change, because it’s time and because it matters, and because you matter.

 

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401k’s are purposed for long-term retirement savings; for what comes after the working years. They are arguably our best means of influencing our financial futures – through diligent, faithful saving. Still, life happens. And what’s ideal doesn’t always copy and paste perfectly onto each of our own realities. Thus, there are sometimes¹ allowances that permit 401k participants to borrow dollars from their current accounts in the form of a loan. Though borrowing from a 401k is not the intended use of the account, we aren’t saying they’re always the worst option. What we are saying is that 401k loans are worth thinking twice about. And in my experience, there are a few points that consistently surprise people.

For example, do you know what would happen if you stopped working with a company while you had an outstanding 401k loan? In many cases, you’re left with two options:

1. Pay back the loan in cash within approximately 60 days

2. Default on the loan, and pay taxes and any applicable penalties on what’s owed

So, especially if you’re considering taking out a larger sum, it’s important to know the implications of what taking a loan means for both the short and the long term. See below for some more thoughts…

¹401k loans are not available through all 401k Plans, and the logistics of how they work and when they’re allowed can differ between Plans. With questions, call Human Investing at 503-905-3100 or email 401k@humaninvesting.com.

 

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The more I work through financial planning scenarios with individuals and families the more I realize how important it is to have a clear understanding of your social security benefit. A study in 2014 showed that 55% of retirees defined social security as their main source of retirement income and 88% responded saying that social security would need to be a steady source of income in order to meet retirement goals. These numbers make perfect sense due to longer lifespans, increased healthcare costs, and corporations using 401k accounts rather than pension plans. Now more than ever, it is becoming necessary to have a steady stream of income that has the ability to last the rest of your life.

The goal of this post is simple; equip you with tools on how to best take advantage of your Social Security benefit. See below for three things to consider when looking to get the most out of a program you’ve been paying into your entire working career:

1. The Waiting Game

Generally speaking, you’re eligible to receive 100% of your Social Security benefit at your full retirement age (FRA) which is currently between the ages of 66 and 67. If you decide to claim before your FRA, the benefit amount will be reduced. For each month you delay claiming Social Security your benefit increases until you reach age 70. If you were born between 1943 and 1954 here’s an illustration that provides some context to your benefit percentage:

Notice that between your FRA and age 70 your benefit increases at a rate of 8% per year. This is risk free rate of return that you receive just for delaying your benefit. Note that investors in the stock market who have the potential to lose 10% of their money in a given week are very pleased with an 8% rate of return in a given year!

2. Finding Break Even Points

Once you have an understanding of why it might make sense to wait to take your benefit, combine that with a knowledge of your personal health and family history, and you're ready to make an educated guess regarding when to take your benefit. Below are a couple key numbers to keep in mind.

Between 77 and 78

Is the age where an individual who files at FRA today catches up and exceeds the age 62 filer in total money collected. Also remember that the FRA filer has higher monthly payments going forward so the gap is only going to increase.

Between 80 and 81

Is the age where an individual who files at age 70 catches up with and exceeds the age 62 filer in total money collected.

Between 82 and 83:

Is the age when the age 70 filer catches up with and exceeds the FRA filer in total money collected. Many variables can factor into these equations such as; taxes, employment status, and other financial considerations. While I encourage you to dig into these calculations on your own, make sure to consult a financial professional (like Human Investing) when making these decisions.

3. Additional Income and Social Security

While there are many things to consider when filing for Social Security don’t forget how other income affects your benefit. Many people that I've spoken with about this issue commonly confuse "keeping" your benefit at FRA vs. "being taxed on" your benefit at FRA. The short of it is once you reach FRA you can keep all of your benefits, but you can also be taxed on those benefits contrary to what some people think. See below for a summary on the differences between keeping your benefit and being taxed on your benefit when accounting for additional income:

• If you work, and are full retirement age or older, you may keep all of your benefit, no matter how much you earn. If you’re younger than full retirement age, there is a limit to how much you can earn and still receive full Social Security benefits. If you’re younger than full retirement age during all of 2015, the government must deduct $1 from your benefits for each $2 you earn above $15,720. If you reach full retirement age during 2015, the government must deduct $1 from your benefits for each $3 you earn above $41,880 until the month you reach full retirement age. This brochure provides some additional commentary on how working income factors into your benefit.

• Some people have to pay federal income taxes on their Social Security benefits. This usually happens only if you have other substantial income (such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return) in addition to your benefits. This link provides some more details on the taxes you pay on your social security when factoring in other income. Lastly, this web page gives the best example I've seen when factoring in taxes and Social Security.

By looking at the advantages of waiting to take your benefit, some break-even points, and tax strategies for social security hopefully you see that it takes time and effort to make the most of your benefit. It’s possible to literally leave tens of thousands, if not hundreds of thousands of dollars on the government's table if you’re not thoughtful in how you receive this benefit.

So, if you have questions on your Social Security benefit and how it affects your retirement timeline, feel free to email or call Human Investing at any point. We’d love to partner with you in making the most of this benefit.

 

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When investors experience market turbulence, it’s never fun. It’s a lot like being on a plane when the fasten seatbelt sign goes on and the wings of the craft start flapping like a bird in air. Our investment firm has experienced 30% of the worst days in the market since the year 1899, so we’ve endured our share of turbulence. The purpose of this note is to address participants investing in their 401k plan and to share lessons we’ve learned from the past.

1. Participants should understand what is “normal" turbulence in the stock market. A correction (aka turbulence) is typically defined by a decline of 10% or more with a “bear market” declining 20% or more. Although corrections and bear markets never feel good, they should be considered normal and expected. In the last 85 years, there have been 51 corrections or bear markets. In the last five years alone, we’ve had six periods of declines of nearly 8% or more. In short, normal never feels good but normal is normal.

2. As the Dow Jones has increased in value from the year 1987 (1,793) to today (16,000), the drops in point value don’t have the same impact as in earlier times. Take for example the one day crash in 1987 where the market lost 8% of it’s value in a single day with a 156 point drop. If that same sort of drop were to occur today, we’d need to see a 1,600 point plunge. The bigger number seems scarier on the surface but its impact as a % loss on the portfolio is the same. Put another way, 156 point drop today would not even be a 1% drop…

3. When thinking about what to do when turbulence sets in, participants MUST think about their personal timelines for their money. In most cases, for someone 50 years or younger, you’ll have 15+ working/investing years before retirement. During those 15 years you get the benefit of being able to buy into the market as it declines. Ultimately, without having to think about it, you are buying lower with the hope that the shares you are purchasing NOW will be worth more in the future. For those nearing retirement, the question about what to do is a bit more complex. At or near retirement making sure you have adequate cash and safe investments to cover living expenses is everything. Having several years worth of living expenses put aside in CD’s, cash, or money markets makes a ton of sense. This enables you to hold onto the stock or equity investments you have until the turbulence subsides.

4. Managing your emotions during the turbulence is wise. Much like unbuckling your seatbelt and walking around the cabin during a rough flight, making snap decisions about your 401k during turbulent times can be dangerous to your financial future. Again, although it does NOT feel good when the market(s) get choppy, acting prudently and slowing down can greatly benefit you and your retirement funds. One of the many benefits of being a Human Investing 401k client is access to our 8am-5pm Monday to Friday call in line. One of our advisors can walk you through all your options as well as give you advice based on your specific account. In the end, whatever you opt to do, your decision will be well thought out, informed and discussed.

There are many important lessons we’ve learned from the past. This note is intended to take those lessons and to provide you with some perspective and thoughts on how you might want to approach volatility in your account. In the end, if you have questions and want to talk it over with one of our advisors, please call us as we would be happy to hear from you.

 

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