1) Work With A Fiduciary
Why is it important to work with a fiduciary? A fiduciary is held to a higher moral and ethical standard than a salesperson at the bank or brokerage firm. A fiduciary is required to put our client’s best interest in front of our companies’ best interest. For example, bankers and brokers can sell variable annuities to their clients. We would never do that. Variable annuities are where the broker gets paid an 8% commission up front and he/she gets paid every year you own it, the insurance company gets paid every year you own it and the mutual fund companies get paid every year you own it. Three layers of fees that usually add up to 5% to 7% each year before you make a dime. In our opinion, these are horrible and not in the client’s best We have never sold one and we will never sell one because it is not in the client’s best interest. You lag investment performance as the markets rise, due to high fees and you lose more than the markets during declines because of the high fees.
Bankers and brokers also sell high commission, non-traded REITs (Real Estate Investment Trusts) where the banker and brokers can get over 12% commissions and you are stuck with a non-liquid investment.
Non traded REITs and variable annuities are some of the major reasons that the Department of Labor came out with the new laws announced in April of 2016, requiring more disclosures on the high commission products.
Former SEC Chairman, Art Levitt, said that “if you have more than $50,000 to invest you should fire your broker and find a fiduciary.” - Levitt, Arthur, and Paula Dwyer. Take on the Street: How to Fight for Your Financial Future. New York: Vintage, 2003. An anonymous, humorous quote - “The broker is NOT your friend. He’s more like a doctor who charges patients on how often they change medicines. And he gets paid far more for the stuff the house is promoting than the stuff that will make you better.”
We are fiduciaries, on purpose and by design. We love acting in the best interest of our clients! If you are not working with a fiduciary you are working with a salesperson that is not required to put your best interest first.
2) Income For As Long As You Live
Make sure your plan delivers the income that you need and want for as long as you live. Our clients can mathematically see if they can retire or not. They can also see how much income they can receive up to age 100. Priceless information! One of the greatest fears in this country is running out of money before you die. Let us help you eliminate that fear!
3) Tax Minimization
We use tax minimization in our planning. Typically, there are 4 parts:
A) We go to lines 8 and 9 of your Form 1040 and see how much you have in interest and dividends that you are paying tax on each year. Usually, this is from reinvested dividends and interest from mutual funds. It is inefficient to pay taxes on money you never touched so we address this and can usually save people about $3K to $5K in taxes each year.
B) IRA to Roth conversion. If we grow your IRA from $250K to $800K in 20 years, are you happy with us? For tax reasons, you should be furious. In your mid-80s, we have put you in the top tax bracket for the rest of your lives because now you have to pay required minimum distributions on that IRA when we could have been proactive and paid taxes on your IRA at $250K. Let me put this another way; would you rather pay taxes on your IRA at $250K or at $800K? We have a specific, mathematical approach for Roth conversions with our clients. We would never convert short or intermediate term money from an IRA to a Roth since the beauty of the Roth account is to grow tax free, pay out income tax free and transfer to beneficiaries tax free. It is a fantastic account and we save clients a lot of money in taxes by knowing how to use it and in which accounts.
C) Estate taxes or transfer tax. If you want us to we can help you eliminate estate transfer taxes using tax planning.
D) For our clients that have estates above $3M, there are other ways to receive income that should be reviewed such as Nevada Corporations, Foundations, Family Limited Partnerships, etc. These all have definite advantages and disadvantages but should be reviewed as options to help significantly reduce taxes on your income.
4) Asset Protection
You have taken a lifetime to accumulate assets. Now let us help you make sure all life, car, and home insurance is protected. As well as long-term care and an umbrella policy for liability coverage.
5) Risk Reduction
Your plan should eliminate interest rate risk, (hot link) credit risk, and minimize stock market risk. Credit risk is the risk that your municipal bonds will not be able to pay back principal at maturity due to the debt loads on the states and municipalities caused by pension obligations, in our opinion, they cannot possibly pay back. It is a very real risk to municipal investors. Historically, we have seen stock market crashes happening about every seven to eight years for the last 70+ years. The average retirement is about 25 years. Could your portfolio weather three market crashes like 2008 while you are in retirement? What about rising interest rates? It is very important to make sure these risks are addressed in your plan.
6) Liquidity
We define liquidity as money that can be in your checking or savings account next day, no penalty. If all of your money were liquid, it wouldn’t be working for you. But, if all of your money were locked up, that would be equally silly. Locking you up is exactly what many of our financial planning competitors do, and we want to warn you of that. We try to have about 35% to 40% of your total portfolio potentially next day liquid, no penalty.