4 Things We Should Declare Financial Independence From In Retirement

Financial independence is something that everybody wants during retirement. But what exactly does everybody want independence from?

1) Independence From Government

While it is certainly prudent to maximize your Social Security benefits in retirement, being overly reliant on it for your retirement income is quite frankly, very scary. I just recently read that 10.6 million people or 22% of the 48 million people that receive Social Security live on that alone. Social Security shouldn’t be your only form of income in retirement. It should be the icing on the cake – not the cake!

Medicare is available to us at age 65. In fact many clients put off retirement until age 65 so they won’t have a lapse in medical coverage. But don’t assume that Medicare will cover all of your medical expenses in retirement. The average 65 year old couple will spend $220,000 on medical expenses above and beyond Medicare during retirement and that figure also doesn’t include the potential cost of Long Term Care.

Speaking of Long Term Care… Once you reach age 65, there is a 70% chance that you will need some form of Long Term Care in your lifetime. If you are planning to rely on the government for this type of care, you will first have to spend down all of your assets in order to qualify for Medicaid. If you are married, your spouse is allowed to stay in your home and can retain 50% of your other assets up to $115,920. What a shame to have to spend down the savings you worked so hard for because you didn’t plan for the inevitability of needing Long Term Care.

2) Independence From Family

If one of my children and I have this wonderful relationship and we want to live together later in life – great! Maybe I’ll decide I want to help one of them raise their children? Who knows? But I certainly don’t want that to be my only option. In fact, I don’t want to have to rely on my family for any kind of financial support. I see many people spending money on their adult kids that they simply can’t afford to. Picking up the tab at dinner, buying extravagant gifts or paying for vacations is irrational if you haven’t saved enough for retirement. I realize it can be a demoralizing to tell your kids that you can’t afford certain things but they should understand. I guarantee they’d rather you save for yourself now than have to rely on them later in life.

3) Independence From Creditors

Debt payments steer your financial resources away from you, and to someone else. Trying to get to the point of being truly debt-free by the time you retire is a worthy goal. Paying off your debt before retirement reduces the amount of money going toward other expenses. The fewer expenses you have in retirement (especially debt expenses), the better off you’ll be.
Plus, the sooner you pay off your debt, the less you’ll be paying in interest. You can use the money you save in interest to invest, and that can boost your wealth in the long run.

4) Independence From The Stock Market

Having to worry about what the market is doing on a day-to-day basis doesn’t sound like a relaxing retirement to me. So many of the retirement income plans I see don’t take into account the inevitable ups and downs of the stock market. They instead rely on linear assumptions. When you are selling shares of your portfolio for income during retirement, you have to take into account that some years the market will be down because you will be selling more shares for your income needs. Likewise, some years the market will be up and you will be selling less. Your income plan needs to account for good and bad years so that you don’t worry about markets on a day-to-day basis. Knowing you have this type of an income plan in place should provide you with some peace of mind and allow you to not to become overly concerned when markets are down.

— Nikki Earley

Big Oil Counts on Big Data for Bigger Profits

In today’s U.S. shale fields, tiny sensors attached to production gear harvest data on everything from pumping pressure to the heat and rotational speed of drill bits boring into the rocky earth. The sensors are leading Big Oil’s mining of so-called big data, with some firms envisioning billions of dollars in savings over time by avoiding outages, managing supplies and identifying safety hazards. The industry has long used sophisticated technologies to find oil and gas. But only recently have oil firms pooled data from across the company for wider operating efficiencies—one of many cost-cutting efforts spurred by the two-year downturn in crude oil prices.

ConocoPhillips says that sensors scattered across its well fields helped it halve the time it once took to drill new wells in Eagle Ford shale basin of South Texas. By comparing data from hundreds of sensors, its program automatically adjusts the weight placed on a drill bit and its speed, accelerating the extraction of oil, said Matt Fox, ConocoPhillips executive vice president for strategy, exploration and technology. It is just one application, but if applied to the more than 3,000 wells ConocoPhillips hopes to drill in the Texas basin, those small sensors could lead to “billions and billions of dollars” in savings, Fox said in an interview. “We started using data analytics in our Eagle Ford business,” he said. “And everywhere we look there are applications for this.”

The cost and complexity of such systems vary widely. Oil giants such as ConocoPhillips buy a mix of off-the-shelf and custom programs along with data repositories. The Houston-based producer’s employees use Tibco Software Inc.’s Spotfire data visualization package to analyze information from well sites. Service firms, including Schlumberger NV and General Electric Co. oil and gas unit, sell sensor-equipped gear, data repositories, and software that help improve decision-making by producers. Back when oil traded at more than $100 a barrel—before the price crash in 2014—data analysis was an “afterthought” for most oil firms, said Binu Mathew, who oversees digital products at GE Oil & Gas.

Now, with prices at about $43 a barrel after recovering from a low of about $26 in early 2016, “the efficiency aspect is far, far more important,” Mathew said.

A survey by Ernst & Young last year examined 75 large oil and gas companies and found that 68% of them had invested more than $100 million each in data analytics during the past two years. Nearly three quarters of those firms planned to allocate between 6% and 10% of their capital budgets to digital technology, the survey found.

Effectively mining large data sets could lead to supplanting workers with artificial intelligence and machine learning systems, according to firms selling and buying data-driven technology. Simple sensors already increase safety and savings by eliminating the need to send workers to rigs or production facilities to gather data. Automating drilling decisions can produce more consistent results by cutting out human errors, said Duane Cuku, vice president of sales for rig technology at Precision Drilling Corp. “The driller is now able to focus his attention on the well—and the performance and safety of his crews—as opposed to the manual manipulation of controls,” Cuku said. Occidental Petroleum Corp also uses an analytical tool to find the best design for hydraulic fracturing wells. A new version of the software analyzes data on well completions and geology to recommend whether injecting steam or water would produce more oil.

Abhishek Gaurav, a petroleum engineer for closely-held Texas Standard Oil, said he uses big-data analytics to help his company choose which properties to explore. Using Spotfire, the same program utilized by Conoco, Standard applies a combination of data science and petroleum engineering to rank asking prices for land based on a variety of completion, production and geological variables – such as the amount of sand that likely would be required to complete a well in a given formation. The technique, Gaurav said, has reduced the time needed for evaluating land parcels from weeks to hours, and resulted in better decisions. “We found value in properties when many other teams did not,” he said. Some of the information craved by oil firms is not so easy to gather or analyze. Surveys and maps that companies use to acquire acreage for drilling, for instance, are often not digitized. Older company data on wells may be unstructured or spread among suppliers using different storage formats, making integration and analysis a challenge.

General Electric and its oil-and-gas unit are moving aggressively into the business of digitizing industrial equipment for other firms, and have invested in large data processing centers for energy clients. GE sees huge potential for market growth: A company study estimated that only 3% to 5% of oil and gas equipment is connected digitally, and less than 1% of the data collected gets used for decision-making, the study found. Getting the industry more fully connected will take time. “There is a huge amount of data prep, data sanitization and data extraction needed for big data to be totally disruptive,” said Kate Richard, chief executive at private equity investor Warwick Energy. She projects a major payoff from the technology is still five or ten years away. Oklahoma City-based Warwick, which manages interests in thousands of wells across Oklahoma and Texas, is preparing for that payoff by hiring people from tech hubs in California, Richard said. “They all have computer programming and data science backgrounds,” she said.

Citations

1. http://reut.rs/2sKiYyu – Reuters
2. http://bit.ly/2sztCda – Aviana Global

The Good News Is . . .

• New U.S. single-family home sales rose in May and the median sales price surged to an all-time high, suggesting the housing market had regained momentum. The Commerce Department said new home sales increased 2.9% to a seasonally adjusted rate of 610,000 units last month. April’s sales pace was also revised sharply higher to 593,000 units from 569,000 units. The median house price rose to a record high of $345,800 in May, from $310,200 in the prior month. The average sales price last month was $406,400, also a record high.

• FedEx Corp., a leading package delivery service, reported earnings of $4.25 per share, an increase of 28.8% over year-earlier earnings of $3.30 per share. The firm’s earnings topped the consensus estimate of analysts by $0.37. The company reported revenues of $15.7 billion, an increase of 20.8%. Management attributed the results to higher base rates, increased package volume and the inclusion of TNT Express results.

• Casamigos, the tequila brand that George Clooney founded with his friends Rande Gerber and Mike Meldman in 2013, announced that it had sold itself to the spirits giant Diageo. The deal values the company at up to $1 billion: $700 million in cash upfront and up to $300 million more if it hits sales targets over the next decade. What began as a house spirit went commercial in January 2013, quickly translating to fast-growing sales. Casamigos said it sold 120,000 cases last year, and it is expected to sell more than 170,000 this year. Among the attractions of Casamigos for Diageo is the high demand for tequila, which has grown in popularity as the agave-born spirit has transcended its frat-house base. It supports Diageo’s strategy to focus on the high-growth super-premium-and-above segments of the category. Diageo expects to use its global strength to expand the reach of Casamigos to markets beyond the U.S. and capitalize on the significant international potential of the brand.

Citations

1. http://reut.rs/2t3qTtO – Reuters
2. http://cnb.cx/2lwnm3s – CNBC
3. http://bit.ly/2tNeuGI – FedEx Corp.
4. http://nyti.ms/2sKqYj1 – NY Times Dealbook

Planning Tips

Guide for Making Spousal IRA Contributions

Generally, individuals who are unemployed are not allowed to contribute to retirement accounts such as IRAs because they do not have eligible compensation. However, there is an exception for individuals with spouses who are employed and meet certain requirements. The employed spouse is allowed to make an IRA contribution on behalf of a non-working spouse or a spouse who has little income. These contributions are referred to as “spousal IRA contributions.” Below is a brief guide for making spousal IRA contributions. Be sure to consult your financial advisor to determine if this is appropriate for your situation.

 

Eligibility – To make an IRA contribution for your spouse, you must meet the following requirements:
• You must be married.
• You must file a joint income-tax return.
• You must have compensation or earned income of at least the amount you contribute to your IRAs.

Age Limit – If you decide to fund a Traditional IRA for your spouse, he or she must be under age 70½ for the year for which the contribution is being made. No age limits apply to Roth IRA contributions.
Compensation Limit – While there is no cap on the amount you may earn to fund a Traditional IRA, this is not so for a Roth IRA. You may contribute 100% of your compensation or the tax year’s IRA contribution limit, whichever is less, to your IRA. Bear in mind that the contribution limit that applies to you also applies to your spouse. For 2017, the contribution limit is $5,500 for most Americans ($6,500 for those over 50).

Deductions – If you do not participate in an employer-sponsored plan, such as a 401(k), you will be able to deduct the full amount of your spousal IRA contribution. If you are covered by an employer-sponsored plan, your ability to deduct your spousal IRA contribution depends on your income and your tax filing status. If your modified adjusted gross income (MAGI) is over $196,000 for tax year 2017, you cannot deduct your contribution to a Traditional IRA and cannot contribute to a spousal Roth IRA. If you can deduct your spouse’s Traditional IRA contribution–but not the Traditional IRA contributions made to your own Traditional IRA–you may decide to fund a Roth IRA for yourself instead if you are eligible to do so. One of the major benefits for contributing to a spousal IRA is the tax benefit. For couples in higher tax brackets this can lower their taxes and provide another vehicle to save for retirement.

IRAs Must Be Held Separately – Unlike your regular checking or savings account, your IRAs cannot be held jointly. The IRA you establish for your spouse must be in his or her name and tax identification number. Similarly, any IRA you establish for yourself must be established in your name and tax identification number.

Citations

1. http://bit.ly/2rKYIvA – Motley Fool
2. http://bit.ly/28KBaN5 – IRS
3. http://bit.ly/1Jbmt7p – Investopedia
4. http://bit.ly/2szDEL6 – TheBalance.com
5. http://on.mktw.net/1LQluGG – MarketWatch.com