“Six Common Money Mistakes That Can IMPACT Your Retirement”

I know for some of us it is very hard to admit, but the truth is none of us are perfect. In our lives we all make mistakes. It is inevitable.

I make mistakes all the time – just ask my husband! Just last week while parked outside of our garage I left my sunroof open and of course it started to rain. In the scheme of things this was not the end of the world but none the less a mistake.

Like my recent mistake, most of our mistakes don’t have far reaching implications. However, there are some financial mistakes that can dramatically impact your retirement!

#1
Ignoring the future tax implications of your retirement savings…

We have all been taught to put as much away as we could into traditional type retirement vehicles; tax deferred vehicles. We did this thinking that our tax rates would be lower in retirement.

But what if that isn’t the case? What if the shift of so many American workers (Baby Boomers) to Social Security and Medicare ensure that tax rates have to increase in the future regardless of who is running our government?

In 2017 our highest marginal tax bracket is only 39.6%. Did I just say ONLY 39.6%? You bet I did. Many are surprised to learn that in the scheme of things this rate is low. In fact in 1970 the highest marginal rate was 70% and in 1945 it was 94%. I do realize that not all of us fall into the highest marginal tax bracket but I am willing to bet that if rates go up it won’t just be for the wealthiest Americans.

A rise in tax rates could be detrimental to our retirement. Simply put we will have to pull out more money for our income needs to cover increased taxes.

#2
Starting Social Security too early or too late…

As a general rule, I rarely suggest someone put off taking their benefit if it means they will have to liquidate more savings to do so. I often remind clients that you can leave your savings to your kids but you can’t leave your Social Security benefit. I’d rather see you go ahead and start your benefits when you need the income rather than spending down your savings.

Having said that many things need to be taken into consideration when you are making this decision. How long am I likely to live? Is longevity on my side? What are my other sources of income and can they support my needs without Social Security?

#3
Being too aggressive or too conservative…

Well here is the thing, everyone is different – their particular situation.
There is no one size fits all but the bottom line is that we need our money to grow period if not just for inflation and taxes.

If you’re too conservative, you could be losing purchasing power. However, if during retirement you are invested too aggressively and you need to pull money from your savings while markets are down you can lose big! Having a plan is key. Everyone needs plan that addresses their income needs and defines the range of returns they can expect so there are no surprises in any given year.
#4
Taking advice from friends and family on how to invest…

Our friends and family love to brag when they have a great year. But do they confide in us when they have a terrible one? They don’t.

We are human and we do tend to get a little jealous when we hear someone’s portfolio did better than ours. Right now if your brother-in-law is heavily weighted in large US stocks, he is bragging. You may be properly diversified holding other asset classes like international stocks and bonds and you aren’t seeing gains as large as his. But when large US stocks have a bad year (and they will) you’ll have other asset classes in your portfolio to balance that loss out. Your brother-in-law won’t.

#5
Not recognizing how expenses change in retirement…

Often clients I work with have no idea what they spend or need pre-retirement let alone how that will change after they retire.

The first step is knowing what you want/need today then really considering how that is likely to change in retirement. Some think that figure will be less while others think that figure will be more. Maybe you’ll eat out less and spend less on car maintenance and gas? Or maybe you’ll travel more and spend more on hobbies? This all has to be taken into consideration when creating a retirement budget.

Another factor to take into consideration is rising health care costs. The average couple who reaches age 65 will spend over $350,000 during the remainder of their lives above and beyond what Medicare pays for them. Scarier yet, that figure doesn’t include long term care needs.

#6
Being impatient with your investments…

Farmers don’t dig up the dirt to see how the seeds they just planted are doing. This idea should be applied to investing as well. You should have a firm understanding of what you can expect long term. But you also need to have an understanding of what your likely range of returns will be in any given year. I promise that there will be positive years and, yes negative ones if you are invested in the market. You shouldn’t be surprised when you get a negative year. It’s very easy to, but don’t get caught up with short run returns. Investing for retirement is a marathon – not a sprint.

— Nikki Earley

Volvo Hints it will Move from Diesel to Electric Engines

Swedish carmaker Volvo’s latest generation of diesel engines could be its last as the cost of reducing emissions of nitrogen oxide is becoming too much, Chief Executive Hakan Samuelsson was quoted as saying recently. “From today’s perspective, we will not develop any more new generation diesel engines,” Samuelsson told German’s Frankfurter Allgemeine Zeitung (FAZ) in an interview. However, a Volvo Cars spokesman said Samuelsson had been discussing options rather than a firm plan to stop the further development of diesel engines.

Samuelsson later said, in a statement emailed to Reuters, that he believed diesel would still play a crucial role in the next few years in helping the company meet targets to reduce emissions of carbon dioxide, being more fuel-efficient than petrol engines. “We have just launched a brand new generation of petrol and diesel engines, highlighting our commitment to this technology. As a result, a decision on the development of a new generation of diesel engines is not required,” he said.

In the FAZ interview Samuelsson said Volvo would continue improving the current range, first introduced in 2013, to meet future emissions standards, with production likely to go on until about 2023. And until 2020 he said diesel would be needed to help meet carbon dioxide emission limits set by the European Union, but after that other regulations would come into play, with the costs of making engines compliant with ever higher anti-pollution standards meaning it would no longer be worth it.

Instead, Volvo will invest in the electric and hybrid cars, with its first pure electric model due on the market in 2019. “We have to recognize that Tesla has managed to offer such a car for which people are lining up. In this area, there should also be space for us, with high quality and attractive design,” Samuelsson said.

Samuelsson has previously said that tighter emissions rules will push up the price of cars with diesel engines to the point where plug-in hybrids will become an attractive alternative. The average carbon dioxide emissions limit for European carmakers’ fleets will need to fall from 130 grams per kilometer to 95 grams in 2021, forcing them to invest more in exhaust emissions technology.

Diesel cars account for over 50% of all new registrations in Europe, making the region by far the world’s biggest diesel market. Volvo, owned by China’s Geely, sells 90% of its XC 90 off-roader vehicles in Europe with diesel engines. The scandal over Volkwagen’s cheating of U.S. environmental tests to mask emissions of nitrogen oxides, which can cause or aggravate respiratory disease, means manufacturers are facing intense scrutiny over the true level of pollutants being emitted by their cars. In 2015 alone, over 38,000 premature deaths were linked to these pollutants. Contributing to that grim statistic is not something Volvo, with its impressive reputation for safety, wants to do.

Goldman Sachs believes a regulatory crackdown could add $325 per engine to diesel costs that are already some $1,408 above their petrol-powered equivalents, as carmakers race to bring real nitrogen oxide emissions closer to their much lower test-bench scores.

Citations

1. http://for.tn/2pU6S83 – Fortune
2. http://bit.ly/2qFlOEg – ARS Technica

The Good News Is . . .

• American industry expanded production last month at the fastest pace in more than three years as manufacturers and mines recovered from a March downturn. The Federal Reserve said that U.S. industrial production at factories, mines, and utilities rose 1% in April from March, its biggest gain since February 2014. Factory production rose 1% after declining 0.4% in March. Mine production increased 1.2% after falling 0.4% in March. And utility output rose 0.7% in April. It appears that manufacturing has recovered from a rough patch in late 2015 and early 2016 caused by cutbacks in the energy industry and a strong dollar, which makes U.S. goods costlier in foreign markets.

• John Deere & Co., a leading manufacturer of agricultural equipment, reported earnings of $2.49 per share, an increase of 59.6% over year-earlier earnings of $1.56 per share. The firm’s earnings topped the consensus estimate of analysts by $0.79. The company reported revenues of $8.29 billion, an increase of 16.6%. Management attributed the results to increased demand for is farm machinery products, particularly in the South American market.

• Already the largest owner of local television stations in the United States, Sinclair Broadcast Group announced that it has agreed to buy Tribune Media for $3.9 billion, beating out other suitors including Nexstar and 21st Century Fox. With the deal, Sinclair would reach more than 70% of American households, with stations in many major markets, including Chicago, Los Angeles and New York, giving it significant heft at a time of increasing consolidation in the industry. The acquisition would also provide Sinclair with a far-reaching platform for its news programming. A Pew Research study last year showed that almost 60% of adults get their news from television, and of those, almost 50% rely on local stations. Under the agreement, Sinclair will pay $35 a share in cash and 0.23 of one of its class A shares.

Citations

1. http://bit.ly/2qGCBqs – Federal Reserve
2. http://cnb.cx/2lwnm3s – CNBC
3. http://bit.ly/2pUcFdD – John Deere & Co.
4. http://nyti.ms/2qAcMK1 – NY Times Dealbook

Planning Tips

Tips for Rebalancing Your Portfolio

A willingness to rebalance an investment portfolio—to buy and sell investments at regular intervals in a way that keeps your intended asset allocation in place—can be a cornerstone of investing success. Everyone wants to sell high and buy low, and that is exactly what rebalancing helps you do. And yet, many investors struggle with portfolio rebalancing because they find it difficult and time consuming. Below are some tips to help you better understand portfolio rebalancing. Be sure to consult with your financial advisor to determine whether portfolio rebalancing is appropriate for your situation, and the best methods to use.

Pick a rebalancing method and stick to it – One approach to rebalancing is to do so at some regular interval – e.g., quarterly, semi-annually or once a year. You should try to strike a good balance between locking in profits proactively, and minimizing possible tax and trading costs. You probably should rebalance at least annually. Another approach is to ignore the calendar and simply rebalance whenever your portfolio strays significantly from its asset allocation targets, or when market volatility is great. Whichever method you choose, the key is to stick with the plan. Rebalancing requires discipline. It is too easy to tell yourself, ‘This market is too good, so I won’t rebalance this month.’ That is usually when you should do it.

Keep your portfolio simple – Restricting investments to a handful of well-diversified funds can reduce the complexity of rebalancing. The more holdings you have, the more difficult rebalancing becomes. As an example of a simple model is Vanguard’s LifeStrategy funds, which divide investments into just 4 funds: domestic and international total market funds, and domestic and international total bond funds. Another way to simplify your portfolio is to consolidate all holdings with a single financial services provider. Keeping a bigger balance with a single provider also may qualify you for a reduction in fees, and it is much easier to identify overall actual performance when assets are held in 1 place.

Consider tax implications – Before rebalancing, consider taxes, transaction fees and other costs. Otherwise, you may unnecessarily diminish your returns. For example, if you rebalance in a taxable account, you may owe capital gains taxes on any profit. For that reason, it often makes sense to rebalance inside a nontaxable account, such as an IRA or 401(k). For taxable accounts, generally limit rebalancing to just over 12 months to take advantage of long-term capital gains rather than being penalized with short-term gains. The latter are taxed at ordinary rates, currently as high as 39.6%, while long-term gains are capped at 20%. However, tax concerns should not prevent you from rebalancing. Over time, the value of keeping your asset allocation on target likely will outweigh the benefit of keeping taxes low.

Accept that you may miss out on returns – One of the toughest realities for investors to accept is that portfolio rebalancing sometimes will hurt their returns. Rebalancing can reduce performance, especially in the short run. For example, you may sell stocks as the market is climbing, only to see shares continue to climb afterward. But remember that rebalancing is not designed to maximize returns. Instead, it is intended to serve as a risk-reduction tool that keeps your asset allocation on track. Investors often make the mistake of rebalancing the wrong way by chasing hot investments. Instead of selling what is up and buying what is down, they often do the opposite, to their great detriment. Rebalancing is difficult for many investors because it is inherently “contrarian” in that you are selling high performing assets and buying lower performing assets. During a strong market rally, rebalancing will limit your gains. The key advantage is that it also limits your losses and forces you to add to the things that will protect your capital when the rally goes bust.

Rebalancing without the hard decisions – If you are struggling to sell winners and buy lower performing securities, remember that it is likely to pay off over the long haul. Rebalancing helps take gains out of riskier assets when they are up, and keep those gains when the market drops. If you just cannot bear the idea of selling higher performing assets, you might want to consider an index-based allocation or target-date fund to avoid having to make those decisions yourself. That will be done for you automatically.

Citations

1. http://bit.ly/2qA4MbS – GetRichSlowly.com
2. http://cnb.cx/2pUvpcY – CNBC
3. http://bit.ly/2rABDer – Bankrate.com
4. https://usat.ly/2rn9vPI – USA Today
5. http://bit.ly/2pUvOfH – Kiplinger