5 Things to Do When Retiring as a Single Woman

CWT Blog | 5 Things to Do When Retiring as a Single Woman

As a single woman, it can be scary facing retirement alone. Single women face different challenges when retiring, including living longer and needing more financial resources. These challenges require advice for single women in retirement to be different than typical retirement advice. Continue reading to learn what things to do when retiring as a single woman.

Create a Retirement Plan

Having a plan for your finances in your golden years is crucial. No one wants to have to worry about making ends meet when trying to enjoy their retirement. When sitting down to set up a plan, you can find the best opportunities for you and avoid several mistakes. This plan includes at what age you can retire, how much you need to pay yourself in retirement, and what your sources of retirement income are.

Know Your Debt and Expenses

In retirement, you will be living off of a fixed income. To ensure that you will be using your money wisely, you will want to make a list of the debts that you owe and the current expenses you have before retirement. While you are still working, pay off your high-interest debt and begin to account for the low-interest debt that you will continue to pay off in retirement. Go through your other expenses to see where you can lower them to save extra money.

Avoid Taking Social Security as Long as Possible

Social Security is a reliable source of retirement income, but if you delay starting Social Security, you can receive more money. You could begin taking Social Security at the age of 62, but for each year that you wait, your benefit increases. The latest you should begin taking Social Security is at 70 years old because your benefit stops increasing.

Learn about Investing

Leveraging investing to grow your retirement savings is extremely helpful. Women are less likely to invest to avoid risk, but investing can provide a plentiful retirement income in your IRAs and 401(k)s. With women having a longer lifespan, they need to fund a longer retirement. Having a more aggressive investment strategy can provide more money to live off of in retirement.

Prioritize Your Health

One would not normally think about their health during retirement planning. Healthcare costs can be crippling in retirement if not planned for properly. It is inevitable that the older you are, the more expensive your medical bills will be. If you begin to be healthier, you can avoid the expensive medical bills for several years.

Utilizing a financial advisor can help you have a successful retirement plan. An advisor can assess your specific financial situation and provide guidance on how to improve. Here at California Wealth Transitions, we want to help women feel confident in their retirement plans.

Sources:
https://www.cbsnews.com/news/5-retirement-planning-tips-for-single-women/
https://www.approachfp.com/retirement-advice-for-women/
https://rvpllc.com/how-to-retire-successfully-as-a-single-woman/

6 Things You Need to Do Before You Get Divorced

6 Things You Need to Do Before You Get Divorced

When divorce happens, it can set off the gamut of overall emotions. These six tips are a reminder that without a lot of planning while you’re in the middle of it, your divorce may never have a happy financial ending. Even though this is happening to you personally, make these smart moves so you can still figure out how to secure and maintain your own financial independence.

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5 Insurance Policies Every Small Business Owner Needs

CWT Blog | 5 Insurance Policies Your Business Needs to Have

This is the weekend you have finally decided it’s time to start your own business. You’ve had enough of the corporate rat race and now you want to take matters into your own hands. After you determine whether you want to set up as a sole proprietor, LLC, S-Corporation, or C-Corporation, there will be a litany of items to strike off the checklist to make sure the business is up and running. One of the key areas that most small business owners ignore is getting the right type of insurance policies set up as they initiate their new businesses. Even as the business gets established, business owners often ignore getting the right type of protection in place to insulate their business in case of unforeseen circumstances. Here are five insurance policies every small business owner needs.

1. DISABILITY INSURANCE

The challenge that most new business owners don’t understand is that if you show no verifiable income, you’ll have no chance of getting disability insurance. This type of insurance is designed to protect your personal income in the event that you can’t do the duties of your own occupation. Make sure the disability insurance you purchase covers ‘own occupation’ vs. ‘any occupation’. In addition, ensure that you have a cost of living adjustment and a future purchase option to buy more insurance if your income goes up.

2. HEALTH INSURANCE

If you are leaving your corporate job, one of the questions is whether to continue with COBRA from your former employer or should you get an individual policy through the new federal exchange. Is the best idea to get a Health Savings Account attached to a high deductible health plan, a catastrophic insurance policy, or go for the PPO option with a lower overall family deductible?

3. BUSINESS OWNER’S POLICY

This type of policy is usually bundled in packs that would cover several different areas for a business owner. Many of these policies cover items such as property insurance, basic liability insurance, some vehicle coverage insurance, business interruption insurance, bodily injury insurance, and renter’s coverage insurance.

4. E & O INSURANCE OR PROFESSIONAL LIABILITY INSURANCE

This type of policy is usually bundled in packs that would cover several different areas for a business owner. Many of these policies cover items such as property insurance, basic liability insurance, some vehicle coverage insurance, business interruption insurance, bodily injury insurance, and renter’s coverage insurance.

5. LIFE INSURANCE (BUY-SELL INSURANCE)

Often, most people who make a transition into a business leave the bulk of their life insurance behind at their employer. Getting your life insurance policies in place before you leave your employer is a good idea. If you have a business partner, one important item to get squared away is setting up a buy-sell agreement to make sure that cash is in place to protect your families and the business.

There are another half dozen different types of insurance policies you will want to consider when you begin to grow your new business. Since cash flow may be tight, many new owners forego paying for these insurances to save on cash flow. However, growing your business while walking on a high wire is not the best advice. Get the right types of insurance policies in place and you will be able to focus on growing top line revenue without worrying about a time bomb ticking at your door.

THE CONTENT IS DEVELOPED FROM SOURCES BELIEVED TO BE PROVIDING ACCURATE INFORMATION. THE INFORMATION IN THIS MATERIAL IS NOT INTENDED AS TAX OR LEGAL ADVICE. IT MAY NOT BE USED FOR THE PURPOSE OF AVOIDING ANY FEDERAL TAX PENALTIES. PLEASE CONSULT LEGAL OR TAX PROFESSIONALS FOR SPECIFIC INFORMATION REGARDING YOUR INDIVIDUAL SITUATION. THIS MATERIAL WAS DEVELOPED AND PRODUCED BY HELLO MY NAME IS, LLC TO PROVIDE INFORMATION ON A TOPIC THAT MAY BE ON INTEREST. THE OPINIONS EXPRESSED AND MATERIAL PROVIDED ARE FOR GENERAL INFORMATION, AND SHOULD NOT BE CONSIDERED A SOLICITATION FOR THE PURCHASE OR SALE OF ANY SECURITY. COPYRIGHT 2019 HELLO MY NAME IS, LLC.

Smart Financial Moves to Make After a Divorce

CWT Blog | Smart Financial Moves to Make After a Divorce

Divorce is one of those life events that may be one of the most difficult transitions any person has to
make. Some divorces end amicably, while others end up with such irreconcilable differences that the
two parties never speak again. While lawyers usually end up in the middle of the finances when a
couple divorces, here are five things to consider reviewing after your divorce.

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How Much Is Your Advisor Charging You?

CWT Blog | How Much Is Your Advisor Charging You?

Are you familiar with the fees that your financial advisor is charging you for their services?

Here at California Wealth Transitions we charge a flat percentage rate to manage your investment assets, but not all financial firms operate this way. It’s important for you to know how a financial advisor’s fee schedule is set up when considering starting a new relationship or if you’re in the market for a new advisor, that way you know where your money is truly going.

There are key differences between flat rate fees and blended fees, and the difference between the two can mean more or less money in your pocket. Keep reading for more details on these exact differences.

Flat Rate Fees

If your financial advisor charges for their services based on a flat rate fee schedule, that means they charge you a flat, fixed rate based on your asset level. Every financial advisors’ fee schedule looks like a version of this:

Sample Fee Schedule
$0 – $1mil 1.25%
$1mil – $2.5mil 1.0%
$2.5mil – $5mil .90%
$5mil – $10mil .75%

Financial advisors with this schedule would charge clients with an asset level of up to $1mil an annual fee of 1.25%, clients between $1-2.5 million dollars in assets an annual fee of 1.0%, and so on.

The 1.25%, 1.0%, and .90% are flat rates that do not change. With flat rate fee schedules, clients know exactly what they will pay their financial advisor, no matter what.

In this example, if a client has 3.5 million dollars in assets, they will be charged .90% for the financial advisor’s services ($31,500 annually.) Of course, if a client’s assets increase to the next level of the fee schedule (above 5 million dollars); their annual fee will decrease to .75%. We use this type of fee schedule with our clients.

Blended Rate Fees

A blended rate fee schedule combines annual percentages together into a cumulative fee based on a client’s asset level. Instead of charging a client one asset level percentage, blended rate fees add up the previous percentages as well, hence the term blended rate. Let’s take the same client example from above; Say a client has 3.5 million dollars in assets. On a blended rate fee schedule, the client will be charged like this:

The first $1.0m* 1.25% = $12,500
The next $1.5m* 1.00% = $15,000
The next $1.0m* 0.90% = $9,000

Once you add those amounts together, on a portfolio worth $3.5 million, this investor would be charged $36,500 per year or 1.04% of their assets.

With a flat rate fee, a client with 3.5 million in assets will pay $31,500 annually (0.90%), but with a blended rate fee, that same client pays $36,500 annually (1.04%). The client’s financial advisor will often show the fee schedule to the client and say they are here (pointing at the 0.90% line). However, the client is actually paying over 1%. Rarely ever is this blended fee strategy properly explained to the client, often it is buried in the disclosures section of the initial account opening documents. These dollars can add up to a tremendous amount over the years, especially when you consider dividend reinvestment and compounding interest.

So, we ask again, do you know how your financial advisor is charging you?

We don’t want you to be in the dark when it comes to your finances. If you’d like to know more about the services that we provide here at California Wealth Transitions, contact us today!

The Five Biggest Mistakes Investors Make

CWT Blog | The Five Biggest Mistakes Investors Make

MISTAKE # 1 – Holding Cash

Anyone remember the Aesop’s fable about the ant and the grasshopper? Put briefly, the ant worked hard all summer storing up food. The grasshopper just sang happily at leisure and did no work. Guess who had enough to make it through? To paraphrase pop artist Donna Summer, you work hard for your money. In return, your money should work hard for you.

Although we probably use a plastic card or even an app on our phone to represent it, cash is what we use to pay our common expenses. Beyond the food, clothes, transportation, entertainment and the mortgage that we budget for monthly, it’s a good idea to have an emergency fund of cash on hand to pay for the unexpected car repair, new furnace or medical bill. Depending on your expectation of income stability, that emergency fund could be anywhere from 3-6 months’ income coverage. But once you’ve got that secure, stashing more in cash is actually a bad idea.

There is a common misperception that cash is safe in the sense of protecting your principal. If I have $50,000 in the bank today and I don’t spend it, I’ll have $50,000 next year and $50,000 twenty years from now. The problem is just that. While I will have the same amount of money in nominal terms, my twenty-years-from-now $50,000 will not buy the same thing that my $50,000 will buy today, due to the erosive power of inflation. In fact, at just 2%-per-year average inflation, my future $50,000 will only buy the equivalent of less than $34,000 of goods and services. If you leave a significant portion of your retirement funds in cash or cash equivalents like marginal-return bank CD’s, inflation is going to erode your purchasing power over time.

Some people hold on to too much cash because they fear the market. Some people have analysis paralysis and are always looking and waiting for the non-existent perfect investment. Either way, by holding cash, you are losing money.

MISTAKE #2 – Failing to Consider Fees

If some people overthink the kind of investment to make, many people underthink the question of fees. There is a whole debate about actively managed versus passively managed mutual funds out there. Active funds pay one or (usually) more fund managers to determine their fund’s mandate, conduct research, and buy and sell stocks according to which they expect to perform best within that mandate.

In addition to the cost of paying the managers, there are the transaction costs for buying and selling the stocks. Passive funds are designed to mirror an index and simply purchase the same stocks that comprise the index in the same proportions. No one is paid to do research or make decisions, and since index composition changes rarely, transaction costs are low.

The debate hinges on two questions:

  • Do active managers choose better stocks for their funds, causing the funds to generate higher returns?
  • Do the higher fees that result from paying the managers and making more transactions effectively obliterate the higher returns?

The answers are not consistent from year to year or across different fund comparisons. However, historical performance demonstrates that active management only generates excess returns-that is, returns beyond what a comparative index generates–in SOME years. Despite this, as an investor, you are still assessed the higher fees EVERY year. So, the probability of getting higher returns from your active investments varies from year to year, but the probability of paying higher fees on those investments is 100% every year. I’ll let you draw your own conclusions.

Admittedly, reading a mutual fund prospectus can be less easily enlightening than reading your auto manual, but happily, Morningstar and other reporting services put fees and other information on the Internet. Or, you can just ask your financial professional for a one-pager on each fund.

If your money is managed or advised by someone other than you, you also have to consider management fees. Money management is a service and you should pay something for it since it frees up your time to get paid to do something else. But make sure you are getting something in return for the fee. Compare rates and services. Do not confuse investment or money management with financial planning. Investment management is a process of selecting a portfolio of investments that are suitable for you and advising you when to buy or sell parts of that portfolio, based largely on external circumstances. Financial planning is a much more comprehensive process of defining multiple and often interdependent financial goals and developing, implementing and monitoring strategies to reach them, according to both your personal circumstances and external circumstances. Make sure you know which one you are paying for and which one you are getting.

For those who invest in individual stocks and bonds, the question there comes down to transaction costs. Go with a low-cost brokerage. Although these days, competing companies are bidding each other down, so this is less and less of an issue.

MISTAKE #3 – Timing the Market

Regardless of whether your advisor is a money manager or a financial planner, and regardless of the nature of that person’s compensation, one of your advisor’s tasks should be preventing you from trying to time the market.

I say “trying” because no one is actually able to do it.

Timing the market means buying just before the market rises and/or selling right before it declines.

There are a myriad of factors that cause market movement. Some are rational, some are not. Some can be analyzed to a certain extent, and some cannot. However, NONE can be predicted with frequent-enough accuracy for market timing to succeed more than it fails. In addition to the likelihood that you will “miss the window” to time the market, attempting to do it will generate unnecessary transaction costs. Particularly with the growing volume of robo-trading, engineered by super-computes, the market frequently moves too fast. Once you notice the direction, it’s often too late to benefit from following it.

Over the long run, the stock market will go up. In the short run, it will have varying degrees of up-and-down volatility. Buy-and-hold, as tired as it seems, really is the most efficient way to go. Periodic rebalancing will keep your portfolio mix in suitable proportion, but the rebalancing should take place according to pre-set considerations rather than the market’s bull or bear sentiment.

MISTAKE #4 – Ignoring Liquidity

Probably every financial professional has had the client that either comes with investments that are not commonly traded securities (stocks and bonds or mutual/index/exchange-traded funds comprising stocks and bonds) or expresses a strong interest in them. Such investments include everything from real estate to energy sources to livestock and commodities to crypto-currencies (such as Bitcoin) to antiques, collectibles and art.

Unless you or your advisor happens to have professional experience in the relevant industry, it can be very difficult to accurately assess these investments in terms of risk versus reward-in other words, are the possible returns you might get on this investment a good trade off for what you could lose from this investment? One criteria, though, is very easy to investigate and ought to play an enormous part in the decision to purchase any investment. That is: Liquidity.

Suppose you have two children. You don’t like or trust the stock market, but you have a fondness for real estate. So, you purchase two investment properties. Your plan is to sell the properties as each of your children approaches college age, and to use the properties to fund their higher education. The potential pitfall to this strategy is not just that the local real estate market might take a downturn. The same thing could happen with the stock market. But in the event of a downturn, real estate can be much more difficult to sell than securities. Even in a good market, it can take months to sell a highly desirable property after inspections and showings. And although you can liquidate a security portfolio gradually, giving the market at least some chance to recover, you generally cannot sell just part of a building.

Many of us have had the experience of purchasing collectibles-coins, figurines, stamps, baseball or Pokemon cards, porcelain dolls, vintage toys or Beanie Babies® to name a few-with the expectation that the price will rise and that there will always be a ready market, only to find the popularity of and interest in the item dropping off a cliff and prospective buyers vanishing into thin air. An investment is only valuable if someone is willing to buy it from you for the cash you need to pay for your children’s education or your own retirement or long-term care. Ebay and Amazon can greatly broaden your potential customer base, but even these sites cannot create a market, and liquidity, for something that no one wants anymore.

MISTAKE #5 – Failing to Understand the Product

Annuities are a lot like certain sports teams or politicians in that many people either love them or hate them with either emotion taken to the extreme, so I’m using this as my product example.

There probably are some really bad annuities out there. But for the most part, annuities are not intrinsically good or bad. What they ARE is misunderstood. Annuities are basically an investment wrapped in insurance. To the best of its corporate ability, an insurance company guarantees you, the annuity owner, some aspect of your investment; for example, how much it will earn, how long it will last, or the maximum that it can decline. Your homeowners, auto, health and life insurance are not free. So, neither is this insurance on your investment. Annuities do certain things that other investments don’t or can’t.

If you want to make sure your money lasts a long as you do, an annuity can do that. If you want to make sure that your principal will stay intact or that your heirs will get a certain amount of money, an annuity can do that. If you want to find a way to defer taxes after you’ve maxed out your retirement plans, an annuity can do that too. However, there is a charge for each of these features. And generally, there’s a charge for not holding the annuity for a certain minimum period. Annuities are not truly liquidity-challenged as discussed above. You can get your money out at any time, but you may pay a hefty charge to do so.

Annuities, permanent life insurance, financial derivatives (options, swaps, collateralized debt and the like) and Master Limited Partnerships (MLPs) are just some of the more complicated investments available. Each of them serves a kind of need and sometimes the need is the kind you have.

To avoid mistakes you need to be sure:

  • What the investment does.
  • Whether you need or can benefit from what the investment does.
  • How much it will cost you to meet that need or obtain that benefit.

Another of Aesop’s fables is “Belling the Cat”. Certainly, if you are a mouse, tying the bell on the cat represents an excellent investment. But what is the cost of approaching the cat to tie the bell…?

 

Copyright © 2018 PreciseFP. All rights reserved.
This communication is general in nature and provided for educational and informational purposes only. It should not be considered or relied upon as legal, tax or investment advice or an investment recommendation, or as a substitute for legal or tax counsel.

US Election and Economic Update

US Election and Economic Update Webinar Replay

The stock market during an election year (especially this year!) can be volatile, but you can be prepared. On Thursday, October 15th, CWT hosted a webinar with John Leonard, CIMA, an Executive Director with JP Morgan. Get all the details on proposed policies of both Trump and Biden administrations and how the stock market might react.

Check out the replay below!

To get invitations for future webinars like this, contact us today.

Life Insurance 101

CWT Blog | Life Insurance 101

Life insurance is never something people really want to talk about. However, it is extremely important to be aware of and to employ into your family. Life insurance serves numerous purposes in terms of financial protection for yourself and your loved ones. To learn about the basics of life insurance, keep reading!

Term Life Insurance

As implicated by its name, term life insurance is life insurance coverage over a specific period of time. Once the term ends, you can either end your policy or re-enroll in it. There are several benefits to term life insurance, such as tax-free money for your family if and when you pass away and less expensive premiums. This type of policy is more suitable for young families, easiest to understand, and has more flexible options for policy length.

Permanent Life Insurance

There are several different types of permanent life insurance policies. To name a few, there is whole life insurance, universal life insurance, indexed universal life insurance, and variable life insurance. The benefits of permanent life insurance include consistent cash-value growth, advantages for your taxes, and more. Whole life insurance is the most common type of permanent life insurance policy, and it continues throughout your lifetime.

Universal life insurance entails that your premiums are pre-determined, but you are able pay in between your maximum and minimum. You can increase your death benefit as well. Universal life insurance policies allow you to earn interest which then increases your cash value on the plan.

Indexed universal life insurance is similar to other types of life insurance policies in that you are guaranteed payout after you pass away, however, with an indexed universal life insurance policy, “the policyholder can tie up to 100% of the policy’s cash value to a stock market index,” according to Investopedia. What remains ends up in a fixed account. While similar to an investment security, these are not within the same realm and are not considered investment securities.

Variable life insurance policies include an investment component as well and are dependent on how the market performs. This type of policy does pose more of a risk and should be thoroughly explained prior to enrolling, as it entails that your family members will receive a specific amount depending on your premiums and how your investments are performing.

As you can see, there is a lot of information and preparation to know about when you start thinking about life insurance policies. California Wealth Transitions is happy to help you understand each of these policies and what they entail. To speak with a financial advisor, schedule a call today!

Sources:

https://www.investopedia.com/articles/personal-finance/070215/pros-cons-indexed-universal-life-insurance.asp

https://www.investopedia.com/ask/answers/08/variable-life-insurance.asp

https://www.investopedia.com/articles/personal-finance/070215/pros-cons-indexed-universal-life-insurance.asp

https://www.northwesternmutual.com/life-and-money/what-is-permanent-life-insurance/

https://www.valuepenguin.com/life-insurance/permanent-life-insurance

https://www.investor.gov/introduction-investing/investing-basics/investment-products/insurance-products/variable-life

How Do Presidential Elections Affect Stock Market Returns?

How Do Presidential Elections Affect Stock Market Returns Webinar Replay

On Thursday, September 17th, California Wealth Transitions hosted a joint Zoom Webinar with Tim Miller, CFP®, CIMA®, who is a Market Leader with BlackRock.

Too often, investors make emotional decisions with their money, especially in election years. We’re going to be diving deep into historical stock market returns under various leadership and political parties throughout the history of the U.S. We’ll take a look at facts and data to help you make the best decisions with your money this year.

Check out the replay below!

To get invitations for future webinars like this, contact us today.