Simplifying Your Retirement Plan

Like all things in life, retirement planning has many aspects to it and a few items we can control but most items are beyond our control. To help remove some of the stress of retirement planning, we would like to help reframe the way that you look at retirement planning. Looking at the chart below it breaks down the most important factors that impact your retirement and are broken into three buckets: 1) things you can control; 2) things you have some control over; and 3) items that you have no control over.

Too often we focus on the things in life that we cannot control and those are the items that cause us the greatest stress. Instead of wasting our time and energy on those items, we instead should put our focus on the buckets that we have control over.

Total Control Bucket

This bucket is the most important because these are the items that you explicitly control.  For most individuals, savings and spending are the two biggest factors for retirement planning and the two items you have the greatest control over! When you work with a Financial Adviser, any recommendations they make typically will try to reduce expenses or make you more money.

Some Control Bucket

This bucket includes things that you can influence but do not have total control over. Items in this bucket would be things like your health and longevity. We can do the best we can to be healthy which will reduce stress and increase life expectancy, but we have no control over diseases like cancer (i.e., heredity traits). Many times, people plan on working till a certain age, but things can change if you experience a layoff or health problems that force you into retirement. It is important to have plans for this bucket like trying to stay healthy, reducing stress, and having a plan for your career. However, we must keep in mind we do not have total control, so having proper hedges in a place like a disability policy, health insurance, emergency fund, etc. should be considered.

No Control

Humans always want to have the illusion of control. Most people do not respond well in dealing with things that they have no control over. The fear of something happening in the no control bucket (i.e. bad market returns) leads to more anxiety and sleepless nights than any other bucket. Remember that worrying is like a rocking chair, it gives you something to do but accomplishes nothing. That is not to say we do nothing with this bucket, but rather you build a retirement plan to reduce risks from this bucket. Market returns are something we have no control over but studies have shown a diversified portfolio produces the best risk-adjusted returns. No one controls what happens with taxes and government policy, but you update your retirement plan once these changes occur.

Summary

Use the above chart as a reminder to focus your time and efforts in retirement planning on the items that you have the most control over. Starting there will produce the best results and will reduce stress since it takes your attention from the items in the no control bucket that cause the most anxiety. Working with a Certified Financial Planner™ and focusing on the two buckets that you can influence, will give you a simple and lower stress approach to retirement planning.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

Do You Want Some Froth with That SPAC

When there is so much liquidity sloshing around the system, Wall Street always comes up with a way to capitalize with a bit of financial engineering. The latest soup de jour is a special purpose acquisition company (“SPAC”). A SPAC is a “blank check” company that raises money in an Initial Public Offering (“IPO”) to merge with a privately held company that then becomes publicly traded as a result with the SPAC shareholders getting shares in the new combined company. In other words, it basically involves handing over money in something of a blind faith investment.

SPACs raised a record $82 billion last year and they now make up 50% of all IPO volumes which speaks to the current frothy investing environment.

Source: Deutsche Bank, Dealogic

Who is benefiting from this SPAC-hype? It is rarely the Main Street mom and pop investor. The post-merger SPAC performance is typically dismal as we can see.

Sources: Citi, New York University School of Law, Stanford Law School, J.P. Morgan Asset Management.
*Latest SPAC included in cohort is from June 2020. Data is based on availability as of February 28, 2021.

The Wall Street investment bankers and hedge funds are the real winners – at least until the music stops. SPACs pay bankers for going public and for negotiating mergers, pay sponsors (those who set-up the SPAC and find the merger target) typically 20% of their stock, and then there is dilution on top of that due to redemptions of warrants. If you want to dig deeper into the high costs of SPACs, we recommend you take a look at “A Sober Look at SPACs” by Michael Klausner of Stanford and Michael Ohlrogge of New York University, which is summarized here.

We believe this speculative behavior from the r/wallstreetbets movement to Bitcoin and from tech to SPACs, is due to the extraordinary amount of money sloshing around the financial system. As bond markets have flashed a warning sign, we have seen SPACs fall about 25% since their February peak. Is this a precursor of what is to come for some of these speculative investments?

Source: Bloomberg, Chart of Defiance Next Gen SPAC Derived ETF (ticker SPAK)

With more stimulus forthcoming from the fiscal side of the government, speculative behaviors could drive these types of investments higher in the short run. As the former Citigroup CEO, Chuck Prince said “When the music stops, in terms of liquidity, things will be complicated, but as long as the music is playing, you’ve got to get up and dance.” Sorry, Chuck, BFSG is not getting up to dance to this speculative behavior. We continue to firmly believe that the best remedies to an uncertain world are fundamental analysis, appropriate asset allocation, broad diversification, disciplined rebalancing, and cost minimization.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

Understanding Health Savings Accounts (HSAs)

Using a Health Savings Account (HSA) is a prudent financial decision that many Americans overlook or simply do not understand. One of their primary benefits is that contributed funds do not run out each year like a medical savings account. Instead, unused funds roll over each year and can be used for future medical expenses. This feature creates a unique planning opportunity to help cover future medical expenses, which is important since it is well documented that medical expenses are the largest expense for many in retirement. Furthermore, a retiree can use a health savings account even when on Medicare to cover medical expenses.

Here are some important facts to keep in mind when it comes to an HSA:

  • They must be under a high deductible health plan.
  • Funds can be used for current or future medical expenses.
  • Contribution limits are set by the IRS ($3,550 if single or $7,100 for family).
  • You control the assets and they are portable if you retire or switch employers.
  • Contributions are 100% tax-deductible and withdrawals are tax-free for qualified medical expenses.

Who qualifies for an HSA?

To qualify, you must be enrolled in a high deductible plan that is compatible with an HSA and you can’t be enrolled in another health plan or in Medicare (funds acquired through an HSA prior to using Medicare can be used, however).

If you have any questions, your best option is to simply inquire with your employer and see if you qualify for an HSA.

What are the tax implications of an HSA?

Contributions up to IRS limits of $3,550 single or $7,100 family are 100% tax-deductible. The money will grow tax-deferred and is tax-free if used to pay qualified medical expenses.

Other factors to consider

Assets in the health savings account can be invested in ETFs, mutual funds, or held in cash. A person can do a partial rollover from an IRA into an HSA (within IRS limits) as well to help fund the HSA. The amount you contribute is an important consideration and it is best to consult with a Financial Advisor to best understand how you can potentially benefit from an HSA and determine what amount is most beneficial for you to contribute.

BFSG Named to 2020 Financial Times 300 Top Registered Investment Advisers

BFSG is pleased to announce it has been named to the 2020 edition of the Financial Times 300 Top Registered Investment Advisers. The list recognizes top independent RIA firms from across the U.S. The final FT 300 represents an impressive cohort of elite RIA firms, as the median AUM of this year’s group is $1.9 billion. The FT 300 Top RIAs represent 39 different states and Washington, D.C.

https://www.ft.com/content/6a45556e-6c21-4770-bc94-468fee0de563

Disclaimer: Awards and recognitions by unaffiliated rating services, companies, and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if the Firm is engaged, or continues to be engaged, to provide investment advisory services; nor should they be construed as a current or past endorsement of the Firm or its representatives by any of its clients. Rankings published by magazines and others are generally based exclusively on information prepared and/or submitted by the recognized adviser. The Firm did not pay a fee for inclusion on this list.

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