The FIRE Movement

A radical new approach to working, saving, and retiring.

 

Provided by Michael R Snow

 

Retire before 50 and live your best life. That is the message of the FIRE (Financial Independence, Retire Early) movement, which is drawing interest worldwide.

 

Adherents of the FIRE movement contend that many young adults can pursue financial freedom and retire in their 40s (or 30s) through sufficient commitment, investment, and resourcefulness. Detractors think this idea is not only radical, but also radically unrealistic for many.

 

Is it really possible to retire so young? Actually, yes – there are people who have done it, and their stories often appear on financial websites. These early retirees tend to have some things in common.

 

They lived well below their means in their 20s and 30s. They spent far less than their peers did, and that gave them extra cash, which they could use to pay down their debts and invest.

 

They invested enthusiastically, with a focus on building their net worth. They started the effort early in life and kept at it.

 

They retired with purpose. They were motivated to do something extraordinary with their lives; they had a dream to realize, a calling to answer, and a reason why they did what they did.

 

Those who dream of retiring before age 50 might want to emulate these behaviors.

 

Of course, some people have more of a head start on realizing the FIRE dream than others. Read enough FIRE stories, and you will probably notice three other common characteristics about these unconventional retirees.

 

They sold a company or had a career in a “hot” industry. Early entrepreneurial success or “right place, right time” often applies.

 

They are single and/or child-free individuals. Raising children implies greater household spending for many years to come, and FIRE is about adopting frugality today in exchange for prosperity tomorrow.

 

They are in good health. Most people get their health insurance through employer-sponsored plans. Early retirees face the prospect of paying for their own coverage. Anyone with a chronic (or for that matter, suddenly serious) medical condition could face a financial strain in a FIRE scenario; those who lack health coverage need to be prepared to pay for their own medical expenses.1

 

Do you think you might be FIRE material? Do you have dreams or life goals that you want to realize within 10 or 20 years, including retiring from your business or employer? Now is the best time to financially strategize for those ambitions. Whether you retire before or after age 50, an early start on your strategy might be instrumental in the pursuit of your objectives.

 

Michael Snow* may be reached at 316-765-7738 or info@tower-strategies.com

http://www.towerstrategies.com

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

*Financial Advisor offering investment advisory services through Tower Financial Strategies Corp., a Registered Investment Adviser 125 N. Market ST, Suite 1603, Wichita, KS 67002. (not registered in all states) Tower Financial Strategies Corp. is also a licensed insurance agency.

 

Citations.

1 – cnbc.com/2019/05/02/if-near-age-65-what-you-should-know-about-medicare-no-its-not-free.html [5/2/19]

 

Why the U.S. Might Be Less Affected by a Trade War

 

The nature of our economy could help it withstand the disruption.

 

Provided by Michael R Snow

 

A trade war does seem to be getting underway. Investors around the world see headwinds arising from newly enacted and planned tariffs, headwinds that could potentially exert a drag on global growth (and stock markets). How badly could these trade disputes hurt the American economy? Perhaps not as dramatically as some journalists and analysts warn.1,2

 

Our business sector may be impacted most. Undeniably, tariffs on imported goods raise costs for manufacturers. Costlier imports may reduce business confidence, and less confidence implies less capital investment. The Federal Reserve Bank of Philadelphia, which regularly surveys firms to learn their plans for the next six months, learned in July that businesses anticipate investing less and hiring fewer employees during the second half of the year. The survey’s index for future activity fell in July for the fourth month in a row. (Perhaps the outlook is not quite as negative as the Philadelphia Fed reports: a recent National Federation of Independent Business survey indicates that most companies have relatively stable spending plans for the near term.)1,2  

  

Fortunately, the U.S. economy is domestically driven. Consumer spending is its anchor: household purchases make up about two-thirds of it. Our economy is fairly “closed” compared to the economies of some of our key trading partners and rivals. Last year, trade accounted for just 27% of our gross domestic product. In contrast, it represented 37% of gross domestic product for China, 64% of growth for Canada, 78% of GDP for Mexico, and 87% of GDP for Germany.3,4

     

Our stock markets have held up well so far. The trade spat between the U.S. and China cast some gloom over Wall Street during the second-quarter earnings season, yet the S&P 500 neared an all-time peak in early August.5

 

All this tariff talk has helped the dollar. Between February 7 and August 7, the U.S. Dollar Index rose 5.4%. A stronger greenback does potentially hurt U.S. exports and corporate earnings, and in the past, the impact has been felt notably in the energy, materials, and tech sectors.6,7

       

As always, the future comes with question marks. No one can predict just how severe the impact from tariffs on our economy and other economies will be or how the narrative will play out. That said, it appears the U.S. may have a bit more economic insulation in the face of a trade war than other nations might have.

 

Michael R Snow may be reached at 316-765-7738 or info@tower-strategies.com

http://www.tower-strategies.com

 

All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Financial Advisor offering investment advisory services through Tower Financial Strategies Corp., a Registered Investment Adviser.

 

Citations.

1 – reuters.com/article/us-usa-economy/us-weekly-jobless-claims-hit-more-than-48-and-a-half-year-low-idUSKBN1K91R5 [7/19/18]

2 – nytimes.com/2018/07/24/upshot/trade-war-damage-to-us-economy-how-to-tell.html [7/24/18]

3 – money.cnn.com/2018/07/25/news/economy/state-of-the-economy-gdp/index.html [7/25/18]

4 – alliancebernstein.com/library/can-the-us-economy-weather-the-trade-wars.htm [7/17/18]

5 – cnbc.com/2018/08/06/the-sp-500-and-other-indexes-are-again-on-the-verge-of-historic-highs.html [8/6/18]

6 – barchart.com/stocks/quotes/$DXY/performance [8/7/18]

7 – investopedia.com/ask/answers/06/strongweakdollar.asp [3/16/18]

 

Tax Efficiency in Retirement: How much attention do you pay to this factor?

Provided Michael Snow

Will you pay higher taxes in retirement? Do you have a lot of money in a 401(k) or a traditional IRA? If so, you may receive significant retirement income. Those income distributions, however, will be taxed at the usual rate. If you have saved and invested well, you may end up retiring at your current marginal tax rate or even a higher one. The jump in income alone resulting from a Required Minimum Distribution could push you into a higher tax bracket.

While retirees with lower incomes may rely on Social Security as their prime income source, they may pay comparatively less income tax than you will in retirement; some, or even all, of their Social Security benefits may not be counted as taxable income.1

Given these possibilities, affluent investors might do well to study the tax efficiency of their portfolios; not all investments will prove to be tax-efficient. Both pre-tax and after-tax investments have potential advantages.

What’s a pre-tax investment? Traditional IRAs and 401(k)s are classic examples of pre-tax investments. You can put off paying taxes on the contributions you make to these accounts and the earnings these accounts generate. When you take money out of these accounts, you are looking at taxes on the withdrawal. Pre-tax investments are also called tax-deferred investments, as the invested assets can benefit from tax-deferred growth.2

What’s an after-tax investment? A Roth IRA is a classic example. When you put money into a Roth IRA, the contribution is not tax-deductible. As a trade-off, you don’t pay taxes on the withdrawals from that Roth IRA (so long as you have had your Roth IRA at least five years and you are at least 59½ years old). Thanks to these tax-free withdrawals, your total taxable retirement income is not as high as it would be otherwise.2

Should you have both a traditional IRA and a Roth IRA? It may seem redundant, but it could help you manage your marginal tax rate. It gives you an option to vary the amount and source of your IRA distributions considering whether tax rates have increased or decreased.

Smart moves can help you reduce your taxable income & taxable estate. If you’re making a charitable gift, giving appreciated securities that you have held for at least a year may be better than giving cash. In addition to a potential tax deduction for the fair market value of the asset in the year of the donation, the charity can sell the stock later without triggering capital gains for it or you.3

The annual gift tax exclusion gives you a way to remove assets from your taxable estate. In 2018, you may give up to $15,000 to as many individuals as you wish without paying federal gift tax, so long as your total gifts keep you within the lifetime estate and gift tax exemption. If you have 11 grandkids, you could give them $15,000 each – that’s $165,000 out of your estate. The drawback is that you relinquish control over those dollars or assets.4

Are you striving for greater tax efficiency? In retirement, it is especially important – and worth a discussion. A few financial adjustments could help you lessen your tax liabilities.

Michael Snow may be reached at 316-765-7738 or info@tower-strategies.com
www.tower-strategies.com

Please note – investing involves risk, and past performance is no guarantee of future results. This information should not be construed as tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are un-managed and are not illustrative of any particular investment.

Comprehensive Financial Planning: What It Is, Why It Matters

 

Your approach to building wealth should be built around your goals & values.

 

 

Just what is comprehensive financial planning? As you invest and save for retirement, you may hear or read about it – but what does that phrase really mean? Just what does comprehensive financial planning entail, and why do knowledgeable investors request this kind of approach?

 

While the phrase may seem ambiguous to some, it can be simply defined.

 

Comprehensive financial planning is about building wealth through a process, not a product.

Financial products are everywhere, and simply putting money into an investment is not a gateway to getting rich, nor a solution to your financial issues.

 

Comprehensive financial planning is holistic. It is about more than “money.” A comprehensive financial plan is not only built around your goals, but also around your core values. What matters most to you in life? How does your wealth relate to that? What should your wealth help you accomplish? What could it accomplish for others?

 

Comprehensive financial planning considers the entirety of your financial life. Your assets, your liabilities, your taxes, your income, your business – these aspects of your financial life are never isolated from each other. Occasionally or frequently, they interrelate. Comprehensive financial planning recognizes this interrelation and takes a systematic, integrated approach toward improving your financial situation.

 

Comprehensive financial planning is long range. It presents a strategy for the accumulation, maintenance, and eventual distribution of your wealth, in a written plan to be implemented and fine-tuned over time.

 

What makes this kind of planning so necessary? If you aim to build and preserve wealth, you must play “defense” as well as “offense.” Too many people see building wealth only in terms of investing – you invest, you “make money,” and that is how you become rich.

 

That is only a small part of the story. The rich carefully plan to minimize their taxes and debts as well as adjust their wealth accumulation and wealth preservation tactics in accordance with their personal risk tolerance and changing market climates.

  

Basing decisions on a plan prevents destructive behaviors when markets turn unstable. Quick decision-making may lead investors to buy high and sell low – and overall, investors lose ground by buying and selling too actively. Openfolio, a website which lets tens of thousands of investors compare the performance of their portfolios against portfolios of other investors, found that its average investor earned 5% in 2016. In contrast, the total return of the S&P 500 was nearly 12%. Why the difference? As CNBC noted, most of it could be chalked up to poor market timing and faulty stock picking. A comprehensive financial plan – and its long-range vision – helps to discourage this sort of behavior. At the same time, the plan – and the financial professional(s) who helped create it – can encourage the investor to stay the course.1

  

A comprehensive financial plan is a collaboration & results in an ongoing relationship. Since the plan is goal-based and values-rooted, both the investor and the financial professional involved have spent considerable time on its articulation. There are shared responsibilities between them. Trust strengthens as they live up to and follow through on those responsibilities. That continuing engagement promotes commitment and a view of success.

 

Think of a comprehensive financial plan as your compass. Accordingly, the financial professional who works with you to craft and refine the plan can serve as your navigator on the journey toward your goals.

 

The plan provides not only direction, but also an integrated strategy to try and better your overall financial life over time. As the years go by, this approach may do more than “make money” for you – it may help you to build and retain lifelong wealth.

    

Michael Snow may be reached 316-765-7738 or info@tower-strategies.com

http://www.tower-strategies.com

 

This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. This information should not be construed as  tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

      

Citations.

1 – cnbc.com/2017/01/04/most-investors-didnt-come-close-to-beating-the-sp-500.html [1/4/17]

 

Why Medicare Should Be Part of Your Retirement Planning

The premiums and coverage vary, and you must realize the differences.

 

Medicare takes a little time to understand. As you approach age 65, familiarize yourself with its coverage options and their costs and limitations.

 

Certain features of Medicare can affect health care costs and coverage. Some retirees may do okay with original Medicare (Parts A and B), others might find it lacking and decide to supplement original Medicare with Part C, Part D, or Medigap coverage. In some cases, that may mean paying more for senior health care per month than you initially figured.

 

How much do Medicare Part A and Part B cost, and what do they cover? Part A is usually free; Part B is not. Part A is hospital insurance and covers up to 100 days of hospital care, home health care, nursing home care, and hospice care. Part B covers doctor visits, outpatient procedures, and lab work. You pay for Part B with monthly premiums, and your Part B premium is based on your income. In 2018, the basic monthly Part B premium is $134; higher-earning Medicare recipients pay more per month. You also typically shoulder 20% of Part B costs after paying the yearly deductible, which is $183 in 2018.1

  

The copays and deductibles linked to original Medicare can take a bite out of retirement income. In addition, original Medicare does not cover dental, vision, or hearing care, or prescription medicines, or health care services outside the U.S. It pays for no more than 100 consecutive days of skilled nursing home care. These out-of-pocket costs may lead you to look for supplemental Medicare coverage and to plan other ways of paying for long-term care.1,2

 

Medigap policies help Medicare recipients with some of these copays and deductibles. Sold by private companies, these health care policies will pay a share of certain out-of-pocket medical costs (i.e., costs greater than what original Medicare covers for you). You must have original Medicare coverage in place to purchase one. The Medigap policies being sold today do not offer prescription drug coverage. A monthly premium on a Medigap policy for a 65-year-old man may run from $150-250, so keep that cost range in mind if you are considering Medigap coverage.2,3

 

In 2020, the two most popular kinds of Medigap plans – Medigap C and Medigap F – will vanish. These plans pay the Medicare Part B deductible, and Medigap policies of that type are being phased out due to the Medicare Access and CHIP Reauthorization Act. Come 2019, you will no longer be able to enroll in them.4

 

Part D plans cover some (certainly not all) prescription drug expenses. Monthly premiums are averaging $33.50 this year for these standalone plans, which are offered by private insurers. Part D plans currently have yearly deductibles of less than $500.2,5

 

Some people choose a Part C (Medicare Advantage) plan over original Medicare. These plans, offered by private insurers and approved by Medicare, combine Part A, Part B, and usually Part D coverage and often some vision, dental, and hearing benefits. You pay an additional, minor monthly premium besides your standard Medicare premium for Part C coverage. Some Medicare Advantage plans are health maintenance organizations (HMOs); others, preferred provider organizations (PPOs).6

 

If you want a Part C plan, should you select an HMO or PPO? About two-thirds of Part C plan enrollees choose HMOs. There is a cost difference. In 2017, the average HMO monthly premium was $29. The average regional PPO monthly premium was $35, while the mean premium for a local PPO was $62.6

 

HMO plans usually restrict you to doctors within the plan network. If you are a snowbird who travels frequently, you may be out of the Part C plan’s network area for weeks or months and risk paying out-of-network medical expenses from your savings. With PPO plans, you can see out-of-network providers and see specialists without referrals from primary care physicians.6

 

Now, what if you retire before age 65? COBRA aside, you are looking at either arranging private health insurance coverage or going uninsured until you become eligible for Medicare. You must also factor this possible cost into your retirement planning. The earliest possible date you can arrange Medicare coverage is the first day of the month in which your birthday occurs.5

 

Medicare planning is integral to your retirement planning. Should you try original Medicare for a while? Should you enroll in a Part C HMO with the goal of keeping your overall out-of-pocket health care expenses lower? There is also the matter of eldercare and the potential need for interim coverage (which will not be cheap) if you retire prior to 65. Discuss these matters with the financial professional you know and trust in your next conversation.

 

Michael Snow may be reached at 316-765-7738 or info@tower-strategies.com

http://www.tower-strategies.com

 

 

Citations.

1 – medicare.gov/your-medicare-costs/costs-at-a-glance/costs-at-glance.html [5/21/18]

2 – cnbc.com/2018/05/03/medicare-doesnt-cover-everything-heres-how-to-avoid-surprises.html [5/3/18]

3 – medicare.gov/supplement-other-insurance/medigap/whats-medigap.html [5/21/18]

4 – fool.com/retirement/2018/02/05/heads-up-the-most-popular-medigap-plans-are-disapp.aspx [2/5/18]

5 – money.usnews.com/money/retirement/medicare/articles/your-guide-to-medicare-coverage [5/2/18]

6 – cnbc.com/2017/10/18/heres-how-to-snag-the-best-medicare-advantage-plan.html [10/18/17]

 

Should You Re-balance Your Portfolio

As you approach retirement, it may be time to pay more attention to investment risk.

 

Provided by Michael Snow

 

If you are an experienced investor, you have probably fine-tuned your portfolio through the years in response to market cycles or in pursuit of a better return. As you approach or enter retirement, is another adjustment necessary?

 

Some investors may think they can approach retirement without looking at their portfolios. Their investment allocations may be little changed from what they were 10 or 15 years ago. Because of that inattention (and this long bull market), their invested assets may be exposed to more risk than they would like.

 

Rebalancing your portfolio with your time horizon in mind is only practical. Consider the nature of equity investments: they lose or gain value according to the market climate, which at times may be fear driven. The larger your equities position, the larger your losses could be in a bear market or market disruption. If this kind of calamity happens when you are newly retired or two or three years away from retiring, your portfolio could be hit hard if you are holding too much stock. What if it takes you several years to recoup your losses? Would those losses force you to compromise your retirement dreams?

   

As certain asset classes outperform others over time, a portfolio can veer off course. The asset classes achieving the better returns come to represent a greater percentage of the portfolio assets. The intended asset allocations are thrown out of alignment.1

 

Just how much of your portfolio is held in equities today? Could the amount be 70%, 75%, 80%? It might be, given the way stocks have performed in this decade. As a Street Authority comparison notes, a hypothetical portfolio weighted 50/50 in equities and fixed-income investments at the end of February 2009 would have been weighted 74/26 in favor of stocks by the end of February 2018.1

 

Ideally, you reduce your risk exposure with time. With that objective in mind, you regularly rebalance your portfolio to maintain or revise its allocations. You also may want to apportion your portfolio, so that you have some cash for distributions once you are retired.

 

Rebalancing could be a good idea for other reasons. Perhaps you want to try and stay away from market sectors that seem overvalued. Or, perhaps you want to find opportunities. Maybe an asset class or sector is doing well and is underrepresented in your investment mix. Alternately, you may want to revise your portfolio in view of income or capital gains taxes.

 

Rebalancing is not about chasing the return but reducing volatility. The goal is to manage risk exposure, and with less risk, there may be less potential for a great return. When you reach a certain age, though, “playing defense” with your invested assets becomes a priority.

 

Michael Snow                                                                                                                                        President                                                                                                                                       Tower Financial Strategies Corp.                                                                                                        125 N. Market  ST                                                                                                                                    Suite 1603                                                                                                                                                Wichita, KS 67202                                                                                                                                  316-765-7738                                                                                                                      http://www.tower-strategies.com