Planned Assets Planning Blog

With mortgage rate at one of the lowest rates in history, now is a good time to consider refinancing if you mortgage is over 5% interest, but which mortgage is best 15 year or 30 year.

Most people think the quicker you pay your home off the less you have to pay so those that can afford a 15 year mortgage so choose.  Those who can’t afford a 15 mortgage send in extra premiums to get the principal down and pay off the mortgage as soon as possible.  The common belief is paying your mortgage off as soon as possible will save you money.  We were all raised to believe this; it’s possibly in our DNA.  But will you really save more money paying off your mortgage?   If you are disciplined, the answer is NO!

The answer is based on a number of factors but the two most important are arbitrage and opportunity cost.  The first factor that must be understood is that there is math and there is money and using straight math the answer favors a shorter term mortgage while the math of money does not.  Consider if I have a mortgage of $250,000 at 4% for 15 years my premium is $1,849.22 per month $9,018 per year more than a 30 year note.  Over the 15 year period I have paid $82,859 in interest with a 30 year mortgage at the 15^th year I still owe $151,954, using safe investments, if I invest my money not spent on the 15 year mortgage over this period I could have earned $203,825 at 6%.  With this amount it is my choice to pay off the house or maintain control of the money for other opportunities and a higher return at the end of 30 years.

If I complete a 15 year mortgage and then invest the after tax house payment at 6% for 15 years I will have $410,632, but continuing to use the 30 year mortgage concept I will have $665,123.  More importantly I will have maintained control of my money for other opportunities of higher return.  What impact would an extra $254,491 have on your retirement income?

Is now the time to have a conversation concerning your plans for wealth management, how you can stop wealth transfers and develop a retirement income you can count on?  When you lose a dollar you did not have to lose, you not only lose the dollar but the future return that dollar could have earned. Time is not on your side concerning wealth transfers.  A conversation with us today could save tomorrow.  Please call us at 888 270 9870 or email This e-mail address is being protected from spambots. You need JavaScript enabled to view it. , today!

A cold hard fact in retirement is health care cost.  The problem is most retirees and preretirees have no idea concerning future health care cost, fail to consider the impact of futur health care cost even for healthy retirees and will not consider the possibility of over whelming cost during retirement.  A 2011 study by the Transamerica, the Insurance company, center for Retirement Studies found that more than 40% of Americans do not have a strategy to reach their retirement goals.  Of those who do have a strategy, only 50% have considered and planned for healthcare cost, but less than one-fifth of these factored in long-term care insurance.

The truth is we refuse to consider the subject, we believe it won't happen to us.  We have Medicare with Part B and D or an Advantage plan and think that should be enough, but the truth is they do not provide full coverage.  50% of individual over 60 will spend time in a nursing home from a few day to months even years.  Medicare and Advantage plans provide very limited nursing home care. For most of us Medicaid is not an option or one we do not want to consider or qualify to receive.

When it comes to long term retirement planning most, including advisors, have a serious misconception about the cost of future health care.  When ask to estimate most guess around $5,261 a year.  However, a 2010 study found that a 65 year old health couple who retire today and lived for 20 years could spend as much as $10,750 in today’s dollars annually.  This is $15,862 in the 10^th year and $22,592 in the 20^th year at medical inflation of 3.6% and this is for health seniors.

Regardless of how well you plan investments, income or asset accumulation, failure to plan for health care cost can leave you depending on Social Security, children or family, not a place you want to go.  Today, the biggest concern of those planning for their retirement or now in retirement is running out of money yet less than 35% of retirees have an organized written plan and less than half of these have kept it up to date with periodic reviews and updates. As a wise man once said, failing to plan is planning to fail.

Is now the time to have a conversation concerning your plans for retirement income and how you can develop a retirement income you can count on?  Time is not on your side concerning retirement planning; regardless of when you plan for retirement it will get here before you know it.  A conversation with us today could save tomorrow.  Please call us at 888 270 9870 or email This e-mail address is being protected from spambots. You need JavaScript enabled to view it. , today!

For decades, tax-deferral has been one of the most powerful ideas advocated by financial advisors, the government and financial press.  But is it still the best option for everyone?

It’s often quoted “Why pay income tax now on money you don’t need now?  Instead, you can defer taxes, grow more assets, and ultimately have more money after-tax.”  This concept has always been based on the belief you will be in a lower tax bracket when you retire, but is this still the case? 

To answer this question we must first look at look at Federal, not to mention state, income tax history.  Federal taxes started out at a low 7% for the highest income earners, in 1944 it moved to 95% and over the years it has average 65% for the highest earners.  Now the highest earners are paying 35% and capital gains is at a low 15%.  As we look at the economy, follow the financial press, review our corporate national debt and those in political power do we really believe tax rate are going to remain at this level?  Furthermore we are well aware that tax increases are being pushed for those in the highest brackets that is not where most of the money is.  While it may help to increase the 35% bracket and even capital gains eventually it falls on the middle brackets (25 & 28%) to provide the money and allow 55% of the nation not to pay income taxes.

Deferral of taxes has always made sense, up until now:

Change is coming and coming quickly and it is past time for all of us to reconsider the concept of deferring tax on our investments, above any match of our employers. The reasons are many but the most obvious:

1.     Probability income tax rate will increase on the affluent Americans followed by an increase on the rest of us.

2.     Unusually low return on investments, the volatile market and unlimited printing of money by the Fed.

3.     Our tax and spend government.

If you believe taxes will go up, then is now the time to defer income?  Taxes are on sale and we might be better advised to move money from or stop deferral of investment, pay the tax and move assets to tax free investments for the future.

With the Billions of dollars that has been printed with nothing to back them up except national faith and credit at some point someone must pay and this is normally called inflation. The value of the dollar becomes less, we have to make more to buy the same products and even if brackets stayed level inflation will push us to a new level of tax.

Where is the largest pool of untaxed money today, it’s in our IRAs, 401(k)s and qualified plans.  If this is where the money is, don’t you think the government is considering how to get more of it?  Would you borrow money from a bank that says you can borrow as much as you like, but we will tell you when it’s time to pay it back and what the rate is?  Even if you do not need the money at 70.5 you have to start taking it due to Require Minimum Distributions.

The question you must ask yourself, whose retirement am I planning anyway, mine or the government? 

Is now the time to have a conversation concerning your plans for retirement income and how you can develop retirement income you can count on?  Time is not on your side concerning retirement planning; regardless of when you plan for retirement it will get here before you know it.  A conversation with us today could save tomorrow.  Please call us at 888 270 9870 or email This e-mail address is being protected from spambots. You need JavaScript enabled to view it. , today!

Let’s assume you’re turning 62 or somewhere between 62 and 66 and considering retirement, your primary concern is income.  What then is the best way to structure your various streams of income?  At this point, most of us have three buckets of money:

1.     Invested non-deferred assets (stocks, certificates of deposit and other non-deferred assets), any earned income before or after you retire including deferred compensation.

2.     Deferred assets (401(k), IRA, etc)

3.     Social Security income.

The order in which you access these assets will determine your income and if you do it wrong you may reduce your long term income unintentionally by 20% or more.  Unfortunately, an overwhelming percentage of individuals do just that.  All of us are endowed with a certain amounts of greed, when we see we are eligible for Social Security we assume it's free money and take it at 62 without regard to when our full retirement is.  Often we start taking money from our deferred money bucket as soon as we retire because we don’t want to use up our non-deferred money bucket.  Unless you have no choice, this is the absolute worst way to start your retirement and why you are going to wind up losing about 20% of your available retirement income.

Let’s break it down:

Bucket 1. The money you have in non-deferred assets producing income (interest, capital gains, etc) is taxable income.  Earned income is not only taxable but if you have not reached full retirement age (currently 66+) and earn to much your Social Security income is reduced one dollar for every three dollars received and income tax rate may be higher because of the extra income.  Also this new income may cause up to 85% of your Social Security income to be taxable at your current tax rate.

Bucket 2. The money you have in deferred money is increasing in value, when you start taking it, it becomes taxable.  Once you start taking money from this bucket it is considered income, not earned income, and used to determine if up to 85% of your Social Security will be taxed, plus it may put you in a higher tax bracket. 

Bucket 3. Social Security: In all probability Social Security is or will be the bases of your retirement income, but if you are less than full retirement in age you give up in up to 30% each year and it can be more.  A high per cent of American start their Social Security benefits as soon as they turn 62 and cheat spouses and themselves out of significant income.  Most start SS income because they think they may lose out if they die early, but in doing so they also reduce the income their spouse will receive when the spouse qualifies and on their death.  The longer you hold out to age 70 the higher your SS income will be both now and later when you need it.

Some will have to take SS income early but if you don’t you shouldn’t.  When you compute how much you have to give back for making too much,  that SS income may push you into a higher tax bracket and up to 85% of the income may be taxable how much do you really end up with.  At full retirement now age 66, your SS income increases by 8% per year through 70.  How many other investments have an 8% net rate of return plus cost of living?

For most you can increase your retirement income by 20% or more if you start with Bucket 1 letting Bucket 2 grow tax deferred and then at 70 start Bucket 3.  The point is this is good advice for most but not all.  If your portfolio is growing providing income you may want to go to your deferred account before depleting your cash account, but there is little value in starting SS income before full retirement age and for most waiting to age 70 is best case.

Is now the time to have a conversation concerning your plans for retirement income and how you can develop retirement income you can count on?  Time is not on your side concerning retirement planning; regardless of when you plan for retirement it will get here before you know it.  A conversation with us today could save tomorrow.  Please call us at 888 270 9870 or email This e-mail address is being protected from spambots. You need JavaScript enabled to view it. , today!

Let’s assume you’re turning 62 or somewhere between 62 and 66 and considering retirement, your primary concern is income.  What then is the best way to structure your various streams of income?  At this point, most of us have three buckets of money:

1.     Invested non-deferred assets (stocks, certificates of deposit and other non-deferred assets), any earned income before or after you retire including deferred compensation.

2.     Deferred assets (401(k), IRA, etc)

3.     Social Security income.

The order in which you use these assets will determine your income and if you do it wrong you may reduce your long term income unintentionally by 20% or more.  Unfortunately, an overwhelming percentage of individuals do just that.  All of us are endowed with a certain amount of greed, when we see we are eligible for Social Security we assume it is free money and take it at 62 without regard to when our full retirement is.  Often we start taking money from our deferred money bucket as soon as we retire because we don’t want to use up our non-deferred money bucket.  Unless you have no choice, this is the absolute worst way to start your retirement and why you are going to wind up losing about 20% of your available retirement income.

Let’s break it down:

Bucket 1. The money you have in non-deferred assets producing income (interest, capital gains, etc) is taxable income.  Earned income is not only taxable but if you have not reached full retirement age (currently 66+) and earn to much your Social Security income is reduced one dollar for every two dollars earned.  Also total income may cause up to 85% of Social Security income to be taxable at your current tax rate.

Bucket 2. The money you have in deferred money is increasing in value, when you start taking it, it becomes taxable.  Once you start taking money from this bucket it is considered income, not earned income.  You not only have to pay income tax on it, but it will be used to determine if up to 85% of your Social Security will be taxed.

Bucket 3. If you start taking Social Security prior to full retirement age benefits are significantly reduced. [Benefits at age 62 are between 25% and 30% reduced]   If you apply more than 36 months before full retirement age the reduction is even higher. [Full retirement age for those born between 1943 and 1954 is 66, those born after 1960 it is 67.] After full retirement age your Social Security benefits increase at 8% per year until age 70.

Generally speaking by spending down money in buck one first, then moving to bucket two and finally when you reach age 70 start bucket three, you may increase you income significantly.  Of course this advice may not be right for every one, each person is different.  The point here is it pays to look before you leap.  Researching and understanding your options before you make you decesions could stop you from making a mistake.  It is always worthwhile to consult with an advisor before making a decision you may not be able to fix later.

Is now the time to have a conversation concerning your plans for retirement income and how you can develop a retirement income you can count on?  Time is not on your side concerning retirement planning; regardless of when you plan for retirement it will get here before you know it.  A conversation with us today could save tomorrow.  Please call us at 888 270 9870 or email This e-mail address is being protected from spambots. You need JavaScript enabled to view it. , today!

If you don’t have a retirement [written] plan, how do you know you don’t have a problem?  Many of us put things off until the last minute and planning for retirement is not an exception to this inclination. When it comes to retirement planning, failing to plan is always expensive and very often not open to correction.  Recently, an example of this involved a new client and Social Security.  By failing to plan ahead, Social Security income was lost based on the spouse’s work history; income never to be recovered.  A little planning would have provided additional significant income for a number of years.  Now, income will never be drawn from this account.

The best retirement planning begins well in advance of any actual retirement.  As retirement draws near plans are reviewed, improved or modified to reflect changing situations or to take advantage of opportunity never before recognized or available.  Planning not started early or even after retirement commenced is no reason to not plan now, it’s more of a reason.  Contingencies unrecognized are impossible to value until they are upon you, and unfortunately, they can make a financial or retirement plan nearly worthless if they remain unrecognized or ignored.  Over the past 20 year’s inflation for seniors averaged 3.2% per year, medical inflation 3.6% per year.  Do you know what 3.2% inflation does to a fixed income over 10 years, are you ready for it? [Multiply 1.032 times any amount for as many times as number of year.)

Difficulty seeing or forecasting twist and turns life will take after retirement is not unlike planning any trip, but you still consult a map for the expected best route.  Most people spend more time planning a car trip of a few hundred miles than planning for retirement lasting 20 to 30 years or longer.  Much in life changes slowly, plans put together today can identify much of the future at the very minimum early planning may provide an approximation of retirement needs.  Working with current standard of living cost, less certain current expenses, times a selected long term factor can provide a close estimate of future cost.  From this estimation you may be able to determine if you are on course to retire when you expected or need to work a little longer.  Unemployment currently is high but for those over 60 it is even higher.

Is now the time to have a conversation concerning your plans for retirement income and how you can develop a retirement income you can count on?  Time is not on your side concerning retirement planning; regardless of when you plan for retirement it will get here before you know it.  A conversation with us today could save tomorrow.  Please call us at 888 270 9870 or email This e-mail address is being protected from spambots. You need JavaScript enabled to view it. , today!

A typical retired couple may add as much as 20% to their after-tax retirement income by coordinating when to use different categories of their money in retirement?

Most individuals have three financial legs to support them in retirement: (1) Social security benefit; (2) qualified retirement savings and (3) non-qualified savings and investments.  A majority of couples and individuals may by selectively coordinating how they use assets within these three sources actually improve after-tax retirement income up to 20%.  Unfortunately, most overlook the importance of coordinating use of available assets, resulting in higher tax.

Why?  There are several reasons why many Americans lose up to 20% of possible retirement income:

1. Knowledge:  The United States Income Tax system actual consist of two systems.  Those understanding the system, rules and loop holes always pay less in percentage of income.  Of course those who do not have this knowledge always pay a greater percentage of income.  The problem is most are not even aware of what they do not know and spend most of their energy obtaining minor savings and missing savings opportunities contributing to successful retirement.
2. Planning:  The majority of American retired retire without a written retirement plan.  Successful business requires an effective written plan if it hopes to succeed and your retirement is your business.
3. Conventional Wisdom:  Too many professional planners, as well as pre and post retired people stick with conventional wisdom even if it is wrong.  As all of us have told our children, “just because everyone else is doing it does not make it right”.  Conventional wisdom may actually cost you 20% more in tax than necessary.