By Carl Trevison and Stephen Bearce Before you make the decision to move on from your job, review this checklist of important financial considerations. Some involve making sure your personal finances are in order, while others can help you explore all the implications of leaving your current job. Review your current retirement benefits. Check the schedule for your employer’s 401(k) and profit-sharing contributions to see how long you have to work to claim any matched funds. If you’re close to being fully vested (meaning you’re entitled not just to the dollars you contributed but also to the dollars your employer did), it may be worth sticking it out a little longer. Keep in mind that some plans require that you be employed on the last day of the plan year to get employer contributions for that year, even once you are vested. You may want to wait until after the plan year ends before you terminate employment so you don’t lose those contributions. Make a plan for your employer retirement account. If you have an employer-sponsored retirement plan, such as a 401(k), 403(b), or governmental 457(b), understand your options for your account. You may decide to take your money out and pay the associated taxes. And if you are younger than age 59½, there may be additional tax penalties for early withdrawal. Another option is to roll over your account into your retirement account at your new employer (if they allow it) or into an individual retirement account (IRA) that you set up. Some company plans allow you to keep your money in their plan; however, you will continue to be subject to the rules of that plan regarding investment choices, distribution options, and loan availability. If you have any concerns about the future viability of the company you are…
By Carl Trevison and Stephen Bearce When financial markets fluctuate, perhaps in reaction to world events, inflation, or a change in interest rates, even the calmest investors can start to question their financial strategies. But volatile markets can present opportunities to review and reaffirm investment strategies, says Tracie McMillion, head of global asset allocation strategy for Wells Fargo Investment Institute. “Financial markets are frequently volatile — that’s their nature,” she says. “Even so, during periods of uncertainty, investors may start to question their investment decisions. Having a plan in place can provide the guard rails to help steer through and beyond the volatility.” In addition to reaffirming and focusing on your plan, here are some strategies you can use to help weather economically turbulent times. Match your investments to your time horizon The simplest way to feel more comfortable about your investments is to align them with your financial calendar, no matter what happens in the financial world this month or year. For example, do you need some of your money fairly soon or want it close at hand in case of an emergency? If so, McMillion says you should consider investments such as cash holdings and short-term bonds that shouldn’t lose much, if any, value over the short term. On the other hand, if you won’t need some of your investment money until you retire multiple years in the future, equities or longer-term bonds are worth a closer look. Those investments carry more risks but also offer potentially better returns. Know what to expect from your investments Some investors lose confidence because they don’t fully understand how their investments work. In that case, McMillion says, some knowledge of typical asset behavior is a good thing. Consider reading up on different types of investments and asking questions of your financial…
By Carl Trevison and Stephen Bearce Your retirement could last 20 years or more. Now could be the time to ask yourself, “What do I want to do when I retire?” It’s an important question to ask sooner rather than later, as the answer could impact your retirement savings plans, so that you can align the retirement you want with the retirement you can afford. The first two steps in that process are: (1) decide what you want to do, and then (2) determine the potential costs. The answers to these questions could help you take the first step toward creating the retirement lifestyle you hope to achieve. What will I be doing during my retirement days? Do I plan to continue working past age 65 or after I reach my full retirement age? Full time or part time? Are there hobbies I want to pursue that will either cost money or make money? Is there volunteer work that may also have costs associated? Do I plan to travel? Are there things I enjoy doing that have related costs? What are the activities that make up my ideal retirement day? Where will I be living in my retirement years? Will I stay in my current home or downsize to a smaller home or a rental property? Will I move to a retirement community or assisted living facility? Will I sell my home and replace it with an RV or other alternative living option? What situations might occur that could impact my retirement expenditures? What health care coverage do I need for my specific health conditions? Do I have an emergency fund for unexpected situations such as a health care crisis or loss of property due to a natural disaster? What if I stop working sooner than expected? What happens if I experience a significant loss…
By Carl Trevison and Stephen Bearce A heath care directive is a legal document that lets you express your health care preferences and, if you wish, designate authority to someone to make care decisions for you if you cannot make them yourself. Some may think this is needed only near the end of life, but that’s not its only use. There other times when it can prove useful: Any time you become severely ill or incapacitated—even if for just a short time period If you are a young adult who is over 18 and heading to college Health care directives generally do three things: One part, often referred to as a living will, lets you express your preferences about end-of-life care if you become unable to make decisions yourself. A power of attorney (POA) for health care (also known as a durable POA for health care or health care proxy) lets you designate a trusted person to make decisions for you when you are unable to communicate or make them yourself. A privacy authorization under the Health Insurance Portability and Accountability Act (HIPAA) makes it possible for health care providers to share private medical information with the agent you designate. Short-term incapacitation While the coronavirus is top-of-mind, other serious illnesses or limiting medical conditions could create incapacitation. Examples include surgery that will require a longer-than-usual recovery period, cancer treatments, side effects from specific medications, and mental health issues. During such times, it may give you peace of mind to have someone you trust who will be able to communicate with medical professionals, share that information with you later, and even make decisions for you if necessary. Potential benefits include: Helping to ensure that doctors communicate important medical information with your agent, who can keep other family members or caregivers informed….
By Carl Trevison and Stephen Bearce Paying down debt is often difficult, especially in a challenging economic environment. You may be wondering which to tackle first — pay down your debt or invest for the future. Balance is best A balanced approach to wealth management serves both today’s needs and tomorrow’s goals. For some that may mean paying off some debt today while simultaneously investing for the future. Your own needs and circumstances will be unique. The following guidelines can help you evaluate alternatives and find an approach that fits your situation and goals. Don’t forget your emergency fund In addition to paying down debt and settling on an investment strategy, make it a priority to set up an emergency reserve. Traditional “rules of thumb” suggest setting aside three to six months or more of living expenses in traditional savings or very short-term, highly liquid, low-volatility investments. While ideal, that goal may not be realistic for everyone. Start by building up a reserve of a month’s expenses and make it a goal to increase your emergency fund over time as resources permit. Your future first When making decisions about debt and investing, be a long-term thinker. Consider “what position do I want to be in 10 or 20 years from now?” Then evaluate what actions today should be most effective in helping you achieve your long-term financial goals. For example, if you have high-interest debt that is compounding, this could eventually become a serious impediment to reaching your long-term goals. In contrast, you might not be in a hurry to retire low-interest debt if the potential return on long-term investing would be greater. When making decisions about debt reduction vs. investing, keep in mind that the need to eventually pay off principal is certain but investment returns are not. Investment…
By Carl Trevison and Stephen Bearce For most investors, the key to success is simple: Buy low and sell high. But how often have you seen this scenario played out? (You may have done it yourself.) When the market is up, an investor feels good and buys stocks. When the market is down, that same investor gets scared and sells. Although reacting like this may feel instinctively right at the time, buying high and selling low is unlikely to result in a profit. Why do investors do this? The reason may have a lot to do with us making investment choices the same way we do many important decisions: using both our heads and our hearts (i.e., logic and emotion). When there’s market volatility—including both market highs and market lows—our emotions tend to take over and we may make illogical choices going against our best interests. Rather than falling victim to the potential perils of emotional investing, you may want to be completely logical: get into the market when it’s down and out when it’s up. This is known as “market timing.” While this approach sounds rational, the problem is it’s extremely difficult, even for experienced investors, to do consistently. There’s an old saying: “No one rings a bell” when the market reaches the top of a peak or the bottom of a trough. Translated, that means anyone attempting to time the market finds it difficult to know exactly when to make their move. For example, if you think the market has reached a peak and get out and then share prices keep rising, you’ll miss out on the additional profits you could have made by waiting. And after you get out, how do you know when to get back in? If you act too quickly, you’ll forego better bargains…
By Carl Trevison and Stephen Bearce / Photo Credit: Karolina Grabowska Understanding the current health of your finances starts with having a solid plan in place, but it depends on following the plan so you stay on track and continue working toward your financial goals. That’s where a financial wellness check can be useful. It can help you make sure you’re hitting the right milestones in your plan — and also help you check that your plan is working for you. Where to start? Here, John Knowles, lead strategy consultant of Retirement Solutions at Wells Fargo Advisors, shares six questions that can set up your financial wellness check. Are you adding to your investment accounts on a regular schedule? Saving often and early is rule No. 1 because of the power of compounding. When you leave any investment gains in your account rather than taking them out, those gains have the opportunity to start earning returns as well. Taking full advantage of your employer’s retirement plan — typically a 401(k) — is a good place to start. That includes contributing enough to qualify for any potential company match, something Knowles stressed to his daughter when she entered the workforce. “If the company is going to match you up to 5%, put 5% in at least,” he says. Those nearing retirement may want to explore “catch up” contributions that allow you to add more to certain retirement accounts. Are your estate planning documents up to date? Estate planning documents should include a will, health care power of attorney (POA), durable POA for financial matters, and a list of your accounts and their respective contacts and account access information. You might also consider including a net worth statement, life insurance policies, property deeds, and a list of assets for your children, such…
By Carl Trevison and Stephen Bearce “How much cash should I have now?” It seems like a simple question, but the answer can be complicated – especially in times of market volatility. Apart from an emergency fund, the amount of cash or liquid assets you need depends on many factors, including the current state of the market and major life events. “There isn’t really a general rule in terms of a number,” says Michael Taylor, CFA, Vice President – Investment Strategy Analyst at Wells Fargo Investment Institute. “We do say it shouldn’t be more than maybe 10% of your overall portfolio or maybe three to six months’ worth of living expenses.” Taylor notes that the number could change depending on what’s going on in the economy and markets. As a result of the pandemic, some investors preferred to keep up to 12 months of expenses in cash or cash alternatives. “You should make sure your emergency fund and cash reserves can meet your current needs,” he says. Taylor shares five events that should prompt a conversation with your financial advisor about how much cash to have on hand. When the market is in flux The state of the market can have an impact on how much cash you should have on hand, how long you decide to hold an asset as cash, or when to convert assets to cash. This can be especially true when you foresee a large discretionary purchase such as a vacation home or a luxury vehicle. “Plan for those purchases or defer them so you don’t have to liquidate assets at a loss during market uncertainty,” Taylor says. When your job status may change If you’re contemplating a career move such as starting a business, retiring soon, or facing a possible layoff, consider meeting with your…
By Carl Trevison and Stephen Bearce During times of heightened stress, such as when there’s extreme market volatility, a person can quickly become overwhelmed and struggle to do things that might be considered simple or obvious. It can be helpful to focus on the things you can control, identify actions that you can take, and complete those action steps. Here are four action items for you to consider: Review your investment plan Before you start making changes to your investment portfolio, consider your goals. Are you saving for retirement? Do you need to build a college fund for your children? Did a recent event create a need to adjust your plan? If your goals have changed or if you haven’t updated your plan in a while, review and, if necessary, update your investment strategy to support reaching your goals. Understand your risk tolerance Risk is a key principle in investing. Some investments are riskier than others, but every financial decision involves risk. Since risk is inescapable, the key is to understand your risk tolerance and manage how much you are taking, which should be based on your long-term financial goals. If your tolerance for risk has changed, review your strategy and make sure you are still comfortable with the amount of risk you’re taking. Stick to your plan When the market gets volatile, investors often react emotionally and may want to pull out of the market to try to avoid loss. However, remember that moving or selling investments during a market decline will likely lock in losses; staying invested may allow you to benefit if the market comes back. Before reacting, take time to step back and try to respond using logic rather than emotion. Organize and update important documents Are your important documents up-to-date and accessible to those who…
By Carl Trevison and Stephen Bearce If you haven’t created an estate plan or have one but the documents may be outdated, you might be putting yourself and your family at risk if the unthinkable, such as becoming incapacitated or passing away, should happen to you. To assist you with getting started on creating or updating your plan, it helps to understand these five important documents that are part of many estate plans: Will A will provides instructions for when you die. You appoint a personal representative (or “executor”) to pay final expenses and taxes and distribute your assets. Remember that beneficiary designations on 401(k) plans, IRAs, insurance policies, etc., supersede what you have in your will. If you have minor children, a will is the only way to designate a guardian for them. Durable power of attorney A power of attorney lets you name an agent, or attorney-in-fact, to act on your behalf. You can give this individual broad or limited management powers. Choose them carefully because they will generally be able to sell, invest, and spend your assets. A traditional power of attorney terminates upon your disability or death. However, a durable power of attorney will continue during incapacity to provide a financial management safety net. A durable power of attorney terminates upon your death. Health care power of attorney A durable power of attorney for health care, also called a health care proxy, authorizes someone to make medical decisions for you in the event you are unable to do so yourself. This document and a living will can be invaluable for avoiding family conflicts and possible court intervention if you’re unable to make your own health care decisions. Remember to review this document regularly to ensure the right person is designated to make any necessary medical decisions….
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