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Seasonality Triggered: Sell In May In Effect At Republic Wealth Advisors

Seasonality Triggered: Sell In May In Effect At Republic Wealth Advisors

Seasonality recent history fared well, what seasonality is, a brief history, and what clients need to do moving forward.

As the market adage goes, “Sell in May and Go Away”.  For the past week, we have been monitoring our technical indicators for signals that the favorable market season for equities was coming to a close.  With yesterday’s waterfall drop in major equity asset classes, that drop triggered our seasonality technical indicators.  This change in our seasonality indicator led us to reposition to more conservative positions in our investment portfolios for now.  

Seasonality From November 2016 To Present

Looking back to last fall, our buy indicator for seasonality came after the conclusion of the Fall Presidential election.  The election conclusion brought some certainty to the markets about our political landscape.  Since entering our seasonality position (IVV – S&P 500 or alternative) on November 11th, that position gained over 9% through Tuesday’s close – not a bad gain for six months work.  

Major market indexes including the Dow and the S&P 500 have been trading sideways since topping in early March although they have been scratching back to record highs in the last week.  Conversely the tech dominated NASDAQ has continued to trade higher on the strength of technology leaders posting strong earnings such as Apple, Microsoft, Amazon, Facebook, and Google.   Late news on Monday about the Trump / Comey controversy caused investors to sell during Tuesday’s session.  Nothing changed economically, but the market is sensing the Trump agenda for tax and healthcare reform are in jeopardy with fractures in the Republican Party.

Seasonality Overview

As a refresher, the seasonality pattern started after World War II and has continued into the present.  With seasonality, most market gains in the equity markets occur from late October and into late spring.  Just like the weather can vary from year to year, seasonality in the equity markets vary from year to year and there are years when it rewards an investor to stay fully invested through the unfavorable period.  But over a multi-year period there is no denying the research that major market advances do not occur in the summer months.  

In fact, research from Stock Trader’s Almanac reflect that from 1950 to early 2016, there was no reward for investors being invested in the equity market during the unfavorable months.  Additionally, most bear markets end in the unfavorable months of May through October with October being the “bear killer” month.  

A Short History Of “Sell In May”

Here’s a brief history of the strategy from Stock Trader's Almanac®…

Sell in May is an old British saw, soundly based on inherent behavioral finance patterns and the collective cultural behavior of the investment community, but it did not truly become a tradable investment strategy until after WWII…

Prior to about 1950, farming was a major portion of the U.S. economy and from 1901-1950, August was the best performing month of the year, up 36 times in 49 years (market closed in August 1914 due to World War I) with an average gain of 2.3%. July was the second best month, up 31 of 50 with an average gain of 1.5%. June was fourth best, averaging 0.9%. Why, you may ask? Simply: planting, sowing, reaping and harvesting. As crops were planted and then brought to market and sold, cash began to move and so did the stock market. 

Agriculture’s share of GDP began to shrink post World War II as industrialization created a growing middle class that moved to the suburbs where hard-earned salaries would be spent filling new homes with all the modern conveniences we all take for granted now. Farming became more efficient and fewer and fewer people worked on the farm. 

Suddenly, summer was less about the hard work of harvesting crops and more about vacations and relaxing.  As the economy evolved and peoples’ lives changed, the market evolved.  June and August went from being top performing months to bottom performing months.  August went from #1 to #10 in 1950-2016 with an average DJIA loss of 0.2%.  June went from #4 to #11 (–0.3% average loss).  The shift in DJIA’s seasonal pattern is clear in the following chart. “Sell in May” is a post WWII pattern, prior to then it would have been “Buy in May”.

Image from The Stock Trader's Almanac®

As you can see from the chart, the black line representing 1901-1949 shows that equity market continued to rise throughout the summer.  Conversely on the blue line, from 1950-2016, there is no market gains from late April to late October (aka the “Bear Killer” month).  

What This Means For Our Clients

If you’re invested with Republic Wealth Advisors, you don’t need to do anything.  Our team of portfolio managers has or is in the process of adjusting allocations to more conservative positions as appropriate.  We will continue to monitor the markets and make adjustments as things play out in the next few weeks and months.

Our goal is for you to concentrate on what you do best in work, retirement, or your other projects, not worry about the ever-shifting financial markets.  

Please feel free to reach-out if you have any questions about your individual situation. 

 


 

IMPORTANT DISCLOSURE INFORMATION: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Republic Wealth Advisors), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Republic Wealth Advisors.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Republic Wealth Advisors is neither a law firm nor a certified public accounting firm and no portion of this blog content should be construed as legal or accounting advice.  If you are a Republic Wealth Advisors client, please remember to contact Republic Wealth Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Republic Wealth Advisors’ current written disclosure statement discussing our advisory services and fees is available upon request.

 

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Top Facebook Mistakes Criminals Use To Hack Your Life

Top Facebook Mistakes Criminals Use To Hack Your Life

Facebook mistakes help criminals access your personal information and assets. Fix these problems to limit your exposure.

Facebook mistakes can mess up your life.

Social media platforms like Facebook or LinkedIn can give hackers a wealth of information about you—which can be used to steal your assets or information. You may want to tell your friends that Costa Rica is great. The problem is that criminals (who know where you live) just saw the same update. 

With a little help from IT World, these are some of the top social engineering mistakes and fixes that can help improve your cyber security on Facebook.

Mistake #1 Using A Non-Secure Password

This may be the biggest mistake people make on Facebook - or anywhere online. Here are a few best practices to make your Facebook password more secure…

  • 15+ characters long
  • Use symbols, numbers, capital and lowercase letters.
  • Capitalize a middle letter, use the @ symbol for the letter “a” or the number “0” in place of the letter “o.”
  • Never use keyboard walks (like 12345678 or qwerty).
  • No dog’s name, mother’s maiden name and other easy-to-find information.

Mistake #2: Giving Too Much Personal Information

Limit the information you give out. Criminals will search Facebook, Twitter and other social media websites for information about you and can use it to defraud you, your family and your friends. Every post you share may be seen by people who want what you have. Stay vigilant. Only post something that you’re comfortable with everyone seeing.

Mistake #3: Not Setting Privacy Settings Correctly

It is possible to limit the exposure of your Facebook posts. You can setup your account so that only your friends (in theory) can see your post. Keep in mind, it’s not perfect and smart hackers can still find it. But it does limit the potential damage from social media posts. Here’s a great resource to fix your privacy settings on Facebook. 

Facebook Help: Basic Privacy Setting & Tools

Mistake #4: Being Duped By Malware 

Malware is alive and well on Facebook. Bad software can be installed on your computer and affect your system and what other people see on your wall. Only click on trustworthy links. Avoid salacious or outrageous images and headlines. This will improve your chances of not getting infected online.

Mistake #5: Accepting Friend Requests from Attractive & Unknown People

This is a favorite scam for Facebook hackers. If you happen to friend one of these (probably fake) people, the best case you can hope for is to be inundated with worthless or self-promotional updates. The worst case is it turns out to be bait for some scammer trying to socially engineer information from you. It happens.

Here are a few more tips that relate to protecting yourself from social engineering scams from JP Morgan

 

Image from JP Morgan’s Guide to Cybersecurity Awareness

 

Facebook Security Helps Secure Your Financial Peace Of Mind

People make these Facebook mistakes every day – if you’ve made one of these mistakes, you’re not alone. But if you fix these 5 areas and you’ll be ahead of most Facebook users. That will help keep your financial records more secure and give you more peace of mind whenever you’re on Facebook. 

 


  

IMPORTANT DISCLOSURE INFORMATION: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Republic Wealth Advisors), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Republic Wealth Advisors.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Republic Wealth Advisors is neither a law firm nor a certified public accounting firm and no portion of this blog content should be construed as legal or accounting advice.  If you are a Republic Wealth Advisors client, please remember to contact Republic Wealth Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Republic Wealth Advisors’ current written disclosure statement discussing our advisory services and fees is available upon request.

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Four Crucial Cybercrime Prevention Steps

Four Crucial Cybercrime Prevention Steps

Four steps to prevent cybercrime: password protection, secure each device, limit public Wi-Fi, and eliminate malware.

Cybersecurity is a vitally important aspect of overseeing your personal finances. There are two reasons why:

1. The internet is now woven into everything we do.
2. Cybercrime is a growing and serious threat.

In 2016, JP Morgan published an overview of the biggest threats in cybersecurity. In our last post, we reviewed one of those critical areas: email security. This week we cover four other areas that every internet-connected person should consider. This post, along with JP Morgan’s Guide to Cybersecurity Awareness will provide detailed steps to help protect yourself, your assets and personal information.

Cybercrime Prevention Step #1: Secure Passwords

Passwords are your first line of defense against a cyberattack.

Hackers use dictionaries, names, linguistic patterns, and can break into over 60% of passwords used today – possibly including yours. Here are some steps you can take to secure your password.

  • Use long and complex passwords – at least 10 characters.
  • Don’t share your passwords or publicly post passwords.
  • Use special characters and numbers.
  • Use phrases, not just words.

Image from: JP Morgan’s Guide to Cybersecurity Awareness

Cybercrime Prevention Step #2: Secure Each Device

Every device connected to the internet can be hacked. Even your smart watch. Hackers can even create clones of real websites and steal personal data on every devices. Here are some things you can do to help secure your devices.

  • Keep all your browser software up-to-date.
  • Always us HTTPS on websites when entering personal information. (Most sites now include this feature, but you can check by looking at the address bar in your browser.)
  • Log out after conducting an online banking session.
  • Avoid sites containing illegal content or downloads. 

Image from: JP Morgan’s Guide to Cybersecurity Awareness

Cybercrime Prevention Step #3: Limit Public Wi-Fi

Public Wi-Fi is very convenient and very dangerous. It’s become a popular way for hackers to find would-be victims. Use public Wi-Fi only if you must, and always take precautions.

  • Never use public Wi-Fi for banking or shopping transactions.
  • Turn off file sharing to public Wi-Fi so other users can’t access your personal files.
  • Do NOT automatically connect to non-preferred networks.

Image from: JP Morgan’s Guide to Cybersecurity Awareness

Cybercrime Prevention Step #4: Prevent Malware

Malware is a serious and persistent threat. Data thieves can break-in, steal, and destroy any of your internet-enabled devices with malware. Here are some tips to help prevent malware.

  • Install anti-virus software.
  • Be careful what you click-on and download.
  • Be wary of suspicious-looking email.
  • Do NOT trust pop-up windows, especially on unfamiliar sites.

 

Image from: JP Morgan’s Guide to Cybersecurity Awareness

Other Cybersecurity Areas To Watch

These are not the only areas to review for optimal cybercrime prevention. Other areas include email security, social engineering protection, mobile attack awareness, and home network security. But this overview should give you a good start in preventing future cyberattacks. Address these 4 areas and you’ll be ahead of most internet users. That will help keep your financial records more secure. 

 


 

IMPORTANT DISCLOSURE INFORMATION: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Republic Wealth Advisors), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Republic Wealth Advisors.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Republic Wealth Advisors is neither a law firm nor a certified public accounting firm and no portion of this blog content should be construed as legal or accounting advice.  If you are a Republic Wealth Advisors client, please remember to contact Republic Wealth Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Republic Wealth Advisors’ current written disclosure statement discussing our advisory services and fees is available upon request.

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Are You Making These 5 Email Security Mistakes?

Are You Making These 5 Email Security Mistakes?

Phishing attacks, weak passwords, password changing, virus scan issues, and more. Check out the details to help avoid future email hacks and identity theft. 

Data security is pretty important these days.  

According to Identity Theft Resource Center, an industry watchdog group, the number of U.S. data breaches hit an all-time in 2016 with 1,093 breaches. That’s up over 40% from the previous year (780)! Identity thieves are after your personal information. If they can get to it, they can wreak havoc on your personal finances for months and possibly years.

One of the chief ways thieves hack into your personal information is through your email account. That’s why it’s so important to practice good email security. With help from Network Doctor, here are the top 5 mistakes people make with their email security:

Mistake #1: Not Recognizing Phishing Attacks

Scammers use phishing emails to deceive users into providing sensitive information. Recipients often get redirected to a website where they're asked to update personal information (like a password or banking information). Sometimes the email message contains malicious software that hacks into your computer. Phishing emails can be identified with:

  • Grammar or spelling discrepancies.
  • Usually include some kind of link.
  • Often describe a type of threat. Ex. Warning - Your Account May Have Been Compromised
  • Use familiar graphics from trusted companies. Note: Don’t trust every logo in your email inbox.
  • Slightly altered Web addresses that resemble recognizable company names.
    Ex: Securitys.wellllsfargos.com instead or WellsFargo.com (note the  misspelling in the first URL)

Phishing scams can be reported in several different ways. For example, email clients almost always have a “report as spam” option to help eliminate threats. However, if you already clicked through to a suspicious website, report the website as a scam through your browser.

Mistake #2: Using a Weak Password

There are many several “don’ts” for creating and using passwords. Here are a few best practices:

  • Never use the same password twice.
  • Each password should be unique.
  • 15+ characters long
  • Use symbols, numbers, capital and lowercase letters.
  • Capitalize a middle letter, use the @ symbol for the letter “a” or the number “0” in place of the letter “o.”
  • Never use keyboard walks (like 12345678 or qwerty).
  • No dog’s name, mother’s maiden name and other easy-to-find information.

Mistake #3: Forgetting To Change Your Password Every 90 Days

Passwords should be changed every 3-4 months (90-120 days). They should also never be repeated within an 18-month period. Set a reminder for yourself to change your email password 3-4 times per year if your email program doesn't make you do that automatically.

Mistake #4: Not Staying Current with Your Virus Scan Program

Free antivirus and anti-spyware protection helps. But it usually doesn't cut it with the growing list of cyberattack tactics used to infiltrate email accounts. 

Make sure to configure your settings to automatically perform scans on a regular basis. The frequency at which you scan for viruses will depend entirely on your computer usage. If you spend a lot of time on the internet, your research can take you into uncharted territory. So scan daily. Otherwise, set it to scan weekly.

Mistake #5: Answering Spam Messages

People sometimes reply to spam messages in an attempt to be removed from the email list. Big mistake. What you may be doing is telling a spammer you have an active email account. Instead, block, delete or mark the email as spam.

Bonus: Not Logging Out & Saving Passwords On A Public Computer

Using a public computer carries its own risks. If you don't log out after using a public computer to check your email, you could be putting your account at risk. One click of the back button may lead a stranger directly into your account. Don't save passwords on a public computer and always logout before you step away.

Avoid these 6 mistakes on email security and you’ll be ahead of most internet users. That will help keep your financial records secure though one of the most vulnerable channels: your personal email account. 

 


 

IMPORTANT DISCLOSURE INFORMATION: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Republic Wealth Advisors), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Republic Wealth Advisors.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Republic Wealth Advisors is neither a law firm nor a certified public accounting firm and no portion of this blog content should be construed as legal or accounting advice.  If you are a Republic Wealth Advisors client, please remember to contact Republic Wealth Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Republic Wealth Advisors’ current written disclosure statement discussing our advisory services and fees is available upon request.

 

 

 

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The Top 10 Tax Friendly States To Retire In

The Top 10 Tax Friendly States To Retire In

The best states to retire in based on taxes: Alaska, Delaware, Georgia, and more.

Ever thought about relocating when you retire? Before you say goodbye to the neighborhood, this week’s post may help you make smarter plans based on recent tax data.

Each year JP Morgan Asset Management releases an updated Guide to Retirement (2017). This year was no different. The annual guide covers 4 major areas that include: retirement landscape, saving, spending, and investing

One great takeaway from this year’s Guide to Retirement was JP Morgan Asset Management’s Comparison of State Taxes Paid by A Retiree Household. Here are the top ‘tax friendly’ states to retire in according to their methodology.

Image courtesy of JP Morgan Asset Management

Top 10 Tax Friendly States

1. Alaska: Taxes for retirees in Alaska are lower than any other state. They have a modest sales tax (7.5% or lower) with low property taxes and no state income taxes.  

2. Delaware: Delaware taxes are low and weighted toward property and income taxes. Delaware does not impose sales taxes on goods or services sold in the state. 

3. Georgia: Like most states, Georgia sales tax varies by region. The effective tax rate currently ranges from 6.0% to 8.0% in the major metro areas. Georgia has lower and property and income taxes for retirees. 

4. Nevada: Like Alaska, Nevada does not charge an income tax. They make most of their revenue from sales taxes (8.25%). Property taxes vary by area and are subject to senior exemptions.

5. Wyoming: Wyoming is another one of the 7 states that does not assess an income tax. Their state sees revenue from property and sales taxes. Property taxes tend to be lower for retirees in Wyoming. 

6. Mississippi: Sales tax in Mississippi is usually 7.0% unless taxes for certain items. They also have a graduated income tax based upon your income. Property taxes are more reasonable compared to most other states.

7. Kentucky: Kentucky enjoys a relatively low 6.0% sales tax state wide. However, they assess income and property taxes depending on household income and property values.

8. Colorado: Sales tax in Colorado varies by jurisdiction. They also charge a flat 4.63% income tax regardless of your annual income. Colorado also assesses property taxes. 

9. Florida: Florida is another state that does not charge income tax. Sales tax depends on the region and item sold and property taxes in Florida vary by city and county. 

10. South Dakota: Rounding out the top 10 tax-friendly states, South Dakota does not levy an income tax. However, they make up for it with higher sales taxes on various items and property taxes. 

Image Courtesy of JP Morgan Asset Management

Planning Retirement Going Forward

State taxes can change every year. What looks great in 2017 may not make as much sense in 2018 or beyond. We don’t recommend selling the homestead and moving to Alaska just yet, but it may make sense to talk to us about your retirement plans. We help our clients balance these concerns with other considerations so you can enjoy a stress-free retirement. Call us today. 

 

JP MORGAN ASSET MANAGEMENT CHART DISCLOSURES:

Tax favorability based on household overall effective state tax rate: Top tax friendly (<8%), Tax friendly (8%-9.9%), Less tax friendly (10%-13%), Not tax friendly (>13%). Retired married household age 65. 1 State income tax liability is based on all taxable sources of retirement income minus allowable state personal exemptions and a standard deduction. State-specific exemptions, deductions and/or credits related to eligible retirement income and Social Security are included. States with no income tax: AK, FL, NV, SD, TX, WA, WY. States that tax interest and dividends only: TN and NH. States that tax Social Security: CO, CT, KS, MN, MO, MT, NE, NM, ND, RI, UT, VT, WV. States that do not tax retirement plan distributions or Social Security: IL, MS, PA. 2 State property tax applies to home value only and includes state-specific homestead exemptions/credits. 3 States with no sales tax: AK, DE, MT, NH, OR (local taxes may apply).

Of note: CA imposes a 1% surtax on taxpayers earning more than $1M ($1,052,886 married) for a top marginal tax rate of 13.3%. NYC levies an additional 2.907-3.876% on taxable income. HI top marginal income tax rate reduced to 8.25% in 2017.

Retired married household age 65. 1 State income tax liability is based on all taxable sources of retirement income minus allowable state personal exemptions and a standard deduction. State-specific exemptions, deductions and/or credits related to eligible retirement income and Social Security are included. States with no income tax: AK, FL, NV, SD, TX, WA, WY. States that tax interest and dividends only: TN and NH. States that tax Social Security: CO, CT, KS, MN, MO, MT, NE, NM, ND, RI, UT, VT, WV. States that do not tax retirement plan distributions or Social Security: IL, MS, PA. 2 State property tax applies to home value only and includes state-specific homestead exemptions/credits. 3 States with no sales tax: AK, DE, MT, NH, OR (local taxes may apply).

Of note: CA imposes a 1% surtax on taxpayers earning more than $1M ($1,052,886 married) for a top marginal tax rate of 13.3%. NYC levies an additional 2.907-3.876% on taxable income. HI top marginal income tax rate reduced to 8.25% in 2017.

Source: J.P. Morgan Asset Management. The presenter of this slide is not a tax or legal advisor, and this slide should not be used as such. Clients should consult a personal tax or legal advisor prior to making any tax- or legal-related investment decisions.

 

IMPORTANT DISCLOSURE INFORMATION: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Republic Wealth Advisors), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Republic Wealth Advisors.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Republic Wealth Advisors is neither a law firm nor a certified public accounting firm and no portion of this blog content should be construed as legal or accounting advice.  If you are a Republic Wealth Advisors client, please remember to contact Republic Wealth Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Republic Wealth Advisors’ current written disclosure statement discussing our advisory services and fees is available upon request.

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The Best Retirement Withdrawal Rates: 3 Factors To Help You Decide

The Best Retirement Withdrawal Rates: 3 Factors To Help You Decide

Three factors that determine the best way to withdraw funds during retirement.

We are often asked by clients nearing or in retirement “How much money can I spend in retirement?” This is another way of asking what is a sustainable withdrawal rate? Or, what amount can you withdraw from your investments and ensure you will not run out of money during your lifetime? There is no simple answer that applies in all cases, but there are rules of thumb we use to make generalizations.  

This week, we’d like to share with you these rules to plan by.

Three Factors That Determine Optimal Withdrawal Rates

When evaluating how much you can pull from your retirement savings, your answer will likely depend on 3 primary factors:

1. What is your retirement planning horizon?  While some individuals would like to plan to spend their last dollar on their last day, reality is not this simple.  You will need to ensure that the assets will outlast your life span to ensure your needs are met.  General planning guidelines call for a planning horizon of 30 years, but this can vary depending on various factors including retirement age and family history of longevity.  

2. What is your portfolio mix of stocks, bonds, alternative investments?  The investments you own will impact how much your assets grow over time.  You need to ensure your investments are aggressive enough to grow at a rate that outpaces your withdrawals (if you wish to maintain your principal balance) but not too aggressive such that your balance could be depleted by the combination of market fluctuations and withdrawals.  The chart below shows portfolio at various mixes of stocks and bonds.  You can see that by being less risky, you could actually be putting your portfolio at more risk of running out of money over time.  

 

3. What is the probability of success you are comfortable with?  Based on a tool called Monte Carlo, you can project out scenarios to evaluate the likelihood your funds will last.  If you have a 50% chance of success, you also have a 50% chance of running out of funds.  Alternatively, if you have a 90% chance of success, you are likely to have sufficient funds to meet your withdrawal needs. Generally, you want to see a success rate of over 80% to be considered acceptable.  

For illustrative purposes, let’s consider the following chart which shows how long a hypothetical $1,000,000 initial balance lasts at a 4%, 5%, and 6% withdrawal rate.  The 4% rate—a general rule of thumb introduced in 1994, which adjusts the initial withdrawal amount for inflation over time to preserve purchasing power—maintains assets through the 30 year timeframe.  To the contrary, both a 5% and 6% initial withdrawal rate proves not as successful (you run out of money in approximately 21 years at 6% and 26 years at 5%) and may put retirement spending at risk.  At the very least, the probability of having sufficient funds through your entire lifespan falls to a very low percentage.

 

Best Case Retirement Scenario: Eat The Fruit, Not The Tree

If at all possible, we recommend that you plan to spend the “fruits” of the retirement “tree” and not chop off the “branches”.  In other words, attempt to live off of the growth each year and not eat into the principal balance.  Planning with this approach allows your assets to not only provide income during your lifetime but also to allow for your heirs (or a charity) to receive the remainder.

Given the inputs discussed above, it should be obvious this is a challenging question without an easy answer.  We are happy to discuss your situation with you in greater detail to help evaluate whether your current or planned withdrawal rate is sustainable over the long-term.  Don’t hesitate to reach out to us if we can be of assistance.

 


 

Chart Disclosure: These charts are based on 50th percentile which means that 50% of the time you’ll have better outcomes.  Based on the high percentage of outcomes that tend to be clustered near the median, this may be considered the most likely potential outcome.  The charts are for illustrative purposes only and must not be used, or relied upon, to make investment decisions. Portfolios are described using equity/bond denotation (e.g. a 40/60 portfolio is 40% equities and 60% bonds). Hypothetical portfolios are composed of US Large Cap for equity, US Aggregate Bonds and US Cash for cash, with compound returns projected to be 6.25%, 3.00% and 2.00%, respectively. J.P. Morgan’s model is based on J.P. Morgan Asset Management’s (JPMAM) proprietary Long-Term Capital Markets Assumptions (10–15 years). The resulting projections include only the benchmark return associated with the portfolio and does not include alpha from the underlying product strategies within each asset class. The yearly withdrawal amount is set as a fixed percentage of the initial amount of $1,000,000 and is then inflation adjusted over the period (2.25%). Allocations, assumptions and expected returns are not meant to represent JPMAM performance. Given the complex risk/reward tradeoffs involved, we advise clients to rely on judgment as well as quantitative optimization approaches in setting strategic allocations. References to future returns for either asset allocation strategies or asset classes are not promises or even estimates of actual returns a client portfolio may achieve. 

IMPORTANT DISCLOSURE INFORMATION: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Republic Wealth Advisors), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Republic Wealth Advisors.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Republic Wealth Advisors is neither a law firm nor a certified public accounting firm and no portion of this blog content should be construed as legal or accounting advice.  If you are a Republic Wealth Advisors client, please remember to contact Republic Wealth Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Republic Wealth Advisors’ current written disclosure statement discussing our advisory services and fees is available upon request.

 

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Eye on Money: 529 College Savings Plans

The May/June 2017 Eye On Money is now available on Republic Wealth.com, featuring stories on:

  • 529 College Savings Plans
  • How Working Past Age 65 May Affect Your Benefits
  • Three Ways to Prepare Financially for a Natural Disaster
  • Five Things Recent Grads Should Know About Saving for Retirement
  • What Are Callable Bonds?
  • The Revocable Living Trust
  • Danube Valley, Austria
  • Museum of the American Revolution
  • Where in the World Are You? Quiz

Download PDF: Eye On Money May/June 2017 (1.6 MB)

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4 Steps On Deciding When To Take Social Security

4 Steps On Deciding When To Take Social Security

Understand your estimated Social Security benefit, analyze the best time to start taking it, chat with a trusted advisor, and decide. 

A common question we receive in meeting with clients is the question, “When should I start taking Social Security”?  The short answer to the question is, “it depends”.

For individuals and couples nearing the age of 62, deciding when to claim Social Security benefits will have a permanent impact on the benefit you receive. Here are four steps which can help with this important decision:

Step #1: Understand Your Estimated Social Security Benefit  

First, it’s a good idea to understand your estimated benefit.  You can obtain this information by requesting a copy of your Social Security statement.  This can be done online by visiting www.ssa.gov/myaccount

After getting a better understanding of your current benefit, you may need to dig deeper into your personal situation. For instance, you may want to research your Social Security benefit as an ex-spouse.

Regardless of your individual circumstances, keep in mind your current statement only provides estimated benefits and will change with future cost of living adjustments (COLA).  

Step #2: Analyze When To Start Taking the Social Security Benefit

Once you have your estimated benefit, the next major decision is to analyze when to start taking payments.  You can begin to understand the best approach by looking at the timing tradeoffs.  

Access to retirement benefits can start as early as age 62 or as late as age 70.  Your Full Retirement Age (FRA) is determined by your birth year.  For those born in 1954 or earlier, full retirement is age 66 while for those with a birth year of 1960 or later, full retirement is age 67.  For those born between 1955 and 1959, full retirement falls between age 66 and 67.  Full Retirement Age (FRA) is the age at which you would receive 100% benefit from Social Security once started.

 

Two Examples: Mary (older) & John (younger)

Looking at the chart above, let’s review two examples:

Assume Mary was born in 1954.  She can start her benefits four years earlier at age 62, but her benefits will only be 75% of the 100% benefit that she would have received had she waited until she was 66.  For each year she delays taking the benefit, her payout increases a compounded 7.3%.  

Based upon her financial situation, Mary could also choose to wait up until age 70 to take her benefits.  If she does so, her benefits are 132% of the original benefit amount.  

Now consider John who is younger. John was born in 1960 (this situation applies to anyone born after 1960). The reduced benefit at age 62 is only 70% of the full retirement benefit.  John loses 6% average per year by starting early.  Again, at age 67, John receives 100% benefit.  Waiting until age 70 results in the benefit increasing 8% per year with a maximum benefit of 124% of full retirement benefit.

One other note on the chart above.  The cost of living adjustment (COLA) for 2017 was only 0.3% since inflation has been low.  Considering a longer time period from 1985 – 2017, the average adjustment was higher at 2.6%.  So, when looking at your Social Security statement, realize that you are looking at benefits in today’s dollars which will likely be adjusted in the future for increases in the cost of living.

The benefit of taking Social Security at a younger age is that you start receiving funds earlier.  The negative is that the amount of benefit is reduced.  So how long do you have to live to justify delaying taking the Social Security?  

There are some assumptions of the “crossover age”.   In this example, the crossover in terms of taking at age 62 versus at FRA is around age 76 and 2 months.  Given that an individual has a high probability of living to this age (73% for men and 81% for women), based on probabilities a person would have a higher benefit by waiting until full retirement age.  Secondly, if you compare taking at FRA versus at age 70, the person has to live to age 80 and 5 months to receive the full benefit of waiting until age 70 to start receiving benefits.

Step #3 – Talk To A Trusted Advisor

After you have a good understanding of various details of Social Security, we recommend consulting with a trusted professional for a second opinion. Your investment advisor or CPA can help provide some needed perspective.  An good advisor should assesses your entire financial situation including your overall assets and other sources of income to help you make an informed decision. 

Step #4: Decide When To Start Taking Social Security

After you visit with your financial advisor or CPA, understand your Social Security benefit, and analyze your particular situation, you should have adequate information to make a decision. A word of warning: You you can’t undo your benefit once you start.  As such, we strongly encourage you to gather enough information and appropriately consider your options before locking in the benefit. 

Deciding when to take your Social Security benefit is not easy. If we can be of assistance in helping you to answer any questions, we are happy to help you navigate these sometimes-confusing waters. Please reach-out to talk with us today.

 


 

IMPORTANT DISCLOSURE INFORMATION: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Republic Wealth Advisors), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Republic Wealth Advisors.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Republic Wealth Advisors is neither a law firm nor a certified public accounting firm and no portion of this blog content should be construed as legal or accounting advice.  If you are a Republic Wealth Advisors client, please remember to contact Republic Wealth Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Republic Wealth Advisors’ current written disclosure statement discussing our advisory services and fees is available upon request.

 

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Top 3 Tax Breaks for Wealthy Americans

Top 3 Tax Breaks for Wealthy Americans

More info on estate tax exceptions, limits on Social Security payroll taxes, and preferential tax treatment for investors.

The U.S. tax system is graduated. In other words, the more you make and the more you own the more taxes you pay, in general. However, Uncle Sam allows some significant tax breaks for wealthier Americans. In today’s post, we cover three of the more exceptional breaks given to those taxpayers.

Special thanks to Motley Fool for the idea. 

1. Estate Tax Exemptions

Income tax news gets the press in March and April, but we sometimes forget about estate taxes. The estate tax can be a big burden to wealthier Americans. Historically, the estate tax has targeted “rich” families. The problem is the term “rich” is a moving target. As recently as 2001, a tax rate of 55% applied to estates worth $3 million and affected every estate over $675,000. Some modest homes can cost $675,000 in certain areas of the country. So in the recent past, estate taxes laws were penalizing families with relatively modest means. 

Estate taxes are more reasonable now. Though estate taxes aren’t gone, they are down from their recent high water marks…

  • Exemptions for gift and estate tax has risen to $5.49 million.
  • Married couples can use the exemptions amounts to shelter nearly $11 million.
  • Estates that are taxable now pay an effective flat rate of 40%.
  • Inherited assets get a step-up in tax basis to eliminate possible capital gains taxes for heirs.
    (As always, check with your CPA to get personalized advice for your personal tax situation.)

2.  Limits on Social Security payroll taxes

Income taxes are graduated. The more you earn, the more you pay. Social security taxes are also graduated in that wage earners pay 6.2% and self-employed workers pay 12.4%. In addition, medicare payroll taxes are 1.45% and 2.9% for wage earners and self-employed workers respectively. 

With one exception: there's a limit on the wages subject to Social Security taxes. The 2017 limit is $127,200. Wealthier Americans may not earn any additional Social Security benefits for earning $100,000+ per year versus $25,000 per year, but at least the total Social Security and Medicare taxes are capped at a reasonable level. 

3. Healthy Tax Breaks For Investing

Investors are, by definition, more wealthy than most taxpayers. That’s why this is the third tax advantage wealthy Americans have over other taxpayers. Here are four of the more significant tax breaks:

A. Lower maximum long-term capital gains for investments held longer than a year. Current maximums are 20% compared to the 39.6% tax bracket for short-term capital gains.

B. Lower maximum tax rates on qualified dividend income that matches the previously mentioned long-term capital gains tax rates.

C. Savings Plans that grow tax-free: Roth IRAs for retirement, health savings accounts (HSAs) for healthcare, and educational savings accounts like 529s and Coverdells.

Possible Changes to Tax Laws for Wealthy Americans?

Wealthy Americans still pay plenty of taxes, but these provisions can help them cut their tax bills. Until tax reform makes changes to these or similar provisions, the wealthy will be able to use these tax breaks to offset their April tax bill.

With every new administration, there is a threat to the current tax system. In Washington, we never know what will happen, so stay tuned. Tax reforms are often meaningful and, if passed, could be retroactive to January 1, 2017.

If you have any questions about your specific tax situation, reach out to a good CPA and estate planning attorney. If you need help with your overall financial plan, let us know.

 


 

IMPORTANT DISCLOSURE INFORMATION: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Republic Wealth Advisors), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Republic Wealth Advisors.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Republic Wealth Advisors is neither a law firm nor a certified public accounting firm and no portion of this blog content should be construed as legal or accounting advice.  If you are a Republic Wealth Advisors client, please remember to contact Republic Wealth Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Republic Wealth Advisors’ current written disclosure statement discussing our advisory services and fees is available upon request.

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Tax Consequences of Alternative Investments

Tax Consequences of Alternative Investments

Alternative investments as limit partnerships, dealing with a possible late K-1, and handling additional tax questions about your alternative investments.

As we’ve covered in past blogs, as part of many of our clients’ overall asset allocations, we consider investing in alternative investments in addition to stocks and bonds.

Alternative investments differ from their traditional counterparts in a number of ways, especially when talking about private equity and private debt offerings.  Differences include illiquidity, a lack of daily pricing, and additional tax reporting.  In the spirit of tax season, today we’ll cover how many alternative investments are reported for tax purposes.

Alternative Investments as Limited Partnerships

Typically, alternative investments involve your investing as a limited partner or “LP”.  Limited partners receive their share of income, deductions, and credits on a Schedule K-1.  This differs from traditional investments which report taxable gains and/or income on a form 1099 issued by your custodian (i.e. Fidelity, Schwab, TD Ameritrade).  

It is important to remember that you are required to provide the Schedule K-1 to your tax professional in addition to the tax documents received from your custodian.  The timing of receiving K-1’s also differs from that of custodial tax reporting.  In our experience, many K-1’s are issued in the first week or two of April, running very close or up to the tax filing deadline.  We have even seen K-1’s issued as late as July.  

File An Extension If Your K-1s Are Late

If you’ve yet to receive your K-1 by April 15th (or this year April 18th), it may be necessary to file for a tax extension.  While many like to file their taxes on time so they can “check the box”, we posit that this shouldn’t be a big deal to you.  It may simply be seen as one of the tradeoffs for making an investment in an alternative.

Keep in mind that not all alternative investments generate K-1’s.  For example, business development companies (BDCs) report their income through a 1099.  

In addition, remember that there are other potential tax consequences of owning alternative investments.  The number one issue that comes to mind is unrelated business taxable income or UBTI which can be triggered when holding certain types of alternative investments in IRA accounts.  This is a complicated topic of which a whole blog could be authored so please inquire if you need additional information.  

Need More Help? Check With A Good CPA Firm

Of course, the tax ramifications of investing in alternative investments can become complicated.  We recommend you speak to your tax professional regarding how investing in alternatives may impact your individual tax situation.  If you need a referral to a CPA firm, please let us know and we’re happy to provide one. 

 


 

IMPORTANT DISCLOSURE INFORMATION: Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Republic Wealth Advisors), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Republic Wealth Advisors.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Republic Wealth Advisors is neither a law firm nor a certified public accounting firm and no portion of this blog content should be construed as legal or accounting advice.  If you are a Republic Wealth Advisors client, please remember to contact Republic Wealth Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Republic Wealth Advisors’ current written disclosure statement discussing our advisory services and fees is available upon request.

  

 

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