Investments

Like every investor’s needs are different, every investment advisors’ style, approach, and strategy can be different. Despite that what, every investor should look for is an advisor who takes the time to understand your financial situation and goals before attempting to make any suggestions or develop a financial plan. The needs of a young person starting a family are quite different from someone nearing retirement. First and foremost, they will want to understand your current financial situation, including bank accounts, current investments, retirement account, mortgages, auto, and other loans. It is crucial for them to know about all your assets, even those they may not be managing like a company 401k plan. This will allow them to develop a plan and risk strategy taking all your finances into account. The best financial advisors will also ask for details about accounts they are not managing and may give you suggestions on making those investments to maintain the overall risk strategy you will develop with them.

Financial Planning

A financial plan starts with a comprehensive review of your finances and financial goals. A financial plan includes several things in addition to just your investing goals. Some of the other vital aspects of a financial plan include estate planning, college savings planning, retirement planning, and much more.

How a financial plan works

At its core, your financial plan will identify, organize, and prioritize your financial goals. It will then provide the details and steps you will need to take to achieve those goals. They will also have checkpoints along the way to determine if you are still on track. Your financial plan is a living document that will change and evolve as your life and financial goals change. The decisions you make and your goals at 25 may be vastly different from when you are 65.  It is essential to understand the impact foreseen and unforeseen events can have on your financial plans.  Your financial plan could be impacted by an illness or injury, marriage, the birth of a child, relocating, a new job, a global pandemic, and more.

Components of a financial plan

Several key elements make up a sound financial plan. Although they each impact your finances in different ways, together, they will map out your financial future. The following are some of the financial categories typically addressed in a financial plan:

• Budgeting
• Investing
• Retirement Planning
• Estate Planning
• Tax Planning
• College Planning
• Risk management
• Health Care Planning

You will work with your financial planner to decide which of these elements are short-term or long-term goals. Doing this will allow you to focus your efforts on those goals that are most important at the current stage of your life. The focus may be on buying a house, paying off student loans, or buying a car for someone younger. They may be more focused on health care planning or relocating to a warm climate for someone older. While short term goals are always top of mind, don’t put off developing a plan for those long-term goals like retirement planning. Small investments early can pay huge dividends down the road when it comes to long term financial goals.

Annuities

An annuity is a contract between you and an insurance company that requires the insurer to make payments to you, either now or at some point in the future. When you purchase an annuity, you either make a single payment or a series of payments. The payout from your annuity may also come as a single payment or as a series of payments over time.

Why buy annuities?

People usually purchase buy annuities to assist in manage income during retirement. Annuities provide people with three key benefits:

• Periodic payments over a specified amount of time. This may be for the rest of your life, or your spouses or another beneficiary.
• Death benefits. If you die before you start receiving your annuity payments, our beneficiary may receive a specific payment.
• Tax-deferred growth. You will not pay taxes on the income and investment gains from your annuity until you withdraw the money.

Types of annuities

There are three basic types of annuities, fixed, variable, and indexed. Here is how they work:

Fixed annuities – The insurance company you purchase the annuity from agrees to provide you with a minimum interest rate and a fixed amount of periodic payments. State departments of insurance regulate fixed annuities. It is essential to check with your state insurance department for information on the risks and benefits of fixed annuities.

Variable annuities – The insurance company you purchase the annuity from allows you to direct your annuity payments into a variety of different investment options. The payout you receive will vary depending on how much money you put in, the return rate on your investments, and any investment or other expenses. Variable annuities are regulated by the Securities and Exchange Commission (SEC).

Indexed annuities – This type of annuity combines the features of both securities and insurance products. The return you get from the insurance company that sold you the annuity is based on a stock market index, like the Standard & Poor’s 500 Index. State departments of insurance regulate indexed annuities.

All types of investments carry a certain level of risk. One of the most important things you can do when considering purchasing annuities is to work with a reputable firm such as Owens & Owens Consulting. When purchasing an annuity, it is also crucial that you talk to your advisor about the financial strength and stability of the insurance company issuing the annuity. This is to ensure the company will be around and financially stable when it comes time to pay out on your annuity.

Retirement Plans

The earlier you start saving for retirement, the more your money will grow. It is never too late to start saving. By working with a retirement planning professional to develop a strategic investment plan, you can still achieve your retirement goals even if you started late.

When can you retire?

There are many moving pieces to the answer to this question, and the answer is different for everyone. Let’s start with Social Security retirement benefits. The full retirement age is 66 if you were born from 1943 to 1954. The full retirement age increases gradually if you were born from 1955 to 1960 until it reaches 67. For anyone born 1960 or later, full retirement benefits are payable at age 67. The following chart lists the full retirement age by year of birth.

If you choose, you can get Social Security retirement benefits as early as age 62. However, that will reduce your Social Security benefit by about 28.3%. You can also choose to keep working beyond your full retirement age, which can increase your future Social Security benefits in two ways. Each extra year you work adds another year of earnings to your Social Security record. Higher lifetime earnings can mean higher benefits when you retire. Your benefit will also increase a certain percentage from the time you reach full retirement age until you start receiving benefits or until you reach age 70. The percentage varies depending on your year of birth. For example, suppose you were born in 1943 or later. In that case, Social Security will add 8 percent to your benefit for each full year you delay receiving Social Security benefits beyond your full retirement age.

Social Security is just one of the financial vehicles in place to help fund our retirement. You can also use company-sponsored 401K’s, IRA’s, Roth IRA’s, investments, and much more. The question of when you can retire is one only you can answer, with many factors you will need to consider. Partnering with a retirement planning expert to help you build a retirement plan that will meet all your needs is the first step.

Pension Plans

A pension plan is an employer-sponsored type of retirement plan where employers promise to pay a defined benefit to employees after they retire. It works differently different than a defined contribution plan, such as a 401(k). With a defined contribution plan, employees put their own money in an employer-sponsored investment program, which can have employer contributions as well. Pensions used to be a core tenant of employee benefit packages, especially for government and unionized workers. While they remain common in the public sector and with some unions, they have been replaced by defined contribution plans for some government and union employees and almost entirely for the rest of private-sector employees.

Pension plan benefits and risks

There are benefits to having a pension plan, but no retirement plan is without risks. Unlike a 401(k) plan or IRA, in which you control how it is invested, with pension plans, you have input into how your company invests the money in your pension fund. If the fund manager makes bad investment decisions or the company underfunds the pension plan, it could result in insufficient funds for the overall pension. This could lead to a reduction in your benefits without warning. During the last 20 years, we have seen this happen on many occasions, with employers going bankrupt and retired employees losing their retirement pensions altogether, leaving them in dire financial situations. In addition to losing your pension benefits, your company could change your pension plan’s terms, resulting in a smaller benefit amount paid out to you.

For employers considering implementing a pension plan, it is vital to work with an expert in designing and funding pension plans to avoid being put in a situation where you must reduce or eliminate your retirees’ benefits.

Pension plan safeguards and regulation

The Employee Benefits Security Administration (EBSA) division of the Department of Labor is responsible for administering and enforcing the provisions of the Employee Retirement Income Security Act (ERISA). ERISA contains the regulations that apply to most private-sector pension plans. One of EBSA’s core responsibilities is to provide retirees and employees information on pension plans, provide compliance help for employers, and others to ensure they are complying with all ERISA regulations.

ERISA regulations provide protections for pension beneficiaries. They also govern those who manage and control the plan’s assets, ensuring they meet certain conduct standards under the fiduciary responsibilities specified in the law.

The Pension Benefit Guaranty Corporation (PBGC) protects the pensions of over 35 million American workers who participate in private sector defined benefit pension plans. PBGC was created by the Employee Retirement Income Security Act of 1974 to ensure the continuation, protection, and maintenance of private sector defined benefit pension plans. They are funded by insurance premiums from employers that sponsor insured pension plans. If a pension plan is terminated, PBGC guarantees the “basic benefits” you earned before your pension plan’s termination date up to certain legal limits set by Congress. Guarantees, limits, and rules can vary by type and size of the benefit plan.

Whether you are an employee or retiree with pension plan benefits, or an employer looking to implement or maintain a pension plan benefit Owens & Owens can provide the guidance and help you need.

Traditional & Roth IRAs

Both Traditional and Roth IRAs are financial accounts that allow you to save money for retirement. Below is a chart put together by the IRS that shows how they are similar and different.

Tax Considerations

Because of the immediate tax savings, if you think your tax rate will go down when you retire, a traditional IRA might be right for you. I f you anticipate higher taxes in retirement, a Roth IRA can be advantageous. We at Owens & Owens Consulting will walk you through the options, advantages, and disadvantages of both Traditional and Roth IRAs and help you determine which is the right retirement investment vehicle for you.

Other clients are very financially savvy and take a more hands-on approach to develop, implement, and monitor their plans with more frequent communication about changes and market trends. We are comfortable working with any style or level of understanding. Our goal is to tailor a strategy and approach that meets YOUR needs.

At Owens & Owens Consulting, we take a holistic approach to your financial planning. We will regularly review each aspect of your financial plan to ensure each element is working together to accomplish your specific financial goals.