FMF&E Wealth Management

DFA Veterans Launch Parkwoods Wealth Partners, Offering New Model for RIA Growth and Succession

Mon, 26 Aug 2024 13:28:35 GMT

New model combines advisor independence with enterprise-level support for DFA-centric firms

St. Louis, MO - August 26, 2024 - Parkwoods Wealth Partners, LLC ("Parkwoods") today announced its official launch, introducing a new platform designed to support the growth and succession planning of registered investment advisors (RIAs). The firm also announced the successful integration of its first partner, FMF&E Wealth Management, LLC, based in Syracuse, NY.

Parkwoods represents a significant development in the RIA space, founded by industry veterans with deep roots in the Dimensional Fund Advisors (DFA) ecosystem. Al Sears and Ed Edwin, formerly of DFA, have partnered with Chris Gardner, a seasoned RIA practitioner, to create a platform uniquely tailored for advisors aligned with DFA's investment philosophy. This distinctive combination of fund company expertise and hands-on advisory experience positions Parkwoods to address the specific needs of DFA-centric firms seeking growth and succession solutions.

The firm seeks to become the premier home for RIAs who predominantly use Dimensional Fund Advisors’ investment strategies and are dedicated to elevating both the financial well-being and overall quality of life for their clients.

"We've created Parkwoods to address the diverse succession needs in the RIA industry," said Al Sears, Co-Founder and CEO. "Many independent advisors today face a difficult choice: sell their practice and lose control, or maintain independence at the cost of developing sustainable second-generation (G2) talent and diversifying what’s often their largest personal asset. Our model allows advisors to maintain their well-earned professional autonomy while accessing the benefits and security of a larger organization. It's about empowering advisors to focus on what they do best while providing a clear path for long-term continuity and eventual succession."

Parkwoods distinguishes itself through its commitment to simplifying wealth management without compromising sophistication. The firm centralizes operational tasks such as compliance, trading, human resources, and custodian-related activities, allowing advisors to dedicate more time to client relationships and strategic growth.

Ed Edwin, Co-Founder and COO, highlighted Parkwoods' expertise: "Our team's deep experience across the RIA ecosystem gives us a decisive edge. We've worked with every major service provider and vendor, honing our ability to identify what truly matters for advisor success. This insight allows us to create an operational environment where advisors can thrive, unburdened by back-office complexities. Our partners are free to concentrate on their true passion: building client relationships and growing their practices."

The integration of FMF&E Wealth Management marks a significant milestone for Parkwoods. Chris Gardner, former President of FMF&E and now Co-Founder and Head of Advisory Services at Parkwoods, commented on the transition: "Joining Parkwoods wasn't about cashing out or giving up control. It was about serving our clients better and ensuring the long-term continuity of our practice. It's a natural evolution that aligns perfectly with our philosophy and approach.”

Parkwoods is actively seeking partnerships with established RIAs that share its commitment to evidence-based investing and client-centric service. The company plans to expand its presence nationally while maintaining its focus on firms that predominantly use Dimensional Fund Advisors' investment solutions.

For more information about Parkwoods Wealth Partners, please visit www.parkwoodswealth.com .

The 4 Biggest Financial Mistakes I See

Fri, 22 Apr 2022 21:32:00 GMT

Everyone makes mistakes, but when it comes to your finances, too many mistakes can have a devastating impact on your ability to accumulate wealth and retire with confidence. Luckily, many common mistakes are completely avoidable with the right knowledge and the right financial partners on your side. Here are the top four financial mistakes I see, and what you can do to avoid them.

Taking Too Much or Too Little Risk

Most people associate risk with a market decline that affects their net worth. If you take too much risk, you may be exposed to unnecessary swings in your portfolio and sleepless nights. However, people are surprised to learn that taking too little risk can be just as bad as taking too much risk. They are two sides of the same coin, after all. If you take too little risk, your portfolio may lack the pop to outpace inflation over the long term. We are certainly seeing the effects of inflation these days, and if you can’t outpace inflation over the long term, your lifestyle and your legacy could be in jeopardy.

Avoid this mistake by having a plan that focuses on what you want to accomplish and the best way to make it happen. There is no cookie-cutter approach to someone’s asset mix. A solid plan is based on your unique personal values, goals, motivations, and priorities. The goal is to get the right asset mix after a thorough assessment of your situation. There is a delicate balance between guarding against a drop in the market while taking enough risk to outpace inflation. Working with a qualified financial professional is never a bad idea when it comes to understanding your investments and your risk capacity.

Not Knowing When to Take Social Security

Deciding when to take Social Security benefits is an age-old question that many of my clients have faced. It can be confusing and overwhelming to navigate, which is why many people take their “best guess” based on information they’ve heard from family, friends, and co-workers. This is a big mistake that could end up costing you in the long run.

For instance, if you collect your benefits too early, you could short-change yourself if you live longer than expected. If you collect benefits later, on the other hand, you might leave money on the table if you die earlier than anticipated.

This issue stems from the fact that Social Security offers three different levels of benefits depending on when you begin collecting:

It is helpful to think of Social Security as a type of “longevity insurance.” In general, the longer you expect to live, the later you should wait to take your benefits. It is crucial to consider your current health, family history, expected longevity, and need for immediate income when making your decision. Don’t rely on your “best guess.” This decision should come from facts, not emotion. Our clients have a plan that incorporates the timing of Social Security benefits.

Not Balancing Income With Desire to Leave a Legacy

Another delicate balance in finances is finding equilibrium between your current retirement income and your desire to leave a legacy. If you don’t have a financial plan, you could end up short-changing your current lifestyle by leaving too much behind, or you could short-change your heirs because your lifestyle came at the expense of your legacy.

The equation becomes even more complicated when couples have differing opinions about how much should be left to people and causes they love and how much should be spent enjoying retirement. The lifestyle-vs.-legacy dynamic is one of the biggest trade-offs you will face in retirement, and it’s a mistake to not plan for it. This complex puzzle involves spending, portfolio risk (see point #1), and longevity. Don’t wait until the money has already been spent to try to solve the problem. Proactive planning allows you to make real-time adjustments to your finances, ensuring you make the most of both your lifestyle and your legacy.

Paying Too Much in Fees & Taxes

It’s not about how much you make, it’s about how much you keep. Many people overpay in investment fees and taxes simply because they don’t know. It is tricky to determine costs just by looking at your monthly statement.

These costs include things like commissions, deferred sales charges, 12b-1 fees, and mutual fund expense ratios. For instance, mutual fund expenses are automatically deducted daily and you are provided with the net asset value of your investment. Combined with taxes, these charges can significantly cut into your investment returns.

Be sure you work with an advisor who is transparent on both how they get paid and how they plan to manage your exposure to fees and taxes. Unfortunately, some advisors don’t pay enough attention to the tax consequences of changes made to clients’ accounts, which can cause undesirable tax liabilities for you (both capital gains tax and ordinary income tax). It is important to look at your entire portfolio and choose the most tax-efficient option before accessing funds.

Are You Making Any of These Mistakes?

If some of these mistakes sound familiar, you are not alone. We have helped many clients overcome these obstacles and more. At Parkwoods Wealth Management, we will address all these issues through our comprehensive planning process, allowing you to de-stress and focus on what really matters.

About Jeff

Jeff Campbell is a Wealth Advisor with Parkwoods Wealth Partners, a financial planning firm committed to providing services and advice that puts you, your family, and your values and goals first. With over 25 years of experience in the financial industry, Jeff is passionate about building relationships with his clients, coaching them to make solid financial decisions, and guiding them as they work toward the financial future of their dreams. He is known for being a good listener and providing clarity and confidence as he helps people secure their retirement and live their best life. Jeff has a bachelor’s degree in Economics from the University of Richmond. When he’s not working, Jeff loves spending time with his wife, Caitlin, his two children, Paige and Colin, and his extended family. He enjoys golfing, traveling, playing the guitar, and seeing live music. To learn more about Jeff, connect with him on LinkedIn .

This post appeared first on www.fmfewealthmgt.com.

401(k) Planning: What Do You Need to Know?

Mon, 21 Mar 2022 16:09:00 GMT

Having a 401(k) plan is one of the best ways to maximize your retirement savings. It’s a great way to capture tax benefits while automatically saving money from every paycheck. When this is combined with an employer match, a 401(k) can become one of the most powerful investment tools for retirement.

While enrolling and participating in a 401(k) with your employer is a simple and straightforward process, some planning help from an advisor could allow you to align your choices with what you want to accomplish. Let’s discuss some of the basics so you can make your retirement plans work even harder for you.

Investment Choices

Picking the investments in your 401(k) can be overwhelming and confusing. Often there is more than one choice for each category. As a result, target-date funds have become popular choices recently, allowing participants the convenience of having their investments on autopilot in one fund based on a projected retirement date.

However, if you decide to split your allocation between a target-date fund and another mutual fund, you may leave yourself open to duplications in certain asset classes and have a completely skewed mix of assets. In addition, target-date funds offer a cookie-cutter solution for what may not be a cookie-cutter need. Each individual has a unique and personal situation that may require different asset mixes than the predetermined asset mix of a target-date fund. When you choose this option, there’s no room for personalization.

Roth 401(k)s

While Roth IRAs put income limits on who can contribute, Roth 401(k)s do not have this limit. The question is do you want to pay taxes now or in the future? If you expect to be in a lower tax bracket at retirement (which isn’t always the case), then the regular 401(k) is the option for you. It’s hard to predict the future, but all your pensions, Social Security, investment accounts, 401(k)s, and IRAs could add up and put you in a higher tax bracket. Think about your spouse; if you should pass away, they will have to file as a single person, increasing their tax burden.

Contribution Limits

It’s important to know your limits. For 2022, you can defer as much as $20,500. The total limit for employee deferrals plus employer contributions is $61,000. An additional $6,500 in catch-up contributions is allowed for those over 50.

Valued Advice From a Trusted Advisor

You’ll need to consider many factors when participating in your company’s 401(k) plan, and a little extra thought and consideration can make a big difference in your financial future. As with any important financial decision, it’s wise to first consult with an experienced professional.

At FMF&E, our goal is to help our clients be fully prepared by helping them build a plan and get the best life possible with the money they have. Their portfolios may have multiple accounts, including their 401(k)s. We view these as one entity, rather than looking at each account separately. Implementing the right strategy within your 401(k) is an essential step.

Get our insights on building your financial future and getting the best life possible with the money you have by reaching out to me at jeff.campbell@parkwoodswealth.com .

About Jeff

Jeff Campbell is a Wealth Advisor with Parkwoods Wealth Partners, a financial planning firm committed to providing services and advice that puts you, your family, and your values and goals first. With 25 years of experience in the financial industry, Jeff is passionate about building relationships with his clients, coaching them to make solid financial decisions and guiding them as they work toward the financial future of their dreams. He is known for being a good listener and providing clarity and confidence as he helps business owners secure their retirement and live their best life. Jeff has a bachelor’s degree in Economics from the University of Richmond. When he’s not working, Jeff loves spending time with his wife, Caitlin, his two children, Paige and Colin, and his extended family. He enjoys golfing, traveling, playing the guitar, and seeing live music. To learn more about Jeff, connect with him on LinkedIn .

This post appeared first on www.fmfewealthmgt.com.

What You Need to Know About Your Carrier Pension Preservation Plan Options

Mon, 28 Feb 2022 17:01:00 GMT

After 41 years, Carrier has separated from its parent company, United Technologies (UTC). (1) As part of the split, Carrier has started offering lump-sum pension buyouts to many employees. The best option is different for each person. Your age, length of service with the company, and current financial situation are just a few of the factors to consider when making an informed decision. Here is a high-level overview of what you should keep in mind as you navigate your Carrier buyout options.

Basics of the Carrier Pension Buyout Offer

Carrier’s decision to offer pension buyouts is not unique. Many employers are taking this step to reduce their future pension liabilities and cut costs, especially during the economic volatility caused by the pandemic.

In a pension buyout offer, the company usually offers a lump sum equal to the present value of the payments you would have started collecting at 65, or you can opt to receive regular payments in retirement. There are pros and cons for each option that should be thoroughly considered before making a decision.

Choosing the Lump-Sum Buyout

Choosing the lump-sum buyout option is not a decision to be made lightly. Consider the following benefits and drawbacks.

Pros

Cons

Opting for the Pension Payment

If you are considering the pension payment instead, be sure to keep these pros and cons in mind.

Pros

Cons:

Making Your Pension Decision

Choosing between a lump-sum buyout or regular pension payments is a huge decision that will affect your financial situation for decades to come. Whichever option you choose, it’s critical that you make the right choice the first time around.

At Parkwoods Wealth Partners, we can help you make the right decision. We offer a pension vs. lump sum analysis that assesses the pros and cons of each option and how they tie in with other important factors like Social Security, retirement savings, age, longevity, lifestyle, and legacy. We will establish a plan that makes the most sense for your unique situation, helping you achieve the best life possible with the money you have.

About Jeff

Jeff Campbell is a Wealth Advisor with Parkwoods Wealth Partners, a financial planning firm committed to providing services and advice that puts you, your family, and your values and goals first. With 25 years of experience in the financial industry, Jeff is passionate about building relationships with his clients, coaching them to make solid financial decisions and guiding them as they work toward the financial future of their dreams. He is known for being a good listener and providing clarity and confidence as he helps business owners secure their retirement and live their best life. Jeff has a bachelor’s degree in Economics from the University of Richmond. When he’s not working, Jeff loves spending time with his wife, Caitlin, his two children, Paige and Colin, and his extended family. He enjoys golfing, traveling, playing the guitar, and seeing live music. To learn more about Jeff, connect with him on LinkedIn .

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(1) https://www.syracuse.com/business/2020/04/carrier-splits-from-united-technologies-after-41-years.html

This post appeared first on www.fmfewealthmgt.com.

Case Study: How We Helped One Retired Couple Gain Confidence in Their Future

Mon, 24 Jan 2022 16:47:00 GMT

Building wealth to provide for and pass on to your family or cherished causes can take decades of hard work and sacrifice. No matter how much you want to leave, having a solid financial plan is necessary to balance your own retirement needs with your desire to leave a legacy.

At Parkwoods Wealth Partners, we know just how important this is to our clients. That’s why we offer comprehensive wealth management strategies. Read on to learn more about how our services have been used to help other clients leave an inheritance and how we can help you too.

The Client

These clients came to us back in 2017. A married couple, the husband had recently retired from a large international company and the wife had recently retired from a regional finance company.

The Goal

They had several retirement assets, including two taxable brokerage accounts, three different 401(k) plans, and an IRA that held an annuity. Each of these accounts were held by different custodians. Despite having these assets, the couple wasn’t sure exactly how their funds were invested or whether they were taking too much or too little risk in their portfolio. The husband also had a pension plan, and he was concerned about its solvency.

The couple had two pressing questions: “What lifestyle can we afford?” and “What happens to those whom we love when we are no longer around?” Essentially, they had never done any sort of formal retirement planning and were worried about how that would affect their future.

With a small mortgage balance and one adult son who would inherit their assets, they were concerned about running out of money down the road. They came to us for help balancing living a comfortable lifestyle and also being able to leave an inheritance for their son.

The Process

We determined the best course of action for these clients was to build a comprehensive wealth plan to address their various concerns, including investment planning, retirement planning, and estate planning.

To start the process, we spent time getting to know them, digging down to explore their values, beliefs, fears, and concerns. We discovered what was important to them about their wealth, which helped us create a high-level purpose for their funds. From there, we were able to frame the entire plan and suggested strategies around their unique and personal circumstances.

We tackled several different aspects of their finances:

Outcome

After we completed the entire process, we were able to provide answers to many of this couple’s most anxiety-inducing questions. We discovered an asset allocation strategy that balanced their lifestyle, their legacy, and their ability to sleep at night, and it was completely unique to their situation.

We discovered that they were taking on too much risk for what they were trying to accomplish and suggested they reduce their stock holdings and increase their bond holdings. We added diversification to their investment portfolio, which had been overweighted in one part of the stock market.

We helped them determine that it made sense to pay off their small mortgage balance. And lastly, we referred them to an estate attorney so they could update their will and other estate documents, ensuring that their son and their legacy would be properly protected in the event of their death, disability, or incapacitation.

These clients are now armed with a long-term plan that gives them the confidence to live their life without constant financial worry. They know what lifestyle they can afford to live and they’re confident in their ability to leave a legacy for their son. They understand not only how they are invested, but also why they are invested in specific assets.

Their portfolio is now tailored to their risk level, giving them the capability to weather market downturns because they know that bad markets are already incorporated into their plan. And with our fee-only planning structure, these clients now have complete transparency in what they pay for advice.

This couple came to us confused and overwhelmed, but now they have a financial “security blanket” (as the husband likes to call it) and a better understanding of the purpose of their money. Since working with us, they have been able to spend more time doing what they love because they believe they’re getting the best life possible with the money they have.

How We Can Help You

Our goal is to provide every client with clarity and confidence regarding their financial future. If you, like our clients, have felt overwhelmed by all the different aspects of your finances, it doesn’t have to be that way. Get our insights on building your financial future and living the best life possible with the money you have by reaching out to me at jeff.campbell@parkwoodswealth.com .

About Jeff

Jeff Campbell is a Wealth Advisor with Parkwoods Wealth Partners, a financial planning firm committed to providing services and advice that puts you, your family, and your values and goals first. With 25 years of experience in the financial industry, Jeff is passionate about building relationships with his clients, coaching them to make solid financial decisions and guiding them as they work toward the financial future of their dreams. He is known for being a good listener and providing clarity and confidence as he helps business owners secure their retirement and live their best life. Jeff has a bachelor’s degree in Economics from the University of Richmond. When he’s not working, Jeff loves spending time with his wife, Caitlin, his two children, Paige and Colin, and his extended family. He enjoys golfing, traveling, playing the guitar, and seeing live music. To learn more about Jeff, connect with him on LinkedIn .

This post appeared first on www.fmfewealthmgt.com.

How Does an Independent Financial Advisor Benefit You?

Tue, 02 Nov 2021 21:00:00 GMT

As a fee-only Registered Investment Advisor, we pride ourselves on offering the very best to our clients when developing a wealth management plan that is tailored to each individual and their family. We offer sound guidance based on our clients’ unique needs and goals because we are independent advisors and fiduciaries who are always working in the best interest of our clients. If you are considering enlisting professional help with your finances, here are a few reasons why an independent advisor may be the right person to help you develop and maintain a financial plan for you and your family.

Personalized, Unbiased Advice

As independent advisors, the guidance we offer our clients is objective and unbiased because we are not tied to any particular financial company or investment firm. We analyze your complete financial picture, gain an understanding of your life circumstances, dreams, and concerns, and provide advice that fits you. We don’t recommend products to meet quotas. As such, our mission is to help you achieve the best life possible with the money you have.

Fee Transparency

Typically, independent wealth advisors operate on a compensation model that is fee-only. This is important because we are not beholden to recommend products that will benefit us financially in any way. “How are you compensated?” should be a question everyone asks their financial advisor.

At Parkwoods Wealth Partners, we are fee-only, and we do not earn money from any type of kickback or commission for recommending certain securities or investments. With us, you don’t have to wonder what you’re paying or worry about those inherent conflicts of interest.

We Build Relationships

Every member of our team prides themselves on knowing our clients’ unique situations and developing personal relationships with many of them. Because of this, we only offer advice that is aligned with our clients’ goals and make a point to keep up with any change in our clients’ lives that could affect their financial plan. Our financial plans are not static; they adapt to fit your life, not the other way around.

For many years, we have built a practice that is based on trust and mutual respect, and we feel a tremendous responsibility to our clients. They know they can always count on us and appreciate having someone that looks out for their best interest in their financial corner.

This post appeared first on www.fmfewealthmgt.com.

4 Ways Business Owners Can Catch Up for Retirement in a Hurry

Thu, 16 Sep 2021 15:34:00 GMT

When you own a business, it can often feel like one of your children—you work hard, nurturing it to grow, succeed, and benefit society. This understandable attachment creates an emotional investment that can make it difficult to find a balance between prioritizing personal finances and your business. For instance, business owners commonly face the struggle of creating a plan to convert their successful business into long-lasting personal wealth, namely retirement. Many small business owners invest personal savings into their business, and 34% of business owners don’t have a retirement savings plan, (1) which results in a dire situation as they draw closer to retirement without a nest egg.

Don’t forget: your retirement is just as important as the success of your business! Let’s discuss four steps to help you catch up for retirement in a hurry.

1. Find the Right Plan for You

Unfortunately, you don’t have an employer-sponsored 401(k) account with matching contributions at your fingertips. That doesn’t mean you are out of luck when it comes to building a nest egg. Here are some savings options to consider.

Traditional IRA

A traditional IRA is similar to a 401(k) in that you can contribute pre-tax dollars (subject to IRS guidelines) to an investment account that grows tax-deferred. For 2021, you can contribute up to $6,000, or if you’re over age 50, a total of $7,000.

Roth IRA

With a Roth IRA, your contributions are not tax-deductible like traditional IRAs. However, your earnings grow tax-deferred and your withdrawals are tax-exempt (subject to IRS guidelines). Like a traditional IRA, you can contribute up to $6,000, or if you’re over age 50, a total of $7,000. However, one caveat to the Roth is that there are income restrictions. (2)

SEP IRA

A SEP IRA, also known as a Simplified Employee Pension, is an IRA similar to a traditional IRA. As an employer of yourself, you can make contributions on your own behalf for your retirement. You can set up a SEP IRA and contribute 25% of your self-employed income or $58,000 per year (whichever is the lesser amount).

Solo 401(k)

A solo 401(k) is similar to a traditional 401(k) you’d contribute to as an employee. Funds invested within a solo 401(k) plan grow on a tax-deferred basis. The powerful feature of this plan is that you can contribute in two separate capacities, as an employee and as an employer. Wearing your employee hat, you can defer up to $19,500 (or $26,000 if age 50 or older). As the employer, you can also contribute up to 25% of compensation as defined by the plan. Combined, you can contribute up to $64,500 if you’re over the age of 50.

Adding a Defined Benefit Plan

In order to save more than what your IRA limits you to, you can set up a defined benefit plan. These plans have much higher tax-advantaged contribution limits and can be designed to fit the needs of almost any business. The older the owner and the higher the compensation they have (up to IRS compensation limits), the larger the contribution allowed the owner. Defined Benefit Plans are not subject to the 25% employer deduction or participant contribution limitations. Be aware, these plans can be expensive to set-up and maintain.

Ultimately, everyone’s situation is unique, so there’s no one right solution. However, for many people, it makes sense to contribute pre-tax and post-tax dollars to several different accounts. For example, along with a solo 401(k), you may also want to contribute to a Roth or SEP IRA.

2. Banish Debt

The less debt you have when you enter retirement, the better. Whether it’s personal debt in the form of credit cards, car loans, or a mortgage, or business debt in the form of bank loans or equipment purchases, reducing your debt before retiring will lower your monthly expenses and enable your savings to grow and last longer. Review all current debts you face and compare interest rates and balances. This can help you decide which to pay off first.

3. Look Ahead to the Future

Do you have an exit plan? Even if you are just in the beginning stages of your business, it’s imperative to have a plan for the future of your company because it will likely become one of your largest assets. Around 78% of small business owners plan to sell their businesses to fund their retirement, with the sale profits funding 60-100% of their retirement needs. (3) If you are heavily relying on the sale or succession of your business to take care of your future financial needs, it’s critical that you start thinking about how and when you may want to leave your business and what you can do now to prepare so you receive the highest price possible. Having a strategic transition plan will make your company more appealing to buyers who want assurance that it will continue to thrive without you. Even if you’re passing the business on to family members, you need a plan in place to ensure that it continues to prosper and all family members are treated equally. Equally important is having a plan for retirement that incorporates the expected proceeds or income stream from the sale of your business.

4. Partner With a Professional

There’s no avoiding it; owning a business complicates life and finances (again, just like having children!). In addition to saving for retirement and taking care of your family, you also have employees to think about and tax considerations. Given your unique situation, you would benefit from working with someone who specializes in serving business owners and who can bring an experienced, objective perspective to the table.

We at Parkwoods Wealth Partners we fit that bill! Specializing in serving small business owners and tailoring our services to address clients’ specific financial needs, we pride ourselves on being good listeners and providing clarity and confidence to help you secure your retirement and live your best life.

About Jeff

Jeff Campbell is a Wealth Advisor with Parkwoods Wealth Partners, a financial planning firm committed to providing services and advice that puts you, your family, and your values and goals first. With 25 years of experience in the financial industry, Jeff is passionate about building relationships with his clients, coaching them to make solid financial decisions and guiding them as they work toward the financial future of their dreams. He is known for being a good listener and providing clarity and confidence as he helps business owners secure their retirement and live their best life. Jeff has a bachelor’s degree in Economics from the University of Richmond. When he’s not working, Jeff loves spending time with his wife, Caitlin, his two children, Paige and Colin, and his extended family. He enjoys golfing, traveling, playing the guitar, and seeing live music. To learn more about Jeff, connect with him on LinkedIn .

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(1) https://www.cnbc.com/2017/07/27/survey-34-percent-of-entrepreneurs-lack-retirement-savings-plan.html

(2) https://www.irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2021

(3) https://www.pnc.com/insights/small-business/business-planning/selling-business-to-fund-retirement.html#:~:text=Few%20actually%20use%20it%20to,100%20percent%20of%20their%20retirement

This post appeared first on www.fmfewealthmgt.com.

Saving for Retirement and Reducing Taxes: What Business Owners Should Know

Thu, 29 Jul 2021 16:50:00 GMT

As a business owner, paying taxes and saving for retirement can be two major concerns you have when you examine the financial outlook of your business. Both taxes and retirement represent two significant financial items that you need to prepare for in the long term as you outline your business’s financial strategy.

Luckily, there are efficient ways to save for retirement while mitigating your tax burden and reducing your tax bill every year while keeping your employees happy. Of course, there are no one-size-fits-all tax strategies or retirement plans, but below we discuss some of the more common retirement plans that small business owners use to maximize their income in retirement while reducing their tax burden.

Smart Retirement

What retirement plan you opt for depends on your specific circumstances. If you are a sole proprietor who wants to reduce the time and energy you spend on administering a retirement plan, a Simplified Employee Pension (SEP) IRA may be a good fit. However, if you are a solo practitioner trying to maximize contributions as you near retirement but want to lower your personal taxable income, a solo 401(k) may be right for you. No matter what you choose, remember that different retirement plans offer different tax benefits at different times.

SEP IRA

This account allows you to put a relatively large amount of funds toward your retirement, which is helpful if you haven’t saved enough during the early years of your business or career. As of 2021, contributions you make to each employee’s SEP IRA account cannot exceed the lesser of 25% of their compensation or $58,000 per year. (Maximum compensation that may be considered is $290,000). (1) With a SEP IRA you will be required to make contributions to your employees’ accounts equal to the percentage that you contribute for yourself if they are at least 21 years old, have worked for you for three out of the last five years, and received at least $650 in compensation for 2021. (2) So, if you choose the SEP IRA because of the more hands-off approach and the ability to contribute more to your retirement, understand that it may be more expensive than you initially anticipated. As far as taxes are concerned, you can deduct the lesser of your contributions or 25% of compensation paid to participants (limited to $290,000 per participant). (3) If you are self-employed and contribute to your own SEP-IRA, there is a special computation to figure the maximum deduction so you will probably need help from a qualified tax preparer.

SIMPLE IRA

SIMPLE IRA plans allow both employers and employees to save money in retirement accounts, and they have lower start-up and operating costs versus most retirement plans. Small businesses with no more than 100 employees earning at least $5,000 in the preceding year and no other retirement plan can adopt this plan. There is no filing requirement for the employer; however, it must contribute each year either a matching contribution up to 3% of compensation or a 2% non-elective contribution for each eligible employee up to the 2021 annual compensation limit of $290,000.

Employee contributions are not included in “wages, tips, other compensation” so they are not deductible. If you are a sole proprietor or partner, you would deduct your own salary reduction contributions and your own matching or non-elective contributions. All contributions made to your employees’ SIMPLE IRAs are deductible on your business’s tax return. (4)

Solo 401(k)

If you are a business owner with no other full-time employees aside from your spouse, you have the option to set up a self-employed (often shortened to solo) 401(k). The business owner acts as both the employer and the employee. As the employee, the annual contribution limit is up to 100% of earned income to the maximum of $19,500 or $26,000 if age 50 or older in 2021. The employer can make non-elective contributions up to 25% of compensation as defined by the plan. Total contributions (employee and employer) to a participant’s account, not counting catch-up contributions, cannot exceed $58,000. If you are self-employed you must make a special computation to figure the maximum contribution you can make for yourself so you will probably need help from a qualified tax preparer. (5) The tax implications with a solo 401(k) depend on whether you have a traditional or Roth solo account. If you set up a traditional solo 401(k), you can deduct your elective contributions from your income, which may put you in a lower tax bracket. If you set up a Roth account, your contributions will be after-tax, but your qualified distributions are tax-free when you retire.

Traditional IRA and Roth IRA

Some business owners consider opening up their own personal traditional IRA or Roth IRA and pair those accounts with their other business retirement accounts to maximize their savings. While contributions remain low, traditional IRAs may be tax-deductible during the year you make the contribution. With a Roth IRA, if you satisfy the requirements, your qualified withdrawals in retirement are tax-free. (6)

Take the Next Step

At Parkwoods Wealth Partners, we know that choosing the right retirement plan that meets your specific financial needs can be complicated, but it doesn’t need to be. We are passionate about building a wealth management strategy that honors your values, while building a sustainable future. Reach out to me at jeff.campbell@parkwoodswealth.com .

About Jeff

Jeff Campbell is a Wealth Advisor with Parkwoods Wealth Partners, a financial planning firm committed to providing services and advice that puts you, your family, and your values and goals first. With 25 years of experience in the financial industry, Jeff is passionate about building relationships with his clients, coaching them to make solid financial decisions and guiding them as they work toward the financial future of their dreams. He is known for being a good listener and providing clarity and confidence as he helps business owners secure their retirement and live their best life. Jeff has a bachelor’s degree in Economics from the University of Richmond. When he’s not working, Jeff loves spending time with his wife, Caitlin, his two children, Paige and Colin, and his extended family. He enjoys golfing, traveling, playing the guitar, and seeing live music. To learn more about Jeff, connect with him on LinkedIn .

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(1) https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-seps#contributions

(2) https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-seps#participation

(3) https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-seps#contributions

(4) https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-simple-ira-plans

(5) https://www.irs.gov/retirement-plans/one-participant-401k-plans

(6) https://www.irs.gov/pub/irs-pdf/p4530.pdf

This post appeared first on www.fmfewealthmgt.com.

Retirement Planning For Individuals And Families

Mon, 07 Jun 2021 17:51:00 GMT

When construction contractors are ready to begin a project, they must start with a blueprint. If they were to simply take a pile of materials, tools, and supplies and begin placing them together haphazardly, the results would be undesirable. Rather than a home, office, or skyrise, they would have a worthless pile of wasted resources.

In a similar way, financial resources must be organized in a deliberate manner to allow someone to be able to build stable and robust retirement savings. Without a clear and direct plan, even a large supply of income can be squandered instead of utilized.

Making A Blueprint

Sometimes it can be hard to know where to start when trying to build up retirement savings. Maybe you are a financially well established small business owner or professional, but struggle to see how to develop the right habits that lead to success.

The overall retirement savings strategies for most people can be very similar, like opening an IRA or contributing as much as possible to your company 401(k). However, building a plan that works for you as an individual can vary widely depending on your personal and unique situation.

For example, if you are a single 30-something-year-old making six figures, you may be able to save aggressively. On the other hand, if you have a family of four living on $108,000 with two kids rapidly approaching college, you may need to keep your eyes on a few different priorities at once.

In either case, the important thing is to have a plan, and that usually starts with a realistic budget. No matter how much money you earn, if you don’t deliberately tell it where to go, it’ll go wherever it wants to. Make saving for your retirement a priority in your budget at the beginning of the month, instead of waiting until the month is over to see what is left. Did you recently get a raise? Increase your 401k contribution before that new paycheck kicks in. You won’t even feel it, and you will be doing yourself a favor.

By developing a budget as a blueprint, you will know how to allocate your resources efficiently and effectively. This will free you to start building your retirement confidently.

A Solid Foundation

Another important part of getting the ball rolling toward a secure retirement is to make sure you build on fundamentally sound principles. If you have sound investment principles, then they will guide you to good practices, and good practices lead to financial peace.

One important principle is to trust the market to do its job. It is tragic to witness someone trying to time the market and play the “buy low, sell high” game. Unfortunately, the financial media and Wall Street are fixated on this. Unless you have a time machine or a crystal ball to tell you the future, speculating about what the market will do is a foolhardy way to invest. Over the history of the market, it has had many rises and many falls, but over time the declines have proven to be temporary. The moral of the story is to trust the market and let time, not trends, be your ally to grow your investments.

Another important principle to keep in mind is the age-old adage, “Don’t keep all your eggs in one basket.” Diversification is a critical element in risk management for investing. If you have all your funds in a single stock or even a single index fund, your investment portfolio can be affected greatly by the decline of that one investment. If the company whose stock you own suddenly goes belly-up, so does your retirement plan.

Keep your resources in multiple parts of the market to reduce your risk.

Talk To A Wealth Advisor

There is obviously far too much to say about investing for retirement to cram into one blog article. But if you want to be ready for retirement when the time comes, you need to work with a solid plan now.

The best way to get a plan together that will help you get the best life possible with the money you have is to work with a Wealth Advisor who can help you through the process. With an objective ally in your corner, you will be better prepared to navigate retirement planning successfully.

To get started today, reach out to me at jeff.campbell@parkwoodswealth.com .

About Jeff

Jeff Campbell is a Wealth Advisor with Parkwoods Wealth Partners, a financial planning firm committed to providing services and advice that puts you, your family, and your values and goals first. With 25 years of experience in the financial industry, Jeff is passionate about building relationships with his clients, coaching them to make solid financial decisions and guiding them as they work toward the financial future of their dreams. He is known for being a good listener and providing clarity and confidence as he helps business owners secure their retirement and live their best life. Jeff has a bachelor’s degree in Economics from the University of Richmond. When he’s not working, Jeff loves spending time with his wife, Caitlin, his two children, Paige and Colin, and his extended family. He enjoys golfing, traveling, playing the guitar, and seeing live music. To learn more about Jeff, connect with him on LinkedIn .

This post appeared first on www.fmfewealthmgt.com.

How We Helped A Business Owner Retire With Confidence

Tue, 04 May 2021 21:55:00 GMT

Below we want to share with you how we helped one particular client, whom we’ll call Joe, design a holistic and secure wealth management strategy and achieve the retirement he deserves.

Joe’s Background

Joe became our client in 2004. He had a good job in senior management at a very successful family-owned tech manufacturer with over 500 employees. He was not part of the family but was a minority owner of the company.

His ownership was through a program that included stock, stock options, and phantom stock. The ownership program was complicated and he had a difficult time understanding his vesting, current valuation, and potential future valuation. Because of this, he tended to ignore it. Instead, he turned his attention toward his 401(k) and deferred compensation plans. He also had a small military pension.

Joe’s Challenges

Joe was in his second marriage and wanted to pay for private college tuition for his three young children, but he did not have a proper funding plan in place. Joe was also very generous, making charitable contributions often, but he did not incorporate the contributions into his tax planning.

In recent years, Joe started looking toward his retirement and asking us for guidance. On top of the aforementioned issues, we also realized when reviewing his documents that his estate plan was outdated, his retirement plan was only partially developed, and he didn’t have a strategy as to when he would start taking Social Security benefits.

Joe was also worried that the family who owned the business would sell it and his employment and benefits would not be protected. Additionally, the stock ownership program was confusing to him. The company also offered him a buyout where he would have to unwind his ownership, but given his desired goals and some financial uncertainty, Joe didn’t know if he could afford to quit. Moreover, the company did not provide him with enough information on stock ownership to allow him to determine what his valuation would be and what his exit strategy should be.

Lastly, Joe and his wife divorced. He needed help navigating the financial planning surrounding the divorce and transition into his new life comfortably.

Our Solutions For Joe

Although Joe is a very accomplished person, his lack of financial understanding of his position and retirement made him uncomfortable. That was where we came in to help. We were able to engage an estate planning attorney to straighten out his estate plan and hammer out the details for his wealth management strategy as he eased into retirement.

First, we worked with Joe’s company’s finance and human resource directors to analyze his stock ownership. This helped us set parameters on its valuation, which we incorporated into his retirement plan. The retirement plan also included his military pension and his Social Security benefits. This plan allowed Joe to exit the company and determined a time frame when he should start collecting Social Security.

We established a donor-advised fund to pre-fund his future charitable giving and to take advantage of several extraordinary income years. We also helped him navigate the financial aspects of his divorce and its effect on his retirement.

When Joe retired from the company, he transferred his 401(k) plan assets into an IRA Rollover.. Several years later, Joe began a second career in his retirement and we helped him roll over his IRA into his new 401(k) plan to avoid taking the IRS mandated required minimum distributions (RMDs).

Joe’s Retirement Success Story

Next year, Joe will transition to full-time retirement with absolute confidence. His young children are almost through college and the education they received was fully funded. Joe is purchasing a new home down South and is very happy that he can retain both the family home and his retirement home.

All in all, it has been wonderful to watch Joe’s wealth management plan development and his confidence in his financial future grow. He now looks forward to spending more time with his family and has full faith that his financial future is in good hands.

Who We Serve & And How We Can Help

Fri, 02 Apr 2021 22:11:00 GMT

We all know that money makes the world go round, but when it comes down to it, we really just want to know that we can live the life we want and enjoy the fruits of our labor. We want to have enough money to confidently face life’s challenges and leave a legacy for the people and causes we care about. And since that’s going to look different for everyone, a one-size-fits-all approach won’t work for you.

At Parkwoods Wealth Partners, we understand that every person’s situation is unique, which is why our plans begin and end with you. Our mission is to help people get their best life possible with the money they have.

How We Help

Planning for retirement can be overwhelming, and we’re willing to bet that you’ve experienced fear, anxiety, or worry about the future that’s kept you up at night. That’s no way to live. For the past 20 years, we have been dedicated to providing our clients with customized strategies and unbiased, evidence-based advice that puts them first in everything we do. Before we even look at the numbers, we build a foundation with you at the center—your hopes, your dreams, and your life circumstances. Our goal is to transform the wealth management experience from being about money to being about you. We want to put the “personal” back into “personal finance”.

What We Do

Our experience serving clients from all walks of life has shown us that the three biggest financial concerns people face are having enough money in retirement, providing for their families, and maintaining their health. Those are heavy burdens to carry. Our gift to our clients is to help them carry the load so they can focus on what’s most important to them, to free up their time and energy so they can invest in what truly fulfills them, whether that’s focusing on their career, giving back to their community, spending time with family, or pursuing other interests and hobbies.

Who We Serve

While we serve a wide range of clients, we focus our services on small business owners and professionals. Our clients may come from different backgrounds and be at different stages of life, but they do have some things in common. Namely, they are family-oriented. They want to take care of their family members now and leave a legacy for future generations. They are down-to-earth individuals and hard workers who have built their wealth over time with wise decisions and want to make sure they won’t run out of money when they retire. And they know the value of delegating. They want to outsource financial management to someone who knows what to look for and how to prepare so they can be confident in their future.

Our clients know that there is more to money than just a number to attain. It transcends customary numbers and graphs. They want a financial plan that aligns with their values and lifestyle. That’s why we go beyond expectations and provide life coaching and behavioral coaching to ensure our clients are on the right path to their desired life and that their money has a purpose.

What Makes Us Unique

We know that there are plenty of advisors out there. What sets us apart is the long-term relationships we build with our clients, the care we pour into them, and the objective perspective we bring to the table. Our clients know they can rely on us to truly listen and give them the knowledge they need to cover their bases. We pride ourselves on our proactive, authentic approach and the invaluable order we bring to peoples’ financial lives.

We Are Here For You

You can’t put a price on confidence. If you have questions or concerns about your money, whether you’re on track toward your goals, or anything that’s causing you financial worry, reach out to me at jeff.campbell@parkwoodswealth.com .

About Jeff

Jeff Campbell is a Wealth Advisor with Parkwoods Wealth Partners, a financial planning firm committed to providing services and advice that puts you, your family, and your values and goals first. With 25 years of experience in the financial industry, Jeff is passionate about building relationships with his clients, coaching them to make solid financial decisions and guiding them as they work toward the financial future of their dreams. He is known for being a good listener and providing clarity and confidence as he helps business owners secure their retirement and live their best life. Jeff has a bachelor’s degree in Economics from the University of Richmond. When he’s not working, Jeff loves spending time with his wife, Caitlin, his two children, Paige and Colin, and his extended family. He enjoys golfing, traveling, playing the guitar, and seeing live music. To learn more about Jeff, connect with him on LinkedIn .

This post appeared first on www.fmfewealthmgt.com.

Why I Became A Wealth Advisor

Fri, 12 Feb 2021 20:53:00 GMT

“Living your best life” means something different to each individual. Some people prioritize health, others wealth, others relationships or experiences. The list is endless. One thing I learned early in my career, though, is that financial security can help you pursue and achieve your dreams, no matter how big they are.

I spent a large portion of my career as a cog in the wheel of capitalism, trading stocks for a large national bank. Over time, I realized that while there was value in what I did, it lacked an authentic person-to-person element. I value people. And I wanted to work with a team that genuinely helped people reach meaningful personal goals.

Each day, I wake up excited about my job and the fact that my hard work and dedication to my clients can have an enormous impact on their lives. I know that by getting to know my clients, and helping to educate them, I can help improve their financial futures and subsequently, their lives. I can equip them with knowledge to inform and empower them to make sound financial decisions, which can then positively impact future generations.

First Career Steps

After graduating from the University of Richmond, where I earned a BA in Economics, I jumped right into the financial world working as a financial advisor and next, a portfolio manager. I then spent 16 years honing my skills as a Sector Trader and Head of Equity Trading with SunTrust Robinson Humphrey. I excelled in my work, but I couldn’t shake the feeling that I could be doing more. I truly want to do my part to make the world a better place. In 2017 I started at FMF&E Wealth Management (now Parkwoods Wealth Partners), and now I have the honor to serve clients and make a positive change in their lives so they can get the best life possible with the money they have.

My Career Today

As a Wealth Advisor, I get to spend my days doing what I dreamed of—helping business owners and retirees build wealth and set themselves up for a secure future while still having the time and energy to do what they love. I specialize in walking my clients through big life changes. I ask the tough questions, and get to know them as a person so I can guide them down the best path to financial health.

As a husband and father of two, I know firsthand the importance of wise financial planning. It is a responsibility I take very personally. The best part of my job is getting to shake my clients’ hands, look them in the eye, and watch them grow in confidence about their financial future.

Are You Ready For A Different Financial Future?

I’d love to meet you, get to know you, and find out more about your goals and values. I look forward to hearing you explain your worries and the unique challenges you’re facing on your financial journey. Together, we can create a customized plan and help you get a sense of freedom to live the life you want. With my unique set of skills and expertise, there’s no reason for you to go it alone! Take the first step today and reach out to me at jeff.campbell@parkwoodswealthpartners.com .

About Jeff

Jeff Campbell is a Wealth Advisor with Parkwoods Wealth Partners, a financial planning firm committed to providing services and advice that puts you, your family, and your values and goals first. With 25 years of experience in the financial industry, Jeff is passionate about building relationships with his clients, coaching them to make solid financial decisions and guiding them as they work toward the financial future of their dreams. He is known for being a good listener and providing clarity and confidence as he helps business owners secure their retirement and live their best life. Jeff has a bachelor’s degree in Economics from the University of Richmond. When he’s not working, Jeff loves spending time with his wife, Caitlin, his two children, Paige and Colin, and his extended family. He enjoys golfing, traveling, playing the guitar, and seeing live music. To learn more about Jeff, connect with him on LinkedIn .

This post appeared first on www.fmfewealthmgt.com.

My Hard-Earned Lesson on Diversification

Fri, 24 Jul 2020 15:03:00 GMT

July 13, 2020

Before the dot-com bubble was a bubble, it was an exciting revolution. Entire industries were being disrupted and re-engineered to take advantage of the possibilities of Internet technology.

In the late 1990s, I co-founded a fast-growing e-commerce startup in Boston, a company eventually backed by more than $45 million in venture capital money.

The venture capital guys were the best and brightest, with huge bankrolls. Their faith – and big investment – in our vision only reinforced our great expectations.

When I saw venture capital pouring into another ecommerce business, eToys, I was intrigued. When eToys went public, I wanted in.

And I got in. I moved a lot of my IRA out of diversified mutual funds and dropped it into this one exciting – but unproven and unprofitable – company.

eToys’ potential was irresistible. I couldn’t talk myself out of it. Following the lead of the venture capital investors, I felt I was smarter than the market. I was sure the $60 per share I paid was a bargain. I knew little about the company’s acute cash flow problems, and didn’t really care.

I was convinced this was a stock headed for $300. Buying it didn’t feel like a gamble; it felt like a smart move for my future.

However, eToys stock didn’t go to $300. It went to zero. Forever.

One stock is never enough

Everybody wants to hit it rich on the next Apple, a stock that doubled in value. And doubled again. And again. And again. And a couple more times. Good luck with that.

It is possible to make an insane amount of money in the stock market if you find the one right stock at the right time. Apple went from a dollar a share to a hundred dollars a share in less than a decade. It’s possible.

It’s also possible to turn a lonely 10-dollar chip into a thousand dollars at a craps table at The Mirage in Las Vegas. And about as likely.

To hit a jackpot on a single stock, you not only have to be lucky in choosing the stock, you also need to be lucky about when you buy it. You have to see the greatness in the stock before everyone else does.

Apple made a big splash in the mid-1980s with the Macintosh, but it did not make big profits. Apple’s stock price stumbled along in the low single digits for 23 years before it finally started going up and up and up in 2004, around the release of iTunes.

It’s easy to see now why Apple became one of the world’s most valuable companies, but it wasn’t at all obvious in 2004. No one struck a giant gong back then to signal it was time to buy. In fact, there was no hint then that Apple would be so dominant in transforming the music business and later get into the phone business and completely transform that industry as well.

The iPad, App Store, Apple Watch – these were not even glimmers on the horizon in 2004.

Yes, buying Apple in 2004 was a great idea that would have made you a tremendous fortune. But few investors were lucky enough to pull it off.

Nonetheless, we can dream.

I was dreaming when I redirected my IRA from mutual funds composed of thousands of companies to the stock of a single ecommerce company.

Working in the exploding ecommerce field myself, I saw eToys as an easy way to double down on the opportunity. I felt like I was on a pretty obvious path to wealth.

Unless, of course, both companies failed.

Which they did.

In less than two years, both companies collapsed, hemorrhaging money too fast to recover. That left me out of work and my IRA empty. I had to borrow money to keep my family afloat.

I could calculate how much my IRA would be worth today if I had just left it in diversified mutual funds. I could, but I won’t, because the number would ruin an otherwise lovely day.

Having learned a tough lesson the hard way, I feel no need to be too subtle with the message here:

DIVERSIFYING IS THE SMARTEST AND EASIEST THING ANY INVESTOR CAN DO.

Spreading your money across many stocks takes the worst-case scenario – a complete and permanent loss – completely out of the picture. Any single company can go bankrupt, but a hundred companies in different industries and at different stages of maturity will never fail at the same time.

Diversification has been called the only free lunch in investing because it so dramatically reduces risk and can be accomplished so easily.

How important is diversification? Consider this research finding by Hendrik Bessembinder, a finance professor at Arizona State University, who studied all U.S. stocks over the past 90 years: Over the period 1926 to 2015, a mere 4 percent of stocks accounted for all of the net returns of the U.S. equity market . The other 96 percent delivered nothing or had negative returns.

The most common result for any single stock was a complete loss.

This is the reality of capitalism – many companies fail and a few generate exceptional returns. Unless you were lucky enough to pick those rare stocks with decades of high returns, your performance would be dismal. But if you owned all of the studied stocks, you would have turned a thousand dollars into millions.

Diversification is easy

Owning a few mutual funds hitches your wagon to hundreds of horses. Some of the horses will be stronger than others. A few may fail. But your fate will never rely on the heroic performance of any single horse to get you across the plains.

The advantages of diversification are well known. Still, I encounter many investors who keep far too much of their wealth in a single company’s stock.

In truth, it’s pretty easy to end up with too much of your net worth in one company. You may earn stock as compensation in your job, or receive stock as a gift or inheritance.

Getting stock from an employer or loved one can create an emotional attachment; selling the stock can feel like a betrayal. But no matter where the stock comes from, having too much in one company is a needless risk. If that one company goes the way of Enron , Lehman Brothers or eToys, your loyalty will quickly turn to regret.

Unfortunately, I had to live through my mistake with eToys to get diversification into my belief system. I learned this lesson loudly and clearly so you don’t need to . Make sure your portfolio is well diversified.

Discuss with your advisor

Do you have concentrated holdings in any individual stocks?

This post appeared first on www.fmfewealthmgt.com.

Why Financial Decisions are so Hard

Wed, 10 Jun 2020 18:41:00 GMT

June 10, 2020

Have you ever noticed how mentally tired you sometimes get at the supermarket? Do your eyes glaze over at the freezer full of ice cream choices? Do your home decorating projects take forever because you cannot decide what you want?

If you struggle with decisions, I am here to tell you it is not your fault. We are simply not wired very well for today’s world and the complex decisions we need to make.

Our brains have been evolving for about 7 million years, but we Homo sapiens have been around for only about 150,000 years. A 500-page book about brain evolution would devote only the last 11 pages to our big and powerful Homo sapiens brains.

Most of our gray matter evolution took place when we were hunter-gatherers, when our needs and desires were relatively simple and survival driven. We needed to find food, avoid becoming some predator’s food, stay warm and reproduce.

When our primitive selves saw a shadow in the grass, our brain told us to run and climb a tree. It was fast, intuitive, gut-level thinking. Seeking immediate safety was smarter than pondering whether it was a lion, a squirrel or a breeze moving the grass. We were wired to see patterns, think short-term and jump to conclusions.

This type of fast thinking is ingrained in our brain. It operates on autopilot. You have no sense of voluntary control over it. If someone asks you what 2 + 2 is, it comes to you automatically, without effort. You could answer the question if you were sitting in a quiet place or driving your car in rush-hour traffic during a downpour.

But what happens if someone asks you to solve 17 x 28?

You automatically slow down. You know you could get to the answer easily with pencil and paper, but to solve it in your head you would have to break it down into smaller problems and think about holding the numbers in your memory. You can almost feel your brain grinding.

This is not the kind of problem most of us could solve while driving in rainy, rush-hour traffic. If possible, we would postpone our effort on this until we had the time and attention to solve it. Better yet, we would try to get along without solving the problem at all.

Your two brains

This is our amazing two-system brain as described by Nobel Prize winner Daniel Kahneman in his book Thinking, Fast and Slow . It is fascinating and I recommend it.

He labeled the fast, feeling brain as System 1 and the analytical, logical brain as System 2.

System 1 is designed to jump to conclusions. (“It’s a lion! Run!”) System 2 is slower, deliberative, more logical, and analytical. (“We should build our hut near a source of water and the hunting grounds but not too close to where the elephants congregate at night.”)

System 1 does most of the day-to-day work, with System 2 normally in low-effort mode to conserve energy. System 1 makes suggestions to System 2 in the form of impressions, intuitions, intentions, and feelings. System 2 is sort of lazy, so it usually takes the suggestions of System 1 and things run smoothly. You trust your intuitions and emotions and act on them.

This is how our brains evolved. We are programmed to act on instinct and solve simple problems on the fly. When the problem is complicated or vague, or we have too many choices, we tend to get bogged down or fall back on what is familiar.

Instead of fully pondering the spectrum of ice cream choices, trying to juggle all the brands, flavors, prices, and calorie counts, we pick the one we had last time. If we can avoid a complex decision, we will.

We are wired primarily for System 1 thinking but live in an increasingly System 2 world.

We want shortcuts

How does our two-system brain deal with financial decision making? I think it is fair to say most people struggle with it. We avoid, ignore, and procrastinate. We look for ways to bypass decisions that require research, evaluation of alternate strategies or messy calculations.

Investors are often led to mistakes by their System 1 brains. System 1 is always ready to take over when System 2 lacks the time and energy to grind out an answer. This evolutionary bias plays out in several familiar ways.

We see patterns that may not be there

Pattern recognition helped our ancestors understand that there were seasons for planting and seasons for harvesting, that dark clouds meant rain and that a movement in the grass might be a lion.

We instinctively look for patterns in investing. Unfortunately, it’s easy to see a pattern that isn’t there. If stock prices go up three days in a row, it feels like a trend that will continue. If the industrial equipment sector does well in two consecutive summers, surely it is a smart buy for the third summer.

Pattern recognition causes investors to chase “hot” money managers or market sectors the way a gambler bets on “hot” dice. Other investors believe charts of market data hold patterns that can predict price movements even when there is no evidence this is true. The entire financial news business is built on forcing disparate events into cause-and-effect relationships. (“Stocks plummeted today on a rise in oil prices…”)

Investing technology allows us to track and parse security prices like never before. Fancy graphs with colorful lines trace minute-by-minute price movements. System 1 wants to see patterns in all of this and often does, leading to instinctive, not rational, investment choices.

We overvalue surprises

Thousands of years ago, it was very important for our brains to recognize things that were unusual. Perceiving and reacting to surprises – a predator in camp or a fast-rising river – helped keep us alive. System 1 saved us from danger.

We are wired to handle modern-day surprises in the same way but retreating from every event outside the norm ensures terrible investment results. If you got out of the stock market every time the market fell unexpectedly or a terrorist event occurred or a major political crisis unfolded, you’d be out of the market more than in it, and you wouldn’t participate in the long-term benefits of capitalism.

System 1 lives moment by moment. It’s not looking 30 years ahead to retirement. We must force System 2 to get involved in longer-term investing decisions.

We trust our emotions

Making investment decisions would not be so difficult and intimidating if we had perfect information and a clear picture of what the future holds. But we have neither. When System 1 does not have all the facts, it fills in the holes with emotions.

Investing can be very emotional. Especially in times of uncertainty, financial decisions can be derailed by fear, greed, panic, and impatience. Even a positive emotion like confidence can lead to some poor choices.

I would be the last person to advocate a life without emotions , but in making long-term investing decisions it is important to understand how strongly emotions can push us further and further away from the System 2 rationality we need.

A defense against System 1

An Investment Policy Statement (IPS) is a written document that acts as a guide for what you want your money to do for you and those you love.

You can think of the IPS as a sort of rule book or operating manual for your investments. It is based on your unique set of hopes, dreams, goals, and fears. The policy statement needs to be in writing and should be signed by you and your advisor. It should include your target asset allocation (mix between stocks and bonds), and it should be updated on a periodic basis as your life evolves.

When your System 1 brain wants to respond to patterns, surprises and emotions, the IPS is the rational, rules-based guidepost that reminds you of what you are trying to do and the plan you have committed to. The IPS is developed with the kind of methodical System 2 thinking you need when System 1 is doing everything it can to control your behavior.

I do not think it is realistic to believe we can automatically become disciplined, non-emotional investors by simply writing a policy statement, but we have to start somewhere. An IPS might mollify your temperament and help you stick to your plan when emotions take over in good markets (greed and envy) and bad markets (fear and panic).

As Daniel Kahneman once said,

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The Transition from Retirement Saving to Retirement Spending

Thu, 28 May 2020 15:27:00 GMT

May 28, 2020

According to the magazine Scientific American , more people die coming down Mt. Everest than going up. Apparently, this is true in climbing in general. On the way up, intent on reaching the goal, climbers are focused and energized. On the way down, physically spent and less motivated, they are more prone to mistakes and accidents.

I see a direct parallel here with financial planning. The entire planning industry is based on saving and investing to build a nest egg for retirement – the climb up the mountain. There is very little focus on what happens once you reach that goal. How you adjust your investments and spend your money – the safe trip down the mountain – gets little attention.

The transition from accumulating wealth to spending wealth can be a difficult one. It requires a different mindset and demands that investments play a new role. Because it is new and unfamiliar territory, I feel investors may need at least as much guidance from a wealth advisor in the spend-down phase as during the accumulation period.

Part of the challenge is that once you reach retirement, it is generally not feasible to go back. If you find, for instance, that after 15 years of retirement you are depleting your assets too quickly, it is unlikely you can un-retire and replenish your nest egg.

The spend-down phase would be much simpler if you had a foolproof crystal ball.

For instance, if you knew you would live to exactly 85, your spouse would live to exactly 88, you would spend $100,000 a year, inflation would remain constant at 2 percent, your diversified portfolio would return 7 percent every year, you’d never need expensive 24/7 care, and so on, you could easily run the numbers and validate your spend-down plan.

Of course, real life is nothing like that. Life is unpredictable, especially in one’s later years.

Spend-down planning must recognize the uncertainties of retirement while using available tools and techniques to maximize your opportunity to live with dignity and independence and to leave the legacy you envision.

Here are some topics to discuss with your wealth advisor as you prepare for and execute your spend-down plan:

Plan optimistically for life expectancy

No matter how sophisticated medical science becomes, it is impossible to know whether a healthy person will remain healthy to age 95 or encounter life-threatening medical issues at 65. According to data from the Social Security Administration , a woman turning 65 today can expect to live to almost 87 (84 for men). An upper-middle-class couple age 65 today has a 43 percent chance that one or both will survive to at least age 95, according to the Society of Actuaries. It is best to plan for a long life, well longer than average. This, of course, means a longer spend-down period.

Be realistic about spending

After a lifetime of being thrifty and saving for retirement, many people find it difficult to start spending for retirement. Some investors want to spend investment income only, not principal, which can lead them to buy high-yield, potentially high-risk investments. A comprehensive long-term cash flow analysis can help you get your arms around what is an appropriate level of spending.

Count on inflation

Although inflation rates have been modest over the past decade, the drain of rising prices over long periods is very significant. Historically, the rise in the Consumer Price Index has averaged about 3 percent. That rate of increase would mean your spending would double in 24 years, the length of retirement for many people. All planning should reflect realistic inflation levels.

Be strategic with Social Security timing

You and your spouse have choices about when you begin taking your Social Security benefits. In general, the longer you wait, the greater your monthly benefit will be. The rules on spousal benefits are complicated; the timing you choose can have a big effect on your benefit amount. It is worth the time to research the topic or discuss it with your advisor.

If you want to learn more about Social Security planning, check out this blog post on Understanding Social Security Benefits .

Control investment costs

Pay close attention to the fees mutual fund managers charge. The net expense ratio states the percentage of fund assets paid for operating expenses and management fees. Actively managed funds often charge fees of more than 1 percent. Passively managed funds usually charge much less. These small, consistent savings compound into a big difference over the remainder of your lifetime.

Manage taxes

The most important investment performance measure is your after-tax return – not what you earn but what you keep after taxes. That is what you can spend, save for the future, or give away.

What many investors forget is, within some limits, you can control what you pay in taxes. Here are two examples of techniques any investor can use to reduce the bite of taxes.

First is tax loss harvesting. This process does what it says: It harvests losses in securities that have declined in value to offset gains in other investments. So, if you sell some holdings at a profit, you could sell others at loss. The loss nets out some or all the gain, reducing the tax due.

The second technique is asset location. This means putting the right kind of assets in the right kind of accounts. Because of the differing treatment of capital gains and interest income, you can reduce your taxes by holding stocks in ordinary investment accounts and bonds in tax-deferred accounts.

Holding stocks in taxable accounts, not tax-deferred accounts, also helps position your family for a tax-free step-up in cost basis upon the death of the accountholder.

Think multigenerational

There are many ways to transfer wealth to future generations and to philanthropic causes. Depending on your personal circumstances, it may be beneficial to begin that transfer well before you die. Doing so will mean the beneficiary has access to the funds sooner, and the bite of taxes may be reduced as well.

In the end, your money can go only four places: your own spending, your heirs, charity, or the government. Smart planning can make sure more of it goes where you want.

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