How Our Wealth Managers Helped One New Client

NWIC_logo 4Here at Northwest, each new client brings their own unique financial situation. We wanted to share one in particular, and demonstrate how we are helping this client simplify his financial life, reduce risk, and reduce costs: Let’s call this client Joe.  You may find some or all of these issues familiar. If so, we encourage you to contact one of our Wealth Managers for a review of your portfolio.

When Joe came to us he had four IRA’s, managed by two different managers, who invested primarily in high cost mutual funds.  It’s one thing for a do-it-yourself investor to utilize active mutual funds, but we take issue with a financial adviser who charges fees to allocate (and trade) your assets in high-cost mutual funds. The other leverage Joe gives up with multiple IRA’s at different managers is the ability to reach break points with an adviser by combining IRA’s. The chart displays Joe’s current allocation.  The weighted average fee for the investments in his account was 0.77%.  In addition to the internal mutual fund fees, Joe has been paying around 2.00% to his investment advisers according to the current allocationstandard fee schedule provided by his advisers’ SEC filings. By properly reallocating Joe’s portfolios towards individual stocks and bonds (as well as some low-cost Exchange Traded Funds) we should be able to cut Joe’s fees by more than half.  Moral?  It pays to shop around.

After reviewing Joe’s financial situation, a face-to-face meeting, and a risk tolerance survey, we think Joe’s overall allocation is inappropriate and that his tolerance is somewhere between conservative and moderate. Joe’s current portfolio allocation (see chart) is too risky for his situation as made evident by the non-diversified real estate portion (one REIT holding) and sizeable investment in junk (high yield) bonds.  Moral? Monitor your allocation and risk level even if your portfolio is being managed by an investment adviser.

In the end, we will combine Joe’s accounts where possible, reduce his fees, and make an allocation more appropriate for his situation.

 

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The information contained in this site is for general guidance on matters of interest only. The application and impact of laws can vary widely based on the specific facts involved. Given the changing nature of laws, rules and regulations, and the inherent hazards of electronic communication, there may be delays, omissions or inaccuracies in information contained in this site. Accordingly, the information on this site is provided with the understanding that the authors and publishers are not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers.

 

We Made the Grade!

We made the 2014 Portland Business Journal list of Fastest-Growing Private Companies.  Thank you clients and partners for the trust you have placed in Northwest to manage your wealth.  Thank you employees for the hard, and smart, work that made this possible.  PDX bus journalWe look forward to continued growth and moving up the list.

Q&A: How Might I Optimize Social Security Benefits for My Wife and Me?

NWIC_logo 4QUESTION:  I heard some advice while playing golf with friends, but I really don’t have an understanding of what might be best for us to do regarding Social Security. Specifically,

  1. If my wife were to begin collecting her Social Security retirement benefits at age 62, would I collect half of her amount as well; I am 64? Regardless, wouldn’t it make sense for my wife to begin collecting Social Security at 62 anyway, because once I begin collecting my Social Security, the one-half spousal amount that my wife would receive from mine would be more than the relatively small amount she would receive from her past earnings?

  2. If my wife were to begin collecting her Social Security at age 62 but when I begin collecting for my Social Security benefits at age 66 or later, at that point can she then receive half of my amount?

 

ANSWER:  These are excellent questions. We will tell you, however, waiting until FRA (full retirement age) for both will lead to the maximum benefit. Unfortunately, once you claim benefits before FRA you are locked into a lower percentage for claiming purposes. In other words, if your wife starts to collect her benefit at 62 she will only get  approximately 75% of her benefit (the calculation is based on when you claim and when you are considered full retirement and then you multiply the amount of months you take it early by a percentage!) and then when she switches to yours she will only get approximately 35% of your full benefit not 50%. “Each person’s payment is computed based on that person’s age when that person’s payment begins, regardless of the other spouse’s age or payment.”

Here’s where it gets tricky because if your benefit at 64 is greater than your portion of your spouse’s benefit at 62, you would have to claim your benefit. Social Security always looks at what your greatest benefit would be and thus it creates a permanent reduction in benefits. Furthermore, if you continue to work then for every $2 you make above $15,480 for 2014 your benefits are reduced by $1.

There are several strategies couples can use to maximize their total benefits if they wait until at least one reaches FRA. Contact us if you would like us to run some strategies for you.  Also, the longer you wait to receive benefits the higher the survivor benefit would be for your wife. Regardless of when she starts collecting she would be entitled to 100% of what you were receiving including delayed retirement credits if you waited past 66. Bottom line, the magic age in all of this is full retirement age or in both of your cases 66.

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The information contained in this site is for general guidance on matters of interest only. The application and impact of laws can vary widely based on the specific facts involved. Given the changing nature of laws, rules and regulations, and the inherent hazards of electronic communication, there may be delays, omissions or inaccuracies in information contained in this site. Accordingly, the information on this site is provided with the understanding that the authors and publishers are not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers.

Mark Your Calendars for These Upcoming Northwest Events

We have some great, fun events scheduled for the summer and hope you can join us at one of these.  Please contact your Wealth Manager at Northwest if you want to attend one or you want more information.  We kick off summer with the Lake Oswego Sounds of Summer Concert (7-9pm) on Wednesday, July 23rd at Foothills Park on the Willamette (weather forecast sunny and warm).  We will be a sponsor and have a limited number of choice seats for Paperback Writer (a Beatles tribute band).  Who doesn’t want to re-live the 1960’s? Click the link for more info:

http://www.ci.oswego.or.us/parksrec/sounds-summer-concerts

paperbackwriter

Next we will be a sponsor of the Lake Oswego Moonlight & Music Sunday, August 10th at Millennium Park (6-7:30 pm).  We will be a sponsor of the Aaron Meyer concert (seeing a rock violinist should be on everyone’s bucket list).  Click below for more details or contact us:

http://www.ci.oswego.or.us/parksrec/aaron-meyer-august-10-2014

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We hope you can join us for one of these fun, informal events.  Please contact your Northwest Wealth Manager soon as space is limited.

Best Withdrawal Strategy in Retirement

According to a recent poll by the Investment Company Institute, as many as one third of all investors find themselves with multiple accounts from which to draw upon in retirement (e.g., taxable, IRA, Roth IRA, etc.).  This is good news if you are in that situation, but we are often asked what the best order is to withdraw funds from these accounts to meet one’s retirement budget.  Too often, investors overly focus on generating and spending only income at the expense of a more systematic and valuable plan in retirement.

To be sure, tax efficient use of those multiple accounts in retirement can be nearly as valuable as tax efficient investment management in the accumulation phase.  For instance, one Registered Investment Advisor (RIA) estimated that tax efficient asset allocation and tax-loss harvesting can add anywhere from 1.00% to 1.62% annually to your after-tax returns in your accumulation phase.1  Vanguard estimates that an optimal spending strategy (i.e., withdrawal order) can add up to 0.70% annually relative to an haphazard approach.2

It is still important to keep close tabs on your overall asset allocation while making the withdrawals so that your risk level doesn’t deviate from plan.  Too, as part of this strategy, delaying taking Social Security as long as possible will generally be a benefit.  For every year Social Security is delayed after reaching the full retirement age, your benefits increase by 8% of your full retirement age benefit.  Delaying Social Security will also maximize the benefit to which the surviving spouse is entitled.

It makes sense every year to review your investment portfolio, your expected marginal tax rate, and your withdrawal strategy for the upcoming year.  It may also make sense to simplify your life by paring down the number of accounts and the custodians you use by combining like accounts or using a RIA that can combine your various accounts for tracking purposes.

Below is a general diagram to help you if you have this question and, of course, you can always contact one of Northwest’s Wealth Managers if you have a specific question.

Figure 1: Optimal Withdrawal Strategy

Optimal Withdrawal Strategy

 

 

 

 

 

 

 

 

  1. Study by Wealthfront, Inc.
  2. Vanguard, “Putting a value on your value: Quantifying Vanguard Advisor’s Alpha,” March 2014.