White Oaks Investment Management, Inc
CEO & Chief Investment Officer
Robert Klosterman, CFP® is CEO and Chief Investment Officer of White Oaks Investment Management, Inc. and its predecessor R.J. Klosterman & Co, Inc. Bob has been a Certified Financial Planner licensee since 1989. He has a clear vision for the future having worked in financial planning and investment management since 1975, and feels a strong need to provide people with expert investment management services. As a Certified Financial Planner and certificate holder for Family Wealth Advising, Bob’s expertise and guidance have helped to fuel the steady growth of the firm.
Bob’s leadership within the firm’s Advisory Committee regularly encourages fresh thinking and new approaches that provide clients with innovative wealth management solutions in the areas of economic and investment market analysis, stock option strategies and wealth transfer techniques.
Bob has been listed as one of the Top 250 Financial Advisors in the United States by Worth Magazine. He has also been recognized as one of the top 150 Financial Advisors by Mutual Fund Magazine, Medical Economics and Bloomberg’s Wealth Manager Magazine. Bob’s published quotes appear frequently in dozens of local and national publications, including USA Today, the New York Times, Minneapolis Star Tribune, CFP Today, Barron’s and Fortune.
Bob and his wife have lived in the Twin Cities since 1971 and have three children. Bob’s hobbies include reading, walking, bicycling and sailing.
Assets Under Management:
We have certainly come a long way from the days where the discussion was about "peak oil" and how many years until we run out of the resource. A lot of things have changed! New technology in extraction have, in effect, discovered much more supply of the resource than previously thought. The world now is awash in oil. It wasn't too long ago and the United States was importing the majority of the oil required. Not today!
Add in the alternative energy sources of wind and solar the prospect for oil is very different. Yet, it will take some time for the alternative sources of energy to gain widespread acceptance and the market for oil continues. Considering the supply that is available today, it is hard to see how the price will get back to triple digits in the foreseeable future. Many experts believe that the trading range for oil is now $40 to $60 a barrel. Looking for more than that may be the proverbial "hope over reality" scenario.
Having a pension is a terrific tool for retirement and you are fortunate to have one for each of you! Let's start with recognizing that you will lose income if one of you passes on early in your retirement. In that case, the survivor will receive $1,500 a month less post death. Now, if that is not an issue, so be it. Yet for many, it would cause a significant change in lifestyle.
A technique that was used frequently in the past, was to take the non-survivorship option and use the difference to purchase life insurance to provide enough capital to invest and provide income to make up the survivor benefit. In other words, use the $160 a month difference to buy enough life insurance to provide the $1,340 a month. $1,340 a month is $17,420 per year. Let's assume you can earn 4% consistently on capital. That would mean you would need enough life insurance to have a $435,000 benefit. So if you can buy $435,000 of life insurance (level premium) for $160 per month you could maintain the income. Another option is an immediate annuity which may bring the amount of life insurance coverage down some.
Years ago the difference between Life Only and Survivorship options was 25-30%. With new actuarial tables, the dynamics have shifted more and Survivorship options look much more attractive and this is likely true in your case.
A great question, particularly in light of our current environment of interest rates likely rising instead of falling. You did not mention the interest rate on your mortgage. You also posed the possibility of paying it all off at once which suggests you may have the money to pay it off now.
A key factor for me is what the interest rate is and what you can earn on other investments. For example, I believe that a broadly diversified portfolio of equities, bonds, and cash can earn 5-6% per year. If the mortgage interest rate is lower than that, and it could be based on the time and the term of the mortgage you described, paying the mortgage off early may not be the best solution. You can improve your finances more effectively by investing than paying the mortgage down.
Back to your question. If you are committed to paying the mortgage off and have the funds and don't feel other investment opportunities could be more attractive, then, by all means, pay it off. If the funds are not in hand, making pre-payments can dramatically reduce the amount of interest paid ad earlier payments on the mortgage will have the most impact.
Robo-advisors have come onto the scene and have gained some level of traction, particularly, with younger investors. Most are low cost and provide a model portfolio based on how an investor answers a few questions in an attempt to ascertain the investor's tolerance for risk. Over time the technology will evolve, yet, it is not clear what direction this will take. In your question, you remarked about being "bombarded" with ads for Robo-advisory services. Of course, this costs money and the early reports are that the "cost of acquisition" for new clients to the Robo-advisory system are quite high. Only time will tell if they can obtain enough scale to justify these high costs.
What can an in-person or human advisor offer? Great advisors know what questions to ask and can take your personal situation into account in their recommendations. Most Robo-advisor platforms ask a handful of questions. In my personal experience, the nuances of a client's personal financial situation and their own life history and experiences can have a huge impact in making the "best recommendation. The other factor is when a client becomes nervous about the current market, economic, or geopolitical events, an advisor can be a vital resource in taking the appropriate action.
Here are tow other resources that may be helpful in evaluating the differences.
Paying off debt is emotionally satisfying and a good strategy for the long term. Yet, opportunity costs should be considered as part of the deliberation. For example, for the sale of discussion, assume you have a mortgage at a 3% interest rate, and have the opportunity to invest at 6% interest. If you can earn 6% and are paying 3% you are effectively making 3% on the borrowed money. In other words, if you can earn more on the investment than the cost of the borrowed money, financially you would be better off investing.
Of course, the dynamic could be reversed and the cost of the mortgage is more than the investment opportunities may earn. Then, paying off the mortgage makes total sense. Note that there has been no discussion of the deductibility of the mortgage interest or if the investment return is taxed at ordinary income or capital gains rates. While these may bring some more advantages than the simple analysis above, it is not likely it will move the needle as to what the decision should be.