Jose (V) Sanchez, CFP®
Jose (V) Sanchez, CFP®
Since 2004, Jose Sanchez, CFP® , has been helping individuals plan for retirement. After being recruited by a major financial services company during his graduate work the University of New Mexico, Jose quickly learned the ins and outs of Wall Street and the insurance industry. Unimpressed with the industry's standard of not always serving the client's best interests, Jose resigned from his position. Disenchanted and searching for a better way to make an impact, he implemented the Kaizen methodology to his professional life. His goal was simple: he wanted to make an impact on his community by sharing smarter strategies for managing and protecting wealth to those who have worked hard and value their money, so that they, too, can experience less stress and focus on those issues that mean most to them.
Ever since then, his firm has worked tirelessly to realize this goal. Jose feels that every day he is entrusted with taking care of those who have worked hard for their money and providing them with a more enjoyable life through smarter investment solutions. Jose has a three-pronged plan for working with potential clients:
- First, he clarifies his fee structure and explains the different ways he can help.
- Then, he analyzes your goals and compares them to your current portfolios
- Finally, he recommends a values-based strategy designed to meet your risk tolerance, even if you do not become a client.
As a Jose is a Certified Financial Planner™ Practitioner, Jose is happy to answer questions and help with investing, taxes, retirement, and/or estate planning.
Outside of his work, Jose believes in doing good. He has volunteered with Albuquerque Reads, the NM Veterans Integration Center, and HRMA/SHRM, as well as other education bases programs. He also enjoys spending time with his wife, Jasmin, and their three children.
Jose V. Sanchez, CFP®
CERTIFICATION AND BACKGROUND:
Investment Advisory Services offered through Retirement Wealth Advisors Inc. (RWA) a Registered Investment Advisor. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision.
This information is designed to provide general information on the subjects covered, it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that RWA and its affiliates do not give legal or tax advice. You are encouraged to consult your tax advisor or attorney.
Annuity guarantees rely on the financial strength and claims-paying ability of the issuing insurer. Any comments regarding safe and secure investments, and guaranteed income streams refer only to fixed insurance products. They do not refer, in any way to securities or investment advisory products. Fixed Insurance and Annuity product guarantees are subject to the claims‐paying ability of the issuing company and are not offered by Retirement Wealth Advisors Inc.
Congratulations on your Retirement and thank you for serving through Education.
While there is good reason to move your 403(b) to an IRA, I would use caution in moving ALL of it to an annuity company. There are several types of Annuities and several more annuity companies. All come with different bells and whistles. I am in favor of moving your money away from the 403(b). I am not yet sold on the idea of moving it to an annuity company.
Lets dig deeper.
Most annuities are like a Swiss Army knife, they do many different things. Unfortunately, many don't do anything one thing very well. Moreover, Insurance "Fat Cats" make a big commission and often push the product that best benefits their pockets with little to no regards to your solution. Lets focus on your solution...
Define Your monies "Clarity of Purpose"
Ask your self, what is the money for?
In choosing what to do with your money I suggest defining a clarity of purpose of your money. Most people who ask "should I convert my 403b account to a traditional IRA" are often looking for clarity on income planning or solving for the income gap.
Ask your self, "what am I solving for?" It is likely one of the three.
- Solving for the Income Gap
- Solving for Growth
- Solving for Legacy
If you are solving for the income gap, you can use the best annuities or fixed income solutions out there that give you the most income with the lowest amount of money to guarantee your income need. You may find that the best income annuities may have no fees, or reasonable fees that make the benefit worth while. Some annuities pay no commission and are a Flat Fee of $250 annually regardless of your balance.
How To Best Solve for the Income Gap
Define your Annual Income Goal (AIG):
Subtract your Guaranteed Annual Income (GAI)
(i.e. Social Security, Government Pension, other income):
The formula looks like this: AIG - GAI = Retirement Income Gap
for example, you need $100,000 in retirement and your Guaranteed Annual income is $75,000...
$100,000 - $75,000 = a Gap of $25,000
You are solving for an income solution of $25,000 and are best to do this with the least amount of your retirement money.
With love and regards,
Jose Sanchez, CFP®
Great two part question. While they are related, I will address them separately to best answer your question.
The reason a bond will lose market value in a rising interest rate environment can be address with ease in just a few words. You can buy a better bond.
- As interest rates rise, newly issued bonds will be better than those sold at a lower interest rate.
- The reason the older bond loses value is because it has to be sold at a lower price in order to be equally attractive to the newer bond.
- Visually, this is much like a teeter toter. As interest rates rise, the value of bonds (in the market) go down.
When we are in a decreasing interest rate environment bond prices will go up. In this environment, investors will be willing to purchase your old bond because it is a higher paying bond than what is currently being issued.
You can also look at this as a supply and demand example. There is less demand for a lower paying bond. Moreover, bond holders would have to discount the cost in order to get it off the shelf. In order to equalize the value of a lower paying bond, the supply of these older paying bond would only be marketable at a lower price.
Now lets address the second part of your question. How do advancing market conditions effect bonds. When the equities markets advance (stock market), this likely produces or is correlated with positive consumer confidence. It may be that a combination of advancing market conditions and positive consumer confidence can support fiscal policy and government interest rate increases.
Visually, the best example i can give is a teeter toter in the ocean. The teeter toter is up on the interest rate side and pushing down old bond values. In addition, the rising ocean wave gives more attention to the rising interest rate side and then to newer bonds. The tailing end is less attractive and has very little attention unless they are sold at your favorite discount store.
Hello My Friend! Sorry for the loss of your souse and good job moving forward.
Lets dig into your 401k plan and Roth IRA contributions as possible options.
Many 401k programs allow you to access your money through a 401k Loan. This is plan specific so check with your human resource manager to find out if you have this as an option. If confirmed, also look into the following:
- Loan interest rate
- Options for paying it back
- Total allowable outstanding loan balance
- What other fees are attached to a 401k Loan
I think what you will find is that you will have an attractive interest rate below in the rage of 4-9% for borrowing your money. In addition you will find that you will be able to pay it back over a 5 year schedule and there is no penalty for paying it back early. Lastly, I suggest you only take what you need but know that you are likely able to access half of your 401k balance or a max of $50,000. If the actual cost runs greater than your $12,000 estimate for your home improvement, you may need to access more funds.
401(k) loans have been demonized, but they're often the most beneficial source of cash.
Next, you should compare taking out your contributions only of your Roth IRA. If you can take out your contributions you will owe no tax and no penalty should be charged. Per the IRA Publication 590:
- You don't include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s).
"Distributions that are a return of your regular contributions" are not included in gross income and therefor not taxed. If this amount satisfies your $12,000 need, this may be an option for you to consider.
Lastly, Here are my assumptions. I find that your tax bracket is firmly in the 22% area ($38,701 - $82,500). Any additional income will not push you up into a higher tax, up to the $82,500 threshold. While you could look at a bank loan, you specifically are looking at options within your retirement accounts.
With love and regards,
Jose Sanchez, CFP®
Good Job on keeping your current expenses low and saving half of what you make!
Looking at your portfolio I see that you have the following:
- $5,000 in Stocks
- $7,600 in Mutual Funds,
- $7,400 in Cash
You might have 63% or $12,600 at risk in the market with good potential to grow for the long term. To really understand and review this, we need to know more about the Mutual fund and the risk associated with it. For now, I am going to view it as an S & P 500 Index fund
Now I am going to make some assumptions:
- You have 2 years till grad school.
- as I believe you will have 2 more years of your current savings before you graduate (you did not tell us your education status) but lets just say you just finished your 2nd of 4 years in your undergraduate education. I am guessing this because of your savings of approximately $10,000 per year.
- You will save 100% of the $10,000 in a low risk liquid account (online savings account or Money Market paying about 1.5%)
- your expenses will remain the same till graduation
In two years you will have over $25,000 in liquid cash, and growth or loss of your at risk portfolio. Without going into too much math or details, lets say that the best case for the growth is 25% and the worst case is 50% loss. Your total savings might look something like this
- Best case: $40,750
- $40,750 = $25,000 + $12,600 + $3,150 (Cash saved plus principal plus 25% growth)
- Worst case: $31,300
- $31,300 = $25,000 + $12,600 - $6,300 (Cash saved plus Principal minus 50% loss)
These are not exact numbers or based on any formula. Rather, I want you to look at these numbers and ask yourself... How does this feel in both good and bad markets? And is it worth the risk?
Next you will have some choices to make when it comes to education, Graduate school costs can range greatly and can be more expensive or cheeper than a New Car/Truck.
With Plus $30,000 you might be able to do both with a purchase of a good quality used car (I love my Honda fit) and with a scholarship. My concern then might be more on what the cost for housing and meal expenses. It is a blessing that you have all that payed in your undergraduate program. It is normally not the case in graduate school.
I wish you the best and keep working your frugality muscles!
With love and regards,
Jose Sanchez, CFP®
Hello Friend! Good for you for keeping your debt expenses low.
I am a bit late to chime in so I will address your Qs thinking that you have received solid answers regarding investing for retirement. Rather, I will offer some ideas to improve what you have done and support your DYI self financial wellness review.
I like your idea of increasing your contributions by 1 percent ever year.
- For those that are serious about making the right moves and saving for retirement, your goal should be above 20% savings or more. To help you get there, I suggest that any raises you earn, put half of that in your pocket. Spend it, enjoy it! The other half, I would strongly consider increasing your retirement savings.
How is your emergency savings account?
- I would like for you to have more than 3 months of expenses up to 6 months. Make sure there is enough so you sleep well at night knowing that when the next emergency savings comes about, you have a good solution. Having this also reduces the drama that can come with financial stress. Emergency savings and little to no debt is a good recipe for a long happy marriage.
Next item is Life Insurance.
- Make sure that you and your spouse have enough life insurance in place. It is best to purchase large amounts of low cost (term) insurance. Having about 5 to 10 times your annual income is an easy way estimate your need. There are more detailed ways to be more exact. Investopida has a good article on life insurance "needs analysis" here.
- Additionally, your employer might offer life insurance as a benefit. Pick up any insuance that is free. It is also good to have your own for both you and your spouse. Having your own nice because it is portable, if you leave your work you will still have a solid plan. When available, I find that most employers offer low cost insurance for kids. If nothing is offered, your term policy should offer a low cost child rider for about $5 per month for $10,000 of life insurance (death benefit).
Lastly, I like the 457 plan better than the 401k plan from a early retirement perspective.
- A 457 plan allows you to take a distribution without a 10% penalty. Your 401k and IRAs impose a 10% penalty for withdrawals before age 59 1/2. Here is an link to this IRS quote below:
Non-qualified 457(b) plans: Governmental 457(b) distributions are not subject to the 10% additional tax except for distributions attributable to rollovers from another type of plan or IRA.
Good luck and thank you for submitting your questions.
With love and regards,
Jose Sanchez, CFP®