Financial Planning Hawaii
FINANCIAL PLANNING HAWAII
At Financial Planning Hawaii, J.R. provides comprehensive financial planning and investment management guidance to individual investors, including small business owners, working professionals, and retirees. His approach places equal emphasis on the important investment and non-investment aspects of financial planning.
His value proposition involves helping people manage their finances more efficiently and catching/correcting potentially costly planning mistakes. To facilitate this, J.R. provides each client with a platform that enables them to centralize, organize, monitor and maintain all aspects of their financial lives.
Compensation structure includes flat fee planning, asset-based management fees, and/or traditional transaction-based charges. Frequent communication, up front disclosure, objectivity, and transparency are the hallmarks of his practice.
See Also – Financial Planning Hawaii YouTube Channel
NEST EGG GURU
J.R. is also a co-founder of Nest Egg Guru, a web-based application for helping financial advisors evaluate their clients' college and retirement planning preparedness. The application is 100% client-facing and has a user-friendly design that makes it easy to test how changing factors that are within one’s control may impact the planning outcomes.
Nest Egg Guru features a powerful simulation engine, critical functionality that is not offered in competing applications, and a low annual subscription price for a private labeled advisor portal. The application was recently featured in Financial Planning Magazine and AdvisoryQuest.
See Also: Nest Egg Guru YouTube Channel
QUALIFICATIONS AND EXPERIENCE
J.R. has published numerous papers in peer-reviewed academic journals including Journal of Financial Planning, Journal of Wealth Management, Financial Services Review, and Retirement Management Journal. Papers he co-authored on retirement income sustainability won the Certified Financial Planner Board of Standards® and International Foundation for Retirement Education (InFRE) best paper awards.
Articles he has written on a wide range of financial planning topics have been published by Investopedia, MSN, The Christian Science Monitor, Nasdaq.com, Advisor Perspectives, Thought Catalog, etc. His commentary has also been featured in The Wall Street Journal, Chicago Tribune, Financial Planning Magazine, and many other publications.
J.R. is recognized as one of the top financial professionals in Hawaii. He has been a financial advisor since 1989. He holds a B.A. in economics from Williams College.
BA, Economics, Williams College
Assets Under Management:
Financial planning services are provided through Financial Planning Hawaii, Inc, a Registered Investment Advisory firm. Investment brokerage services and wrap fee investment advisory platforms are provided through J.W. Cole Financial Inc. and J.W. Cole Advisors, Inc., a dual-registered broker-dealer and registered investment advisor. National Financial Services, LLC [NFS], a Fidelity Investments© company, serves as custodian for client assets and provides clearing and trade execution for client accounts. Financial Planning Hawaii is a separate company from J.W. Cole and NFS. Financial Planning Hawaii does not take custody of client assets nor do its advisers accept discretionary authority over client accounts.
Hello. Without knowing important details such as your age, marital status, sources of income, income need from portfolio, investment history, etc., it is difficult to give specific, meaningful suggestions. However, the following pieces of advice may be helpful.
- Investment Income is hard to come by. 20 years ago, the retirement planning model centered around building a portfolio of income producing bonds for income with a portion of the portfolio allocated to stocks for future growth and later conversion to more bonds. Today interest rates remain near historic lows. Cash pays close to nothing. Classic retiree income producing staples such as CDs, municipal bonds, and treasuries pay only nominally more. What’s more historically safe bond funds have little room to appreciate from falling interest rates and may now face principle risk if interest rates do eventually creep up.
- In response to the low rate environment many investor have been turning to higher yielding stocks for income. While this can be an effective strategy, particularly if the stock dividends increase over time, investors who head down this path must accept the greater volatility that comes with the turf. For more on this, see the following links.
On the Hunt for Rising Dividends (Bloomberg)
The Biggest Dividends Aren’t Necessarily the Best (NY Times)
Stocks That Pay Rising Dividends (Kiplinger’s)
Not enough income to retire? Dividends can help (USA Today)
- The two greatest risks to your retirement security are sequence of returns risk and longevity risk. Sequence of returns risk is the risk of sharp market returns early in retirement. This is undoubtedly the fear expressed in your question. Fortunately, there are two solutions to this problem – (1) Don’t put all of your retirement savings in stocks, and (2) Don’t sell stocks when they are down. For more on this, see the following article I wrote for Investopedia last week:
How to Make Your Nest Egg Last Longer? Don’t Sell Stocks When They are Down! (Investopedia)
- By keeping all of your rollover money in cash, you are effectively engaging in market timing. What you are saying is that you are pretty sure the stock market is going to decline sharply, and that you are going to wait for a time when it is safer to invest. Unfortunately, this is a fool’s gambit. There is a mountain of research to suggest that this approach hinders investor returns. Having been a financial advisor for almost 30 years, I can tell you, there is NEVER a time when the market direction is clear. As an example, when the stock market hit its nadir in March 2009, most investors thought it was headed far lower. Many investors did not feel comfortable coming back into the market until it had risen 30% or more from that low. See also:
Don't Make the Trading Gods Laugh (Bloomberg)
Why Market-Timers Go Nuts (Advisor Perspectives)
You are your portfolio’s worst enemy (MarketWatch)
- Use dollar cost averaging to reduce the possibility of “Buyer’s Remorse.” While some researchers have suggested that dollar cost averaging does not help and may slightly hinder long term performance, there is little debate over its value as a psychological tool for helping investors cope with market volatility. If you believe that you need to have diversified stock market exposure to help your portfolio keep pace with the cost of living over a potential decades long retirement horizon, one way to address your fear of market conditions may be to wade back into the water slowly over time. Under this approach you may actually adopt the mind set of hoping for near term market declines so that you may have an opportunity to “buy low”.
- What you may have been taught about retirement spending is wrong. Many retirees have been lead to believe that their retirement portfolios should become more conservative over time and that they should spend down the riskier stock portion of their portfolios first or, at the very least, spend proportionately from each asset class and re-balance each year. A grown body of research now suggests that such an approach actually hinders sustainability and provides greater exposure to sequence of returns risk. Conversely, a strategy of either spending down the cash an bond portion of the portfolio first or a more dynamic approach that involves certain “guardrails,” such as not selling stocks when they are down, may significantly enhance portfolio longevity. This concept is explored in greater detail in the following article from my blog –
The Most Underrated Factor in Retirement Income Sustainability
- Asset allocation is also a key to successful retirement income planning. If you have enough of your portfolio allocated to investments that are not exposed to market risk, you may be able to withdraw from your portfolio for many years without having to worry about market fluctuations. Many planners suggest an initial retirement allocation of 70:30 to 60:40 Stocks:Bonds/cash, but individual circumstances may make alternative allocations appropriate too.
I hope these general tips are helpful. If you would like to test how different factors that you can control (i.e., asset allocation, withdrawal amount, investment expenses, withdrawal strategy,etc.) may impact your portfolio’s sustainability, you may wish to check out the free consumer version of Nest Egg Guru’s Retirement Spending Calculator.
Best wishes for a long, happy, health retirement!
I see that the first four respondents to this question have provided excellent guidance. Rather than repeat their wisdom, the following are links to supportiing IRS documents and related articles -
Operating a SIMPLE IRA (IRS.gov)
SIMPLE IRA to Roth Conversion (Ed Slott Discussion Forum)
It is worth mentioning that converting a SIMPLE to a Roth IRA is not necessarily a wise decision, even if the two year period since contributions began has passed. As a general rule, if the conversion would subject to a high marginal tax rate and/or if you are north of 45 or 50 years old, the wisdom of a taxable Roth conversion versus a tax free rollover to a traditional IRA may be questionable. It is definitely worth consulting a tax advisor before executing the conversion. Additionally, it may make sense to minimize the income tax liability by processing partial conversions over a period of years.
Hope this is helpful.
The short answer to your question is that I do not see anything wrong with your plan.
More detailed insights and suggestions are as follows:
Consider Paying Off Your Mortgage - My guess is that the rate on your 15-year fixed mortgage is really low (2-3%?). However, since we are in an environment where yields on fixed income investments (e.g., CDs, bonds, etc.) are also near historic lows, and since 90% of your retirement portfolio is in stocks, using your cash to pay off some or all of your mortgage is not necessarily an outlandish recommendation. There merits of this concept increase if you and/or your wife’s jobs are potentially vulnerable to economic downturns.
Emergency Reserves are Overrated - I tend to agree with your proposal to reduce the size of your emergency reserves. Given that even “high interest” cash earns next to nothing, it seems ill-advised to keep large sums of dead money in reserve, especially when other sources of inexpensive capital (e.g., home equity, portfolio liquidation, 0% interest 12-24 month credit card deals, etc.) may be tapped in a pinch. For more on this concept, see the following article links –
Emergency Funds are Overrated (DQYDJ.net)
Is an All Cash Emergency Fund Strategy Appropriate for All Investors? (Journal of Financial Planning)
Should You Keep Your Emergency Fund In Your 401k? (My MoneyBlog)
Can Your 401(k) Be Part of Your Emergency Fund? (Financial Finesse)
How To Use Your Roth IRA As An Emergency Fund (Investopedia)
Consider Taking Advantage of Employer Retirement Plans for Greater Tax Savings - Your IRAs permit you to sock away $11,000 (combined) each year on a tax-deductible basis for retirement. If you and/or your wife are eligible to contribute to employer sponsored retirement plans, you may be able to significantly increase the amount of your pre-tax contributions. For example, if you and your wife each contributed to an employer sponsored 401(k) plan, you could each contribute up to $18,000 on a pre-tax basis ($36,000 total) in 2016.
Consider Rising Dividend Stocks for Your Taxable Investment Account – In a low interest rate world, investing in shares of U.S. companies that pay qualifying dividends can be a neat way to begin building a future retirement income stream. This approach may be particularly attractive today, since dividends and long term capital gains receive favorable tax treatment relative to earned income and ordinary interest income. See the following article links –
On the Hunt for Rising Dividends (Bloomberg)
Stocks That Pay Rising Dividends (Kiplinger’s)
Not enough income to retire? Dividends can help (USA Today)
If you would like to assess whether you are on track for a secure retirement, Nest Egg Guru’s Retirement Savings Calculator offers realistic stress testing and enables users to easily see how changing variables that are within their control may impact their results.
Hello. There are many moving parts to this question.
To begin, I respectfully disagree with the advice/opinion given in the link you provided. Common stock dividends paid by qualified U.S. companies actually enjoy tax-favored status (i.e., lower federal tax rate) relative to ordinary income tax rates. To the extent that an ETF may invest in shares of companies that pay qualified dividends, the dividends that are passed along to shareholders through the ETF may be a nice, lightly taxed income stream. For more on this, see the following link - How ETF Dividends are Taxed (Investopedia).
The fact that you own PFF may also explain why you have not seen much in the way of capital appreciation from your ETF, as preferred stocks tend not to trade much above their $25 par value, lest they are called by the issuing company. Preferred stocks can, however, lose significant value in a rising interest rate environment or in the event of company specific financial difficulties.
There are, in fact, plenty of ETFs that invest in stocks, including those that invest in dividend paying stocks that have rewarded shareholders with price appreciation over the last several years. At the end of the day, as with its open-end mutual fund siblings, the change in value in a ETF must reflect the value of the underlying portfolio of securities in which it invests. Since ETFs are typically less inclined to make capital gains distributions, the rise in share price over time is more evident in ETFs.
It is also worth mentioning that consideration of dividend/interest paying ETFs may also depend upon whether the ETFs are held in a taxable account or a tax-sheltered retirement account.
Always a good idea to consult with one’s CPA on such matters.
The concept of compound interest really only applies to interest bearing investments that permit the reinvestment of interest. If an investment (e.g. savings bonds, certificate of deposit) pays periodic interest that is reinvested to earn more interest, the investment may be said to be earning compound interest.
Investments such as index funds and stocks do not pay interest. Over time the value of the investment may grow (or decline) and its return may be expressed as an effective compound rate of return (e.g. equivalent to an savings account paying X% compounded annually). The reinvestment of dividends from an index funds (or stock) may be considered a form of compounding, but, over time, the total return will be determined by the combination of dividends + appreciation. Because long term index returns have generally been strong over longer periods of time and are often expressed in terms of compound annualized rates of return, it has led to the misperception that they actually pay compound interest. For a 10- year stretch from 2000-2009, the S&P 500 index actually had a negative rate of return. This serves to illustrate how Einstein's "Miracle of Compounding" is not necessarily applicable to stocks. Today, with interest rates on fixed income investments near historic lows, the concept of compound interest seems like a quaint artifact of a bygone era.
For further support of this perspective, see the following articles -
Thanks for a fun question!