Firm:
Integrity Advisory, LLC
Job Title:
Financial Advisor
Biography:
As a Financial Advisor at Integrity Advisory, LLC Matt Ahrens is focused on helping business professionals simplify their financial lives and find financial security as they face life's everyday challenges.
Since joining the firm in 2015 as a financial advisor, Matt has overseen the investment management and portfolio construction process for our clients. During this time, he earned the Certified Investment Management Analyst® designation which included an extensive class on portfolio design at the prestigious Wharton School of the University of Pennsylvania. Matt specializes in assisting physicians, small business owners, and young entrepreneurs who often find themselves with little time to manage their own investments.
Matt and his team help their clients track all of their investments in one centralized location and use the information to make sure they can retire when they want to and how they want to.
Education:
BS, Accounting, Washburn University
Assets Under Management:
$135 million
Fee Structure:
Asset-Based
CRD Number:
5308493
That's a great question, and the best way to approach this decision is to understand the risks and rewards associated with each. Certainly buying the stock has market risk as the value of the stock will advance or decline to a much larger degree than a bond would. You also run the risk in a recession that the company reduces or suspends its dividend. General Electric is a great example of a company that feel from grace when they cut their dividend payment in half at the end of 2017. If you want to look at dividend paying stocks who are considered Dividend Kings you might want to check out this recent article at US News & World Report. If your company is paying you 3.25% now, but they have a history of increasing their dividend payout then that dividend increase helps you keep up with inflation.
Bonds have their own set of risks. The most disastrous risk is that the company defaults on their loans, but that is typically unlikely with an A-rated company. Second you have interest rate risk. As rates rise (as we are seeing right now) the value of the bond will fall. A bond's sensitivity to rising interest rates can be determined in its duration. A bond with a duration of 5 would be expected to lose 5% of its value if rates were to rise 1%. This interest rate risk is mitigated if you hold the bond to maturity, because at maturity you receive par value, but this introduces another risk in inflation risk. How long do you have to hold that bond at 3% annual interest until you get your money back? If the bond matures in 2030 and in 2025 you could be buying bonds at 6% interest then you may not be keeping up with inflation at your current pace, and you may not be happy getting 3% when everyone else is getting 6%. But if you sell your bond then you realize the loss in value.
Without knowing your situation exactly it's hard to determine which is more appropriate. I personally would still lean to the dividend payout until rates rise further.
Good luck to you,
Matt
Nope there is no limit. There is only a limit on how much you can contribute on an annual basis. That would be $5,500 ($6,500 if you're over 50), and that is subject to income limits. If you're single and make more than $63,000 in 2018 then you start to lose some of the tax benefit on a Traditional IRA. For married filing jointly that phaseout starts at $101,000.
Good luck to you,
Matt
Good question, and congrats on having access to pensions. The railroads have done a great job of taking care of their employees in retirement. As someone else previously mentioned, as long as you have access to Social Security you might as well take it. Most likely this will be at age 70 when it is the highest payout for you and your spouse. Social Security does have one benefit that most pensions do not, and that is annual cost of living adjustments. This adjustments (along with having access to other retirement accounts) help you keep up with inflation. In addition, if something unfortunate happens and one of you passes away early how does that impact you pension income?
Specifically to your question of $1 million I would say that is a misnomer. We generally use the 4% rule, but even in this period of low interest that has been unstable. Since you already have 80% covered, let's say your 20% is $2,000 a month. At a 4% annual withdrawal rate you would need $600,000 to cover $2,000 in monthly expenses. So your pensions definitely help you reduce your retirement number, but there are other scenarios that you might want to consider in your planning.
Good luck to you, and please let me know if I can be of further help.
Matt
This is a great question, and it's good to see you've put a lot of thought into it. As someone who is a 34 year old financial advisor I think I can appreciate your perspective. Having said that, you have time on your side and I'd say feel free to take advantage of market risk. Whether that's using mutual funds, ETFs, or some individual securities. I manage the portfolios for our firm, and as such I'm always looking for asset classes that have low to negative correlation to other equity asset classes. What you're talking about here really is the same thing, but the question to ask is whether you will be paid for the risk you're taking. Where we are in this economic cycle I would not be a big advocate of peer-to-peer lending. Yes you can be paid higher interest, but that's because these loans have higher default rates. Where you are right now I would suggest making sure your traditional asset classes are covered. Are you in international small caps, emerging markets, etc. Once you get closer to $250,000 in your retirement accounts you can start seeing what other low correlating investments are available to you.
Good luck!
Matt
Great question, and I am assuming the funds are non-qualified or the investment was made with taxable dollars instead of IRA funds. First you should know that many insurance companies allow for a lifetime stretch of non-qualified assets, but you are required to take the first distribution within the first year of the deceased's date of death. The life insurance company can calculate a "life expectancy distribution" and that would need to be done each year to fulfill your obligation of withdrawing funds every year. If you're past the first year then all funds should be withdrawn within the first five years as you indicated in your question. This series of similar payments would satisfy the IRS 72-t rule to avoid an early distribution penalty on withdrawals, but if you have concerns then you may consult with your CPA.
I am not entirely sure how someone came up with five year payments of $39,500 when the current lump sum would be $12,500. That would be quite an impressive gain each year so you may want someone to review that number for you.
If this is indeed a non-qualified annuity then remember the earnings are coming out first and are taxable at your income tax rate. Once you have taken out all of the earnings and are receiving cost basis back then you could surrender the contract (there should be no surrender charges since it is a death benefit claim) and take the remaining funds out without creating a tax liability.
Feel free to reach out if you would like us to look closer at your situation or hop on a call with you.
Good luck,
Matt