#FinancialFridays Archives - Confidence Wealth & Insurance Solutions

Confidence Wealth & Insurance Solutions December 30, 2016 1 Comment

Job Change Checklist

With the new year comes new opportunities. Are you changing jobs? If so, here’s a checklist to help you for a smooth transition!

General information	Yes	No	N/A
1. Has relevant personal information been gathered? • Names, ages • Children and other dependents	▢	▢	▢
2. Has financial situation been assessed? • Income • Expenses • Assets • Liabilities	▢	▢	▢

Employee benefits	Yes	No	N/A
1. Has a benefits package been discussed with the new employer?	▢	▢	▢
2. If yes, are there restrictions or a waiting period for all benefits?	▢	▢	▢
3. Is health insurance offered?	▢	▢	▢
4. Are short- and long-term disability offered?	▢	▢	▢
5. Is a Section 125 or flexible spending account offered?	▢	▢	▢
6. Is dental insurance offered?	▢	▢	▢
7. Is vision insurance offered?	▢	▢	▢
8. Is life insurance offered?	▢	▢	▢
9. Is a retirement plan offered?	▢	▢	▢
10. Is adoption assistance offered?	▢	▢	▢
11. Is long-term care insurance offered?	▢	▢	▢
12. Other insurance?	▢	▢	▢
13. Has vacation/time off been reviewed?	▢	▢	▢

Financial picture	Yes	No	N/A
1. Has annual compensation been determined?	▢	▢	▢
2. If married, will spouse work outside the home?	▢	▢	▢
3. If there are children, will day care be necessary?	▢	▢	▢
4. Will living expenses be affected?	▢	▢	▢

Money management	Yes	No	N/A
1. Has budget been updated to reflect changes in income and expenses? • Housing costs • Transportation costs • Food, clothing, and other household expenses • Health-care expenses • Life and disability insurance premiums • Child-care costs	▢	▢	▢
2. Has an emergency fund been established?	▢	▢	▢

Housing situation	Yes	No	N/A
1. Is relocation an issue?	▢	▢	▢
2. Is there a home that needs to be sold?	▢	▢	▢
3. Is a home purchase planned?	▢	▢	▢
4. Have the advantages and disadvantages of buying a home versus renting a home been discussed?	▢	▢	▢
5. Have other expenses been reviewed? • Mortgage origination fees • Real estate agent fees • Attorney fees • Moving expenses • Potential increase in real estate taxes • Cost of living in new location	▢	▢	▢
6. Will the new employer pay all relocation expenses?	▢	▢	▢

Insurance planning	Yes	No	N/A
1. Is a current health insurance plan in place?	▢	▢	▢
2. Has spouse's coverage been evaluated?	▢	▢	▢
3. Will COBRA be needed during the job transition period?	▢	▢	▢
4. Is an individual (non-employer-sponsored) life insurance policy in place?	▢	▢	▢
5. Does life insurance need to be upgraded?	▢	▢	▢
6. Does automobile insurance need to be purchased/upgraded?	▢	▢	▢
7. Does homeowners/renters insurance need to be purchased/upgraded?	▢	▢	▢
8. Does disability income insurance need to be purchased/upgraded?	▢	▢	▢
9. Does personal liability insurance need to be purchased/upgraded?	▢	▢	▢
10. Does long-term care insurance need to be purchased/upgraded?	▢	▢	▢
11. Are beneficiary designations up-to-date?	▢	▢	▢

Investment planning	Yes	No	N/A
1. Has liquidity need changed?	▢	▢	▢
2. Has risk tolerance been determined?	▢	▢	▢
3. Have investment goals been considered/prioritized?	▢	▢	▢
4. Has size/frequency of investments been determined?	▢	▢	▢
5. Has current asset allocation been reviewed? • Stocks • Bonds • Mutual funds • Annuities • Real estate • Art/collectibles	▢	▢	▢
6. Will job change affect existing employee stock options?	▢	▢	▢

Retirement planning	Yes	No	N/A
1. Is a retirement plan available? • Employer-sponsored retirement plan • Beneficiary designation updated	▢	▢	▢
2. If a 401(k) is offered, will the employer match employee contributions?	▢	▢	▢
3. Are IRAs being effectively utilized?	▢	▢	▢
4. Will all available plans be funded?	▢	▢	▢

Tax planning	Yes	No	N/A
1. Will withholding change?	▢	▢	▢
2. Is the maximum tax advantage of employee benefits realized?	▢	▢	▢
3. Will child care be needed?	▢	▢	▢
4. Will there be a home office?	▢	▢	▢
5. Have home office deductions been discussed?	▢	▢	▢
6. Is there self-employment income?	▢	▢	▢

Confidence Wealth & Insurance Solutions November 4, 2016 No Comments

In 1981, the Nobel Prize-winning economist Robert Shiller published a groundbreaking study that contradicted a prevailing theory that markets are always efficient. If they were, stock prices would generally mirror the growth in earnings and dividends. Shiller’s research showed that stock prices fluctuate more often than changes in companies’ intrinsic valuations (such as dividend yield) would suggest.¹

Shiller concluded that asset prices sometimes move erratically in the short term simply because investor behavior can be influenced by emotions such as greed and fear. Many investors would agree that it’s sometimes difficult to stay calm and act rationally, especially when unexpected events upset the financial markets.

Researchers in the field of behavioral finance have studied how cognitive biases in human thinking can affect investor behavior. Understanding the influence of human nature might help you overcome these common psychological traps.

Herd mentality

Individuals may be convinced by their peers to follow trends, even if it’s not in their own best interests. Shiller proposed that human psychology is the reason that “bubbles” form in asset markets. Investor enthusiasm (“irrational exuberance”) and a herd mentality can create excessive demand for “hot” investments. Investors often chase returns and drive up prices until they become very expensive relative to long-term values.

Past performance, however, does not guarantee future results, and bubbles eventually burst. Investors who follow the crowd can harm long-term portfolio returns by fleeing the stock market after it falls and/or waiting too long (until prices have already risen) to reinvest.

Availability bias

This mental shortcut leads people to base judgments on examples that immediately come to mind, rather than examining alternatives. It may cause you to misperceive the likelihood or frequency of events, in the same way that watching a movie about sharks can make it seem more dangerous to swim in the ocean.

Confirmation bias

People also have a tendency to search out and remember information that confirms, rather than challenges, their current beliefs. If you have a good feeling about a certain investment, you may be likely to ignore critical facts and focus on data that supports your opinion.

Overconfidence

Individuals often overestimate their skills, knowledge, and ability to predict probable outcomes. When it comes to investing, overconfidence may cause you to trade excessively and/or downplay potential risks.

Loss aversion

Research shows that investors tend to dislike losses much more than they enjoy gains, so it can actually be painful to deal with financial losses.²Consequently, you might avoid selling an investment that would realize a loss even though the sale may be an appropriate course of action. The intense fear of losing money may even be paralyzing.

It’s important to slow down the process and try to consider all relevant factors and possible outcomes when making financial decisions. Having a long-term perspective and sticking with a thoughtfully crafted investing strategy may also help you avoid expensive, emotion-driven mistakes.

All investments are subject to market fluctuation, risk, and loss of principal. When sold, investments may be worth more or less than their original cost.

¹The Economist,“What’s Wrong with Finance?” May 1, 2015

²The Wall Street Journal,“Why an Economist Plays Powerball,” January 12, 2016

Important Disclosure

Confidence Wealth & Insurance Solutions May 6, 2016 No Comments

[Financial Friday] Projecting a Happy Retirement

A 2015 study found that 41% of households headed by someone aged 55 to 64 had no retirement savings, and only about a third of them had a traditional pension. Among households in this age group with savings, the median amount was just $104,000.¹

Your own savings may be more substantial, but in general Americans struggle to meet their savings goals. Even a healthy savings account may not provide as much income as you would like over a long retirement.

Despite the challenges, about 56% of current retirees say they are very satisfied with retirement, and 34% say they are moderately satisfied. Only 9% are dissatisfied.²

– Develop a realistic picture

How can you transition into a happy retirement even if your savings fall short of your goals? The answer may lie in developing a realistic picture of what your retirement will look like, based on your expected resources and expenses.

As a starting point, create a simple retirement planning worksheet.

You might add details once you get the basics down on paper.

– Estimate income and expenses

You can estimate your monthly Social Security benefit at ssa.gov. The longer you wait to claim your benefits, from age 62 up to age 70, the higher your monthly benefit will be. If you expect a pension, estimate that monthly amount as well.

Add other sources of income, such as a part-time job, if that is in your plans. Be realistic. Part-time work often pays low wages.

It’s more difficult to estimate the amount of income you can expect from your savings; this may depend on unpredictable market returns and the length of time you need your savings to last. One simple rule of thumb is to withdraw 4% of your savings each year. At that rate, the $104,000 median savings described earlier would generate $4,160 per year or $347 per month (assuming no market gains or losses). Keep in mind that some experts believe a 4% withdrawal rate may be too high to maintain funds over a long retirement. You might use 3% or 3.5% in your calculations.

Now estimate your monthly expenses. If you’ve paid off your mortgage and other debt, you may be in a stronger position. Don’t forget to factor in a reserve for medical expenses.

One study suggests that a 65-year-old couple who retired in 2015 would need $259,000 over their lifetimes to cover Medicare premiums and out-of-pocket health-care expenses, assuming they had only median drug expenses.³

– Take strategic steps

Your projected income and expenses should provide a rough picture of your financial situation in retirement.

If retirement is approaching soon, try living for six months or more on your anticipated income to determine whether it is realistic.

If it’s not, or your anticipated expenses exceed your income even without a trial run, you may have to reduce expenses or work longer, or both.

Even if the numbers look good, it would be wise to keep building your savings. You might take advantage of catch-up contributions to IRAs and 401(k) plans, which are available to those who reach age 50 or older by the end of the calendar year. In 2016, the IRA catch-up amount is $1,000, for a total contribution limit of $6,500. The 401(k) catch-up amount is $6,000, for a total employee contribution limit of $24,000.

Preparing for retirement is not easy, but if you enter your new life phase with eyes wide open, you’re more likely to enjoy a long and happy retirement.

¹ U.S. Government Accountability Office, “Retirement Security,” May 2015
² The Wall Street Journal, “Why Retirees Are Happier Than You May Think,” December 1, 2015
³ Employee Benefit Research Institute, Notes, October 2015