Retirement

What Rising Interest Rates Mean for Retirement

June 29, 2022 by Hans Blake, CFA, CPA

Reading Time: 2 minutes

On today’s Intelligent Money Minute, we continue our conversation with Morningstar’s director of personal finance, Christine Benz on the implications of rising interest rates on retirement. During this episode, Christine breaks down the impact of rising interest rates on pre-retirees, and what you can do to prepare in an inflationary environment. In particular, Christine lays out the history of bond valuations in 2022 and their price performance and durations during these inflationary times. Another consideration investors need to make are their time horizons.

As Christine mentioned, be mindful of your liquidity needs and your time horizons. When we develop a portfolio for a client, we keep these two constraints in mind, as well as other factors such as tax location and risk tolerance.

If you are wondering what kinds of risks are in your current portfolio, or where there may be an unforeseen risk you aren’t aware of, consider contacting us for a complimentary call or coffee. If it makes sense, we may perform a complimentary portfolio review for you so you can get an idea of the types and current risk level in your portfolio.

Schedule a short discovery call or meeting

We’ll be interviewing Christine on several podcasts regarding retirement strategies, passive investing, and diversification, so be sure to subscribe to our Intelligent Money Minute podcasts.

Christine Benz Bio

Christine Benz is Morningstar’s director of personal finance and author of 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances and the Morningstar Guide to Mutual Funds: 5-Star Strategies for Success. She holds a bachelor’s degree in political science and Russian/East European studies from the University of Illinois. Christine lives in the Chicago suburbs with her husband, Greg. She is an avid cook, a political junkie, and a long-suffering Chicago Cubs fan. Follow Christine on Twitter.

Recency Bias- Why We Often Sabotage Our Portfolios

April 14, 2022 by Hans Blake, CFA, CPA

If I were to ask you to name 10 restaurants, chances are you would name 10 restaurants you’ve eaten at recently. You likely wouldn’t name restaurants you’ve eaten at say 1-2 years ago that you no longer patronize. When it comes to the business world, managers tend to give more importance to the past 3 months of work done by their employees rather than their performance over the past year. Why is this?

What Is Recency Bias?

Recency bias is our tendency as humans to give more weight to recent events than we should and project those events into our future. It is a very common psychological tendency in humans. In fact, the BeFi Barometer 2021 study, conducted by Cerulli Associates and sponsored by Schwab Asset Management in collaboration with the Investments & Wealth Institute, found that recency bias is the most common behavior bias that advisors believe is affecting clients’ investment decisions. It ranks as the number-one bias for every generation—and is one place Millennials and the Silent Generation find common ground.

Recency Bias in Investing

Recency bias is very common in investing; investors tend to give more importance to short term performance compared to long term performance. For example, an investor invests $100,000 in a mutual fund. Over 5 years the market value of his investment grows to $175,000. Then in the last three months, the value falls to $150,000. The investor may look at his investment performance of as a loss of $25,000 in 3 months and not an overall profit of $50,000 in 5 years. This is recency bias.

Investors often stay away from asset classes when markets have fallen sharply when on the contrary, they should consider rebalancing and investing back into the asset class because they may be buying further at attractive prices. Recency bias clouds our judgment and is detrimental to our financial interests in the long term. We should recognize our tendency to have recency bias and look for ways to mitigate it.

Recency Bias with Inflation

According to the Associated Press, inflation recently hit a new 40-year high, jumping 7.9 percent over past year. As we see our gas pumps increase higher than we can remember and our grocery and restaurant bills skyrocket, it is easy to think that inflation is here to stay. It’s hard for us to think down the road a couple of years and envision inflation coming down from recent highs. The difficulty once again stems from our recency bias.

Why Fight Recency Bias

There are several steps you can take to fight off your own tendency to reflect on recent adverse events and not overweight them in your future. If you are a long-term investor, you need to get comfortable with the concept that you can and will lose money in certain market environments.

If you are nearing retirement, you may want to consider taking less risk with your overall asset allocation. It doesn’t mean you should panic sell stocks when they are down. Unless you already have sufficient money for all you will need in retirement, you’ll likely need to generate some growth in the coming years. That can’t be achieved by going all to cash.

Your goals, the money you need for your goals, and your time horizon are what matters. At Intelligent Investing, we use Intelligrations™ that integrate our clients’ financial goals with their risk tolerance and portfolio in real time.

How to Fight Recency Bias

Here are a few suggestions on ways to fight recency bias:

Get an accurate picture of your financial goals, your balance sheet, and your income statement. This will help you stay calm when things seem out of hand.
Set accurate expectations and assumptions when building your financial plan. Don’t just use recent events and market conditions.
Stress test your portfolio using different potential environments your portfolio may go through.
Consider professional help and accountability from a fiduciary advisor. You need to find a professional who is always in your corner and is legally obligated to always act in your best interest.

Keeping recency bias out of your thoughts and portfolio can be very difficult–but not impossible. With the right tools and right financial accountability partner, you can fight your own thoughts that try to sabotage your hard-earned nest egg.

If you’d like to become a client of Intelligent Investing, please click here to call or schedule a “discovery” meeting.

Should I Take Lump Sum Social Security Benefits?

March 10, 2022 by Hans Blake, CFA, CPA

Reading Time: 3 minutes

So, you are about to start taking Social Security, and you set up a call with a Social Security agent. While on the phone, they tell you about a special option to receive up to six months of benefits in a lump sum when initiating Social Security retirement benefits.

You look over at your spouse who shrugs, and you tell the agent, “Yes. We’ll take a lump sum amount.”

Little do you realize, you may have rushed the decision and you didn’t understand the tradeoffs in taking this lump sum.

This blog is intended to educate you in understanding the tradeoffs so you can be more an Intelligent Investor and make a wise decision.

Social Security Lump Sum Benefit History

The lump sum benefit option isn’t new and has been available when claiming retirement benefits at your full retirement age (FRA) or later. This is usually between the ages of 66 and 70.

Social Security representatives are required to fully explain this choice to eligible applicants, whether they ask about it or not, and since it is offered last minute, a knee-jerk reaction can make the applicant decide to take the offer—not fully realizing what they have done until hanging up the phone. The representative may even try and persuade the applicant to take the lump sum by saying things like, “Most people take it.”

The Way the Lump Sum Works

Once you’ve hit FRA (age 66 for those born in 1943-1954, and over age 66 on a sliding scale for those born after 1954), the option to take a lump sum is available.

You can choose to receive a lump sum of up to six months of benefits. You’ll get to start your Social Security retirement benefits with a nice big bonus payment. Sounds pretty good, doesn’t it?

The Cost of Taking the Lump Sum of Social Security Benefits

First, the amount of your monthly benefit going forward is reduced. Let’s walk through an example:

John Smith contacts Social Security and says he wants to start taking Social Security benefits when he hits age 70, receiving the maximum allowable benefit.

Under his earnings history, he’s due $4,000 per month.

After hearing the representative explain the lump-sum option, he chooses it and receives a lump sum of around $23,040 (six times the monthly benefit he would have received at age 69 ½).

But taking the lump sum option moves his official beginning age for benefits back to 69 ½ instead of 70, and the monthly benefits he’ll begin receiving will be based on that age.

He’ll receive $3,840 per month, which is 4% less than his maximum benefits at age 70. (Remember, by delaying benefits after FRA, your benefits increase 8% annually through age 70.)

What Should You Do?

Well, like most financial planning, it depends on several factors.

If John Smith decides to use the lump sum to pay off some high interest-bearing loan, it may make sense. However, if John has been waiting until age 70 to start taking benefits, it shows that he is disciplined and likely doesn’t have much debt.

If he invests the lump sum well, he could end up with more money than if he had taken the higher monthly benefit.

If John is married and is the higher-earning spouse, it may make more sense to decline the lump-sum benefit in order to maximize his monthly benefit so that whichever spouse survives has the highest possible monthly benefit for life.

The right choice also depends on your and your spouse’s (if you are married) longevity.

If you are single and suddenly diagnosed with a terminal illness you may want to take the lump sum and the smaller benefit. The lump sum could go to an heir, while the monthly benefit will end at the beneficiary’s death.

If you are married and facing a terminal illness, then the decision to take the Social Security lump sum benefit becomes a bit tougher to analyze. A higher-earning spouse faced with a suddenly shortened life expectancy may want to reject the lump sum. The reason is the survivor benefit will equal 100% of the higher earner’s benefit at his or her death. If the surviving spouse has a long life expectancy, the boosted survivor benefit can more than make up for declining the lump sum.

Let Us Help You with Your Social Security Benefit Questions and Planning

At Intelligent Investing, we are a boutique wealth management firm serving high net worth individuals and families. We would be happy to have a complimentary meeting over a call or coffee to learn more about your family and your financial needs.

We love organizing our clients’ financial junk drawers so that we can minimize financial stress to maximize lives. We’d love to do the same for you.

If you’d like to become a client of Intelligent Investing, please click here to call or schedule a “discovery” meeting.

Top Tips to Keep Your Financial New Year’s Resolutions

January 6, 2022 by Hans Blake, CFA, CPA

Reading Time: 2 minutes

Top Tips to Keep Your Financial New Year’s Resolutions

I trust you had a merry Christmas, and if you are like me, it is easy to set a bunch of new year’s resolutions for the new year, only to struggle to keep them until the end of January. Did you know that making New Year’s resolutions possibly started 4,000 years ago by the ancient Babylonians? And I bet they didn’t do a good job of keeping their resolutions either. In fact, I saw a t-shirt that said, “My new year’s resolution is to do last year’s resolution, which was also the previous year’s resolution. Today, I’d like to share with you a resource that should help you as you consider making your New Year’s resolutions.

New Year’s Resolution Facts

This is the time of year where most people make New Year’s Resolutions. According to the University of Scranton, only 8% of those who make New Year’s resolutions actually keep them. In fact, research conducted by Strava using over 800 million user-logged activities in 2019 predicts the day most people are likely to give up on their New Year’s Resolution is January 19. Well that’s depressing. Wouldn’t it be better to just not have resolutions, that way there isn’t the associated guilt of not keeping them?

As Zig Ziglar says, “If you aim at nothing, you will hit it every time.”

I’ve found that one of the best ways to meet your financial goals is to break them down into smaller chunks.

I tend to start with writing down annual goals (including some stretch goals) that are a little beyond my reach.

Let’s say you want to pay off a $50,000 loan next year, you can break that down into quarters, months, and even paychecks. Remember, there is only one way to eat an elephant: a bite at a time.

Financial Freedom Calendar

Intelligent Investing believes in minimizing financial stress to maximize your lives. We created this financial freedom plan that includes monthly tasks as well as things to consider buying and things to avoid buying each month.

For example, the Financial Freedom calendar suggests that in January you should consider automation. Recently, I decided to automate all my bills to be paid and I can already tell you that the stress has been reduced instead of wondering, did I already pay that bill? When is that one due?

We love organizing our clients’ “financial junk drawers” and would love to organize yours as well. Feel free to share this Financial Freedom Plan with others.

A Resolution You Can Keep

One last resolution to consider…becoming more financially educated. You can start by simply subscribing to our channel and clicking the bell icon so you’ll never miss any update.

Thanks so much for your time and have a wonderful and peaceful new year!

Don’t Be a Purse for Your Suitors

December 16, 2021 by Hans Blake, CFA, CPA

Podcast: Play in new window | Download

Reading Time: 2 minutes

On today’s Intelligent Money Minute, we’ll interview Kathleen Rehl on not being a financial purse for suitors. In an attempt to find new love, widows can fall prey to greedy suitors. Suitors who are more interested in a widow’s purse than them as a person. During this episode, Kathleen provides insight and tips on how to avoid being a purse to potential suitors.

At Intelligent Investing, we believe communication is important, and we strive to be a liaison between family members such as spouses, or parents and children. Kathleen mentioned how you don’t want to be financially scammed in a new relationship.

Some of our most popular blogs are the financial scam series we posted on our website. We talk about how to emotionally heal after being financially scammed, how to help others who have been financially scammed, and 11 ways to protect yourself from being financially scammed. You can find all of those on our blog page.

Please be sure to subscribe to our podcasts as we will be interviewing Kathleen on an upcoming podcast where she explains how to simply write a legacy letter to your family and friends. You will not want to miss it. You can purchase Kathleen’s book here.

Kathleen Rehl Bio

Kathleen M. Rehl, Ph.D., CFP®, CeFT® wrote the multi-award-winning book, Moving Forward on Your Own: A Financial Guidebook for Widows. Experiencing widowhood herself, Dr. Rehl empowers widows financially™ and inspires their advisors. Her work has been featured in the New York Times, Wall Street Journal, AARP Bulletin, CNBC, USA Today, U.S. News & World Report, Journal of Financial Service Professionals, Journal of Financial Planning, and other publications. Rehl owned a financial planning firm for 17 years before retiring to her “encore” career. She walks an hour daily, practices yoga, enjoys art and music festivals, writes poetry and makes art, loves her grandsons . . . and continues to evolve on her journey.

Tips for Dealing with Tragedy, Sadness, & Poor Health Over the Holidays.

December 9, 2021 by Hans Blake, CFA, CPA

Podcast: Play in new window | Download

Reading Time: 2 minutes

Despite Christmas being a cheerful time of year, many people find the holidays very depressing. Shelly experienced tragedy on Mother’s Day when her son Jonathan passed away. During this episode, Shelly Hamilton gives tips on how to deal with tragedy, sadness, and trials during the holidays. She highlights the value of speaking the truth to yourself to stay grounded and encouraged.

As Shelly mentioned, practicing self-talk and redirecting your negative thoughts to others and the blessings in your life can help as you deal with grief and the loss of loved ones. One of our core values at Intelligent Investing is Compassion, and as we work with other widows, I want to share some of our resources. You can visit investedwithyou.com, search our blogs by topic and find another blog titled “10 Tips for Caring for a Spouse or Parent who has become a child.” If you’d like to learn more about Intelligent Investing or would like to become a client, click here.

Shelly Hamilton recently published a book titled, “Always Only Good.” This book details Shelly’s journey of faith through her son Jonathan’s mental illness shortly after his death in 2013. You can purchase the book here.

If you haven’t subscribed to our podcasts, you can go to our podcast page and choose whichever method you want to download them. While you are there, you can go to our blog page and subscribe so you can get our latest Intelligent Insights directly in your inbox.

Shelly Hamilton Bio

Shelly Hamilton, the daughter of Frank Garlock, married Ron Hamilton aka “Patch the Pirate” in 1975. They have managed Majesty Music and written sacred music for children and adults since they joined the ministry in 1978. Shelly currently ministers at Majesty Music as pianist, composer, arranger, and recording producer. In 2013, their son killed himself after years of struggle with mental health issues. The family’s public struggle and acknowledgement of mental health issues has reached people around the world. Most recently her family faces a new challenge: Ron Hamilton’s early onset of dementia. Her insight and music will encourage anyone facing the challenges of life.

In January 2018 Majesty Music announced their third generation of leadership. After years of waiting for God’s timing, Ron and Shelly transitioned the ministry over to their son-in-law Representative Adam Morgan and his wife, Ron and Shelly’s daughter, Megan.

What Widows Should Look For In a Trusted Financial Advisor

November 18, 2021 by Hans Blake, CFA, CPA

Podcast: Play in new window | Download

Reading Time: 2 minutes

On today’s Intelligent Money Minute, we’ll interview Kathleen Rehl on what widows should look for in a trusted financial advisor. Unfortunately, many financial wolves in sheeps clothing prey upon new widows. During a time of loss, widows may seek advice, counsel, and refuge in the wrong places bring about financial catastrophe. On the flip side, a widow may have a financial advisor who’s sincere, but doesn’t seek to connect on an emotional level. During this episode, Kathleen gives key factors of what to look for in a trusted financial advisor.

We would love to help you organize your financial junk drawers and help you organize your widowhood timeline and help you sort through the decisions that need to be made immediately, in the short-term and in the long-term. Keep in mind that at Intelligent Investing, we do not sell any products such as annuities or insurance products. As fiduciaries we want to do what is in our clients’ best interests at all times. We’d love to let you learn more about our firm to see if we’d be a good fit to work together. To schedule a complimentary call or coffee click here.

Kathleen Rehl Bio

Widows Are Still Hot! Trends in Widowhood

November 4, 2021 by Hans Blake, CFA, CPA

Podcast: Play in new window | Download

Reading Time: < 1 minutes

On today’s Intelligent Money Minute, we’ll interview Kathleen Rehl on trends in widowhood. The yearly census shows that, on average, one million women become widowed. During this episode, Kathleen defines her proprietary word Wid-Ex and how it impacts widowhood life. Wid-Ex will affect millions of women in the upcoming years and can have long lasting implications.

As Kathleen mentioned, there are more widows as a result of COVID-19, and widowhood is being talked about more as widows are being featured more and more in our entertainment. Kathleen also introduced us to a concept she terms, “Wid-Ex” where a widow can find herself grieving when an ex-husband passes away.