The Time Value of Money

 

By Glenn J. Downing, MBA, CFP®

We usually understand the time value of money in two contexts: the growth rate of an investment, and the inflation rate.   Nonetheless, the TVM is a topic that should be understood by everyone serious about financial planning.

Sketch Out a Timeline

To conceptualize this, sketch out a timeline of your life. At the leftmost point is your date of birth. The rightmost point is your date of death. In between, mark your retirement date, and today’s date. If you are not yet retired, then the time value of an investment pertains to you in particular.

TMV: Investment Growth Rates

Let’s look at investment growth rates.  On your timeline you have 10 years before your retirement.  You're interested in projecting out your IRA balance over these 10 years, assuming an 8% annual rate of return, compounded monthly. Your current balance is $250,000, and you are depositing $300/month – less than what is permissible by law. I make...

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Student Loan Forgiveness

 

by Jonathan G. Cameron, CFP®

By early 2015, the amount of outstanding student loan debt in the U.S. exceeded $1.2 trillion. What a staggering number! Tens of millions of young professionals carry significant student debt balances. The payments may be stiff. It can take years to pay off many of these loans. Consequently, other financial priorities get postponed. Commonly we see saving for retirement pushed ahead into the future. Does this describe you?

There is Some Good News

The good news is, there are federal programs for income-based repayment and even loan forgiveness. Before you get too excited, though: only certain kinds of federal student loans qualify. These include Stafford and Grad PLUS loans. Each year, program participants verify their income and family size. The loan servicer then calculates a new required monthly payment amount. Loan payments go up or down as appropriate. The intent is to assist borrowers in making on-time payments. These payments, however, may...

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The Ins and Outs of Traditional IRAs

 

By Glenn J. Downing, MBA, CFP®

In this blog post I want to go just a little bit beyond the basics of traditional IRAs and how they work. 

What are Traditional IRAs?

An IRA is an individual retirement account by definition, with the emphasis on individual. One IRA means one owner, so there can be no joint titling. In order to contribute to an IRA you must have earned income. That is, income from compensation defined as wages, salaries, tips, alimony, and separate maintenance payments. These are all earned income. Income from capital gains, dividends, and interest is not considered earned income by the IRS – they classify it as investment income.

How Much Can I Invest?

Your contribution limit is $6000 per year (2020). If you’re over 50 an additional $1000 catch up contribution is allowed, so the limit becomes $7000.  Age limits on contributions have been repealed in the 2020 CARES Act, so as long as you have earned income you can contribute.

What’s the...

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A Guide to 403b Retirement Accounts

 

By Jonathan G. Cameron, CFP®

Most people are familiar with the 401k, but what’s a 403b? Basically a 403b is a retirement plan that is sponsored by a 501c3 organization, meaning a not-for-profit employer. A local school board or hospital are good examples. The employee invests in mutual funds or annuity contracts – the only choices available. If annuity contracts are the only investment choice, the plan is likely administered by an insurance company, and can also be known as a TSA, or tax-sheltered annuity.

Money can go into your account from two sources: deferrals from your paycheck (money that you could have taken in cash) and your employer can also make contributions. The employer’s contributions can be discretionary or according to a match formula. Say the employer will offer you 50 cents on the dollar of whatever you contribute, up to 6% of your earnings. That’s a fairly typical formula. We’ve seen some out there more generous, and some not...

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The Surgeon Who Lost His Fingers

by Jonathan G. Cameron, CFP®

Nobody plans for a disability. In our experience, people are more willing to incorporate life insurance into their financial plan than disability insurance. Why is this? Let’s first get into the differences between disability and life insurance.

Disability Insurance vs. Life Insurance

Here are a few key differences between these two types of insurance:

  • With a life insurance a policy claim, your insurance company pays others at your death. A disability income claim pays you, maintaining your family’s financial well-being during an illness or injury.
  • Death is a certainty, so your beneficiaries will get paid the life insurance death benefit. A disability benefit pays only when you have a covered injury or illness, insuring against the loss of earned income.
  • Traditionally, a life insurance death benefit pays beneficiaries in a lump sum. A disability policy typically pays a monthly income to the policyholder up until age 65.
  • Many life...
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This Page is Intentionally Left Blank

By Glenn J. Downing, MBA, CFP®

I’ve been pondering this.

This Page is Intentionally Left Blank

It sort of hit me one day after having noticed This Page is Intentionally Left Blank in clients’ brokerage account statements.

Seems to me that if there’s printing on the page, it is not blank, is it?  Brokerage statements go on for pages and pages.  Who formats these things?  Why not print on it and save a tree?

Sometimes business written communication makes me crazy.  Why not say use instead of utilize? Or even worse, why not say complete instead of effectualize? Seems the more jargon the better.  Or how about our deliverables?  Deliverables indeed!  We sell deliverables? I though we sold planning and investment management.  

Personally, I’d rather eschew obfuscation. (That’s a joke.)

Ok, I'm ranting.  I guess we should close the flight plan on this.  (Really? Why not simply conclude?)

Just...

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The Thrift Savings Plan for Federal Employees

 

by Jonathan G. Cameron, CFP®

The Thrift Savings Plan, or TSP, is the equivalent of the 401k for federal government employees. My intention here is to cover the main highlights of this fantastic retirement benefit. Much more detail is found on the TSP website.

As in a 401k, you contribute pre-tax money into a Thrift Savings Plan. Earnings in the account are tax-deferred. You are taxed only when you withdraw funds in retirement. If you work long enough, consistently contribute to your plan, and invest appropriately, you can potentially retire comfortably.

Thrift Savings Plan: Military and Non-Military Accounts

This post is for non-military TSP retirement participants. The TSP offered to those in the military is different. Elsewhere I discuss the benefits of a Thrift Savings Plan retirement account as a High-3 and as a BRS (blended retirement system) participant.

FERS – the Federal Employment Retirement System

If you are a federal civilian employee and began employment after...

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What Happens When My Mother Runs Out of Money?

By Glenn J. Downing, MBA, CFP®

Increasingly as we work with people of retirement age, we’re hearing a new concern: What happens when my mother runs out of money? This is something relatively new. Those in their middle ages used to be called the sandwich generation, because they were in the middle, caring for both their children and their parents. But this is something new . . . we’re speaking of people in their 60’s and 70’s caring for parents in their 80’s and 90’s.

By the time we hit our latter 60’s, most of us hope that the retirement nest egg is firmly in place, children are married off, and grandchildren are a joy. But since we’re all living so much longer, caring for one’s very elderly parents is now a large financial planning topic.

Medical Issues are a Primary Cause for Concern

Too often we see a client who is concerned about his parents outliving their assets. A parent with a long and debilitating illness is a common...

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Asset Bubbles

By Glenn J. Downing, CFP®

(Note to the reader:  I originally posted this piece in mid-March of 2020.  Now I'm reviewing it at the end of April 2020.  Hit the nail on the head, didn't I?)

I’m sure you’ve heard the term before:  asset bubble.  Sounds ominous, because a bubble is generally something that’s going to pop.  On the other hand, I think of bubbles with champagne.  So there are two images, both conjuring up a party that has to end at some time. 

What does the term refer to in terms of market valuations?  It means simply that at some point assets will be trading at a price that’s too high, and that the price will come down – maybe gradually, or maybe by a pop.  Why is there so much in the financial literature today about asset bubbles?  Because there appears to be a big asset bubble in the making.

Correction vs. Recession

Before I go on, let me define two terms: 

  • A market correction...
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Paying Off Student Loans

 

by  Jonathan G. Cameron, CFP®

Student loans are often top of mind for many people in the early stages of a professional career. You’ve made an investment in yourself by getting a great education, and now you’ve got to make enough money to build a life, but also to repay those loans.  The main piece of advice we give most of our clients with student loans is not about numbers. It’s about overcoming the feeling that this debt is very heavy burden. So if you’re in that camp, we have some thought to share:

Own it – These Student Loans are Your Responsibility!

Taking out these loans was ultimately your choice, so own it. You DID in fact have other options – you could have gone to a cheaper school, or stretched your education out as you worked your way through. Whatever the case, ultimately it is your signature on the loan form. Take responsibility.

Don’t Let Student Loans Tyrannize You – Make a Plan and Enjoy Life

Student loan...

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