Understanding Your Employee Benefits
As you work and save money for retirement, take time to understand what benefits are offered at your employer in addition to your retirement plan. Even if the focus of your relationship with your financial advisor is your retirement and other securities related assets, employer benefits should always be discussed. Consider the following benefits and how they can benefit you:
Employer Sponsored Retirement Plans. Always participate at the amount to receive your match from your company. Don’t leave ‘free money’ at your company, use it to build your assets by participating. This will be a part of your financial planning information, so always remember to bring your statements to meetings.
Employer Sponsored Life Insurance. Even if you have other life insurance, this is the most inexpensive way to add protection for your family and your assets if you die. These types of plans ‘group’ you with other employees so the premium cost is reduced. Sometimes these plans are portable if you leave your employer. There may be stipulations on ‘aging out’; check with your HR department to see if you’re insured after age 65 (some plans drop you after this age). A death is one of the events that causes early liquidation of retirement assets if a family isn’t prepared with adequate life insurance.
Employer Sponsored Disability Insurance. Not being able to work will deplete financial assets if you’re not prepared. Disability insurance replaces lost income that Social Security Disability benefits do not cover. Because being on Social Security Disability insurance doesn’t replace 100% of your income, additional coverage is a good idea if you’re in your prime earning years. Disability insurance is underwritten based on your profession, age, and possible risk of injury in relation to your work activity. Many people are unaware that when taking Social Security Disability Benefits, your Social Security Retirement Benefits are reduced or eliminated in retirement.
Even though I may or may not provide you with additional coverage options, understanding what your benefits are and if you’re participating in them will help me understand additional risks to your portfolio other than the stock market.
Does an Election Year Affect Your Portfolio?
Regardless of if you are a Republican or a Democrat, it doesn’t matter much which party wins the election. Some people may believe that the party that wins will determine market outcomes, which is not supported by scientific data from past elections. What does matter, is the fact that thereis an election!
Starting in 1833, The Dow Jones Industrial Average has gained an average of 10.4% in the year before an election, and on average 6% in the election year. In contrast, once elected regardless of party, the first and second years of a President’s term see gains of 2.5% and 4.2% (http://www.kiplinger.com/article/investing/T043-C008-S003-how-presidential-elections-affect-the-stock-market.html). Some speculate that the drop in the market happens when the public realizes whether or not the campaign ‘proposed agenda’ of the elected President is going to happen.
Our current cycle is not normal and because past performance (presidential or stock market related) does not guarantee future results, don’t rely on past data related to an election year to make changes in your portfolio without consulting and conducting a review.
Becoming a Consumer of Healthcare now and In Retirement
The numbers are in, according to the latest healthcare study by Fidelity that a couple retiring this year (2016) will need $260,000 in retirement savings to cover their healthcare costs, from age 65 until their death. Although this is a ballpark figure, it should be a part of your financial planning as on-going costs. This number is estimate to rise between 4%-6% each year.
This estimate applies to retirees with traditional Medicare insurance and includes monthly expenses associated with Medicare premiums, co-pays, deductibles, and out of pocket prescription expenses.
So what can be done to help lower that number? Become a consumer of healthcare. Just like most things we buy, healthcare should be ‘shopped’. If you receive a diagnosis, ask for a second opinion. In some instances, you may be able to ‘shop’ out of network, or in network. As a consumer, it is up to you to ask questions about your own health and don’t assume that the treatment plan will be the same from MD to MD. If you need a surgery, shop hospitals that are on your insurance plan to find out what the procedure will cost. If you are a Medicare patient, most hospitals (but not all) accept Medicare Insurance.
If you have concerns about how this number may impact your retirement savings, schedule a meeting with our office to include this in your financial plan.
Modern Portfolio Theory: An Introduction
Economist Harry Markowitz was the first to demonstrate that a diversified portfolio can deliver performance with less risk when multiple assets are used to construct a portfolio. With his theory, called Modern Portfolio Theory, an investment’s risk and return should not be viewed alone, but how the investment effects the overall portfolio’s risk and return.
He proved that by using Modern Portfolio Theory (MPT), diversifying a portfolio could be done at no additional cost. Markowitz referred to diversification as being the ‘only free lunch’ in finance. His paper called “Portfolio Selection” was published in 1952 in the Journal of Finance. He later was awarded a Nobel Prize for his contributions.
Because of his findings, Modern Portfolio Theory is still used day. Diversification is still an integral part of portfolio management and is what we focus on each time we review your portfolio’s progress, rebalance, and re-examine your financial plan.
