One of the most important steps in planning for retirement is to estimate how much income you’ll need to cover your expenses when you retire.

We call the point where your sources of retirement income are large enough to cover your expenses “financial independence”. Once you reach this point, going to work every day becomes a choice instead of a need. The goal of a good retirement savings plan should be for you to achieve financial independence. To know when you’ve reached financial independence, you need to know how much you will spend in retirement.

Three common mistakes people make in the retirement planning process are assuming their expenses will go down in retirement, underestimating the impact of inflation, and including non-investment assets in their retirement pile.

Assuming Your Expenses Will Go Down

One common assumption is that expenses always go down in retirement. It is true that some work-related expenses will go away at retirement, and that retirees may have a lower overall tax rate. However, in the early years of retirement, expenses for travel, recreation, and hobbies often increase. In the later years of retirement, as recreational spending slows, health care and long-term care spending will often rise. A good retirement spending plan should take these factors into account.

Ignoring the Impact of Inflation

Inflation is an invisible tax and can be a cancer that will destroy your retirement plan if you ignore it. Here’s an example of the destructive power of inflation: a first-class postage stamp cost 34 cents in 2001. By the end of 2017, that same first-class postage stamp cost 49 cents. Imagine being a retiree who ignored inflation and planned their spending around 34-cent stamps! Living in a world where the things you need cost more than you planned could be very difficult. A small level of persistent inflation can make a big difference in the cost of living over a retiree’s life.

Including “Non-Investment” Assets in Your Pile

A good retirement plan makes a distinction between retirement assets and non-retirement assets. Retirement assets are things like 401(k) plans, IRAs, brokerage accounts, and income-producing real estate. Retirement assets produce income, or are otherwise liquid and can provide you with income when you need it in retirement.

Your home is not a retirement asset! You can’t sell one room when you need cash to pay bills. Downsizing can be a valid part of a retirement plan, but keep in mind that you’ll still need to live somewhere. Cars, boats, recreational vehicles, and collectibles are difficult to sell quickly for full market value. These should also be considered “non-retirement” assets.

Estimating your retirement expenses is an important part of the retirement planning process. Spending patterns can change over the course of a long retirement. Simple estimates based on pre-retirement spending may underestimate your true retirement income needs. If you need help evaluating your retirement plan, contact a qualified financial planner today.

Matthew A Treskovich | CFA, CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC
Chief Investment Officer

Infrastructure & Taxes

Posted on September 14, 2021 in

September is lining up to be a busy month for lawmakers in Washington, D.C. After passing a bipartisan infrastructure bill in the Senate, the pressure moved House Democrats to come up with a plan to pass the legislation through their chamber.  Many progressive Democrats did not want a vote on the bipartisan bill until an agreement on the budget reconciliation process to ensure an additional $3.5 trillion social infrastructure deal passed. In an attempt to accommodate both progressive and centrist Democrats, a compromise was reached to further the infrastructure discussion.

A budget reconciliation framework was passed through the House, which included a September 27th vote on the bipartisan infrastructure bill. This will allow a bill to head to President Biden for his signature and push into law spending that is badly needed to upgrade the country’s roads, bridges, rails, and ports. While this is seen as a positive to most analysts, corporations, and politicians, the harder work remains to be completed. The $3.5 trillion social infrastructure bill is up for fierce debate in Congress and across the country as a whole. So far, these are a few items being proposed:

  • $726 billion for Education- Universal Pre-School, free community college, increased investments in schools and, expansion of grants to make education more affordable
  • $385 billion for Clean Energy initiatives including, improving the electrical grid, investing in clean energy production and infrastructure, and electrifying the federal vehicle fleet
  • $332 billion for Affordable Housing
  • $135 billion for Agriculture conservation, climate concerns, and wildfires
  • $107 billion for immigration reform and effective border security

Proponents of the bill believe social spending will spur economic growth and, overall, will be positive to the economy, even when financed by tax increases. Opponents think the price tag is too high and are concerned about raising taxes and overall spending levels. In the Senate, notably, a few key senators are voicing concerns and have spoken support for a smaller price tag between $1-2 trillion.  Regardless of the final size of the bill, many are wondering how it will receive funding. Here is what is being proposed so far on how to pay for such a bill:

  • Increase in the Corporate tax rate from 21% to 28%, with 25% being more likely
  • Minimum global tax rate on corporations of 21%, with 15% being more likely
  • Close tax loopholes for corporations
  • Elimination of “Carried Interest” provision (a way for hedge funds to tax their income as capital gains)
  • Increase the top marginal tax bracket back to 39.6%
  • Increase top capital gains rate to 39.6% for earnings of $1 million or more

While these are the most notable ways to pay for the bill, a few other ideas are being proposed. Wealth taxes are one way of targeting the wealthy that have been proposed to generate tax revenue. Senator Warren has been a proponent of taxing the wealth of American households with assets over $50 million, and there has been another proposal to tax investments annually on their value, regardless of gain. The wealth tax and investment tax would be difficult to implement and have different shortcomings, but both are unlikely to be put into place.

It is still too early to tell how the final form of the bill will look. However, investors need to know that it is becoming increasingly likely that an infrastructure package will occur, and there will be tax consequences to go with it. If you have questions or concerns on how these changes might affect your personal or business situation, please reach out to us at CPS Investment Advisors.

Michael E. Scott | MBA, CFA
Senior Portfolio Analyst

Protect Yourself from Identity Theft

Posted on September 7, 2021 in

In the modern world, your identity is a prime target for criminals. Some of today’s would-be identity thieves use sophisticated computer tools, while many are more modern versions of old-fashioned con artists. No matter what their methods, these scammers share common goals. Cyber-criminals want to empty your bank account, max out your credit cards, and use your identity for their nefarious purposes. Taking a few simple steps and remaining vigilant can prevent many identity theft crimes.

The term identity theft encompasses several different kinds of crimes. One kind of identity theft is “account takeover.” In this kind of crime, thieves will attempt to access your existing bank, brokerage, or credit card account and steal money from it. When your bank or credit card company notices suspicious activity, they may disable your account. The thieves may use your personal information to convince your bank or credit card company that the transactions are genuine.

The second kind of identity theft is impersonation. Cyber-criminals who gain access to your personal information can use it to open new credit accounts in your name. Because these are new accounts, you may not even know they exist until you notice them on your credit report or bill collectors start calling. In some cases, a bank you do not use may call to verify an account application. If this happens to you, it could be a warning sign that you are the target of a cyber-criminal.

Protect Your Identity Online and Offline

Protect your accounts by using strong passwords. The best passwords are random, but these can be hard to remember. If you have trouble keeping track of your passwords, tools like LastPass can help you keep your passwords safe and secure.

If you have social media accounts like Twitter or Facebook, review your privacy settings and be careful what you share. Anything that you share publicly could be used to impersonate you. Don’t create a password using names, places, pets, or dates that could be guessed from your social media accounts.
Be wary of impersonators! If you get a phone call from someone claiming to be from a bank, credit card company, or government agency, use caution. Don’t give out personal information over the phone unless you are completely sure of who you are talking to.

Check Your Credit Report Regularly

The Fair Credit Reporting Act requires the major credit bureaus to give you a free copy of your credit report every 12 months. Be careful when obtaining your credit report online. Many fake websites will try to charge you for a credit report or, worse, will sell your personal information. To get your free annual credit report, visit the Federal Trade Commission’s website at If you find fraudulent transactions on your credit reports, promptly contest them in writing with the credit bureaus.

The threat of identity theft and cyber-crimes will only continue to grow. Taking some simple steps to protect your personal information can help deter would-be cybercriminals. Be careful when posting online, be skeptical of unsolicited phone calls, use strong passwords, and keep them secret. Your financial health could depend on it!

Matthew A Treskovich | CFA, CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC
Chief Investment Officer

The U.S. Department of Labor, which oversees retirement plans, issued a new rule in February 2021. This new rule expands ERISA’s regulations to rollover assets from a 401(k). ERISA regulations mandate those that manage and control plan assets to act as fiduciaries. In summary, financial advisors are now required to act in your best interest when making recommendations on assets that are rolling out of your 401(k) and the assets already out of your 401(k).

Before this rule was put in place, advisors could recommend their clients rollover their 401(k) and invest in high-commissioned products such as loaded mutual funds or annuities, which will provide higher compensation to the advisor, but may not be in the client’s best interest. Now, any advisor making a recommendation to rollover assets from a 401(k) must act as a fiduciary in making that recommendation and make investment recommendations in a fiduciary manner.

This rule change could be very impactful. Remember, when advisors act as fiduciaries, they disclose conflicts of interest, offer prudent advice, charge reasonable fees, and divulge why rolling money into an IRA is in their best interest. When these rules go into effect in December, expect to see those advisors who won’t be able to meet the higher fiduciary standards, no longer handling rollover requests.

If you have recently retired, considered retirement, or changed jobs, what are the options with your 401(k) or other employer sponsored plan?

Do Nothing

Many plans allow former employees to leave their accounts in place, although some will not. The funds in your account will remain invested as they were, but you will be unable to make additional contributions. Additionally, because your account is still part of the employer’s plan, you may be subject to administrative fees.

Take a Distribution

A distribution entails moving cash from the plan and into your bank account to spend elsewhere. Taking a distribution can be a source of fast cash; however, there are tax implications and penalties that should be considered before accessing that cash. Many individuals that take distributions early end up paying over 30% in taxes and penalties.

Roll it Over

If you’re still working, you may be able to roll the 401(k) to your new company’s sponsored plan or convert it to an Individual Retirement Account (IRA). If you’re retired, then rolling over to an IRA would be the conversation you would have with your financial advisor. When it comes to rolling over assets of any kind, not only is it crucial to have a fiduciary on your side, but it’s now the rule.

When determining which option is best for you, seek advice from a fiduciary. CPS Investment Advisors is legally and ethically obligated to act in the best interest of our clients.

Tamara L Jemison
Retirement Plan Specialist

Many of us started the year with lofty goals and a financial plan for the new year. Now that we’re past the halfway point, it’s a great time to revisit those goals and see if you are still on track to achieve them.

What are your goals?

Perhaps you began the year with a goal of reducing debt or building an emergency fund. You might have wanted to start saving for college for your children, for your own retirement, or for a major purchase like a new home. In sports, everyone knows where the goal is, and the goal never moves. Home plate is always in the same place on a baseball field. The end zones on a football field are always one hundred yards apart.

Life doesn’t work that way! If your life has changed, you might find that your goals have moved. Things that seemed like goals at the beginning of the year might turn out to be mileposts on a longer journey. Don’t let what you thought you wanted limit your possibilities for the future.

Set better goals by thinking SMART

Good goals are Specific, Measurable, Achievable, Relevant, and Time-bound. Everyone wants to retire. Where would you like to retire? When do you plan to retire? How much money will you need in your retirement fund to make this happen? Do all of these add up to something that is realistic for you, considering where you are in life?

Saving diligently and investing wisely are essential for achieving financial goals. Most of the time, savings and investments are how we measure progress toward a goal, not goals in and of themselves. A good financial planner can help you figure out if you have enough money to achieve a goal. A truly great financial planner will help you figure out what your goals are, why they are important, and whether they really make sense for you.

Every great financial plan starts with an open and honest assessment of where you are and where you’d like to go. Be honest with yourself, your family, and your advisors about where you are and where you’d like to go. Don’t be afraid to reshape your goals based on where you are today. Having great goals is the first step in making sure your financial plan is Steady as you Grow™.

Matthew A Treskovich | CFA, CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC
Chief Investment Officer

Will or Trust? | Why Not Both!

Posted on August 17, 2021 in

An effective estate plan is one of the most crucial parts of a financial plan, but often a piece that is overlooked. Planning for what comes next can bring about difficult conversations and can at times feel intimidating but is key to designing a functional financial plan. When it comes time for to consider estate planning options as part of a financial plan, one of the first items discussed a will or trust. Simply put, wills and trusts are ways to distribute a person’s assets after their death. Both wills and trusts can be very simple, and both can become quite complex, depending on each situation. The important thing is to determine what you want to happen at your death and put a plan in place. This plan may include a will or a trust, and it may even include both.

Breaking It Down

A will is a legal document that dictates how you desire your assets to be distributed. Commonly after the passing of an individual, an executor, attorney, or some other personal representative will read the will and work with the court system to have the assets distributed. Often this involves going through the Probate process. Probate is not necessarily a bad thing, but it can be expensive, time consuming, and not private. Probate is just a court, with the help of a personal representative, reviewing the will and legally distributing the assets. Unfortunately, if there are discrepancies in a will or other documents being reviewed in probate, the process can run into problems and your wishes may not be carried out exactly as you intended.

On the other hand, a trust allows you to have more management or dictation about your assets after you pass. For married couples, blended families, families with special needs, trusts can be powerful tools to care and protect your loved ones. A trust could be used to protect a surviving spouse and children, ensuring their needs are met, but not allowing others to access the funds. For blended families where they may be second marriages and children from different spouses, a trust may ensure assets flow the way you intend after your passing. Trusts can even be used to dictate when children receive inheritance so that they don’t get everything at a young age or can be used to ensure a family member with special needs always is taken care of. Rather than simply stating you wishes in a will for these things to take place and trusting that will occur, a trust is a legal entity that can give you more control even after your gone.

Generally, assets within a trust are shielded from the public while a will does not. Neither a will or a trust will shield assets from the IRS entirely, but a trust may change how assets are taxed and who will pay the tax. Trusts can be revocable, meaning they can be changed while the creator is living, or can be irrevocable, meaning they cannot be changed without specific legal intervention.

A trust could play a beautiful part in a complex estate plan, but that doesn’t mean it acts alone. Even with a trust, it is common to have a will. Often the will points at the trust and acts as a directional sign. It may say that all assets should be in the trust, and anything not titled correctly in the trust is left to the trust, in this way acting like a pour-over will.

An estate planning attorney should provide a cover letter with the final documents informing the individual to make sure any assets allowed inside the trust are in the trust’s name. This can mean changing the titles of bank accounts, brokerage accounts, life insurance policies or beneficiaries. Traditional IRAs, Roth IRAs, and retirement plans have beneficiaries, so they do not need be changed. Although, it is extremely important to review your beneficiaries annually to make sure they are in accordance with your estate plan. If there are contradictions, that is where issues will begin to arise.

There is no one-size-fits-all guidance when it comes to wills or trusts. If you are looking to create your estate plan, make it a team approach. Be sure to include your CPA, your estate attorney, and your trusted financial advisor.  Having all individuals working together will ensure a well-drafted plan thought out to fit your specific needs and goals. Do not wait to make your plan and reevaluate your plan every three years if one exists. Do not make your loved ones suffer through your death as well as financial matters together. It is a selfless act to create a plan now.

Derek is a CERTIFIED FINANCIAL PLANNER™ and ACCREDITED ESTATE PLANNER® with extensive experience in investments, financial planning, and estate planning. With more than 17 years in the industry, he has dedicated his career to helping guide people in making sound financial decisions.

Derek M. Oxford | CFP®, AEP®
Financial Advisor

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