Case Study: Minimizing Taxes, Maximizing Social Security

July 19, 2018/in Basic, Education, Financial Planning, General /by Blake Street

Case Study – Minimizing Taxes, Maximizing Social Security

Learn how we helped an individual client get their desired income level in retirement all while minimizing their tax liability and maximizing their Social Security.

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Contact Us with Your Case

Blake Street CFA, CFP®
Founding Partner
Chief Investment Officer
Warren Street Wealth Advisors

Blake Street is an Investment Advisor Representative of Warren Street Wealth Advisors, a Registered Investment Advisor. Information contained herein does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information. A professional advisor should be consulted before implementing any of the strategies or options presented.

Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Past performance may not be indicative of future results. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may materially alter the performance, strategy, and results of your portfolio. Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results.Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.

Periodic Table of Investing

July 13, 2018/in Education, Investing /by Blake Street

Periodic Table of Investing

Dust off your memories of high school chemistry and think of your investment returns and your investment risks as two separate and distinct members of the periodic table. Certain elements (in this case, securities) are prone to interact when mixed, while others may remain neutral. Each element (security) will always have its own separate and unique profile and characteristics.

Starting with carbon, one of the world’s most important elements, I’d equate carbon to U.S. stocks. Regardless of age, every investor we work with has likely benefited from or utilized this element and will continue to do so in some capacity going forward.

Argon, the world’s least reactive element, tends to be more akin to Treasury Bonds or cash, not responding negatively to volatility much, if at all.

I’m far from the first person to think of investments in this way, in-fact there is deep history in what many refer to as the “Callan Chart” or “Periodic Table of Returns”. Below you’ll see a large majority of the world’s major asset classes and their returns relative to zero:

https://www.callan.com/periodic-table/

The most striking thing from this chart is that after a disastrous 2008 for everything except U.S. Bonds (argon), the only asset class that is yet to have a negative year is Large Cap ($10B+) U.S. Stocks (starred).

Winners and Losers

Charlie Bilello via Twitter

This freedom from negative returns and the compounding of large year-to-year gains has led to outsized outperformance from Large U.S. stocks. Over the last 10 years, Large U.S. stocks have produced cumulative total returns of 158%. Developed Foreign Country stocks have produced 19% and Emerging Markets only 16%.

Two takeaways from this are: the power of compounding positive returns but even more important is the force of losses and the time it takes to make them up. In addition, one recurring theme of study and practice in investing is that asset prices move in cycles. While U.S. outperformance seems like an unbreakable cycle, it’s just a matter of time.

Trading Places

Take a look below at how U.S. and international stock market leadership has traded off over time. Most recently international stocks outperformed from 2003-2009, and the U.S. finds itself on its longest stretch of outperformance since 1979.

We have been incrementally positioning our clients’ portfolios for this eventual inflection since 2015. Last year we looked right, this year thus far we look wrong. Personally, I just consider myself patient as I wait for a multi-year trend to unfold.

Whether it’s high prices and valuation concerns or much of the low hanging fruit in our U.S. economic recovery is out of the way, we have a firm conviction in our posture of reducing U.S. stock market exposure. Having said that, we do not have a proverbial crystal ball, therefore we diversify and avoid throwing all of our eggs into the international basket.

Don’t Give up on Bonds

In addition, we haven’t given up on bonds, which have been tough to own this year, with U.S. Bonds down on average -1.62%.

https://www.callan.com/periodic-table/

It’s important to keep in mind how bonds have performed during down years for the stock market, something that is potentially in the cards this far into an extended bull market.

One does not need to own the entire U.S. bond market via an index fund or otherwise. We currently prefer shorter term bonds, typically corporate bonds, and even in some cases inflation protected bonds. With a recent uptick in short-term government bonds, they aren’t nearly as painful to hold as in years past when yields hovered near zero. The 2-year treasury currently yields 2.829%, at the time of writing this article.

Late Cycle Playbook

With a backdrop of rising inflation globally, rising rates here in the U.S., accommodative monetary policy globally, and stretched valuations in U.S. equity markets, we continue to prefer assets that tend to outperform late in the economic cycle and when the factors above are present.

These assets include:

International and Emerging Market stocks
Industrials, Metals, Energy
Shorter Term Bonds, TIPS

Signing Off

While we realize this year has been far less exciting than the last, we remain firm in our convictions on how we want to combine elements from the “Periodic Table of Returns” moving forward. We stand at the ready to buy into recent market weakness and will not capitulate to chasing what has done well. We appreciate your continued trust and patience while we navigate through what’s been an unstable first half of 2018. Don’t hesitate to contact our office should you have any questions or concerns about how we are approaching your investments.

Respectfully yours,

Blake Street, CFA, CFP®

Blake Street, CFA, CFP®
Chief Investment Officer
Founding Partner
Warren Street Wealth Advisors

Blake Street is an Investment Advisor Representative of Warren Street Wealth Advisors, a Registered Investment Advisor. Information contained herein does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information. A professional advisor should be consulted before implementing any of the strategies or options presented.

Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Past performance may not be indicative of future results. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may materially alter the performance, strategy, and results of your portfolio. Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.

Case Studies: An Introduction

June 28, 2018/in Basic, Education, Financial Planning, General /by Blake Street

Case Studies

With each case study, we hope to show the value we deliver to clients through comprehensive financial planning and keeping the client first, always.

People ask us: “what makes Warren Street different?”

We like to mention that we are a true ensemble practice. That means you don’t just get one advisor, you get a team of advisors that each work on their core competency to deliver the best possible client experience.

With the team approach, we can collaborate to deliver the best possible set of answers for our clients when it comes to their financial planning or investment needs.

Every Friday, the team gets together to discuss recent client questions or planning issues, and we present the client, their goal, and the current hurdles in the way, then we discuss them at length to then produce the best possible course of action.

The most important rule of Case Studies is that everything must be in the best interest of the client when it comes to all facets of the financial planning or investment process. From tax implications all the way to behavioral finance, we want to make sure that everything is done with the client’s best interest at the center of it all.

With that, we wanted to start sharing some of our most interesting and technical cases to display what we bring to the table for our clients.

Stay tuned for our first case in the coming week where we tackle maximizing income, Social Security, and managing tax liability for a retired client.

Contact Us with Your Case

Blake Street CFA, CFP®
Founding Partner
Chief Investment Officer
Warren Street Wealth Advisors

Blake Street is an Investment Advisor Representative of Warren Street Wealth Advisors, a Registered Investment Advisor. Information contained herein does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information. A professional advisor should be consulted before implementing any of the strategies or options presented.

Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Past performance may not be indicative of future results. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may materially alter the performance, strategy, and results of your portfolio. Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results.Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.

Rate Watch 2018 – May & June

June 27, 2018/in Basic, Education, General, Investing, Retirement /by Cary Facer

Rate Watch 2018 – May & June

Heading into the summer, what do segment rates look like and how could that impact grandfathered pension holders?

Welcome to another edition of Rate Watch as we track the interest rate that is vital to the grandfathered pension at Southern California Edison. If you’ve missed any of our previous articles, you can find them here:

Rate Watch 2018 – April
Rate Watch 2018 – March
Rate Watch 2018 – February
Rate Watch 2018 – January

The IRS posting in June will give us the segment rate for May 2018, which puts us at only a couple readings away from the official rate announcement for the grandfathered pension in the fall. Let’s take a look at where rates are at currently:

*These are not current plan rates for Southern California Edison’s pension plan, they are minimum present value third segment rates from the IRS. Official plan rates are derived from the minimum present value segment rates table (https://www.irs.gov/retirement-plans/minimum-present-value-segment-rates) . Plan rate changes are made by Southern California Edison on an annual basis.

You may have noticed that we skipped April , but the reading from March to April was actually flat at 4.43. At that time, we still consider it early to make a decision based off of rates, but we have seen a larger move from April to May.

May’s number of 4.58, 3 months away from the official SCE rate announcement, begins to move the conversation towards retirement in the current plan year. A nearly quarter percent increase paints a much stronger picture for grandfathered pension holders to retire in the current year versus 2019 granted that they are retirement ready.

Interest rate increases were driven by a strong 10 year Treasury rate and inflation slowly on the rise. Coupled with the Fed continuing to monitor the economy, small increases in the rate across the summer are plausible as we head towards the fall.

As always, if the official plan rate for Southern California Edison grandfathered pension holders increases, then the value of their pensions decrease. It is imperative to weigh the current year plan value versus the following year plan value when it comes to your retirement. While your pension value shouldn’t be the only variable when it comes to deciding if you’re ready for retirement, it is one that should be taken into account and can make a difference.

Are you worried about your retirement plans or concerned with how to handle your pension or 401(k)? Maybe you’re just unsure on how the transition to retirement works. We’ve helped countless Southern California Edison employees plan for retirement, and we can help you plan too.

Contact us for a free retirement planning session or portfolio analysis. Our free session over the phone or at our office gives you the opportunity to get your retirement questions answered and learn how we help our clients reach their retirement goals.

Contact Us

Joe Occhipinti
Wealth Advisor
Warren Street Wealth Advisors

Joe Occhipinti is an Investment Advisor Representative of Warren Street Wealth Advisors, a Registered Investment Advisor. Information contained herein does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information. A professional advisor should be consulted before implementing any of the strategies or options presented.

Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Past performance may not be indicative of future results. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may materially alter the performance, strategy, and results of your portfolio.Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results.Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.

Practice with Genene Dunn: Trust Basics

June 8, 2018/in Basic, Education, General, Investing, Retirement /by Cary Facer

Warren Street Sits Down with Partner Genene Dunn

At Warren Street, we want to ensure we are continuing our education to give our clients a financial edge. This applies to all aspects of their overall financial picture.

We recently had the opportunity to sit down with one of the partners of the law firm Hunsberger Dunn, LLP, Genene Dunn. During our conversation, we had the chance to talk with her about estate planning, and specifically, building a trust.

Here are some of the issues we discussed, our key takeaways, and some of the nuances we learned regarding trusts and avoiding the probate process.

Who needs a trust and what does it do?

A trust’s primary objective is to avoid probate for the client. Period.

The threshold for probate is $150,000 of real assets, which are defined as physical assets that have value due to their substance. Real assets can be things such as: precious metals, commodities, real estate, land, machinery, or oil, so estate with $150,000 in real assets or more without a trust is subject to probate.

Genene gave the example of $500,000 in real assets with no trust. In this instance, you can expect to pay approximately $26,000 in fees.

Going through probate, both the lawyer and the personal representative (administrator), the person named by the court to handle the estate, are paid according to the fee schedule below. This is why probate can be so expensive.

Not only is probate an expensive process, but it is lengthy as well. The probate system in Orange County is significantly backed up, it could take up to a year to complete the process.

If you have real assets in excess of $150,000, it might be time to start thinking about building your own trust and avoiding the probate process all together.

How do I handle creditors when the trustee has passed?

If the deceased person had debt in their names, then these become debts of the trust. They do not become debts of the beneficiaries.

When handling credit card collections, the collectors have 4 months after the announcement of the death of the trustee to file for a claim for their debt. An announcement of death can be placed in the local newspaper of the trustee. If the credit card companies do not file their claims through the appropriate process within this 4-month window, their claim becomes void and does not need to be paid by the trust.

If there is real property inside the trust, such as real estate, Genene suggested to continue paying the bills that “keep the lights on”, such as utilities and house maintenance services (pool cleaning, gardening, etc.). The reason for this is that the property may eventually be sold and you want it to remain presentable to a prospective buyers.

What about my 401(k) or other outside accounts?

Genene will sometimes gets asked about placing a 401(k) or retirement account inside a trust. This is something that is probably not recommended as these types of accounts have listed beneficiaries. Probate can be avoided if the beneficiaries are named and appropriate forms are completed.

On the other hand, non-retirement or brokerage accounts can be placed inside the trust to then be distributed according to the wishes of the grantor, the person who established the trust.

Another interesting topic was Transfer on Death (TOD) bank accounts. If a TOD is in place, then you can present your bank branch with a Death Certificate, which typically can take 10-12 days to process, before being allowed access to funds. However, if they accounts are held in trust, there would be no delay since a spouse is typically the co-trustee and would be able to act on the account immediately upon death. If there is not a Transfer on Death established or a trust account, then the assets would be subject to probate.

Special Needs Beneficiaries

One of the most interesting things we learned from our conversation was with regard to children or beneficiaries that have special needs. Some of these people receive assistance from the government for their condition, and they can become disqualified from that assistance if they have an interest in the assets of a trust.

It is imperative if you have someone in your life with special needs whom you want to ensure receives assets from your estate, that a special needs trust is established and that it is set up correctly to avoid disqualifying them from government assistance in the future.

As we had mentioned earlier, the main objective of establishing a trust is to avoid probate and the wasted time and expense associated with it. A trust usually runs between $2,000-$3,000 depending on the complexity, but the amount of time and money saved by going through the process can be 8-10x the cost of the trust itself. Not to mention not having to waste time in an Orange County probate system that is already significantly backed up.

If you are concerned about your current estate planning situation, including your current assets, trusts or other aspects of your plan, please feel free to contact us to discuss.

Contact Us

Next Event: Taxes & You

Joe Occhipinti
Wealth Advisor
Warren Street Wealth Advisors

Joe Occhipinti is an Investment Advisor Representative of Warren Street Wealth Advisors, a Registered Investment Advisor. Information contained herein does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information. A professional advisor should be consulted before implementing any of the strategies or options presented.

Warren Street Wealth Advisors and its representatives are not attorneys and all information herein should be verified via qualified legal opinion.

Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Past performance may not be indicative of future results. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may materially alter the performance, strategy, and results of your portfolio.Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results.Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.

The Solo 401k

June 4, 2018/in Education, Financial Planning, Investing, Retirement, Taxes /by Justin D. Rucci, CFP®

The Solo 401k

A retirement savings vehicle designed for the smallest businesses.

A solo 401(k) lets a self-employed individual set up a 401(k) plan combined with a profit-sharing plan. You can create one of these if you work for yourself or for you and your spouse.(1)

Reduce your tax bill while you ramp up your retirement savings. Imagine nearly tripling your retirement savings potential. With a solo 401(k), that is a possibility. Here is how it works:

*As an employee, you can defer up to $18,500 of your compensation into a solo 401(k). The yearly limit is $24,500 if you are 50 or older, for catch-up contributions are allowed for these plans.(1)

*As an employer, you can have your business make a tax-deductible, profit-sharing contribution of up to 25% of your compensation as defined by the plan. If your business isn’t incorporated, the annual employer contribution limit is 20% of your net earnings rather than 25%. If you are a self-employed individual, you must calculate the maximum amount of elective deferrals and non-elective contributions you can make using the methods in Internal Revenue Service Publication 560.(1,2)

*Total employer & employee contributions to a solo 401(k) are capped at $55,000 for 2018.(1)

Are you married? Add your spouse to the mix. If your spouse is a full-time employee of your business, then he or she can also make an employee contribution to the plan in 2018, and you can make another profit-sharing contribution on your spouse’s behalf. (For this to happen, your spouse must have net self-employment income from the business.)(2,3)

The profit-sharing contributions made by your business are tax-deductible. Annual contributions to a solo 401(k) are wholly discretionary. You determine how much goes in (or doesn’t) per year.(2,4)

You can even create a Roth component in your solo 401(k). You can direct up to $5,500 annually (or $6,500 annually, if you are 50 or older) into the Roth component of the plan. You cannot make employer contributions to the Roth component.(3)

Rollovers into the plan are sometimes permitted. Certain plan providers even allow hardship withdrawals (loans) from these plans prior to age 59½.(5)

There are some demerits to the solo 401(k). As you are setting up and administering a 401(k) plan for your business, you have to see that it stays current with ERISA and IRC regulations. Obviously, it is much easier to oversee a solo 401(k) plan than a 401(k) program for a company with 15 or 20 full-time employees, but you still have some plan administration on your plate. You may not want that, and if so, a solo 401(k) may have less merit than a SEP or traditional profit-sharing plan. The plan administration duties are relatively light, however. There are no compliance testing requirements, and you will only need to file a Form 5500 annually with the I.R.S. once the assets in your solo 401(k) exceed $250,000.(4)

If you want to hire more employees, your solo 401(k) will turn into a standard 401(k) plan per the Internal Revenue Code. The good news is that you can present your new hires with an established 401(k) plan.(2,3)

On the whole, solo 401(k)s give SBOs increased retirement savings potential. If that is what you need, then take a good look at this option. These plans are very easy to create, their annual contribution limits far surpass those of IRAs and stand-alone 401(k)s, and some custodians for solo 401(k)s even give you “checkbook control” – they let you serve as trustee for your plan and permit you to invest the funds across a variety of different asset classes.(5)

Justin D. Rucci, CFP®
Wealth Advisor
Warren Street Wealth Advisors

Justin D. Rucci is an Investment Advisor Representative of Warren Street Wealth Advisors, a Registered Investment Advisor. Information contained herein does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information. A professional advisor should be consulted before implementing any of the strategies or options presented.

This material was prepared by Marketing Pro, Inc. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Past performance may not be indicative of future results. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may materially alter the performance, strategy, and results of your portfolio.Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results.Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.

Citations.

1 – irs.gov/retirement-plans/one-participant-401k-plans [10/25/17]
2 – mysolo401k.net/solo-401k/solo-401k-contribution-limits-and-types/ [2/13/18]
3 – doughroller.net/retirement-planning/solo-401k-best-retirement-plan-self-employed/ [5/21/17]
4 – tdameritrade.com/retirement-planning/small-business/individual-401k.page [2/13/18]
5 – thecollegeinvestor.com/18174/comparing-the-most-popular-solo-401k-options/ [12/11/17]

Form 5498 – What is it?

May 25, 2018/in Education, General, Investing, Taxes /by Veronica Cabral

Form 5498 – What is it?

If you have an IRA open, then you might have received a form in the mail.

This is Form 5498, and it summarizes the type of IRA that you have (traditional, Roth, SEP, or SIMPLE) and the total annual contributions made to the account for the previous tax year. Additionally, it will also note any transfers or roll overs from other types of retirement accounts into your IRA.

Here are 4 quick things you can do with the form:

Review it for accuracy for contribution and/or rollover amounts
Review your account values from December, 31 2017 to ensure they match your statements
Review your tax return to make sure that any tax deductible contributions were accounted for
Keep a copy for your records

If you do not have an IRA account with us or did not make contributions into your IRA account, then you most likely did not receive a Form 5498.

Should you have any questions, feel free to reach out to us for clarification.

Contact Us

Veronica Torres
Director of Operations
Warren Street Wealth Advisors

Veronica Torres is an Investment Advisor Representative of Warren Street Wealth Advisors, a Registered Investment Advisor. Information contained herein does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information. A professional advisor should be consulted before implementing any of the strategies or options presented.

Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Past performance may not be indicative of future results. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may materially alter the performance, strategy, and results of your portfolio. Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.

Rate Watch 2018 – April

May 2, 2018/in Basic, Education, General, Investing, Retirement /by Cary Facer

Welcome to another edition of Rate Watch as we track the interest rate that is vital to the grandfathered pension at Southern California Edison. If you’ve missed any of our previous articles, you can find them here:

Rate Watch 2018 – March
Rate Watch 2018 – February
Rate Watch 2018 – January
Rate Watch 2017 – August

The third rate of 2018 begins to paint a new picture of where rates have the potential to go in the fall of 2018. The latest comes after increased Fed conversations on future rate hikes and an increase in March. Let’s take a look at the most recent numbers:

*These are not current plan rates for Southern California Edison’s pension plan, they are minimum present value third segment rates from the IRS. Official plan rates are derived from the minimum present value segment rates table (https://www.irs.gov/retirement-plans/minimum-present-value-segment-rates) . Plan rate changes are made by Southern California Edison on an annual basis.

March’s value of 4.43 gives us the first reading higher than the current official plan rate of 4.36, a 0.07% change. With the Fed announcing an increase in rates by 0.25% to a range of 1.50-1.75%, the sixth rate hike since 2015, is said to be one of many by the Fed in 2018. They continue to point to strong economic outlooks and labor conditions as reasons to pencil in future hikes, but we will have to see how the market reacts.

This also brings some new thinking for grandfathered pension holders because this could produce a situation where the following year’s interest rate will be higher than the current value, and increases in interest rates will produce a smaller lump sum payout for grandfathered pension holders. The inverse is true for rate decreases; however, it looks like that could be a less likely scenario should this trend continue.

Remember, if you are planning on retiring as a grandfathered pension holder, then you have a choice on when you want to set your commencement date and pick which rate produces a more favorable outcome.

I think we’ve become a broken record at this point by saying this, but it is still a tad early to make any huge decisions, but the fall will soon be upon us. As always, this is only one metric to look at as you think about retirement, but it is an important one.

Developing a financial plan on how to approach retirement and maximize your benefits is important, so make sure you are working with someone who is familiar with Edison’s benefits and knows how they work.

Worried about your retirement plans? Concerned with how to handle your pension or 401(k)? Maybe you’re just unsure on how the transition to retirement works. We’ve helped countless Southern California Edison employees plan for retirement. Contact us for a free retirement planning session or portfolio analysis.

Joe Occhipinti
Wealth Advisor
Warren Street Wealth Advisors

Joe Occhipinti is an Investment Advisor Representative of Warren Street Wealth Advisors, a Registered Investment Advisor. Information contained herein does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information. A professional advisor should be consulted before implementing any of the strategies or options presented.

Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Past performance may not be indicative of future results. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may materially alter the performance, strategy, and results of your portfolio.Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results.Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.

Rate Watch 2018 – March

April 12, 2018/in Basic, Education, General, Investing, Retirement /by Cary Facer

Welcome to another edition of Rate Watch as we track the interest rate that is vital to the grandfathered pension at Southern California Edison. If you’ve missed any of our previous articles, you can find them here:

Rate Watch 2018 – February
Rate Watch 2018 – January
Rate Watch 2017 – August
Rate Watch 2017 – July

The second rate of 2018 is an interesting one as it comes a couple days before the Fed’s announcement to raise interest rates 0.25% on March 21st, 2018, but let’s take a look at the most recent numbers:

*These are not current plan rates for Southern California Edison’s pension plan, they are minimum present value third segment rates from the IRS. Official plan rates are derived from the minimum present value segment rates table (https://www.irs.gov/retirement-plans/minimum-present-value-segment-rates) . Plan rate changes are made by Southern California Edison on an annual basis.

February’s reading takes us closer to the current grandfathered rate for 2018, 4.36. This would bring very little change to your lump sum grandfathered pension value as of right now, but it could be an indicator of where rates could end up in the fall. Again, we can’t emphasize enough, it is still early in the year and rates could go anywhere as the months continue.

One of the most interesting factors for following months will be if the Fed increasing interest rates will have any impact on minimum present value segment rates, which are the rates used to determine the official grandfathered rate in the fall.

Remember, your grandfathered pension is just one of many factors that you should examine when thinking about retirement. There are many moving parts that extend further than interest rates and lump sum payout values.

Unsure if you are on the right track for retirement? Concerned about your 401(k) or other retirement investments? Contact us for a free retirement goals session or portfolio analysis.

Joe Occhipinti
Wealth Advisor
Warren Street Wealth Advisors

Joe Occhipinti is an Investment Advisor Representative of Warren Street Wealth Advisors, a Registered Investment Advisor. Information contained herein does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information. A professioanl advisor should be consulted before implementing any of the strategies or options presented.

Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Past performance may not be indicative of future results. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may materially alter the performance, strategy, and results of your portfolio.Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results.Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. Nothing in this commentary is a solicitation to buy, or sell, any securities, or an attempt to furnish personal investment advice. We may hold securities referenced in the blog and due to the static nature of content, those securities held may change over time and trades may be contrary to outdated posts.

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