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The IRA and the 401(k)

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The IRA and the 401(k)

Comparing their features, merits, and demerits. 

How do you save for retirement? Two options probably come to mind right away: the IRA and the 401(k). Both offer you relatively easy ways to build a retirement fund. Here is a look at the features, merits, and demerits of each account, starting with what they have in common.

Taxes are deferred on money held within IRAs and 401(k)s. That opens the door for tax-free compounding of those invested dollars – a major plus for any retirement saver. (1)

IRAs and 401(k)s also offer you another big tax break. It varies depending on whether the account is traditional or Roth in nature. When you have a traditional IRA or 401(k), your account contributions are tax deductible, but when you eventually withdraw the money for retirement, it will be taxed as regular income. When you have a Roth IRA or 401(k), your account contributions are not tax deductible, but if you follow Internal Revenue Service rules, your withdrawals from the account in retirement are tax-free. (1)  

Generally, the I.R.S. penalizes withdrawals from these accounts before age 59½. Distributions from traditional IRAs and 401(k)s prior to that age usually trigger a 10% federal tax penalty, on top of income tax on the withdrawn amount. Roth IRAs and Roth 401(k)s allow you to withdraw a sum equivalent to your account contributions at any time without taxes or penalties, but early distributions of the account earnings are taxable and may also be hit with the 10% early withdrawal penalty.1  

You must make annual withdrawals from 401(k)s and traditional IRAs after age 70½. Annual withdrawals from a Roth IRA are not required during the owner’s lifetime, only after his or her death. Even Roth 401(k)s require annual withdrawals after age 70½. (2)

Now, on to the major differences.

Annual contribution limits for IRAs and 401(k)s differ greatly. You may direct up to $18,500 into a 401(k) in 2018; $24,500, if you are 50 or older. In contrast, the maximum 2018 IRA contribution is $5,500; $6,500, if you are 50 or older. (1)

Your employer may provide you with matching 401(k) contributions. This is free money coming your way. The match is usually partial, but certainly, nothing to disregard – it might be a portion of the dollars you contribute up to 6% of your annual salary, for example. Do these employer contributions count toward your personal yearly 401(k) contribution limit? No, they do not. Contribute enough to get the match if your company offers you one. (1)

An IRA permits a wide variety of investments, in contrast to a 401(k). The typical 401(k) offers only about 20 investment options, and you have no control over what investments are chosen. With an IRA, you have a vast range of potential investment choices. (1,3)

You can contribute to a 401(k) no matter how much you earn. Your income may limit your eligibility to contribute to a Roth IRA; at certain income levels, you may be prohibited from contributing the full amount, or any amount. (1)

If you leave your job, you cannot take your 401(k) with you. It stays in the hands of the retirement plan administrator that your employer has selected. The money remains invested, but you may have less control over it than you once did. You do have choices: you can withdraw the money from the old 401(k), which will likely result in a tax penalty; you can leave it where it is; you can possibly transfer it to a 401(k) at your new job; or, you can roll it over into an IRA. (4,5)

You cannot control 401(k) fees. Some 401(k)s have high annual account and administrative fees that effectively eat into their annual investment returns. The plan administrator sets such costs. The annual fees on your IRA may not nearly be so expensive. (1)

All this said, contributing to an IRA or a 401(k) is an excellent idea. In fact, many pre-retirees contribute to both 401(k)s and IRAs at once. Today, investing in these accounts seems all but necessary to pursue retirement savings and income goals.

I want to talk to someone about my IRA or 401(k)

J Rucci

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. The 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 the content, those securities held may change over time and trades may be contrary to outdated posts.

Citations.

1 – nerdwallet.com/article/ira-vs-401k-retirement-accounts [4/30/18]
2 – irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions [5/30/18]
3 – tinyurl.com/y77cjtfz [10/31/17]
4 – finance.zacks.com/tax-penalty-moving-401k-ira-3585.html [9/6/18]
5 – cnbc.com/2018/04/26/what-to-do-with-your-401k-when-you-change-jobs.html [4/26/18]

The Retirement Handbook: Southern California Edison Edition

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The Retirement Handbook: Southern California Edison Edition

Retirement is just around the corner, and you should be excited. But some of us have many questions and concerns about retirement causing us to feel more nervous than anything else.

We understand these feelings.

At Warren Street Wealth Advisors, we’ve helped hundreds of Southern California Edison retirees navigate this crucial time. In the process, we’ve learned about SCE’s retirement and employee benefits programs inside and out. We’ve put together our Southern California Edison Retirement Handbook as a guide for you.

1. Have a Plan

Nothing else on this list matters if you don’t have a personalized financial plan.

A personalized financial plan is the roadmap to your comfortable retirement. You can know your benefits inside-out and be clever about taxes and investments, but if you don’t have a roadmap for navigating your retirement, you’ll never feel confident along the way.

2. Seriously, Have a Plan

Having a plan is essential for any major life transition, and navigating your retirement with wisdom and confidence is certainly part of a major life transition!

OK, let’s move on…

3. Plan to Retire Around October

If you are grandfathered into the old SCE pension formula, then you should plan to retire around October. This will allow you to choose which year’s plan rate provides you with the better benefit (Learn more HERE).

It’s important to know that you have a choice, review your options, then decide whether to retire on December 1st or January 1st – whichever projection pays the higher benefit.

If you are not grandfathered, retiring at the end of the year is still a great idea, especially if you need to take a large distribution pre-59 ½.

You are not forced to take your final distribution at retirement. You can wait until January 1st, request your final distribution, and then take a direct payment to avoid penalties using the “55 rule” if you are 55 years or older. This will also allow you to defer the income tax to the following year’s tax return.

This might seem complicated, but it’s a normal process for our clients who retired early.

4. Retire After 55 But Before 59 1/2 Without Paying Penalties.

Here’s a scenario we see all the time: you’re 57. You want to retire. You don’t want to wait until 59 ½ to do it. But you know that there’s a 10% federal tax penalty and a 2.5% California state tax penalty if you take the money out of your IRA before 59 ½. So are you stuck? Nope.

There are a lot of moving parts to this process, but we can take advantage of IRS rules like 72(t) distributions or the previously mentioned “55 rule” to ensure our clients do everything possible to avoid paying penalties.

5. Take Advantage of Your Medical Subsidy

Did you know that you are eligible for a retiree medical subsidy? The most common subsidies are 50% and 85%. When you retire, Edison will pay either 50% or 85% of your current medical insurance premium as a “continuation benefit” in retirement. Simply put, what you pay today is what you’ll pay in retirement. Of course, this is as long as you reach your required benefit milestone.

Unsure what your benefit is? You can call EIX Benefits to ask what benefit you have and at what age you’ll receive it. Call 866-693-4947.

Medical expenses are a huge cost for retirees, knowing what portion is covered by your employer is critical to planning a successful retirement.

6. Say “Goodbye” to Credit Card Debt

If you have credit card debt, then it’s time for a plan, a budget, and some hard work.

Debt can be intimidating, but you can pay it off! One of our favorite things is a client freeing themselves from the stress of mounting credit card debt. You may just need some help and a plan.

7. If Eligible, Plan for Your Sick Time Payout

Your sick time payout can be a significant amount and can be a boost into retirement, especially if you’re retiring early. You can run a pension projection online that will include a calculation of your accrued sick time payout . This will provide  you more clarity about how much money you’ll start with when you retire, and it could help bridge the gap to 59 ½.

8. Build and Keep a Budget

We get it: it’s no fun to build a budget, but it’s the first step to discovering what retirement will look like.

Get rid of the stuff you don’t use and keep what makes you happy! Not sure where to start? No problem, use our Retirement Tool Kit to make it easy.

9. Build Up 6-Months Worth of Emergency Savings

We’re always optimistic about the future, but sometimes life takes surprising and difficult turns. Wise financial planning means being prepared for those situations.

We recommend that you save at least 6-months worth of living expenses in case of an emergency. Need $4,000/month to live? Then have around $24,000 in savings & checking. Now, you’re prepared for the ups and downs that life can throw at us at any age.

10. Weigh All Your Options on Social Security

There is a lot of information out there about what to do with Social Security. Let me boil it all down: you don’t have to take it at 62! When we build a financial plan for a client, we calculate all options for optimizing Social Security.

It’s ultimately your decision, we suggest weighing your options before committing to collecting the 25-30% reduced benefit at age 62.

11. Invest for Retirement

Max out your 401(k). Diversify your investments. Consider hiring a pro.

Make sure your investments are retirement ready. Do you have too much cash? Too much of a single stock? If you have ESOP shares, are you getting the most tax efficiency with them?

If you’re unsure, then having a team on your side can help you get the most out of your plan and make sure your investments match your goals and objectives.

12. Have a Plan

You didn’t think this was going to end without one more reminder, did you? If you’re not sure where to start with your financial plan, that’s OK: we can help.

Contact Us

Schedule a free consultation to talk through your finances and take the first step toward building a confident retirement.

Warren Street Wealth Advisors LLC. is a Registered Investment Advisor. The information posted here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. 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 – July

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Rate Watch 2018 – July

We are only a couple month away from the August segment rate announcement. Where could rates land for SCE grandfathered pension holders as we head into the fall?

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 – May & June
Rate Watch 2018 – April
Rate Watch 2018 – March
Rate Watch 2018 – February

June’s posting puts us 2 months away from August’s rate which is typically used by Southern California Edison for the grandfathered pension plan. If you are eyeballing retirement soon, then it is essential to understand where the rate is now and where it could be going. Here is the latest:

chart

*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.

July at 4.60 puts us nearly 25 points above the current plan rate and would drive your current lump sum value down if you took your pension in 2019.

Nominally, nothing has really changed month-to-month, but there has also not been much going on that would drastically press the rates higher over the time period. The most important thing to note would be inflation slowly on the rise as we continue to be in an environment of historically low rates.

For those in the grandfathered pension plan and who believe they are on the brink of retirement, it is more important now than ever to begin putting a plan in place and seeing what your retirement looks like. Knowing how your assets weigh against your liabilities, how much you might need every year in retirement, and if you have the assets to accomplish everything you want are important answers to have before you have your final day of work.

If the official rate was announced today, then it may make sense to take your pension in the current plan year due to the fact that as rates increase, lump sum values decrease.

If you are just unsure of what your retirement looks like, then feel free to contact us for a free phone call or meeting. We have helped 100’s of SCE employees retire and numerous grandfathered pension holders weigh their options out to give themselves the best possible outcome and start to retirement.

Contact Us

WSWA Team Compressed-19-squareJoe Occhipinti
Wealth Advisor
Warren Street Wealth Advisors

 

 


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. 

 

Rate Watch 2018 – May & June

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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.

*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

WSWA Team Compressed-19-squareJoe 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.

 

72(t) Distributions

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72t Distributions

Sometimes you can take penalty-free early withdrawals from retirement accounts.

Do you need to access your retirement money early? Maybe you just want to retire before you turn 60 and plan a lifelong income stream from the money you have saved and invested. You may be surprised to know that the Internal Revenue Service allows you a way to do this, provided you do it carefully.

Usually, anyone who takes money out of an IRA or a retirement plan prior to age 59½ faces a 10% early withdrawal penalty on the distribution. That isn’t always the case, however. You may be able to avoid the requisite penalty by taking distributions compliant with Internal Revenue Code Section 72(t)(2).(1)

While any money you take out of the plan will amount to taxable income, you can position yourself to avoid that extra 10% tax hit by breaking that early IRA or retirement plan distribution down into a series of substantially equal periodic payments (SEPPs). These periodic withdrawals must occur at least once a year, and they must continue for at least 5 full years or until you turn 59½, whichever period is longer. (Optionally, you can make SEPP withdrawals every six months or on a quarterly or monthly basis.)(1,2)

How do you figure out the SEPPs? They must be calculated before you can take them, using one of three I.R.S. methods. Some people assume they can just divide the balance of their IRA or 401(k) by five and withdraw that amount per year – but that is not the way to determine them.(2)

You should calculate your potential SEPPs by each of the three methods. When the math is complete, you can schedule your SEPPs in the way that makes the most sense for you.

The Required Minimum Distribution (RMD) method calculates the SEPP amount by dividing your IRA or retirement plan balance at the end of the previous year by the life expectancy factor from the I.R.S. Single Life Expectancy Table, the Joint Life and Last Survivor Expectancy Table, or the Uniform Lifetime Table.(1,2)

The Fixed Amortization method amortizes your retirement account balance into SEPPs based on your life expectancy. A variation on this, the Fixed Annuitization method, calculates SEPPs using your current age and the mortality table in Appendix B of Rev. Ruling 2002-62.(1,2)

If you use the Fixed Amortization or Fixed Annuitization method, you are also required to use a reasonable interest rate in calculating the withdrawals. That interest rate can’t exceed more than 120% of the federal midterm rate announced periodically by the I.R.S.(1,3)

A lot to absorb? It certainly is. The financial professional you know can help you figure all this out, and online calculators also come in handy (Bankrate.com has a good one).

There are some common blunders that can wreck a 72(t) distribution. You should be aware of them if you want to schedule SEPPs.

If you are taking SEPPs from a qualified workplace retirement plan instead of an IRA, you must separate from service (that is, quit working for that employer) before you take them. If you are 51 when you quit and start taking SEPPs from your retirement plan, and you change your mind at 53 and decide you want to keep working, you still have this retirement account that you are obligated to draw down through age 56 – not a good scenario.(1)  

Once you start taking SEPPs, you are locked into them for five consecutive years or until you reach age 59½. If you break that commitment or deviate from the SEPP schedule or calculation method you have set, a 10% early withdrawal penalty could apply to all the SEPPs you have already made, with interest. (Some individuals can claim exceptions to this penalty under I.R.S. rules.)(3,4)

The I.R.S. does permit you to make a one-time change to your distribution method without penalty: if you start with the Fixed Amortization or Fixed Annuitization method, you can opt to switch to the RMD method. You can’t switch out of the RMD method to either the Fixed Amortization or Fixed Annuitization method, however.(2)

If you want or need to take 72(t) distributions, ask for help. A financial professional can help you plan to do it right.

I want to talk to someone about retiring early

J Rucci

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/Retirement-Plans-FAQs-regarding-Substantially-Equal-Periodic-Payments [12/19/17]
2 – fool.com/retirement/2017/05/19/use-your-retirement-savings-early-with-substantial.aspx [5/19/17]
3 – thebalance.com/how-to-use-72-t-payments-for-early-ira-withdrawals-2388257 [9/20/17]
4 – military.com/money/retirement/second-retirement/early-retirement-options.html [5/7/18]

The Solo 401k

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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)

J Rucci

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]

Rate Watch 2018 – April

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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.

*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 OcchipintiJoe 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.

 

Why Having a Financial Professional Matters

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Why Having a Financial Professional Matters

A good financial professional provides important guidance and insight through the years.

What kind of role can a financial professional play for an investor? The answer: a very important one. While the value of such a relationship is hard to quantify, the intangible benefits may be significant and long lasting.

A good financial professional can help an investor interpret today’s financial climate, determine objectives, and assess progress toward those goals. Alone, an investor may be challenged to do any of this effectively. Moreover, an uncounseled investor may make self-defeating decisions.

Some investors never turn to a financial professional. They concede that there might be some value in maintaining such a relationship, but they ultimately decide to go it alone. That may be a mistake.

No investor is infallible. Investors can feel that way during a great market year, when every decision seems to work out well. In long bull markets, investors risk becoming overconfident. The big-picture narrative of Wall Street can be forgotten, along with the reality that the market has occasional bad years.

This is when irrational exuberance creeps in. A sudden market shock may lead an investor into other irrational behaviors. Perhaps stocks sink rapidly, and an investor realizes (too late) that a portfolio is overweighted in equities. Or, perhaps an investor panics during a correction, selling low only to buy high after the market rebounds.

Often, investors grow impatient and try to time the market. Poor market timing may explain this divergence: according to investment research firm DALBAR, the S&P 500 returned an average of 8.91% annually across the 20 years ending on December 31, 2015, while the average equity investor’s portfolio returned just 4.67% per year.(1)       

The other risk is that of financial nearsightedness. When an investor flies solo, chasing yield and “making money” too often become the top pursuits. The thinking is short term.

A good financial professional helps a committed investor and retirement saver stay on track. He or she helps the investor set a course for the long term, based on a defined investment policy and target asset allocations with an eye on major financial goals. The client’s best interest is paramount.

As the investor-professional relationship unfolds, the investor begins to notice the intangible ways the professional provides value. Insight and knowledge inform investment selection and portfolio construction. The professional explains the subtleties of investment classes and how potential risk often relates to potential reward. Perhaps most importantly, the professional helps the client get past the “noise” and “buzz” of the financial markets to see what is really important to his or her financial life.

This is the value a financial professional brings to the table. You cannot quantify it in dollar terms, but you can certainly appreciate it over time.

 

 

Blake StreetBlake 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.

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 – zacksim.com/heres-investors-underperform-market/ [5/22/17]

Rate Watch 2018 – March

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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:

March 2018

*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 OcchipintiJoe 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.