Pros & Cons of Investing in an IRA

Is an IRA good for your situation?

For those who don’t know what an IRA is, it stands for an individual retirement account. They are a popular place to save for retirement because they are flexible from the standpoint of what you can invest in. For example you can choose mutual funds, ETFs, index funds, bonds, stocks, and even things like limited partnerships and collectibles. Another major reason for their popularity is that they provide a tax deduction so that you can reduce your income taxes.

What about the bad news? Here are some of the reasons why they are not popular…

  • iraYou cannot borrow from the account. It is stuck in there until age 59.5
  • No selling property to it
  • Not able to use it as security for a loan
  • Cannot buy property for personal use

The big issue with IRAs are the penalties. If you go outside of the investment restrictions it can cost you big time.

Anything from the amount of money taken from the IRA to the entire balance being treated as taxable income if you violate the restrictions.

The penalty is for pulling the money out before the eligible retirement window is 10%

  • The most common limitation to traditional IRAs and Roth IRAs are the income limits. Once you make over a certain amount, you cannot contribute to them any longer in the normal prescribed manner. You have to use additional methods in order to participate in them to get around the income restrictions.
  • The biggest drawback of all in my opinion to IRAs is that you can’t invest very much. They limit your contribution to $5500 in 2016.

What about IRAs in the employer sponsored world? Is that possible?

Yes, IRAs can be used for SEPs and Simples. They are employer sponsored retirement plans. Both of them are set up for each participant. Simples are similar but are subject to additional special rules which we won’t get into today.

For self-employed doctors with no employees, SEPs are a great place to save for retirement. Usually, any of that income you earn on your own as a contractor qualifies. Instead of being limited to $5500 you can do up to the greater of 25% or $53k in 2016. For example if you are making less than $200k you would fall under the 25% rule but once you make over $212k you can do the full $53k.

Retirement plans offered through the workplace usually limit participants to an 18k contribution per year if they have a 401k, 403 or 457b. With a SEP you can do much more than this which provides a much needed boost toward retirement savings.

What should you do in your situation? Which type of IRA program is best and how should you go about getting the most out of them? Talk with you advisor or feel free to contact us. We are a fee only financial planner and investment advisor and would be happy to take any of your questions.


ira

How Much Money Do You Need to Retire?

“So, how much money do I need to actually retire?”

This question came up when we were at the American Academy of Ophthalmology conference in Chicago speaking with a group of eye surgeons. The moment it was asked, I was thinking to myself how am I going to give him a simple answer for this because are so many variables that come into play. He was looking for an exact number. For any fee only financial planner out there, we all can share the same sentiment…it’s like where do we begin, which layer do we start with.

Is there a specific dollar amount that has to be achieved in order to be able to make it? You may have heard $3M or $5M or some other number. Well there are two different numbers to consider. There’s the amount you must have saved by retirement and there is the total amount of spending over the course of retirement with the latter being much more significant. Continue reading…


doctors life podcast

The Doctor’s Life Podcast Episode 038- How Much Money Do You Need to Retire?

It’s that number we started wondering about years ago- How much money do you need to retire? Is there actually an exact number? And for a doctor, you started in your practice at least ten years after many started their careers.

Justin Nabity is in The Doctor’s Life Podcast studio to see if he can answer the question. All episodes of The Doctor’s Life Podcast are available here, iTunes, Android, and on SoundCloud. Make sure to subscribe and you will be the first to get new episodes of The Doctor’s Life Podcast. Continue reading…


Financially Prepared Physicians

Retirement In Sight for June 2016

R E T I R E M E N T  I N  S I G H T
Presented by Nick Schneider

 

MONTHLY NEWS AND INFORMATION FOR CURRENT AND FUTURE RETIREES
 

JUNE 2016

   

One act of real usefulness is worth all the abstract sentiment in the world.

– Anne Radcliffe

    

GOLF TIP
Get the broom out

If you start topping the ball either because you are a beginner or because you have a negative “muscle memory” associated with taking deep divots, this exercise can help. Every day, take 10 golf swings with a kitchen broom. Focus on brushing the bristles against the floor and reaching and extending your left arm on the follow-through.

 

BRAIN TEASER
The Apple Wrapper Riddle.
A shop sells apples for $1 each. Each apple comes wrapped in a special wrapper. You can trade 3 wrappers for 1 apple. If you have $15, what is the maximum number of apples you can buy?*

 

DID YOU KNOW?
In the 1800s, aluminum was actually worth more than gold

Back then, it was a precious metal: coveted for its light weight, yet very difficult to produce. In 1852, usable aluminum was worth the equivalent of $1,200 a kilogram in today’s terms. By 1900, new and easy ways of creating aluminum had emerged and a kilogram of it cost less than a dollar.5

   

RETIRING WITH A COMFORTABLE LEVEL OF INCOMEIn retirement, your level of income directly affects your quality of life. How can you effectively give yourself more spending power?

From a portfolio standpoint, you can focus on income-producing investments. When you start planning for retirement, you invest with an emphasis on growth. As you transition to retirement, growth remains important – but you also need to seek investments that can potentially create ongoing income streams. In addition, you can plan to make your portfolio more tax-efficient. Too many investors pay too little attention to this factor and leave money on the table.

New retirees sometimes spend more per month than they anticipate. Retiring with an income plan outlining how much money you really need and where it will come from may help you avoid this shock. Longevity and inflation will certainly come into play. The Social Security Administration says that today’s average 65-year-old can expect to live until his or her mid-eighties; about a quarter of 65-year-olds will live past age 90. So across a 20-year retirement, your income must grow significantly to maintain your standard of living, even if inflation proves mild.1,2

HOW MUCH DO WE REALLY KNOW ABOUT ELDERCARE?

As a society, perhaps not as much as we should. In a new Associated Press/NORC poll of Americans 40 and older, 38% of those surveyed said they expected to depend on Medicare “quite a bit” or “completely” for long-term care. In truth, most long-term care is non-medical and Medicare will not pay for it. Just 20% of respondents had any form of long-term care coverage.

While 77% of survey respondents said they would want to be cared for at home if eldercare was necessary, only 18% thought they would turn to family members or friends for no-cost eldercare. The reality is different. By the estimate of the Department of Health & Human Services, unpaid caregivers deliver roughly 80% of in-home eldercare. More states may be ready to give these caregivers a financial break. Right now, California, New Jersey, and Rhode Island are the only states mandating employers to offer them paid leave – but New York will join the list in 2018, and 19 other states are considering such legislation.3

ON THE BRIGHT SIDE
You may spend less during retirement than you think you will. According to an analysis in the Journal of Financial Planning, households headed by 65-year-olds that spend $100,000 a year typically reduce their expenditures 20% by age 80.4

 


Nick Schneider may be reached at Nick@PhysicianAdvisorsLLC.com

Securities offered through Lion Street Financial, LLC. (LSF), Member FINRA & SIPC. Investment Advisory Services offered through Physician Investment Advisors, LLC. Physician Advisors and Physician Investment Advisors are not affiliated with LSF.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty.

* TRIVIA ANSWER: Stumped? Contact me for the answer! Nick@PhysicianAdvisorsLLC.com

CITATIONS.
1 – forbes.com/sites/joeljohnson/2016/05/02/four-strategies-to-maximize-your-retirement-income/ [5/2/16]

2 – ssa.gov/planners/lifeexpectancy.html [6/9/16]

3 – nextavenue.org/expectations-long-term-care-match-reality/ [6/3/16]

4 – cnbc.com/2016/05/26/retirement-spending-good-news-at-last.html [5/31/16]

5 – todayifoundout.com/index.php/2014/05/aluminium-cost-gold/ [5/13/14]


doctors life podcast

The Doctor’s Life Podcast Episode 026- The Correct Way to Withdraw Your Retirement Funds

Do you know there is actually a correct way to withdraw your retirement funds? You’ve been throwing money in so many investment vehicles over the years. Now that you’re ready to capitalize on that money, make sure you withdraw your retirement funds the correct way.

Nick Schneider is back in The Doctor’s Life Podcast studios to run us through withdrawing your retirement funds. All episodes of The Doctor’s Life Podcast are available here, iTunes, Android, and on SoundCloud. Make sure to subscribe and you will be the first to get new episodes of The Doctor’s Life Podcast. Continue reading…


taxes

Volatility Is Not Risk

Volatility Is Not Risk

The two should not be confused.

 Provided by Amber Nabity Stitt

What is risk? To the conservative investor, risk is a negative. To the opportunistic investor, risk is a factor to tolerate and accept.

Whatever the perception of risk, it should not be confused with volatility. That confusion occurs much too frequently.

Volatility can be considered a measurement of risk, but it is not risk itself. Many investors and academics measure investment risk in terms of beta; that is, in terms of an investment’s ups and downs in relation to a market sector or the entirety of the market.

If you want to measure volatility from a very wide angle, you can examine standard deviation for the S&P 500. The total return of this broad benchmark averaged 10.1% during 1926-2015, and there was a standard deviation of 20.1 from that average total return during those 90 market years.1

What does that mean? It means that if you add or subtract 20.1 from 10.1, you get the range of total return that could be expected from the S&P two-thirds of the time during the period from 1926-2015. That is quite a variance, indicating that investors should be ready for anything when investing in equities. During 1926-2015, there was a 67% chance that the S&P could return anywhere from a 30.2% yearly gain to a 10.1% yearly loss. (Again, this is total return with dividends included.)1

Just recently, there were years in which the S&P’s total return fell outside of that wide range. In 2013, the index’s total return was +32.39%. In 2008, its total return was -37.00%.2

When statisticians measure the volatility of major indices like the S&P 500, Nasdaq Composite, or Dow Jones Industrial Average, they are measuring market risk. Trying to measure investment risk is another matter.

You can argue that investment risk is not measureable. How can investors measure the probability of a loss when they invest? Even after they sell an investment, can they go back and calculate what their risk was at the time they bought it? They only know if they made money or not. Profit or loss says nothing about risk exposure.

Most experienced investors do not fear volatility. Instead, they fear loss. They think of “risk” as their potential for unrecoverable loss.

In reality, most apparent “losses” may be recoverable given enough time. True unrecoverable losses occur in one of two ways. One, an investor sells the investment for less than what he or she paid for it. Two, some kind of irrevocable change happens, either to the investment itself or to the sector to which the investment belongs. For example, a company goes totally out of business and leaves investors with worthless securities. Or, an innovation transforms an industry so profoundly that it renders what was once a leading-edge company an afterthought.

Accepting risk means accepting the possibilities of equity investing. The range of possibilities for investment performance and market performance is vast. History has shown that to be true, history being all we have to look at. It fails to tell us anything about the negative (or positive) disruptions that could come out of nowhere to upend our assumptions. A “black swan” (terrorism, a virus, an environmental crisis, a quick evaporation of investor confidence) is always a possibility. Next year, the performance of this or that sector or the small caps or blue chips could be spectacular. It could also be dismal. It could certainly fall in between those extremes. There is no way to calculate it or estimate it in advance. For the equities investor, the future is always a flashing question mark, regardless of what history tells or pundits predict.

Diversification helps investors cope with volatility & risk. Spreading assets across various investment classes may reduce a portfolio’s concentration in a hot sector, but it also lessens the possibility of a portfolio being overweighted in a cold one.

Volatility is a statistical expression of market risk, constantly measured. Volatility, however, should not be confused with risk itself.

Amber Nabity Stitt may be reached at Amber@physicianadvisorsllc.com.

PhysicianAdvisorsLLC.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities offered through Lion Street Financial, LLC. (LSF), Member FINRA & SIPC. Investment Advisory Services offered through Physician Investment Advisors, LLC. Physician Advisors and Physician Investment Advisors are not affiliated with LSF.

Citations.

1 – fc.standardandpoors.com/sites/client/generic/axa/axa4/Article.vm?topic=5991&siteContent=8088 [3/31/16]

2 – ycharts.com/indicators/sandp_500_total_return_annual [3/31/16]


doctors life podcast

The Doctor’s Life Podcast Episode 021- Maximizing Your Roth IRA

Many physicians believe they can’t do a Roth IRA. Sure, there are income limits on Roth IRAs, but there is a rule that turns out to be a nice workaround to help you maximize your Roth IRA.

Justin Nabity is in The Doctor’s Life Podcast studios to help you with your Roth IRA info and that workaround. All episodes of The Doctor’s Life Podcast are available here, iTunes, Android, and on SoundCloud. Make sure to subscribe and you will be the first to get new episodes of The Doctor’s Life Podcast. Continue reading…


ira

Retirement In Sight- February 2016

R E T I R E M E N T  I N  S I G H T
Presented by Justin Nabity

MONTHLY NEWS AND INFORMATION FOR CURRENT AND FUTURE RETIREES
 

FEBRUARY 2016

   

We all have big changes in our lives that are more or less a second chance.

– Harrison Ford

   

GOLF TIP
Stopping topping

Why do golfers top shots? Usually, this results from ball position (the ball is placed too far forward in the stance) or breaking the wrists too early (before impact). Sometimes a golfer is afraid to take a divot. Simply putting the ball in the middle of the stance and practicing a nice, even tempo with the swing will often cure the problem.

 

BRAIN TEASER
Seconds, Please!
What was the date and time exactly one million seconds into the year 2016?*

 

DID YOU KNOW?
A girl struck out Ruth & Gehrig

In 1931, the Chattanooga Lookouts (double-A farm team of the New York Yankees) signed 17-year-old Virnett Beatrice “Jackie” Mitchell to a minor league contract. On April 2 of that year, the sidearming lefty struck out Babe Ruth and Lou Gehrig on a total of seven pitches in an exhibition. Commissioner of Baseball Kenesaw Mountain Landis banned her from the sport a few days later, stating that baseball was “too strenuous” for women.6

   

  HOW LONG WILL YOUR MONEY LAST?

Assume you will live to be 90. It could happen: the Social Security Administration thinks that about 25% of today’s 65-year-olds will live to age 90 or longer. Will your savings be able to last that long?1

As T. Rowe Price’s retirement calculator indicates, if you retire at 65 with $500,000 in retirement savings split between equities and bonds, there is about an 80% chance that your savings will last until age 95 if you draw them down by $20,000 (or its inflation-adjusted equivalent) annually. If you move from that 4% yearly withdrawal rate to a 5% annual withdrawal rate (initial withdrawal of $25,000, then gradually adjusted upward), the odds of outliving your money in 30 years rise to 50%. If you start with a 3.5% annual distribution ($17,500) from those savings, then the chance of outliving your money by age 95 shrinks to about 10%, even with the distribution increasing in light of consumer prices.2

If you retire at 70 (which could be unlikely), then that $500,000 in savings would have about a 90% chance of lasting 25 years using an inflation-adjusted 4% withdrawal rate under the above conditions. (As for the invested savings, T. Rowe Price assumes annual returns of 4.9% for equities, 2.2% for bonds, and 1.4% for short-term bonds.) These are very basic calculations, not a guide by any means,  but they do provide food for thought about what we can live on annually in retirement in addition to Social Security and other potential income sources.2,3

THINKING OF SNOWBIRDING?

Retirees who want to live in warmer climes for part of the year need to consider some monetary factors before starting out. Property upkeep, for one – Sun Belt homes have lawns and landscaping that grow year-round. Taxes, for another – what do you have to do to qualify for residency in a state with a more favorable tax code?

You should make documents pertaining to your northern residence and your southern retreat (or your RV) easy to find, anywhere and anytime. The cost of utilities, association fees, and travel may make snowbirding less attractive. It can be fun, but you may want to “rent” the experience before you “buy” it.4

ON THE BRIGHT SIDE
The S&P 500 is facing some sizable headwinds in the opening quarter of 2016, but its long-term performance affirms the value of time in the market rather than trying to time the market. In 39 of the past 50 years, the index has advanced.5

 

 

Justin Nabity may be reached at jnabity@physicianadvisorsllc.com
PhysicianAdvisorsLLC.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty.

* TRIVIA ANSWER: Stumped? Contact me for the answer!

CITATIONS.
1 – ssa.gov/planners/lifeexpectancy.html [2/10/16]

2 – money.cnn.com/2016/02/10/retirement/retirement-savings-last/ [2/10/16]

3 – troweprice.com/ric/ricweb/public/ric.do [2/10/16]

4 – money.usnews.com/money/retirement/articles/2015-12-31/5-finance-tips-for-future-snowbirds [12/31/15]

5 – tinyurl.com/hbtcfr6 [1/19/16]

6 – todayifoundout.com/index.php/2012/07/there-once-was-a-17-year-old-girl-who-struck-out-babe-ruth-and-lou-gehrig-back-to-back/ [7/12/12]

 


ira

Retirement In Sight – January 2016

 

R E T I R E M E N T  I N  S I G H T
Presented by Justin Nabity

 

MONTHLY NEWS AND INFORMATION FOR CURRENT AND FUTURE RETIREES
 January 2016

 Nothing in life is to be feared, it is only to be understood. Now is the time to understand more, so that we may fear less.’

– Marie Curie

HEALTH TIP
Your Knees Need Your Care

How can you strengthen your knees? Try some simple knee extensions. Keeping your back straight, step forward with one foot, until the front knee is at a right angle. Begin by doing a set of 20 for each leg. Holding small dumbbell weights with your hands at your side can increase the intensity.

BRAIN TEASER
A Sticky Puzzle.
What travels around the world, but only stays in corners?*

DID YOU KNOW?
Robots have classical roots

Archytas, the Greek mathematician regarded as the father of mechanical engineering, built an artificial bird in the 4th century B.C. that qualifies as the first robot. It was made out of wood, powered by steam, and suspended from a pivot bar. Records show that it “flew” roughly 650 feet.5

 

NEED TO CATCH UP ON RETIREMENT SAVING?

If life events have hampered your retirement savings effort, what can you do to get back on track and improve your prospects for the future?

You have some options. If you will be 50 or older in 2016, you can take advantage of the catch-up contribution rules on retirement accounts. As an example, the limit on annual 401(k) and 403(b) deferrals is currently $18,000 for most people, but $24,000 for people 50 and older. You can also free up money that can be directed into savings by reducing your revolving debt and your housing and transportation costs. Accept the fact that you will need to invest for growth and assume risk in doing so. An overly conservative investment approach may thwart your potential to boost your savings. A balanced portfolio may provide some insulation in downturns as well as strong potential for gains as the market rises.1

Desperation can plague boomers with scant retirement savings, but you do not need to succumb to it. Refrain from directing your money into investment opportunities that seem too good to be true or too arcane to comprehend. Resist the temptation to time the market or plunge into day trading. Finally, you can work longer if life permits. Claiming Social Security at 70 rather than 62 can mean 76% more lifetime Social Security income; extra years on the job can give you more money to direct into a retirement plan and pay down debts.2

BABY BOOMERS SET A NEW RECORD FOR CHARITABLE GIFTING

In 2014, donations to U.S. charities and nonprofits reached an all-time peak of $358 billion according to Giving USA. The 2015 total has not yet been compiled, but it is expected to be larger.

A recent AgeWave/Merrill Lynch survey shows that retirees are the most charitably inclined demographic. Seventy percent of retired respondents to that survey cited generosity as a significant contributor to happiness. Charities may reap a “longevity bonus” from this generation: Merrill Lynch forecasts that between now and 2035, retirees will donate about $6.6 trillion to nonprofits. While millennials gift greatly to organizations focused on the environment and animal rights, the highest percentage of charitable gifts from retirees goes to faith-based groups.3

ON THE BRIGHT SIDE
According to the Federal Reserve, retirement savings as a percentage of household income increased during the Great Recession and afterward – from 124% in 2007 to 128% in 2013.4

 


Justin Nabity may be reached at
Justin@physicianadvisorsllc.com
PhysicianAdvisorsLLC.com

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty.

* TRIVIA ANSWER: Stumped? Contact me for the answer! Justin@PhysicianAdvisorsLLC.com

CITATIONS.
1 – money.usnews.com/money/personal-finance/mutual-funds/articles/2015-12-16/9-tips-for-investors-getting-a-late-start-on-retirement-savings [12/16/15]

2 – tinyurl.com/js8vsns [7/25/15]

3 – thestreet.com/story/13404202/1/charitable-donations-hit-new-record-as-baby-boomers-join-mark-zuckerberg-in-giving.html [12/21/15]

4 – forbes.com/sites/steveforbes/2015/05/06/good-news-you-wont-retire-broke/#2715e4857a0b3e702e5940a4 [5/6/15]

5 – todayifoundout.com/index.php/2010/10/the-first-known-robot-was-created-around-400-bc-and-was-a-mechanical-bird/ [10/23/10]


doctors life podcast

The Doctor’s Life Podcast Episode 008- How’s Your Financial Health?

It’s that time of the year when you’re looking at bills from the holidays, maybe a job offer or going after a job offer, and tax season is starting to roll around. It’s time to ask yourself about your financial health. Sometimes you have to be brutally honest with yourself when assessing your financial health. Nick Schneider is in studio this week to help you determine your financial health.

All episodes of The Doctor’s Life Podcast are available here, iTunes, and on SoundCloud. If you have an Android device, you can download a podcast player (I recommend Podcast Addict), and it will pull from iTunes. Make sure to subscribe and you will be the first to get new episodes of The Doctor’s Life Podcast. Continue reading…