A Closer Look At Dividends
When generating income for retirement, we take what we call a “total return” approach. Simply put, this is using both the income derived from the investments (from interest and dividends) as well as the investment’s potential gain in price over time. When going about it this way, we can diversify across many investments and we can also put you in the driver’s seat by customizing your income to meet your goals.
One strategy that we hear of often is solely living on an investment’s “dividend”, and attempting to not sell any shares along your retirement journey. However, while dividends can be important, we think they’re just one piece of the overall income puzzle. > SEE MORE
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Waypoint Wealth Management
You, Your Retirement, and the SECURE Act
You may have missed the news – buried in a much bigger spending bill and passed in the thick of the holiday season. But after months of nearly bringing it to the finish line, it’s now official: the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law.
The SECURE Act provides a mixed bag of incentives and obligations for retirement savers and service providers alike. Its intent is to make it easier for families to save more for retirement.
That said, “easier” doesn’t necessarily mean less complicated. The following is an overview of the most significant changes that we see for you (our clients), as the SECURE Act starts rolling out in 2020.
Tax-Favorable Retirement Saving
Compared to previous generations, more Americans are living longer, remaining employed into their 70s, and shouldering more of the duty to fund their own retirement. As such, the SECURE Act includes several incentives to start saving sooner and keep saving longer.
- Initial RMD increases to age 72 – Until now, you had to start taking Required Minimum Distribution (RMDs) out of retirement accounts at age 70 ½. RMDs are then taxed at ordinary income rates. Now, you don’t need to begin taking RMDs until age 72. However, if you turned 70 ½ in 2019 or earlier there is no change; the new rules begin for those turning 70 ½ in 2020. Rules for qualified charitable distributions (QCDs) and Roth IRA withdrawals remain unchanged.
- IRA contributions for as long as you’re employed – If you work past age 70 ½, you can now continue to contribute to either a Roth or a traditional IRA. Before, you could only contribute to a Roth IRA after age 70 ½.
- Expanded participation for long-term, part-time employees – Even if you’re a part-time employee, you may now be able to participate in your employer’s 401(k) plan.
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Waypoint Wealth Management
Can You Relate To Any of The “Five Stages of Retirement”?
“Retirement is a journey with five distinct stages, and some people get stuck. Understand them, know which stage you are in, and know how to move forward.” -Alan Spector
I recently attended a conference where I had the privilege to hear from author Alan Spector. He and his partners interviewed hundreds of retirees to discover what creates a fulfilling retirement and wrote a book (or a guide, really) to help others with this life transition. It has numerous stories, exercises, and questions to assist with the non-financial, “life planning” aspect of retiring. Since most of you (our clients) are in or nearing retirement, this is something that I have a deep interest in as well. There are so many great takeaways and lessons the book provides, and I would highly encourage anyone interested to check it out (link here) and/or review their website (link here) to explore this for you or someone you know.
One of the enlightening sections of the book is the “Five Stages of Retirement.” I literally can see the faces of various clients across all stages when I read through these. As I share these with you, see if you can identify yourself with one of these stages (borrowed from the book, with permission from Alan): > SEE MORE
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Waypoint Wealth Management
Yesterday, Today, Tomorrow…Where Are We?
I recently had a conversation with my youngest son, who is seven years old. “Daddy.” He says. “A few days ago I built a fort and it was fun.” “That’s great,” I tell him. “When exactly did you get to do that?” “Tomorrow” he replies, before correcting himself. “No, no. It was tonight. I mean yesterday.”
This exchange has been typical as Zachary learns where he and his (very important) events lie on the spectrum of time. Something from the past has occurred but putting it into the context of when exactly that took place (and verbalizing it correctly) is something he is learning to do. Understanding when something took place in the context of time is a bit of a challenge for him right now.
To me, this is similar to the perspective we can have with our investment portfolios and the markets. > SEE MORE
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Pete Dixon, CFP®
Partner and Advisor
What’s the Point of a “Point”?
We’ve often said that watching the market every day has little (if any) benefit to you as a long-term investor. However, we can’t help but hear or read headlines such as “Dow rallies 500 points” or “Dow drops 500 points.” These types of stock movement headlines may make little sense to some investors, given that a “point” for the Dow and what it means to an individual’s portfolio may be unclear. Also, events such as a 500-point move do not have the same impact on performance as they used to. With this in mind, let’s take a look at what a point move in the Dow means and the impact it may have on an investment portfolio.
Impact of Index Construction
The Dow Jones Industrial Average was first calculated in 1896 and currently consists of 30 large cap US stocks. The Dow is a “price-weighted” index, which is different than more common “market capitalization-weighted” (which is simply a product of its stock price and shares outstanding) indices.
An example may help put this difference in methodology in perspective. Consider two companies that have a total market capitalization of $1,000. Company A has 1,000 shares outstanding that trade at $1 each, and Company B has 100 shares outstanding that trade at $10 each. In a market capitalization-weighted index, both companies would have the same weight since their total market caps are the same. However, in a price-weighted index, Company B would have a larger weight due to its higher stock price. This means that changes in Company B’s stock would be more impactful to a price-weighted index than they would be to a market cap-weighted index. > SEE MORE
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