Chances are you know the concept of asset allocation. As Forbes contributor Mitch Tuchman puts it, asset allocation is the “collection of investments you own,” depending on your risk tolerance and your desire for potential investment returns. In the investing world, it is a strategy of apportioning assets to achieve a strategic balance of potential risks and returns that is right for an individual investor.
That’s all good and fun, you may say – but what does that have to do with retirement planning?
Well, from a planning standpoint, plenty. It is the same question of deciding how to allocate a retirement portfolio.
But in this case, decisions revolve around striking a balance between managing potential risks and achieving desired retirement outcomes, like income certainty, wealth protection, or other goals. In financial lexicon, this strategy is known as “diversification.” When it comes to retirement planning, diversification is arguably an essential part of a successful retirement strategy. But why?
Having been created by the Obama administration, the DOL fiduciary rule would bring wide, sweeping changes to the financial services industry. But as we noted in prior articles, a Trump administration could make this a different story. There was potential for the rule to be delayed past its April 10, 2017 “applicability date,” to undergo changes, or to even be abolished.
Since we first published on the DOL rule and its possible effects, there have been developments. Now the Trump administration has directed the Department of Labor to conduct an analysis of whether the rule could have any harmful effects, especially on retirement investors. That could potentially put the fiduciary regulations at jeopardy, depending on the department’s findings.
Because it is important to know how these news events may affect your future, let’s cover them in detail. Without further ado, here is a timeline of recent news updates, and how they may affect the outlook of the ruling.
Just two weeks into his presidential tenure, Donald Trump already is taking swift action. From sweeping executive orders to bold ambitions for tax reform, immigration, job growth, and more, these times are a whirlwind. Many Americans wonder what it might mean for the future. What effects could a Trump administration have on issues relating to their retirement?
During the campaign season, President Trump was a political wildcard. Not all of his policy stances were clear, and at that point, that meant uncertainty and wide-ranging speculation for retirement investors. However, since entering the White House, Trump has clarified some of his policy positions. The question then becomes what all of this means for hard-working American households, whether retired or getting ready for that stage.
If you are retired or preparing to retire within the next four years, this post will go over a few important ways the Trump administration can be impactful. Read on for some quick takeaways that will be helpful for your retirement planning future.
With its impending rollout in April, the DOL fiduciary rule will treat nearly all financial professionals as “fiduciaries.” As you can imagine, this has brought industry-wide changes in financial services. All types of financial companies, from stock brokerage firms and asset management companies to investment advisory organizations and insurance carriers, have been preparing for compliance. Of course, it also means change for you and other Americans, whether retired or not quite there yet.
If you have worked with a financial professional for investment decisions, you may have heard of a “fiduciary standard.” It is where an advisor holds legal and ethical obligations to provide investment advice in your best interest. In other words, the advisor serves as an impartial, independent guide. He or she is there to help you to make appropriate decisions for your financial future.
Prior to the DOL ruling, financial professionals considered fiduciaries were those paid for advice on an hourly rate or paid a percentage fee based on account holdings. Many Americans are familiar with the concept of a best-interest recommendation from those settings. But with rule’s expansion, recommendations in exchange for other forms of payment, including commissions, will fall under greater scrutiny.
Photo Credit: The Frances Perkins Building located at 200 Constitution Avenue, N.W., in the Capitol Hill neighborhood of Washington, D.C. Built in 1975, the modernist office building serves as headquarters of the United States Department of Labor. U.S. Department of Labor Headquarters, Creative Commons Photo, Author "Agnostic Preacher Kid," May 30, 2010, Property solely of author. Distributed with permission through Creative Commons Attribution-ShareAlike 3.0 Unported LicenseAttribution-ShareAlike 3.0 Unported License.
As a retirement investor, you may have come across the “DOL fiduciary rule.” A new ruling from the Department of Labor, it is scheduled to go into effect on April 10, 2017. But just what this rule means – and more importantly, what it entails for you and other retirement savers – may be less than clear.
In short, the DOL fiduciary rule expands the definition of an “investment advice fiduciary,” as laid out in the Employment Retirement Income Security Act of 1974 (or ERISA). As we briefly discussed in another post on 401(k) rollover options, this elevates financial professionals to a new status, ethically and legally speaking. Those who are paid to give recommendations about retirement accounts will be treated as “fiduciaries” under the rule.
As a result, they will be obliged to put your interests as a client first. The rule will require they give recommendations in your “best interest” as a retirement investor. They will also need to disclose any potential conflicts of interest which could influence their recommendation when they provide you investment advice for a fee or other compensation.
For a brief rule overview and how it will bring change, read on for some critical, need-to-know facts. In our view, this ruling is generally speaking a positive step for consumer protection. It helps protect you and other hard-working Americans from financial professionals who act unethically, do not act in your best interest when they should be, or do not consider your complete financial position before making a recommendation. However, it’s unfortunate that this sort of advisor conduct should require government-imposed conflict-of-interest standards to be levied – financial professionals should always act in their clients’ best interest, period, without exception.
There will be wide-sweeping changes to the industry, from capital investments by financial firms to move into compliance, as well as the business operational costs of maintaining compliance. As a result, in some ways retirement planning advice may be more costly to you and other retirement savers.
An important note: The DOL rule was published during the Obama administration; with the Trump administration coming in, there is a possibility of the rule being delayed past the April 10th deadline, being changed, or even being abolished.
As mentioned earlier, the definition of a fiduciary has been expanded from just financial professionals who give ongoing advice. Now it covers other professionals, including financial salespersons such as:
Retirement planning involves several decisions. For many retirement savers, an important question is what to do with their 401(k) retirement account. As they near retirement, investors must decide whether to leave the money within their account or choose another option, such as an IRA rollover.
The good news is Americans typically have six options for moving 401(k) assets around or leaving them alone. But not all of these possibilities may be appropriate, depending on the merits and downsides of a particular rollover option for your personal situation. It’s also not unusual for an investor to have the lion’s share, or even a large bulk, of their retirement assets in a 401(k) plan account. So, whatever they do with these retirement savings, it’s a decision that will have tremendous implications for the future.
If you are mulling over 401(k) rollover options, be sure whoever you work with understands all the ins-and-outs of different rollover outcomes. Your financial professional should clearly explain the positives, negatives, and details of each rollover option to you, and go over how it may help or hurt your personal situation. After all, this is your future at stake – one mistake can be costly, and once made, some 401(k) rollover errors are irreversible. Make sure you choose wisely and you are well-informed of each possibility before you decide.
In the meantime, if the question of “what are my 401(k) rollover options?” is a pressing matter for you, here’s a quick post which goes over some important factors to consider. Read on for some 401(k) rollover basics to start with making an informed decision. And as we emphasized before, make sure to work with a qualified professional for any 401(k) rollover considerations.
If anything, the new year tends to be a time of reinvention. From resolutions of healthier eating or more frequent exercise to more diligence with household finances, there is no shortage of areas for self-improvement.
For people aged 50 and over, it’s another year closer to retirement. You have spent a long time preparing and setting aside money to be able to retire when and how you want to. After many years of careful preparation and personal sacrifices, this milestone can seem close and yet far away.
If your retirement date is within the next five years, now is a great time to refocus on your retirement planning goals. Here are a few steps you might need to take now for enjoying greater financial confidence in your golden years.
Following the election of Donald Trump as President-Elect, the market has been on the rise. On Tuesday, December 20, 2016, the Dow Jones Industrial Average nearly hit an all-time high. At session-high for the day, the Dow came within 13 points of hitting the 20,000-point benchmark – which would have been a new, all-time growth benchmark for the index.
In fact, with a strong, days-long market rally, the Dow has notched 17 record closes since the election. Other indices also have been on an upward trajectory, for one the S&P 500 set a new closing record on Wednesday, December 7. Financial pundits such as economist Mohamed El-Erian have pointed to growing investor optimism over anticipated Trump-administration economic policies as a growth driver.
For Americans aged 50 and over, all of this is excellent news for retirement portfolio values. But as historical data shows, market growth doesn’t happen in a vacuum or linger on forever. This is a critical point for people nearing retirement – particularly those within five to ten years of it. With life expectancies on the rise, one question is how they will pay for what may be 20-30 years of a retired lifestyle.
Income certainty is an important retirement concern, and older Americans are considering what steps they can take now for financial security. If retirement is in the near future for your household, here are some quick year-end tips to consider for lifelong income certainty, no matter where the market is.
Retirement is a period of transition. For most Americans, it represents a shift from a career or entrepreneurship to more personal downtime. Apart from more time to do what they want, many people focus on other retirement lifestyle decisions, such as where to live. If you are thinking about relocation, you may want to look at communities with a number of features:
According to the U.S. Census Bureau, the National Association of Realtors, and Forbes, top retirement locations for baby boomers tend to have sunnier weather. But this isn’t the only relocation concern affecting retired and soon-to-be-retired Americans. Other retirement hotspots could feature low unemployment, a healthy economy, favorable tax climate, efficient crime deterrence, and ease-of-access to healthcare.
If you are considering new living settings, here are ten, top-ranking destinations which might fit your lifestyle preferences.
The holiday festivities are coming around, and many Americans are getting their financial houses in order. For people who are retired or near the end of their working life, that includes assuring their retirement needs and objectives can be met.
If you and your partner are within five to ten years of retirement, or are already retired, now is a crucial point. It makes sense to prepare for this stage of life. Working with a financial professional can help clear a path to a secure future and instill greater confidence in our financial decisions. But the sheer numbers of financial professionals from whom you can obtain retirement planning advice is truly staggering.
To say the least, choosing a well-suited financial professional for retirement planning guidance can be a challenging task. Let’s cover a few basics to keep in mind as you search for a suitable professional for retirement planning advice.