Guilt-Free Spending

Guilt-Free Spending

 

Just the thought of setting a budget can be enough to send us running for the hills. The other day, I had lunch with a friend who is a fellow career mom. We often swap stories about our busy lives and commiserate about how hard it can sometimes be to balance work and motherhood. Her career has taken off over the last year, but she looked more relaxed than ever. She shared that she and her partner had decided to outsource many of the household responsibilities they had historically struggled to keep on top of and often bickered over. After telling me what an amazing gamechanger this had been for her mental health and her family, her expression quickly changed to one of guilt as she admitted that the services were costing them quite a bit. Despite her increase in income, she felt embarrassed and irresponsible about how they much they were spending on services some would consider unnecessary. To her it sometimes felt as if they had traded their weekly arguments over household tasks with monthly disagreements over money.

I could relate to her experience on both a personal level and a professional one. After assuring her this was a common struggle, I shared tips with her that have helped many of my clients over the years. The traditional guidance for people grappling with feelings of guilt, self-reproach, or insecurity over their finances is to create a strict budget and stick to it. Some people enjoy a disciplined approach to things, but for many of us, avoiding the need for strict budgets can be a primary driver for saving and working hard. Tracking every small expense, feeling guilty about how much you spent last month, questioning partners on their expenditures, and generally feeling restricted—what’s to like? It’s right up there with counting calories, so I understand why people avoid it altogether.

If you’re like many high-income earners and people who have saved well, you might feel that avoiding the need to budget is a right you have earned. After all, you’ve worked hard so you don’t have to count every penny, right? The trouble is that it puts you at risk for not meeting larger goals such as a comfortable retirement, paying down debt, college funding, or making a large purchase; and it can also leave you feeling out of control and dissatisfied. Whether you are a busy professional struggling to figure out why you don’t have more money at the end of every month or you are already retired and unsure how to balance your personal spending with other goals, there is a strategy that can help you feel more in control of your money without having to budget.

 

Pre-Retirement Reverse Budgeting Process:

By taking these steps, you ensure your savings goals are met first, and anything that remains can be spent on whatever you desire, without guilt!

  1. Identify your goals.
  2. Determine how much you need to save on a periodic basis to meet these goals—the easiest way to do this is to work with your financial advisor to create a financial plan.
  3. Set up an automatic savings plan with a combination of payroll deductions and automatic monthly transfers.
  4. Enjoy the freedom to spend what is left as you choose and the peace of mind that comes with knowing you are able to meet your goals!

To make this process work for you, it’s important to start with a cushion in your checking account and to review your checking account at least monthly and before making large purchases to ensure you are maintaining a sufficient balance. If you find yourself running short, you can pull back slightly on small discretionary purchases and build that cushion back up so you aren’t forced to dip into your savings for something other than the goals you have set. We all tend to spend more when we are feeling flush, so checking your bank balance periodically should allow you to reign in non-essential expenses for short periods and return to guilt-free spending in no time. If you find a significant gap, you may need to examine recurring expenses for areas to cut back or reassess your savings goals.

 

Retirement Goal Funding Process:

You worked hard, you saved, and now you are living the retirement dream, but that doesn’t mean you’ve accomplished all your financial goals. Many people in retirement want to leave a certain amount to charity, help their children buy a home or start a business, help their grandkids with college, save for a large purchase such as a second home, or plan ahead for long-term care expenses. When you have a set amount of assets that need to provide for a lifetime of expenses and several other large goals, it can be hard to determine whether you have enough and what you can afford.

It’s also common for retired people to struggle with the transition from saving to spending. If you have been a disciplined saver and enjoyed watching your nest egg grow, the idea of diminishing it can be incredibly stressful. This process has helped many of my clients discover a new sense of financial comfort and freedom.

  1. Identify your goals. What do you anticipate for recurring annual spending? Do you have any legacy goals, plans for long-term care, or larger purchases, gifts, and donations to consider?
  2. Work with your financial advisor to run financial projections that account for investment returns, market volatility, inflation, taxes, etc.
  3. If the projections show you are not able to attain every goal, work through prioritizing and adjusting your goals until your projections show results you are confident in.
  4. The end result should provide you with an annual amount you can confidently spend while giving you peace of mind that you are able to meet your other goals as well!

 

One final, crucial step in the financial planning process is to meet with your advisor periodically to make sure you stay on track to meet your goals and discuss how goals may change for you over time. A great advisor will review your entire financial picture to make your money work its hardest for you and not only maximize your potential for meeting those goals but also encourage you to reach for the stars and live fully along the way. If you’re not already working with an advisor or are looking for someone who can provide this type of comprehensive support, we’re happy to help—schedule a consultation now!

 

 

 

 

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such.

Should You Have a Budget?

Should You Have a Budget?

Budgeting: Determine an approach that makes sense to you

 

Budgeting. You may have embraced the concept, or more likely, avoided it altogether, which is very common. Sometimes we feel obligated to complete a budget, but more often than not, we find it hard to implement and even tougher to maintain. So, should you budget? Is it worth your time to create one? What if you don’t complete one? How does having a budget help? This article will outline the benefits of creating a budget as well as provide a foundation to get started.

As wild as life can be at times, a financial budget can bring clarity to a household and help alleviate anxiety around spending. Quite frankly, that is exactly the point. Without a budget, spending can bring a level of stress that may overshadow the excitement of a given purchase. Having a budget in place allows you to know where your dollars are going and can provide the ultimate relief in terms of achieving guilt- free spending. This applies to those saving for retirement and those who have already shifted into retirement. Below are a couple types of common budgeting approaches. Keep in mind that no one size fits all, but there are options.

Types of Budgets:

 

Zero-based budget

Track specific income and expenses to understand exactly where all your hard-earned money is going. This is the most difficult budgeting style to start, but it will bring the most transparency to your finances. This method takes a lot of maintenance and is more suited for those who enjoy the process. Engineers and accounting professionals, I am talking to you. Microsoft Office offers several Budget Templates that can help jump-start the process.

General steps:

  • Gather data from bank accounts, credit card statements, investment accounts, etc.
  • Organize the data into categories, typically fixed versus variable inflows & outflows
  • Utilize software like Excel to accurately map out household cash flow
Reverse Budget

Start with savings amounts and/or debt payments and then proceed to allocate what is left over to general expenses. This is the easiest to start and focuses on prioritizing savings targets. The downside to this approach is that it can leave you shorthanded when it comes time for very real expenses like groceries or utilities.

Merriman’s own Geoff Curran wrote a great article a couple years ago that highlights this method in greater detail: Reverse Budgeting

50/30/20 budget

This method takes an alternative approach and categorizes spending into three main categories: Needs (50%) / Wants (30%) / Savings (20%). The percentage per category may change given the individual creating the budget, but the focus remains the same – categorizing what is essential versus what is deemed “extra”.

General steps:

  • “Needs” may consist of rent/mortgage payments, utilities, groceries, etc.
  • “Wants” generally include items like travel, entertainment, restaurant spending, etc.
  • “Savings” targets carving out money for near-term purchases and, most importantly, retirement savings.

  

There is no one correct method to use, and that is the part most people struggle with. A crucial element of budgeting is very similar to maintaining a sound financial plan: choose a method that works for your situation, one that can be maintained over the long run. If you have budgeting questions or want to explore the methods mentioned in this article, please reach out to Merriman. We would like to help you find an approach that works for you.

 

 

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such.

Boeing Pension and Lump Sum Comparison – Should I Retire Early?

Boeing Pension and Lump Sum Comparison – Should I Retire Early?

 

Boeing Employee – Should I Retire Early?

Boeing employees nearing retirement age are facing a financial decision that will need to be made by November 30—one that could have a significant impact on their lifestyle in retirement.

 

Higher Interest Rates and the Lump Sum Pension Benefit

Boeing offers many employees the option at retirement to either receive a pension, providing monthly income for life, or to have a single lump sum deposited into a retirement account that can be invested and withdrawn as desired.

The amount of the pension benefit is based on several factors, including years of service with Boeing and average salary while employed.

When determining the lump sum benefit, the underlying interest rates are an additional factor to take into consideration. Higher interest rates will create a lower lump sum benefit, and lower interest rates will create a higher lump sum benefit. Boeing resets the interest rate used in the calculation once per year in November.

With the significantly higher interest rates we’ve seen in 2022, an engineer who may currently qualify to choose either a $5,000 monthly pension or a $1 million lump sum benefit may be looking at only $800,000 in lump sum benefit if they retire after November 30, 2022. The exact numbers will vary for each employee.

That $200,000 reduced benefit can be a significant incentive for employees who are planning to retire in the next few years to adjust their plans and retire early.

 

To Whom Does This Apply?

Not all Boeing employees have a pension as part of their benefits. Also, some employees are covered by unions that only offer the monthly pension and do not have a lump sum option.

Boeing engineers who are members of the SPEEA (Society of Professional Engineering Employees in Aerospace) union usually have a generous lump sum benefit compared with the monthly pension and may benefit significantly from comparing their options.

 

Financial Planning to Compare Options

The decision to take either the lump sum in retirement or the monthly pension is a significant one, and both contain risks.

With the lump sum, the employee is accepting the risk of the market and managing the money.

With the monthly pension, the guaranteed income provided to the employee will not increase with inflation. This year has been a good reminder that inflation can significantly reduce the purchasing power of that income.

Also, does it make sense for an employee who originally planned to retire in two years to give up on the years of additional earnings and savings? Can the employee afford to do so?

We help employees compare how a monthly pension or lump sum benefit will interact with other resources (Social Security, retirement accounts, real estate) to determine the ability to meet goals in retirement. We can also compare retiring in 2022 with delaying retirement and possibly receiving a reduced benefit in the future.

 

Deadline and Next Steps

Boeing employees wanting to claim the lump sum before rising interest rates potentially reduce benefits will have to retire and submit the request for a lump sum benefit by November 30, 2022.

If you’re feeling overwhelmed by assessing the pros and cons of this decision, reach out to us for your complementary personalized analysis. We can help you determine whether retiring now would provide you with a sustainable retirement that meets your lifestyle needs.

 

 

 

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always please remember investing involves risk and possible loss of principal capital and past performance does not guarantee future returns; please seek advice from a licensed professional.

 

 

 

 

Sticker Shock over the Current Year’s Assessed Home Value?

Sticker Shock over the Current Year’s Assessed Home Value?

 

Every year, homeowners receive notice from the county about their home’s assessed value. When we get that little card in the mail, it’s usually filed away and we don’t pay much attention to it. Lately though, many people are experiencing sticker shock when they see how much their home has increased in value from 2021 to 2022.

On one hand, it’s great to see how much our home, typically one of our most valuable assets, has appreciated. But on the other hand, that new higher assessed value means higher property taxes, and it could also mean we’re underinsured when it comes to replacement cost coverage. From a financial planning standpoint, I encourage everyone to think of that assessed value notice as an annual reminder to do two things:

  • Reach out to your insurance professional
  • Consider contesting the value with the county

 

Reach out to your insurance professional

Why is it a good idea to meet with your insurance agent/broker? Well, for starters, I always encourage my clients to meet with their insurance professional at least once a year to review their current coverages and policies. This is especially important if your coverage needs have changed. I recently spoke with Satina Simeona with American Family Insurance, and she shared some additional insights about why an annual review is so important:

Homeowners policies typically have a built-in inflation protection that adjusts the replacement cost coverage on your home to align with the market index in your area. However, it is an index and not necessarily specific to each uniquely different home. It is important to have an annual review with your agent regarding the replacement cost coverage on your home policy, specifically the ‘dwelling coverage.’ At the start of your home policy every insurance company uses a similar calculator tool that calculates the cost to rebuild your home should there be a complete loss. This is the amount you want to insure your home for, not the loan value or market value as those include the land, taxes, fees, etc. This is not done again unless your agent or you request it. The calculator process takes about 20 minutes and consists of very detailed questions about your home. For example, how many beds and baths, flooring material, countertop material, any vaulted ceilings, type of roof, ceiling fans, and any upgrades. For the exterior you’ll need to discuss decks, driveways, fences, retaining walls, etc. Once calculated, your agent can see if it is over or under your current coverage and make adjustments if necessary. Ideally it will come in pretty close to your current coverage.

Another reason you should have annual checkups is for your agent to ask about certain things that may need to be updated on your policy. For example, have you done any upgrades or repairs, new roof, added any large amounts of personal property that may need coverage (guns, computers, jewelry), do you want earthquake coverage or maybe coverage for the backup of your sewer or septic tank? These are all optional endorsements that are not included in your policy unless you add them. There are over 50 endorsements you can add to a homeowners policy, and it is important to be educated on your options in case the unthinkable happens. For example, you may consider an endorsement for hidden water because most policies won’t cover a long-lasting leak that has been undetected and perhaps caused extended damage. This hidden water endorsement will cover rot, black mold, etc.

Each insurance company will approach the annual review process differently, and it’s a good idea to ask your agent/broker how your specific policies work.  For example, some higher-end insurance providers might offer replacement cost coverage with an “unlimited” ceiling so you don’t have to worry about dramatic increases in your home’s value.

 

Consider contesting the value with the county

This second recommendation is more of a longshot, but don’t forget this is an option! If you believe you can provide evidence that the county is overestimating the value of your home, you should definitely contest the assessed amount.

I recently had a conversation with a client (let’s call her Jane) who owns a lakefront property. Jane received her property value notice in the mail, and it was a lot more than she expected. Jane was surprised because her home was older, modest, and it didn’t have a lot of modern updates. Surrounding Jane’s property were more modern, larger houses that easily justified a much higher price tag but hers simply didn’t. When Jane contested her home’s value with the county, she came to realize that the assessment done on her property mistakenly used the value of the neighboring homes. Jane was able to successfully reduce her property tax bill by $500!

 

These reminders are a simple way to make sure you stay on top of protecting your home and ensure you’re not paying too much in taxes. Financial planning is always an on-going process, and I hope these tips provide helpful food for thought. If you’d like to discuss these ideas in more detail, don’t hesitate to reach out to your Wealth Advisor. If you’re not already working with an advisor, don’t hesitate to reach out.

 

 

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such.

The Building Blocks of Portfolio Risk Management

The Building Blocks of Portfolio Risk Management

 

When markets are rising, risk management seems easy—invest, sit back, and watch your investments grow. Things get a bit trickier when the markets experience volatility and decline. These are the times when you need to understand the amount of risk your investments are subject to and how that risk relates to your financial plan.

 

The first and least tangible measure of risk is qualitative in nature: how much risk are you willing to take? How would you feel, for example, if the markets declined more than 20%? What if the markets fell by more than 40%? Generally, what is the level of decline that you are comfortable with that will encourage you to stay invested and allow for your plan to thrive? Take some time to think about it. While it is easy to come up with a threshold or a hypothetical number, it is different in real time (consider the financial crisis or the markets’ initial response to the COVID outbreak, for example).

 

Once we have a handle on your subjective feelings around risk, there are a variety of tools we use here at Merriman Wealth Management to help our clients manage the quantitative measures of risk.

 

First and most important is answering this question: what is the amount of risk my portfolio can take within the context of my financial plan? This is a super important question. Too often, folks will bifurcate their investment and financial plans. This does not typically lead to successful outcomes. We manage this for clients by calculating statistically valid risk and return measures for our clients’ portfolios—i.e., we expect an all-equity portfolio to return 9.52% net of fees per year with a standard deviation of 20.49. A more moderate 60% equity portfolio would return at 7.95% and 13.06, respectively. Understanding these figures within the context of your accumulation and distribution plans is what matters. The typical recipe is for folks in their early years to take on more risk, as they have time for the markets to recover from declines. In contrast, folks later in life have less time to recover, and a more moderate portfolio is conducive to their plan.

 

The next risk management tool to understand centers around the sequence of returns. While one can craft statistically valid long-term expectations for portfolio risk and return, it is extremely difficult to predict returns in any given year. Consider 2020: who would have thought the markets would have rebounded so swiftly?

 

One thing to keep in mind with respect to sequence risk is what we call “bad timing.” What happens if you retire (switch from accumulating to decumulating) and the markets have two successive bad years? This is a good stress test for your portfolio. Pass this test, and your plan is likely in good shape.

 

The next measure to consider is the longer-term variability of returns. We measure this by running 1,000 different return trials for our clients (Monte Carlo analysis), effectively looking at everything from years of sustained above-average performance to years of sustained below-average performance and everything in between. The results are considered a success if greater than approximately 80% of the trials result in money remaining at the “end” of your plan. 

 

In conclusion, consider the list of questions below as you evaluate the risk metrics of your plan:

  • What are the risk dynamics of my current portfolio, and how do these relate to my financial plan?
  • What is the outcome of my financial plan if I retire and the markets have two successive bad years?
  • How am I accounting for the sequence of returns? What is my plan’s probability of success—will I have money left at the end of my plan?

 

Here at Merriman Wealth Management, we live by our tagline of “Invest Wisely. Live Fully.” If you are a Merriman client, we’ve got you covered. If you are not a Merriman client and would like a holistic review of your financial plan and corresponding risk metrics, let us know, and we would be happy to take you through our complimentary Discovery process.

 

 

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such. Nothing in this presentation in intended to serve as personalized investment, tax, or insurance advice, as such advice depends on your individual facts and circumstances. Past performance is no guarantee of future results.  Advisory services are only offered to clients or prospective clients where Merriman and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Merriman unless a client service agreement is in place.

Aimee Butler & Chris Waclawik Promoted to Principals

Aimee Butler & Chris Waclawik Promoted to Principals

 

Merriman Wealth Management, LLC, an independent wealth management firm with over $3.5 billion in assets under management, is pleased to announce the promotion of two new principals – Wealth Advisors Aimee Butler, CFP®, and Chris Waclawik, AFC®, CFP®.  

“Aimee and Chris’s contribution and dedication to Merriman and our clients has been invaluable as we seek to be the destination for clients and employees who are looking to Live Fully,” said CEO Jeremy Burger, CFA®, CFP®. “Aimee and Chris continue to demonstrate a strong commitment to improving the lives of our clients, lifting up their fellow teammates and giving back to their communities.”

Merriman is proud to offer a path to partnership for intellectually curious, motivated individuals who combine technical expertise and empathy. With the addition of Aimee and Chris, Merriman now has 15 principals. 

Aimee joined Merriman in February 2018 in its newly acquired Eugene, OR, office after holding senior leadership roles at Waddell & Reed and Ameriprise. Her leadership experience was indispensable as she helped integrate the newly merged teams and worked with clients to fulfill Merriman’s long-term vision of empowering people to Live Fully. Along with assisting many clients on Merriman’s behalf, Aimee serves on two leadership committees: the first designed to continually enhance the Merriman client experience and the second to attract and retain talented individuals to Merriman.

Chris joined Merriman in May 2014 as an Associate Advisor. Within two years, he was asked to lead and enhance the associate program into a development program for future advisors. While managing this growing team, he continued to be an advocate for clients and has helped the firm grow through new channels. In addition to his direct client work, Chris now focuses his leadership expertise on the Wealth Management Services and Client Experience Operations committees at Merriman. Always ready to contribute, Chris’s tax experience and attention to detail deliver great intellectual value, which consistently benefits our clients and team.  

 

 

 

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such.