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monthly income for life, or to have a single lump sum deposited into a retirement account that can be invested and withdrawn as desired.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.

Financial Planning Items to Consider When Your Child Turns 18

Financial Planning Items to Consider When Your Child Turns 18

 

Turning 18 is a big milestone! At 18, we become legal adults (and we like to think that means we’re real adults), although kids who turn 18 now are often still heavily supported by their families. There are some financial planning items you should be thinking about when supporting your now adult child to set you both up for success.

Health Care Directive

When your child turns 18, you’ll no longer be able to make medical decisions for them. Given this, we highly recommend your child puts a health care directive in place (also called a living will or health care power of attorney) so you’re able to make their medical decisions should something happen and they’re unable to do so themselves. In this directive, your child can spell out certain medical wishes and name agents, such as parents, who can make their medical decisions or access their medical information if they become incapacitated. Your child can create an à la carte directive through an estate planning attorney or an online estate planning platform such as Legal Zoom. Of note, once your child begins a family of their own, they may want to update their directive so their significant other is their primary agent for making those medical decisions.

Durable Financial Power of Attorney

When your child turns 18, you’ll no longer be able to legally access their financial accounts unless you’re a co-owner. Similar to the health care directive, we highly recommend your child puts a durable financial power of attorney in place so you’re able to help pay their bills if something happens and they’re unable to do so themselves. Your child can name agents, such as parents, who can make certain financial decisions for them should they become incapacitated. As with the health care directive, your child can create an à la carte durable power of attorney document through an estate planning attorney or an online estate planning platform such as Legal Zoom. Your child may also want to update their power of attorney document once they have a significant other so that person is their primary agent.

Roth IRA Contributions

As soon as your child has earned income, they can begin contributing to an individual retirement account such as an IRA or Roth IRA. Usually, your child’s first years of earnings through part-time work or minimum wage jobs will be much less than in future years when they have a career job, which is a great time for them to contribute to a Roth IRA and benefit from compound interest. While they won’t receive a current tax benefit for their contribution (which they probably don’t need if they have very little income), they instead have the opportunity to invest and then withdraw those funds tax-free in retirement. Kids who work a part-time job may want to spend those dollars on entertainment or personal items, so they may not have extra dollars to save towards retirement; however, you can help kickstart their retirement savings by contributing to their Roth IRA if you’d like to support them in this way. Your child can contribute the lesser either of the total of their earned income or $6,000 for tax year 2022, and they don’t have to contribute the exact dollars they made. Thus, as a parent (or even a grandparent), you can gift them that amount of funds either directly to their Roth IRA or to their bank account for them to contribute the funds themselves.

Bank Accounts

If your child doesn’t already have a bank account, we recommend they open one and begin getting comfortable using it. Bank accounts and debit cards are tools they’ll need to use in today’s e-commerce environment. If your child is interested in going to school outside of their hometown, they may want to consider signing up for a bank account with a larger bank that may have branches or ATMs available in other areas. Of note, different types of bank accounts have various fees to be aware of, so it might be a good exercise for your child to read the fine print before opening an account to have an understanding of those possible fees so they can proactively avoid incurring them.

Building Credit

If your child doesn’t have an auto loan, student loan, or a credit card by the time they turn 18, we recommend beginning that conversation, as these forms of debt are tools that can help your child build their credit. Sometimes a bank or lender may not approve a credit card or loan for your child with no credit history, but they may be willing to do so with a secured or student card, you co-signing on a card with your child, or you adding them as an authorized user on one of your cards. The longer your child’s credit history, the higher their score might be, which may help them receive better interest rates or terms for auto or home loans in the future. Due to this, it can be advantageous for your child to open a credit card as early as possible and keep that card open for as long as possible. While credit cards with high interest rates and limits can be troublesome if they’re misused, you can certainly teach your child to treat their credit card like a debit card, meaning they should only spend money they already have in their bank account, which they then pay off each billing cycle or sooner to avoid late payments and interest penalties.

Tracking Credit

If they haven’t already done so, we also recommend your child creates logins for all three credit bureau websites—Equifax, Experian, and TransUnion—and regularly tracks their credit score to ensure there are no errors or fraudulent activity. Your child (and you, too!) may also want to consider freezing or locking their credit with each bureau to prevent fraud if they are not expecting a bank, lender, or landlord to check their credit at that time. If a bank, lender, or landlord is going to check their credit in the future, then your child would simply need to unfreeze or unlock their credit with each bureau beforehand.

Budgeting

Help your child learn to track their expenses and create a budget so they learn how to save for items they want and better understand what it costs for them to live or participate in activities with their friends. Even with supporting your child, you may consider having them use a credit card and bank account for all their expenses and pre-paying them or reimbursing them for expenses so that they have some accountability to a budget and learn to manage that. Mint.com by Intuit is a great tool for help with tracking spending, budgeting, and savings goals.

Aid and Loans for College

College is a major life decision for many 18-year-olds. Hopefully you’ve already been talking with your child about college well before they turn 18 and have had a chance to discuss their options for schools and how much you are willing or able to contribute toward their education costs. If you’re not able to fully support their college costs, it’s important to talk with them about their financing options. Please review our Demystifying College Financial Aid article for details they should know and consider with financing.

 

We’ve seen these financial planning items be invaluable for the families we work with and their kids, and we hope they’re helpful for you and your family as well. We’re always happy to help talk through specific situations and questions, so please don’t hesitate to reach out about yours!

 

 

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.

Moving On Up – Ways You Can Prepare for Your Next/Forever Home

Moving On Up – Ways You Can Prepare for Your Next/Forever Home

 

High on the list of stress-inducing situations is the process of buying a home. And while folks tend to think of the first home as being the hardest, I believe it is the next or your “forever” home that causes the most consternation.

The process of buying a home has a lot of moving pieces to contend with for the buyer; and when you add in the sale of your existing property along with the need to be financially stable enough to balance both homes (hopefully not for long), it can make the move feel untenable. Here are a few things that I wish I had known back when I was making that move:

  • Cash is KING right now. Having excess savings set aside will help the process—but it is not the only way to finance your move.
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  • You may be able to use your current home’s equity to finance your down payment. Depending on the situation, doing this can give you a leg up on the competition, particularly in this hot real estate market. To accomplish this, you may be able to use a home equity line of credit (HELOC) or a second mortgage. In some cases, a bridge loan may also be a wise decision.
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  • Your investment portfolio may offer some temporary cash for that next down payment. If you have assets in a taxable investment account and don’t want to sell them, you may be able to use a margin loan or a securities-based line of credit. Like a HELOC, you can borrow against the value of something—in this case, your stock portfolio.
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  • You may be able to negotiate a lease back of your current property if the next place is not available.
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  • With home prices on the rise, rolling equity into your next home could help keep your payments reasonable.
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  • Speaking of payments, interest rates are also on the rise. Working with an experienced mortgage broker can help you get set up for success. Start that process early and look for opportunities to lock in lower rates while we have them.
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  • Practice your new payments. Setting aside the additional amount you expect to pay after your move can accomplish two things: Add to your savings and get you used to higher expenses.
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  • Get creative! There are many ways to make that second purchase successful. An experienced team can help you find ways to get your offer accepted.
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  • Have patience. Buying a home can be stressful, especially when you already have a property. Patience and a sense of humor can go a long way toward making it a rewarding experience!

 
We love helping our clients navigate changes, like moving up. If you have questions about how to do this successfully, let us know.

 

 

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.