There’s never a dull moment in the world of finance!
In just the past six months or so the markets have passed some amazing historical milestones. We’ve reflected on one of the true revolutions in financial services, had a couple complicated runs of volatility, and, the country made it through the contentious midterm elections that were fought against the background of some major economic challenges at home and abroad.
With so many big picture topics to discuss, it’s been a while since we opened up our mailbag. So, on today’s show, we answer questions submitted by listeners that touch upon issues that many folks will have to deal with at some point during their retirement.
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1. "I'm 58 years old, and I will admit that I have not been paying much attention to my investment accounts. I remember in 2009, when we saw nearly half of our accounts go down, it wasn't fun, but I knew I didn't need the money for quite a while, so I just left it alone. Ten years later, I’m five years or so out from retirement, should I be making my accounts more conservative?”
When I was starting out in this industry in the early 1990s, clients would receive, at most, quarterly account statements. Today, it’s possible for folks to check how the market is doing minute-by-minute. I believe this is one of those instances where technology can hurt more than it helps. Yes, investors should have as much information about their accounts as they want. But if you check your accounts too often, it’s much easier to get sucked into making poor decisions based on short-term market volatility.
This listener’s question is a perfect example of why. Now, without actually seeing this listener’s portfolio, I can only make an educated guess about their finances. However, generally speaking, people who made panic withdrawals in the aftermath of the Great Recession are worse off today than folks like this listener who didn’t panic and stayed the course.
This listener also touches upon a key part of the Keen Wealth strategy, what we call the “glide path” into retirement. Yes, in general, we start moving clients into more conservative products, like bonds, as they near retirement. But retirement does not mean the end of all your investing. More and more retirees are going to live well into their 90s. We will set aside a portion of our clients’ assets so that they can weather any significant market downturns or emergency cash situations (like a serious illness), but we’ll also keep some of those assets in investments that will preserve your purchasing power throughout retirement.
2. “I'm about to retire and have an acquaintance that is telling me that I should invest in rental properties to create retirement income. I'm not sure exactly how that would work, and I also don't have a lot of expertise in this area. I'm being told that it's a great way to have an income stream and an asset that will go up in value. It's important to know that this acquaintance is a real estate broker who is wanting to sell me real estate properties.”
I don’t want to make any judgments about your acquaintance, but a person telling you to invest in something they are selling always raises some red flags. At Keen Wealth, we adhere to the fiduciary standard, which means my team is required, by law, to put the best interests of our clients first. A real estate broker is not required to do the same.
But for the sake of this discussion, let’s assume this acquaintance is someone you know to be a good person, and that you’re both approaching this investment with the best intentions.
I understand the appeal in investing in hard assets like real estate, especially as you near retirement. That beachfront condo you can see and even visit seems more stable than dealing with market volatility. Real estate can also provide you with vacation options and potential income from renters.
So why do many of my clients at Keen Wealth who own rental properties try to sell them as they near retirement?
Because they’re work! You’re on call 24/7 if a toilet won’t flush or the air conditioning breaks. The nest egg that’s supposed to support you and your spouse in your own home now has to cover upkeep of another home as well. Rent the property to the wrong people, and you’ve got another headache on your hands.
The biggest reason to invest in rental property in retirement is if you love the work. If repairing a home and dealing with renters appeals to you, and it’s going to keep you happy and active, then it’s worth considering. But if you think buying a rental property is going to create some easy passive income, there’s really nothing “passive” about being a landlord. It’s a new job. Do you want a new job after you just retired?
3. “My mother just passed, and I’m set to inherit about $600,000 in a brokerage account of stocks and mutual funds and $100,000 from mom's IRA. What’s the best way to handle this inheritance without incurring a huge tax bill?
We’re dealing with more and more issues like these at Keen Wealth as our baby boomer clients hit retirement age.
Under current law, an individual can pass over $11 million without having to pay any estate tax. In addition, your cost basis will be “stepped up” to the values as of the date of her death on the brokerage account holdings. So, if you were to sell those assets shortly after you inherit them, you likely wouldn’t be on the hook for huge capital gains tax given how recently your mother passed. However, it is important to note that regarding the IRA account that you’ll also be inheriting, any withdrawals that you take from that account will be subject to tax.
Of course, the biggest issue you’re dealing with at the moment is the loss of a loved one. This is one of those times in life that I believe the value of working with a fiduciary advisor really shines brightest. We try to do all the heavy lifting around these issues for clients so that they have one less thing to worry about. Our range of services is intended to make this difficult time a little bit easier.
Thank you so much to our listeners who sent in questions, and to all our readers and listeners who continue to make our show successful. Please reach out to us at keenonretirement.com if you have a question or topic you’d like us to discuss on a future show.
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Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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