Do Yourself a Favor: Don't Procrastinate on Open Enrollment

Fall is one of the most welcome times of the year, but one aspect of the season may be less than welcome: open enrollment. Many Americans put off reviewing their corporate benefits until the last moment, giving their options only a cursory glance. In its 2017 WorkForces Report, Aflac, an insurance provider, found that 83 percent of employees spent less than an hour researching their options. What’s more, 92 percent simply checked off on the same benefits they had the previous year.

Employee benefits serve as an important safety net. Take the time to review the details of your options so you can choose the plans that best meet your needs. The process may feel cumbersome, but the peace of mind knowing that you protected you and your family can make the extra work worth it.

Below are some key points to keep in mind for your benefits:

Health Insurance

Health care premiums have increased—but not by the double digits that previous years witnessed. The Kaiser Family Foundation reports that annual premiums have risen by an average of 3 percent this year.

Kaiser also reports, however, that employees are paying an average of $5,714 annually toward their coverage.  That is not an insignificant amount, which underscores the importance of paying attention to the details.

To decide which option is right for you, consider your needs for health care over the past year: How often did you and your family visit the doctor? What prescription medications do you take?

Also, consider changes the coming year may bring: Do you anticipate a surgery? Are you planning to have a baby?

Once you have an idea about your health care needs, study your options to determine the coverage that meets those needs. If you don’t go to the doctor a lot, you might take advantage of the lower monthly premiums provided by high-deductible health plans (HDHPs). Plus, with an HDHP, you can open a health savings account (see the next section). If you need more comprehensive coverage, then a preferred-provider plan may be your best bet.

If you decide to select the same plan that you had in the previous year, make sure to review any changes to the plan. You don’t want to get surprised by a spike in the cost of one of your medications!

[Tweet "During open enrollment, review your options so you can choose the plans that meet your needs."]

Health Care Accounts

Employers are increasingly offering two types of accounts that can help you pay for your medical expenses: flexible spending accounts (FSAs) and health savings accounts (HSAs).

  • FSAs: You fund an FSA with pre-tax dollars and then use the money to pay for qualified expenses. A potential issue with the FSA is that you have to use all the money you save within the calendar year—i.e., the money can’t be carried over to the next year. Because of this, you may be tempted to make unnecessary purchases just to use up the money. That’s why we advise that FSA accounts be used for predictable expenses only, such as prescriptions or child care coverage.
  • HSAs: Unlike FSAs, HSAs (which are designed to cover the costs of high-deductible health plans) allow you to carry over your unused contributions into the following years. Because of this, many people use HSAs as part of their retirement planning. They contribute to their HSA during their working years while paying for their medical expenses out of pocket, with the intention of using the HSA to fund qualified medical expenses in retirement. Regardless of whether you use your HSA now or in the future, it offers a triple tax-exempt advantage: tax-free contributions, investment growth, and withdrawals.

 Life and Disability Insurance

With company insurance plans, your boss will pay a portion of the costs, reducing the expense to you. However, you should weigh your career plans before opting for your company’s life or disability insurance.

Group plans often do not have as comprehensive coverage as individual plans, and you probably won’t be able to customize your employee plan. Plus, if you qualify for preferred life insurance underwriting status, you may get a less expensive plan with better coverage than your employer’s offer.

If you anticipate leaving your job within the coming year, then buying private insurance may be a better option. On the other hand, employer plans do not carry medical qualifications. You won’t have to undergo a medical exam—a consideration if you are older or have a pre-existing condition.

Finally, most employers offer a maximum amount for life insurance benefits, which is generally one to two times your salary, and a monthly limit of $5,000 to $10,000 for disability insurance. Would these amounts take care of your family’s needs if you were unable to? If not, then consider private insurance.

A Final Note

Open enrollment is an ideal time to double-check your beneficiaries. Births, marriages, divorces—big life changes may necessitate changes to your designated beneficiaries. Use this time to make sure yours are up to date.

Beneficiary designations for retirement plans and life insurance have both a primary and a secondary (or contingent) beneficiary. The primary beneficiary would usually be a spouse, and the secondary beneficiary is commonly a trust for minor children or direct to adult children.

Your situation is unique, of course. Consult with your financial planner or estate planning attorney for specific recommendations.

10 Years After the 2007–08 Financial Meltdown, Some Facts to Consider

We are approaching the 10-year anniversary of the 2007–2008 global financial crisis, which imploded in September and October of 2008 but had peaked in July–November 2007. In contrast, we have been enjoying a period of remarkably low volatility. In light of this, consider these “Fun Facts To Know and Tell”: Using the S&P 500 as a stock market benchmark, since it has a long history (although, remember, we like to use the MSCI ACWI as a broader U.S. and global stock index):

The last 3% drop in the S&P 500 was 199 days ago:

  • Longest stretch since 1995–96
  • Second-longest stretch since 1950

The last 5% drop was June 2016, or about 15 months ago, when Britain surprisingly voted to exit the European Union.

The last 10% drop was January and February 2016, over 18 months ago.

[Tweet "Stock market downturns can come without warning. Be ready at all times!"]

By comparison, since 1950 the S&P 500 has declined 3% or more over four times per year, on average, and dropped over 5% about 2.5 times per year.

Our crystal ball is no clearer than yours, and we are not predicting an imminent downturn in the stock market. Stock market downturns can come any time, without warning, and are a challenging part of the investing process. Be ready at all times!

Much has been written about the success of passive, or index, investing, a strategy we have recommended for well over 15 years. As with many things, relative success can run in cycles. Index investing has been extremely successful in recent years, but there have been times, such as the early 1980s, mid-1990s, and late 2000s, when traditional active management fared better.

In investment management, no single strategy works all of the time, so investors should make judgments over reasonable time periods, understand the facts, and be patient. We continue to recommend passive investing for many reasons, but we also recognize that it won’t excel all of the time.

We hope you have logged on to your “My Wealth” database to review your investment portfolio. We plan to update the monthly performance numbers on the second business day of the month, so the data will be very timely. Please contact us with any questions.

We appreciate the opportunity to serve you and look forward to a great future.

As always, please contact us with any questions, news, or comments.

Be Remembered for More Than Leaving a Lot of Money

What is the purpose of investing? As summer days wind down, we suggest you take some time to contemplate this question.

Fortunately, the question is simpler than “What is the purpose of life?” but articulating the purpose of investing is not a simple task.

Simplistically, the purpose of investing is to meet long-term personal financial planning goals. These goals may include buying a new home or vacation home, paying for education, funding retirement, supporting charitable causes, and leaving an inheritance or a legacy.

Funding retirement comes first to most people’s minds since it is a large financial obligation. Leaving an inheritance or legacy also usually makes the list. But what is the purpose of leaving an inheritance or legacy? Most people will tell you they want to leave an inheritance to help their children lead a more comfortable lifestyle, enjoy family vacations, send the grandchildren to college, help pay for their weddings—the list can go on and on. Leaving a legacy is commonly a goal.

Let’s take leaving a legacy a step further. Is it simply leaving money, or could it or should it also be about leaving values and memories?

How do you want to be remembered? We hope it is for more than “my parents or grandparents left me a lot of money.”

[Tweet "Think about what you are doing to leave a legacy of values and memories."]

As summer days wind down, we encourage you to think about what you are doing to leave a legacy of values and memories. Talk to your children and grandchildren about values that are important to you. Spend some time creating good memories and family experiences. Doing so isn’t always about the amount of money you spend. It can be, but it doesn’t have to be. It can be more about what you do and how you do it.

Enjoy these final summer days! We hope your summer has included some memorable personal experiences and family time.

Our firm just marked our 24th anniversary since being founded in 1993. We are grateful for the long-term relationships we have had with our clients. We thank you for your confidence and trust. We look forward to many more years of serving your personal financial planning needs and helping you achieve financial peace of mind.

As always, please contact us with any questions, news, or comments.

How Do You Get In on the Next Amazon? You Diversify

If you’ve been reading my blogs long enough, you know that my mantra is diversification. If you own everything that the market offers, then you don’t have to worry about picking the next big thing. You’ll already own the next big thing! A recent article in The Wall Street Journal underscores my point. In “Amazon’s 49,000% Gain: The Most ‘Super’ of ‘Superstocks’ Since 1926,” writer Jason Zweig discusses the near futility of trying to hunt down and invest in superstocks.

Here are some eye-opening facts to illustrate why diversification is important:

  • Between 1926 and 2015, just 30 companies out of 25,782 accounted for one-third of the cumulative wealth generated by the U.S. stock market.
  • In that same period, just 0.33% (not even 1%!) of companies in the U.S. stock market accounted for half of the wealth generated for investors.
  • In that same period, fewer than 1.1% of the stocks that existed created three-quarters of the stock market’s cumulative dollar gains, as measured relative to the returns on cash.

It’s obvious that searching for the next superstock like Amazon is like hunting for a needle in the haystack. Actually, finding the needle might be easier! And that is because, as Mr. Zweig points out, the superness of superstocks isn’t immediately apparent. It takes time for these companies to reach their potential, and they often do abysmally before they go big. Amazon, for example, lost 95% between 1999 and 2001.

[Tweet "Investors are less likely to own the next big stock if they don't diversify."]

Only Psychics Know the Winners

The time lag is why I counsel my clients on the benefits of long-term thinking. It is only through the long term that they can expect to hold winners like Amazon.

However—and this is a big however—they are less likely to hold an Amazon if they fail to diversify their portfolio. As the Wall Street Journal article points out, it’s not enough to own 15 to 30 stocks, which amounts to traditional advice on diversification. “Superstocks are so scarce that you need to hold hundreds, even thousands, of companies to be near-certain of matching the market’s return,” Zweig writes.

If you don’t own the high performers, your portfolio is probably going to underperform. But unless you’re psychic, you’re going to have a hard time picking the winners.

Let’s take a look at the S&P 500 top 10 performers in 1980:

  • Global Marine
  • Tandy Corp.
  • M/A-Com Inc.
  • Reading & Bates
  • Wang Labs
  • U.S. Home
  • Houston Oil & Minerals
  • SEDCO Inc.
  • Burlington Northern
  • Fluor Corp.

How many of those companies do you remember? Ten years later, the top 10 were:

  • Home Depot
  • NCR Corp.
  • Nike Inc.
  • Alberto-Culver
  • Service Corp. International
  • IMCERA Group
  • Beverly Enterprises
  • Jude Medical
  • Compaq Computer
  • Biomet Inc.

None of the companies that were top performers in 1980 made the list in 1990.

In 2000:

  • Dynegy Inc.
  • Reebok International
  • EOG Resources
  • HealthSouth Corp.
  • Calpine Corp.
  • Kinder Morgan
  • Power-One
  • PerkinElmer Inc.
  • Coastal Corp.
  • ALZA Corp.

Again, no overlap of high performers. In 2010:

  • Netflix Inc.
  • F5 Networks
  • Cummins Inc.
  • American Intl. Group
  • Zions Bancorp
  • Huntington Bancshares
  • Akamai Technologies
  • Whole Foods Market
  • Inc.
  • Qwest Communications Intl.

And finally, 2016—our most recent year:

  • NVIDIA Corp.
  • ONEOK Inc.
  • Freeport McMoRan Copper & Gold
  • Newmont Mining
  • Applied Materials
  • Quanta Services
  • Spectra Energy
  • Comerica Inc.
  • Martin Marietta Materials
  • Halliburton Co.

Picking the winners from year to year is nigh impossible, yet not owning the top 10 stocks represents an opportunity cost. It’s a mathematical fact:

  • The best-performing stocks can go up over 100% or more in any given year (think Amazon).
  • The worst-performing stocks can only go down 100%.
  • Therefore, a few stocks going up more than 100% can outweigh those that go down 75% or more.

Go Broad to Keep Up

This is why I recommend that investors own index funds that own all the companies, such as the Vanguard Total Stock Market Index Fund. Yes, there will always be companies that hit hard times and whose stocks fall 80 or 90%. But by diversifying your portfolio, you can more easily absorb those losses. Meanwhile, you will also likely own the one or two companies whose stocks skyrocket in any given year.

And you want to own those high achievers. Amazon’s stock price is in the quadruple digits right now. If an investor doesn’t own it, the chances of their portfolio keeping up with the broader market average is slim.

So back to my mantra: Diversify. Invest in a total stock market index fund. Own as much as you can so you have the opportunity to achieve the returns you need to keep up with the market and meet your financial goals.

With the Quarter's End, We Take a Look at Market Returns

Take a look at the following investment market returns as of June 30, 2017. As you can see, general stock market returns have been high, with the pendulum swinging in favor of international stocks (especially international emerging markets) over U.S. stocks. However, value-style and U.S. mid and small company stocks have lagged large company stocks. Bonds have provided modest returns but are our anchor during any storm in the stock market. Overall, we are pleased with our diversified strategy.     Year-to-Date 2017

MSCI ACWI IMI Global Stocks +11.32%
S&P 500 US Large Co Stocks +9.34%
MSCI USA IMI US Value Style Stocks +5.08%
S&P Midcap 400 Stocks +5.99%
S&P SmallCap 600 Stocks +2.79%
DFA US REIT +2.50%
DFA Commodity Strategy -4.09%
MSCI World EX USA International Stocks +13.59%
DFA Int’l Emerging Markets Core Fund +19.00%
U.S. Aggregate Bonds +2.27%

[Tweet "The pendulum has been swinging in favor of international stocks over U.S. stocks."]

Time to Review Your Portfolio? Use My Wealth

We encourage you to explore My Wealth to review your portfolio.

Here’s a helpful hint: Click on the left-hand tab “1-3-5 year history” to see your personal portfolio historical returns. It is quick and easy to use!

Please contact us if you need assistance registering or have any questions.

As always, please contact us with any questions, news, or comments.

When It Comes to Volatility, Let’s Not Get Complacent

We continue to experience slow economic growth, modestly chugging along without experiencing any major stock market turbulence. It has been nearly 10 years since the stock market peaked in July 2007 on the cusp of the 2007–2008 global financial crisis. We haven’t had a major stock market downturn, defined as a drop of 20% or more, since the stock market recovery began in March 2009. While we don’t make forecasts, let’s not grow complacent. Historically, the stock market has gone up about 75% of calendar years and down about 25% of the years. Risk and return are related, and higher potential returns over time from the stock market come with volatility in the short term.

Over five years ago we added a “Low Volatility” category to our asset allocation and mutual fund selection. Given the environment of low interest rates and the fact that bond prices go down when interest rates go up (admittedly, we were early in planning for rising interest rates), the goal was, and remains, to have a category with higher potential returns than bonds but less volatility than stocks. Easy to say, hard to do!

We recently added the Vanguard Global Minimum Volatility Fund to this list. It invests in U.S. and foreign stocks but uses a stock selection methodology to emphasize less volatile stocks that don’t go up as much when the stock market goes up but shouldn’t go down as much when the stock market goes down. Morningstar publishes a statistical measure called the Upside and Downside Capture Ratio to analyze relative performance, and we will use this as one tool to measure the Vanguard fund’s performance. As stated above, we have had remarkably low volatility in the stock market, but we are acting to “be prepared.”

[Tweet "Higher potential returns over time from the stock market come with volatility in the short term."]

My Wealth Update

Last month we announced the rollout of our “My Wealth” web-based service to provide you with easily accessible data about your investment portfolio. The feedback has been positive, and we plan to use the service more fully in our portfolio reporting in the near future.

If you have not already done so, please register for My Wealth and explore the rich, graphical reporting. If you have not saved the link on your desktop, laptop, and phone, we have added a link at the top right-hand page of our website for your convenience and easy access.

My Wealth charts provide multiple levels of portfolio analysis by clicking on each section of a report to drill down to a further level of detail. As with all new technology, the best way to learn about it is explore or hit the “Next” button at the top. We encourage you to “click around” My Wealth and explore it. Please contact us if you need assistance registering or have any questions.

Enjoy these early summer days! As always, please contact us with any questions, news, or comments.

Retirement Roadmap

Retirement Road Map: Steps to Take When You're 1 Year from Retiring

You’re in the homestretch—the final year before you retire. As you wrap up your career, don’t forget the financial steps to create a smooth transition to the retirement you’ve worked so hard for. In previous blog posts, we looked at your road map five and 10 years out from retirement. Today we’ll consider what you should do in the year before you retire.

Adjust Your Portfolio

Your portfolio allocations may need an adjustment toward more conservative investments. Meet with your financial advisor to discuss your situation and risk tolerance, and make adjustments to your portfolio as necessary.

Create a Budget

You need a spending plan for retirement that is aligned with your projected retirement income. Make sure to test your spending plan ahead of your retirement to see if you have more or less than you need.

Plan a Strategy for Social Security

Work with your financial advisor to determine the best date for you and your spouse to start taking Social Security payments.

Evaluate Pension Options

If you have a pension, decide on whether you will take a lump sum payment or monthly checks. In addition, evaluate and choose your survivor benefit options.

Save Your Cash

If you’ve been diligent, then you have been saving all along. Now is a good time to take a look at your savings and make sure you have an ample cash reserve for emergencies. A generous reserve can serve as a cushion in case you spend more of your retirement savings than you had planned for the first few years.

Review Your Medicare Options

Study your options for Medicare coverage, such as prescription drug coverage (Medicare Part D) or a Medicare Advantage plan (Part C), and choose those that are most appropriate for your situation.

Bonus: Your First Year of Retirement

Many people end up overspending in their first year of retirement. We recommend that you analyze your spending and make sure you are sticking to your budget. If you’re spending too much, it’s important that you take control of the situation before you damage your savings.

In the same vein, you want to stick to your retirement plan. We recommend reviewing the plan with your advisor to make sure all the assumptions are still correct and that any necessary adjustments are made.

Finally, keep your skills up to date. Volunteering, consulting, or part-time work can keep your resume fresh in the off chance that you’ll need to return to work as part of your retirement plan.


You’ve been diligent in planning for a comfortable life in retirement. Still, from health care to benefits, retirement planning is complex. If you think that your retirement plan may be falling short, please feel free to reach out to us. We offer comprehensive retirement planning and would be happy to discuss your situation to help give you confidence that you’re on the right track.

Disability Awareness Month: A Reminder to Protect Your Greatest Financial Asset

Many “causes” have a dedicated day, week, or month. This year I learned that Good Friday, before Easter, was also designated National Tartar Sauce Day due to the lobbying of the Frisch’s restaurant chain. No kidding, that is a Fun Fact! On a more serious note, May is Disability Awareness Month. One’s greatest financial asset is the ability to earn an income, so the ability to earn an income can and should be insured against an illness or injury that may prevent one from working. In many ways, disability insurance is more important than life insurance because one is still living and has expenses. People naturally think about life insurance to cover a premature death, but disability is actually more likely to happen. (Thank the actuaries for calculating the odds.) Disability insurance is less expensive when purchased at a younger age, so review it sooner rather than later. More information is available at, and we are certainly happy to discuss this further.

While we are on the topic of insurance, do you know what “umbrella” liability insurance is and how much you need or have? Umbrella liability coverage is excess liability coverage in addition to your auto and home insurance. Umbrella liability insurance is important for high-net-worth individuals because most auto and home insurance policies have a liability limit of $250,000 to $500,000 that covers you, for example, if you have a traffic accident and injure someone and they sue you.

[Tweet "In many ways, disability insurance is more important than life insurance."]

We frequently speak about “stages of life,” and there are two stages when it is extremely important to have umbrella liability coverage. The first is when you have teenage or college-age drivers on your auto policy. The second stage is when you are at an older age and your alertness and reaction time may not be as fast, or cataracts or other issues develop that increase your risk of car accidents. We’ve all seen the older person who shouldn’t be driving. Of course, that’s the other guy, not us, but sometimes we all need to look in the mirror. Take note of the many advertisements from personal injury attorneys. In our increasingly litigious society, you should have auto/home/umbrella liability equal to or greater than your net worth. It costs a few hundred dollars per year per million dollars of coverage and can be a source of financial peace of mind.

New Feature: My Wealth

For our Personal Wealth Management clients, we are rolling out a new technology source to review your investment reports called “My Wealth.” Yes, we stole the name from the “My Charts” term commonly used in the medical profession. We encourage you to register for the program and “click around” to explore it.

My Wealth charts provide multiple levels of portfolio analysis by clicking on each section of a report to drill down to a further level of detail. As with all new technology, the best way to learn about it is explore or hit the “Next” button at the top.

As always, please contact us with any questions, news, or comments.

Retirement Road Map: Steps to Take When You’re 5 Years from Retiring

You’re five years from retirement and you’re getting excited, making plans for your life after your career. This is a critical period in laying the financial groundwork to realize those dreams. In our last article, we detailed steps to take when you’re 10 years out from retirement. Today we’ll follow up with your road map for the five years before you retire. Review Your Plan

The five-year mark is a good time to meet with your financial advisor. Together you can review your plan and make sure your savings are still on track or decide on adjustments to make up for any shortfalls.

Estimate Health Care Costs

Health care costs are expected to rise for the foreseeable future. Estimate your out-of-pocket medical expenses after Medicare benefits. Will you be able to cover them? It’s a good idea to discuss strategies with your financial planner.

Create a Long-Term-Care Plan

With Americans’ increased longevity, more of us than ever will need long-term care at some point. Analyze your potential scenarios and costs for care. Buy long-term-care insurance as appropriate given your life expectancy and assets.

Consider Housing

Do you want to stay in your home when you retire? Or will it be an ideal time to downsize? You and your spouse should consider your options and plan accordingly.

Retirement planning is complex. Health care and long-term care especially can offer unexpected costs in retirement. That’s why you want to plan thoroughly. If you’re feeling overwhelmed by these or any other needs in retirement, feel free to reach out to us. We offer comprehensive retirement planning and would be happy to work with so you can feel confident that you are on the right track for the retirement you envision.

Retirement Roadmap

No April Fooling: Active Management Offers Poor Predictability and Persistence

It is tempting to make the April edition of Fun Facts our April Fools’ joke, but we know our clients are far too smart to succumb to any “fake news.” Nonetheless, we will try to keep it fun! On good days, we like to think that all of our clients go to bed at night reciting the Four Core Principles of Berno Financial Management’s Investment Philosophy:

  1. Total Portfolio Approach
  2. Broadly Diversified Portfolio
  3. Risk and Return Are Related (the 3 R’s)
  4. Minimize Fund Fees, Expenses, and Income Taxes

We are toying with the idea of adding a fifth principle: Manage Predictability and Persistence. (Shall we call it “the 2 P’s”?)

Here is where it gets a little heavy:

  • Traditional active management has very poor predictability and persistence.
  • Passive asset class management has very high predictability and persistence.

According to two separate, long-term studies by Standard & Poor’s titled the SPIVA (Standard & Poor’s Index vs. Active) Scorecard and the Persistence Scorecard, the majority of active managers underperform their respective stock market index, and of those that do outperform, very few outperform consistently in the future.

[Tweet "The risk–reward ratio of trying to pick actively managed funds in advance is not justifiable. "]

Specifically, over five-year time periods:

  • 91% of large-cap,
  • 87% of mid-cap, and
  • 58% of small-cap managers lagged their respective benchmarks.

Furthermore, of the funds that were in the top 25%, only 1% of large-cap funds and 0% of mid-cap and small-cap funds remained in the top 25% at the end of the next five-year measurement period.

Conclusion: The risk–reward ratio of trying to pick successful actively managed funds in advance is not justifiable.

Passive asset class management is both predictable and persistent. No fooling!

As always, please contact us with any questions, news, or comments.

Retirement Road Map: Steps to Take When You’re 10 Years from Retiring

You’re 10 years out from retirement, and you’re looking forward to travels and grandchildren. But don’t coast yet. This last decade is crucial to achieving the retirement you envision, and mistakes at this time could hurt your ability to achieve that vision. Over the next three blogs, we’ll look at what you should do one, five and 10 years out from your retirement date. Let’s start with 10 years:

Ramp Up Your Savings

In retirement, you make a transition from saving money to using that money for income. You want enough money to live comfortably in a retirement that could last 30 years or more. To take full advantage of your saving opportunities, we recommend talking to a financial advisor to figure out a target savings amount. Then consider whether these ideas can help get you to your target:

  • Study your budget. Figure out where you can adjust to spend less and save more.
  • Take advantage of catch-up contributions. Once you reach 50, you can set aside even more in your retirement accounts. Take advantage of the opportunity if you can.
  • Max out your HSA contributions. With the increased cost of health care, maxing out your HSA and avoiding withdrawals could increase your ability to pay for medical care in retirement.
  • Consider delaying retirement. If you’re short on savings, delaying retirement can give you more time to achieve the retirement you want.

Get a Handle on Debt

The decade before you retire is an opportune time to take a look at your debt and determine what you can pay off. Start with your high-interest credit card and installment debt, and pay it off as quickly as possible. You can also determine if paying off your mortgage before you retire would be a good move for your situation.

Analyze Portfolio Risk

As investors approach retirement, they generally move from a portfolio with riskier investments to a portfolio with more conservative, stable investments—but the amount of risk you should take is unique to you. We recommend talking to a financial advisor to determine the proper ratio of equities to bonds to support your goals.

Manage Your Career

You may be close to retirement, but you still need to work. Forging strong relationships and skill sets can reduce the chance of losing your job. In addition, if you’re planning on an encore career, now is the time to figure out what that would entail. That way, you won’t be set back by any advance requirements, like a college course or internship.

Estimate Your Social Security Income

If you haven’t already, visit the Social Security Administration’s website at to estimate the benefits you’ll receive. You can include these expected benefits in your retirement income projections and saving calculations.

Coordinate with Your Spouse

In planning for your future, you and your spouse will want to work through all these steps together to determine the strategies that can help you best as a couple. Consider scenarios where one of you works longer than the other to see how those strategies could ease your income burden.

Retirement planning is a complex process. We hope these steps will help you as you start the countdown to retirement. If you would like some additional guidance, we’d be happy to talk with you. Our comprehensive retirement planning can help provide confidence that you’re on the right path to a comfortable retirement.

Retirement Roadmap

Retirement Planning for High-Income Professionals: Additional Opportunities to Save

Retirement planning can be challenging for high-income earners. Contributing $18,000, or $24,000, or even up to $60,000 a year to a retirement plan may not be enough for a person earning $300,000 or more a year who wants to enjoy the same quality of life in retirement. You may find, like many high-income earners, that the annual compensation limit stymies your ability to put sufficient money aside for retirement. For 2017, that limit is $270,000, which is the point where the IRS caps the compensation that can be used in employer-matching contributions. That means if you earn $400,000 per year, $130,000 of your salary will not be factored into the tax-deductible employer contributions that you may receive.

Even without such caps, however, the yearly elective deferral limit of $18,000 (plus the $6,000 catch-up contribution allowed for those age 50 and over) is usually insufficient to support the lifestyle in retirement that high-income earners had during their working years. Consequently, you may want to consider alternative investment options, some of which we outline below.

Invest in an After-Tax Brokerage Account

After-tax brokerage accounts can be attractive to high-income earners because of their flexibility. Add to that the fact that dividends and capital gains qualify for a special 15% tax rate (20% for very high-income earners) and these accounts can be very appealing. However, there are pluses and minuses to consider.

In the plus column, although you make the initial investment in after-tax dollars, you will not pay tax on the increase in value for your account as long as you are holding on to it. Additionally, you have no limits for withdrawing income, and you will not incur penalties for early withdrawals. When you decide to liquidate the account, you will pay capital gains taxes but at a favorable tax rate (which is lower than ordinary income for high earners) provided that investments are held for more than a year. If you incur a loss on your taxable brokerage account investment, you can sell it, claim it as a capital loss on your tax return and get a tax break.

On the minus side, since these accounts are readily available and not limited to post-retirement use, you may be tempted to use the funds during your working years. If you resist this temptation, however, a taxable brokerage account is one of the better retirement planning options for those whose income exceeds the $270,000 annual compensation limit. In most cases, such an account will be more flexible and beneficial than a nonqualified annuity account.

Look into a “Backdoor” Roth IRA

“Backdoor” Roth IRA plans will appeal to only a limited number of high earners since you cannot take advantage of one if you have IRA rollovers from previous employers or traditional contributory IRAs. However, if you have not changed employers or you have always been self-employed and have an individual 401(k) plan, this strategy may be right for you.

The backdoor strategy allows you to convert a traditional or nondeductible IRA into a Roth IRA. No income limits govern this conversion, and you can open a nondeductible IRA and immediately convert it into a Roth IRA with few or no conversion taxes. In contrast, conversions from existing traditional IRAs or IRA rollovers will likely involve tax implications.

Because there are some definite pros and cons inherent in this strategy, speak with your financial advisor before putting one into place.

Maximize HSA Contributions and Delay Withdrawals

Health savings accounts (HSAs) are attractive options for high-income earners, as they are the only type of account that is triple tax-free: Contributions are tax-deductible, earnings are tax-deferred and withdrawals are tax-free as long as they are used for qualified medical expenses such as physician visits, laboratory tests, medications, dental care and eye care.

HSAs are geared for those who have high-deductible health plans, with deductibles over $1,300 for individuals and $2,600 for families. As of 2017, individuals may deposit up to $3,400 per year into an HSA, and families may contribute $6,750. An optimal strategy for many high-income earners is to contribute the maximum amount allowed to a health savings account each year and refrain from withdrawing from the account while working. Instead, pay your medical bills out of your regular after-tax income, and allow the HSA to accumulate so it can be used as supplemental income in retirement for health expenses incurred at that time.

After age 65, you may withdraw HSA funds for nonmedical expenses, but that money will be taxed as ordinary income. Although HSAs can supplement retirement income, it is generally advisable to max out other retirement contributions before employing this strategy.

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See If Your Employer Offers an After-Tax 401(k)

An after-tax 401(k) plan allows you to contribute after-tax dollars up to $54,000. Earnings from your after-tax 401(k) contributions will grow tax-free until you withdraw them, at which point they will be taxed as ordinary income.

Options for the Self-Employed

Unless your employer makes substantial contributions toward your retirement or will provide you with a pension (also called a defined benefit retirement plan), it may be to your advantage to work for them as an independent contractor rather than as an employee. Self-employed individuals can contribute up to $54,000 to a profit-sharing 401(k), which is quite a bit more than the $18,000 allowed for employees.

Those who are self-employed can also consider contributing to a personal defined benefit plan. With a defined benefit plan, you project your annual benefit during retirement and then calculate the annual contribution you need to make to reach that amount. In some cases, annual contributions for personal defined benefit plans may reach $100,000 or more, which allows small business owners to save more than what is allowed under other retirement plans. The caveat, however, is that defined benefit plans have setup and administration fees that other plans do not. Plus you are required to contribute to the plan for at least five years. Because of this, these plans are best suited for those who can contribute at least $80,000 annually.

Those who have businesses or earn consulting income outside of their regular jobs can open a Simplified Employee Pension IRA (SEP-IRA) or an individual 401(k) account. The latter involves greater administrative responsibilities but may allow for higher annual contribution levels for the same income level based upon how those contributions are calculated. This page on the IRS website outlines the specifications and requirements for each of these plan types.

The above investment options are a few of the ways in which high-income earners can maximize their retirement savings. Speak with your financial advisor about the pros and cons of these options to determine which ones would be best for you in light of your financial goals and needs.

What Difference Can a Couple of Months Make? Take a Look at Recent 12-Month Returns

What a difference a couple of months make! When looking at past 12-month returns, dropping off one bad month and adding one good month can make a huge difference (and vice versa). In the case of 2016 and 2017, January and February 2016 turned out to be down months for global stocks, whereas January and February 2017 were positive months. So dropping two bad months and adding two good months can dramatically impact 12-month returns. For example, the DFA Global Equity Fund was up 12.93% for the 12 months ending December 31, 2016. Fast-forward to February 28, 2017, and the 12-month return jumps to 26.16%—a difference of 13%, or more than double, just because of two months! We all like to see stock market values rise, but remember that stocks are volatile and sharp declines can happen at any time. We are not forecasting a stock market downturn, but it has been several years since we had a sharp and prolonged down period for stocks. Gravity has not been repealed, and patient, long-term investors are rewarded with higher returns for the short-term risks associated with stocks. Remember the 3 R’s: Risk and return are related.

Warren Buffett, one of the most successful investors of all time, recently published his annual report letter for shareholders in Berkshire Hathaway. Here are two quotes:

Buy When Others Are Fearful

During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well.

Vanguard’s John Bogle Is a Hero

If a statue is ever erected to honor the person who has done the most for American investors, the hands down choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds … In his early years, Jack was frequently mocked by the investment-management industry. Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me.

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One final note: We encourage you to start preparing your 2016 income tax return early. As a reminder, we posted Realized Gains and Losses Reports for your taxable [non-IRA or 401(k)] accounts to the Berno View Portal under Portfolio Reports: Tax Reports. Your TD Ameritrade Form 1099 for taxable accounts includes management fee data.

As always, please contact us with any questions, or news or comments.

Just How Accurate Are Forecasts Anyway?

As this month’s edition was written on Groundhog Day, both Punxsutawney Phil (say that three times fast) and Buckeye Chuck saw their shadows, hence forecasting six more weeks of winter. But how accurate is that forecast? Since 1969 Phil has had a 36% accuracy rate and since 1979 Chuck has had a 47% accuracy rate on early springs only, candidly acknowledging that the definition of “early spring” is subjective and debatable. Even professional meteorologists admit that long-term forecasts are foggy at best. Nice pun! Let’s look at recent consensus forecasts that went awry. General consensus was that:

  • Brexit wouldn’t pass. It did.
  • Donald Trump wouldn’t be elected President. He was.
  • The stock market would go down if Trump was elected. It went up.
  • The Chicago Cubs couldn’t win the World Series. They did.
  • Bruce Berno would become a Masters Swimming Champion. Who said that?!

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Successful investing is the result of discipline, not forecasting.

Successful investing is contrarian. You have to avoid following the crowd, and you have to be willing to ignore your short-term emotions and gut feelings.

Successful investing is a steady, methodical process. The more changes one makes, the more chances one has of being wrong.

Successful investing is humbling.

Successful investing is boring. But fun!


Please join me in congratulating Kim Masco on successfully earning her Registered ParaplannerSM designation granted by the College for Financial Planning. The RP® course of study encompasses the process and five disciplines of financial planning, terminology and general concepts. Well done, Kim!

As always, please contact us with any questions, news or comments.

How to Talk to Your Parents About the Future (Part 2)

As our parents age, they sometimes need help—but talking to them about it can be difficult. Aging and loss of independence are sensitive subjects, and family dynamics can make the discussion even trickier. Last month we looked at signs that a parent may need help and gave suggestions on approaching tough conversations. This month we’ll cover specific concerns, such as driving, in-home and long-term care, and end-of-life issues.


According to Pfizer’s “Get Old” wellness campaign, the hardest conversation to have with elderly parents is in regard to driving. In fact, getting a parent to hand over their car keys is more difficult (39% of respondents) than discussing wills or final wishes (24%). This isn’t too surprising, as driving is perhaps the ultimate symbol of independence.

If you’re worried that it’s no longer safe for a parent to drive, take note of the problems that you notice. This checklist can help. In some states, you can anonymously request that your parent retake their driving test; or perhaps you could ask their physician to make the request.

Before you broach the difficult subject of your parent giving up their car keys, figure out some transportation alternatives (e.g., hiring a driver, using community-based senior transport or having family members pitch in) so they don’t feel like they’re being left high and dry.

Long-Term Care

The warning signs of a parent’s decline listed in last month’s blog can be entries into a discussion with your aging parent about the need for help. Before broaching the subject, however, research their options. Long-term care includes informal caregiving, assisted living, home health services, adult day care, nursing homes and community-based programs. You can use a senior care calculator to compare your parent’s current cost of living with the costs of in-home care and assisted living in their community.

When you talk with your parent, share what you have discovered in your research, and get their feedback. Is there an assisted living center or retirement community that they favor? One that is popular with their friends? Is a church-affiliated center a priority?

Many seniors resist receiving help from “outsiders,” so you may find it beneficial to make such help seem commonplace and acceptable. For example, if you know of any of their peers who are receiving assistance, bringing that up in your discussion may increase your parent’s receptivity. Also, if your parent has traditionally followed the advice of a doctor or clergyperson, they might be open to hearing from that individual about their need for help and the available options.

Perhaps most importantly, try to have this conversation as soon as possible. You don’t want to have to make a quick decision when Mom falls and breaks her hip. Plus many retirement centers have waiting lists.

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End-of-Life Wishes

You should be prepared to handle difficult decisions on your parent’s behalf. That means you need to ask them some tough questions to ensure that their end-of-life wishes can be honored, especially if they’ve neglected essential documents such as a will.

Here are a few questions to ask (you can find additional advice on having the conversation in this Real Simple article):

  • Do you have a will or a living trust?
  • Do you have a durable power of attorney?
  • What are your end-of-life wishes?
  • Do you have advance health care directives?
  • Do you have long-term-care insurance?
  • Do you have an authorized user on your bank and investment accounts?
  • Where can I find these documents if I ever need them?

For Additional Help

The topic of difficult conversations with aging parents is broad, and there are too many potential situations to address in this article. To help you further, here are some excellent resources for the situations we have covered here as well as many others: