28 Jun

Try the Bucket Approach

Constructing a portfolio this way may help you ride through a bear market in retirement.
Provided by Jeffrey C. Hamm

Stocks sometimes retreat. That reality can be overlooked in a long bull market. Bear markets do appear, and a deep downturn could force you to sell securities in retirement, so you can pay for necessary expenses.

Right now, you might have too much money in stocks. Years of steady gains may have unbalanced your portfolio and heightened your risk exposure. If you are 60 or older, that constitutes a warning sign, especially given this bull market’s age. What would a downturn do to your retirement fund and your retirement income?

If you are wondering how to respond to this risk, consider the bucket approach to retirement income planning.

The bucket approach may help you through different market cycles in retirement. This investing strategy, credited to a Florida financial planner named Harold Evensky, has simple and complex variations. It assigns fixed-income and equity investments to different “buckets” with the goal of providing sufficient cash flow to retirees during different stages of their “second acts.”1,2

The simplest version involves just two buckets. One holds the equivalent of 1-5 years of cash reserves (in deposit accounts and/or fixed-income investments), and the other holds everything else in the investment portfolio. When you need to fund your expenses, you turn to the cash and the fixed-income vehicles and leave equities untouched. Rebalancing your portfolio (that is, selling investments in an overweighted asset class) lets you increase the size of your cash bucket.1,2

Other versions of the bucket approach have longer time horizons. In one variation designed to be used for at least 25 years, a cash reserve bucket is created to fund the first two years of retirement, its size approximating 10% of the portfolio; the cash comes from FDIC-insured sources or Treasuries. A second bucket, intended to generate somewhat greater income, is planned for the rest of the first decade of retirement; this bucket is filled with longer-duration, fixed-income investments and comprises about 35% of the portfolio. The third bucket (the other 55%) is designed for the years afterward and contains a sizable equities position; the goal here is to realize some growth and compounding for a decade, then tap into that bucket for income.

In glimpsing the details of the bucket approach, you can also see the big picture. Suppose a bear market occurs just as you retire. Since your retirement income strategy pulls cash from deposit accounts and fixed-income investments first, your equity positions have time to rebound. You have a chance to avoid selling low (and selling off part of your retirement fund).

Is the bucket approach foolproof? No, but no investing strategy is. In the worst-case scenario, you drain 100% of the cash bucket(s) and end up with an all-equities portfolio. That is hardly what you want in retirement. Bucket allocations must be carefully calculated, and periodic bucket rebalancing is also needed.

The bucket approach may have both financial and psychological merits. Most retirees use the 4% rule (or something close) when withdrawing income: they take distributions from various accounts and asset classes, perhaps with little regard for tax efficiency. If Wall Street stumbles and their portfolios shrink, they may panic and make moves they will later regret – such as selling low, abandoning stocks or even running toward alternative investments in desperation.

When you use a bucket approach, you first turn to cash and/ or liquid securities for retirement income rather than equities. Psychologically, you know that if a bear market arrives early in your retirement, your equity holdings will have some time to recover. This knowledge is reassuring, and it may dissuade you from impulsive financial decisions.

Ask about the bucket approach today. It could be a great financial strategy to adopt for your retirement.

Jeff Hamm may be reached at 228-474-3427.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution.

Citations.
1 – seattletimes.com/business/about-to-retire-heres-how-to-cope-with-stock-market-shocks/ [11/25/17]
2 – news.morningstar.com/articlenet/article.aspx?id=839521 [12/13/17]

28 Jun

6 Expenses to Include in Your Homebuying Budget

When you buy a home, it’s important to look beyond the sale price and mortgage payment to set your budget.  First-time homebuyers are sometimes caught off guard by overlooked expenses, which can create an uncomfortable finance pinch. Be sure you consider these one-time and ongoing expenses:

  1. Home Inspection. Before you close on your home, you’ll want to have it thoroughly inspected by a professional. Your lender may even require it. For a few hundred dollars, an inspection can uncover potential trouble such as structural problems or asbestos. If problems are found, you may need to pay another expert to provide an assessment. A good inspector can also tell you what to expect in terms of…
  2. Home maintenance. Experts recommend setting aside 1 to 3 percent of the home’s purchase price for annual maintenance. You may need to buy lawn care equipment or replace the roof, furnace or water heater.
  3. Taxes and insurance. Property taxes and homeowners insurance aren’t always included in mortgage payment calculators.  Costs vary widely, depending on the value of your home and its location, but taxes and insurance together can easily total a few hundred dollars a month.
  4. Extra cash at closing.  Your lender should give you a detailed estimate of closing costs.  But beyond those, you may have to pay additional expenses, such as a prorated portion of property taxes or homeowners association fees that the seller has already paid.
  5. The move. Whether you hire professional movers for a few thousand dollars or rent a truck, buy boxes and recruit friends to help, moving costs money.
  6. Settling in.  You may have to pay utility connection fees when you move in, plus utility costs may be higher than you were used to as a renter.  You’ll probably want to replace the locks on all the doors.  And you may need new window coverings, rugs and furniture.

Find the Right Mortgage
The experienced mortgage specialist at Navigator Credit Union can help you understand the true costs of homeownership so you don’t encounter any unpleasant surprises.  We’ll help you find the right mortgage for your circumstances and budget. Contact a mortgage professional by calling 228-475-7300 or 800-344-3281, option #5; emailing Mortgage@navigatorcu.org ; or click here.

01 Jul

Open the Door to a Remodel Plan that Pays Off

Trying to sell or thinking about it?

Home prices may be up in your neighborhood — more reason to invest in your home to get the best price if you’re planning to sell. Despite what conventional wisdom says, most of the home improvement projects with the greatest return on investment are not so glamorous. Did you know a new front door ranks at the top of the list? According to a recent report from Remodeling magazine, sellers recoup 66 cents of every $1 they spend on the average remodeling project.

Before you splurge, consider these three upgrades and fixes. They won’t break the bank, but could pay off and help you clinch a deal if you’re serious about selling:

1. Create space. Knock out a non-structural wall, or remove that kitchen island. Anything that opens space and creates a sense of flow is advantageous.

2. Prune and landscape. Tangled trees and unkempt bushes can obscure views and darken interiors.

3. Address the basics. Insulate the attic, repair plumbing leaks or replace rusty rain gutters. These fixes can go a long way toward boosting value.

If improving resale value and recovering remodeling costs are important to you, consult with a real estate agent first, then make it happen with a home equity loan from Navigator Credit Union. Learn more here. 

RENOVATIONS WITH THE GREATEST RETURN ON INVESTMENT

If you’re considering a home improvement project to boost the quality and appeal of your home, here are some ideas that will give you the biggest bang for your buck.*

97%
Entry door replacement: 96.6%
87%
Deck addition (wood): 87.4%
84%
Attic bedroom: 84.3%
84%
Garage door replacement: 83.7%
83%
Minor kitchen remodel: 82.7%

* Source: Remodeling magazine 2014 Cost vs. Value report, www.remodeling.hw.net/cost-vs-value/2014/

16 Apr

9 Signs You Need Life Insurance

If you think life insurance is only for people with kids, you may be missing out on an important financial planning tool. Ask yourself these questions to find out if you should take a closer look at your needs for life insurance.

1. Do you have a spouse or partner?

Anyone who depends on you may suffer a financial setback if something happens to you, and naming them as beneficiaries in your life insurance policy may give you peace of mind.

2. Do you have kids?

You want to do everything in your power to safeguard your child’s financial future. If you’re a single parent, you have even more responsibility resting on your shoulders. Life insurance can take care of their immediate expenses and provide funds for college and other future needs.

3. Do you provide financial help to parents, siblings, nieces and nephews or other loved ones?

Anyone who depends on you may suffer a financial setback if something happens to you, and naming them as beneficiaries in your life insurance policy may give you peace of mind.

4. Are you a caregiver for aging parents or family members with special needs?

The care you provide (including basic help with household or transportation needs) is important to your loved one’s quality of life. Life insurance can help cover the costs of their care if you’re not there.

5. Are you a stay-at-home parent?

You provide valuable support to the family, and it’s important to factor in the value that you bring to the family when considering life insurance needs.

6. Do you have grown children?

Even if your children are grown, there may be ups and downs as they find their way in the world. Life insurance may not be as critical at this stage as it was when they were small, but it can provide financial stability for your children if you die.

7. Do you own a small business?

A life insurance policy can be structured to protect your business and your family. For example, a policy could provide funds for a buy-sell agreement to sell your interest in the company and provide proceeds to your heirs.

8. Are you focused on charitable giving?

(And do you wish to name an organization as a life insurance beneficiary?) A life insurance payout can continue a legacy of donations to an organization you support financially.

9. Are you retired?

Life insurance may be instrumental in achieving your goals. For example, you may want to leave an inheritance for heirs or pay final expenses (funeral and burial costs) through life insurance.

Find out more about how life insurance can help protect your family’s future. Contact an insurance professional at Navigator Credit Union at (228) 474-3427 or at www.navigatorcu.org.
16 Apr

To Have and To Hold: Investing Strategies for Newlyweds

Congratulations on your big day! The early days of wedded bliss are full of exciting changes and adjustments. Among the most important: Planning for your joint financial future. Say “I do” to these steps toward building a solid fiscal partnership:

Update financial paperwork.

Add your spouse as the beneficiary on any insurance policies and financial accounts, such as 401(k)s. Consider designating your spouse as your power of attorney and health care proxy, so he or she can make decisions about your finances and care in the event you’re unable to make decisions for yourself. If you haven’t created a will, now is the time to get started.

Talk about your goals.

Together, discuss your values and financial history and how they’ve shaped your attitudes toward money. When you understand where your partner is coming from, it’s easier to strategize on future plans. Talk about what you hope to achieve this year, in five years, 10 years and so on.

Establish a budget.

Start by looking at your income and spending habits — from fixed costs like housing and car payments to variable expenses like groceries, utilities and entertainment. If you aren’t sure what you’re spending in certain categories, tracking your spending for a month or two can be an eye-opening experience. Create a budget to account for all of your financial obligations and savings goals. Some experts recommend aiming to save 20 percent of your income — 10 percent toward building an emergency fund of three to six months’ worth of expenses and 10 percent toward retirement. If you have debt or accelerated savings goals (like saving for a down payment in the next year or retiring early), you may need to adjust your saving percentages accordingly.

Create an investment plan.

Once you know your savings goals, you’ll need to determine where you’ll stash your cash. Explore your tolerance for risk — are you conservative savers who like guaranteed returns or aggressive investors who are comfortable with the volatility of the market? Your risk tolerance and time horizon can help define the investment vehicles you use. Most experts recommend low-risk federally insured accounts, like money market accounts or certificates of deposit (CDs), for short-term goals and higher-risk options that offer the potential for higher returns, like stocks or mutual funds, for long-term goals.

Schedule ongoing “state of the union” discussions.

Assess your budget, goal progress and any setbacks often. Have you received a raise or lost a source of income? Have your priorities or timelines changed? How do those changes affect your plans? Like other aspects of your marriage, maintaining open communication can help you stay the course together.

READY TO PREPARE FOR YOUR FINANCIAL FUTURE?
The experienced professionals at Navigator Credit Union can help you create a financial plan for your needs and goals. Call (228) 474-3427 to schedule an appointment today.

Investment products:
Not federally insured
Not a deposit of this institution
May lose value