Our Blog

DWM is committed to learning for its team, clients and friends. In this changing world, it’s extremely important to stay current in all areas impacting your financial future.

We encourage all of team members to “drill down” on current topics important to you and contribute to our weekly blogs.  Questions from our clients and their families are often featured in our blogs.  

Financial literacy for clients and their families is very important to us.  We generally hold an annual wealth management seminar for all of our clients.  We encourage regular, at least semi-annual, meetings in person with our clients to review family updates, progress on financial goals, asset allocation and performance of investments.  We’re happy to assist younger members of the family as part of our total wealth management program.

Here’s our latest blog:

 

Print
PDF

Put Longevity into Your Planning

Written by Les Detterbeck.

 

OAM18ShowcaseA 300x250

We’re living longer. Back in 1935, when Social Security was started, there were 8 million Americans 65 or older. Today, there are 50 million and by 2060 there will be 100 million 65 and older. It is projected that in 2033, the population of 65 and older will, for the first time, outnumber those under 18.

In addition, there is a better than average chance that 65 year old investors with at least $1 million of investable assets will reach age 100. These folks not only have enough money to cover rising costs, they are also generally more physically fit, healthier and engaged. BTW- May is Older Americans Month, with a theme of “Engage at Every Age.”

Longevity is having and will have a huge impact not only on social security but also on long-term financial planning. The trust fund for social security retirement benefits is expected to be depleted by 2034. After that, the program is projected to pay out about 75% of benefits. At that time, the ratio of workers paying into Social Security, as compared to those receiving benefits, is projected to drop from 2.8 now to 2.1 then. Last month, Ginny provided information on social security including possible fixes http://www.dwmgmt.com/blogs/142-happy-national-social-security-month-.html. We hope Washington will enact some appropriate changes soon, though we can’t control that process.

We can, however, control our own financial planning. Here are some general tips on incorporating longevity into your planning

1.Plan based on living longer. For those of you in great health, use an eventual age past the actuarial age, perhaps even age 100. Your plan may end sooner, but let’s make sure the plan is designed for you to have sufficient funds during your life time.

2.Plan on your normal retirement expenses continuing until at least age 90. Most older Americans we know are engaged. They are working and volunteering, traveling, mentoring, learning, and participating in activities that enrich their physical, mental and emotional well-being. Don’t expect your normal expenses to start declining before age 90.

3.Plan on health care costs escalating faster than inflation. Investors worldwide agree that health expenses are their biggest financial concern related to longevity. This worry is most acute in the U.S. with 69% listing it as their number one worry, versus 52% globally. We are currently using 6% as the estimated annual increase in health care costs in our planning for clients.

4.Review your long-term care strategy early. Long-term care costs can be huge. On the other hand, your plan might “end” without you ever needing long-term care. What would be the cost and best way to insure? Should you self-insure? Should you keep your current policy? Should you modify it? Every financial plan needs to address long-term care and develop an appropriate strategy.

5.Use an ample estimate for inflation. Inflation can have a huge impact on expenses over a long period of time. You should stress test the plan at inflation rates above 2%, such as 3% or higher.

6.Use a realistic real return for investments. The real return for your investments is defined as your total return (which is the price change over the period + dividends/interest) less inflation. From 1950 to 2009, the real return was 7%; composed of an 11% total return less 4% inflation. Of course, the 50s, 80s and 90s all had double digit real returns. Today, it’s a good idea for you to stress test your plan projections using lower real return assumptions like 2.5% to 4%, depending on your time horizon and asset allocation.

7.Consider separating travel goals into two parts. When you are retired and mobile, your travel will likely be primarily for you (and your significant other) and may include your children and/or grandchildren. As you get older and can’t travel easily yourself, you might still provide a second travel goal to cover transportation of the kids and grandkids to come visit you.

8.Don’t count on too much from Social Security. We work with successful people of all ages. We think that long-term social security benefits may be subject in the future to some “means test,” perhaps the same way that Medicare Part B premium costs are tied to taxable income. The younger you are now and more financially successful you are in your life will likely reduce the amount of social security you will eventually receive. If you are not starting social security soon, consider using discounted values of future social security benefits in your planning.

9.Work to have a planning graph that doesn’t go “downhill.” Our financial goal plans show a graph of portfolio value over time, beginning now until your plan ends. If expenses and taxes exceed income and investment earnings in any year, then the portfolio declines. If that situation continues, then the graph looks as if it is heading “downhill.” A solid plan results in the graph moving uphill over time or at least staying level. A solid plan therefore reduces anxiety about longevity as, year by year, the portfolio value stays “solid” without diminishing.

Just like possible changes in social security, none of us can control our future health or when our plan will end. We can however, develop, monitor and maintain a long-term financial plan that will provide us with the best chances for financial success by recognizing the possibilities of longevity and incorporating it into all aspects of our planning. We can also adopt and/or confirm an objective to “Engage at Every Age” for our own well-being, as well as making a difference in other’s lives. If you have any questions, please give us a call.

Print
PDF

Building A Portfolio For Today's Challenging Marketplace

Written by Jake Rickord.

Port mgmt gameplanAt DWM, our job is wealth management. We look to help our clients secure their financial futures through comprehensive financial planning and prudent investment management. Today, I'd like to focus on the investment management part which adheres to our philosophy of protection first, growth second.

Some readers may be familiar with DWM's approach to investment management. At its core, it starts with the identification of our clients' goals and constraints. We do this by identifying their goals, risk tolerance, return objectives, income needs, time horizon, and other special requirements. As every client is unique, so is each client portfolio.

We then match the characteristics of their goals and constraints with a specific Asset Allocation mix tailored to them. For example, x% equities via the DWM Core Equity Portfolio, y% fixed income via the DWM Core Fixed Income Portfolio, and z% alternatives via the DWM Liquid Alternatives Portfolio.

But many of our readers may not know the logistics of building those three DWM exclusive portfolios. Here is a little bit of the secret sauce:

The three major asset classes of equities, fixed income, and alternatives are further broken down into subclasses, which also have different exposures, risks, and potential returns. For example, we divide the equity portfolio into different sectors and market capitalizations, as well as between domestic and foreign stocks. We also pay attention to value vs growth. Then, in the fixed income portfolio, we split out exposure into government debt, corporate debt, and international debt, while paying special attention to credit risk and duration.

From there, there are several ways to go about choosing the securities to fulfill the subclasses. Our affiliation with Charles Schwab & Co- and its investment platform which makes most of the public investment universe available to us, there are lots of securities – some great, some not so great - to choose from.

We further filter by looking at the following:

  • What type of exposure do we want to have in that subclass (for example, is market-cap weighted okay or is better to use a different methodology like factor-weighting)?
  • Total price to own and trade that security (e.g. the Operating Expense Ratio "OER" and ticket charge if applicable)
  • Volume: does the security trade enough for our firm to take a position for our clients' portfolios
  • Security vehicle (ETF or Mutual Fund): both come with different characteristics
  • How do the securities complement one another, keeping in mind that non-correlating assets maximize your diversification benefits

It should be noted that from a risk management perspective we aren't big fans of individual stocks. In fact, we began phasing out the use of individual stocks within our DWM-managed portfolios over a decade ago. Why?

  1. Company-specific risk: When allocating percentages of your portfolio to individual stocks, you run the possibility of the company represented by said stock going bankrupt or having a similar setback that can greatly increase the overall risk of your portfolio.
  2. More diversification with low-cost mutual funds and exchange-traded funds: With MFs and ETFs, we can incorporate the exposures to different individual stocks in one bundle, without having to have the aforementioned company-specific risk.

As you can now see, a lot goes into building and maintaining a portfolio. Once the initial portfolio is established with the appropriate weights to various investment style exposures, it is anything but "set and forget". These "weights" or allocations to asset classes and the underlying investment styles can significantly fluctuate and will need to be rebalanced. Or we may find that we want more or less exposure to a specific area and thus adjustments are needed. Furthermore, new products – some great, some not so great - come to the market every day. If we identify one that is potentially a better fit to our model and it passes our due diligence process, we will make changes accordingly, whereby we execute trades via our sophisticated channels.

In conclusion, portfolio management is constantly evolving. Ongoing education and research is paramount to a solid investment management practice. At DWM, we don't take that responsibility lightly. Through diligence and care, we seek to help our investors make their money work harder by eliminating the unforeseen landmines in their portfolio. Diversification, low-cost mutual funds/ETFs, and consistent portfolio monitoring are wonderful tools that DWM implements to help accomplish this hefty task, and keep our clients on track to meeting their financial goals.

Print
PDF

Happy National Social Security Month!

Written by Ginny Wilson.

 

SSA with

Many Americans are worried about the state of Social Security and the possibility that benefits will be reduced or even disappear in the future. Even those already collecting Social Security benefits may be concerned that their monthly check could be impacted by the swelling population of beneficiaries and the inability of the taxes collected from the current workforce to keep up with the demand.

Every April, the Social Security Administration celebrates with a month of highlighting the agency’s mission to “promote economic security” and educating all of us on their programs and services. Social Security was originally created by President Roosevelt in 1935, as part of his New Deal plan, to develop a comprehensive social insurance program. There are three parts to the benefits in Social Security – retirement benefits, survivor and death benefits and disability benefits. This is a pay-as-you-go system, so the payroll taxes paid by the workers and employers today fund the benefits for the beneficiaries of the three SS programs.

Social Security is the single largest federal program and accounts for around 24% of all federal spending. According to the most recent report from the Social Security Administration, the benefits paid out by the Social Security retirement program will be more than what's paid in, starting in 2020. When the program started in 1935, many workers paid into the program, but few lived long enough after retirement age to collect much in the way of benefits. The Social Security Trust Fund was created when the taxes collected surpassed benefits that were paid out. However, in 2010, the government starting dipping into these reserves to address the insufficient revenue. This trust fund is expected to be completely depleted by 2034 and benefits could be reduced to 75%-80% of current payments, unless something changes that will increase the money going into the trust fund or decrease the amounts being paid out.

We have all heard about Social Security benefits running out and have heard about the need for reform. We jokingly thank the Millenials for supporting something from which they may never recoup any income. But it really is a serious issue for the many Americans who have not saved enough on their own. As Investment News contributor, Mary Beth Franklin, notes, “By 2030, all baby boomers will be older than 65, meaning one in every five U.S. residents will be of retirement age”. This, of course, will put critical stress on the entire Social Security program.

So what can be done? Each year, the Social Security trustees use their annual reports to recommend that lawmakers address the projected trust fund shortfalls. We have heard about “means testing” for benefits, which already impacts Medicare Part B premiums. Means testing could take the form of more income taxes, a reduction in benefits, a surtax or some other method to correct the program shortfalls. Another possible solution talks about tying Social Security benefit checks to prices rather than wages, as price increases are slower than wage growth. This could correct shortfalls over time, but may present other undesirable effects. In a recent article, Ramesh Ponnuru, a Bloomberg View columnist, notes, “An implication of that change [using prices over wages] is that over time Social Security would replace a smaller and smaller portion of the income people made during their working lives.”

Congress is looking at a tactic to address the problem of insufficient retirement savings with a bi-partisan (remember that word?) bill, the Retirement Enhancement and Savings Act (RESA). This legislation would create a retirement savings program allowing access for workers who may not currently contribute to an employer-sponsored retirement plan. It would also offer a collective ‘multi-employer plan’ (MEP) that allows small businesses to share in the costs of plan administration and make it easier for them to offer retirement savings plans to their employees. The more that Americans can save on their own, the less of an impact SS benefit shortfalls will have.

We will continue to watch and wait for the legislators and administrators to solve this problem with Social Security. At DWM, we are all about helping you determine ways to save more, protect that savings and then invest it to have appropriate growth to achieve your goals. We work hard to help our “vintage” clients evaluate all of their options and strategies when applying for Social Security benefits. Benefits taken at the earliest age of 62 will reduce your lifetime benefits, while waiting to begin until the maximum age of 70 can increase your benefits by 8% a year after Full Retirement Age (FRA) is reached. We evaluate which is the most effective strategy for each client – whether waiting and maximizing your benefits or starting benefits at FRA and possibly avoiding any benefit changes that may occur. There is much to consider, but we are here to help navigate the sign-up, the strategy choices and all of the tax implications involved. Please let us know if we can help enhance YOUR retirement savings!

 

 

Let's Get Acquainted

We offer a complimentary "Get Acquainted" meeting to describe our services, and to see if our services are right for you.

Contact Us