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Market Insights & Commentary

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Investors couldn’t have asked for a better start to the 2019 calendar year. It was only a mere five months ago that the stock market was experiencing a nearly 20% correction from all-time highs and everything seemed doom and gloom. Fast forward to the present, and there seems to be an entirely different sentiment in the capital markets.

2018 was an unusual year in that the bond market was flat and stock markets across the globe were negative. Typically, bonds and stocks move in opposite directions of each other, which is why investors own both in a diversified portfolio. Stocks took a nosedive at the end of last year due to fear that the global economy was heading into a recession. Jerome Powell, Chairman of the Federal Reserve, came out at the end of last year and indicated that the Fed was going to be more patient in raising interest rates. Ever since these comments, risk assets such as stocks and high-yield bonds have taken off.

Economic data has continued to be positive as well, with no signs of a recession in the near future. Although GDP growth in the United States is slowing, it still remains positive. This was the goal of the Federal Reserve in raising interest rates, to prevent the economy from overheating but also to avoid a rapid slowdown that could force a recession.

There are worries that the stock market could have priced in all of its gains already for 2019. While it is unlikely that the stock market will continue its rapid trajectory through the end of the year, there really is no way to tell where the market will go from here. Trade talks between the US and China will continue to dominate headlines and have an effect on the markets. We still are in the later stages of the business cycle, so there will most likely be a bumpier ride for the stock market during the rest of the year.

If an investor is uncomfortable with fluctuations in their portfolio, it may be time to add more conservative investments, such as bonds, to act as a stabilizer. Barring any interest rate hikes, bonds should seek out a positive return for this calendar year. So far 2019 has been a very good year to be an investor in the stock market, but if 2018 has taught us anything, it’s that the stock market can deteriorate in a hurry. This uncertainty is why investors get compensated for the risk that they take, if they can stomach it.

Market Crash? Should You Sell or Hold.

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Market crashes are inevitable. They may not be predictable, but the fact is that the market will most likely crash at some point while you own stocks. The temptation to sell as soon as the market starts to trend downwards is huge. Many people will rid themselves of stocks at a loss, in the hope of avoiding a worse loss later.

Seeing any kind of a loss in the value of your investment can induce panic. This is called an “unrealized” loss and is a normal part of investing and there are many reasons not to sell during a downturn. Even when you have a large unrealized loss. The biggest one is that people who hold their stocks through a crash often experience a profit in the long term. Unless you are trying to make money quickly (and sometimes even then), selling during a downturn is a guaranteed loss.

Instead, you should keep your time horizon in mind. Many investors are saving for retirement. The reality these days is that retirement can last a few decades and chances are you will make money by holding. Financial writer Ben Carlson invented an imaginary awful investor, Bob, who made his first investment right before a huge crash in 1973, then again before the crashes in 1987, 2000, and 2007. After a lifetime of bad luck, Bob still decided to hold on to his investments without ever selling until he retired when he ended up with a 9% annualized return.

Rather than selling your stocks during a crash, many advisors would actually argue for buying more. Taking advantage of a dip can increase your wealth in the long term since you’re essentially buying stocks at a discounted price. Market crashes are often followed by upturns.

So, what should you do to make sure that you aren’t forced to sell during a downturn? Ideally, you should have enough in your emergency fund so you don’t need to rely on your investments for necessary spending. Try to target an amount that would cover at least three months of spending, with six months or a year being even better.

It’s easy to let emotions overrule reason, so staying calm, sticking to your plan, and not panicking are vital to weathering a downturn. Historically, bear markets have lasted an average of 1.4 years and afterwards, your long term investments typically recover in time. No matter how severe a crash is, don’t let panic overwhelm you and cause you to sell your investments. If you need more advice on how to weather a downturn and develop a long term investing strategy to meet your goals, contact Sharkey, Howes & Javer today.

Retiring Early and Moving Abroad

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Returning home from an international vacation can leave us feeling saddened and missing the sunny skies, white beaches, or cultural city centers. It’s easy for our minds to start wondering “what if”…? What if I were to retire abroad? Would I be able to retire earlier? Would I be able to afford the healthcare? Will my Social Security benefit be enough to cover all my monthly expenses?

As the retirement savings crisis continues to increase, the number of Americans choosing to retire abroad also increases. According to the Social Security Administration, the number of Americans collecting their benefit while living outside of the U.S. is now almost at 700,000 people. This figure has continued to grow since the Great Recession. If all of the stars align, this could be an attractive and viable option for retiring Baby Boomers.

International Living has assembled a list of the “Best Countries to Retire”, which includes Mexico, Panama, Ecuador, Costa Rica, Colombia, Malaysia, Spain, Nicaragua, Portugal, and Malta. The list dives into the pros and cons of living (rather than simply vacationing) in each country. However, in reality, Americans who are retiring abroad are more likely to live in Canada, Japan, Germany, Mexico, and the U.K. The reasons for choosing a country vary widely amongst retiree.

The Travel Department of the U.S. Government gives you an itemized bullet point list of important planning steps before you choose or move to a different country during retirement. Some of these items include visa/residency requirements, exchange rates, and emergencies. Two items that top the list are taxes and healthcare. How will your various sources of income be taxed and what are your options for healthcare?

Are you considering retiring abroad? Contact Sharkey, Howes & Javer to speak with a CERTIFIED FINANCIAL PLANNER™ to determine how this may fit in to your retirement plan and what you may need to consider before making the move.

Will Social Security be Going Away?

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As financial planners, one of the most common questions we receive is regarding the future of Social Security. A lot of this uncertainty is driven by headlines in the media. Oftentimes, the media calls to question whether Americans can rely on the Social Security program to still be viable when current workers reach retirement. Much of the doubt is derived from changing demographics in the United States.

The baby boomer generation is reaching retirement and healthcare advances are allowing us to live longer lives. Combine this with reduced birth rates resulting in less future workers, and some of the skepticism surrounding the Social Security program becomes valid. With that being said, many Americans are afraid that the Social Security program will become obsolete, which most likely will not be the case. What we do know is that over the next 75 years or so, Social Security will have to evolve in order to support future generations of retiring workers.

The Social Security program was signed into existence by Franklin D. Roosevelt in 1935 and has been through a few major changes over the last 84 years. As it currently stands, Social Security is a “pay-as-you-go” program, which means that the current working generations are paying for the current retirees. The system is subsidized by the Social Security Trust Fund, a reserve of funds to cover any deficit between income from taxes and output of benefits. While the demographics continue to change, the program will take on more costs with less workers to fund it. But there are several solutions to this issue, many of which we have seen before throughout the history of Social Security.

The first option, which you can imagine does not resonate well with the American constituents, is to reduce future benefits. According to Barron’s, if the program remains unchanged and the Social Security Trust Fund is depleted, the Social Security program will be able to continue paying retirees 75% of currently legislated benefits. Although Social Security was created to cover 40% of your income needs during retirement, many American’s rely on it as their only financial resource when they retire. Because of this, it is unlikely that politicians would make an argument to reduce Social Security if they are looking to gain approval from the largest demographic of voting constituents, retirees. A way that politicians have reduced benefits in a roundabout way in the past is by gradually pushing back “full retirement age” from 65 to 67. It would be more likely that we would see another push back beyond the age of 67, than an out-right cut in benefits.

The other option is to increase the revenues from payroll taxes that are funding Social Security. No one is a fan of increased taxes, but if it means providing a more reliable stream of income for you during retirement, it may be worth the extra tax dollars. We have seen changes in payroll taxes in the last 10 years with Congress temporarily cutting payroll taxes by 2% in 2011 and 2012, then raising them back up in 2013 by 2%. Many workers never acknowledged the later increase in payroll taxes. On top of that, payroll taxes are typically split between the employer and employee, so workers most likely won’t take full responsibility of any possible tax increases.

So will Social Security be going away? The brief answer is no. What we do know is that the program will continue to evolve with time and with the American population. That is why it is so important that we save for retirement during our working years, so that no matter what is to come, you are prepared. If you’d like to review your own retirement outlook, whether you are close to retirement or many years away, get in touch with us today for a complimentary consultation with a CERTIFIED FINANCIAL PLANNER™.

Our Financial Checklist for Newly Married Couples

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So you’ve planned night and day, hired incredible vendors, tied the knot, and danced the evening away with friends and family. Or maybe your wedding was a simple, quiet romantic elopement with just a few loved ones present. Either way, as you forge ahead into your new life together, you might be wondering what is next, especially in the realm of finances.

Many couples already live together before they get married, so they probably share finances to some extent. They are already used to setting financial goals together, making budgets, and deciding who pays for what. If you are a newlywed and haven’t done these things, this is a great place to start. But besides these tasks, there are other things to consider to make sure your finances are in order.

Now that you are married, you have to prepare for the unexpected and make sure that everyone is taken care of in the case of the unthinkable, not to mention you’ll need to think about your future together and plan for retirement. Below is our financial checklist for newly married couples, and we hope it helps you out!

Create or Update Documents

    1. Create or update your will. If you don’t have a will already, now is the time to create one. Especially now that you have a spouse, you want to make sure your assets are going where you want them to upon your death.
    2. Create or update your living trust. A living trust is a legal contract with a third party that makes sure your assets go where you want them to go upon your death. Many people choose between a will and a trust. We know thinking about you or your spouse passing away is not enjoyable, but don’t put off creating one of these critical documents just because it isn’t fun. You have the ability to make sure everyone is taken care of while you are well, so make sure you do!
    3. Update your beneficiaries. Any life insurance plan or retirement fund will have beneficiaries listed as to who will receive your assets upon your death. Make sure these are updated to include your spouse because legally, your beneficiaries supersede your will.
    4. Update any titles. If you plan on sharing property, home and vehicles titles should be updated to include your spouse as well.

Combine or Update Insurance Policies

  1. Life insurance: Not everyone thinks about life insurance before they are married, but now that you are, it is time to make sure you both have a life insurance policy to make sure your loved ones will be taken care of if one of you passes.
  2. Auto: Often there is no reason to carry two different policies once you are married when you can save by bundling. If your spouse is going to be driving your car, you also want to make sure both names are attached to the insurance so there are no issues in case of an accident.
  3. Home: You may find that your partner can get a cheaper home insurance rate by bundling with another policy like their auto insurance. Be sure to shop around and ask about discounts for bundling.
  4. Health insurance: If you want to combine health insurance, marriage is one of the few qualifying life events that allows you to change your plan. However, you generally only have 60 days to add a spouse after the wedding, so make sure you get on this right away.

Taxes

  1. Review and adjust your tax filing status. You may need to update your W-4 so you don’t owe money at tax time. This is a great time to run your numbers through the IRS withholding calculator to make sure you’re on track for the year. If both you and your spouse will be working, make sure to check the box for “Married, but withhold at higher Single rate” when you refile your W-4.
  2. Consider your tax-advantaged accounts. Depending on your combined income, you may move in or out of eligibility brackets for various tax-advantaged accounts. Make sure you take advantage of the accounts that will be the most beneficial in the future and consider whether backdoor contributions make sense for you. If one spouse won’t be working, consider opening a spousal IRA which gives you more space for tax-advantaged savings. If you plan to have children, you could also set up a 529 plan to save money for schooling.

If this list seems like a lot, don’t be overwhelmed. At Sharkey, Howes & Javer, we are here to help. Contact us to meet with a CERTIFIED FINANCIAL PLANNER™ for help setting up your finances and getting the most from your money as a newly married couple.

Does it Make Sense to Pay Off Your Mortgage?

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A home mortgage is something that the majority of Americans need to obtain in order to purchase a primary residence. A mortgage is considered “good debt” because it is tied to an asset that has the opportunity to appreciate in value over time. It is usually issued at a lower interest rate compared to consumer loans and the interest can be tax deductible.

A common question people have is whether or not they should pay down their mortgage early. The first thing to look at when trying to answer this question is the interest rate on the loan. Since the Financial Crisis in 2008, we have seen historically low interest rates. According to FreddieMac, the average 30-Year Fixed-rate mortgage has been between 3.5% and 5.5% since 2010. It is important to take into consideration the opportunity cost of paying down your mortgage. If you have a low rate (in the 3.5%-4.5% range), it may make sense to invest that money rather than using it to aggressively pay down the mortgage. Going back to 1926, the average annual return on a 60% stock and 40% bond portfolio is about 8%. If you’re a long-term investor, it would make more financial sense to invest that money in a diversified portfolio instead.

Another aspect of this decision is the emotional side. A housing payment (whether it be rent or mortgage) is often the largest expense item in a person’s budget. For some people, you cannot put a price on the feeling of owning your own home free and clear and never having to worry about a mortgage payment again.

Are you wondering if you should pursue paying off your mortgage early? Contact Sharkey, Howes & Javer today to speak with a CERTIFIED FINANCIAL PLANNER™. We’ll help you answer this question and provide you with the advice you need to help meet your financial goals.

Three Budget-Friendly Vacation Destinations for Spring

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Spring is a glorious time to travel. Tourists are fewer and prices are often cheaper. Flights have fewer delays and cancellations, and the weather is starting to warm up. We have selected three budget-friendly trips from Denver that may appeal to you whether you’re traveling alone, with a partner, or with your family.

Get Your Groove on in Memphis

United Airlines has non-stop flights from Denver to Memphis that can usually be found for under $250. The Memphis Music Hall of Fame and the Rock and Soul Museum are just two of the many Memphis museums that feature music. Live music can be found all over town, and Beale Street is the epicenter with three blocks of nightclubs, restaurants, and stores. It is best known for delta blues, jazz, rock ‘n’ roll, R&B and gospel music. The Beale Street Music Festival, held May 3rd to 5th, draws thousands of music fans from around the world for live performances.

Another claim to fame is the city’s barbecue. Barbecue tours offer tastes of a variety of barbecue styles — up to seven for $65. Or, just pop into a nearby BBQ restaurant and make your own discoveries.

The National Civil Rights Museum incorporates the motel where Martin Luther King was murdered and displays a compelling overview of Black history from slavery through the Civil Rights movement.

Lodging in Memphis ranges from the historic Peabody Hotel downtown (about $230 a night) to chain hotels that offer rooms for $100 or less. And if you’re an Elvis fan, you can stay at the Guest House at Graceland for $161 a night.

Fly to the Windy City

United Airlines offers round trip fares to Chicago for around $170. Getting from the airport to the city is just $5 on the L train that has a station in the airport. Or, you can purchase a $28 Ventra pass that is good for a week of unlimited rides on Chicago’s L trains and busses, including to and from the airport. Check into a small charming hotel, such as the historic Old Chicago Inn ($135 a night) with its Prohibition-era inspired speakeasy. The weather is usually balmy in late spring, so walking through the city parks, along the lakefront, and down the Magnificent Mile (a shopping mecca) can be delightful.

Chicago offers world-class museums such as the Art Institute, the Field Museum, and the Museum of Science and Industry. A $106 VIP CityPASS lets you skip the lines at five major museums and attractions. Chicago theaters offer performances of many varieties with a wide range of ticket prices. The Looking Glass Theater is one of the more affordable and unusual as it is situated in the Water Tower Building. Act(s) of God is playing through the start of April and Mary Shelley’s Frankenstein is playing in May. Expect to pay $35 to $45 a ticket.

You can eat your way around the world without leaving the city. Chicago’s iconic staples are deep dish pizza, Italian beef sandwiches, and the Chicago hot dog on a poppy seed bun. Other popular cuisines includes Italian, German, Irish, Asian, and Mexican. Try little restaurants in ethnic neighborhoods for meals prepared by families from the recipes they brought from home.

With so many things to do and see, a Chicago vacation can be geared towards children, families, or adults.

Fly to Iceland and Beyond

Round trip tickets from Denver to Iceland are around $552 on Icelandair. The airline allows multi-day stopovers before boarding a plane for your onward journey to Europe. A sample price from Denver to Dublin with a stopover in Iceland is about $1,110. This is about what you can expect to pay on a major airline without a stopover. While in Iceland, enjoy some of nature’s most dramatic displays in The Land of Midnight Sun. By May 21st, there is no night in Reykjavík. Glacier hiking, lava caving, and horseback riding are some favorite activities. Many choose to rent a car and drive the ring road that circles the island, or just explore part of it for extravagant views of the wild and rugged land and seascape.

Be sure to set aside four hours to enjoy the warm, mineral-rich waters of the Blue Lagoon ($57) followed by a snack at Blue Cafe, or a meal at Lava Restaurant that serves a remarkable birch and juniper cured Atlantic char. Reykjavik has lodging options for all budgets. The Icelandair Marina Hotel ($232 a night) is by the Old Harbour beside the downtown area and has stunning ocean views. Budget hotels cost less, and some have a great deal of charm.

All three vacation options are fun to visit any season, but travelers headed for Iceland should be ready for the snow and cold if they plan an early spring trip.

If you’ve been bit by the travel bug and want to make sure your next trip fits in your budget, contact us to speak with a CERTIFIED FINANCIAL PLANNER™ and we’ll help you keep your financial plan on track while you take that vacation you’ve been dreaming of.

Women & Finance: Are You in Control of Your Finances?

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It is more important than ever that women play a proactive role when it comes to their finances. When asked if women feel that they know less than the average investor about investing and the financial markets, 55% of women agreed. Alongside this, women are more hesitant to invest than men, keeping 71% of their money in cash. The goal of this article is to highlight the importance of investing for women and provide confidence to help you take control of your finances.

When it comes to securing their financial future, women have some obstacles to overcome. There are a few unique reasons behind this. First, women have historically earned less than men. Although women are almost half the workforce and receive more college and graduate degrees than men, their take-home pay is still considerably less. In 2017, female full-time, year round workers made 80.5 cents for every dollar that their male counterparts earned, according to the Institute for Women’s Policy Research. On top of that, women also lose earnings by spending less time in the workforce raising children and caring for family members.

This is especially harmful because women are living longer than men. On average, men are living until the age of 76, while women are outlasting them, living to an average age of 82. That is 6 additional years of expenses that women need to save for. In addition, 56% of working women do not participate in their employer sponsored retirement plans. This savings pattern does not match the long-term need.

Taking all of this in consideration, although women on average are less confident than men when it comes to investing, they tend to be better investors. Analysis completed by Fidelity and SigFig shows that female investors on average outperform men by up to 0.6% in a years’ time. This may seem minor, but year over year can lead to a significant advantage. This can be attributed to a few different characteristics. One reason for better investment returns is that women tend to take on less risk than men by buying less stock. Women also change investments in their portfolios 45% less than men, they tend to be more “buy and hold” investors. Lastly, 64% of women agreed they are more likely to seek advice and work with a financial advisor, compared to 56% of men.

Because of all of this, it is increasingly important that women take an active role when it comes to their finances. In effort to overcome these obstacles, it’s important to ask questions, conduct research and work with a CERTIFIED FINANCIAL PLANNER™ in order to take control of your own financial future.

Savings Rates in Colorado vs. the Nation

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As younger workers enter the workforce and the baby boomers make their exit, the importance of savings has reached a new generation. A common rule of thumb for those just entering the workforce is to contribute approximately 15 percent of their income to their retirement. Unfortunately, this percentage is often not met by many, especially for fresh college graduates paying down student loans.

Compounding returns can be a powerful force, but you have to start saving early and often to truly take advantage of it. For every 10 years you delay funding your retirement, it’s possible you will have to roughly double the amount you save. It’s important to make sure you’re saving enough to reach your goals.

Colorado Saving Rates

The Bureau of Economic Analysis rated Colorado at 106.41 on the Nest Egg Index, indicating that Coloradans are more capable of saving money for retirement than Americans are as a whole. However, it does not necessarily mean that they’re saving enough.

As of November 2018, the national average savings rate is 6 percent of household income. This is significantly lower than the recommended 15 percent recommended by financial planners, but the rate is still trending up since its low point of just over 2 percent in 2005.

Colorado vs. Other States

How does Colorado stand in the rankings? Nationwide, Colorado is ranked 10th on the Nest Egg Index, indicating that Coloradans have a better opportunity to save for retirement and financial success than the residents of 40 other states. New Jersey tops the list with a rating of 114.35, Oregon represents the average with a score of 100.04, and Mississippi comes in last at 85.48.

If you’d like to review your own personal saving rate, whether you’re saving for retirement or more immediate goals, get in touch with us today for a complimentary consultation with a CERTIFIED FINANCIAL PLANNER™.

What to Expect if You Choose Early Retirement

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The age old question: when can I retire? As financial planners, we are often faced with the question: can I retire early? Retirement in your 50’s or early 60’s is a possibility, but there are some additional items to plan for if you are thinking about leaving the work force early. Here are a few considerations to be aware of if early retirement is in your future.

Health Insurance Costs:

Don’t take your employer-provided health care plans for granted. Typically, the biggest expense that individuals in early retirement face is health insurance premiums. While waiting to qualify for Medicare at age 65, you have a few different options. Once you leave the workforce, you have the option to sign up for COBRA benefits which provides continuing coverage of group health benefits for up to 18 months following separation of service. COBRA usually requires the former employee to pay the full premium for health coverage up to 102% of the employer plan cost. While COBRA coverage is more expensive than coverage for active employees, it can still be cheaper than insurance available through the private insurance marketplace. Getting quotes from the private insurance marketplace and under the Affordable Care Act can help you plan for healthcare expenses.

Sufficient After-Tax Savings:

The IRS makes it difficult to access money from retirement plans prior to the age of 59 ½, without facing a penalty. That is why it is important to have an adequate amount of savings held in a taxable account if you decide to retire prior to 59 ½ to avoid a hefty bill from the IRS. There is one exception that allows you to access retirement plan money early, it’s called the “Age 55 Rule”. This rule allows individuals who leave their company at age 55 or older to take penalty-free withdrawals from their 401(k). But, be careful! Once you roll the money from the 401(k) into an IRA, the rule no longer applies.

Time is Money:

For many retirees, the most difficult part of transitioning out of the work force is adapting to having an abundance of free time. It is important to financially plan for how you will fill the hours that you previously spent at work. Whether that be with expanding on hobbies, travel, or more time spent with family, it’s important to prepare for some increased spending in the first few years of retirement as you adapt to your new life. A common habit of new retirees is spending too much too soon, so it is important to monitor your spending so you can sustain your lifestyle throughout all of retirement.

A Plan for Social Security:

Before you enter into early retirement, prepare a game plan for the appropriate time to start Social Security and stick to it! It’s common for retirees to want to take Social Security as early as possible to help with cash flow, but taking the payments before full retirement age can greatly reduce your benefit over the long term.

Are you considering early retirement and need help planning for the future? Are you unsure of how much is enough for retirement? Contact Sharkey, Howes & Javer today to speak with a CERTIFIED FINANCIAL PLANNER™. We’ll help you get your financial planning on track and provide you with the advice you need to meet your financial goals.