Articles by Oakleigh Wealth
Roth Conversions in Retirement (A Case Study)
A couple of weeks ago, I wrote about the three tax landmines to watch out for in your retirement plan:
RMDS,
the “widow’s penalty”, and
beneficiary taxes.
If a significant portion of your retirement savings is in traditional IRAs or pre-tax 401k accounts, then you need a strategy to address all three. With proper planning, Roth conversions can neutralize all three tax traps. What follows is a case study to illustrate their utility.
Personal finance is simple, but hard
Personal finance is pretty simple. If you save 20% of your income, have proper liquidity, carry basic insurance (home, auto, liability, life, disability), and invest your long-term money in a low-cost diversified index fund (and don’t sell), you’ll probably be just fine.
While it may be that simple, it’s also hard.
The Three Retirement Tax Landmines
Navigating the financial landscape of retirement can be fraught with challenges, particularly when it comes to taxes. Among the most significant tax pitfalls that retirees must contend with are the "three tax landmines": Required Minimum Distributions (RMDs), the Widow's Penalty, and Beneficiary Taxes.
Why we wrestle with the shift from saving to spending
There are a couple of reasons why retirees might find it hard to switch from saving to spending:
Fear of running out:
Habit and mindset:
Loss of regular paycheck:
These anxieties are common, and there are strategies to contextualize and address them to develop a healthy spending plan in retirement. However, they also point to a universal human struggle that‘s observable from a young age: the difficulty balancing between present and future enjoyment.
Planning for long-term care in retirement
Insurance works best to cover risks that are both low in frequency and high in severity (car accidents, house fires, premature death, or disability). This is why LTC is so difficult to plan for: It’s not all that low in frequency, but it can also wreck your retirement plan. These two things conspire to make LTC much more expensive to insure against (whether that’s self-insuring or purchasing an insurance policy).
Open Letter Re: Changes at Oakleigh
It had always been my goal to be a financial planner who is a “general practitioner” or a “jack of all trades.” I love exploring the universal issues we all have around money as well as digging into a broad range of topics. However, I have also come to realize the drawbacks of such a wide focus, especially as a solo practitioner. I never want to compromise on providing excellent client service, expertise, and transparent value for each of my clients.
I-Bonds ain’t what they used to be
Did you buy I-bonds in 2022 when they paid some of their highest-ever interest rates? That bond you bought in May of 2022 with a 9.62% annualized interest rate is now paying only 3.94% and this will be cut again on May 1st. For comparison, current money market rates are north of 5% and one-year treasuries are paying 5.16%.
Retirement: Math Problem vs. Human Problem
I came across this fantastic illustration by British retirement podcaster and financial planner Dan Haylett a couple of weeks ago. It perfectly captures a dynamic I’ve written about on this blog more than a few times. Namely, the misperception we all have that financial planning is a math problem; an equation to be solved having either a right ora wrong answer.
Flow-Based Budgeting
Have you ever tried to make a budget, but never really bought into it? Maybe it went out the window when life happened. Perhaps you felt like the bad cop when trying to make sense of your credit card bill with your spouse. Or, were you were the one being interrogated?!
Budgeting is challenging. It can generate conflicts and induce guilt or shame. It can feel artificially constraining and time-consuming.
I’ve tried many budgeting systems, and I’ve quit them all. That is, until I learned about Flow-Based Budgeting.
The Case for Long Term Disability Insurance
Welcome to the world of adulting, where every decision seems to have a weighty financial consequence, but the outcomes are never certain. Amidst the financial maze, disability insurance is one of those topics that can be easily brushed off as something you'll think about later. However, in reality, it's a crucial aspect of your financial stability.
Disability insurance provides income replacement if you become unable to work due to illness or injury. Like life insurance, it also protects your family against financial hardship from the loss of your stream of income. Yet, like many types of insurance, you hope you'll never need to use it. So, how can you determine if it's a worthwhile investment for you?
Key Issues When Evaluating Disability Insurance Policies
Disability insurance is critical to protecting your income should you suffer an illness or injury that prevents them from continuing to work.
To help you guide you through the complexities of this important topic, we created this checklist. It covers key considerations, including:
Key policy features and definitions
Group and individual coverage options
Federal benefits
Tax implications
The Five Major Decisions of Every Estate Plan
Estate Planning is an essential component of your overall financial plan. It allows you to gain some control over aspects of your life both during your lifetime and after your death.
Five major decisions go into each estate plan. Those decisions are described below, along with examples and a description of people in your life that may be up to the task.
Will vs. Trust
One of the most common questions I get around estate planning is, “What is the difference between a will and a trust?”
There are a few similarities but a lot of differences, too. In both cases, these documents are a part of your Estate Plan – to have a complete Estate Plan, there are also powers of attorney for medical and financial purposes and other documents needed.
Whether a will-based or trust-based estate plan is right for you depends on your specific wishes and the contours of your financial situation.
How much is enough? A parable from Jimmy John’s
My best friend, a Jimmy John’s sandwich shop regular, alerted me to a story that hangs on the wall in the restaurant, entitled “How much is enough.”
This story hit home, but not because it’s a prescient critique of certain American attitudes about money (though it is that ). Rather, as I struggle to launch a business while juggling all of the demands of family life with young children, I realized how easily I fall into the same trap as the “poor” fool in this parable.
This simple vignette illustrates the folly of the arrival fallacy (I’ll have enough when…) and the universal difficulty we often have distinguishing between wants and needs, while also recognizing the value of what we already have.
Enjoy, then go grab a sandwich!
Risk Tolerance & Risk Capacity
Determining the right investment strategy is crucial for achieving long-term financial goals. Two key factors that play a pivotal role in shaping an individual's investment approach are risk tolerance and risk capacity. While these terms are often used interchangeably, they carry distinct meanings, each influencing how investors should approach investment selection.
Merging Financial Accounts In Marriage
The Atlantic recently published an article on the often-asked, titular question: “Should Couples Merge Their Finances?” Rather than give a direct answer, author Joe Pinsker presents a nuanced overview of the plusses and minuses of the three basic approaches: joint, separate, and hybrid. Crucially, he also points to the deeper truth that “the notion that you can keep your finances truly ‘separate’ is to some degree an illusion. Navigating the financial tensions and answering this question in the context of your marriage requires more than statistics about marital satisfaction or awareness of underlying gender equity issues.
What Issues Should I Consider Before the End of the Year?
Tracking numerous deadlines and avoiding missed planning opportunities can be challenging during these busy months. To help ensure that you remain on track, we have a checklist that outlines 18 time-sensitive considerations to guide your end-of-year review and tee up any adjustments for the coming year
Open Palm vs. Closed Fist
In the delicate act of holding a feather, we are presented with a profound metaphor for life itself. We can clasp it tightly within a closed fist or cradle it gently in the open palm of our hand. Each approach reflects a unique philosophy.
The closed fist represents our instinct to cling to what we cherish, to shield it from the unpredictable wind of change. It's an act of guarding, protecting, and controlling. We often do this out of fear or the desire for certainty and assurance. But, as we clench our fists, we inadvertently obscure the very beauty of what we hold. And what’s more, life rarely conforms to our demands for control.
Rethinking Monte Carlo Simulations
Monte Carlo simulations are a common tool in the financial adviser’s toolkit. They can help us frame the likelihood of success of a given plan by applying a large number of statistical simulations of future market returns to your financial plan.
On paper, this approach to financial planning makes a lot of sense; however, applying Monte Carlo analysis as an ongoing real-world decision-making tool often results in misunderstanding, anxiety, and/or overconfidence.