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This market commentary contains our current opinions and does not represent a recommendation of any particular security, strategy or investment product.
Such opinions are subject to change without notice. These comments are distributed for documenting due diligence and educational purposes. No part of this
publication may be reproduced in any form, or referred to in any other publication without express written permission. Past performance is no guarantee of future
results. Indexes are not managed and cannot be invested in directly. All returns include reinvested dividends, sourced from Morningstar and Bloomberg.
Securities and investment advisory services offered through CBIZ Financial Solutions, Inc.
Member FINRA / SIPC and SEC Registered Investment Adviser
Home Office located at:
6050 Oak Tree Blvd, Suite 500, Cleveland, OH 44131 (216) 447-9000
future increases in taxes, the tax-diversification of
assets, and the other benefits are appealing to many
investors. If a designated Roth 401(k) or 403(b) is
not available to participants through an employer
sponsored plan, investors may open a Roth IRA
through a provider of their choice.
To determine if using a Roth account is right for
you,
consider what tax-bracket you fall into today
and which one you will likely fall into in retirement.
For example, if an investor is in a high tax bracket
today, the tax break from contributing to a traditional
401(k) may outweigh the benefits of having
after-tax distributions in retirement with a Roth
account. However, if an investor is in a lower tax
bracket today, then bypassing the tax break today
may be prudent in order to obtain those tax-free
distributions in the future. Investors who believe
they will likely see salary appreciation coupled with a
rise in taxes in the future may consider a Roth IRA or
a designated Roth 401(k) or 403(b).
Roth accounts also provide a form of diversification.
I
nvestors at retirement with both a Roth account
and a traditional pre-tax 401(k) are considered
tax-diversified. Tax-diversification provides investors
with tax flexibility during retirement. Suppose, for
example, that a 65-year-old retiree determines he will
need approximately $40,000 of income per year in
retirement to live a comparable lifestyle to his pre-
retirement years. If he has diversified his retirement
assets in both a traditional 401(k) or 403(b) and in
a designated Roth 401(k) or 403(b) or Roth IRA, he
can take $20,000 from his traditional 401(k) and
the other $20,000 from the Roth account. By doing
this, he would limit his ordinary taxable income to
$20,000 for that year. Now suppose our retiree
encounters an unexpected expense, such as a
medical emergency. The retiree who is tax-diversified
has the ability to pull a distribution from his Roth
without incurring additional taxes.
8. Am I periodically rebalancing my account?
If you
have constructed your own asset allocation within
your portfolio, you will need to rebalance regularly.
CBIZ recommends at least an annual rebalance.
Rebalancing is a necessary step to ensure that
your asset allocation remains aligned with your
investment strategy.
Take, for example, a participant whose asset
allocation at the beginning of the year is 60%
equities and 40% fixed income. As the markets
change throughout the year, certain sectors of the
market may begin to outperform others and the
participant’s asset allocation may transform over
time into a 70% equities and 30% fixed income
portfolio. In this example, rebalancing is crucial
to keep the participant on track and ensure the
participant does not have a portfolio that may be
too aggressive for her risk-tolerance. Note that
when a target date fund is being used as the sole
investment, rebalancing is not necessary.
As your time horizon shortens
,
your periodic
rebalancing process eventually will involve a shift to
a more conservative portfolio. This shift is to ensure
that you do not carry a portfolio heavily invested in
riskier assets as retirement nears. While automatic
rebalancing is very powerful, if you set the process up
when in your 20’s and have an appropriately aggressive
portfolio, you will still need to manually reduce your
exposure to stocks as you age. If your plan offers
target-date investment options, again rebalancing is
not necessary as the fund will automatically reduce
your exposure to riskier assets over time.
9. Are my old retirement accounts and/or IRAs
invested appropriately?
Many investors have
retirement accounts from prior employers or rollover
IRAs. These accounts should be invested in the same
asset allocation as the current employer-sponsored
retirement plan and monitored carefully. If you are
having trouble monitoring multiple accounts, consider
a rollover to your current employer-sponsored plan.
You will have fewer accounts to monitor as well as
a streamlined, consistent investment approach. The
transaction is not overly burdensome with the help of
your current plan provider.
10. Is my beneficiary designation up to date?
Remember to update your beneficiary whenever you
have important changes in your life. A good rule of
thumb is to review your beneficiaries annually.