You may have heard that the Social Security Administration officially announced that Social Security recipients will receive a 1.6% cost-of-living (COLA) adjustment for 2020. Those increased payments will start in January 2020. The purpose of the COLA is to help the purchasing power of Social Security benefits keep pace with inflation. Congress first enacted the COLA provision as part of the 1972 Social Security Amendments, with automatic annual COLAs began in 1975. Before that, benefits were increased only when Congress enacted special legislation.
Atlanta Financial Blog
How Much is TOO Much?
No matter what kind of investor you are and no matter how much you have invested in the market, it’s safe to say that the market’s recent swings have caught your attention. Truly savvy investors can capitalize on volatility by recognizing that when the market is falling, “stocks are now on sale.” But your ability (and willingness) to benefit from falling prices can also depend on whether you are still saving and accumulating for retirement, or if you are nearing or already in retirement.
And what happens if you are holding a portfolio with a large concentration in a single stock that is falling even more? Large declines can tank retirement dreams altogether – or at least postpone them. For retirees with concentrated stock positions, volatility often means seeing their personal income decline right along with the market. For many of my clients, restricted stock and stock option plans have been a major source of their wealth, enabling them to retire and meet other financial goals. But as they near retirement, the very source of their wealth can become an even bigger source of risk and worry.
Since we specialize in helping investors with concentrated stock positions, we routinely counsel clients on the best ways to reduce a concentrated position and how timing can affect their decision-making. One client recently came to us with a heavy concentration in restricted stock from her employer. As a senior member of the management team, she felt pressured to retain her position as a show of confidence in the company’s stock. Since she was approaching retirement, she needed our counsel on how to balance the corporate pressures she was feeling with her need to protect her financial future.
First, we modeled different scenarios of stock price changes to help her understand the impact of stock price swings on her future. Then, we coached her on how to have conversations with senior management to explain the importance of diversification as an astute financial strategy. Finally, we developed a plan to systematically reduce her holdings on a quarterly basis.
By communicating her divesting strategy to her superiors and selling her concentrated position on a regular schedule, she was able to protect her retirement plans and satisfy the executive management team’s goals as well. As a result of implementing our recommended divesting approach, the client has reduced her holdings to 10% of her overall portfolio, which is generally considered a more prudent level of concentration in a single stock.
What should you do if you are facing a similar dilemma? Avoid the common errors many investors make in these situations – such as emotional attachment to the stock, overconfidence in your “inside” information and greed in trying to capture “peak prices.” Instead, start early to develop a plan for reducing your exposure over time. Work with your financial advisor to craft the plan that works with your personal situation, taking into account factors like taxes, the risks associated with the underlying stock and your time frame to retirement.
The holidays are the perfect time to express our thanks for your business and to think about those less fortunate. Please join us for our 11th Annual Holiday Open House and Toys for Tots Collection on Thursday, December 12, 2019, 11:30 am – 1:30 pm at our office – 5901-B Peachtree Dunwoody Road, Suite 275, Atlanta, GA 30328. Lunch will be served.
All of us at Atlanta Financial want to congratulate Harrison Fant on recently passing his five year anniversary at Atlanta Financial in September. Since joining AFA in 2014, Harrison has rapidly ascended through the different positions to his current position as Wealth Manager. Harrison has a unique combination of technical financial planning skills and the ability to present those complex concepts in easily understandable ways to all of his clients.
In working with my retired or soon-to-be retired clients, perhaps the most frequent question I am asked is “What is the best way to withdraw from my investment and retirement accounts in retirement in order to provide me my desired retirement income?” I believe they ask me this question because many of them have investments in a mix of different accounts with varying tax characteristics such as taxable investment accounts, IRAs, 401k or retirement plan accounts, Roth IRAs, and possibly real estate investments such as rental property. In addition to that, they may also have retirement income coming in from multiple sources and at different times such as Social Security income, pension income, and deferred compensation. If you are interested in increasing what you can spend in retirement and reducing the impact taxes have on your retirement nest egg, it is important to have a multi-year retirement income plan that takes into account the impact taxes will have on both your retirement income sources, and the withdrawals you take from your different investment and retirement accounts.