facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog external search brokercheck brokercheck Play Pause

Helping You Retire in Confidence

Fee-Only Fiduciary Advice for Albuquerque and Central New Mexico

LET'S TALK


Here’s What Meridian Can Do For You

During this chapter of your life, you want to know that your wealth can support you for the rest of your life, but you might not know where to start. I’ve worked with many individuals and couples to help them understand how they can protect their wealth, reach their financial goals and truly enjoy their lives in retirement.

SCHEDULE AN INTRODUCTORY CALL


One-On-One Financial Guidance

From a Dedicated Professional


Scott Floersheim
CPA/PFS, CFP®, RMA®

I’m a life-long New Mexico resident and a graduate of both the Albuquerque Academy and the University of New Mexico. After graduating from UNM, I became a Certified Public Accountant in 1986 and subsequently became a CERTIFIED FINANCIAL PLANNER™ practitioner in 1999 after introducing financial planning to my tax-practice clients.

I am a member of the National Association of Personal Financial Advisors (NAPFA), the AICPA's Personal Financial Planning and Tax Sections and the Investments and Wealth Institute.

I am the sole owner/advisor of both Meridian Wealth Advisors, LLC (a New Mexico registered investment advisor firm) and Meridian Tax Advisors, Ltd. (a New Mexico registered CPA firm).

Life-time learning is a main commitment of mine, and I’ve consistently well-exceeded the annual continuing education requirements of each of my certifications.


Meridian’s Focus Has Always Been on Your Wellbeing

I founded MWANM in 2006 to be able to offer fiduciary, fee-only advice entirely customized to my clients and their needs. In serving those who are nearing or already in retirement, I focus on helping my clients manage their investments and develop a financial plan that can support their goals throughout this stage of their lives.

I’m honored to work with individuals and couples in my home state, partnering with those throughout central New Mexico including Albuquerque, Rio Rancho, Santa Fe and Los Alamos.


In Need of a Retirement Plan?


Your Finances Connect with Every Part of Your Life

Which is why I believe financial planning needs to be a personalized experience.

In Holding True to the Ideals that Guide My Work, I Provide...


Fee-Only Advice

Learn More

A fee-only structure enables me to offer my clients the unbiased support they deserve. With compensation only ever coming from you, I do not receive commissions or other benefits provided by third parties. This means that advice is objective and customized to your needs.

Prudent Solutions

Learn More

By working closely with my clients, I create a coordinated, custom-made strategy for their circumstances and goals. We’ll set up meetings whenever needed to actively manage and make any adjustments to get you closer to your aspirations.

Tailored Recommendations

Learn More

I believe that each client is unique in their own way. You have distinct needs and goals that set you apart. By getting to know you, I develop advice that reflects your vision. As your life evolves, I can provide guidance based on an intimate understanding of your values and situation.

A Comprehensive Retirement Plan

Learn More

You’ve worked hard for your life savings. I strive to create a fully integrated plan that best handles your life’s earnings and anticipates any challenges. In this way, you’ll be on a path to reach your goals and live a comfortable, worry-free life.

Streamlined Technology

Learn More

With online portals from Tamarac and eMoney, you will be able to see your entire financial picture clearly, and you will have access to quarterly performance reports. We’ll also be able to use this software to make projections surrounding your financial planning goals.


Sound Like the Kind of Personal Approach You’re Looking For?

Find Peace of Mind to Live Confidently

Through a Financial Strategy Designed Just for You


Building Your Comprehensive Plan for Retirement

Together, we’ll create a roadmap that orients your financial picture towards your goals. Your roadmap will consider every aspect of your finances to protect, build and transfer your wealth.


As Part of Your Retirement Plan, I’ll Help You With...


Funding Lifestyle Expenses

Once you retire, certain expenses will decrease while other expenses may increase as you pursue new interests and hobbies. It is critical to understand how much is needed to fund your ongoing ideal lifestyle while considering the effects of future inflation.

Identifying Financial Goals

You likely have a wide variety of goals, from travel and home improvements, to education funding for your children and donations. I’ll help you identify and quantify the amount and timing of your goals, so you can enjoy your life without worrying about outliving your money.

Social Security Claiming

Since eligible retirees can claim Social Security as early as age 62 and as late as age 70, the lifetime value of their benefit must consider not only their current health and expected longevity, but also their other available resources for funding a delayed claim for benefits.

Medicare Claiming

Since the cost of healthcare-related expenses can be your largest cost in retirement, it’s vital to understand your responsibilities for filing for and selecting among Medicare in its A, B, C and D components and their conjunction with a Medi-Gap insurance policy.

Pension Income Determination

Many civil employment retirees will have earned the right to lifetime income from a pension plan, and they must make certain decisions among various claiming alternatives. I’ll help you determine the right choices to make the most of your benefits.

Investment Allocation and Location

In addition to your employer's retirement plan, you may have lifetime savings in the form of an IRA, brokerage, bank and insurance accounts that make up your household's portfolio. I’ll work with you to invest properly to minimize income taxes and meet your short- and long-term needs.

Tax Planning

By carefully crafting a multi-year income tax plan, I’ll look for ways to help you minimize the cost of income taxes and extend the longevity of your portfolio. I’ll look at things like marginal income tax brackets, tax deferral and tax rates for long-term capital gains and qualifying dividends.

Insurance Review

Protecting your wealth and resources is a critical part of a sound retirement plan. I’ll assist you in identifying insurance solutions that help you avoid accepting unwarranted risk or cost — and protect you, your assets and your loved ones.

Estate Planning Review

I’ll take a look at your current wills, trusts, powers of attorney, healthcare directives, burial instructions and other legal matters. We’ll talk over your wishes for your estate plan, see that your plan reflects your desires and put your plan in place with your attorney.

Have Questions?

SEE OUR FAQS


It’s Time to Create Your Retirement Plan

The sooner you have a strategic plan for your wealth during retirement, the stronger chance you’ll be able to fund your lifestyle and accomplish your goals. Whether you have specific objectives defined, or you’d simply like to talk through how I can help, I’m happy to talk through anything that’s on your mind.


Far More Than Managing Your Investments

After developing a retirement roadmap, we’ll define personalized strategies for managing your wealth. Your investments are held primarily at Fidelity Investments utilizing low-cost, well-diversified mutual funds and ETFs.


MWANM manages your investments in a "non-discretionary" manner, meaning that all trade recommendations are approved by you beforehand. In this way, we’ll always have an ongoing collaboration and an understanding of why a trade may be advisable.

I Can Help You in These Areas of Your Wealth:


Enhancement

Leads you to achieve the best after-tax, investment returns consistent with your tolerance for investment risk

Protection

Safeguards your wealth from potential claims from creditors, litigants, ex-spouses as well as children's spouses

Transferring

Seeks tax-optimized transitions of wealth to your children and their descendants

Giving

Strives to reach your charitable goals in a manner that may simultaneously enhance, protect and transfer your wealth

Have Questions?

SEE OUR FAQS


Tailoring Your Wealth Strategy to What Matters Most to You

I dedicate time to talk through your individual concerns and goals. Together, we’ll decide on a wealth management strategy that makes sense for the aspirations you have for your retirement and your loved ones.


Transparent Pricing


Retirement Planning

For a project-based retirement plan, the fee will be between $3,000 - $6,000, depending on your circumstances. In most cases, the charge is $6,000 unless it is a "Check-Up" service to a client far from retirement. The fee is billed directly with 50% due upon the commencement of the engagement and the balance at the completion of the engagement. The engagement terminates upon the acceptance of the financial plan. Upon the completion of the engagement, the client can elect to apply the entire Retirement Planning fee toward the first year's Wealth Management Fees should they decide to continue with Meridian on an ongoing basis.

Wealth Management

For ongoing wealth management services, the annual minimum fee is $6,000 (plus applicable NM gross receipts tax) billed quarterly in advance.

first $1M in Assets Under Management (AUM)

1.00%

next $4M in AUM

0.50%

above $5M in AUM

0.25%



Have a Question About MWANM Fees?


FAQs

Services

What services does Meridian Wealth Advisors provide to clients?

Meridian provides services for 1) Retirement Accumulation Planning, 2) Retirement Income Planning and 3) ongoing Wealth Management. Clients receiving the ongoing Wealth Management service not only initially participate in either the Retirement Accumulation or Retirement Income planning process, but they also receive annual tax preparation as well as ongoing investment, tax and financial planning services.

What is the difference between the services for Retirement Accumulation and Retirement Income planning?

While both the Retirement Accumulation and the Retirement Income planning services are similar in that they are both project-based planning which conclude at the acceptance of the final financial plan with the subsequent monitoring of the financial plan solely the responsibility of the client and not Meridian, the Retirement Accumulation planning service is an orientation to prudent financial planning concepts specific to each client’s circumstances including an understanding of the best practices for cash flow, tax, retirement, investment, insurance, and estate planning, and the Retirement Income planning service incorporates those same concepts along with the additional considerations of optimizing lifetime cash flow from available resources, Social Security and retirement plans. 

How are the Retirement Accumulation or Retirement Income project-based planning services different from the ongoing Wealth Management service?

Wealth Management clients initially receive either the Retirement Accumulation or the Retirement Income planning service to determine their best path forward in the initial implementation of their financial plan. Unlike clients receiving just the project-based Retirement Income or Retirement Accumulation service, the Wealth Management service provides ongoing monitoring and management of the client’s investment, tax and financial strategies subsequent to the initial plan’s completion. 


Pricing

What is “fee-only” advice?

Fee-only advice is defined as the delivery of financial planning services without the potential conflict of interest represented by commissions paid to the advisor. Fee-only billing consists of a) hourly fees, b) project-based fees and c) fees for the management of investment assets. Fee-only advisors may not receive any commissions or other forms of compensation from the companies providing the products that the advisor may recommend to clients.

Is “fee-based” advice the same as “fee-only” advice?

“Fee-based” advice is not the same as “Fee-only” advice, since “Fee-based” advisors may receive commissions or other forms of compensations from the companies providing the products that they may recommend to clients. “Fee-based” advice should be interpreted as “Fee + Commission” advice, since “Fee-based” advisors can accept commissions whereas “Fee-only” advisors never receive commissions.

How much does Meridian charge for its services?

Meridian Wealth Advisors only delivers services on a Fee-Only basis and never receives commissions or other forms of compensation from any products that may be recommended.

The Retirement Accumulation planning service is priced at $3,600 (plus applicable NM gross receipts taxes) for a foundational financial plan that will incorporate those considerations identified on the Retirement Planning page but excluding the further analysis of the client’s retirement income strategies and alternatives. This service is typically appropriate for those prospective clients more than 2 years from their retirement.

The Retirement Income planning service is priced at $6,000 (plus applicable NM gross receipts taxes) for a comprehensive financial plan that will incorporate those elements identified on the Retirement Planning page. This service is typically appropriate for those prospective clients within 2 years of their retirement.

The ongoing Wealth Management service is priced at an annual minimum fee of $6,000 (plus applicable NM gross receipts taxes) for ongoing comprehensive financial planning and investment management as well as annual tax preparation and planning, and incorporates those elements identified on the Wealth Management page. Although the $6,000 annual fee is the minimum fee charged for the ongoing Wealth Management service, the actual fee (plus applicable NM gross receipts taxes) is based on a fee schedule for those assets directly managed by Meridian based on 1.00% on the first $1M, 0.50% on the next $4M and 0.25% on those managed investments in excess of $5M.

Do you offer advice on an hourly basis?

Although hourly-fee billing is by definition one of the Fee-Only methods for providing financial advisory services, Meridian does not offer services on an hourly-fee basis due to its inherent limitations for delivering a comprehensive solution for clients. Prospective clients interested in receiving advice on a narrow, limited scope of questions should contact an advisor offering services in this manner.


Ideal Clients

Who is a good candidate for the ongoing Wealth Management service?

Those prospective clients who have already accumulated substantial wealth and need an ongoing, consultative advisor to provide recommendations to preserve their wealth while meeting their goals. Those prospective clients for ongoing Wealth Management services typically wish to delegate the day-to-day monitoring of their investments, taxes and other financial matters, so that they can pursue other interests.

Who is a good candidate for the Retirement Income planning service?

Those prospective clients who are near-term or current retirees needing assistance with understanding the many considerations involved with planning for lifetime cash flow from available resources, Social Security, and pensions given their preferred lifestyle while seeking to optimize their taxes and risk exposure. Those prospective clients for the Retirement Income planning service typically are contemplating their near-term retirement and wish to have an analysis prepared for optimizing their lifetime plan for cash flows and the utilization and protection of their wealth. 

Who is a good candidate for the Retirement Accumulation planning service?

Those prospective clients who are neither near-term or current retirees who nevertheless would benefit from a better understanding of best practices for financial and tax planning. Those prospective clients for the Retirement Accumulation planning service typically are more than 2 years from their eventual retirement but still wish to understand if they are on track for accumulating sufficient assets and retirement benefits while meeting their current lifestyle obligations.

Who is not a good candidate for Meridian’s services?

If the client’s primary concern for seeking financial advice is for a limited-scope engagement consisting of just a few immediate questions, then they will be best served by an hourly-fee based financial planner, since Meridian does not provide advice without fully identifying each client’s goals and objectives, tolerance for risk, and resources & obligations.


Operations

What is Meridian?

Meridian Wealth Advisors, LLC (MWANM) is a New Mexico registered investment advisor regulated by the State of New Mexico’s Securities Division with firm and advisor registrations in New Mexico and Texas. MWANM is owned entirely by Scott Floersheim. MWANM does not accept custody of client assets, which are instead held in custody primarily by Fidelity Investments except for variable annuities at Nationwide and TIAA-CREF. Additionally, Scott Floersheim owns a CPA practice Meridian Tax Advisors, Ltd. (MTANM) to provide tax and accounting services to clients of MWANM.

What would happen if Scott Floersheim became disabled or died?

MWANM maintains a Business Continuity and Succession agreement with Buckingham Wealth Strategies, LLC (Buckingham) to avoid any disruption of service to clients in the event of the Scott Floersheim’s unforeseen disability or death. Additionally, all client accounts held in custody at Fidelity, Nationwide and TIAA-CREF would remain accessible to clients either directly with the account custodian or through Buckingham.



Have Another Question?

Providing You with Personal Financial Guidance

Every Step of the Way

Our Process

Here’s What Working Together Looks Like


Step One:

Discussion

Our initial phone call will help me to better understand your current circumstances and what you wish to accomplish. During this call, I will be able to determine if your planning needs are a good fit for my service offerings and services fees, and then — if they are — we will schedule a Discovery meeting at my office to further explore our potential collaboration.


Step Two:

Discovery

The Discovery meeting is an opportunity:

  1. For you to ask any questions that you may have about my methodology, background, affiliations and fees;
  2. For me to gather some basic demographic information about you & to review your most recent tax returns and investment account statements; and
  3. For us to see if we would mutually like to work together on your retirement planning and wealth management.

The primary purpose of this meeting is for me to discover your goals, resources, obligations and concerns. You’ll also be able to ask any question about my approach to developing solutions for your financial planning, investments and taxes.


Step Three:

Commitment

Once we have committed to moving forward, I will provide you with an agreement for your review and approval that confirms the specific responsibilities and deliverables for your engagement. To facilitate our collaboration, I will then set up a secure client portal in my financial planning software for us to begin developing your comprehensive retirement plan.


Step Four:

Presentation

Once an initial draft of your financial plan is ready, we’ll meet in person to review it for its completeness and accuracy. I will present you with a preliminary assessment of the achievability of your goals for us to discuss and fine tune. Based on this meeting, we each may have additional tasks to accomplish before we meet again to finish tailoring your plan. We will also focus on prioritizing each of your financial goals, computing various “what if” scenarios and assessing what’s possible by stress testing the potential outcomes.


Step Five:

Implementation

Once the plan is finalized, you will be provided evidence-based, best practices on how the plan should be implemented. If you have decided to continue with my ongoing assistance, we will adopt an investment implementation plan and investment policy statement governing the management of your accounts.


Step Six:

Monitoring

Once we’ve implemented your investment plan, I will further assist you with insurance reviews, tax planning/preparation, estate planning or any follow up tasks that arise.


Let’s Begin

Wealth planning is an opportunity to get clear on your most heartfelt goals and take concrete action to make them a reality. I enjoy getting to know the individuals and couples I serve, helping them accomplish all that’s important to them throughout retirement—and beyond.

Bridging Industry Insight

With Your Personal Financial Life


Sign Up to Get the Latest Blogs Sent to Your Inbox

Loading Posts...

MORE POSTS


All You Need to Know About Social Security

Sign Up to Receive Our Blog Posts


The Ins & Outs of Medicare

Sign Up to Receive Our Blog Posts


What Is Wealth Management?

True Wealth Management is an ongoing process that is far more than either Investment Management or Financial Planning alone – Wealth Management is the integration of Investment Consulting and Advanced Planning techniques on an ongoing basis in collaboration between the client, the wealth advisor and the client’s other professional advisors toward preserving client wealth while meeting the client’s goals.


Investment Consulting

Investment Consulting seeks an acceptable rate of return for client investments in coordination with client’s ability, capacity and need to accept the risk of investing. Prudent Wealth Management does not seek the absolute highest performance, since preservation of the underlying wealth is usually more important to the client and instead a conservative return for the portfolio is acceptable.

Advanced Planning

Advanced Planning is a combination of strategies for wealth enhancement, transfer and protection along with charitable giving.

  • Wealth Enhancement seeks to improve investment returns through the utilization of careful tax planning to prudently minimize income taxes over multiple years and not just for any single year as well as through the minimization of investments costs.
  • Wealth Transfer seeks to utilize tax-advantaged strategies for efficiently transferring wealth to family members of succeeding generations.
  • Wealth Protection seeks to shield assets from loss using legal entities and proper insurance, and it seeks to minimize exposure of the client’s wealth to potential creditors and other litigants as well as from catastrophic loss.
  • Charitable Giving seeks to identify the extent and to transfer excess wealth to charitable organizations through tax-advantaged alternatives.
Discovery Process

The Wealth Management engagement begins with a discovery process to identify the following important factors that make up a client’s unique profile:

  • Goals – identifies not only the funding recurring of lifestyle expenses, but also the larger discretionary items that may require funding like extensive travel, college education, vehicle replacement, home improvements, gifts, etc. Also, can include matters like the timing of retirement, the funding of charitable intent, the pay-off of debt and other matters.
  • Values – identifies what is important to that client about their accumulated wealth like financial security, peace of mind, helping family and community as well as many other possibilities.
  • Interests – identifies activities that the client pursues and enjoys like hobbies, sports, charitable, religious, and political that are important to the client.
  • Relationships – identifies close family members and even pets.
  • Assets – identifies assets like investment accounts, real estate, closely-held businesses, and insurance policies as well as any existing liabilities against those assets.
  • Advisors – identifies existing relationships that the client depends on from other professionals such as their attorney, CPA, insurance agent and investment brokers.
  • Process – identifies the client’s desire to be involved and educated in the wealth management process including frequency and length of meetings.
Plan Presentation

From the information developed in the Discovery Process, the advisor can then develop a recommended course of action with alternatives to present to the client with regards to:

  • Investment selection, allocation and location,
  • Tax optimization,
  • Insurance implementation,
  • Estate documentation,
  • Social Security and pension claiming, and
  • Cash flow planning.
Plan Adoption

After the initial plan has been accepted and adopted by the client, an Investment Policy Statement is also adopted to function as an investment plan to document the decisions of

  • What securities to invest in,
  • What proportions of the portfolio to invest in each type of investment class,
  • When to re-balance those investments based on certain triggering deviations,
  • How to locate the investment classes among various types of investment accounts,
  • What has been the previously experienced down-side of such a portfolio allocation, and
  • What constraints there are on the investments, if any.
Plan Implementation

Once there is an adopted Investment Plan and the initial Financial Plan, the plans can be implemented by consolidating investment accounts, strategically buying and selling securities, acquiring necessary insurance coverages, updating beneficiary designations, obtaining estate planning documentation and making necessary Social Security and pension filings.

Plan Monitoring

Once the client’s wealth management plan has been fully implemented, it is necessary to monitor the client’s:

  • Investments – for potential rebalancing to original target allocations, liquidating for cash flow requirements, harvesting of capital losses and even capital gains, and quarterly performance reporting.
  • Taxes – for income tax smoothing strategies, income tax estimates, potential Roth IRA conversions, potential Rollover IRA early distributions, qualified charitable distributions, donations to donor-advised funds and many other tax-saving strategies
  • Insurance – for changes in the composition and valuation of assets and liabilities, and
  • Estate – for changes in tax laws and family relationships.


Sign Up to Receive Our Blog Posts


Creating an Income Stream that You Can’t Outlive

Retirement Planning

Retirement planning takes two forms – Retirement Accumulation and Retirement Income.

Retirement Accumulation Planning

The Retirement Accumulation phase consists of career-long savings above ongoing financial needs – both planned and unplanned – over decades. This Accumulation phase quite often begins with little – or even negative – net worth but with the intent of building toward a substantial nest egg and other retirement benefits for the client’s eventual retirement. This phase is marked by many competing obligations related to student debt, mortgages, child-rearing costs and even care of parents. The planning for this phase is educational for the client in best practices being presented for possible implementation in the many categories of sound personal financial practices. Emphasis on the planning in this phase will be on tax-efficiency, expense moderation, retirement saving, income & asset protection and early estate planning.

Retirement Income Planning

The Retirement Income phase is often referred to as the “Distribution” phase as the retiree is no longer accumulating additional assets and now prioritizes preserving their accumulated wealth and making wise choices in the allocation of investments, claiming of retirement benefits and optimization of income taxes.

Planning for your retirement requires anticipating your post-retirement lifetime expenditures for:

  1. Living Expenses – the funding of your expected ongoing expenses for items like groceries, utilities, clothing, taxes, insurance, entertainment, and healthcare as well as many other recurring costs. These costs are necessary for enjoying and sustaining your existing lifestyle in retirement.
  2. Goals – The funding of large discretionary outlays for items like travel, home improvements, vehicle replacements, and many other goals that will add to your happiness in retirement. These costs while mostly discretionary are vital for leading a satisfying retirement.
  3. Donations – Charitable giving to your favorite charities that can be achieved through tax-efficient alternatives, and
  4. Legacy – Leaving a legacy to your heirs in the form of gifts during your lifetime like education funding for grandchildren or providing a house down payment to your children as well as distribution of the residual assets of your estate.

To accomplish the funding of your future lifetime expenditures with an acceptable degree of uncertainty given that no one knows how long their retirement will last requires a comprehensive analysis of your expected cash inflows and available assets like:

  1. Social Security – Social Security retirement benefits, along with any government or corporate pension, are the foundation of retirement income planning. Those benefits are guaranteed to the retiree for their lifetime, so that no matter how their investments perform or what future expenses are incurred, the monthly cash flow will continue without interruption.
  2. Pension – While the most common form of pension benefits are increasingly those funded through workplace defined contributions plans like 401(k), 403(b), and 457 plans as well as SEP and Simple IRA plans, many retirees still have earned defined benefit plan pensions through their work for a large corporation or federal, state or local governments. Those with defined benefit plans will need to make irrevocable decisions in how they claim their benefits to optimize their cash flow – especially if married – while those with defined contribution plans will need to decide whether to annuitize or rollover their pension plan balances.
  3. Investments – in addition to any pension rollovers, a retiree may have accumulated accounts in IRAs, annuities and taxable accounts from saving, parental gifts/inheritances or from the sale of a business or company stock.
  4. Encore Career – Many retirees will choose to continue working during the early portion of their retirement sometimes out of necessity but more frequently to stay engaged in a stimulating activity whether compensated or not.

The benefit of completing a comprehensive retirement income plan prior to your actual retirement is to confirm that the timing of your retirement is 1) on track, 2) should be delayed or 3) could be accelerated. Due to the many variables described above, it is only possible to be confident after assessing all of those factors. Each of the items described above are discussed in greater detail below.


Social Security

Considering the majority of those over the age of 55 years of age have less than $100,000 saved for retirement, Social Security retirement benefits are a major component of most retiree’s plans and need to carefully be studied and then claimed to attempt to maximize the lifetime benefits.

Eligibility

Basic eligibility for Social Security retirement benefits is when a retiree has accrued 40 credits.

Initial eligibility is the first full month that one is age 62, or the calendar month after turning age 62.

Monthly Benefit

The monthly Social Security retirement benefit has many factors that produce it including the number of accrued credits, the lifetime monthly indexed earnings, the breakpoints for each computation level, and the age of the claimant. Social Security produces a 4-page benefits statement that is available online by registering at www.ssa.gov. By downloading this statement, the claimant can determine not only their expected retirement benefits at various ages, but also the completeness of the reported earnings history. The average monthly benefit is currently $1,503 in 2020 but can be as high as $3,011 in 2018 for higher wage earners at full retirement age.

Timing

The timing that a claimant files for their Social security retirement benefits determines that initial monthly benefit from that point going forward. The best approach is contingent on the claimant’ other available resources, retirement date, and expected longevity. This analysis is further complicated by the transfer of excess monthly benefit to a surviving spouse, so the claiming strategy for each spouse’s Social Security retirement benefit must be carefully studied before the first one files.

Benefits at Full Retirement Age (FRA)

The age at which no discount or premium based on the date that Social Security retirement benefits are claimed. Originally, FRA was established as age 65, but has risen to as high as age 67 based on the claimant’s birth year. See the table below:

Benefits at an Early Retirement Age

Although the majority of claimants file for their Social Security retirement benefits at their first eligibility at age 62, this results in a deep discount to their monthly benefit and is high as 40% less than waiting until their FRA.

Benefits at Delayed Retirement Age

Since some claimants may continue working past FRA or may have other assets to draw upon, they can delay filing for their Social Security retirement benefit to as late as age 70 and will receive an 8% annual increase to their FRA for each year that they delay past their FRA. For a potential claimant with a FRA of age 67, this will result in a 24% increase (3 years times 8%) to their monthly Social Security retirement benefit for their remaining lifetime.

Special Circumstances

  • Widowed
  • Divorced
  • Premature



Pension

Defined Contribution

Defined Contribution pension plans are the most common form of retirement benefits today and include SEP and SIMPLE IRAs, 401(k), 403(b) and 457 plans where not only the employer contributes for each eligible participant, but also the employee may be able to defer some portion of current wages into the plan. The participant is frequently able to select from a menu of available investment options depending on their own goals and tolerance for the volatility of investments.

Defined Benefit

Defined Benefit plans have continued to decline in number as the potential liability to the sponsoring organizations has created legitimate concern over the ability to meet unfunded obligations for those already retired as well as those currently still eligible. Still for those eligible to receive such benefits, a decision must be made whether to accept a lump-sum distribution of the accumulated benefits or to annuitize those benefits into a lifetime monthly stipend.


Investments

Diversification

Diversification is the degree to which a portfolio’s underlying investments are sufficiently spread amongst not only asset classes but also the underlying companies to mitigate the potential failure of any country, industry or company. Although concentrated positions in any one asset class or company may prove to outperform the market taken as a whole, the potential risk of failure from a lack of diversification should be unacceptable to a retiree.

Risk Tolerance

Although risk tolerance has often been defined in terms of the volatility of the portfolio to upward and downward valuations, to a retiree it is better measured in terms of the degree that a portfolio could potentially decline in a market correction without the retiree making a panicked reaction by selling diminished investments; thought of another way, if a retiree would accept that their $1,000,000 portfolio could temporarily decline by $200,000 or 20% before recovering, a portfolio can be identified that  is likely not to exceed their threshold for risk tolerance, while also accepting a portfolio return consistent with that asset allocation.

Asset Allocation

Many investors have a basic understanding of asset allocation to the degree of how much is invested in riskier investments like equities and how much is invested in less volatile investments like bonds, so that a common 60/40 portfolio is allocated 60% to stocks and 40% to bonds. However, a well-designed portfolio will take further into account diversification, correlation and concentration of those investments.

Asset Location

Most investors have little understanding of the location of their investments, which considers that the various types of investment accounts have differing income tax consequences. Those types of accounts are:

  • Tax-Deferred – Amounts invested in a defined contribution plan or an IRA as tax-deferred contribution will grow with income taxes deferred until such time that a distribution is made and at that time the distribution will treated as taxable “ordinary” income, which will be a taxpayer’s highest marginal tax rate. The same is also true for after-tax contributions to either a non-deductible IRA or to a non-qualified annuity.
  • Tax-Exempt - A non-deductible contribution to a Roth IRA or to a Roth 401(k) will enjoy tax-exempt growth as long as the growth in the account is not distributed prematurely before age 59 ½.
  • Taxable – The accumulation of savings in an account not otherwise tax-deferred or tax-exempt will incur current annual income taxes on any interest income, dividends or realized capital gains & losses.

The ranking of the income tax efficiency is highest for the “tax-exempt” account and lowest for the “tax-deferred” account categories with the “taxable” account falling somewhere in between due to the income tax advantage of long-term capital gains and qualified dividends having preferentially lower tax rate under prevailing tax law. To the extent that an investor has any funds available in any of those three categories, the location of certain investments will be preferable in one type of account over another. For instance, the same investment held in a Roth IRA account will grow tax-exempt, while the same investment will only grow tax-deferred in a Traditional IRA account, therefore, the investor should prefer to hold those investments with the highest expected returns in the Roth IRA account. Further, since fixed income investments generally produce interest income that is treated as “Ordinary” income, fixed income investments like bonds are generally should be held in a tax-deferred account over a tax-exempt or taxable account to allow higher equity investments int hose same accounts. The bottom line is that even if a given asset allocation is appropriate for an investor’s overall portfolio, they will likely benefit from not replicating that identical allocation across all of their accounts to take advantage of the unique tax attributes of each type of investment account.

Fees and Costs

Although investors frequently focus on performance of their investments, the true evaluation of their portfolio’s performance is incomplete without considering all the costs of investments including investment spreads, advisory fees, trading costs, and income taxes.  



Encore Career

Although many near-term retirees have some degree of control over the precise timing of their retirement, more are electing to either extend their careers or to enter in to a new career rather than settle into full-time leisure.  This choice is always out of necessity as many prefer to stay engaged in an endeavor that they find rewarding beyond its financial aspects.


Sign Up to Receive Our Blog Updates

Hands-On Retirement Planning

in Albuquerque, Rio Rancho, Santa Fe and Los Alamos

Let’s Connect

With deep knowledge and experience in all aspects of retirement planning and wealth management, I am here to support you and your finances throughout your retirement. If you have a couple of questions or you’d like to get started, schedule time to talk or reach out to me directly. I look forward to hearing from you.


Phone

505.828.2220

Address

9400 Holly Ave NE, Bldg 4
Albuquerque, NM 87122-2969