Dunston Financial Group in The Wall Street Journal

Dunston Financial Group in The Wall Street Journal

Dunston Financial Group is excited to share that we were featured in yesterday’s edition of The Wall Street Journal. The title of the article is “How Entrepreneurs Can Use IRAs to Finance Startups,” and it’s about how one can use IRA/401(k) money to fund a startup venture. Known as ROBS (Rollover for Business Startups) transactions, they definitely are not right for everyone, and they carry a unique set of risks. Nevertheless, in the right circumstances, ROBS transactions can be an effective business funding...
Retirement Income Planning: Is the 4% Rule Too Conservative?

Retirement Income Planning: Is the 4% Rule Too Conservative?

Turning a portfolio into income throughout retirement is a very different task from the accumulation phase of a portfolio. Many are familiar with William Bengen’s rule of thumb that found that an inflation-adjusted 4% withdrawal rate in a 50% stock / 50% bond portfolio would make a portfolio last for 30 years in the worst of economic conditions. But some have rightly wondered if Bengen’s rule is too conservative. Indeed, well-known financial planning researcher Michael Kitces ran his own models, and he found that …in the overwhelming majority of scenarios, returns are not so bad as to necessitate a 4% initial withdrawal rate in the first place. In fact, by applying the 4% rule, over 2/3rds of the time the retiree finishes with more than double their wealth at the beginning of retirement, on top of a lifetime of (4% rule) spending! Half the time, wealth is nearly tripled by the end of retirement, as retirees fail to spend their upside! This is interesting. This means that by withdrawing from one’s portfolio too conservatively in retirement, a retiree may actually not spend enough. A natural consequence of this might be that the retiree doesn’t enjoy retirement the way she envisaged, or worse, may not be able to meet her financial needs. It can also mean that the retiree leaves a windfall at death, something that may or may not be...
Making Retirement Money Last: A Summary of Withdrawal Strategies

Making Retirement Money Last: A Summary of Withdrawal Strategies

As prospective retirees near retirement, one of the most important things they’ll need to do is come up with a sustainable withdrawal strategy for the retirement assets they’ve accumulated. Importantly, this decision could determine whether or not one’s portfolio will run out of money. Here’s a brief summary of many of the methods available to retirees:  FIXED AMOUNT METHODS 1.) Constant Dollar Amount (adjusted for inflation each year) One method to accomplish this has historically been the “Income Portfolio” wherein a portfolio is invested in dividend stocks and interest bearing bonds. 2.) Fixed Percentage Amount (adjusted for inflation each year) – For example, William Bengen’s well-known 4% rule. Designed to address sequence of returns risk, the idea is that withdrawing 4% of a portfolio’s total value each year resulted in the portfolio safely lasting for 30 years (3.8% is the safe withdrawal rate if one does not want to spend down principal). The downside is that simply because a portfolio will last 30 years doesn’t mean that it will meet one’s income needs (i.e. 4% might be too low of an income). Additionally, research has shown that this strategy usually results in significant under spending. Nevertheless, this approach is widely known and still represents a helpful point-of departure for many practitioners when beginning to frame the retirement income discussion.   3.) Bucket Strategy / Evensky & Katz Cash Flow Reserve Strategy – This is a needs-based strategy that is a fixed dollar amount, but is also in conversation with the fixed percentage amount strategy. A financial planner works with a client to determine a realistic dollar amount that can...
Four Pillars of Retirement Income Planning and Why a Do-It-Yourself Strategy Might Result in Retirement Failure

Four Pillars of Retirement Income Planning and Why a Do-It-Yourself Strategy Might Result in Retirement Failure

  One of my colleagues in the financial planning business, Michael Kitces, recently wrote a really good article on the four pillars of retirement income in retiree investment portfolios. The gist is that dividends, interest, capital gains, and principal all make up important parts of a retiree’s income portfolio, and it’s critical for retirees to properly and efficiently manage these four sources of income from a total cash flow standpoint. Historically, investors have relied on “income” portfolios, and have mainly focused on dividends and interest, but capital gains and principal now play an equally critical role in retiree distribution planning. It’s my belief that the “income” portfolio is largely a myth and can actually increase the likelihood that a retiree will run out of money during retirement. This is because an “income” portfolio places arbitrary constraints on how the portfolio needs to be allocated, and it increases the risk that the portfolio will not sufficiently grow and be able to keep pace with inflation. As we work with retirees on a daily basis, it’s becoming increasingly clear that the accumulation strategy that got many retirees to the point of retirement should not be the same strategy that unwinds the portfolio and creates net-net cash flow during retirement (net of taxes and net of expenses). This, as Kitces rightly points out, is because managing interest, dividends, capital gains, and principal needs to be done in a tax-efficient manner: …ultimately, the modern retirement portfolio will really rely on four pillars for retirement income – interest, dividends, capital gains, and principal. Or stated more accurately, the four pillars of retirement cash flows –...
Tony Robbins on Trump’s Abandonment of Retirement Investors

Tony Robbins on Trump’s Abandonment of Retirement Investors

While I disagree with much of Tony Robbins’ approach to investment management in his 600-page tome Money: Master the Game, he gets just about everything right in his recent Fortune article about the Fiduciary Rule. With the Dow reaching record highs, Tony notes that “President Donald Trump’s plan to review the Labor Department’s fiduciary rule may be good news for Wall Street, but not for hard-working Americans saving for retirement.” I’ve written at some length about the Fiduciary Rule here, and I recently helped contribute to a NY Times article about it here. The gist of the Fiduciary Rule is this: Legal fiduciaries are obligated to put the needs of those they serve ahead of their own, but the Department of Labor found that the financial services industry often doesn’t do this. As a result, they proposed the Fiduciary Rule—regulation designed to ensure that consumers aren’t fleeced by overpriced financial products and conflicts of interests with financial advisors. About this fiduciary standard, Tony Robbins comments, I’m a fan of the fiduciary standard. Doctors and lawyers are legally required to do what’s best for you—why not your financial advisor as well? While most people assume financial advisors are registered investment advisors (RIAs), who are legal fiduciaries, it turns out that less than 4% of them are. As if this weren’t confusing enough, there is another class of RIAs, so-called dual-registered RIAs, who are affiliated with a brokerage and sell financial products for a commission. If the Fiduciary Rule goes away, what should consumers do? In addition to asking questions about fees, as Ron Lieber rightly points out in the aforementioned NY Times piece, consumers...
A Pre-Retirement Checklist of Things to Think About

A Pre-Retirement Checklist of Things to Think About

  At Dunston Financial Group, we regularly help our clients make the transition from their career years into retirement. For most, retirement is a major milestone, as well as a significant lifestyle change. In order to make the transition into retirement as successful as possible, our friends over at WealthManagement.com recently offered up the following list of some of the more qualitative things prospective retirees should be thinking about: Encourage clients in their 40s and 50s to begin a wish list of things they want to accomplish, places they want to visit, and things they want to learn. Help them start on a few now, and keep adding to the list over time. This keeps clients dreaming continuously, rather than waiting until retirement to achieve all their dreams. Involve both members of a client couple in discussions about retirement. Watch for differing expectations (i.e. he expects to retire to the cottage on the lake, while she expects they will finally sell the cottage and move to Arizona.) Work to help them get in sync. Golf, sailing, or any other enjoyable activities can get old fast if they are the only focus of life. Prompt clients to expand their thinking. If they want to volunteer, encourage spending an hour or two per week volunteering now until they find a good fit; this way they already have relationships and feel comfortable in that setting. Likewise, they can research community colleges and available options for classes they’d like to take when they retire. The transition is easier when clients retire “to” something interesting. Engage in an exercise with clients to help them determine...