RMR Wealth Management, LLC
February 2012 Retirement Plan
Article 2

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Dear Valued Client,
 
Now that you have decided which retirement plan is right for you, you must ask yourself what is the proper allocation?  What is my time horizon?  Am I a growth or an income investor?  What is my asset breakdown?  

Here are 5 steps to consider when choosing the allocation that is right for you:  

  1. Complete a risk/reward profile.  This will give you an idea of what type of investor you are.  Are you able to handle the volatile fluctuations in a given portfolio?  For example, if your portfolio dropped 20% in 6 months would you:
  • Sell the entire portfolio.
  • Sell half of your investments and keep the other half invested.
  • Buy more (dollar-cost average).
  • Change nothing.  
  1. Be more aggressive.  Since we are discussing retirement assets, you may want to consider taking on more risk in these accounts than you normally would be accustomed to in liquid, non-retirement accounts.  Since you have a longer time horizon, you can withstand the short term fluctuations.  Retirement accounts have penalties if withdrawals are made prior to 59 ½.  The penalties are imposed to discourage dipping into assets meant to be utilized upon and during retirement. 
  1. Choose investments that might be traded more actively, or have higher potential for tax implications.  Investments that might be held for less than 1 year would be taxed at ordinary income and not long term capital gains rates.  Put these investments in your retirement accounts.  Since the accounts are tax-deferred, no taxes will be generated until a distribution is made. 

Summary

Fully-Taxable

Tax-Deferred

Tax-Free

Current investment balance

$100,000

$100,000

$100,000

Annual contributions

$12,000

$12,000

$12,000

Number of years to invest

30

30

30

Before-tax return

8%

8%

8%

Marginal tax bracket

25%

25%

25%

After-tax return

6%

8%

8%

Future account value

$1,523,047

$2,365,664

$2,365,664

Future account value (after-tax)

$1,523,047

$1,889,248

$2,365,664

 

 
  1. Consolidation of retirement accounts if you have multiple IRAs or old 401(k) or 403(b) plans from prior employers.   

 Why Consolidate?

  • Easier to keep track of your investment allocation, especially if held at one institution.
  • Control of assets.  If you decide to rollover your 401(k) or 403(b) to an IRA, you then have the ability to pick and choose your investments.  Typically employer sponsored retirement accounts have limited options.  Take advantage and roll over your assets into an IRA.
  • More options.
  • Lower fees. 
  • Easier to calculate RMD’s (Required Minimum Distributions)  You are required to take distributions from your IRA  accounts beginning at age 70 ½.   
  1. Take emotion out of the equation.  This is my greatest value to my clients because when it comes to money decisions people always get emotional.  We are looking to make smart decisions with our money.  Smart decisions are made on facts, not on gut feelings.  This is not gambling; this is investing.  You should be more educated and involved in your day to day finances.   

Now that we have chosen the right plan (Article 1), we can now figure out the proper allocation by going through the steps above.   And in my forthcoming article, we will implement and continuously monitor your retirement plan.  The main theme is to have a sound financial plan that is able to navigate through any weather conditions; sun (upward trend), rain and snow (downward trend), earthquake (recession), and tsunami/hurricane (depression).  Is your portfolio built to last through the most extreme weather conditions?

Are you confident in your current retirement plan?  

Please contact me today at 212-785-4377 x224 for your retirement reality check.  

To view previous email, please click here http://www.rmrwm.com/CampaignProcess.aspx?A=View&VID=19088964&KID=96866.

Sincerely, 

John J. Fiorito
Financial Advisor
“Retire comfortably, and remain comfortably retired.”

 

 Securities offered through Dinosaur Securities, LLC Member FINRA, SIPC, NFA.


Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication. RMR Wealth Management, LLC does not provide legal, tax, or estate-planning advice. For questions about a specific situation, please consult a qualified adviser.