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The Cordant Blog

Why Winging Your Retirement is a Really Bad Idea

by Isaac Presley, CFA on June 14, 2017

Last weekend the Wall Street Journal had a short article titled Beware of Winging Your Retirement that emphasized giving thought to the non-financial aspects of retirement before reaching this major milestone. The upside to those who envisioned and planned for their future? Greater life satisfaction. From the article:

But in talking with and hearing from hundreds of retirees through the years, I have found that those who are most satisfied with their lives spent at least some time thinking and talking about their hopes for the future—typically, several years before retirement itself—and then took specific actions to move closer to those goals.

This is exactly what we do as part of our financial blueprint process to help clients plan for their future. Or, as someone recently described it, we help them integrate their financial plan with their life plan.

But here I want to highlight, in addition to the non-financial reasons, a very important financial reason to stop winging your retirement: the sequence of returns risk.

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Making the Most of Your Intel Benefits: A Look at Outperformance Stock Units (OSUs)

by Isaac Presley, CFA on June 08, 2017

Starting in 2009, Intel announced a new form of stock compensation in the form of Outperformance Stock Units (OSUs) for top executives (MCM members) and expanded the OSU grants to executives grade 12+ in 2014 (coinciding with the last year of stock options). In 2017 for those levels 12+, OSUs will make up 60% of the focal grant’s value with the remaining 40% coming in the form of RSUs.

Given the increased importance of this relatively new form or stock compensation, let’s take a look at how they work, their historical performance and, for those nearing retirement, how they vest upon leaving the company.

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Retiring from Intel: Calculating Years of Service, Determining Retirement Eligibility and the Benefits of Being an Intel Retiree (Part 1)

by Isaac Presley, CFA on May 17, 2017

Not everyone leaving Intel, even if it’s their last job, officially retires from Intel. The company has very specific retirement eligibility rules and subsequent benefits accruing to official retirees. And, as with all Intel benefit plans, these benefits can be enormously valuable but are often complex and difficult to determine how they apply to your specific situation.

We help our clients in defining their benefits and then applying them to their individual situation as part of our retirement planning process, but here we want to lay out this part of the Intel retirement process for everyone. This series will attempt to do three things: Review when someone qualifies to officially retire from Intel; Illustrate how years of service at Intel are calculated, and then, in part two we will review the benefits accruing to Intel retirees.

As Intel’s 2017 Pay, Stock and Benefits Handbook (hereafter, simply the 2017 Handbook) states, Understanding the retirement eligibility rules and how your retirement benefits work is essential to maximize the value these benefits offer.”

Let’s take a look.

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What To Do With Your Intel Pension When You Retire?

by Isaac Presley, CFA on September 23, 2016

Recently on the blog we’ve looked at a few key decisions anyone retiring from Intel must make once they stop working. We saw how to generate a paycheck via a rebalancing process and learned how ‘withdrawal order’—a seemingly simple change—can have major ramifications on your ending wealth and the amount of taxes you end up paying. Another key decision those leaving Intel must make is what to do with their pension benefit.

We’ve outlined before how the Intel minimum pension plan works. But, here we want to break down the decision that comes at retirement: should you take the monthly pension income benefit or a lump sum withdrawal from the plan?

Like so many decisions with wealth management, this is an individual decision that must be made in light of one’s goals, objectives, other assets and income sources, and risk tolerance. There is no global rule. Option A or B isn’t always optimal. The monthly income isn’t the best choice in all cases and neither is the lump sum. There are advantages and disadvantages to either option. The key is making this decision in light of your personal situation.

The remainder of this post will highlight the key decision criteria to weigh when making the pension decision with the goal of optimizing the result for your specific situation.

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Taking Action Now Costs Less Than Being Forced To Later [Announcing an Upcoming Retirement Transition Seminar]

by Isaac Presley, CFA on August 08, 2016

"Avoiding a problem with foresight and good design is a cheap, highly leveraged way to do your work.

Extinguishing a problem before it gets expensive and difficult is almost as good, and far better than paying a premium when there's an emergency.

Fretting about an impending problem, worrying about it, imagining the implications of it... all of this is worthless.

Action is almost always cheaper now than it is later." ~Seth Godin on Problems

***

This spring Intel announced and began executing on a plan to reduce as much as ten percent of its workforce. For most, the rapidity of this round of layoffs was jarring. Mike Rogoway, writing in the Oregonian, paints the following scene:

It happened, typically, in one of Intel's windowless conference rooms, at the end of a long table under droning white fluorescent light. A supervisor arrived, along with someone from human resources.

We've got some bad news, they'd say: You're being laid off. They would pass paperwork across the table and tell you it's time to go. Right then. You might have passed a friend on the way out, pausing just long enough to share the news before handing over your Intel badge and walking out the door, for good.

 

In hearing from and talking with many people dealing with the layoffs or voluntary separation packages, one thing was common: the speed at which the layoffs were announced and the pace at which Intel required a decision be made was challenging. It made for a stressful period with inadequate time to plan—there wasn't much warning.

What’s more, according to the Oregonian these layoffs fell disproportionately on older workers. Many of these people likely considered retirement still a few years off but now they were left with uncertainty. Can I afford to retire now? Can I afford to work less or take a lower paying position?

When it comes to preparing for the future, and knowing where you stand, action now is better than action later.

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The Very Real Cost of Impatience

by Isaac Presley, CFA on June 16, 2016

I have a bit of a commute and end up spending a lot of time in the car. Despite all this “practice” I’m still terrible at predicting which lane of traffic is moving best when the all too frequent Portland traffic jam occurs. The left lane is moving, so I cut over only to see the lane I was just in surge ahead. Back to the middle and now the left lane zips past. While frustrating, the only thing this “lane-hopping” ends of costing me is a bit time. However, investors “lane-hopping” with their investments, end of costing themselves real money.

This week Morningstar published its annual “Mind the Gap” study. The analysis looks at the returns investors receive (dollar-weighted) compared to the funds they own (time-weighted). The difference, or “gap”, is a result of the timing of cash flow into, and out of the funds. The findings for 2016 don't depart from prior years with the "Behavior Gap" (investor returns trailing the funds they own) totaling 0.53% across all funds. Russ Kinnel, the Director of Manager Research from Morningstar, sums it up as follows:

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Six Types of Diversification to Include in Your Portfolio

by Isaac Presley, CFA on June 14, 2016

“Diversify across securities, across asset classes, across markets – and across time.” – Charley Ellis 

It’s been said that true diversification means always hating some of your investments. As a result, you never hate your portfolio. 

Most people are familiar with the concept of diversification, which can be broadly described as “not putting all your eggs in one basket.” And most people know that it’s a good thing to have a diversified portfolio. But how does one build a diversified portfolio? There is more than one way to diversify after all.

Here are six forms of diversification that you should include in your portfolio. 

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The More You Know: Navigating the Financial Transition from Intel [Free Workshop]

by Isaac Presley, CFA on June 09, 2016

“The more you know, the more you know you don't know.” ― Aristotle

Intel employees and therefore most of our clients—given our focus on providing ongoing financial planning and investment management to current and former Intel employees—are a sharp bunch. We work with smart people. But, while they know a lot, as Aristotle quips, knowledge makes you more sensitive to and aware of what you don't know.

And given the current turmoil at Intel, there are a lot of people transitioning out of Intel. Many of these know there’s a lot they don’t know and don’t know where to start. This can be frustrating, overwhelming, or both.

We want to help.

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"Keep Swimming" and Other Lessons From Intel's Andy Grove

by Isaac Presley, CFA on June 03, 2016

"Life is like a big lake. All the boys get into the water and start swimming. Not all of them will swim across. But one of them, I'm sure, will. That one is Groff."

~Andy Grove's High School Physics Teacher

 

Andy Grove concludes his memoir Swimming Across, with the line “I am still swimming.” This line perfectly epitomized a life of non-stop action toward overcoming obstacles, continual learning, and striving to make himself a better scientist, manager and citizen. This mantra of "keep swimming" is vital to success. No matter what line of work or role we play in life, it’s impossible to know all there is to know. Perfection isn’t possible. What’s important then is to keep moving forward, getting better, and never to stop “swimming”.

This weekend more than 150,000 people across the world will follow Grove’s example of lifelong learning and sit for one of three levels of the Chartered Financial Analyst (CFA) exam. Described as “Wall Street’s Toughest Test” or the “Mount Everest of Finance” less than 20% of those starting the program will complete it. A Yahoo Finance article describe the program as follows:

But passing is not an easy task. Usually, more than half of all those taking any level of the exam fail. They then have to wait as much as a full year to take the same level again. Candidates can spend hundreds of hours over the course of several months studying for just one test.

So, why do so many people sacrifice their free time and social lives to take these exams? It’s because the CFA designation is perhaps one of the most respected in the investment management industry. Lisa Plaxco, CFA, head of the CFA program at CFA Institute, says, “It is the global gold standard for competency and integrity throughout the investment management industry, both for professionals and their clients.”

It’s hard to believe this Saturday will mark five years since I took my third and final CFA exam. Becoming a CFA Charterholder was without a doubt the most challenging academic endeavor I’ve pursued, but at the same time, the hundreds (possibly thousands) of hours spent were well worth it. Earning the CFA charter was a great career decision, and I’m proud to be part of an organization that is making our industry a more professional and ethical one. (For example, in May the CFA Institute held a “Putting Investors First Month” which focused on improving our industry so investors can thrive.)

So, I say all this to say I was thrilled when asked to contribute to the CFA’s Enterprising Investors blog. For my first article, I wrote about four investing lessons we can learn from the life and career Former Intel chairman and CEO Andy Grove. You can read the article below or head on over to the Enterprising Investor blog and read it there.

I hope you enjoy it and for anyone out there taking the CFA exam this weekend, good luck!

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Balancing Earning a Salary with Managing Your Wealth

by Dave Unzicker on April 26, 2016

Retired_Coffee_Shop.jpegWhen you reach the end of your Intel career and make the shift into retirement, will you know what you can expect this next stage of your life to be like?  For many it’ll be a mystery.  But for those who plan and intentionally prepare for it (and I don’t just mean saving money) much of the mystery is removed.  And retirement then becomes a gift to eagerly anticipate!

Life is continually bombarding us with demands for one of our most precious, and limited resources--our time.  For a lot of people the demands of their work or business get filled first as the needs to generate a paycheck and build a career are important to them.  Any remaining time gets allocated to other competing priorities like family, community, and one’s self.  Generally it is this last one that ends up being most short-changed in the process. 

I know this is how I operated during my years at Intel.

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