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The Cordant Blog

Using a Donor Advisor Fund to Optimize Your Charitable Giving and Save On Taxes

by Scott Gerlach, CFP on April 04, 2018

At Cordant, our primary role is to help our clients maximize the probability of reaching their objectives. While straightforward, the challenge is making recommendations in the face of uncertainty—the most obvious being the direction of the capital markets (stocks and bonds) in the short-term.  I have strong conviction, based off of historical information, that in the long-run, things will continue to go up. But, for this week or this month, your guess is as good as mine.

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Three Steps to Understanding the Impact of Pre-Medicare Healthcare Costs on Your Ability to Retire 

by Scott Malbasa, J.D., CFP® on March 02, 2018

On numerous occasions, the need to put pre-Medicare healthcare costs in context arises with this conversation:

Me: “When would you like to retire?”

Client: “Well, I’d like to retire soon but know that I can’t. I have to work until at least age 65 so that I have health insurance…”

The client in the above dialogue might be right; he or she may indeed need to work until age 65. Pre-Medicare healthcare costs are a factor in the retirement decision and a significant one at that. But so is a mortgage, so is the need to buy a car, buy groceries, support family, etc. Every living objective that equates to a cost is a factor. Pre-Medicare health care costs play a role in the overall determination of whether you can afford to retire, but these are costs that are too frequently blown out of proportion.

Health insurance coverage prior to Medicare is a highly political and highly publicized topic. It is often in the news and is a part of our day-to-day conversations. The result is that it often seems like a bigger retirement factor than it actually is, and people ping to age 65 (the age of Medicare eligibility) because working until 65 means not having to bridge the gap between employer-provided insurance and Medicare—it means not having to worry about it.  

This is why we encourage anyone evaluating their preparedness for retirement to take three steps to help them understand the impact of pre-Medicare health care costs on their retirement decision. By doing so, it’s not an unnecessary point of anxiety. The steps include, first, giving pre-Medicare health care costs appropriate context; second, knowing what it costs and how long one you will have to pay for it; and third, knowing what the worst case might look like. Taking these three steps helps you understand the impact and make a more informed decision about when to retire.

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I changed My Passwords, my Credit is Frozen, What now? How can I be cyber-Secure?

by Scott Malbasa, J.D., CFP® on January 03, 2018

“The drama's done. Why then here does any one step forth? — Because one did survive the wreck.” –The narrator, Ishmael, in Herman Mellville’s Moby Dick.

If you weren’t concerned about cyber security at the beginning of 2017, my guess is that changed in the time before the New Year. Tracking events like the Equifax hack, understanding their effect, and acting in their wake took attention and effort. If you’ve ever gotten to the last page of Moby Dick you might remember reading the above sentences. You may have found yourself, as I did, relating in a peculiar way to the narrator. Because after coming to the end of an 800+ page book, you may have thought: Reading that was a lot of work and required a lot of my time and headspace. I survived, but what do I do now?... Not to mention, that whale is still out there.

As ’17 comes to an end, I have the same feelings about cyber security as I did when I read the end of Moby Dick. I have read what feels like hundreds of pages of articles describing hacks, possible consequences, and ways in which I could protect myself and our clients. I took steps such as setting up 2-factor identifications and freezing my credit, and we recommended clients do the same. And yet, the whale remains at large!  I don’t feel secure from the Equifax hike, much less all cyber threats.

I still find myself asking, what now? What can I do to protect myself?

The fact of the matter is that cybercrime and fraud are on-going, evolving threats and constant vigilance is key. The answer to the “What can I do to protect myself?” question is an ongoing and evolving process.  With that in mind, I want to take this opportunity to review 8 ways to protect yourself with the current best practices.

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Tackling Required Minimum Distributions: What you need to know before year end

by Scott Gerlach, CFP on December 06, 2017

As we enter December, the last month on the calendar marks the final chance to cross your financial T’s and dot your I’s. For many, this means making last-minute charitable contributions, maxing out your 401k or ensuring your health care is solidified for next year. And for those individuals in their 70’s, this means satisfying their Required Minimum Distributions (RMDs). 

Boring for many, I love these year-end opportunities for financial optimization. Year-end is a great time of year for something else I love –football! With college football bowl season about to begin and NFL playoffs around the corner, the action on the field is as intense as ever. And while the on-field action is all good and dandy, I always get a kick out of the “coach speak” and endless clichés heard from coaches dancing around uncomfortable questions posed by their adversaries in the media this time of year.

Admittedly, comparing RMDs and football may be a “stretch”, but I promise this won’t be an exercise in futility. With that, let’s put our visor on, grab the clipboard, and break down everything you need to know about RMDs from the sidelines. Before we begin, it should be noted that this post will only focus on standard RMDs and will not be tackling Inherited RMDs, which have slightly different rules.

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Three Tips for Evidence-Based Retirement Plans

by Isaac Presley, CFA on November 29, 2017


*A version of this article origionally appeared on the CFA Institute's Enterprising Investor blog.

I recently participated in a fun exercise.

My friend Phil Huber, CFA, asked a group of us to define “Evidence Based Investing in 10 Words or Less.” My favorite definition came from Bob Seawright, who said, “A relentless focus on what works, what doesn’t, and why.”

On his blog, Above the Market, Seawright wrote that evidence-based investing is “the idea that no investment advice should be given unless and until it is adequately supported by good evidence.”

Who wouldn’t want that?

This growing movement has fueled Vanguard’s rapid growth, to over $4 trillion in AUM. It has also generated numerous articles, a magazine cover, an infographic, and some entertaining alternatives for those advisers who want to try another variation. It even spawned its own conference.

While these are welcome changes, much of the conversation has focused on the investing side of things: What funds to own; how to set an investment allocation; which factors work and which don’t; and how to minimize expenses, taxes, and trading costs, for example. However, the evidence as it relates to retirement planning — specifically the distribution phase of an investing lifecycle — is often left out of the discussion.

Both the accumulation and distribution phases are critically important. And with retirement, as with any vintage of wine, you have only one chance to get it right.

To extend the metaphor, think of the accumulation phase of an investing life as the planting of a vineyard. A vineyard, like a portfolio, can survive many different seasons and weather patterns, and like a well-designed portfolio, a vineyard is resilient. Though the vineyard is tended over time, the care should kick into hyperdrive each fall when the grapes are harvested.

As the weather over each growing season and at harvest makes each vintage of wine unique, the year you retire and your portfolio distributions begin has a big influence on the overall retirement experience. When it comes to distributing a portfolio, there are specific factors to pay attention to. Here are a few suggestions to put a little evidence-based thinking into your retirement plans.

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Health Care in Retirement: What Does it Cost?

by Scott Malbasa, J.D., CFP® on November 09, 2017

I had a high school physics teacher who told me more than once, “always be true to your convictions, but prepared to abandon your assumptions.”

At Cordant, we have a conviction for helping our clients make smart financial decisions and working with them to keep their financial lives on track. A key component in helping them make smart financial decisions is creating a comprehensive financial plan that is designed right, and that can be a reliable tool to help them answer questions like: Will I have enough to retire? Can I afford a second home? Should I pay off my mortgage? This is where assumptions come in: in order to create a financial plan, we have to make assumptions about the future, and those assumptions should be based on the best-known information because they can have a dramatic impact on the workability of the plan. If the data and evidence suggest our assumptions are inaccurate, we need to be (as my former teacher would be happy to know that we are) prepared to abandon, or at least adjust them.

The cost of health care, particularly for those on Medicare, is a prime example of a financial planning assumption that gets a lot of new research. This research causes us to evaluate whether our current estimates are ones with which we are still comfortable. With that in mind, I'd like to review our current assumption for health care costs in retirement, consider recent research, and evaluate whether we need to adjust.

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What Monte Carlo Projections Leave Out (...And Why You Can Still Trust Them)

by Scott Malbasa, J.D., CFP® on August 25, 2017

Do I have enough money?

Almost every client has asked some version of this question and addressing it is an important part of what we do as financial advisors.

To do that, we need a model, which we call your Baseline Financial Plan. Like any model, it’s only as reliable as the inputs. “Garbage in, garbage out” as the saying goes.  Our model (your baseline plan) consists of three key components:

  • A cash flow, which reflects future inflows and outflows based on agreed upon assumptions between us and our clients for items like Social Security, Inflation, health care etc., and which incorporate all known future financial objectives;
  • A balance sheet, which should include all the resources that are in place to support that cash flow; and finally
  • An output, which analyzes the likelihood of that balance sheet being able to support that cash flow over time.

We think that Monte Carlo simulations provide the best way to generate this output because we don’t know for certain what the future will look like.  We need to make assumptions about what to model and importantly, model (and plan for) a range of future outcomes. But obviously, comfort in the tool we use to create the output is going to heavily determine how confident clients are in their answer to the “Do I have enough money?” question.

There are a couple of questions that come up often as it relates to the analysis. They are: 1) can I trust the analysis given the wide range of potential future results? And, 2) does it account for fat tails—or in layman terms, low returns?

The purpose of this post to answer these questions related to our Monte Carlo simulations. But first, let’s take a quick look at why we use Monte Carlo in the first place.

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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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Retiring from Intel: Calculating Years of Service, Determining Retirement Eligibility and the Benefits of Being an Intel Retiree (Part 2)

by Isaac Presley, CFA on May 26, 2017

Last time we looked at how to calculate years of service at Intel and the different ways to qualify as an “official Intel retiree.” In part two, we get to the good part as we’ll review the benefits of retiring from Intel. Additionally, we’ll introduce the “Intel Retirement Benefits Calculator” (a free downloadable Excel tool) that will assist you in calculating your years of service and outline what it means for your retirement benefits.

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How to Stress Test Your Financial Plan: A Look at the Key Variables

by Isaac Presley, CFA on May 12, 2017

As any engineer can tell you, sensitivity and stress testing are important tools in determining how a system can fail and therefore, determining the safe usage for that system. When it comes to your financial life, it should be no different. Stress testing your financial plan is an important exercise in determining the health of your wealth. While this a natural inclination for engineers, it can be unclear where to start. Let’s look at the key variables and the impact they have on a financial plan.

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