As a CPA,
I make my living helping people and businesses manage their operational and financial affairs. But when it comes to personal investing, I could use some advice. I want to make sure that I am properly planning for my financial future. How do I create a well-diversified investment portfolio? What are the major risks out there? Where can I find an advisor who’s independent?
How do I maintain my independence while creating a well-diversified investment plan?
Ferris Capital’s independence platform is designed to help simplify the burden of compliance for you, while enabling you to benefit from our industry leading investment capabilities. We help our clients create a portfolio that is customized to their needs while ensuring that permitted and safe fund families are used in concert with the pre-clearance system to ensure that your independence is always maintained.
Partners of Big 4 firms are held to a higher independence standard and require the expertise of a team who is knowledgeable of their platform to ensure compliance with processes and regulations. Our fiduciary advisors provide guidance in the following areas:
• Investment Management
• Retirement Planning
• Philanthropic and Charitable Giving
• Risk Management
• Cash Flow Analysis
• Tax, Trust & Estate Planning
• 529 College Savings
• General Financial Advice
• Unique Investment Opportunities
Do I have enough money to retire?
One of the most common questions the team at Ferris Capital encounters is; “Will I be able to retire, and not outlive my money?”. Although it is the most common question, it is absolutely one of the most complex issues facing individuals and families. That is why Ferris Capital offers comprehensive goals-based planning to all of our clients, inclusive of their fee.
Ferris Capital will help you consider the factors that go into estimating your retirement savings goal and decide how much you’ll need to live on in your retirement. Our team uses detailed Monte Carlo simulations to help you plan for a variety of potential scenarios. Here are some of the key factors we will help you navigate;
Factors in the Planning Process
The amount of variable factors in the retirement planning process make it impossible to predict a precise retirement income for everyone. However, by taking a closer look at these factors, some within your control, such as your retirement lifestyle, and some subject to outside influences, such as inflation, you can determine their effect on your retirement savings and more accurately predict what is “enough” for you to comfortably retire.
The amount you currently have earmarked for retirement will affect the amount and the pace at which you need to continue to save. This may include money you put into funds directly for retirement, such as a 401(k) or an IRA, as well as personal savings accounts.
Predicting your own death may seem morbid, but having an idea of your life expectancy can help you determine how many years you need to plan for in retirement. According to the Social Security Administration (SSA), an American man at age 55 can expect to live, on average, an additional 28 years, and an American woman at age 55 can expect to live, on average, an additional 31 years. Since most people estimate their retirement savings based on how much they will use each year, it’s important to know how long you will need to depend on these savings.
Just as knowing your life expectancy is vital to your retirement timeline, so is choosing an age at which you hope to retire. If you want to retire by age 50, you will have a vastly different savings plan than someone who plans to retire at age 70, as that person will have 20 years of additional income to add to their savings. If you do want to retire at an early age, starting to save early is even more crucial; the more years you have between you and retirement, the less you’ll have to save each month to reach your goal.
Not only how much you can afford to save but also the amount you should ultimately put away is highly dependent on your income. Most estimates for retirement savings are either a percentage or a multiple of your income, and generally, the lower your income, the higher a portion of it you will need to save. In addition to your regular income, you should consider any other forms of income you will have in retirement, such as Social Security or a pension. Your Social Security Statement, available through the SSA, provides an estimate of your retirement, survivor and disability benefits under current law and updates your latest reported earnings. You will receive a statement by mail once at age 25 as well as regularly once you reach age 60, provided you aren’t already receiving Social Security benefits.
When calculating any savings you will incur from investment profits, you’ll have to calculate the annual rate of return you expect to earn. This includes savings you’ve already accumulated as well as savings you intend to make in the future, including during your retirement. These calculations will largely depend on whether the money is inside a tax-deferred account. When estimating these rates, you’ll will want to err on the side of being conservative.
Especially if you are far away from retirement, it can be difficult to imagine what your life will look like during this unique time in your life. It’s important to ask yourself things like the kinds of hobbies you expect to pursue, how much you want to travel, if you will pursue part-time work during this time and how frugal you realistically expect to be during this time. Although some costs, such as commuting costs, payroll taxes, retirement savings, mortgage payments, etc. will likely go down during retirement, you will also have more free time to spend your money during retirement. Even if you estimate everything else correctly, if you budget for a retirement lifestyle that’s more conservative than the one you actually live, your savings may not be enough.
Deciding How Much to Save
After considering the above factors, you will ultimately have to decide how much of your preretirement income you will need to save to enjoy the standard of living you are used to. Popular estimates usually range from 70 to 90 percent or eight to 12 times your annual income. Once you have an overall goal and considered your planning factors, it should be much more feasible to calculate an amount to save each month and each year. Your financial advisor at Ferris Capital can also help you to decide on an appropriate number.
It’s important to reassess these factors every two to three years, as your retirement savings will have to change along with your lifestyle. It can help to set up checkpoints throughout your life to make sure you’re still on track; for example, if you plan to save eight times your annual preretirement salary by the time you retire, you could save one time your salary by age 35, three times your salary by age 45, five times your salary by age 55, etc. Estimating income needs for 30 to 40 years in the future can be difficult, but starting with a rough estimate and starting small is better than not starting at all.
Ferris Capital will aid in evaluating these factors, and ultimately in implementing a plan to help you and your family meet these goals. More importantly, the firm will keep track of your progress, and help you adjust any changes to the plan as your situation changes.
Is my family protected?
The goal of estate planning is to direct the transfer and management of your property in a way that makes the most sense for you and your family. While this may sound simple enough, it is only through careful planning that you can achieve this result. Without careful planning, your property may pass on your death to unintended beneficiaries or may be reduced unnecessarily by transfer taxes.
While planning for your death is a significant part of the planning process, estate planning addresses more than just the transfer of your assets upon your death. Your estate plan may also provide for the transfer of assets during your lifetime through gifts. In addition, prudent planning involves evaluating the management of your assets in the event you become incapacitated or desire independent management of your assets as a matter of convenience.
There are a number of considerations that drive the estate planning process. Family considerations are important. For example, you must consider not only whom you want to receive your assets but when and how. Should your children receive their inheritance outright, or should it be managed for their benefit in trust? When should the trust terminate? Should your spouse be a beneficiary? Who should serve as trustee? Does a program of lifetime gifts make sense?
Perhaps just as important as the family considerations are the tax considerations. There are federal and state transfer taxes that apply to lifetime gifts and transfers at death. It is very important to understand the important tools available to minimize total transfer taxes.
Ferris Capital has the knowledge, to help guide you in the creation of your plan, as well as in many cases, the evaluation of a current plan you may have already put in place.
The Ferris Capital Process
We firmly believe that the best results come from a consistent process with a thoughtful design.
We use low cost ETFs, mutual funds, individual bonds, and stocks to build custom portfolios for our clients that are in line with their larger financial plan. We always seek to use the lowest fee, most efficient investment vehicles possible and to utilize best of class managers when they offer more value than an index or ETF.
Understand Your Goals and Financial Situation
Ferris Capital meets with you to fully understand your goals, time horizon, anticipated cash flows, and feelings towards investments in general . We also conduct an in-depth evaluation of your total financial picture including insurance, wills, trusts, and employee benefit options.
Create a Financial Plan Tailored to Your Goals
Ferris Capital works with you to develop a comprehensive financial plan that positions you with the highest probability of success in meeting your goals. The plan includes goal-driven asset allocations, tax sensitivity, long-term estate planning, and overall risk management.
Establish the Proper Accounts and Legal Structures
If applicable, Ferris Capital can direct you to top notch accountants and attorneys or work with your existing relationships to formulate and execute the structures and strategies to best protect your assets from taxes and liability.
Current Investment Evaluation and Tax Analysis
We analyze your current holdings to see if there are any embedded taxable gains or additional issues that should be considered in building your portfolio. If there are any issues, we will construct the investment portfolio to address those issues specifically and potentially use the existing investment as proxies to our investment model choices.
Using the risk profile from the financial plan and the considerations from the analysis of your existing assets, we manage your capital in one of our strategies that corresponds with your risk level which are designed using our proprietary market outlook, historical asset class performance, manager interviews and internal expenses.
Ongoing Maintenance, Monitoring, and Reporting
Ferris Capital monitors market and portfolio changes and keeps you informed on performance, risk and goals-based progress through quarterly calls or meetings. We also look to address any liquidity needs or life changes that may impact the long-term financial plan.