If you’re a retiree, your income may be largely or entirely derived from specific retirement savings tools you invested in during your working years. Common examples include Roth and traditional IRAs, 401(k)s and annuities. If you’re unsure of how to report that income or what your tax obligations are when you’re no longer earning a traditional paycheck, you’re not alone.

The companies managing your retirement plans or accounts should send you a 1099-R for each account if you received a distribution of $10 or more.

The team at Fullerton Financial Planning can help you manage all aspects of retirement savings and financial management, including meeting tax obligations. If you have specific questions, please don’t hesitate to call (623) 974-0300 to 

Retirees do not need to report income from a Roth IRA on their tax return as long as they do not withdraw any money from the account. Roth IRA contributions are made with after-tax dollars, so qualified withdrawals in retirement are tax-free. It's important to consult with a tax professional or the IRS for specific guidance on reporting Roth IRA income.

Retirees need to report income from a traditional IRA on their tax return, and they may owe taxes on the money they withdraw. Traditional IRA contributions are made with pre-tax dollars, so withdrawals in retirement are taxed as ordinary income. If a retiree is required to take required minimum distributions (RMDs) from their traditional IRA, which usually begins at age 72, they will also need to report these as income on their tax return.

Annual RMDs should be automatically calculated by the company managing your IRA. When you sign up for an IRA you should have designated an account to which the proceeds will be transferred. If you’re a retiree or soon-to-be retiree, you may want to double check the designated account is appropriate for your needs.

Although this may sound somewhat straightforward (being essentially automatic), the process can get complicated for retirees with multiple IRAs or inherited IRAs, as RMDs might be calculated separately, and all must be deducted from the appropriate account.

You don’t have to send RMDs directly to a checking or savings account to pay for expenses. You have the option to have them deposited into other brokerage accounts or eligible savings plans, but they will still be taxed as income.

Retirees need to report income from a 401(k) on their tax return, and they may owe taxes on the money they withdraw. Contributions to a 401(k) plan are made with pre-tax dollars, so withdrawals in retirement are taxed as ordinary income. If a retiree is still working and over age 59 ½, they can withdraw money from their 401(k) without penalty but it will be taxed as ordinary income. There are a handful of exceptions (such as becoming permanently disabled), but in most cases early withdrawals will be subject to a 10 percent penalty in addition to income taxes.

Depending on the type of annuity and how it was set up, the income may be taxed as ordinary income or capital gains. It's important to consult with a tax professional or the IRS for specific guidance on reporting annuity income and determining the tax implications of different types of annuities. You should carefully review the annuity contract, preferably with the help of a tax or financial planner, as some annuities may have some tax-deferred features. It’s often a good idea to educate yourself on the tax implications of specific types of annuities before purchasing.

Get Help With Your Retirement Taxes in Phoenix

Are you a retiree or approaching retirement age and you have concerns about reporting RMDs or income from annuities? Working with an experienced tax professional, 

 or financial advisor may help put your mind at ease and ensure you are properly reporting all retirement income. Speak with a financial advisor at 

 Tax Guides for Phoenix Retirees 

Have you and your spouse discussed when you’ll begin claiming your Social Security benefits? Do you know how much SSI you’ll receive each month and the potential consequences of taking your benefit early?

How much you can rely on Social Security depends on your birth year and income. Baby boomers are living longer. Every year the ratio to workers funding Social Security to beneficiaries shrinks, meaning fewer people are paying in while more people are collecting benefits. While the solvency of the program may not be in question for current and soon-to-be retirees, the future is more uncertain for younger workers.

If you haven’t given much thought to the question of when you or your spouse will begin claiming your benefits, it may be time to start having that conversion. You can 

In 2023, the Maximum Retirement benefit will be 

 in 2023, a $361 increase from 2022. Full retirement age (FRA) is currently 66 for workers born between 1943 and 1954. All workers born in those years have already reached FRA. The FRA for workers born between 1959 and 1960 is 67. A worker born in 1960 will reach FRA in 2027.

How Are Social Security Payments Calculated?

Social Security is based on a “credit” system. For example, retirees are only eligible to receive Social Security if they’ve earned at least 40 credits, which equates to about 10 years of employment. What you’re paid in Social Security is based on your average income over your 35 highest earning years. If you earned the most between the ages of 30 and 65, your Social Security will be based on the average income you reported over that time period.

How Much Will My Social Security Be Reduced if I Take the Benefit Early?

Months matter after you turn 62 and begin your Social Security eligibility. You should look at the chart on page three of our 

 to see how much your benefits may be reduced by choosing to take your benefit early. 

The factors that affect your payment include:

Your spouse’s benefit will also be impacted by your decision to begin receiving Social Security early.

For example, if you were born in 1959, your normal retirement age is 66 and 10 months. When you reach that age, you are eligible for your full Social Security benefit. If someone born in 1959 decides to begin receiving their Social Security as soon as they turn 62, they will be 58 months from FRA. A $1,000 Social Security benefit would be reduced to $708 for that early retiree, which equates to a 29.17 percent reduction. Their $500 spouse’s benefit would be reduced to $329, a 34.17 percent reduction.

How much your benefit is reduced will fundamentally depend on the number of months between your 62

 birthday (or whenever you begin taking your Social Security early) and your full retirement age based on your birth year. You should consider consulting a Fullerton Financial Planning financial advisor for an estimate of your benefit if you’re thinking about applying for Social Security early.

What Are Spousal Benefits and Who Is Eligible to Receive Them?

Derivative Social Security benefits, often referred to as spousal benefits, is 50 percent of the higher earner’s benefit at full retirement age. If the higher earning spouse takes their Social Security early, the spousal benefit will be reduced by five percent more than the primary beneficiary’s reduction percentage.

If the beneficiary’s Social Security reduction is 25 percent, the spouse’s benefit will be reduced by 30 percent. That means a beneficiary who would have received $1,000 would instead receive $750 and the spouse who would have received $500 would instead receive $350.

There are many people who aren’t ready to retire when they reach FRA. This may be because you want to save more before you retire or the idea of not working simply doesn’t appeal to you. Workers who stay employed beyond their FRA can earn delayed retirement credits (DRC). These credits accrue each month beyond your FRA birthday, and the rate of your benefit increases the longer you defer your benefit.

If you’re thinking about deferring your benefit, we encourage you to review the rate chart in our 

Are You Looking for Social Security Income Guidance?

If you’re trying to make the wisest Social Security benefit decision that takes into account your life expectancy, age and retirement age target, it may be worth your time to 

 would be happy to discuss your options and explain the factors that may impact your SSI benefits. Call us at (623) 974-0300 to speak with an advisor today.

 What, When, Who and How? The Social Security Decision 

The two biggest exchanges for trading equities in the United States are the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotation System (NASDAQ). Although NYSE and NASDAQ are the two exchanges most investors are familiar with, they’re far from the only exchanges. 

There are nearly a dozen smaller exchanges in the United States, including: 

What Are the Differences Between NYSE and NASDAQ? 

From an investor’s point of view there’s little difference between either exchange. If you have a brokerage account or work with an investment advisor, buying or selling stocks on the NYSE or NASDAQ is a seamless experience. 

From a business’s perspective there are some important differences between the two exchanges. In order to have your business listed on the NYSE, you need to have a minimum of 400 shareholders and at least 1.1 million outstanding shares. 

The NYSE has roots dating back to 1790. NASDAQ is much younger, being founded by the National Association of Securities Dealers (NASD) in 1971. NASDAQ’s early adoption of an entirely computerized system quickly made it a serious competitor to the NYSE. It’s efficiency and ease of use led to lower costs, which means lower listing fees for companies. 

NASDAQ makes an ideal home for smaller start-up businesses, which is one of the reasons so many of the major tech giants of today started out on NASDAQ. Examples include Google, Amazon, Microsoft and Apple. 

From an operational perspective, the NYSE is what’s known as an “auction market.” NASDAQ is a “dealer market.” 

Although the NYSE has a unique prestige and cachet, its operational approach to trading stocks makes it more expensive for companies to use. NASDAQ is a more cost-conscious exchange. 

NASDAQ has a reputation for being more volatile and home to companies with huge growth potential. Newer companies, especially in the tech sector, often offer significant growth potential and greater risk, both of which may contribute to higher levels of volatility. 

Capital is necessary for growth, and companies that are considering IPOs are fundamentally in their rapid growth stage of development. While the difference in cost between NYSE and NASDAQ might not be massive in the greater scheme of things, these businesses are often looking at expenses on a granular level while seeking to eke out every bit of growth possible from their limited capital. 

That may lead some investors to wonder why any businesses ever choose the NYSE. Age and optics likely have a lot to do with the NYSE’s continued dominance. Many businesses listed on the NYSE are significantly older than NASDAQ, and there’s an undeniable institutional pride that goes along with being listed on the NYSE, the exchange with the largest total market cap in the world. 

Making the move over to NASDAQ from the NYSE can be tedious, but that doesn’t mean some businesses haven’t taken the plunge. Kraft Foods, Walgreens, AstraZeneca and PepsiCo are all companies that have recently transitioned to NASDAQ from the NYSE. 

Are You a Phoenix-Based Investor or Retirement Saver Looking for Wealth Management or Investment Guidance? 

Fullerton Financial Planning employs one of Arizona’s most highly regarded financial advisory team. Our fiduciaries are committed to the financial success of our clientele. You can learn more about our investment management services by calling (623) 974-0300 and speaking with a financial advisor.

 What Are the Different Stock Exchanges in the US? 

Are you an adult with a checking account? Congratulations, you have an “estate.” One of the most common misconceptions about estate planning pertains to who needs one. 

There’s no monetary threshold in the definition of an estate. If you have assets and you’re an adult, you have an estate that will need to be handled at the time of your passing. If you have no estate plan in place, your assets will be distributed via probate to the appropriate government entities and family members. 

Most people, especially those actively thinking about retirement or end-of-life decisions, aren’t satisfied with the idea of a judge or rigid legal process making all the decisions pertaining to disbursement of assets. You’ve spent your entire life building your estate – shouldn’t you get to decide where it goes when you pass?

We’ve recently compiled a detailed report   on the estate planning tools you can use to secure and strengthen your family when you’re gone. We’ve strived to explain the ways in which a comprehensive estate plan makes an extremely difficult time far easier for the people you love. 

The Gift of an Uncontentious Grieving Period

If you’re a parent or a grandparent, it’s likely safe to assume that your passing is going to be hard on your immediate and extended family. Two specific end-of-life responsibilities makes the loss of a loved one far more difficult for some families: funeral planning and probate. 

Unfortunately, the probate process and disputes regarding the dissolution of estates can become extremely contentious. This is especially true when there are heated disputes between children, ex-spouses or grandchildren regarding who is entitled to specific assets or properties. Those types of disputes can potentially tear a family apart. 

Most people don’t want their familial legacy to be acrimonious, which is why it’s generally best to prevent that process from ever occurring via an air-tight estate plan. 

What Do Community Property Laws in Arizona Have to Do with Death? 

Community property laws are usually discussed in the context of divorce. Any assets acquired via work or purchased during a marriage are considered community property. Those assets must be split evenly during divorce proceedings. 

The other event that triggers community property laws is death. In Arizona, your surviving spouse usually inherits your half of the community property as well as any separate property that wasn’t covered by community property laws (such as gifts, inheritance or assets and property acquired prior to the marriage). 

Things get more complicated if the person who died has children from a previous marriage or relationship. In that scenario, it may be the children, not the surviving spouse, who inherits your one-half of the estate if you don’t have a will or estate plan in place. 

You Can Help Your Family Grieve in Peace with an Estate Plan

Any person who has dealt with the death of a spouse or close loved one is likely familiar with the exceedingly long list of responsibilities that accompany this personal tragedy. Some of those tasks include: 

The process is arduous, complex and expensive. All these responsibilities can arrive entirely unexpectedly in some circumstances. 

You can give your loved ones the gift of handling these tasks yourself via a thorough estate plan that clearly dictates your wishes and the vendors to use. Bills can also be dealt with in advance, such as pre purchase funeral services, burial plots, urns or caskets and other necessary services. You can even assign part of a life insurance policy to a funeral home to pay for expenses. 

Doing so allows your family to grieve in peace instead of forcing them to stress about logistics and payment during a difficult time. 

Our Retirement Planning Team Is Here to Help 

At Fullerton Financial Planning, most of our efforts are dedicated to a happier topic – ensuring that you have the assets to maintain your desired quality of life during a long, relaxing and productive retirement. 

Although it’s not a fun topic to discuss, end-of-life planning is an unavoidable aspect of aging. We’re happy to provide additional tax planning and estate planning services to ensure we can provide a one-stop solution for our clients in Phoenix.

Speak with one of our planners today by calling (623) 974-0300.

 Give the Greatest Gift to Your Family by Establishing an Estate Plan 

Saving for retirement is one of those tasks that is simple to do yet difficult to master. Choosing automatic contributions in an employer-sponsored retirement plan is easy, but optimizing your supplemental income, investment portfolio and tax strategy for optimal retirement savings performance is far more challenging. 

At Fullerton Financial Planning, we’ve made it our business to help retirement savers in Phoenix implement the best possible retirement savings and tax plans for their unique goals. 

A surprisingly important aspect of planning for a successful retirement is simply avoiding some of these common mistakes: 

You can learn more about these mistakes, why they can jeopardize your plans and tips on avoiding these pitfalls in our recent report on the topic. 

In addition to these things to avoid, there are a number of practices you can implement to increase your chances of having all the necessary funds you’ll need for the duration of your retirement years.

Whether your employer-sponsored plan contributions or IRA contributions, combined with Social Security, will be enough to sustain you during retirement depends largely on your income, life expectancy and ideal budget targets. 

Many retirement savers further supplement their savings with life insurance policies, annuities and other self-directed investments in equities and bonds. 

There’s no rule that you can only enter retirement with those resources. You can also put money away in savings accounts, purchase real estate or invest in CDs or share certificates at a credit union. 

Minor lifestyle changes and frugality might make a significant difference in the long run. Foregoing a more expensive trim on your vehicle purchases or taking a road trip instead of a European vacation can add up to significant extra wealth over time, especially if those saved dollars go into investment products that earn interest. 

Most people can begin receiving Social Security at age 62, but you won’t receive the full Social Security to which you’re entitled unless you wait until 70 to begin claiming the benefit. 

There are legitimate reasons why some retirees and couples choose to start receiving Social Security early. There may even be certain tax considerations or insurance planning strategies that make taking the reduced benefits the preferable option. 

However, for many people, waiting until you can get the maximum value for your Social Security is preferable. This may mean maintaining a slightly lower standard of living for a few years between when you quit working and when you start receiving your benefits. 

There are many modern financial tools that can be used to automate retirement savings. Most employers that offer 401(k) plans provide automatic contributions. This is often ideal since it takes the effort out of saving for retirement. Many workers simply budget based on their take home and don’t even feel the difference each pay period. 

Your bank may also offer things like automatic transfers. You can set up savings accounts or other investments and have money automatically transferred from your checking account on a certain day each month. With direct deposit, you can essentially automate the entire process. 

Both types of IRAs and 401(k)s have a unique age-restricted feature that dramatically increases the maximum annual savings threshold. In 2023, retirement savers over 50 can save up to $7,500 a year in their IRA and $30,000 in their 401(k) annually. That’s a contribution increase of $1,500 and $7,500 respectively. If you have fallen behind on your contributions, making full use of the catch-up limits can be a huge help. 

You can continue contributing to most retirement accounts until you reach 72 years of age (if you didn’t turn 70 ½ prior to 2020). The extra year and a half was added with the passage of the SECURE Act. 

That gives retirement savers a full 22 years with the catch-up contribution limits, which can allow you to put away significant funds even if you don’t start saving until your 50s. 

Fullerton Financial Planning is here to help Phoenix retirees and retirement savers establish a comprehensive savings, investment and tax plan. Our goal is to ensure each of our clients can enjoy a comfortable and productive retirement while protecting the assets they’ve generated for themselves and future generations. 

Call us at (623) 974-0300 to schedule your consultation today. 

 Eight Retirement Mistakes to Avoid 

The retirement planners at Fullerton Financial Planning believe there are three separate pillars that are vital to a stable, long-lasting retirement plan. These three pillars are: 

If you have a solid strategy in place for each pillar, your retirement plan is more likely to be stable and capable of weathering uncertain economic times or market volatility. However, if just one of those pillars is compromised or absent, you may run into problems. 

Inadequate income in retirement can force retirees to accept a lower standard of living or even return to the workforce. A retirement plan that doesn’t account for market risks may be poorly diversified and vulnerable to volatility or downturns. Failure to develop an asset-protecting tax strategy could result in a surviving spouse being short on funds or families failing to receive the assets you intended to bequeath. 

The worst-case scenarios can often be avoided, even if you’re behind on retirement savings, if you have an appropriate strategy for each of the three pillars. 

You can determine the condition of your pillars by completing our checklist. Be honest with yourself when reviewing each section. If you discover one or two of your pillars might not be as stable as you initially assumed, one of our retirement planners is available to help.  

The First Pillar: A Holistic Income Strategy 

Calculating an estimate of your income and expenses will enable you to better gauge your financial preparedness for reaching your goals and managing the unexpected. For example, a retired couple might need a total of up to $295,000 to cover healthcare costs after the age of 65. 

We can also help you adjust for inflation. The $100,000 a year you need to cover your expenses in 2022 might be closer to $200,000 by 2042. 

Our retirement planners can assist with strategizing benefit usage. Some retirees may be best served by receiving Social Security benefits as soon as possible and accepting the reduced rate while others could be better off waiting for the full amount at a later age. 

Assessing your retirement saving strategy’s market readiness requires a thorough and honest assessment of your risk tolerance and approach to investing. It’s also important to recognize early on that your investment strategy will likely need to be adjusted as your retirement progresses to ensure you don’t run out of money in your later years. 

One of the biggest risks, and an unfortunate outcome many current retirees are experiencing, is being forced to withdraw significant funds after a portfolio has decreased in value due to market forces beyond your control. 

Drawing down your investment accounts when markets are in a trough can have serious ramifications years in the future. There are ways to adjust your plan to prevent the necessity of those scenarios, but it requires planning. 

We can help ensure you have a flexible plan that allows your strategy to change depending on market conditions. 

The Third Pillar: Forward-Thinking Tax Strategy 

Has your tax strategy been updated since the 2017 Tax Cuts and Jobs Act or the 2019 SECURE Act? Do you have a plan in place to adjust your tax strategy after some of those new rules expire? 

The goal of our tax strategy assessment is to help retirement savers understand the moving parts in their tax strategy and learn how they may need to adjust it as tax laws change. You may also need to alter your tax strategy if your preferences or retirement goals change as you age.

We can help you understand the intricacies of taxable, tax-deferred and tax-free wealth categorizations, and how you can maximize your after-tax income. Our retirement planners also work with younger savers on developing plans to cope with the potential future instability of Social Security and Medicare.

Not every retiree has the desire to stay constantly apprised of changing tax laws and rules. Our team is here to ensure you maintain a forward-thinking tax strategy, even as the financial landscape changes. 

Stabilize Your Retirement Planning Pillars 

It’s important for every current worker (regardless of age) and retiree to understand and optimize their three pillars, but it’s especially vital for savers who are within five years of their target retirement date. This is the period where you have the opportunity to make up for past mistakes or lock in a strategy that will finance your ideal standard of living for the rest of your life. 

Our retirement planners are here to help you assess your three pillars and develop effective strategies for maintaining predictable financial stability in retirement. Call us at (623) 974-0300 to speak with a retirement planner today. 

 Three Pillars of a Successful Retirement 

Traditional retirement savings products fall into one of four categories: annuities, investments, retirement accounts and life insurance. Each type generates and protects wealth with a different mechanism, and each is ideal for certain types of savers at different points in their life. 

Your choice of retirement savings options will likely be guided by: 

The amount of time you have to save and grow your wealth will, by necessity, push you toward certain types of investments. Younger people who have decades until retirement can afford to choose retirement savings products that carry higher risk but greater potential for rapid growth. 

People who are nearing retirement age but have little to nothing saved may also, by necessity, be forced to aggressively save in their latter working years. 

Estimating what you’ll need for retirement doesn’t have to be a guessing game. One of the benefits of working with retirement planners is getting assistance with these calculations. On a basic level, creating an accurate retirement savings target necessitates determining what your retirement will look like followed by an honest assessment of life expectancy. 

The amount needed to maintain a comfortable quality of life will be drastically different depending on your retirement goals. One couple may want to travel the world then live in an upscale independent senior living facility. Another may plan on staying close to family in a home they’ve already paid off. The resources needed to maintain their desired quality of life will be significantly different in both scenarios. 

Modern medicine and medical histories also enable people and their doctors to make informed predictions about life expectancy. Knowing you have a high risk for developing heart disease or Alzheimer’s may drastically alter the way you plan and save for retirement. 

It’s important to take both factors into account when planning ahead and choosing retirement savings products.

The number of children and grandchildren you have and your personal belief or desires regarding generational wealth may also play a significant role in your decision making. Some retirees prioritize passing on wealth to family members while others may not have the resources or desire to do so. The types of retirement saving and estate planning products you choose, and how you structure those products, may vary dramatically depending on your preferences. 

Products Fullerton Financial Planning Can Help You Set Up and Manage

We encourage you to read through our report on the topic to learn more about each product and how it can help you grow and protect your wealth. 

How Might Your Retirement Plans or Expectations Influence Your Choice of Financial Products? 

Some financial products are universally useful while others may be more valuable to specific types of investors or to accomplish specific goals. For example, every retirement saver may make use of ETFs or bonds at some point in their retirement journey, but their choice of a Roth IRA or Traditional IRA might be made based on their modified adjusted gross income (MAGI). 

Whether an investor gets whole life insurance or not may depend on whether they have a spouse who will outlive them or a desire to leave significant tax-free wealth to children or grandchildren. A retirement saver’s faith in the market and their tolerance for volatility may be determining factors in their choice of a universal life policy or a variable universal life policy.

Annuities are another financial product where your retirement goals and expectations, and your resources, may play a role in your decision making. Your choice of a fixed annuity, variable annuity, indexed annuity or some combination of the three may be determined by your faith in the market, comfort level with risk, need for liquidity in retirement, your target retirement date, life expectancy and your overall retirement goals.   

Our Team Can Help You Understand Your Financial Product Choices 

If you’re a Phoenix retirement saver or retiree who wants expert advice on which financial products to choose for your portfolio, the team at Fullerton Financial Planning can help. We advise both experienced investors and those with little to no experience in the management of investment products. 

Call us at (623) 974-0300 to get started.﻿

 Products to Leverage for a Successful Retirement 

If you’re eligible to save in your employer’s 401(k) plan, you might have questions about your allocation options. While 401(k)s are significantly simpler than an entirely self-directed brokerage account, they can still be intimidating for retirement savers who are unfamiliar with the variety of fund options available. 

Most 401(k)s will likely offer about a dozen different buckets of fund types. These usually include: 

Under each of those allocation umbrellas you should have a handful of options. For example, under large cap you probably have an S&P 500 Fund, Growth Index Funds and “social” funds for investors who want to invest their retirement savings into companies with specific environmental, social or governance (ESG) agendas. 

Medium cap fund options will also include “mid cap” growth, index and value fund options, while small cap funds will have similar fund options specifically for small cap companies.

International and emerging market allocations will have similar types of index and value fund options specifically invested in international businesses. 

If your 401(k) has real estate investment options, they likely take the form of REITs (real estate investment trusts). 

U.S. bond funds (and potentially international bond funds) are essentially baskets of bonds. These may be either U.S. treasury bonds or a variety of corporate bonds. If your 401(k) provider has ESG large cap stock funds, they likely also have similar ESG bond funds. 

You may also have access to specific “inflation-protected” bond funds, which may be appealing to some soon-to-be retirees and retirement savers concerned about inflation. 

Lastly, your 401(k) may also give you access to FDIC-insured deposit accounts or money market accounts, which is essentially just a store of U.S. dollars. 

Market capitalization is calculated by multiplying the outstanding shares of a company by the last closing price of the stock. Large cap, sometimes referred to as big cap, are funds that hold stock of companies with a market capitalization over $10 billion. Mid cap funds hold stock of companies with market capitalizations between $2 billion and $10 billion. Small cap are funds that hold stock of companies with $300 million to $2 billion market capitalizations. 

Conservative funds are generally heavily invested in bonds, money market funds and other stable-value funds. These funds are geared toward maintaining their value rather than growth. Your allocation may be heavily weighted toward conservative funds if you’re nearing retirement, or you’re particularly concerned about market uncertainty and volatility. 

Value funds are investment options that hold shares of companies that the fund managers consider to be undervalued. The undervaluation determinations are often based on the fund manager’s own proprietary algorithms and formulas, but the conclusions tend to be derived from market fundamentals, publicly available metrics and business characteristics. 

Balanced funds are those that contain a mix of stocks and bonds designed to balance growth and risk. They often maintain a roughly 70/30 stock to bond split. 

These funds specifically hold stocks of companies that the fund managers deem to have significant growth potential. While these funds offer high potential upside, they are also fairly risky compared to more conservative or balance-oriented funds.

Specialized funds are usually industry-specific funds. It’s often a way for investors to put their dollars into specific sectors, like energy, real estate, financial services or telecom. 

These curated funds allow retirees to choose a specific target date for their retirement (or when they want to begin withdrawing money). The allocations are then automatically adjusted over the years to (ideally) maximize your 401(k) valuation on that date. 

Although every person has their own risk tolerance preferences and should invest in a way that feels comfortable for them, there are a handful of housekeeping matters every 401(k) investor should attend to annually.

You should look at your 401(k) at least once a year and adjust or rebalance your allocations as necessary. For example, an investor may start their 401(k) in January with allocations set to 30 percent conservative, 30 percent aggressive growth and 40 percent balanced. In December, the actual value of their funds might look something like 20 percent conservative, 50 percent aggressive and 30 percent balanced. The investor may want to rebalance their allocations back to where they were originally. 

Market changes might also justify adjusting your allocations. Maybe domestic markets are slowing down while foreign markets are growing at a more rapid rate. In that scenario, the investor may want to reduce domestic allocations and place a percentage of their retirement savings into international funds. 

While dwelling on your 401(k) allocations and checking it every week is likely excessive, checking performance and allocations at least once a year can ensure your retirement savings reflect your goals. 

Do you have questions about your retirement savings? The retirement planning professionals at Fullerton Financial Planning are here to help. Contact our investment managers in Phoenix by calling (623) 974-0300.

 Traditional 401(k) Allocation Options 

If you’re a current retirement saver or you’re starting to look at your options, you may have seen articles about the ongoing debate between self-directed individual (or independent) 401(k)s and IRAs and employer-sponsored 401(k)s. 

The benefit of independent 401(k) plans or IRAs is the freedom to choose your own investment options rather than the narrow set of options available through an employer-sponsored plan. The biggest benefit of an employer-sponsored 401(k) is the matching funds. 

Many retirement savers choose the employer-sponsored 401(k) since it’s essentially like giving themselves a raise. Failing to maximize matching means you’re leaving money on the table. 

A minority of workers with access to employer-sponsored funds choose to forego this option. They believe they can more than make up for the loss of matching funds by making wise self-directed investments. This is theoretically possible if they can beat the performance of funds available in the employer plan by more than what they lose by sacrificing matching. 

While this is possible, it’s not exactly easy to accomplish or a guaranteed outcome. There are many variables that can impact the performance of individual investments, while company match is guaranteed money. The performance of company match funds will also be beholden to your 401(k) investment allocations, which could affect the long-term value of that employment benefit. 

There is a large segment of the Arizona workforce who have no choice but to invest in individual 401(k)s and IRAs because they are self-employed or don’t work at a company that offers those retirement savings benefits. These workers will need to find a DIY retirement savings solution, lobby their current employer to add a qualified plan to their compensation package or find a job where company match is available.

Contribution Limits on IRAs Versus 401(k)s

While IRAs and Roth IRAs can be extremely useful tools for some retirement savers, they do have one major disadvantage compared with 401(k)s – contribution limits. The annual contribution limit for 401(k)s in 2022 is $20,500 for workers younger than 50 and $27,000 for workers over the age of 50. The maximum combined contribution limit for your traditional IRAs and Roth IRAs is only $6,000 a year or $7,000 a year if you’re over the age of 50. 

If you want to put at least 15 percent of your annual income into retirement savings, you might not be able to hit that threshold via IRAs alone. 

401(k) contributions are “pre-tax” dollars, meaning they aren’t taxed and don’t count towards your taxable income. Some retirement savers may even be able to drop into a lower tax bracket with a large enough 401(k) contribution. However, 401(k) dollars will be taxed as income when they’re withdrawn. 

Roth IRA dollars are the opposite. Retirement savers put after-tax dollars into a Roth IRA and then don’t have to pay tax on the growth of those investments when they make eligible withdrawals from the funds in retirement. 

Some retirement savers may be able to deduct traditional IRA contributions, but those deductions are phased out if you have access to an employer-sponsored retirement plan or your income reaches certain thresholds.

There are no income requirements for 401(k)s. Anyone, regardless of how much they make, can contribute to one. Conversely, you may not be eligible to put money into a Roth IRA at higher income levels. Although there’s no income threshold on traditional IRA contributions, you may not be eligible for some of its tax deductions if you’re in a higher tax bracket. 

Should You Max Out the Company Match on Your 401(k)?

Every retirement saver’s situation is unique. Factors like your income, lifestyle and expenses, life expectancy, the needs of your family and your retirement goals may influence your retirement savings decisions. 

These aren’t easy questions to answer, which is one of the reasons why so many retirement savers in Arizona consult with Fullerton Financial Planning. We get to know you, your situation and your retirement goals before we make customized recommendations to fit your unique needs. 

Call us at (623) 974-0300 to learn more about 401(k)s, IRAs and your other retirement saving options. 

 Should You Use Your Employer Sponsored Retirement Savings Plan? 

There’s a misconception that financial advisors and investment managers are primarily there to help unsophisticated retirement savers who haven’t spent a lot of time learning about their investment options. 

You might be surprised to learn that financial planners and investment managers often aren’t the sole managers of their own retirement savings. Even the most successful investors get second opinions. 

Your self-managed investments may have beat the S&P 500 in 2021 when the market was seemingly powered by jet fuel. Is your portfolio doing just as well in 2022 with inflation, interest rate hikes and economic uncertainty? It’s one thing to maintain a winning strategy when times are good. Maintaining steady growth when markets get extremely volatile is an entirely different matter. 

Getting a second opinion when your investments struggle can be hugely beneficial for retirement savers. 

Managing your own portfolio can potentially be a full-time job. The free time you use to micromanage your strategy may not always be available. For example, you may have to care for a loved one who experiences a health emergency, or you may suffer your own health scare. 

Having a financial manager who already knows your strategy and your goals can help ensure there’s no disruption to your wealth generation when life events pull your attention away. 

Taking the Emotion and Self-Interest Out of the Equation 

Even the most stoic, competent people can make poor decisions when subjected to emotionally distressing situations. Getting a second opinion may help you avoid making a rash short-term decision that you will regret later.

Investment advisors aren’t entirely dispassionate parties in that they care about what happens to their clients. However, they’re not you. The emotional distance they have from your portfolio allows them to objectively analyze your financial situation and investment strategy. 

You May Not Always Be Here or Capable of Executing Your Current Strategy 

An inescapable fact of aging is cognitive decline. Dementia affects literally millions of seniors. Even those who don’t develop some form of dementia may still experience health issues or a gradual loss of mental acuity. 

You may have a brilliant investment strategy today, but what happens if you reach a point where you can no longer make day-to-day trades at your current level? What happens if you pass away and can no longer make those decisions on behalf of your spouse? 

Working with a financial advisor who understands what you’re doing and how you want your investments to be managed ensures your strategy can continue to grow your wealth even after cognitive decline or death. 

Many homeowners find DIY home repairs or maintenance fulfilling, but who hasn’t made a mistake a professional wouldn’t have made? Maybe you’ve damaged rubber washers by overtightening pipes when making plumbing repairs, or you failed to properly prepare the subfloor when attempting to replace your own flooring. These mistakes are annoying, but you can rectify them with a trip to the hardware store and a bit of extra elbow grease. 

Investment mistakes can’t be so easily undone or set right, and the consequences can be far more expensive. That doesn’t mean you should surrender all your investment decisions to a financial advisor, but it is a good reason to get a second opinion on portfolio management.   

Do Financial Advisors Prioritize Their Own Interests? 

One of the benefits of working with a fiduciary is their ethical and legal obligation to put the interests of their clients first. There are serious potential consequences levied on financial advisors for breach of fiduciary duty, including cash damages, court expenses and attorney fees. 

It’s understandable for people who have managed their own retirement investments for many years to have doubts about getting a second opinion. 

At Fullerton Financial Planning, we take our fiduciary responsibility seriously and have a legal, professional obligation to prioritize your interests. An experienced financial advisor can play a vital role in retirement planning for families, from being there when age impacts your ability to maximize your returns to providing transparent and truthful assessments through dispassionate analysis. 

Consult with a Financial Advisor in Phoenix Today 

The team at Fullerton Financial Planning work with many savvy clients who take pride in what they’ve accomplished by managing their own retirement investments. We’re always happy to learn about your strategy and investment preferences to ensure your retirement savings can continue growing should something happen to you. Our team is also ready to provide objective advice and guidance on big decisions that may impact your nest egg. 

Speak with a retirement planner or investment manager today by calling us at 

 Three Reasons to get a Second Opinion on Your Retirement Planning 

When investors or advisors refer to dividend stocks, they’re usually referring to specific companies and shares that regularly pass a significant percentage of their profits on to stockholders. 

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