Frequently Asked Questions
The terms financial advisor, investment advisor, and wealth manager are widely used in our industry. While the majority of financial advisors either sell a product or simply manage money, we are quite different.
Our process starts with a comprehensive financial plan that encompasses all aspects of your life. Our offices in Lenexa, Lee’s Summit, and North Kansas City all have in-house specialists including CPAs, CFPs, Estate Planning Attorneys and Insurance Specialists. These specialists work hand-in-hand with our advisor teams on your behalf to help ensure all financial components are working together to help you live the retirement life you’ve always wanted.
We believe that your financial advisor should be a real financial advisor and not someone who is prospecting for new business or filling out paperwork. We have a dedicated staff that supports each advisor team so that your team can do what you hired them to do, which is work for you.
We feel that it’s really important that our clients feel that they’re not just a random number in a list of clients when talking to their wealth manager. In order for this to happen, we limit the number of clients each advisor team can manage.Each team consists of a Partner of Modern Wealth Management, two additional financial advisors, an Estate Planning Attorney, a CPA, and a service team of 10 or more employees. This means that when you have questions or need to speak with someone about your accounts or concerns, someone on your dedicated advisor team will be there to help you.
In the financial services industry there are two types of advisors. The first type are the financial advisors who work on a suitability standard. Simply put, the suitability standard requires the advisor makes sure that the investment they suggest for you is suitable based on your unique situation but does not require the investment to be in your best interest.
The second type is the fiduciary standard. The fiduciary standard requires that your advisor put your interests ahead of their own interests, 24 hours a day, seven days a week, 365 days a year. In order for the advisor to act in the capacity of a fiduciary, they truly have to understand everything about your financial life. Their goal is to help you make the best decisions in every area of your financial life. At Modern Wealth Management, we live by the fiduciary standard.
We do not have products to sell. Instead, what we do offer are services besides investment management. Our services range from comprehensive financial planning to tax planning and tax preparation, insurance analysis and solutions, as well as a complete estate plan for both simple and complex estates. Each of these services are discussed on an individual basis after considering your overall financial plan.
A retirement analysis is an analysis of your current situation. We take a look at how much money you want to spend in retirement, what resources you have accumulated to this point, and how much you have to devote to saving for retirement in the future. This is a straightforward analysis that lets you know whether you’re on track to achieve your goals or if adjustments need to be made. Each retirement analysis is performed by one of our experienced wealth managers.
Financial planning is and should be complex. In order to prepare a complete financial plan, there are a few steps we will need to take.
First you have the discovery phase, which is an open and honest conversation with your financial advisor team to let them know everything that’s going on in your financial life and what is truly important to you and your family.
You will then be asked to share all resources that you have accumulated up to this point as well as at least two years of prior tax returns, financial statements, insurance statements, estate planning documents and any risk management documents that you have. You will be provided a list of all the documents required to help you in gathering everything necessary in order for us to begin setting up your personal financial plan.
Lastly, you will be presented with a full comprehensive plan that has carefully considered your needs and goals that encompass all areas of retirement planning in order to help you achieve the most favorable outcome.
Dean Barber started his career in financial planning in 1987. Modern Wealth Management was formed in 1996.
While we believe that in some cases annuities may work we do not sell annuities. However, there may be an occasion where we suggest that a client use an annuity. In this case, we prefer to direct you to annuities that do not have surrender charges. In other words, any time you want to move your money away from the insurance company who issued the annuity, you can do so free of charge. Modern Wealth Management will not receive compensation for these annuities.
All qualified retirement plans have a required minimum distribution (RMD). The required minimum distribution is the required amount that must be taken out of your IRA, 401(k), 403B and other qualified retirement plans. All RMD’s are based on the same mortality tables unless it is an inherited IRA.
Required minimum distributions start the year in which you reach age 72. If you are born before July 1st, your required minimum distribution will be equal to 3.649%, if you are born after July 1 your required minimum distribution will be equal to 3.77%. Each subsequent year that you age, your required minimum distribution will increase. If you fail to take your required minimum distribution in any given year you could be subject to a 50% excise tax.
The laws surrounding RMD’s vary depending upon the type of qualified retirement plan you are dealing with. If you have multiple qualified retirement plans you should seek the advice of a qualified tax professional to ensure that your required minimum distributions are done accurately each year.
The question of a safe withdrawal rate in retirement is one of opinion rather than fact. The most appropriate way to determine a safe rate of withdrawal in retirement is to do a thorough analysis of your underlying investments including the historical rate of return and the amount of volatility in your account. A safe withdrawal rate can be determined through good financial planning. It is not a good idea to use a general of rule of thumb when determining your safe withdrawal rate for your specific retirement.
You can look at historical rates of return for stocks, bonds, savings, CDs or even real estate – this can give you a general guide for what would be considered a good rate of return. However, a word of caution, history does not always repeat itself and past performance should never be used to try to judge future results.
Many factors will need to be taken into consideration to determine if in fact you are receiving a good rate of return. For example, if you have 100% of your money invested in the stock market, and look at the long-term historical performance of the market, you will be either far above or below that number in any given year.
If you have 100% of your money invested in savings and CDs, today your actual return will likely be far different than the long-term historical average. The same thing can be said for bonds and real estate.
The most appropriate way to look at whether or not your performance is up to par is to understand your current asset allocation and your tolerance for risk and then judge your rate of return against similar benchmarks.
Many people believe that being debt-free is the only way to go, and when interest rates are high this is probably a good approach. However, when interest rates are near historical lows a person may want to continue to carry that debt if they believe that the long-term performance on their underlying investments could outperform the rate of interest on their mortgage.
This is not a simple yes or no question and there is not a simple formula to determine whether you should pay your mortgage off or not. The answer to this question should come through a thorough analysis and the completion of a comprehensive financial plan.
The question of whether you should or shouldn’t own gold in your portfolio should be determined based on current economic conditions and your overall tolerance for risk. From a historical perspective there have been many times when an investment in Gold would have delivered a favorable performance. It’s also important to note, there have been historical times when an investment in gold would have resulted in a significant loss. Never invest based on fear or greed. Most commercials you hear about investing in gold are driven on those two emotions.
Interest rates affect the performance of just about every major asset class including stocks, bonds and real estate. During a rising interest-rate environment, bonds will typically perform less favorably than stocks. During a falling interest-rate environment bonds will typically perform exceptionally well and depending upon other economic conditions, stocks may as well perform favorably.
Understanding the effects of interest rates on different asset classes is critical when designing the proper asset allocation of your portfolio. There are many stress testing technology programs out there today that can show you how your portfolio would perform in both a rising interest-rate environment as well as a falling interest-rate environment.
Whether or not a person should invest in an annuity will depend solely on that person’s individual financial position. For some people, allocating a portion of their money into an annuity makes sense and for others it will make no sense at all.
Keep in mind that many annuities are sold by insurance salespeople who are not necessarily financial planners. As a financial product, annuities were designed to fill a very specific need of a person’s overall financial plan. The question of whether an annuity works for you or not can only be determined through the completion of a comprehensive financial plan. It is not advised to Do not buy an annuity based on fear or greed.
Annuities have two different time frames or phases. The first is the accumulation phase which is where you are allow the annuity to grow in value. Second is the distribution phase which is when you begin to take income from the annuity.
Annuities will typically accumulate on a tax-deferred basis and when you begin to take income from the annuity you will pay taxes on any gain above your deposits inside of that annuity. If you choose to fund an annuity with an individual retirement account, 100% of the distributions that come out of the annuity will be taxable as ordinary income since the IRA rules override the annuity rules.
It is important to understand that not all annuities are created equal, just like not all mutual funds are created equal. There are many different forms of annuities issued by many different companies. Annuities can be complex, very confusing, and sometimes even misleading. Make sure that you have a thorough understanding of the annuity that you are investing in and if possible choose an annuity that does not carry long-term surrender charges.
Exchange Traded Fund’s or (ETF’s) in their simplest form are designed to track different indexes or sectors of the market. Exchange traded funds can be bought and sold on the exchange throughout the day. While this immediate liquidity can be beneficial, you should also exercise caution.
In order to sell your ETF, there has to be a willing buyer. In the event that the sector ETF that you invested in begins to go south there may not be any interested buyers on the other side. All investing carries risks and ETF’s are no different.
Mutual funds were formed after the “Investment Company Act of 1940”. They were formed with the intent of allowing an individual investor to have a diversified portfolio with small amounts of money. In other words, a mutual fund amounts to a pool of funds made up of many different investors who all own shares of that fund.
Most mutual funds are professionally managed and the fund manager is responsible for diversification. There are many different types of mutual funds with different investment objectives – and they all carry different levels of fees and different levels of risk. It is important that before investing in any mutual fund that you clearly understand the risks that are involved as well as the expenses.
There are two major differences between mutual funds and ETF’s. First, an ETF can be traded throughout the day on the exchange. Mutual funds can only be liquidated at the close of business on any given day. Secondly, mutual funds are typically professionally managed and most ETF’s are passive and simply designed to mirror an index or sector of the market. Most mutual funds will carry fees that are higher than ETF’s but this is not the case 100% of the time. Before investing in an ETF or a mutual fund, it is important to understand the risks involved and the fees you will pay.
A fiduciary is bound by law to put your interests ahead of their own – 100% of the time. Some advisors may call themselves fiduciaries but to ensure that your advisor is a fiduciary ask if they carry the Accredited Investment Fiduciary (AIF) designation. Typically fiduciaries will only be paid by you and will not receive compensation from product sponsors such as mutual fund or insurance companies. Each of our advisors at Modern Wealth Management have their AIF designations.
The best strategy for investing in retirement is a strategy that will allow you the highest probability of success in accomplishing your objectives with the least amount of risk possible. While that’s easy to say, accomplishing it is something far more difficult.
Before you have any discussion about your investment strategy, your advisor should take you through a comprehensive financial planning process. This means covering all aspects of retirement such as investments, estate planning, tax planning, insurance, and Social Security.
You need to be open and honest with your advisor about exactly what you have and exactly what you need to have happen in retirement. Once you and your advisors have agreed upon the correct path then you can begin to discuss different investment strategies. Typically in retirement it is not wise to take on any more risk than what is necessary in order to accomplish your overall objectives.
It is possible to create your own retirement plan. However, it’s important to keep in mind that a retirement plan for most people is very complex. A good retirement plan will include a plan for taxes, a plan for risk management, a plan for investing and a plan for the distribution of your assets when you pass away.
If you are not well versed in each one of these four areas you would most likely be well served to seek out the advice of a professional financial planner. Do not mistake a retirement plan for an investment plan. An investment plan is simply a component of your overall retirement plan. All four of the components mentioned above are critical to the success of your retirement. A decision made in one area may affect all areas. Without a thorough understanding of this, it’s possible to make mistakes that you don’t realize you’ve made until it’s too late.
Retirement can be summed up in two words. Financial independence. This is the point in your life that you know that you have saved enough money to have the ability to care of yourself for as long as you live. The calculation to determine whether you have enough money for retirement is a very complex calculation. There are many factors to consider prior to making the decision to retire. You must consider the amount of money you have saved, the amount of income you will need, and all sources that can drive income in the future. You also have to take into consideration the impact of taxes during retirement. Speaking with an experienced financial advisor can help you answer these important questions.
Anyone has the ability to retire anytime they want to. There is no set age for retirement. The real question you should be asking is “Have I saved enough to deliver the income that I need to do all the things I want to do for the rest of my life?”
Have you taken into consideration the fact that you may live much longer than your parents or grandparents? Have you taken into consideration the fact that inflation may be higher than what you’ve calculated? Have you taken into consideration the fact that returns on your investments may not be what you expect? Have you taken into consideration the possibility of a premature death of you or your spouse?
The date in which you retire is not something that’s governed by law but something that is governed by the success of your retirement plan.
The amount of money that you can spend in retirement will be based on many variables. You need to consider your expected rate of return on investments, taxes due on investments, the amount of Social Security you will receive, pensions, rental income, etc. A good financial planner can set you on a course for an amount that can be safely spent each year without the threat of running out of money. This calculation should be looked at yearly and adjustments should be made when necessary.
While the Roth IRA is a great vehicle not everyone at every stage of life should invest in a Roth. The only way to truly answer this question is to understand when you will need this money and what your total financial picture will be when you need income. A good retirement plan will have money in taxable, tax deferred, and tax free (Roth) accounts. The amount you should have in each and when you should invest in each will depend on the comprehensive financial plan you have built for yourself with your financial advisor.
Contribution limits are the same for both traditional IRAs and Roth IRAs. For 2023, IRA contributions can be made up to the lesser of (1) $6,500 ($7,500 if age 50 or older by the end of 2023) or (2) 100% of the individual’s taxable compensation. For married couples, IRA contributions can be made for each spouse if the combined compensation of both spouses is at least equal to the contributed amount and they file a joint return. The IRA contribution limit applies to the combined contributions to all the taxpayer’s traditional and Roth IRAs.
Once an individual attains age 72, and all following years, contributions to traditional IRAs are no longer permitted. Taxpayers over age 72 can still make contributions to Roth IRAs.
Contributions to traditional IRAs can be deductible, partly deductible, or nondeductible. Allowable contributions to traditional IRAs are always fully deductible if the taxpayer (and spouse, if married) is not an active participant in an employer-maintained retirement plan. If the taxpayer (or spouse) is an active participant in an employer plan and modified adjusted gross income (AGI) exceeds certain limits, the taxpayer cannot deduct the full amount of the IRA contribution and may not be able to deduct any of the contribution.
A Roth contribution is the amount you add each year to a Roth. That money comes from non-retirement plan assets.
A Roth conversion is when you move money from a Traditional IRA to a Roth IRA. The amount you move is taxable in the year you do the conversion. Conversions can be a good way of getting money into a tax free investment but many calculations need to be done prior to making the conversion. A Roth conversion should be considered as part of an overarching tax strategy that fits well within your overall retirement plan.
The only real disadvantage to a Roth IRA is you have to pay taxes on the deposits made. The benefit is that all future earnings will come out tax free as long as you have held the Roth for 5 years and you have attained the age of 59 ½. The question of whether you should use a Traditional or Roth IRA can only be answered with a comprehensive retirement income plan in place.