Do You Need A New Company Retirement Plan?

According to one study, nearly half the American population worry they won’t have enough money to retire.[1] People dream of their golden years strolling the beach, hiking a mountain trail, or visiting loved ones. Few people want to work forever.

New year, new plan? Is it time to upgrade your company’s 401(k) plan? As an owner, you wear many hats, including fiduciary. As a fiduciary, you need a written summary plan description, record-keeping system, and documents to provide your employees.[2] You must also act in your employees’ best interests, follow your plan documents, diversify the plan assets, and pay reasonable expenses.[3] You can help your employees retire in style by offering a competitive 401(k).

Moving a 401(k) plan from one provider to the next requires effort, so you don’t want to do it often. Let’s review a few reasons why it makes sense to improve your plan.

  1. High Fees. Fees are like termites, and if you don’t eradicate them, they will eventually eat your home. It’s imperative to review your service provider fees, fund expenses, and administrative costs. A benchmarking study can help you determine if they are in line with the industry or not.
  2. Poor Performance. Do you have a subpar fund lineup? If your plan includes expensive mutual funds, variable annuities, or stable value funds, a new low-cost investment lineup could pay dividends and benefit your employees.
  3. No Service. If your service provider is slow to return your phone calls or emails, a change is warranted. Life is too short, so don’t waste your time on others who treat you poorly.
  4. Lack of Education. Does your current advisor provide educational workshops? Do they help your employees with financial or retirement planning? Will they meet with your employees in person or Zoom? If your broker, advisor, or agent is not helping your employees grow their wealth, it’s time to work with someone who will.
  5. Lack of Technology. Was your plan established years ago? Does it include auto-enrollment, financial wellness programs, or web access? Do you have a cool app? A dated plan may lack benefits common to newer ones.

Here are a few resources to assist you in your journey to find the best plan for you and your employees.

  1. US Department of Labor: https://www.dol.gov/agencies/ebsa/key-topics/retirement/401k-plans
  2. Understanding Fees: https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/publications/understanding-retirement-plan-fees-and-expenses.pdf
  3. 401(k) Plans: https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/publications/401k-plans-for-small-businesses.pdf
  4. Fee Disclosure Form: https://www.dol.gov/sites/dolgov/files/EBSA/employers-and-advisers/plan-administration-and-compliance/fiduciary-responsibilities/401k-plan-fee-disclosure-tool.pdf
  5. Selecting a Service Provider: https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/fact-sheets/tips-for-selecting-and-monitoring-service-providers.pdf

For most people, a 401(k) plan will be their most significant asset, possibly larger than their home, so offering one that helps them create wealth is prudent.  

For many people, being asked to solve their own retirement savings problems is like being asked to build their own cars. ~ Richard Thaler

January 20, 2022

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.


[1] https://www.forbes.com/advisor/retirement/top-retirement-worries/

[2] https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/publications/meeting-your-fiduciary-responsibilities.pdf

[3] Ibid

Parrott Wealth Management Annual Letter

Parrott Wealth Management Annual Letter

Despite political turmoil, Delta, Omicron, rising interest rates, increasing inflation, supply chain issues, and several corrections of 4% or more, the three major US indices produced significant gains last year, led by the S&P 500 as it climbed 27%. Stocks were resilient to the surprise of many astute market observers. Large companies like Microsoft, Alphabet, and Pfizer outperformed small-caps and international stocks by a wide margin. Bonds were negative as interest rates climbed, and most emerging markets fell because of exposure to Chinese securities. Here is a look at how various asset classes performed in 2021.

  • Real Estate = 36.59%
  • Small-Cap Stocks = 24.60%
  • International Stocks = 7.84%
  • Emerging Markets = -1.30%
  • Bonds = -3.90%
  • Gold = -4.15%
  • Oil = 49.65%

Though US Stock market valuation metrics are rich and extended, the market can still trade higher. Relative to US companies, international stocks offer tremendous value.

Philosophy

The root of what we do is financial planning. A financial plan helps us manage your account better because it focuses on your hopes, dreams, and fears. It gives us the confidence to make recommendations that benefit you and your family.

We believe in the buy-and-hold strategy of investing. Meaning, we don’t make a lot of trades or changes to the portfolios, and we hold our investments through all types of market conditions – good, bad, and ugly because we have not found a better approach for investors to create generational wealth. Timing the market does not work, and it’s like teaching a pig to sing. It’s a waste of time, and it annoys the pig.

PWM Models

Our managed models performed well last year, producing gains except for our most conservative model, which is 100% bonds, and it dropped 1.29%. Our all-stock model climbed 24.26%. The models are diversified and built with funds managed primarily by Vanguard, Dimensional, and BlackRock and designed to take less risk than the market. For example, our all-stock model is approximately 20% less risky than the S&P 500.

China

We reduced our Chinese stock allocation significantly because of the actions of the Chinese government towards their publicly traded companies. At this point, we consider China uninvestable. We sold Vanguard’s Emerging Markets Fund ETF (VWO) and transferred the money to the iShares MSCI Emerging Markets ex-China ETF (EMXC). The ex-China fund closed the year up 6.6%, while Vanguard’s fund fell 1.3%. We will make a similar change with Dimensional’s Emerging Markets Fund.

Bonds

Bonds finished in negative territory as they reacted to rising interest rates and escalating inflation. When interest rates rise, bond prices fall. Our bond exposure remains short-term, with maturities ranging from a few months to a few years, and we will stay short-term until rates rise further. If rates do rise, the impact on our bond portfolios should be minor. We continue to buy bonds for safety and diversification because stocks will fall eventually, and bonds will perform well when they do. Bonds are negatively correlated to stocks and still provide one of the best hedges for tumbling stock prices. We also are buying bonds for accounts with large cash balances since money market rates are near zero; they are the lesser of two evils.

Bitcoin

I continue to swing and miss when it comes to Bitcoin. The popular cryptocurrency soared 57% last year despite a year-end sell-off. I’ve been wrong on cryptocurrencies forever, and this trend likely continues for the foreseeable future because I don’t understand it or have a clue about how it works. I don’t consider it a currency because it’s too volatile, so, by default, it’s an asset class like gold or silver. Crypto experts love Bitcoin because it’s not correlated to stocks, and it’s an inflation hedge. However, lately, it rises when stocks rise and falls when stocks fall, meaning it’s correlated to stocks. And since inflation has surged, Bitcoin has dropped. Also, Bitcoin and other cryptocurrencies are only fourteen years old, and the last time we experienced significant inflation was more than forty years ago. Hence, it’s too early to tell how it performs in an inflationary environment. According to crypto.com there are 10,586 coins, including Polkadot, Tron, and SafeMoon. As a comparison, there are currently 10,342 US publicly traded securities. And there’s nothing to stop you, me, or my dog Cricket from launching a new crypto coin, so how do you pick the best one? I’m not sure it’s possible. Historically, wealth created from nothing does not last.

Working From Home Stocks

Last year was a boon for working from home (WFH) stocks, but not this year. As the economy reopened, companies like Peleton, Zoom, Docusign, Stitch Fix, and others fell back to earth. I wrote in last year’s letter that “at some point, valuations will matter, and investors will focus on earnings, revenue, cash flow, and profits; until then, tread lightly and be careful with these high-flying investments.” This year, DocuSign dropped 31%, Zoom fell 45%, Stitch Fix declined 67%, and Peloton crashed 76%. I’m sure a few WFH stocks recover, but they’re still expensive, so my advice from last year still stands.

Deficits and Debt

I must balance my budget because I will eventually lose my business and home if I don’t. The federal government, however, does not. Our government can print money and run a deficit forever, and it mostly has. Public, searchable records date to 1901, and the first deficit occurred in 1904 at $43 million, equivalent to $1.4 trillion today.[1] And since 1904, our government has run a deficit 76% of the time. In 1943, the budget deficit accounted for 27% of GDP; today, it’s 15%.[2] The budget deficit fell below $100 billion for the first time in 1982.

Our government’s last surplus was in 2000, before the Tech Wreck, where stocks fell 43%, and our country entered a deep recession. Before 2000, the previous surplus year was 1960.

Our current deficit is $3.12 trillion as our government sent stimulus checks to people in need and offered airlines resources to keep flying. During the Great Recession from 2007 to 2009, the budget deficit touched a low of $1.5 trillion when the government bailed out auto manufacturers, banks, and insurance companies; as the economy recovered, the deficit improved to a negative balance of $469 billion by 2015.

During times of economic pressure like wars, recessions, or pandemics, our country comes to the rescue and, as a result, runs a deficit. When the economy thrives, the government reduces or eliminates its debts. For example, in 1943, the budget deficit was a negative $55.5 billion as it financed WWII. By 1949, after the war and the troops returned home, the government produced a surplus of $10.5 billion.

What does this mean for the stock market? Not much. Since 1915, the Dow Jones has risen more than 48,000 percent. Deficits look scary, but they don’t have much of an impact on stocks.

PWM Growth Indicators

Our “Starbucks card indicator” continues to percolate, showing signs of significant growth. This year we mailed 145 cards to our clients, up 20% from last year and more than 150% since we started doing it in 2017. If we examine traditional growth metrics like assets and revenues, PWM grew 36% last year, and our average annual growth rate for the past six years has been 41%.

Janet

Janet, our Director of Client Services, is celebrating her fifth anniversary with Parrott Wealth. She joined the firm on January 2, 2017. Janet is a tremendous asset to the firm and continues to make our back-office hum without issues. I’m encouraged because most of you bypass me altogether and contact Janet directly for assistance with your accounts. She was valuable last year as we transitioned from state to federal regulation.

Spencer

Our headcount grew by one last year as Spencer Engelke joined PWM. Spencer has been an outstanding hire, and he is currently working on obtaining the Certified Financial Planners designation and has already passed module one. Spencer’s primary focus is on financial planning but occasionally assists me with trading.

SOAR Wealth Management

We launched SOAR Wealth Management in 2021 to help new, first-time, or emerging investors. Betterment manages the investment portfolios while we assist them with budgeting, debt management, and financial planning. The website is http://www.soarwm.com.

2022 Predictions

Last year, most of my predictions came true, so the pressure is on to replicate my success. If you want to review the previous year’s results, email me at bill@parrottwealth, and I will forward you a copy. Here are my thoughts for 2022.

  1. The S&P 500 will rise 10%. It’s not much of a prediction since the popular index has averaged 10.1% for the past 95 years.
  2. If the Federal Reserve raises interest rates, they will do so only once or twice.
  3. The rate of inflation will fall. It’s currently 6.81%, and I believe it drops below 4%.
  4. Housing remains robust as apartment dwellers and millennials continue to buy new homes. The prices of vacation homes remain elevated as cash-rich investors diversify their assets beyond stocks and bonds.
  5. President Biden passes a watered-downed version of the infrastructure bill.
  6. China continues to crack down on publicly traded companies, billionaires, and Taiwan, further depressing its stock prices.
  7. The House and Senate flip to the GOP in the November elections.
  8. COVID is here to stay, requiring an annual booster similar to a flu shot.
  9. The Great Resignation continues as workers retire early because of COVID and stressful work environments. Individuals will leave the workforce to pursue their hobbies.
  10. Travel surges next year as people leave their COVID caves. Attendance at National Parks soars as people prefer to drive rather than fly.

Thank You

We appreciate you and your business. We know you have numerous firms to help you reach your goals, and we’re thankful for the trust you placed in Parrott Wealth Management. We are blessed beyond measure.

As our firm grows, we’re honored to work with second and third-generation clients. Last year, we opened several accounts for college students and recent graduates referred to us by their parents or grandparents. We are excited to help these youthful investors build solid investment foundations.

2022

May the new year bring you peace, prosperity, health, happiness, and rest. My prayer is that this year will be your best!

Now may the Lord of peace himself give you his peace at all times and in every situation. The Lord be with you all. ~ 2 Thessalonians 3:16

Sincerely,

Bill Parrott

President and CEO

Austin, TX

January 3, 2022


[1] YCHARTS US Government on-budget surplus or deficit – 1901 to 2020.

[2] FRED Economic Data – Federal surplus or deficit as a percent of GDP – 1930 – 2021.

Crank Up Your 401(k)!

January is an excellent time to crank up your 401(k) plan, and it probably needs a refresh after a year of gains, dividends, interest payments, and contributions. Here are a few suggestions to help you get started.

  1. Increase your annual contribution amount if you’re not adding the maximum amount to your plan. If you’re contributing 10% of your pay, consider increasing it to 12%. For example, if your annual salary is $50,000, an extra 2% is $1,000 per year, which could grow to more than $57,000 in twenty years. Also, the additional $1,000 annual contribution equates to about $40 per pay period.
  2. Max out your contributions. The maximum amount is $20,500. If you turn fifty in 2022 (at any time), you can add another $6,500.
  3. Increase your allocation to stocks. If your current stock allocation is 60%, consider raising it to 70% or 80%. The extra stock exposure can give your investments a boost to the tune of about 1% to 2% per year. Also, you’ll have the opportunity to buy in all types of market conditions since you’re contributing to your plan every pay period.
  4. Rebalance your account. The market performed well last year, and your asset allocation is probably out of whack if you did nothing. For example, if you started last year with 60% stocks and 40% bonds, it could now be 70% stocks and 30% bonds. January is an excellent time to rebalance and adjust your investments.
  5. Consider a target-date fund if you don’t want to hassle with specific investments or rebalancing your accounts. Target-date funds are all-in-one funds, so all you have to do is pick the year you’re retiring and move your assets to that one holding. For example, if you’re retiring in 2030, then choose the 2030 target-date fund. Simple.
  6. Update your beneficiary designations. Did you incur a life event last year? Did you get married or have a child? Did you lose a loved one or get divorced? If so, then change your beneficiary designation to reflect your current status.

Retirement comes at you fast, so make sure you’re doing all you can today to ensure your golden years are truly golden.

Retirement is not the end of the road. It is the beginning of the open highway. ~ Anonymous

January 12, 2022

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

Can You Do Nothing?

It’s hard to do nothing and harder to disconnect in a connected world. If you have children, you’ve probably heard them say: “I’m bored; there’s nothing to do!” If you want to see how hard it is to do nothing, turn off everything around you and close your eyes for ten minutes. Welcome back. How’d you do? Seinfeld was a show about nothing, and it was one of the most popular sitcoms of all time.

A challenging investment strategy is the buy and hold model, an approach that relies on making few changes to your portfolio over time. You do nothing but sit and wait for your investments to perform. It’s easy to do nothing when stocks rise, but how about when they fall as they did in March 2020 or December 2018? It takes courage and conviction to hold your investments during a market rout, but those that do will enjoy gains when markets recover.

A buy-and-hold strategy is boring and not sexy. Tell people you own a diversified portfolio of index funds that you plan to hold forever, and they’ll roll their eyes. If you read the tortoise and the hare, you know slow and steady wins the race. A balanced portfolio of low-cost index funds with 60% stocks and 40% produced an average annual return of 10.5% for the past years.

Several years ago, I worked with a broker who periodically bought and sold stocks to show his clients he monitored their accounts. His activity “strategy” benefited him more than his clients because he generated a commission with each trade.  Activity for activity’s sake is not wise. A common saying on Wall Street is, “Investing is like a bar of soap; the more you touch it, the smaller it gets.”

Since 1950, the S&P 500 Index has returned 10.7% per year; staying invested allows you to get market returns. Dimensional Fund Advisors found that investors earned an average annual return of 10.5% from 1990 to 2020. A $1,000 investment grew to $20,451. However, if you missed the 25 best days during this period, returns dropped to 5% per year. A $1,000 investment grew to $4,376, or $16,075 less than those that did nothing.[1]

Of course, there are times when you must sell or update your portfolio. Using your funds to generate income, pay tuition, or reduce debt is warranted. We recommend rebalancing your accounts as needed to maintain your asset allocation and risk level.

A financial plan can help you improve your investment results and give you the necessary tools to stay invested during all market conditions. It’s a financial roadmap on how best to invest your assets by aligning your goals and risk tolerance to your portfolio. Your plan is an antidote against making poor investment decisions.

 Give it a try – do nothing!

I think I can sum up the show for you in one word. Nothing. ~ George Costanza

November 19, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.


[1] https://my.dimensional.com/dfsmedia/f27f1cc5b9674653938eb84ff8006d8c/27544-source/the-cost-of-trying-to-time-the-market.pdf

Marathons and Retirement Planning

My first marathon was a total disaster. I finished the race exhausted, dehydrated, and sunburned. After years of running shorter races, I was ready to conquer the 1991 Los Angeles Marathon, and on race day, I thought I was prepared for the 26.2-mile journey. I was young, naïve, and in shape, and my strategy was to run as fast as possible for as long as possible. In short, I had no plan.  

I avoided all water stations until late in the race – too late because I was already parched and sunburned. At mile twenty, a young boy gave me a giant bottle of Gatorade, and his gift gave me enough fuel to get to the next aid station. However, it was useless because I couldn’t drink enough water to quench my thirst. I finished the race, made it home, licked my wounds, and reflected on the events of the day. 

If I was going to run marathons, I needed a better strategy. As the years went on, I read books on running and applied what I learned. As a result, my race experiences went up, and my race times went down.  I ran the 2011 Boston Marathon, and in 2015 I set a personal best in San Diego. My plan worked.

What do running marathons and planning for retirement have in common? Let’s find out.

  1. Plan. Your retirement plan will guide your steps and help you quantify your hopes, dreams, and fears. It will align your investment holdings to your goals, so they’re both working for your benefit, and it will give you a baseline of your current financial situation.
  2. Think long-term. A marathon is 26.2 miles, so don’t worry about what’s happening during the first few miles. Likewise, don’t worry about short-term market moves if you’re going to retire in 10, 20, or 30 years.
  3. Be consistent. Establish a monthly investment program and save as much money as possible. Over time, your monthly contributions will add up. For example, if you save $500 per month, it could be worth more than $1.1 million after thirty years. When I ran marathons, my goal was to run the race one mile at a time at an 8-minute pace. I never focused on the entire 26 miles on race day.
  4. Buy quality. A pair of high-quality, lightweight running shoes makes all the difference in the world. Similarly, your assets should be high-quality with low fees – control your costs and diversify your investments.
  5. Set your pace. A large marathon may have more than thirty thousand runners, so don’t worry when you get passed because each runner has their own goal. Instead, focus on your goals and pace. Your retirement plan will help you establish your retirement pace.
  6. Refuel and check-in. Smart runners take advantage of aid stations to hydrate and refuel. Once your retirement plan is up and running, check it often to ensure you’re still on pace to achieve your goals and adjust it as needed.
  7. Hire a coach. Your running results will improve if you run with a coach. A financial coach or trusted advisor can help support and guide you during your retirement journey.  
  8. Go fast. Stocks purchased for the long haul will allow your assets to grow faster than safe investments like bonds or cash.
  9. Celebrate. Finishing a marathon is a significant accomplishment, so celebrate your success. Equally, when you have saved your money and invested successfully for decades, and you can retire on your terms, take a victory lap – you have won the retirement race!

A plan for running and retirement will keep you moving for years, so get out there and start planning!

“Don’t dream of winning; train for it!” ~ Mo Farah

November 2, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

Inflation: The Silent Wealth Killer

The United States Postal Service announced they are raising the price of a first-class stamp to 58 cents from 55 cents – and slowing down their delivery times, to boot. In 1975 it was possible to purchase ten stamps for a dollar; today, it will only buy one! The inflation rate for stamps since 1975 averaged 3.9% – in line with historical inflation rates. At this rate, a first-class stamp will cost $3.37 in 2067! Newman!

Inflation is the rate at which prices increase, and the Consumer Price Index (CPI) is how the United States Government measures it. Since 1914, inflation has averaged 3.22%, and at that rate, prices will double every twenty-two years. For example, a Tesla Model X could cost more than $160,000 in 2043. However, there have been several times when it spiked. From 1917 to 1920, it averaged 16.5% per year, and from 1970 to 1982, it averaged 7.7% annually. The current inflation rate is 5.25%.

If you drive a car or eat food, you probably notice prices tend to rise more than fall. Paying for childcare, healthcare, or college tuition has been a challenge as the inflation rate for these items has soared.   College tuition, for example, has increased 197% since 1996![1]

Hyperinflation occurs when inflation spirals out of control. The Weimer Republic of Germany experienced a bout of hyperinflation from 1918 to 1924. It peaked in November of 1923 when inflation climbed 29,525%! Venezuela is currently trapped by hyperinflation as prices have increased by 4,000%.[2]    Hyperinflation has primarily hit developing countries like Venezuela, Vietnam, Iraq, and Zimbabwe. Governments can also experience hyperinflation during times of war like the United States did during the Civil War.

However, a low inflation rate is healthy for our economy. Companies benefit from rising prices as the increase will flow to their bottom line.  When Pepsi raises their prices, they pass on the increase to you, the consumer. And the more you purchase, the more money they make.

Inflation is a metric not often tracked by investors. The stock market gets all the attention, but inflation may have more of an impact on your long-term wealth, especially if you don’t own stocks. Inflation can wipe out a generation of hard work without warning. If you rely on fixed-income investments like bonds or certificates of deposit, you will see the value of your assets eroded by inflation. According to Dimensional Fund Advisors, $1 invested in bonds was worth $1.49 after 94 years. Stocks, on the other hand, benefited from inflation. A $1 investment in the S&P 500 grew to $752![3] 

Another way to look at inflation is the loss of purchasing power. If inflation averages 3% per year, the dollar’s value will drop by 58% over 30 years; a dollar today will be worth 41 cents in 2051. If you park large amounts of cash in your bank account, it will lose value by doing nothing.

Your retirement may last 30 years or more, so make sure you allocate a healthy portion of your assets to stocks and resist the urge to retire your money as well. A portfolio of “safe” investments may leave you in dire straights toward the end of your retirement.

Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man. ~ Ronald Reagan

October 4, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.


[1] https://www.financialsamurai.com/the-inflation-interest-rate-paradox/, Posted by Financial Samurai, website accessed 3/7/2018.

[2] https://www.bloomberg.com/view/articles/2017-12-19/venezuela-is-living-a-hyperinflation-nightmare, by Noah Smith, December 19, 2017.

[3] DFA 2021 Matrix Book

The Realities of Retirement

There are several theories and unlimited opinions about retirement. Hot topics include distribution rates, Social Security start dates, and paying off your mortgage.

I’ve read dozens of books on retirement planning, but I’m moving from theory to reality for this blog, so I contacted three retired friends. Stuart is a long-time neighbor, and our daughters were classmates when they were younger. He recently retired after spending his entire career with Motorola and its successors. Richard is a friend from church, and he retired from his career as a human resource executive and consultant. Fluent in Spanish, Richard and his wife, Linda, moved to Mexico. Tim is my former college roommate, and he and his wife, Irene, retired to Wyoming after his successful career as a financial advisor and hers as an HR consultant.

All three individuals are unique with varied backgrounds, but they have several things in common. While working, each had a financial plan to help guide them towards retirement, they are debt-free, and none eat dinner before 5:00.

Stuart refers to his plan often, correcting his course as needed. He wants to stay on top of his plan. Richard also relies on his plan and his advisor. After a long career as a financial advisor, Tim does not refer to his plan as often as he used to because it’s still in his head, but he and Irene rely on a budget.

One of the first questions I asked them was how they knew it was the right time to retire. Richard said, “We have enough money. We are good.” He knew he was financially secure, but Linda needed some convincing beyond Richard’s optimism. She became comfortable about retiring after reviewing their plan data with their advisor. Richard also added, “God had a plan and would not let him fail.” Tim said, “I did not want to be the richest guy in the graveyard.”

Stuart had a target date in mind from an early age because his father retired at 57, and his father-in-law not long after. Stuart said his father is “comfortably off,” as is his father-in-law. He added, “They don’t live extravagant lifestyles, but they’re comfortable.” Stuart knew at a young age he probably could retire early because of the examples set by the men in his life. He also benefited from a pension plan that he could access at 60 without a penalty. He did not stay at his employer for the pension, but it was a deciding factor in retiring early. In preparing for an early exit, Stuart said it helps to “talk about it” with others to make sure you’re financially and emotionally ready to leave the workforce. More importantly, Stuart and his wife Audrey were “100% aligned on their approach and decision making throughout the planning process.”

Tim and Irene weren’t ready to retire before 55. “Between 50 and 55 were formative years for them,” Irene added. They set a retirement target age of 55 after meeting in their forties, realizing they had similar financial goals. They were both financially stable when they met.

It’s not uncommon for retirees to get more conservative in retirement, but each of these recent retirees kept a hefty allocation to stocks. Richard is not a risk-taker, so he reduced his stock exposure about ten years before retirement, relying on his financial plan and guidance from his advisor.  As for stocks, Tim, referring to Warren Buffett, said, “If it doesn’t have a board of directors or dividends, he’s not interested.”

Richard will start receiving Social Security benefits in December because “we aren’t guaranteed a tomorrow.” His Social Security benefit coupled with his pension payouts should cover their living expenses, allowing their investments to grow. Tim, Irene, and Stuart will delay their Social Security benefits for as long as possible. Most people use financial decisions to decide when to receive Social Security benefits, but Tim will rely on his health. As long as he is healthy, he will defer his payout. Richard encourages young people to start saving money early, so they don’t have to rely on Social Security benefits.

How you spend your time in retirement is essential. No one wants to be bored. Stuart feels a sense of accomplishment daily by focusing on projects around the house. He also spends time playing golf with friends and his wife, Audrey. Stuart is also a music enthusiast and owns several guitars, and he may get the band back together at some point. He emphasizes health by walking the “loop” in our neighborhood – not an easy thing to do! Richard’s new hobby is cooking. In what he called a “role reversal,” he does most of the shopping and cooking. His go-to dish is chicken mixed with sausage, peppers, and potatoes. In addition to cooking, he and his wife volunteer with their new church. Tim and Irene are busy building a home in Wyoming. When they aren’t hammering nails, they’re fly-fishing or hiking. Richard has discovered streaming on Netflix.

Richard and Linda paid off their mortgage and other debt items before retirement, as did Tim and Irene. Stuart paid off his mortgage ten years before retirement. He paid it off early because “It is the most predictable return on your capital.” By paying off his mortgage, it freed up his cash flow for more important things.

None of them miss working. Richard’s previous jobs did not define him, and Stuart made a “clean break” from his employer. Stuart does not keep up with former colleagues or past work projects. He wants to focus on the future. Tim and Irene answered in unison with a definite “No!” Irene was worried about retiring because she worked so much and “had a lot of balls in the air,” but her transition has been much easier than expected.

The cost of healthcare is a concern for people retiring early. Stuart opted for COBRA; Tim and Irene have a high-deductible plan and health savings accounts. Richard is now eligible for Medicare, and he says, “It’s a sweet deal and not that expensive.”

Richard and Linda have a long-term care policy because it brings them peace; Linda has term life insurance. A few years ago, Stuart dropped his life insurance coverage; Tim and Irene did not own life insurance.

I asked Richard what advice he would give to his 30-year-old self, and he said he would have started saving earlier. He spent money because he could. He lacked discipline. Stuart recommended working with advisors to make sure you’re doing the right thing. Tim and Irene added that marrying the right spouse is paramount for financial success.  Stuart started working with an advisor in the UK as soon as possible, and he recommends others “take advantage of all the resources available to them like a CPA.” He relied on company and government resources often. Initially, his plan was “general in nature” but “sensible and foundational.”

Stuart’s vision of retirement matched up “almost perfectly” with the realities of retirement, and he has not experienced any surprises. His life “has continued along.” Richard’s retirement has exceeded his expectations.  Tim and Irene said their retirement has been better than expected. Richard added, “people probably need less money than they think.”

A popular strategy for individuals entering retirement is to convert their traditional IRA to a Roth. Stuart will convert his IRA to a Roth, but Tim and Richard will not.

Stuart said, “a key to his early retirement is relying on friends who also retired early.” His new community allows him to chat about retirement and other topics. When I asked him about his overall retirement experience, he said, “so far, so good.”

What can we learn from Stuart, Richard, Tim, and Irene?

  • Develop and follow a financial plan. A financial plan will give you the confidence to retire on your terms.
  • Pay off your debt before you retire. If you pay off your debt, you can spend the extra money on things important to you and your family.  
  • Find a hobby. Do you enjoy cooking? Hiking? Fishing? Playing music? A hobby is an excellent way to spend time and meet new friends.
  • Find your community, surround yourself with family and friends – don’t travel the retirement road alone.
  • Take care of yourself – exercise and eat well, get outside. Health is wealth.
  • Hire professional advisors to help you plan for your retirement. A successful team may include a financial planner, CPA, attorney, insurance agent, and mortgage broker.
  • You probably need less money than you think for a comfortable and secure retirement.
  • Be positive  – if you’re not already. When I talked with Stuart, Richard, Tim, and Irene, they oozed joy and happiness – all three were excited about their future. They weren’t concerned about the stock market dropping or other financial calamities.  

If you think you’re ready for retirement, give your advisor a call to crunch some numbers and discuss the process – you’re probably closer than you realize!

Stay young at heart, kind in spirit, and enjoy retirement living. ~ Dannielle Duckery

September 29, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

Steak Dinners and Retirement Planning

Now that restaurants are open and people are vaccinated, I’ve received several invitations to attend retirement workshops at local restaurants. Recently, I received one for a retirement planning seminar at Flemings Prime Steakhouse to help me eliminate taxes in retirement. Sounds yummy.

The mailers are elaborate with beautiful pictures of steaks and lakes. The flyers even come with tickets attached. Most firms that hold these seminars aren’t offering retirement planning, but instead, they’re selling expensive annuities or whole life insurance policies.

These firms typically spend several thousand dollars to host one steak dinner. For example, to get an audience of 50 people, they’ll send 10,000 mailers. The mailing will cost about $5,000, and the dinner could add another $8,000. If they host their event at a hotel, it may add another $1,000 to the cost. So, all in, it may cost $14,000 or more to host an event.

Why do firms spend $14,000 per month to offer free retirement workshops? Because it’s profitable. If their guests purchase $1 million in annuities, the sales representatives may generate $50,000 or more in commissions! If they sell a few insurance policies, they’ll recoup their cost and make a substantial profit.

If you attend one of these gatherings, here are several questions to ask the speakers.

  • Are they fiduciaries?
  • What is their financial planning process?
  • Do they offer a free consultation?
  • Do they own the investments they’re recommending?
  • What is the total cost to buy the product they’re selling?
  • How do they get paid?
  • Is there a fee to redeem your investment if you need access to your money?
  • Are there alternatives or less expensive investments to the ones they’re recommending?
  • Do they work with multiple insurance carriers?

If you have questions about retirement or Social Security, meet with a Certified Financial Planner (CFP)® who charges a flat fee or hourly rate. CFPs are fiduciaries, and they are required by law to act in your best interest and disclose any conflicts of interest – not so with brokers or insurance agents. In addition, most CFPs offer free consultations before starting the planning process, and you are under no obligation to act on their recommendations.

The fall is seminar season, so be on guard for elaborate mailers offering “free” dinners. If you live in a high-income zip code and you’re over 50, you’re a prime target for these firms.

Caveat Emptor.

Beware of false prophets, who come to you in sheep’s clothing but inwardly are ravenous wolves. ~ Matthew 7:15

September 21, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

Do You Need A Pre-Retirement Budget?

Creating a budget is about as fun as getting your wisdom teeth pulled. Budgeting is a painful task for most people, and most would instead do anything else besides figuring out where their money is going.  However, to ensure a successful retirement, it’s imperative to spend some time reviewing your spending habits.

According to the American Psychological Association, 72% of Americans say money is the number one reason for the cause of stress – usually the result of less money coming in versus money going out.[1] It’s possible to control the former but much easier to manage the latter. In the world of finance, you can regulate how much you spend and how much you save. Everything else is pretty much out of your hands.

The best way to budget for your retirement expenses is to review where you’ve spent your money. What financial footprints have you left? A deep dive into your spending habits from the past two to three years will help you paint a picture of where your future expenses may land. By identifying how you’ve spent your money, it will be easier to adjust your future spending. After your review, can you find expenses to prune or eliminate?  By reducing your overhead, you’ll be in a better position to save and plan for retirement. And, the lower your expenses, the less money you’ll need for retirement.

As you get closer to retirement, I recommend reviewing your budget each quarter to better understand your spending habits. It’s not uncommon to see a spike in spending before retirement due to several factors like buying a car or remodeling your kitchen, so don’t be alarmed with a short-term increase.

It’s prudent to add a black swan, or random event, category to your budget as there’s always an unforeseen spending expense during the year like a home repair or medical expense. A suggested amount for this category is 5% of your total budget. For example, if your annual spending is $100,000, a recommended amount for your black swan category is $5,000.

In retirement, housing will account for most of your annual expenses. According to the Consumer Expenditure Survey,[2] housing accounted for 32.8% of a person’s budget. Transportation came in second at 17%, food items were third at 13%, and healthcare items were fourth at 8.2%.  Housing is a considerable expense in retirement, even if you don’t have a mortgage. Utilities, property taxes, and repairs are ongoing costs that will always attack your budget. Since the late fifties, consumer spending has increased 6.5% per year.

What about the US savings rate? The annual savings rate averaged 6.22% over the same time – about the same level as personal spending.

How does your spending compare to the national average? The numbers below represent how much consumers spend on various categories as a percentage of their income. For example, Americans spend 13% on food, so if your annual income is $100,000, you’ll pay $13,000 per year.[3] 

Housing = 32.8%

Transportation = 17%

Food = 13%

Healthcare = 8.2%

Entertainment = 4.9%

Apparel = 3%

Education = 2.3%

A spending budget will also help develop a plan for controlling your debt. What is a “good” level of debt? Your total debt payments should be less than 36% of your gross income. If your annual income is $100,000, your total debt payments should be less than $36,000 per year or $3,000 per month. If possible, try to eliminate all your debt before you leave the workforce for good.

Also, if you don’t know where your money is going, how do you know how much to save?  People who invest first, spend second will see their assets grow over time. How much money should you save? As much as you can! If you’re not sure, start with 10% of your gross income.

With technology, it has never been easier to create a budget through programs like Mint.com, PocketGuard, or Honeydue. After you determine where your money is going, you can turn your attention to planning a profitable retirement.

Happy Budgeting!

Budget: A mathematical confirmation of your suspicions. ~ A.A. Latimer

September 13, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.


[1] http://www.apa.org/news/press/releases/2015/02/money-stress.aspx, accessed 8/14/16

[2] https://www.bls.gov/opub/reports/consumer-expenditures/2019/home.htm

[3] Ibid

Do You Want To Retire Early?

Retiring in your forties or fifties to spend time on a beach or in the mountains sounds exciting, but it requires proper planning and financial assets. Of course, financial assets are crucial to a successful retirement, but, more importantly, you need to be emotionally prepared to retire.

Leaving the workforce may be complicated if you’ve been working for several years. If you’re contemplating early retirement, here are a few ideas to help you make a more informed decision.

  • Give retirement a practice run by taking extended vacations or sabbaticals. Disconnect from your office, turn off your phone and enjoy your time off. Visualize retirement.
  • Research possible retirement destinations, including your hometown. Create a spreadsheet of things vital to you and your family. Do the cities have what you want? Entertainment? Sports? Outdoor activities? Airports? Healthcare?
  • Visit cities where you might retire. Book a flight to Laguna Beach, Austin, Estes Park, Bend, or Martha’s Vineyard and give the town a tour. What do you like? How are the restaurants? Are the homes affordable? Is the city easy to navigate?
  • Is your new town politically aligned with your thinking? Is your state red or blue? Do you want to move to a town where you’re a blueberry in a cherry pie? Or vice versa?
  • What is the tax environment in your state? Does it have a state income tax? Moving from Texas to California or New York would cause your taxes to rise. Oregon has a steep estate tax; Wyoming does not.
  • How’s the weather? The heat in Texas is brutally hot, and the winters in Connecticut are wicked cold. Other than San Diego, not many cities have pleasant weather year-round.
  • Talk to your friends who are retired. Use them as a guiding light – a beacon. Ask them about their experiences. What would they change or do differently? How do they spend their days?
  • Do you have hobbies that will occupy your time and keep you physically and mentally sharp? Do you want to play pickleball by day or bridge by night?
  • Can you volunteer your time to help others? Non-profits, schools, and hospitals need volunteers and mentors. Dedicating a few hours a week to help others is good for the soul. Volunteering may also give you a purpose.
  • Is your identity wrapped up in your business? Does your career define who you are? If so, you need to practice divorcing yourself from your job because you’re no longer a banker, teacher, doctor, or police officer once you retire.
  • Do you have a tribe? Are you connected to people in your neighborhood? Friends and family are an essential part of your retirement team. If you move to a new city, you’ll need to develop friendships and connections by joining a church or other organizations. Don’t fly solo in retirement.
  • Write about your hopes, dreams, fears, and concerns. Keep a journal of your thoughts as you approach retirement. Document your journey. Committing your thoughts to paper is therapeutic, liberating, and emotionally rewarding.

Retiring requires a long emotional runway. It’s a journey. With proper planning and preparation, your odds of a successful retirement increase. On the other hand, if you quit cold turkey, it may be challenging to transition to a fruitful retirement. Also, if you retire from your vocation to start another job, you’re not retired; you just changed employers.

Early retirement is an important decision and requires a long emotional runway, so start planning today, so you can retire on your terms.

Retirement is not the end of the road. It is the beginning of the open highway. ~ Anonymous

September 10, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.