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.

Financial Planning Goals

Jim Collins wrote about Big Hairy Audacious Goals (BHAG) in his best-selling book Built to Last. He describes BHAGs as “clear and compelling, needing little explanation; people get it right away.” Goals need to be specific and leave little doubt about what they want to accomplish. I recently received a financial planning questionnaire where the individual wanted to own half of central Texas. A big goal for sure, but not specific, nor realistic.

Setting a financial planning goal that is generic or vague is not beneficial. Wanting to retire with a lot of money is not a goal. It tells us nothing about when you want to retire or how much money you’ll need. For example, a specific goal would be retiring in five years with no debt and $5 million in assets. The more detailed your goals, the better the planning. An ambiguous goal will get you nowhere – garbage in, garbage out.

Here are a few ideas to help you with your planning if you’re contemplating retirement.

  1. Set a target. When do you want to retire? Do you want to retire at a certain age or asset level? For example, you can say I want to retire at age 65 or when my assets reach $5 million.
  2. Set a destination. Where do you want to retire? Do you want to say in your current home or move to a new location? If you move, will it be more or less expensive? Moving from San Diego to Topeka will be cheaper than moving from Topeka to San Diego.
  3. What do you want to do in retirement? Will you volunteer? Golf? Fish? Travel? Hobbies can be time-consuming, expensive, or dangerous, so plan accordingly.
  4. Writing your thoughts down will convert your dreams to goals. When you transfer your dreams from your mind to paper[1], you will start making them a reality.
  5. Review and adjust. Once you commit your goals to paper, review and revise them often. Annually evaluating your goals, and tweaking them accordingly, will keep your plan on track.
  6. Work with an accountability partner. A financial planner can act as your accountability partner or coach, helping you focus on your goals. If you mention your goals to someone else, they will hold you accountable and ensure you’re moving in the right direction.

Here is an example of a specific retirement goal: I want to retire at age 65 with $15 million in assets and live in Lake Tahoe, California, where I can hike, bike, fish, and ski. I also want to travel two times per year. In addition, I want to volunteer 10 to 20 hours per week and donate at least 10% of my income each year to charities and organizations I support.[2]

Are you ready to commit your dreams to paper? If so, congratulations. If not, hire a Certified Financial Planner™ to help you organize and quantify your hopes, dreams, and goals.

We all have dreams. But in order to make dreams come into reality, it takes an awful lot of determination, dedication, self-discipline, and effort. ~ Jesse Owens

September 6, 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] Paper can be an iPhone, iPad, etc.

[2] This is not my goal, but I wouldn’t mind it if it was.

Taxes

Bill Murray once said the best way to teach your kids about taxes is to eat 30% of their ice cream. Give it a try. When my daughter was young, she poured herself a glass of milk, and when she turned her back, I drank it all. She was not happy with me and still gets upset (but not really) talking about it today.

Lately, there’s a lot of talk about taxes, and not in a good way. President Biden is considering raising the capital gains tax rate to 43.4% from 20% for individuals who earn $1 million or more.[1]  His estate tax proposal would drop the exemption to $3.5 million from $11.7 million. If you’re worth more than $3.5 million, your estate could pay a 40% tax on every dollar above the threshold. Also, President Bident is talking about eliminating the cost basis step-up. Not to be left out, the corporate tax rate could rise to 28% from 21%. We’re moving on up.

Since 1913, the highest individual income tax bracket has ranged from a high of 94% to a low of 7%. The 108-year average has been 57.69%.

If you’re concerned about rising taxes, here are a few strategies to help you reduce the bite.

  • Buy stocks in your retirement accounts. When you realize a profit inside your IRA, you won’t pay a capital gains tax.
  • Open a Roth IRA. Roth contributions grow tax-free. Distributions are tax-free as well.
  • Contribute to a Roth 401(k). Consider changing your contributions from the traditional plan to the Roth, and they will grow tax-free.
  • Consider a Roth conversion. If you own a traditional IRA, consider moving it to a Roth IRA. You will pay income taxes when you convert, but it will occur at a lower rate if tax rates continue to increase.
  • If you’re a business owner, a doctor, a lawyer, an architect, or other professional services provider, open a cash balance plan for your company. A cash balance plan allows you to contribute significant amounts of money to your retirement plan, lower your taxable income, and increase your retirement savings. For example, if you’re 55 years old, you can contribute up to $230,000 to your plan in addition to your 401k, IRA, and profit-sharing contributions.[2] A cash balance plan is well suited for high-income earners.
  • Give your money away. The IRS allows you to give away $15,000 per person per year. An annual gift to loved ones can lower your taxable estate and give them a boost.
  • Donate to charities and non-profits. The government allows you to deduct up to 100% of your adjusted gross income through charitable cash donations.
  • Consider a donor-advised fund. If you own a stock with a low basis, transfer it to a donor-advised fund, sell it, and buy new securities. You will not pay taxes when you sell, and the charities you select will benefit from your donation. You can deduct your contribution from your taxes as a charitable gift.
  • Transfer your life insurance policies to an irrevocable life insurance trust. The trust will remove them from your taxable estate, but they will still benefit your loved ones. For example, if you own a $1 million life insurance policy in your name, the proceeds are added to your estate when you die, potentially increasing the taxes you owe. If the policy is inside the trust, it’s exempt from your estate assets.

So far, Biden’s proposals are just that, so don’t make any changes yet. You will have several chances to act if there is an increase in taxes, even if it’s retroactive to January 1, 2021.

For now, hold on to your wallet!

The only difference between death and taxes is that death doesn’t get worse every time Congress meets. ~ Will Rogers

April 26, 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.wsj.com/articles/capital-gains-taxes-are-on-bidens-radar-as-he-seeks-money-for-social-programs-11619192256?mod=searchresults_pos5&page=1, Richard Rubin, 4/23/2020.

[2] https://assets.futureplan.com/futureplan-assets/FPCashBalance.pdf

Ready to Retire?

When should you retire?  Today, tomorrow, never? The answer is both emotional and financial. The financial side of retirement is easy – you either have enough money to retire, or you don’t. If you have more than enough money to cover your expenses, you can retire at any time regardless of your age. The math, for some people, does not help determine when to retire because they like to work or feel the need to continue working long after they’ve amassed a significant retirement nest egg.  

I worked with a client who gave his employer his notice to retire. He worked for his company for several years, and he was one of their key executives, so he had to give them at least two months’ notice before leaving. We went through the financial planning process to make sure he could afford to retire. We ran several scenarios, and all of them returned the same result; he could afford to retire. His assets were more than sufficient to meet his needs. His challenge was not financial but emotional. Once he came to grips with the financial side, he was ready to accept the emotional side. He called me on the day he gave his notice, and he sounded happy and relieved to move on to the next chapter of his life.

The emotional side of retirement is more difficult to factor into the retirement equation. Walking away from a career you’ve held for 20, 30, or 40 years isn’t easy. You have to put yourself into a position to retire emotionally. 

  • What will you do in retirement? 
  • Where will you live? 
  • How will you spend your time? 
  • Will you volunteer?  
  • Do you want to travel the world?  
  • Will you learn a new skill?  
  • Will you golf? Fish? Hike? Bike? Camp?

These are essential questions, and you’ll need to answer them before you transition into retirement.  

Moving from work to retirement is like jumping over a 6-inch, 100-mile-deep crevasse. One hundred miles is a long way to fall, but you know you can make the 6-inch leap to the other side. I’ve worked with several people who’ve made the leap from work to retirement, and all of them made it to the other side.   I have yet to have one of these individuals return to work because they’re not enjoying retirement. The clients who have retired say they are busier and happier than ever and wish they’d have done it sooner.

Are you ready?

The company gave me an aptitude test, and I found out the work I was best suited for was retirement. ~ Unknown

April 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.

Are You A Thousandaire?

Can you retire without a million dollars in savings? Will you be forced to work forever? Is there a light at the end of the tunnel? Despite what some financial experts suggest, it’s still possible to retire with less and live life on your terms.

Let’s say you retired thirty years ago with assets of $335,000 ($500,000 today) and an annual income of $50,000. At $50,000, your Social Security benefit would have been about $1,230 per month or $14,760 per year.

Investing your $335,000 nest egg in a portfolio of funds, with an asset allocation of 60% stocks, 40% bonds, produced an annual income of $17,139. Combining the Social Security benefit with your investment income generated a total of $31,899 during your first year of retirement, or 64% of your employment income.

Today, thirty years later, what is the value of your portfolio, and how much income is it generating? At the end of last year, your account balance was $949,072, and the annual income from your investment portfolio was $43,736. Your Social Security payout was $22,104. So, your combined income last year was $65,840, an increase of 106% from your retirement income from thirty years ago.

Last year, your investment account was worth $949,072, and it generated an average annual return of 9.46% per year, tripling your original investment despite withdrawing money every year. The total income you received from your portfolio for the past three decades has been $958,122, almost three-times your initial investment![1]

To summarize, you invested $335,000 and received $958,122 in payouts, and your account balance is now worth $949,072 -staggering numbers.

Here is the portfolio:

  • Vanguard Total Bond Market = 40%
  • Vanguard 500 Index = 30%
  • American Funds Europacific = 15%
  • Fidelity Emerging Markets = 5%
  • Fidelity Real Estate Investment Portfolio = 5%
  • Vanguard Small Cap Index = 5%

If you can’t imagine saving more than a million dollars, fear not, because you can still retire. To help you in your journey, here are a few ideas to improve your golden years.

  1. Watch your expenses. You can control your spending. If you can lower your costs, you need fewer assets to retire. Before you’re ready to retire, allocate time to review your spending habits and budget. Where is your money going? How is it being spent? Are there items you can eliminate or reduce? A few hours of review may yield substantial savings.
  2. Invest for growth. A common reaction from retirees is to invest more conservatively once they stop working; this is a mistake. To maintain your lifestyle in your later years, you must own stocks. Stocks will grow over time and keep you ahead of inflation.
  3. Invade your principal. It’s okay if you invade your principal to meet your living needs. If you need a few extra dollars, don’t worry about dipping into your accounts to withdraw more funds. If your accounts are growing, you may accrue a slush fund for emergencies and opportunities.
  4. Rebalance your accounts. Annually rebalancing your accounts reduces your risk and maintains your asset allocation. January is an ideal time to rebalance them since most mutual funds pay dividends and capital gains in December.  Most investment firms can rebalance your accounts automatically.
  5. Give to others. You might not feel like a Rockefeller, Vanderbilt, or Carnegie, but giving a few dollars to those less fortunate will go along way. Unfortunately, there always people in need, so your donations will help others.
  6. Enjoy your retirement. It’s not what you earn; it’s what you keep. You can live within your means during your retirement. It’s your choice. Once you get a handle on your spending and income, you can plan for a joyful and enjoyable retirement.

Happy Retirement!

You only live once, but if you do it right, once is enough. ~ Mae West

January 20, 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.

Data Sources: YCharts and Morningstar


[1] Morningstar Hypothetical Tool. January 1, 1991 to December 31, 2020.

Retirement Planning – A Quick Start

It’s vital to start maximizing your 2021 retirement contributions. If you turn fifty this year, start your catch-up additions as soon as possible. You do not need to wait until your 50th birthday. For example, if your birthday is on December 31, 2021, you can increase your contributions on January 4, 2021.

Here are the limits and thresholds for this year.

  1. You can contribute $19,500 to your 401(k) or 403(b) plan, and if you’re fifty or older, you can add another $6,500 for a total of $26,000.
  2. Maximize your SEP-IRA contributions. Do you own your own business? If so, you can add $58,000 or 25% of your income (whichever is less) to a SEP-IRA
  3. Contribute to a Roth 401(k) or 403(b). Regardless of your income, you can contribute to a Roth 401(k). Your savings and earnings will grow tax-free.
  4. Rebalance your company retirement plan. If your company offers automatic rebalancing, set it to annual. January is a good time to rebalance your account and review your asset allocation.
  5. Increase your annual contribution by 1% or 2% this year.
  6. Fund your IRA’s. The maximum contribution is $6,000, or $7,000 if you’re fifty or older. You’re allowed to contribute to an IRA regardless of income.

A quick start is paramount to a successful retirement plan. After all, the sooner you start, the faster you can retire.

January 3, 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.

Late to the party?

It’s a bit awkward to arrive late for a party, especially if it’s very late. Walking into a room full of strangers once a party has started can be intimidating or embarrassing because it forces you to interrupt conversations or eat food picked over by the punctual guests.

I was late to a junior high roller skating party once because I wrote down the wrong starting time. When I entered the rink, my friends were already having a good time, and there were no more skates available in my size, so I rented a size 15 skate (about six sizes too big). I was uncomfortable and nervous about joining one of the cliques, and my large skates didn’t help.

If you’re late to your retirement party, have no fear because all is not lost. If you’re in your forties or fifties and have not saved any money for retirement, it may feel like you’re doomed to work forever, but that’s not the case.

The best time to start saving for retirement is in your teens or early twenties and invest thousands of dollars in high-flying stocks like Amazon or Tesla. An eighteen-year-old investing $1,000 monthly will have about $13 million at age 65. However, this is lunacy because few teenagers have the foresight, wisdom, or money to start investing (except Warren Buffett). When I was eighteen, I didn’t have a job, and I only had $60 in my savings account.  Besides winning the lottery or inheriting millions of dollars, what can you do to improve your retirement shortfall? Here are a few suggestions.

  • Inventory your assets and review your investment holdings. Locate your investment statements for your 401(k), IRA, and brokerage accounts. What do you own? What is the current value of your investments? How are your assets allocated?
  •  Calculate your liabilities. Identify your debts – home, car, credit card, student loans, etc. to figure out which ones you can refinance, reduce, or eliminate. How much money do you owe to others? What are your monthly payments? What interest rate are you paying on your debts?
  • Review your monthly expenses. Where is your money going? Establishing a budget or spending program will help you find excess dollars for savings. In a post-COVID world, you’re probably paying for things you no longer need or aren’t using, such as a gym membership. Look for items in your spending that can be reduced or eliminated.
  • Invest for growth. Stocks outperform bonds, cash, and inflation. Purchase stocks for the long haul, and they will help you make up for the lost time. The 94-year average annual return for stocks has been 10.1%.
  • Avoid speculating or gambling. It’s tempting to daytrade, buy penny stocks, or purchase options but avoid the urge. If you continually try to hit home runs, you’ll strike out often. Speculating with money you can’t afford to lose is madness.
  • Contribute the maximum amount of money to your 401(k) and IRA accounts. The government allows you to contribute $19,500 to your 401(k) plan, or $26,000 if you’re 50 or older. You can contribute $6,000 to an IRA plus an extra $1,000 if you’re 50 or older.
  • Automate your savings. Establish a monthly investment program into a few mutual funds and a savings account. Automating your savings will eliminate human error and emotions.
  • Ignore the stock market. Trying to time the stock market is impossible and a waste of time. While you’re building your retirement nest egg, be a net buyer of stocks, notably when they fall.
  • Review your progress. A quarterly review of your spending habits will allow you to adjust your plan as needed.
  • Work with a financial planner. Your planner will be your guide, accountability partner, and financial Sherpa. Working with an advisor can help you increase returns. A study by Vanguard quantified an advisor relationship can add 3% in net returns.[1]   

Your retirement journey may feel insurmountable, but you can do it – particularly with a financial plan.  Saving money is akin to starting an exercise routine. It won’t be easy, but each day will get better than the next. It’s challenging to see results at first, but you will notice significant changes over time.  

Happy Retirement!

“Life is a party. Dress for it.” ~ Audrey Hepburn

October 15, 2020

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.vanguard.com/pdf/ISGQVAA.pdf

1,472,583 Things To Do Before You Retire

Retirement planning involves millions of inputs. When will you retire? Where will you retire? How much money do you need? Will you travel the world? Play golf? Fish? Surf? The list of questions is endless, and it can be overwhelming.

Financial planning can help you alleviate your concerns. It isn’t easy to pinpoint your future goals, particularly if you’re retiring in twenty or thirty years. Financial planning is great until life gets in the way. I was born and raised in Southern California. I thought I’d live there forever, but I’ve lived in three different states because of job transfers. Life happens.

If you’re unsure how to start planning for your retirement, create a file to track the important things to you and your family. For example, if you want to spend your days surfing, you’re not going to retire to Topeka, Kansas. Retirement planning is also a process of elimination. What don’t you like? What can you cross off your list? Narrowing your choices will help you make better decisions on how to spend your golden years. Of course, your plans will change often before you finally decide to retire.

Of the more than one million items to focus on for retirement, I’ve narrowed the list down to four necessary items – all things you can control to grow your nest egg.

  1. Spending. Spending is a large driver for your retirement, a key component. If your spending level is high, you will need more assets to cover your expenses. Tracking your monthly expenses is vital to determine how much money you need to retire.  After you get a handle on your annual spending, multiply your results by twenty-five. If your annual spending is $100,000, then your asset goal is $2.5 million ($100,000 x 25 = $2,500,000). If you’re on pace to reach your target, congratulations. If not, then you need to adjust your spending.  When your assets can produce enough income to cover your expenses, you can retire at any time – regardless of your age.
  2. Savings. Spending and savings go hand in hand. The less you spend, the more you can save. Contributing to your 401(k), IRA, and investment accounts early and often may yield substantial retirement assets. While working, you should be a net buyer of stocks. Don’t worry about the economy, the election, the market, etc. When I started working, the Dow Jones was at 2,376. Today it’s 28,250 – an increase of 1,089%![1] Who cares what the market is doing daily. It’s a waste of energy to try and time the market, especially if you’re going to work for another ten or twenty years.
  • Allocation. Asset allocation accounts for 93.6% of your investment return. The remaining 6.4% is due to market timing and investment selection.[2] Allocating more money to stocks is your best chance to build substantial wealth. Since 1980, the S&P 500 has generated an average annual return of 11.8%, while short-term bonds returned 4.2%, a difference of 7.6% per year.
  • Emotions. Of all the items that will impact your retirement, your emotions will be at the top of the list. You will be your most prominent advocate and your worst enemy. The stock market has produced extraordinary gains for the past century, but several large corrections forced investors out of the market. How you react during the dark days of the stock market will significantly impact your retirement assets. When the market fell in March, investors liquidated $348 billion in assets from mutual funds. They panicked and sold their holdings at the bottom, potentially missing a 52% return as stocks recovered. If you panic and sell during corrections, you will impair your future benefits. It takes courage to be a buy and hold investor, but you must do so if you want to create generational wealth.

It’s essential to plan for your future. Dream big, shoot for the stars, have fun, enjoy the journey, but concentrate on the things you can control and ignore the rest. If you focus on your spending, savings, asset allocation, and emotions, you will give yourself a chance at a successful retirement.

See you at the beach!

If you can’t control your emotions, you can’t control your money. ~ Warren Buffett

October 6, 2020

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.

Photo credit: DisobeyArt, I Stock Photo


[1] Dimensional Funds 2020 Matrix Book

[2] Determinants of Portfolio Performance, Financial Analyst Journal, July/August 1986, Vol 42, No. 4, 6 pages; Gary P. Brinson, L. Randolph Hood, Gilbert L. Beebower.