Category Archives: Retirement Planning

Update on Interest Rates … Have they Peaked? A Review of the 10 Year Treasury …

The extra speedy move of interest rates upward have put pressure on “Safe” assets, notably bonds or fixed income.

As reviewed here in great detail and with a special video on the subject, as rates rise, headwinds are created, BUT the opposite is true…. rates stabilize or even lower, big tailwinds…

Have Rates Peaked ?

Using the 10 year treasury as our marker for this review, after peaking 3.15% a few weeks ago, rates have come in and are now around 2.76% …. Progress and stability!

Here is a zoomed in chart….

Just like the change from Winter to Spring to Summer, it rarely occurs in a straight line…. remember also this longer term rate (10 years) is a measure of economic growth and will not be directly effected by the Federal Reserve overnight rate increases (thats our checking accounts)…

Have a Great “Interest Rate Watch” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.

A Dallas Texas based fee only

Financial Planning Total Wealth

Management firm.

jkfinancialinc

street-cents

Attention all Pension Lump Sum Buyout Offerees

Over the last three years we have experienced a multitude of pension buyout offers both from in-force pension payments and lump sum offers for pensions not yet started.

Recently we have just experienced another, and knowing these frequently come in waves, wanted to put this note out to anyone who may be in a position to receive a pension buyout offer.

Trust but Absolutely Verify

In every situation that we have experienced over the last three years, the processing of the lump sum pension is quite different.

Also, the paperwork originally sent with the offer tends to vary slightly to dramatically from the actual offer.

We of course do a detailed breakeven analysis in order to find out if the offer is good, but in order to calculate the offer correctly, the appropriate information is needed.

If you are in a situation of receiving a lump sum buyout offer for a pension or even a lump sum buyout offer for an in-force pension, please trust but absolutely verify all of the details. What we are finding that frequently the original offer may have inaccurate information making for an impossible correct decision of acceptance or decline.

This is another subject that we ask you may share with other individuals that we may not know that might greatly appreciate or need this knowledge. So please share at your leisure.

Have a great “Trust but Absolutely Verify that Pension” day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.

A Dallas Texas based fee only

Financial Planning Total Wealth

Management firm.

jkfinancialinc

street-cents

Back to Basics Fun Educational Review – Part Five – Education Planning … The 529 – The Not to 529!

Welcome back to Part Five of our “Back to Basics” series .. we hope you’ve enjoyed the First Four which started with all about “The Emergency Fund” in Part 1 … with Part 2 being “Protection Planning” and Part 3 discussing All about Debt Planning or “The Good the Bad and the Ugly of Debt”, Part 4 Retirement Planning and now we happily bring you Part Five Back to Basics Education Planning!

As a reminder this is a high level Financial Planning Education like overview starting with the basics of and we will continue into advanced topics in order of Planning Importance.  

Did you notice we put Retirement Planning BEFORE Education planning? Do you recall in Part 3 in Debt Planning we said one of the few good debts are educational related debts ….We of course are not advocating Student debt/loans… but they are available in abundance and again not a bad debt. There are not retirement planning loans…. just saying!

Education Planning

Very similar to the most important parts of retirement planning, education planning carries many of the same qualities but with a few caveats:

  1. Start Early and if you do consider a 529 plan due to the tax free compounding features.
  2. With many states giving you a state income tax bracket break for your 529 contributions … making those states a green light to fund a 529 right up to the years a student is about to attend or is even attending –
    1. Planning Strategy– if you are very near the student using the 529, only fund the amount needed to get the deduction on the state level. Those residing in states where there is no state income tax deductions have far less benefits to the late funding/in and out of 529 state deductible contributions.
    2. Second Planning strategy– late funding plans of any type should be in VERY safe almost emergency funds like asset classes since their use will be so fast.
    3. Third Planning strategy– Do not overfund a 529 as if you do there can be stiff tax penalties for non-educational uses.
  3. Think of educational funds as fast use retirement funds, therefore make sure the allocations are very conservative as the child approaches use age.
  4. Make it easy for Grandparents and others to contribute to an Educational fund, we find other generations very frequently help with Educational Funding since they also know the importance, but may be more set in their retirement funds…

Education Costs are Increasing Fast

Not withstanding the above warning of overfunding a 529 plan, understand that higher education costs are rising very quickly as noted here in detail and be sure to plan accordingly … here is our favorite chart on the Growth of Student Loans:

Have a Great “Education Planning” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.

A Dallas Texas based fee only

Financial Planning Total Wealth

Management firm.

jkfinancialinc

street-cents

Interest Rates on the Rise, Bond Prices Versus Interest Rates, The Bigger Coupon, Possible Peak Rates … Special Video Analysis Refresher/Reminder …

With multiple comments over the last few weeks and a pick up in headlines concerning interest rates, we decided to do an analysis and review! We also have added a video to help explain some of the complexities associated with rates and bonds … as while at face value bonds are a simple animal, their movements can be puzzling.

The main reason for the increased headlines and comments are when rates go up, the value of bonds goes down initially, and rates have really jumped dramatically for various reasons.

YouTube

Briefly as a reminder, Bond aka Fixed Income aka corporates aka treasuries aka high yield aka Fixed Income instruments are nothing more than a note with an income stream to the purchaser of the bond! There is a saying the bond market is “Smart” because you only have to worry about the ability and willingness of the lender to pay… nothing else…

Rates and Bonds – I Go Up, You Go Down

The Green line is the yield on the 10 year treasury… The red is a huge bond fund from Vanguard called the BND….

No doubt that this is an almost perfect inverse relationship.

One detail worth mentioning, longer term bonds are more volatile, both up and down than shorter term i.e. A one year bond will not move near as much as a 30 year. This makes sense because the longer the term, the more payments that are owed and the more change in the prevailing rate effects the bond.

Fast Fast Fast Movement

In true, be careful what you ask for fashion, (we have long been positive towards higher interest rates) rates have moved incredibly fast, especially Mortgage Back Securities which are pools of mortgages used for determining current new rates…

This is the average 30 year fixed rate mortgage…. as of yesterday, this rate was well over 5%…this rate is almost double the rate just a few quarters ago…. With eventual supply, our home asset is facing some headwinds !

Much of this rate movement is coming from Federal Reserve Bank Presidents public comments…..

Why would they do this? To slow the economy… if they can get the market to move rates up, their job is easier ….heck if they can get market participants to do all the work, the Fed would hardly need to do anything… plus markets are much faster to react than the FOMC (Federal Open Market Committee)

Bigger Coupon

Once interest rates move, a new bigger income stream is the net effect… New purchases or re-investments are met with bigger income payments…

This continued higher income payment begins paying back the headwind of the drop in value as shown in the first chart…

Clipping that coupon will be nicer as rates increase!

How Far Can they Go? Rates and the FOMC?

Here comes is the sizzle…. be careful on extrapolating higher rates into the future… this extrapolation has garnered a lot of headlines as of late …. Whoaaaa

This is about a 35 year chart… go back farther, to a much younger demographic, there was a time when the FOMC raised interest rates to the roof… think 15-18% to tamp out inflation….

With an economy today of much more debt to service and older (more savers, less spender) demographics the last four decades have been a slow but continued lower longer term rate….

Note the top of the prior interest rate cycle looks like the top of the FOMC rate hike…again the last four decades….

Stall Speed

With the afore mentioned cycle high repeating as the following cap on rates, looks like, although very fast rate movement recently, the majority of the move is likely over….and therefore less headwind for the value of bonds and bigger coupons….

Lastly… a slowdown in economic times or a rush for the safety of our simple friends usually leads to a reversal in rates and a repeat of the afore mentioned process…but in reverse… lower rates, higher prices!

Have a Great “Bonds and Interest Rate Analysis” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.

A Dallas Texas based fee only

Financial Planning Total Wealth

Management firm.

jkfinancialinc

street-cents

First Quarter 2022 Review, Fast Quarter

Remember when we were kids and it seem like the birthday would never come? Now they seem to come on almost a quarterly basis!

Speaking of a quarter, as we look back over the first quarter of this year, 2022, Wow, we had a lot of things occur.

Interest Rates

As the calendar turned, the FOMC, led by chair Jerome Powell, reading very rearview mirror inflation data points, began verbally discussing aggressive rate hikes.  Right on cue fixed income participants front ran the Fed and raised interest rate across the board.

Mortgage rates, specifically 30 year fixed mortgage rates have risen in percentage terms faster than any time in history.  This is likely a product of the stopping of monthly FOMC purchases of mortgage back securities. It would not be unreasonable to think that current levels could be an overshoot from the artificial downward pressure the federal reserve had been creating.

As of late, several Federal Reserve Presidents have publicly doubled down on even more aggressive rate increases, pushing rates even higher.

Longer-term, recall increasing interest rates are headwinds to fixed income instruments initially, but higher interest rates mean greater income longer term.

Fiscal Stimulus Comparables

As we exit this quarter, and enter the next, we begin a journey over one of the most interesting comparable times in history. As noted in our Q1 and Q2 newsletter, tough comparables will likely make for a natural slowing of the economy. Recall last year at this time over $1 trillion of stimulus was pushed into the economy. As mentioned once again in our newsletter, this is a natural slowing and will be a tail wind to the federal reserve as they raise short term interest rates in an attempt to slow the economy.

And did we mention there was major Geopolitical conflict?

There is a saying that conflict is the great geography educator. Certainly it was a surprise to see the amount of resources that come from the two countries in conflict. The lack of resources on the natural market may be a headwind to lower prices of certain commodities..

In closing, the really good news is that much of what we have experienced in this past quarter, and the coming next quarter, in birthday like format may likely come and pass much faster than previously experienced.

Sincerely,

John A. Kvale CFA, CFP

Enclosure (2022 Report)

Q2 2022 J.K. Financial, Inc. Newsletter … Video Audio Podcast Review ! By John Kvale CFA, CFP

Welcome to our Video and Audio Podcast Review of our Q2 2022 Newsletter. For those on the road or just unable to grab the time to read, our podcast type review gives you the behind the scenes insight to our thoughts, observations and deep views of the entire Newsletter.

BREAK IN – We are trying a new format of articles that are shorter, and hit a very wide variety of topics that should interest all ages and chapters…. Let us know what you think?

Click the Download button below, for a direct link to an electronic version (an early peek-good ole fashion paper versions are on their way to you shortly) and here for our Newsletter page

Let’s get going! We hope you enjoy!

Q 2 2022 Newsletter

(YouTube)

All about the Stimulus Base Effects and the Coming Comparable (Hurdles)

In our main article, a somewhat follow up article to our Q 1 2022 Newsletter Main Article “Anatomy of a Slowdown” we review the base effects we as an economy are about to have to hurdle.

Sale of many companies exploded higher, similar to the one below, but now must be digested..

Look Back Tax Savings – Spousal IRA – SEP – HSA  , These can be done before your filing due date of April 18 to Possible Lower Your 2021 Taxes 

With tax season officially underway, actually nearing an end, the official filing date for non-extension regular Form 1040 Filers is April 18th, 2022 (this year) for year 2021 tax filings, just a few weeks out. There are a few tax saving ideas that even with the turn of the calendar can be implemented to possibly help last year’s income taxes. 

Self Employed Pension plan-the SEP as it’s commonly called is a great vehicle to offset income that is not of the W2 type, think consulting income.

The Spousal “Qualified IRA” is another handy tool to use if one of the spouses does not have any form of a retirement plan.

The HSA. One of the great parts of the HSA is you only need a high-deductible health insurance plan

Estate and Gift Planning Update – Annual Gifting Amount – Estate Tax Update 

Annual Gift amount upped to $16k per person

Estate Tax Stands at $12.06 million per person or $22.12 million per couple

“Last year certainly garnered many headlines of possible changes in much of the estate tax laws. In all fairness we fielded many questions and thankfully once again stuck to our mantra of until it is law, one should be very careful at making preemptive adjustments. There certainly can be changes in the future, but again short of knee jerk reactions, we tend to like for law mandates to be made for reaction, rather than rumors. “

Financial Planning/Retirement Planning Trick for those Early in the Workforce – Roth contribution for young working

Helping a new worker contribute to a Roth and an early age to jumpstart a retirement program…

From the Article…

“Most likely if a young worker is making a very nominal amount, and possibly still living at home, they will not have the cash flow to contribute to any type of retirement plan. But if someway somehow they can make a Roth contribution at least up to their earnings at a very young age the long term positive consequences of this can obviously be fantastic.”

“If a 17 year old was somehow able to get $6000 in a Roth (one time!) and earn 8% a year at age 66 he/she would have about $191,000. If that same 17 year old were somehow able to get $6000 a year until he or she was 23, (five years), and had the same 8% compounding until he or she was 66 there would be a nest egg of just under $1,000,000. That $1,000,000 would not be subject under current tax laws, to mandatory required minimum distributions (RMS;s) nor again under current tax laws would it be taxable income upon distribution.”

We hope you enjoy … talk to you in the summer!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
www.jkfinancialinc.com
www.street-cents.com

Back to Basics Fun Educational Review – Part Four – Retirement Planning … The Key – Start Early!

Welcome back to Part Four of our “Back to Basics” series .. we hope you’ve enjoyed the First Three which started with all about “The Emergency Fund” in Part 1 … with Part 2 being  “Protection Planning” and Part 3 discussing All about Debt Planning or “The Good the Bad and the Ugly of Debt” and now we happily bring you Part 4 Retirement Planning!

As a reminder this is a high level Financial Planning Education like overview starting with the basics of and we will continue into advanced topics in order of Planning Importance.  

Retirement Planning

The most important parts of retirement planning are very easy and as follows:

  1. Start Early
  2. Save as much as you can especially when you are young as compounding is your friend, do not worry about the amount, just save!
  3. Don’t overthink your investment options, just allocate as available and save save save…

Starting out with a healthy savings percentage of our earnings at an early age will lead to eventual maxing out of your retirement plans, forcing you happily into other savings vehicles thereby balancing your eventual portfolio with pre-tax retirement savings and after tax buckets of investments.

Continued high percentage earnings savings will also ultimately create the habits of not living on all that you are earning. This is especially important as we get closer to retirement and create just darn good habits.

There will likely be times in our lives when we may not be able to save as much on a percentage of our earnings as we would like, but constant top of mind savings habits will garner success in the long term, don’t let life’s curve balls distract your long term savings effort, you can do it!

Early savings should be very aggressive as the corpus of your savings are the actual savings component.  All equity type of investments especially during the first 5-10 years are not out of the realm of possibilities, again your continued contributions dominate the investment during these early stages.  As your retirement savings and for that matter other investments grow in size adjustments are necessary especially as we near retirement.

While there are talks of optimal retirement allocations, it’s not unusual to find inferior investment options in retirement accounts. Not to worry, don’t throw your employer or your plan under the bus … the most important item in your retirement savings program is the actual deferral of your hard earned work and the broad allocation! Be aggressive in the beginning and slowing down the allocation as it matures in size and our chapter nears retirement.

Weather 401, IRA, Sep- (Simplified Employee Pension), Roth.403b. 401A or any other retirement vehicle, the vehicle is not as important as participation!.

We will help you optimize from a tax standpoint which vehicle is best. and of course with the allocations as well!

Have a Great “Retirement Planning” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.

A Dallas Texas based fee only

Financial Planning Total Wealth

Management firm.

jkfinancialinc

street-cents

February 2022 Financial Planning and Capital Market Review – By John Kvale CFA, CFP

Hello and Welcome to our February 2022 … Financial Planning and Capital Market Update!

If you are too busy to read, feel free to listen as we describe our post and thoughts in friendly podcast audio format as well as Video!

Newbies –

We like to articulate our thoughts and review on a Monthly basis our Financial Planning Tips, Capital Markets thoughts and current events!

Hope you enjoy!

February 2022 Video

YouTube

Financial Planning Tip(s)

Third In Back to Basics Series – “Debt Planning”

The third post of a neat (well we think so) new idea, series we discuss “Protection Planning” !

This series is a review of the basics, and will serve as somewhat of a semester study of the Financial Planning foundations all the way to more advanced topics later in the series…. We plan on a mid month release of each part and somewhere south of double digit parts…. possibly with a video added to each for additional insights…. thanks in advance for sharing with those who may find this series helpful….

In this Debt Planning section we cover from a high level …

The Good, the Bad and the Ugly Forms of Debt

Yes there are some debts that or ok, but there are also some that are very much sinners….

Review that Social Security Statement

In this annual reminder post, receiving a weekend email alert directly form the Social Security Administration our review was set in motion and a new post was born….

Happily as mentioned in the post, the SSA had updated the site and there are really neat new features such as a graph for delayed benefits and a neat spousal calculator.. Well done guys!

Please be sure to take 5 minutes and review that your hard earned earnings are being credited to your Social Security Benefit/Number!

Capital Market Comments

Interest Rates Jump Ahead of Fed – Short Term Pressure on Bonds Long Term Gain

While this post concerning how the bond markets, more specifically the two year and ten year treasuries front run the FOMC (Federal Open Market Committee) we also want to remind that such movement, especially seen in the two year treasury puts pressure (lowers) on the value of the bond but also ups the income from the bond……

So initial headwind, and eventual tail wind…yay

Re-Review “The Anatomy of a Slowdown/Recession” the Snap Back

With market jitters creating headlines and lower values, in this post we reviewed our luckily timed lead article in our Q 1 2022 Newsletter article, called the “Anatomy of a Slowdown”

The main purpose of the article and the re-run is to remind everyone INCLUDING OURSELVES, slowdowns (markets dropping in value) do occur, and while we don’t want them to, they do anyway!

In this post, we review three very large what we coined snap backs…. large rallies of 5%-to over 10% which are for some reason very confusing during slow down times and also tend to totally ignore headlines…

No idea for sure WHY they happen, just know they do … thought worth reminding as some great questions came in on the subject.

Have a Great Day, Talk to You at the End of March! Going fast this year!!!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.

A Dallas Texas based fee only

Financial Planning Total Wealth

Management firm.

jkfinancialinc

street-cents

Capital Markets Pre-Empt Interest Rate Hikes … Amazing Correlation of 2 Year Treasury Bond and Fed Funds Rate …

FOMC (Federal Open Market Committee) members use the very short term Federal Funds Rate (think interest on your checking account) to help throttle the economy. When it is too hot they raise rates. In Paul Volcker’s case to almost 20% way back in the hyper inflation days. When the Economy is struggling they lower rates, as of late to zero, both post Great Financial Recession and the most recent Virus induced mini-recession.

There is an interesting predictor or front runner of the FOMC interest rate movement, sparred by the very short term fixed income traders, specifically the 2 year Treasury bond.

Markets Pre-Empt FOMC Rates

The chart below is of the Two Year Treasury (Red Line) and the afore mentioned FOMC Fed Funds Discount rate (Blue Line) –

The correlation is so strong it is almost hard to even see there are two lines….

Zooming into a shorter time frame of just 5 years, not only can we see the difference, but in looking over to the right, the markets are predicting multiple rate hikes in short order, at this time!

Will see if this holds, but as mentioned in our post earlier this week here, Economic number and the markets are expecting rate hikes!

Have a Great “FOMC Rate Correlation” Day!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.

A Dallas Texas based fee only

Financial Planning Total Wealth

Management firm.

jkfinancialinc

street-cents

January 2022 Financial Planning and Capital Market Review – By John Kvale CFA, CFP

Hello and Welcome to our January 2022 … the First Month Review of 2022 – YAY … Financial Planning and Capital Market Update!

If you are too busy to read, feel free to listen as we describe our post and thoughts in friendly podcast audio format as well as Video!

Newbies –

We like to articulate our thoughts and review on a Monthly basis our Financial Planning Tips, Capital Markets thoughts and current events!

Hope you enjoy!

January 2022 Video

YouTube

Financial Planning Tip(s)

Second In Back to Basics Series – “Protection Planning”

The second post of a neat (well we think so) new idea, series we discuss “Protection Planning” !

This series is a review of the basics, and will serve as somewhat of a semester study of the Financial Planning foundations all the way to more advanced topics later in the series…. We plan on a mid month release of each part and somewhere south of double digit parts…. possibly with a video added to each for additional insights…. thanks in advance for sharing with those who may find this series helpful….

In this Protection Planning section we cover from a high level … Health, Auto/Home/Umbrella and Life Insurance basics and best ways to implement !

New Uniform Table Gives RMD Break – We are all Younger!

In this post we highlight as the calendar turned, we are all viewed as younger (actually the tables have us living longer- semantics)…

A very important result of this change is to give those mandated by RMD’s (Required Minimum Distributions) relief…. since the tables in effect make us younger/living longer, less money is demanded out (Uncle Sam wants his taxes) thereby lowering taxable income!

Capital Market Comments

Re-Review “The Anatomy of a Slowdown/Recession”

With market jitters creating headlines and lower values, in this post we reviewed our luckily timed lead article in our Q 1 2022 Newsletter article, called the “Anatomy of a Slowdown”

The main purpose of the article and the re-run is to remind everyone INCLUDING OURSELVES, slowdowns (markets dropping in value) do occur, and while we don’t want them to, they do anyway!

In this post, we review the following chart and outline the normal 9-12 month slowdown time line… very much unlike the last three we have experienced…

Have a Great Day, Talk to You at the End of February!

John A. Kvale CFA, CFP

Founder of J.K. Financial, Inc.

A Dallas Texas based fee only

Financial Planning Total Wealth

Management firm.

jkfinancialinc

street-cents