Increasing Your Return on Life.®

Frank Talk - 4th Quarter Newsletter (2021)

Published: 11/17/2021

Table of Contents


Written by: Frank Fantozzi

Happy Autumn, Clients and Friends!

We hope you have had an opportunity to get out and enjoy the cooler weather and your favorite autumn traditions with family and friends this fall, whether that’s visiting a local pumpkin patch or corn maze or tailgating before a big game. It’s really nice to see football back in full swing this year, complete with fans in the stands. We had a chance to attend the University of Cincinnati vs. Notre Dame game earlier this month, which is always a big deal for our family. My wife and youngest daughter are Cincinnati alumna, and our oldest daughter is a Notre Dame graduate. Needless to say, that makes me Switzerland. I know better than to pick sides! For those of you keeping score, the Bearcats beat the Fighting Irish 24 -13, resulting in Notre Dame losing its 26-game home winning streak and, likely, any chance of making the playoffs this year. That means some of us left the game less happy than others.

In addition to football and falling leaves, October is also known for being the most volatile month when it comes to the financial markets. In fact, the S&P 500 finally had its first 5% pullback of the year this fall, ending hopes of 2021 joining 1954, 1958, 1964, 1993, 1995, and 2017 as the only years to go a full calendar year without a 5% move lower. It’s a reminder that bouts of volatility are common even in the strongest bull markets. To put things in perspective, since 1980, stocks have experienced a 14.2% peak-to-trough pullback on average during the year, and 21 out of the past 41 years saw at least a 10% correction. Incredibly, 12 of those years finished in the green and those 12 years gained an average of 17.0%.

This year the S&P 500 produced one of its best ever year-to-date gains through September, up 14.7% with a quarter to go. It turns out that good starts to a year tend to resolve higher. In fact, 9 of the past 10 years the S&P 500 was up at least 12.5% with a quarter to go, there were further gains in the fourth quarter.*

Like football, a lot can happen in a quarter, so be sure to check out our Market & Economic Update below to learn more about our outlook for the markets as we approach year end. We also have a lot of news to share about our firm and team members this quarter, as well as a link to the full video recording of our 13th Annual Cleveland Economic Summit which took place on September 30th. Be sure to browse through all the news and links provided below.

What's In It for You?

At-a-glance guide to your 3rd Quarter 2021 Frank Talk newsletter:

  • News & Events
    • Team Member News & Awards
    • Recent Events
    • Your 2021-2022 Tax Planning Guide
    • Complimentary Second Opinion Service
    • Visit our Getting Frank Blog
  • Market & Economic Update

New & Events

Team Member News & Awards

PFS Selected as Weatherhead 100 Winner for 9th TimeWH100_2021_logo
Planned Financial Services (PFS) was named a Weatherhead 100 Upstart* company for the ninth time by the Weatherhead School of Management, Case Western Reserve University. Established in 1988, The Weatherhead 100 awards are the premier celebration of Northeast Ohio’s spirit of entrepreneurship and the companies leading the way in Northeast Ohio. Each year, the organization recognizes an elite group of companies who are the best example of leadership, growth and success in our region. PFS will be honored during a special virtual celebration on December 9th.

401(k) Prosperity’s Certification for Fiduciary Excellence
is Renewed by CEFEX
The Centre for Fiduciary Excellence, a division of Broadridge Fi360 Solutions, has renewed 401(k) Prosperity’s certification to the standard described in the handbook “Prudent Practices® for Investment Advisors.” 401(k) Prosperity remains part of an elite group of Investment Advisors to successfully complete the global independent certification process. The standard describes how an Investment Advisor assumes the responsibility for managing a client’s overall investment management process, which includes the selection, monitoring and de-selection of investment managers, as well as developing processes to implement investment strategies and fiduciary practices on an ongoing basis. Maintaining certification requires a continued adherence to the industry’s best practices and is verified through an annual renewal assessment.

401(k) Prosperity is certified for retirement plan services including 401(k)/profit sharing and cash balance plans as an Investment Advisor Representative within the LPL Retirement Plan Consulting Program (RPCP). 401(k) Prosperity’s certification is registered and can be viewed at

PFS Welcomes Executive Assistant Alaina Maloney
Alaina Maloney
joined Planned Financial Services as executive assistant to PFS founder and president, Frank Fantozzi. In addition to providing executive and administrative support, Alaina will play an integral role in maintaining the firm’s customer relationship management system, conducting market and industry research, and assisting with social media initiatives and prospect outreach, among other responsibilities.

Prior to joining Planned Financial Services,  Alaina was the office manager at Campbell Landscaping and an account manager at Whitespace Creative, prior to that. She is also a former small business owner where she oversaw operations for a family-owned restaurant franchise.

PFS Participates in Volunteer Work and Team Building
On September 17th, PFS team members and their families got down and dirty as part of their annual day of giving back where they lent a hand beautifying the community VolunteerDaygarden run by the U.S. Committee for Refugees and Immigrants Cleveland. The team chatted, weeded, and fertilized garden beds, and learned about sustainable gardening and many interesting new fruits and vegetables. Click here to learn about this organization.


On the afternoon of October 14th, competitive natures were in full swing as PFS associates engaged in their annual team building day––held this year at Top Golf. It was not only a fun experience for the team, but a confirmation of the genuine camaraderie and support that is shared by everyone both in and out of the office.

Recent Events

The 13th Annual Cleveland Economic Summit
Updated event image

Thank you to everyone who  joined us for The 13th Annual Cleveland Economic Summit, which was held virtually on September 30th. This year’s Economic Summit began with introductory remarks from Planned Financial Services founder and president, Frank Fantozzi, followed by guest speakers: Adam Martinson, CPA, MSA, Senior Manager of Privately Held Business Services at Grant Thornton and Mark Peterson, Director of Advisor Insights at BlackRock.

  • Mr. Martinson provided his perspective on the current business climate, the potential for tax policy changes in the coming months, and what this could mean for investors, retirees and business owners. His presentation provided an in-depth look at the tax landscape prior to the Tax Cuts and Jobs Act (TCJA) of 2017, followed by where we find ourselves today and what business owners can expect in the near future, based on the proposed tax changes.
  • Mr. Peterson followed with an insightful look at the economic recovery and what investors and business owners can expect from the financial markets in the months to come. His overview of the markets and economy over the past 18 months provided historical context to assist in understanding how today’s recovery compares to past market and economic events, and what this means for business owners and investors. He also provided important perspective on the trends to watch going forward, in regard to interest rates, inflation and the housing market.

To access the full video recording of The 13th Annual Cleveland Economic Summit, click the link below. Be sure to follow us by subscribing to our YouTube channel!

Watch: The 13th Annual Cleveland Economic Summit

Entrepreneurs Organization (EO) Presentation on ESG Investing
As members of the Entrepreneurs Organization (EO), Frank Fantozzi and Dave Moore, President of Vigilant Global Trade Services, were recently invited to address Cleveland EO members about ways to align financial goals and values through the investment process, using Environmental, Social and Governance (ESG) criteria. The presentation, Responsible Investing: ESGs and Why You Should Consider Investing Now, focuses on why Sustainable Development Goals (SDGs), like those adopted by the United Nations, are key drivers of global economic growth, and how companies moving towards more sustainable business practices, products and services can provide significant opportunities for investors.

Click the link below to view the presentation:

Watch: Responsible Investing: ESGs and Why You Should Consider Investing Now

2021 Smart Business Family Business Conference & Awards
Family Business ConferenceFor the fifth consecutive year, Planned Financial Services sponsored the Smart Business Family Business Conference & Family Business Achievement Awards with Frank Fantozzi participating as a panelist. The conference took place on September 23rd at the Westin Cleveland Downtown.

The annual conference is an interactive workshop with leading industry experts that provides the type of actionable insight necessary to address challenges and plan for a smooth transition of family businesses.

2021 Smart Business Smart Women Breakfast & Awards

Smart Women Awards
For the fifth consecutive year, PFS was also a sponsor of the Smart Business Smart Women Breakfast & Awards on October 7th at the Westin Cleveland Downtown. PFS Wealth Advisor, Amy Valentine, CFP®, CFA®, participated as an award presenter.

 The Smart Women Breakfast addresses issues facing women in the workplace. The conference also recognizes the achievements of leading businesswomen, inspiring male advocates, and effective women’s programs through the Smart Women Awards program.

Get Your Medicare Questions Answered
PFS hosted a live webinar, Get Your Medicare Questions Answered, on August 17th, featuring guest speaker Rodika Koloda of Insurance Systems Group.

Click the link below to access the full video recording of the webinar and learn how to take the guesswork out of Medicare planning.

Watch: Get Your Medicare Questions Answered Recording

Your 2021-2022 Tax Planning Guide is Now Available!
As year-end approaches, you want to take the appropriate tax breaks that are available to you now, while maintaining the flexibility to accommodate tomorrow’s changing tax and  investment landscape. The Planned Financial Services 2021 – 2022 Tax Planning Guide provides an overview of some of the most significant tax law changes going into effect this year, as well as key tax provisions and deadlines you need to be aware of to reap the full benefits of collaboration with your qualified tax advisor.

Click here to view or download your PFS 2021 - 2022 Tax Planning Guide now.

Reminder…Our Complimentary Second Opinion Service is Available to Your Family, Friends and Colleagues
Our complimentary Second Opinion Service continues to be well-received among the friends, family members and colleagues of our clients and associates. This valuable service provides the people you care about with an opportunity to benefit from the same expertise and guidance that you have come to expect as a valued client of Planned Financial Services.

In many cases, a second opinion will simply provide confirmation, and the confidence that those you care about are on track to fulfill their values and achieve their goals with their current financial provider or strategy. However, if needed, we are happy to suggest ways in which we can help, including recommending another provider if we are not a good fit for their needs. Either way, following a Discovery Meeting and Investment Plan Meeting with our experienced team, they will receive a Total Client Profile and a Personalized Financial Assessment of their current situation.

Click here to learn more about the Planned Financial Services Second Opinion Service, and to download a full description of this service and the benefits it offers to the people you care about most.

Don’t Miss Out On the Topics That Are Important to You: Visit Our Getting Frank Blog
For timely information on the financial planning, business growth and investment topics that are meaningful to you, visit our Getting Frank Blog at We post new articles and opinions weekly, so be sure to visit us. You can also read the latest blog articles by connecting with me personally on social media: LinkedIn, Twitter and Facebook.

Market & Economic Update

Europe’s Economy Showing Solid Improvement

It’s been difficult to find a macroeconomic story that supports reducing exposure to U.S. equities in favor of their developed international counterparts. But frankly, if one is going to develop, it may need to happen soon.

As COVID-19 cases have fallen globally in recent months, it sets up a potentially synchronized global expansion in 2022. If that global expansion is accompanied by a weaker U.S. dollar and value stocks can at least hold their own, then we think developed international equities could be in a fairly good position to potentially outperform U.S. equities. 

The consensus forecasts for gross domestic product (GDP) growth in 2022 are calling for the European economies (the Eurozone and the United Kingdom) to grow faster than the United States next year. Europe and Japan are both ahead of the United States right now in vaccinations administered as a percentage of their populations (source:, after playing some catch-up, which positions those economies to take the next step forward in their recoveries. Europe and Japan are also earlier in their economic cycles, leaving more upside in terms of growth potential.

Forecasts for economic growth in Europe do look a bit better on a relative basis next year, and economic growth expectations for the second half of 2021 have held up relatively well recently despite the COVID-19 Delta variant wave, based on Bloomberg’s consensus GDP forecasts. However, Europe’s economic momentum may be peaking based on purchasing managers’ index data. Moreover, the Citi Economic Surprise Index for Europe stands at -51.5, compared to the one-year average of +90. In other words, European economic data has been mostly falling short of expectations and even missing more frequently than the U.S., where the surprise index reading is -20.5. Japan’s surprise index is also weak at -79.

With solid economic growth expected in Europe, perhaps even slightly better than in the U.S., a neutral view (or market weight) has solid support. But with momentum in Europe likely past its peak and growth in Japan lagging behind, the case for a more positive view of international equities is not particularly compelling.

International Earnings Look Good, But So Does The U.S.

Similar to the economic growth picture, earnings are recovering nicely in Europe and Japan, but they don’t stand out relative to the United States. As major global economies recover from the pandemic, MSCI EAFE Index earnings are poised to grow nearly 50% in 2021, though that is only a few percentage points better than the U.S., based on the latest consensus estimates from FactSet (and those are just estimates at this point).

Estimate revisions have been more positive in the U.S. than internationally, indicative of better earnings momentum and offsetting the attraction of the extra bit of earnings growth potential. So, at this point we’ll call earnings a toss-up, though perhaps the U.S. has a slight edge given its track record of surpassing expectations and heavy exposure to technology, e-commerce, and digital media.

Waiting For Value Stocks To Have Their Day

Perhaps the biggest problem for international equities right now in their more than decade-long struggles to keep up with the United States is the leadership of growth-style equities. Over the last 10 years, the Russell 1000 Growth Index has outpaced its Value counterpart by about 6.5 percentage points per year, while the MSCI EAFE has lagged the S&P 500 Index by about 8 percentage points per year.

The MSCI EAFE Index for non-US developed market equities has only a 10% weighting in the technology sector, compared with 28% in the S&P 500, making it very difficult for developed international equities to keep up with the U.S. in a growth-led market. Add in internet retail and digital media, and the gap between these two markets gets even bigger.

We believe a pickup in economic growth globally over the next quarter or two will help value stocks at least match returns for the growth style, with cyclically oriented value stocks potentially doing even a little better—a key ingredient for developed international equities’ prospects. But as long as U.S. growth stocks are leading, developed international will have a very difficult time keeping up over any meaningful period.

Technical Trends Stay With The U.S.

The technicals for international equities also support an overall cautious stance. The MSCI World Ex-U.S. Index, an index that incorporates both foreign developed and emerging markets, has continued to substantially lag the S&P 500, continuing the relative downtrend that had been in place prior to the pandemic.

Dollar strength in 2021 is one reason for this, with the U.S. Dollar Index up more than 5% so far this year. Dollar strength hurts internationally diversified U.S. investors, as the currencies they are holding weaken relative to the dollar. However, even accounting for currency effects, international markets have steadily underperformed their U.S. counterparts, with China being one of the biggest culprits. China’s substantial weight in diversified emerging markets indexes is the primary reason the asset class has posted a slight loss so far this year.

Looking forward, we see modest signs of technical improvement in China and international markets, but the accompanying chart shows the significant opportunity cost relative to the U.S., and would likely need to show some technical improvement, combined with an abatement of dollar strength, for us to consider a positive view of developed international (or overweight), or to reconsider our underweight recommendation for emerging markets.

Still Looks Like a Value trap

One of the most popular arguments in favor of investing in developed international equities has been valuations. Based on forward price-to-earnings ratios (PE), the MSCI EAFE Index is trading at a 27% discount to the S&P 500—the largest in the past 20 years and much larger than the average long-term discount of 9%. But stocks in Europe and Japan have been cheap for a long time, and it hasn’t helped relative performance.

Valuations generally don’t tell us much about the next year or two, so we would need more reasons to re-allocate from U.S. equities to international than just low PE ratios. However, lower valuations have historically been well correlated with long-term returns, suggesting strategic investors who are in it for the long haul may benefit from international equity allocations.

If developed international market equities are going to outperform, we’re probably getting close to the point in time where we start to see it. Markets may be on the cusp of another rotation to value as global growth picks up, while economic growth in Europe, the majority of the MSCI EAFE Index, may exceed that of the U.S. next year.

However, we still favor the U.S. over developed international markets as we enter 2022—primarily due to technical factors, including the weak momentum for the major stock indexes outside the U.S., the strong U.S. dollar, and continued strength in U.S. growth stocks, which makes it hard for the more value-oriented markets in Europe and Japan to keep up. For developed international markets, neither economic growth nor earnings stand out relative to the U.S., so sticking with what’s been working makes sense.

Finally, our emerging markets equities recommendation remains negative due to ongoing regulatory risks in China, which could slow the growth of the Chinese economy and earnings, while also increasing uncertainty.**

Closing Remarks

As market and economic conditions evolve in the weeks and months ahead, you can rely on your PFS team to continue to monitor and adjust our portfolios and keep you up to date on these and other developments. We also want to remind you that our office is open for clients who would like to meet in person. For those who prefer to meet virtually, we continue to use Zoom for virtual meetings, and are always available via phone. Just let us know how you prefer to meet, and we’ll make it happen!

We are always honored to help our clients’ friends and business associates take greater control of their future with guidance from the PFS team. We welcome and are grateful for the many introductions our clients continue to provide. If you, or someone you know, has questions or concerns about your personal investment strategy or business finances, please don’t hesitate to share information about our complimentary Second Opinion Service and reach out to your experienced team of wealth advisors at 440.740.0130.

Don’t forget to connect with PFS on Twitter, LinkedIn, Facebook and YouTube.

Click here for a summary of the material changes made to our ADV Part 2A between April 2020 and March 2021.

To review our firm’s privacy policy, full ADV Part 2A Firm Brochure and ADV Part 2B Brochure Supplements, please visit our website at

You may also request copies of these current brochures by contacting our office at 440.740.0130.

Real People. Real Answers. 

Health, Happiness, and Good Fortune,

Frank Fantozzi
President & Founder

*The Weatherhead 100, awarded to PFS in 2007, 2008, 2009, 2011, 2016, 2017, 2018, 2019 and 2021 is based on sales growth, employment of 15 or fewer employees, and/or companies with less than $5 million in net sales. In 2021, 125 applicants applied for the award in three different award categories: Weatherhead 100 Upstart, Weatherhead 100 and Weatherhead 100 Centurion, with 17 awards granted in the Weatherhead 100 Upstart category. For more information, visit

**LPL Research, 10/6/21

**Some research was provided by LPL Financial, LLC, November 2021. Neither PFS or LPL make any representation as to its completeness or accuracy.


This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

S&P Energy Index: A market capitalization weighted index that tracks the performance of energy companies.

Planned Financial Services, LPL Financial, Weatherhead School of Management, Case Western Reserve University, U.S. Committee for Refugees and Immigrants Cleveland, Top Golf, Adam Martinson, Grant Thornton, Mark Peterson, BlackRock, Smart Business, Rodika Koloda and Insurance Systems Group,  are all separate, unaffiliated entities.

This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific issues with a qualified tax advisor.

Investment advice offered through Planned Financial Services, a Registered Investment Advisor.

Securities and Retirement Plan Consulting Program advisory services offered through LPL Financial, a Registered Investment Advisor, member FINRA/SIPC.

Financial Planning offered through Planned Financial Services, a Registered Investment Advisor and a separate entity from LPL Financial.


Why Investors Should Care About Market Cap

Written by: Cynthia Yang

Diversification is one of the most powerful tools for reducing investment risk — particularly in times of extreme market volatility. With a diversified portfolio, poor performance of one type of asset potentially can be offset by better performance of another.

There are many ways to diversify. But one important diversification strategy that some investors overlook is size. The size of companies, as measured by market capitalization (or market cap), can dramatically affect how their stocks perform under various conditions.

Stocks sticking together

Market cap is the total dollar market value of a company’s outstanding shares of stock. So, for example, a company with 100,000 shares selling for $10 each has a market cap of $1 million. And a company with 10 million shares selling for $100 each has a market cap of $1 billion. Apple, the largest company in the world as measured by market cap, is worth more than $2 trillion.

Generally speaking, companies with a market cap greater than $10 billion are considered large-cap, while mid-cap companies have market caps between $2 billion and $10 billion, and small-cap companies have market caps under $2 billion. Large-cap companies tend to be more mature, and thus can offer more stable returns but limited growth potential. Small-cap companies typically offer greater growth potential, but because they have fewer financial resources and less access to capital, their stocks can be more volatile. Mid-cap companies, not surprisingly, tend to fall somewhere in the middle.

Of course, other factors, including industry and specific company characteristics, help determine the performance of a stock. But in the short term, stocks often move in blocks by market cap based on investor sentiment about the economy, political developments and other issues.

No guarantees

Although there are no guarantees, diversifying your portfolio among large-cap, mid-cap and small-cap stocks can help reduce risk. Many mutual funds and exchange-traded funds that are managed to focus on specific market caps are available. You could also work with a financial advisor to pick securities of different caps.

Just keep in mind that such diversification strategies can never fully protect you from the risk of losing your investment money. For a risk-reduction strategy that accounts for your specific situation, consult a knowledgeable advisor.

Investment advice offered through Planned Financial Services, a Registered Investment Advisor.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.

A Look at the Roth IRA Five-Year Rule

Written by: Amy Valentine

The Roth IRA can be an attractive, flexible retirement savings vehicle. Contributions are nondeductible, but qualified withdrawals of both contributions and earnings are tax-free, and there are no required minimum distributions during the owner’s life. To ensure that withdrawals are tax- and penalty-free, however, it’s critical to comply with the so-called five-year rule.

Unfortunately, this rule is widely misunderstood. And it doesn’t help that there are actually two separate five-year rules: One for withdrawals of earnings and one for withdrawals of converted principal. (Special rules, not discussed here, apply to inherited Roth IRAs.)

Second requirement is tricky

Unlike traditional IRAs, contributions to Roth IRAs are nondeductible — they’re made with after-tax dollars. Thus, you can withdraw contributions to a Roth IRA any time, free of taxes and penalties, regardless of your age or how much time has passed since you opened the account.

For withdrawals of earnings to be tax- and penalty-free, however, they must:

  1. Be made after age 59½ (with certain exceptions), and
  2. Satisfy a five-year holding period.

The second requirement can easily trip people up if they’re accustomed to withdrawing traditional IRA funds once they reach age 59½. If you’re over 59½, you won’t owe penalties on earnings withdrawn from a Roth IRA, but you may owe taxes if you haven’t met the five-year rule.

The five-year holding period doesn’t begin on the contribution date to your account, but on January 1 of the tax year for which you made your first contribution to any Roth IRA. Suppose, for example, you opened a Roth IRA in March 2018 but designated your initial contribution for the 2017 tax year. Your five-year holding period begins on January 1, 2017 and ends on December 31, 2021. Assuming you’re over 59½, then starting January 1, 2022, you may withdraw earnings tax- and penalty-free from any Roth IRA you own.

Converted principal is different

A different five-year rule applies to converted principal — funds in a traditional IRA that you convert to a Roth IRA. When you convert, you’re immediately taxed on the converted amount (except for funds attributable to nondeductible contributions). Even though this converted principal has been taxed, it must nevertheless be held for at least five years to avoid a 10% early withdrawal penalty. The reason for this rule is that without it, owners of traditional IRAs who are under age 59½ would be able to avoid early withdrawal penalties by converting to a Roth IRA.

The five-year holding period begins on January 1 of the year the conversion takes place. And each Roth IRA conversion triggers a separate five-year holding period. So if you perform multiple conversions over several years, you’ll need to handle withdrawals very carefully to avoid unexpected penalties.

Keep in mind that this five-year rule exposes you to only early withdrawal penalties that would otherwise apply. If you’ve reached age 59½, or another penalty exception applies, then you won’t be penalized — even if the five-year holding period hasn’t yet expired. Also, this rule applies only to converted principal. Earnings on converted principal are subject to the same five-year rule as earnings on contributions.

Tips on tracking

Obviously, you shouldn’t be put off from contributing to a Roth IRA simply because the rules can be complicated. Talk to your financial advisor about whether this savings tool is appropriate for you and for tips on tracking investment and withdrawal dates to avoid tax penalties.

Investment advice offered through Planned Financial Services, a Registered Investment Advisor.

This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

Worried You Don't Have Enough to Retire? Consider Working a Little Longer

Written by: Frank Fantozzi

If you’re concerned about funding your retirement, consider working a little longer. A recent study confirms what financial advisors have been saying for years: Extending your work life — even for a short time and even at a reduced salary — can have a major impact on your desired lifestyle once you do retire.

A case study

“The Power of Working Longer,” from the National Bureau of Economic Research (NBER) found that working just a few months longer can have the same impact on a person’s retirement standard of living as saving an additional 1% of work earnings for 30 years. How can this be true?

A simplified example shows how: Rachel is contemplating retirement at age 65, with a $2 million portfolio. Let’s assume that the maximum amount she can safely withdraw from her portfolio at age 65 is 4%, or $80,000. (This figure is based on the “4% rule,” but the actual safe withdrawal rate varies depending on market conditions and each individual’s circumstances. ***See “Is the 4% rule all it’s cracked up to be?”.)

Suppose, instead, that Rachel decides to delay her retirement to age 70. She works part-time, earning enough to maintain her lifestyle without tapping her retirement savings — but not contributing to them either. Assuming a 7% rate of return, her portfolio grows to approximately $2.8 million when she retires in five years. Let’s also assume that at age 70 she can safely withdraw 4.5% of her portfolio, or $126,000. In this example, working an additional five years increased Rachel’s retirement income by more than 50%.

Other benefits

Boosting your retirement savings is just one of several benefits of working longer. You might also be able to:

Reduce the length of your retirement. Delaying retirement not only allows you to increase your savings but also reduces the amount of time you’ll need to rely on those savings. This minimizes the risk that you’ll run out of funds.

Maximize Social Security benefits. For most people getting close to retirement, full retirement age (FRA) for Social Security purposes ranges from 66 to 67, depending on the year you were born. Once you reach FRA, you’re entitled to your standard benefit. That benefit is reduced if you file for Social Security before your FRA and it’s increased if you delay benefits beyond your FRA. If working longer allows you to wait until later, you’ll increase your benefit by 8% per year (with a maximum 32% increase over the standard benefit). So delaying Social Security benefits can create a substantial benefit if you or your spouse live a long life.

Reduce health care costs. If you’re eligible for employer-provided health insurance, working longer can reduce your health care expenses. Even if you’re covered by Medicare, Medicare Part B and prescription drug premiums can be significant, especially if you’re subject to high-income surcharges. The longer you can postpone these premiums, the lower your health care expenses will be during retirement.

Delay RMDs. If you participate in an employer’s 401(k) or similar plan, the plan may permit you to delay required minimum distributions (RMDs) until you stop working.

Increase pension benefits. If your employer provides you with a traditional pension plan, it’s likely that the longer you work, the higher your monthly benefit will be. Since these benefits are typically paid for life, any increase will affect your standard of living during retirement.

Health advantages

Not all of the benefits of working longer are financial. According to Harvard Medical School, the mental stimulation and social engagement provided by working longer is associated with a lower risk of dementia and death and improvements in overall health. And remote and flexible work arrangements make it easier than ever for those approaching retirement to continue working while improving their quality of life.

Not everyone experiences these benefits, though. It depends on the person and the type of work. For example, if a job is highly stressful or dull, continuing to work can harm your mental and physical health. If a job is physically demanding, the risk of injury may offset some of the other benefits of working longer.

Crunch the numbers

If you’re concerned about outliving your retirement savings, consider working a few more years — or even a few more months. Your advisors can help you crunch the numbers to get an idea of how working longer potentially might improve your retirement outlook.


***Sidebar: Is the 4% rule all it’s cracked up to be?

The “4% rule” is used to estimate the maximum amount someone can withdraw from their retirement portfolio while maintaining sufficient savings for life. It’s originally based on a study of stock and bond returns from 1926 to 1976.

This rule can help you gauge your potential standard of living in retirement, but you shouldn’t rely on it. There’s no guarantee that future stock returns will follow historical patterns. And, as with all investments, there’s always a chance that yours will lose value. Plus, the calculation depends on your particular circumstances — including your life expectancy, your investment portfolio’s risk profile and the future rate of inflation.

Relying on the rule, you risk outliving your retirement savings if you overestimate how much you can withdraw. If you underestimate withdrawals, you could sacrifice your enjoyment of retirement. A better approach is to work with your advisor to determine a withdrawal rate that’s right for you and to revisit and adjust that rate annually.

Securities and Retirement Plan Consulting Program advisory services offered through LPL Financial, a Registered Investment Advisor, member FINRA/SIPC.
Financial Planning offered through Planned Financial Services, a Registered Investment Advisor and a separate entity from LPL Financial.

Want help? Let's talk.