Sign up with your email address to be the first to know about new products, VIP offers, blog features & more.

All Posts By Michael Lecours, CFP

Case Study: Tapping into Retirement During an Emergency

Recently we worked with a client who needed about $50,000 for an emergency expense. He was in a bind and didn’t have much in his checking or savings accounts. His only option, he thought, was to tap his IRA.

As we explained to the client, there are a lot of drawbacks to using IRA funds before retirement:

  1. If taken out early, the client would be subject to income tax (maybe 20%) plus a 10% IRS penalty. A $50,000 withdrawal would trigger $15,000 in taxes and penalties. The client would end up with only $35,000 after taxes.
  2. There are very few hardship distributions allowed in an IRA.
  3. There is almost no way to put the money back into the IRA after it has been taken out.

As a solution, we advised the client to look to their 401(k) with their employer. Specifically we advised the client to borrow money from their 401(k). With this arrangement it does not trigger income taxes and there’s no penalty, but it has to be repaid in 5 years and the client has to pay interest, in addition to many other restrictions.

We almost always advise against taking retirement money in any way (including borrowing from a 401(k)). But in this case, the client was in a real tough bind and this became the only sensible option.


How to Become a Millionaire: Take Advantage of the 401(k) Match

Taking full advantage of your employer’s 401(k) match can be one of the best strategies to save for retirement. In a study of 401(k) millionaires in Fidelity Administered plans, most took advantage of the employer match. In fact, 28% of the balances came from their employer. That includes the employees contributions and the growth of those contributions.

Check with your HR department to make sure you are getting that match – it’s free money! And then continue to check every year to make sure your are still maximizing the match offered by your employer.

Nine Connections You Didn’t Know Between Happiness and Retirement

Money Magazine recently wrote a great article about happiness and retirement.  Here are a few key take-aways:

  1. People rate happiness highest in their teens and twenties.  Then it drops down between their 30’s and 60’s. But it rises again in retirement.
  2. The age at which folks are happiest, according to a study by Wes Moss, is 85!
  3. According to the Moss study, retirees can buy happiness.  The more money in savings/investments the happier the retiree. But anything over the $550,000 level isn’t as effective at increasing happiness. There is a leveling off effect that occurs.
  4. Retirees have more enjoyment in spending money that comes from a pension or social security rather than spending money from investments in their 401(k)/IRA or savings.
  5. The Moss survey suggested that retirees with 4 hobbies are happier than those with 1 or 2.
  6. Retirees who find a part time job tend to have fewer major diseases.  In many cases, they can find jobs that are fun or connected to a hobby.
  7. Retirees who rent tend to be happier than those who own their own homes
  8. Retirees who live within 10 miles of their children tend to be less happy than those who live farther away. The reason why remains a mystery.
  9. The satisfaction someone receives from spending time with friends and family is highest among those aged 65+.


Do You Have an Out-of-Whack Portfolio?

Research out of Investment Company Institute found that 11% of investors have not rebalanced their investments in the last five years.  As the US stock market continues its bull run, the value of US stocks represent a larger and larger portion of the portfolio.

All of a sudden, a portfolio that was balanced five years ago could be taking on more risk than you originally planned. Money Magazine states that a portfolio in 2009 invested 60% in stocks and 40% in bonds may have a current mix of 75% stocks and 25% bonds.  If you’ve not looked at your portfolio over the last few years. Now is a great time to get started.  Here is a summary of steps to take:

1)      Gather all of your statements – Investments accounts with us, accounts held elsewhere, 401(k) statements, etc. Tally up your overall asset allocation.

2)      Find what looks out of line – Does one mutual fund represent more than 25% of the portfolio? Does one stock represent more than 10% of the portfolio? Is one asset class accounting for a large portion of the portfolio?

3)      Look to rebalance – identify the appropriate asset allocation (primer found here).  You may also want to spend some time developing an asset location strategy, if we haven’t guided you already.

NU Fixed Account Rate Declines

NU Retirees: For over a year, the interest rate for the Fixed Account in the 401(k) plan at Fidelity has been declining.  The decline has continued into 2015 with the rate reducing from 2.25% to 2.0%.  As we have mentioned in the past, we now view the fixed account as a proxy for cash.

We’ve written a lot over the past year about how to view cash in your portfolio – posts can be viewed here.

Are You Spending Too Much On Coffee?

If you’re like the average American who regularly buys coffee, you spend close to $1100 a year on coffee (Source). That breaks down to about $4 a day, every weekday. Over time, that really adds up. At the end of 30 years, you’ve spent over $30,000 on coffee.

Talk about too much caffeine! Will you look back and wish you did something different with that money?

Here’s what happens if you did: Instead of a daily coffee run that runs about $4 each weekday, you take that money and invest the savings every year for 30 years. At the end, you could have a portfolio worth close to a whopping $180,000 (assuming a 10% rate of return, which is fairly realistic, given the S&P 500’s arithmetic average rate of return was 11.29% between 1964 and 2013) (Source).

Can’t live without coffee? Try buying cheaper coffee. Or cut the donut. But even if you bought a coffee for $2 (instead of $4) and invested the difference over the same time period, you still end up with a respectable amount saved – $85,000.

Kind of makes you wonder if you don’t already have enough caffeine in your diet.


Coffee Cup Principle


How ETFs Can Reduce Your Tax Bill

At the end of the year, many mutual fund companies distribute capital gains to shareholders. This causes a taxable event right at the end of the year and in some cases can be an unwelcome and costly surprise when it comes to tax time. Note: if you only have an IRA or Roth, you’re off the hook – this taxable event only applies to investors with individual, joint or trust accounts.

This year, we have seen some funds projecting capital gains that are as high as 11% of the value of the fund. If you had a $100,000 position in a fund that issued a capital gain of 10%, that would be a $10,000 capital gain. If taxed at 15%, you can expect to pay an extra $1500 in taxes.

In a lot of cases – this is unavoidable. Investors could face a much bigger tax bill if they sold out of the fund as they may have large capital gains as a result of holding the fund for many years. Either way, the investor is likely have to pay an unexpected tax.

That begs the question – how can investors build portfolios to minimize the pain of capital gains distributed by the fund company. One answer involves the use of passively managed Exchange Traded Funds (ETFs) which tend to be much more tax efficient than mutual funds. posted a good article that helps to explain why ETFs can help avoid the unpredictability of capital gain distributions.

View the article on

Too late for this year, but contact us if you’re interested in how ETFs could help reduce your future tax bills.