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To feel confident in retirement, you know you need a plan. You may even have something in place with a specific retirement income number in mind. But are you on track to reach it? Having a clear idea of what you’re working towards is excellent, but it’s equally critical to know if that plan will stand the test of (retirement) time. Wouldn’t it be nice to know if you’re on the right pace to reach your retirement “number”? How do you know if you’re spending too much (or too little) in your golden years? Did the r ecent market volatility knock you off course ? Is there a way to track everything to see if you are still on the path to a successful retirement? There sure is! And it’s called Monte Carlo Analysis. A Monte Carlo Analysis is an excellent tool to gauge how likely you are to reach your retirement spending goals . Today we’ll dive into what a Monte Carlo analysis is, how it works, and how it can inform your plan's efficacy. Breaking Down A Monte Carlo Analysis By now, you’re probably picturing a high-class casino nestled in the French Riviera. But we’re not referencing this famous Monaco gambling landmark. Monte Carlo Analysis is a mathematical method for forecasting and evaluating risk more comprehensively—not as much fun as trying your hand at Roulette, but far more practical. To get started, you load all appropriate data into the software, like your retirement age, nest egg, spending goals, asset allocation, etc. After you input all the required data, the system uses the repetition of random variable assumptions based on your inputs to produce projected outcomes. Most models will usually run over 1,000 times! You’ll see the results populate on a bell curve. By evaluating the raw data, you’ll have access to a broad spectrum of outcomes from unrealistically good to unrealistically poor, with many reasonable ones in between. You’ll find the average of the entire range of projected outcomes in the middle, which is usually the most accurate. Projections via a Monte Carlo analysis are more valuable than a simple straight-line projection in an excel spreadsheet because it helps you estimate the likelihood of different outcomes. For example, are you wondering if $2 million is enough to retire at 60? Or is $1.5 million enough money to retire at 65? A Monte Carlo analysis can help bring color and context to the answer and give you the tools to make informed investing and spending decisions in retirement. Monte Carlo Simulation And Finance There are several ways a Monte Carlo Analysis can help you create and track a better financial plan because it specializes in randomness and uncertainty. Sound familiar? Much of your financial plan focuses on the future, and future results are far from certain. So you can model any aspect of your plan that fits the bill with Monte Carlo: Portfolio valuation, spending projections, long-term financial planning items like planned withdrawals, investment rate of return, and more. But why is it helpful? By taking the time to create an accurate model, the results you receive will be heads and shoulders above an “educated guess,” which, unfortunately, is often what people rely on. Instead, you’ll have an outcome that is produced with real data. You’ve worked too hard and saved too much to base your retirement savings plan on a guess. Monte Carlo helps you make informed, data-driven decisions, which can inspire confidence in your overall plan. Perhaps you’ll need to adjust your investment strategy to reach your financial goals. As you know, understanding risk is a core element of your financial plan. Monte Carlo Analysis is a much more technical way to quantify risk and understand your probability of success because you can view the end result as a probability figure. That figure details whether or not your plan is projected to succeed exactly as you have it. Rather than a single straight-line estimate that you might see on an excel spreadsheet, Monte Carlo Analysis helps you model a range of possible outcomes. It’s also a great visual aid! Here’s an example of what Monte Carlo results might look like. Although the process of running a Monte Carlo simulation is technical, you can present and understand the outcome with a simple chart. That’s more than just a nice-to-have feature; it actually makes the tool more effective. If you can understand a core concept, there’s a better chance you’ll implement and stick with it. How A Simulation Can Impact Your Real Retirement Experience It’s important to synthesize a simulation into your real life. How can you do that with Monte Carlo? This type of analysis brings content to your retirement plan —you’re not planning in a vacuum. It’s useful for helping you understand how well your portfolio may do decades from now if you’re planning on spending too much throughout retirement and even if you could spend more than you are planning to. Even though the inner workings of the simulation are technical, we can easily customize it for your unique situation. For example, we can input variables and assumptions we do know, such as when you plan to retire, how you plan to invest, and your life expectancy, then let the algorithm work its magic. The result of the Monte Carlo Analysis can even help inform us of how to adjust your plan when needed . Say your Monte Carlo score is far too high (yes, there is such a thing). That result might indicate you’ll have too much money leftover once you pass. Perhaps you consider adding an extra vacation each year or buying a new vehicle into your cash flow plan without risking your retirement. You can also see which variable (spending, investment returns, or taxes) impacts the outcomes the most. This knowledge can help you think about the areas of your plan to focus on or which element carries the most risk. You may find that an item you thought was important doesn’t have a notable impact on your plan. Or that something you didn’t think mattered is responsible for a larger portion of your success. We use Monte Carlo Analysis as part of our larger planning software with all of our clients who want a better sense of their financial security in retirement because we think it is a great tool to understand risk and obtain a more nuanced picture of your retirement plan. Covenant Wealth Advisors is a trusted group of financial advisors that can help you visualize your retirement and make necessary changes to get you where you want to be. Call us today to talk about how a Monte Carlo Analysis can help you identify key risks in your retirement plan or how you can get set up to easily track your plan going forward. Mark Fonville, CFP® Mark is a fiduciary, fee-only financial advisor at Covenant Wealth Advisors serving clients across the United States. He specializes in helping individuals aged 50 plus plan and invest for retirement. Forbes nominated Mark as a Best-In-State Wealth Advisor*, and he has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Schedule a Free Consultation Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.

When it comes to finding the right team to manage your finances, trust is everything. But trust is more than just a gut feeling. There are certain traits and characteristics you may want to look for to help you decide whether you should trust an advisor to help with your specific needs. But, like many things in life, trust is subjective and sometimes you just have to go with your gut instinct. Aside from instinct, we believe your journey should begin with asking smart questions. But, how do you know what questions to ask? Most people don't have experience constantly interviewing financial advisors. That's why a checklist of questions can be helpful from the start. Download our comprehensive list of questions to ask a financial advisor for more helpful tips. But there are additional keys to consider to find a financial advisor who is required by law to always put your interest first and one who has the competence to give you great advice in the first place. While trust is subjective, here's how to potentially improve the chances of finding a financial advisor you can trust. Ensure Your Financial Advisor Practices Under the Fiduciary Standard When screening potential registered investment advisors or financial planners, the first thing you may want to determine is if they are a fiduciary. The test should be an easy one—an advisor who is truly bound by a fiduciary standard will be willing to sign a fiduciary oath. Signing a fiduciary statement is critical because embodying its tenets supersedes a simple statement or promise. An advisor who follows a fiduciary standard is bound by law to act in your best interest. There are other standards of practice that don’t require strict adherence to the fiduciary standard, such as the new “Regulation Best Interest”, or Reg BI, that brokers are held to. The name can be confusing because there are four key components that brokers must adhere to including 1) Disclosure obligation; 2) Care obligation; 3) Conflict of Interest Obligation; and 4) Compliance Obligation. You can learn more here. It may be difficult for investors to understand the difference between a financial advisor serving as a fiduciary and a broker serving under the "Regulation Best Interest" standard. Check Out Their Specializations and Credentials Financial planners are not one-size-fits-all. Personal finance is a big topic and you want your advisor to be well-versed to support your specific set of needs. Are you in your 50s or 60s looking for an advisor who specializes in retirement income planning? Are you airline pilot? Perhaps you're a business owner in need of an exit strategy. Maybe you're a doctor who wants to start saving but also chip away at your massive student debt. Guess what? There’s an advisor out there for you. At Covenant Wealth Advisors, we specialize in in retirement income planning and investing. Credentials can also be an indication of the advisor’s expertise and practice focus. The CFP® is a well known designation within the industry. A Certified Financial Planner™ will have a broad knowledge of all areas of financial planning and have demonstrated that competence through education, experience, and testing. A Certified Public Accountant or CPA will bring additional tax knowledge which is paramount to sound financial advice. There are specific credentials for almost any financial planning specialization out there including divorce, college planning, and estate planning. An advisor may also be a member of professional associations that speak to their focus. For example, I'm a member of the National Association of Personal Financial Advisors (NAPFA) because we believe that clients are best served by fee-only Certified Financial Planners. We also believe that our advisors and our clients benefit from an association with other like-minded planners. Peruse their Online Materials A great way to get a feel for your potential advisors before speaking with them in person or over the phone is to take a look at their digital presence. Do they have a website? Take a look at their blog. What topics do they cover? Do any apply to you? As you read through their communication materials, does it feel like they are speaking to you about your needs or to someone else? Remember, this is how an advisor is choosing to communicate to the public and potential clients. If it doesn’t seem like they are communicating with you, it’s probably better to check out another advisor whose vision may be more closely aligned with yours. Many advisors will offer free resources in the form of checklists or questionnaires. For example, we post financial videos to help individuals better digest information. You'll also want to review the advisor's form ADV Part 2A and 2B. This document will reveal the advisor's business practices and any potential conflicts of interest. If you think you may be interested in working with a particular advisor, try one out to see how they approach certain topics. If the topic is what you need and their approach resonates with you, then it’s an indication that you may work well together. Set Up an Interview Beyond the more technical elements of the advisor/client relationship like competence and practice focus, there still has to be a certain amount of chemistry to make it work. Most advisors offer a free phone call or Zoom session for prospective clients. Once you've done your research and feel that it's worth pursuing, talk to them to get a feel for them, their process, and to see if you would be a good fit. This also gives you a good opportunity to ask them questions about their fiduciary responsibility and expertise. During this interview, there are some key indicators to watch for. Does the advisor appear genuinely interested in you? If so, this is a sign that they think you may be a good fit for them. You want an advisor to feel that way because if they don’t see you as a good fit, they will likely not give you the attention you deserve. Does it feel like the advisor is trying to sell you from the very first conversation? The initial meeting should be about establishing a mutual relationship. That’s difficult if the advisor seems intent on selling you something at the onset. Are they asking inquiring questions to better understand your situation and financial goals? A good advisor will use this first meeting to better understand you, so they can know if they are best suited to help you. Does the advisor speak in your terms or use industry jargon you can’t understand? A well-meaning, smart, and competent advisor that doesn’t effectively communicate with you can’t provide the same value as one that does. You may not understand the intricate details of what they do, but they should be able to explain it to you in simple enough terms that you don’t feel lost. Get a Financial Plan Before You Commit to Investing A lot of financial advisors say they provide comprehensive financial advice, but end up only wanting to sell you mutual funds or insurance products. While investment advice and insurance is one piece of the pie, the right financial advisor should provide advice on your total situation. Moreover, you may be nervous handing over your million dollar plus portfolio to an advisor you don't know very well. That's why we advise individuals to purchase a comprehensive financial plan from the advisor they choose first. A plan can help you answer a lot of questions such as: When and how can I retire? How can I reduce taxes? When should I take social security? Which accounts should I withdraw from first in retirement? The financial planning process can also give you the chance to get to know your financial advisor before you actually commit to having them manage all of your money. This face-to-face time may be instrumental in helping you find a financial advisor you can trust. For example, at Covenant Wealth Advisors we often design a customized financial plan before we ever invest a dollar. The financial planning experience may last three to four meetings over the course of four to eight weeks or more. We even provide a guarantee which means that we will refund the fee you paid if you are unhappy with our advice or services within the first six months of signing the planning agreement. Aside from the personalized advice clients receive, we've also found that financial planning gives clients a chance see how we work and communicate prior to making a long-term commitment. Starting with a shorter term commitment through the development of a financial plan may give you time to determine if you trust the advisor or not. Trust Yourself If you follow the suggestions mentioned above the last step is to make your decision. This requires that you rely on your own judgment. Finding an advisor is a lot like finding the love of your life. It's very subjective and if it doesn’t feel right, it probably isn’t. The advisor needs to show a genuine interest in helping you and leave you with a good feeling about working with them. But, that only scratches the surface and doesn't guarantee results. Even if they hit all the right buttons outlined above, if you don’t feel comfortable with them, it’s ok to keep looking. After all, it's your financial life. Give Us a Call If you are looking for an advisor you can trust to help you with your retirement income plan, we would love to hear from you. Give us a call and we will be glad to answer any questions you have. About Mark Fonville, CFP® He is the President of Covenant Wealth Advisors and a Certified Financial Planner™ professional specializing in retirement income planning, tax planning, and investment management. Mark has been featured in the New York Times, Barron's, Kiplinger Magazine, and the Chicago Tribune. Learn more Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.

In 1776, the Committee of Five, as they were called, edited Thomas Jefferson's draft of the United States Declaration of Independence and included these words.. We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness . The words our founders put on paper set the foundation for the freedom we all enjoy today. While most of us do indeed pursue happiness, there is no guarantee that we will achieve it. After all, life is hard. Recently, my wife and I attended a wedding in Maryland. We had a wonderful time dancing and conversing with old friends. One of the happiest people I spoke to was a young man in his 40s who had been recently diagnosed with late stage cancer. I learned that he had made the decision not to get treatment because, in his eyes, he wants to enjoy life to the fullest while he still can. That must be one of the hardest decisions a person can make. After all, he has a beautiful wife and children who love him. I'm also in my early 40s and this news really hit me. We all deserve to be happy but sometimes we delay the truly important things in life that actually create happiness in the first place because we think there will always be a tomorrow. I pray there will be a tomorrow for the young gentleman I met at the wedding. But, sometimes it takes a glimpse of another's suffering to remind us about what‘s important and what makes us happy in the first place. What does it take to be happy in retirement? Here are four ways to potentially increase your level of happiness. 1. Embrace relationships In 2017, the longest running study on Happiness ever designed was published by Harvard University. The revelation was that close relationships, more than money or fame, are what keep people happy throughout their lives. 2. Exercise (even a little bit) Experience tells me that exercise improves my mood. But, as it turns out, academic research also tells us that even people who work out even once a week or for as little as 10 minutes a day tend to be more cheerful than those who never exercise. 3. Give to others People who give money or time to others are happier. Harvard Business School Professor Michael Norton conducted a number of studies that showed people are happier when they spend money on others vs. buying "things" for themselves. You may think that buying bigger and better material things for yourself will provide happiness, but research suggests otherwise. Even more surprising is that giving has also been shown to be good for your health and increase longevity as outlined in a 1999 study by Doug Oman of the University of California, Berkeley . 4. Establish a relationship with a financial advisor They say that money can't buy happiness. But new research from Herbers & Company published in 2022 tells us that people who maintain a relationship with a financial advisor tend to be happier than those who do not. In a survey of 1,000 random consumers across the US, Herbers & Company found that those with a financial advisor are statistically happier than those who haven't hired an advisor. Conclusion What's the bottom line? You can influence your own happiness. Think about the relationships you have in your life and reach out to someone you care about. Having money up to a certain point can make you happy. But, studies show that happiness starts to level out at a certain amount of income and spending more on tangible things doesn't increase your feeling of happiness. Instead, consider giving your time or money to people or organizations in need to help boost your level of happiness. If you don't exercise now, start a new routine of simply taking a one mile walk in the morning. It doesn't have to be hard and the science of habits tells us that creating new habits in small bites is much more likely to create a permanent habit than trying to go "all in" at once. And finally, if you don't have a financial advisor you can trust to help guide your decisions, contact us . Money stress is real and having a plan may help create peace of mind, help you focus on the things that matter, and bring a bit more happiness to your life. So, what do you think? What makes you happy? Let me know! About Mark Fonville, CFP® Mark is a personal financial advisor and the President of Covenant Wealth Advisors. He manages investment portfolio and provides retirement income planning for individuals age 50 plus who have over $1 million in investments. He has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Schedule a call. Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. We provide investment advisory, financial planning, and tax planning services to individuals. Investments involve risk and does not guarantee that investments will appreciate. Past performance is not indicative of future results. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.

There are 300,000+ financial advisors in the United States. That makes it hard to find a financial advisor whom you can trust. To help solve that problem, Forbes has announced it's annual list of Best-In-State Wealth Advisors for 2022 and Mark Fonville of Covenant Wealth Advisors was awarded a spot on the list . Mark Fonville, CFP ® was identified as a top wealth advisor based upon a robust selection process. Forbes collaborated with SHOOK Research to choose each advisor based on a selection process which included an "algorithm of qualitative and quantitative criteria, including: in-person interviews; industry experience; compliance records; revenue produced; and assets under management." Each year, Forbes creates a list of top financial advisors that strives to identify advisors on characteristics that go beyond simply "robo-ranking". According to Forbes, they seek "advisors that are leading the way in offering best practices and providing high-quality experience for clients." Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Adviser believes that the content provided by third parties and/or linked content is reasonably reliable and does not contain untrue statements of material fact, or misleading information. This content may be dated. SHOOK does not receive compensation in exchange for its Top Advisor placements or rankings, which are determined independently ( see methodology ). Participation in this directory is limited to ranked advisors; once placed on a ranking, advisors may choose to pay fees to Forbes and Shook for premium listing features as indicated by highlighted names. Investors must carefully choose the right advisor for their own situation and perform their own due diligence. SHOOK’s research and rankings provide opinions intended to help investors choose the right financial advisor and are not indicative of future performance or representative of any one client’s experience. Past performance is not an indication of future results

Can you hear that? Yes, it’s the chatter of real estate markets. Over the last couple of years, the housing market has been as hot as ever. In 2021, housing prices ballooned by 18.8% , and housing demand has continued upward since 2008. According to the Wall Street Journal , middle-class Americans are being priced out of the new housing boom, making affordability a massive issue: “At the end of 2019, there was one available listing that was affordable for every 24 households in this income bracket. By December 2021, the figure was one listing for every 65 households.” With inventory at an all-time low as recently as the end of 2021 and demand nearing an all-time high, the housing market looks like it's set to burst. But what’s driving this flurry of activity? Today, we wanted to take a closer look at the state of the U.S housing market in charts , including how we got here and what that data might mean for all buyers, whether you’re a first-time homebuyer or someone who has moved quite a bit. Here are five powerful U.S. housing market charts that help illustrate these mind-blowing real estate trends. The Markets Say “Jump,” and Houses Ask, “How High?” First, let’s look at a chart that will provide some perspective on just how much home prices have climbed. The S&P/Case-Shiller home price index is a popular measure of national housing prices. To construct the index, they take samples from 20 cities across the U.S. In December of 2021, the index rose to 287. By comparison, the index was 207 at the height of the 2008 housing bubble. That’s a 39% increase from the peak! What’s fueling this massive increase? It’s likely a combination of broad demand for new homes and record low interest rates that make borrowing large sums of money more affordable. Though interest rates are on the move, so there’s potential for a respite from the storm. As of February 28th, 2022, housing prices are at an all-time high as illustrated by the S&P/Case-Shiller U.S. Real Estate Market chart below. The S&P/Case-Shiller index is an important measure of national housing prices. This chart uses the 20-city index. As you can see, home prices continue to rise to record levels as many seek new homes. New Construction Is Going Up In addition to rising home values, people are building more homes, making homebuilders in high demand. With record shortages, pre-built houses can be hard to come by, so some homeownership hopefuls decide to build. Housing starts as of March of 2022, which indicate new residential construction projects, were 35.7% higher than the average over the past several decades. Historical data from the U.S Department of Commerce measures this factor during the month construction begins. We see the same trend with building permits, too. The chart below indicates that even more new construction is on the horizon since a building permit means someone has taken steps to get approval for their construction. Building permits are 39.7% higher than historical average. But building your own home won’t come cheap. Construction costs hit record highs in 2021. Data from the U.S Census Bureau found that prices for construction rose by 17.5% from 2020 to 2021—the most significant jump since 1970. Material and labor costs are also making homes that much more expensive. Overall, material costs increased by over 23%, with lumber skyrocketing by 85%. So, if you’re looking to build, be sure to account for these additional expenses. Existing-Home Sales Home sales are going steady as demand continues to rise alongside the growing economy. Unlike the previous data, this U.S. housing market chart examines the sale of homes already built. In March of 2022, 5.77 million existing homes were sold. While existing home sales have seen a slight decline since the start of the year, what’s even more interesting is the price these homes are selling for. At the end of 2019—pre-pandemic—the median sales price for a house was $327,100. At the end of 2021, the median price bounces to $408,100. That’s a 124.8% increase over two years! How Quickly Are Homes Selling? Our next real estate market graph indicates the relative supply of available homes or the monthly inventory. The months’ supply of inventory is a technical measure that estimates how long it would take to sell every home that is currently available to buy based on recent market activity. This is notably different from new construction or existing home sales in that this measure compares the supply of homes with the level of demand in one number. When this number is lower, it means houses are selling quickly. While the average metric is 5.7 months, we’re currently sitting at 6.4 months as of March of 2022. This increase is likely due to higher home price tags, which we explored above. Keep in mind that supply plummeted at the onset of the pandemic when the initial home-buying spree began. Experts found that inventory plummeted 53% when compared to pre-pandemic levels. Even though the supply of homes has increased since then, it is still limited. We expect to see limited supply continue to drive housing construction. Mortgage Refinancing Although not a measure of new construction or sales, mortgage refinancing is another relevant item in the real estate market. People have many reasons to refinance. Cash-out the equity in their home Adjust their loan term (going from a 30-year to a 15-year mortgage, for example). Lower their monthly payment. Regardless of the borrower's reason, refinance activity is highly correlated with interest rates. The lower the interest rate, the more likely borrowers will be to refinance because the new mortgage will have a lower rate. Rates have been at historic lows, making refinancing an appealing option. In this graph, you can clearly see that refinancing spiked at the beginning of 2020. Again, this is directly tied to the fact that the Federal Reserve cut rates in response to the Covid pandemic. To avoid confusion, notice that the 30-year treasury rate, displayed on the right side of the chart, is inverted. This activity will slow down as mortgage rates start to go back up. Considering that inflation fears are at the forefront of the national economic stage, this is likely to happen soon. In fact, the average interest rate for a 30-year fixed mortgage is already 4.91%. Plus, the Fed announced plans to continue hiking interest rates over the course of the year to help counteract high inflation levels . Understanding The Housing Market The housing market has been a marvel to watch and study over the past couple of years. Understanding where these numbers come from can help bring comfort and knowledge to the situation. There’s no better antidote to fear and confusion than education and knowledge. We hope you found these real estate market graphs and charts and our explanations to be helpful. If you have any questions or need help seeing how the real estate market may affect your ability to retire comfortably, give us a call . We would be happy to help! And remember, if you’re saving for a home, check out our free guide about the best accounts to save more money . Happy reading! About Mark Fonville, CFP® Mark is a personal financial advisor and the President of Covenant Wealth Advisors. He manages investment portfolios and provides retirement income planning and retirement tax planning for individuals age 50 plus who have over $1 million in investments. He has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Schedule a call. Disclosures : Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Adviser believes that the content provided by third parties and/or linked content is reasonably reliable and does not contain untrue statements of material fact, or misleading information. This content may be dated.

People often overlook the cost of healthcare in retirement. While you may be in excellent health when you first retire, it’s essential to plan for additional healthcare costs as you age. That’s where long-term care insurance comes into plan. Long-term care insurance can be a critical component of your retirement planning. Since the costs for long-term care continue to climb, you must have a plan to cover these costs in retirement in case you need them. But, long-term care insurance is not for everyone and many individuals may be better off self-insuring instead of paying expensive premiums. So, what is long-term care insurance, and do you actually need it? Here’s what you need to know. What is Long-Term Care (and How Much Does It Cost)? Long-term care is a specific type of care designed to help people who cannot perform certain routine functions and daily activities like, Eating Dressing Bathing Toileting Continence Transferring themselves (for example, safely moving from the bed to the floor). Collectively, these tasks are called activities of daily living, or ADLs. It may seem like an outlier, but the likelihood that you'll need long-term care services as you age is relatively high. The Center for Retirement Research at Boston College found that 1 in 4 people over 65 will have severe long-term care needs . So, what defines “severe”? In this case, researchers identified severe needs as requiring assistance with at least one ADL for more than three years. This could be the case if you begin to develop Alzheimer's disease or another cognitive impairment. Apart from the odds of needing long-term care being higher than you may have imagined, the care itself isn't cheap. According to Genworth Cost of Care, nursing home care can run about $100,000 a year, and even opting for home care options will only cut your costs by about half. Long-term care is a considerable risk. You need a plan to help pay for it, especially because the typical retirement health insurance like Medicare and supplemental policies often don't cover long-term care costs. While Medicaid does offer financial support for long-term care, many families must exhaust most of their resources before having a chance to qualify for aid, making it a better option for low-income households. Understanding Long-Term Care Insurance Long-term care insurance is one way you can protect yourself from unmanageable long-term care expenses. Long-term care insurance is a separate insurance policy specifically designed to cover long-term care costs. Policies can be written to cover care in various settings such as in-home, nursing homes, assisted living facilities, a home health aide, or adult daycare. Your finances, desires and living situation will determine the best type for you. How does long-term care insurance work? First, you’ll fill out an application. The insurance company will also want to check your medical records and may require an "interview" to get an idea of your health and assess the risk they face by insuring you. Here, they'll determine your eligibility for coverage. Sometimes if you're in poor health or have a pre-existing health condition, you may not qualify for coverage. If you’re approved, you’ll decide the type and level of coverage you want. Most long-term care policies provide coverage in terms of a daily benefit amount and a lifetime benefit cap (or time period). For example, you may choose a policy with a $300 daily benefit and a $100,000-lifetime cap. Your policy would cover $300 in costs per day that you required long-term care but would stop paying once it paid out a total of $100,000. The policy may also state the lifetime cap as a number of years rather than a dollar amount— such as a $300 a day policy for 5 years. Once you have a policy in effect, you're usually eligible to receive benefits when you can't perform at least 2 of 6 activities of daily living. You'll need to notify the insurance company by sending in a form, and you may need a doctor's note or evaluation to verify your condition. You won’t start receiving your benefit immediately, however. There’s also an elimination period, or waiting period, that must pass after your need arises but before the insurance company starts paying. You get to choose our elimination period when you buy the policy—30, 60, or 90 days. Of course, a policy with a shorter elimination period will have a higher premium. The cost of a long-term care policy (premium, deductibles, etc.) depends on your age, gender, marital status, coverage amount, and insurance company, but could range from just a few thousand per year to well over $1,000 per month. The sweet spot for buying a policy is usually in your mid-50s to early 60s. Why Consider A Long-Term Care Policy? The central benefit of all insurance is giving up a known amount of money today (the premium) to protect yourself from an even greater but unknown loss later. Ltc insurance does the same. Buying a policy may give you more certainty with your retirement savings, and at the same time, provides you with options and flexibility for care. But purchasing a policy might not just be for your own benefit. It can also alleviate financial and caregiving stress for family members since they will likely be providing home health care services regardless of your ability to cover the costs of that care. In fact, 63% of caregivers use their own retirement savings to pay for care for their relatives. Your long-term care insurance may very well protect your kids and grandkids from draining their savings. A long-term care insurance policy can provide you and your loved ones with peace of mind knowing that you have protected your future health. Should You Self Insure Against Long-Term Care Costs? One of the biggest problems with long-term care coverage is that the policies are expensive. Even worse, premiums continue to rise. At Covenant Wealth Advisors, we’ve had dozens of clients receive annual premium rate increase notices from their long-term care insurance providers. Rising premiums can pose a big risk to your cash flow. That’s why we recommend that you ask the following questions before you purchase a long-term care policy: Do I have enough assets to cover the potential costs of long-term care? Is it better to use the equity in my home to self-insure against long-term care costs? Do I have other assets that I can sell in the event I will need to pay for long-term care costs in the future? Does it make sense to add a long-term care rider to my life insurance policy instead? The truth is that we’ve advised more clients not to get a long-term care policy than to get one. But everyone is different and the answer depends on your personal situation. Make A Plan To Get The Care You Need Long-term care insurance isn’t the only way to handle the expense of prolonged care, but it’s an excellent area to explore, and you may find that it’s the ideal approach for you. It’s also just one item to address in retirement. For a quick reference on other key retirement issues, see our checklists here . Don’t hesitate to contact us with any questions. We’d love to help you get started on developing a comprehensive financial plan for retirement today! About Mark Fonville, CFP® Mark is a personal financial advisor and the President of Covenant Wealth Advisors. He advises individuals age 50 plus on retirement income planning, investing, and tax planning strategies for a successful retirement. He has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Schedule a call. Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. We provide investment advisory, financial planning, and tax planning services to individuals. Investments involve risk and does not guarantee that investments will appreciate. Past performance is not indicative of future results. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.

At this stage in your life, you’re likely used to the idea of a cash flow plan, budget, spending plan, whatever your preferred term. But what makes a retirement cash flow plan so different? Your income sources change. Now you have to rely on social security, a pension if you’re lucky, potential part-time work, and your retirement savings and investments instead of a traditional paycheck. That can be a stressful feeling. Making this transition to retirement is challenging for many people because they are afraid of running out of money. In fact, that’s been a top fear among retirees for years! Cash flow in retirement planning is a careful science and creative art. It’s not easy because there are so many assumptions that need to be made. But, if done right, you or your financial advisor can help you create a personalized retirement cash flow plan that helps you visualize your sources of income and clearly identify what expenses your cash flow will help cover for the rest of your life. You will also get a feel for how much money you need to withdraw from your portfolio each year. The end result of a well-designed retirement cash flow plan is that you’ll have the clarity you need to enjoy life without stressing over the dollars and cents. Here’s how to make a retirement cash flow plan…that actually works! You can also download our checklist to use as a guide for getting your entire retirement in order! 1. Get A Clear Idea Of How Much You "Want" To Spend Try to come up with an estimate of how much you want to spend per month. If you’re having trouble, take a look at your current cash flow plan—what’s coming in vs. what’s going out each month. It’s beneficial to have a spending target to help guide your savings and investment decisions. That way, you can have a more straightforward plan to reach your goals and a benchmark to let you know if you’re on track. Many financial planning experts say a strong retirement savings plan attempts to replace anywhere from 80-90% of your pre-retirement income to maintain your current lifestyle. That’s a good rule of thumb to keep in mind, but the reality is that the closer you get to retirement, the less you need to rely on estimates. Now’s the time to start putting real numbers and scenarios in the mix. For example, several people believe they will spend significantly less in retirement, but that's not always true. Most end up spending about the same in the first few years as they did before retirement. That could be the case for you, too! One way to divide up your retirement spending needs is to divide them into three different buckets: Needs Wants Wishes Needs are the bare essentials that you’ll need to pay for in retirement. This includes fixed retirement living expenses including your mortgage, electricity, clothing, groceries, utilities, real estate taxes, and home maintenance. The needs category of cash flow planning should also include sound estimates for medical expenses in retirement. If you want to plan for early retirement prior to your Medicare eligibility, then you’ll want to account for private healthcare insurance premiums and out-of-pocket expenses. A private healthcare plan can be expensive, so plan accordingly! Wants include the items that start to make life a little more enjoyable. This category may include retirement goals, like new car purchases, travel, gifts to family and charity, home improvement projects, and hobbies. Don’t forget that if you have a significant other, you’ll want to plan for car purchases for each of you. Also, we find that individuals tend to spend more on travel in the first 10-15 years of retirement. Travel expenses tend to decline after that so your retirement cash flow plan should reflect that. Wishes are just that. This final bucket of expenses is focused on the quality of life expenses that you don’t need to have, but they sure would add a whole new element to your retirement lifestyle. Maybe you want a new boat in retirement. Or perhaps you have your eyes set on purchasing a vacation home or camper. Or maybe you have grand plans to move to a high-end retirement community. Why should you divide your retirement cash flow expenses into three categories? For the most part, the wants and wishes items can always be delayed or removed from your expenses in retirement if the economy suddenly gets hit by a recession. Cash flow buckets also allow you to easily identify how much you need to cover the essentials vs some of the finer things in life. Other adjustments may be necessary depending on whether your overall lifestyle changes, if at all, as you transition into retirement. Ask yourself, Do you plan to move? If so, what's the cost of living in the new area? What are your travel goals? How will you spend your time? Do you still want to work? Start listing out the non-negotiables that you’ve been dreaming about, like traveling to see your grandkids every few months, and remember, those things have a cost associated with them. If you weren’t spending on those items before, add them to your current budget to help you arrive at your retirement budget. 2. Know How Much You "Have" To Spend Once you know what you plan to spend, compare that to what you have available to spend. Just like your spending plan now, creating a retirement cash flow plan that works is all about balancing what you have coming in versus what's going out. The key difference is that your income sources will change. Instead of a regular paycheck, you’ll be spending your Social Security benefits and pension plan (if you have one) or taking withdrawals from an annuity, savings account, or another bank account, individual retirement account (IRA), 401(k), or other investment options. You may also have passive income sources like a rental property. You need to know how these cash flow sources can work for you and how they interact with each other. 3. Create A Strategic Withdrawal Plan A retirement spending plan is more than just deciding how much you can withdraw from your nest egg; you also need to think about how you will withdraw. A sure-fire way to extend the longevity of your investments is by creating a solid plan for drawing from them. A withdrawal strategy notates which investment accounts you draw from, how much you take, and when you take them. Doing so maximizes your investments and minimizes your taxes. Some techniques you can use may include: Have a predetermined plan for when and how you will adjust your withdrawal based on fluctuations in your investments. Not all market movements will impact your withdrawals, so where will you draw the dividing line, and by how much will you reduce or increase your withdrawal when you cross it? Create an income “floor" of stable investments that you can withdraw from no matter what happens to the rest of your portfolio. Take a portion of your total withdrawal for the year from each account type to blend your taxes and keep the lowest average rate possible over multiple years. 4. Make The Most of Your Tax Opportunities Retirement accounts are excellent tools for saving and deferring taxes, but too much tax deferral isn’t always the most opportune way to save. Don’t pass up an opportunity to fill up lower brackets now while deferring income into later years when you may be in a higher tax bracket. If you are in a lower bracket now than you will be later, especially once you start taking required minimum distributions (RMDs), it could be a great time to leverage a Roth IRA and look into a Roth conversion. Tax-free Roth dollars can bring more flexibility to your spending plan. You can also plan your regular donations tax-efficiently. Cash is the most expensive way to give from a tax perspective, so some more efficient ways to give are: Appreciated assets . You can deduct the market value of your gift instead of selling it and paying capital gain taxes. Qualified Charitable Distributions (QCDs) . You can have your RMD sent directly to a charity, and it will bypass your taxable income altogether. Donor-Advised Funds (DAF) . These are especially helpful if you don’t always get to itemize your deductions. You can bunch multiple years' worth of donation into a single year and claim the deduction, then pay benefits out of the DAF over time. Whether it’s withdrawals, charitable donations, or investments, maximizing your tax situation keeps more money working for you. That's why it's critical to work with an advisor who does tax planning. A tax advisor can help you make the most strategic decisions with your money long-term, and it just happens to be one of our specialties! 5. Use Proper Assumptions in Your Retirement Cash Flow Plan Now that you have itemized your income and expenses, you’ll need to make sure that you integrate the right assumptions into your retirement cash flow plan. What assumptions should you consider within your plan? Investment returns. Investment rates of returns are notoriously difficult to predict in the short-term and long-term but they are paramount to a successful cash flow plan. We often use conservative assumptions between 3-5% per year depending upon a client’s risk tolerance and personal situation. While returns can be higher or lower, we think it’s prudent to be conservative. Inflation rate. Inflation rates have skyrocketed but the federal reserve is targeting long-term inflation rates of between 2-2.5% for standard expenses. Other types of expenses such as healthcare may experience more volatility and see much higher inflation rates. Inflation also plays a role in interest rates. The Fed has a plan to raise interest rates to curb current high inflation levels. Federal tax rates. Federal tax rates depend upon your taxable income and this can change dramatically depending on how you draw down your assets in retirement. State tax rates. If you are lucky enough to live in a state without state income taxes, then this will be zero. However, for the rest of us, you’ll want to account for your respective state income tax rates. Long Term Capital Gains tax rates. Long-term capital gains rates can fluctuate from 0% to 23.8% depending upon your personal circumstances. Every situation is different, and each requires a unique plan. We would be happy to show you how to have the best retirement possible. You can also download our free checklists to use to help you get started thinking about your path forward. Set up some time to meet with our team of dedicated financial planners today! About Mark Fonville, CFP® Mark is a personal financial advisor and the President of Covenant Wealth Advisors. He manages investment portfolio and provides retirement income planning for individuals age 50 plus who have over $1 million in investments. He has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine. Schedule a call. Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. We provide investment advisory, financial planning, and tax planning services to individuals. Investments involve risk and does not guarantee that investments will appreciate. Past performance is not indicative of future results. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.

It’s tax time! Are you ready to file your 2021 federal tax return? Before you do, make sure you’ve checked everything off your list so that your return is both complete and accurate. Here’s a checklist of key tax numbers for 2022 that will help you make sure you’re on the right track, and we will highlight some last-minute tips here. 1. File On Time The easiest thing taxpayers can do to make their tax filing go as smoothly as possible is simply filing on time. The standard filing deadline is April 15th each year, but for the 2021 tax year, it falls on April 18th, 2022, due to the Emancipation Day holiday. If you need to file an extension, doing so will extend your deadline to October 17th, 2022. It isn’t automatic, though. Make sure you properly request the extension if you need one. Filing an extension may give you more time to file your return, but it won’t lengthen the clock for estimated payments. If you owe the IRS money in April, be sure you pay it in April, so you don’t get stuck with late fees and penalties. Bonus: Gather and organize all of your critical tax forms such as social security numbers, W-2s, 1099s, receipts, and more. 2. Increased Tax Brackets for 2021 and 2022 Federal income tax rates are the same for 2021 and 2022, and those are: 0% 12% 22% 24% 32% 35% 37%. However, the income levels where you enter the next higher bracket have changed due to inflation. Remember that your filing status (single, married filing jointly, head of household, etc.) determines the income level for each bracket, so be sure to check the correct table if you are doing some last-minute planning. Even though you’ll file your state tax return separately, don’t forget to account for Virginia’s state income tax (or your state income tax) in your planning. 3. Standard Deduction The most exciting part of tax time for most people is figuring out what they can deduct from their income before calculating their final tax bill. You can either take the standard deduction or the total of your itemized deductions, whichever is more. The vast majority of filers— about 90%— will end up taking the standard deduction. Again, that amount depends on your filing status. $12,550 for single or married filing separate $25,100 for married jointly $18,800 for the head of household 4. Should You Itemize? If you can deduct the greater of your standard deduction or itemized deductions, then, of course, you’ll want to know what your itemized deductions are. Popular tax deductions include: Healthcare expenses . Although healthcare expenses are a common deduction, only your healthcare expenses in excess of 7.5% of your adjusted gross income (AGI) can be counted as an itemized deduction. That may seem technical, so we’ll give a simple example with round numbers. Suppose your AGI is $100,000, and you have $10,000 in qualified medical expenses. Since 7.5% of $100,000 is $7,500, you can itemize $2,500 in excess medical expenses. Charitable contributions . To maximize the value of your donations, consider ways to take full advantage of the tax benefits of doing so. Consider giving more significant gifts every few years rather than smaller gifts each year to bunch your donation to take advantage of the higher itemized deduction. You can use a donor-advised fund to accomplish that, which is a prevalent tax reduction strategy for higher-income earners . Also, if you have appreciated assets, you can donate them directly without having to incur the capital gain tax liability you would owe if you sold them first then donated the cash. Mortgage interest . The Tax Cuts and Jobs Act decreased the mortgage interest deduction from $1 million to $750,000. So any home purchased after December 16, 2017, abides by the lower limit. You may also be able to deduct private mortgage insurance (PMI) or other insurance premiums if it applies. Keep in mind that you can no longer take a deduction for the interest paid on a home equity loan if you don’t use it to substantially improve your house. State and local taxes . You can deduct up to $10,000 in SALT taxes, and typical examples include property taxes, income, and sales tax. You may have other unique tax deductions available depending on how many qualified dependents you have, if you're self-employed, own a small business, etc. Our team is a fountain of tax tips and advice, and we love offering strategic tax advice for our clients. 5. Contribute Extra To Your Retirement Accounts You also have time to make last-minute contributions to retirement accounts and your HSA. You have until your tax filing deadline to contribute for the previous calendar year, and this is a great time to add additional savings and reduce your overall tax liability. Here’s a quick reminder of the annual contribution limits for your 2021 accounts: HSA : $3,600 for self-only coverage and $7,000 for family coverage with an extra $1,000 in catch-up contributions when 55 or older. IRA : $6,000 with an extra $1,000 in catch-up contributions when 50 or older. Don’t forget to think about how this will affect you in retirement later. If you are near retirement, consider how your deduction now may mean a deferral that impacts your taxable income in retirement . 6. Organize Your Documents and Set Up Direct Deposit Getting organized before you file will help ensure you don’t miss something. Gather your income reporting documents such as W-2s and 1099s and do your best not to leave any out. Then, locate verification for your itemized deductions and double-check the amounts. Lastly, set up a direct deposit to expedite your refund. Most of the time, you’ll receive direct deposit weeks, if not months, sooner than having the IRS mail you a paper check. This may be especially important this year, with the IRS already announcing that we should expect a slow tax season. 7. Prepare for A Refund Are you expecting a tax refund? First, be sure to file early, as the IRS already anticipates massive delays this filing season. One way to speed up the filing process is to e-file online, whether you're filing your own taxes, working with a tax professional, or using a tax software. Doing so will ensure the IRS gets your documents faster and allows you to correct any errors in a timely fashion. You can also set up direct deposit so the refund check can funnel directly into your bank account. 8. We Help With Tax Planning and Tax Preparation Be mindful that proactive tax planning and tax preparation are two different things. Both are important, and together they can be a critical value-add that saves you time and money. Ready to file your income tax return this year? Our helpful tax cheat sheet can help you make sure you get the most out of your tax preparation efforts, and we would be happy to help you as well. Call today to get started! About Scott Hurt, CFP®, CPA Scott is a personal financial advisor with Covenant Wealth Advisors, a fee-only financial planning firm. He advises individuals age 50 plus on retirement income planning, investing, and tax planning strategies for a successful retirement. Schedule a call. Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. We provide investment management, financial planning, and tax planning services to individuals age 50 plus with over $1 million in investments. Investments involve risk and does not guarantee that investments will appreciate. Past performance is not indicative of future results. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.

The financial world doesn’t always paint annuities in the most flattering light. The reason is that many annuity contracts have historically been very expensive and very difficult to understand. Even worse, there are countless horror stories of financial advisors pocketing big commissions by selling annuities to their clients, even when another investment strategy could have made a lot more sense. But, when used appropriately, specific types of annuities can be a strategic addition to your retirement income stream. It’s always important to keep in mind that no annuity is great for everyone and many investors may not benefit from an annuity at all. Should an annuity be part of your retirement plan? Let’s take a look at how an annuity works and the reasons why one may or may not be good for you. 1. What's An Annuity? We explore several types of annuities next, but for our purposes, think of an annuity as a financial product that provides a guaranteed stream of income over a set period of time. It's a contract between you and the insurance company. You pay the insurance company premiums in exchange for a specified amount of income. Those incomes can be regular monthly or annual payments over time, or all at once in a single lump-sum payment. 2. Types Of Annuities You must understand the different types of annuities before deciding if one may be a good fit for you. Each annuity differs from insurer to insurer depending on the terms of the contract, but there are some basic categories that all annuities fall into. Fixed vs. Variable . Fixed annuities offer guaranteed income at a fixed interest rate over a period. Variable annuities have an investment component to them. You can select how you want your annuity invested from a set of options, from conservative to more aggressive, and your account grows accordingly. The payments you receive will fluctuate depending on investment performance. Sales of variable annuities are regulated by the SEC and FINRA. Immediate vs. Deferred . This distinction describes when your payments start. With an immediate annuity, your payments begin right away. Of course, that means you need to fund it in one lump sum. Immediate annuities are the simplest to understand, and a deferred annuity will start paying you later. You can fund a deferred annuity with a single lump sum, but you can also make gradual payments over time until the payouts start. 3. What Annuities Can Bring To The Table The most noteworthy benefit of annuities is that they can provide you with a stable source of guaranteed income, which can be helpful for a portion of your retirement income . Exactly how your annuity works will depend on what’s in the contract, so make sure you shop around for the features you want (and want to pay for!). Many products can be adjusted for inflation , which means the value of your payments won’t decline over time. They can also provide long-term financial security since most provide an income “for life,” meaning you reduce the financial risk of outliving your retirement savings . They can even offer death benefits to beneficiaries. Deferred annuities grow tax-deferred, but the IRS considers them as ordinary income tax once you start taking withdrawals. 4. Why You Should Be Careful With Annuities While lifetime income is a compelling story, perhaps the most significant piece of advice about annuities is, Read the fine print! A large part of why annuities get bad press is that aggressive salespeople often promote them to people who don’t fully understand what they are buying. Don't buy insurance products you don't understand. It's important to work with financial professionals whose recommendations have your best interests at heart. Variable annuities can have complex formulas to determine how much growth the insurance carrier credits to your account and what your future payments end up being, aka the annuitization process. Then there are the fees. The fees you pay directly cut into the returns you receive, which the company often buries in long, confusing paragraphs. Additionally, annuities are a rather illiquid investment—at least until you start receiving annuity payments. If you need access to the principal investment via an early withdrawal or selling it during the "surrender" period, you'll likely get stuck with hefty surrender charges. Quite often the surrender period is substantial, around 6-10 years depending on the product, so you have to be okay tying your money up for a decade or so. However, all annuities aren’t the same, and some can be great solutions to the right problem. 5. Why Immediate Annuities Could Be Worth It While most annuity products are expensive, complex, and frankly don't yield the type of returns you could if invested elsewhere—that isn’t the case for all annuities. When applied to the right situation, an immediate annuity, also known as an income annuity, could be an excellent addition to your retirement income plan. What makes an immediate annuity different? For starters, they are simple. That makes immediate annuities pretty easy to understand. You buy an annuity for a flat amount and immediately receive a specified payment for the rest of your life. Here, there’s very little chance of confusion. That’s good because it lets you make a well-informed decision about whether the trade-off is good for you. They also provide you with a way of establishing a fixed income floor that never runs out. Since they pay for life, you don’t have to worry about what the stock market will do or how long you will live. It can be very comforting to know that you will receive at least a certain amount of income regardless of what happens. Pro tip: Don’t confuse the payout rate on an immediate annuity with a rate of return on investment. They are not the same thing. Our free guide details several opportunities for pre-retirees to build their nest eggs. Curious if an annuity makes sense for you or are you wondering how it compares to other investment options? We’d love to help you figure it out. Annuities require a lot of financial planning considerations, like your cash flow, current investments, financial goals, and more. C all us today to get personalized guidance on your own retirement. About Broderick Mullins, MBA Broderick is a personal financial advisor and fee-only financial planner with Covenant Wealth Advisors. He manages investment portfolios for individuals age 50 plus with over $1 million in investments. Schedule a call. Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. We provide investment management, financial planning, and tax planning services to individuals age 50 plus with over $1 million in investments. Investments involve risk and does not guarantee that investments will appreciate. Past performance is not indicative of future results. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.

Disclosures Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.