How Much Do I Need to Save for Retiremnet

Use this link to read the full article from Zing by Quicken Loans featuring comments by Michael Alexenko, CFA

Michael Alexenko, president of Royal Asset Managers, based in St. Charles, Illinois, says the true key to calculating how much you’ll need for retirement is to look carefully at your current spending habits and then determine how this spending might change after you leave the work world.

Alexenko recommends that you track your expenses before you hit retirement so that you can create an accurate household budget. He says tracking your expenses carefully for six months should provide you with a good average monthly spending rate.

Once you outline this budget, you can estimate how your spending will change in retirement. Alexenko says that transportation costs might fall in retirement because you will no longer commute to work each day. But your spending on meals and entertainment might increase because of the additional free time you’ll have.

“If you don’t need to leave much of a residual estate behind, then your spending rate can be higher,” Alexenko says. “But if you have good health, you have to plan for a longer retirement, which means a bigger nest egg or controlled spending.”


Survey Says: Most Investors Value Fiduciary Advice, Don’t Want to Pay

Use this link to read the full article from Insurance News Net featuring comments by Michael Alexenko, CFA


On the financial advisor front, professional money managers say that investors have been fed a bill of goods for decades stating that it’s “okay” to go cheap on financial advice.

“Individuals investors have fallen for the ridiculous ‘You don’t pay me anything’ line from insincere brokers for decades,” said Michael Alexenko, a financial advisor and president of Royal Asset Managers in St. Charles, Ill. “If an investor doesn’t ask the obvious question, ‘If I don’t pay you anything, then how do you get paid?’ then he has no one to blame but himself for paying what will likely amount to truly paying more.”

The way Alexenko sees it, transparency and the fiduciary standard are “synonymous,” while obfuscation and disguise are the favorite practices by those who enjoy playing on an unleveled field.

“The false conclusion that fiduciary advice costs more is perpetrated by a gang of brokers who benefit from claiming that the other advisor costs too much, while at the same time keeping their own compensation as opaque as possible,” he said.

As long as they can hide their costs that are buried in voluminous fund reports they gain the advantage of preying on an uninformed public, he added.

“That’s why the fiduciary rule that’s on the verge of implementation would have been vastly improved if it just required full disclosure on costs and allow the buyer to decide where the value really is,” Alexenko said.

As always, there are caveats on the issue of financial advisors, clients and fees. It’s not uncommon for many independent registered investment advisors to offer some legitimately free advice to small investors who are capable of opening a brokerage account and processing a mutual fund purchase.

“For people with $25,000 to invest, my pro bono assistance has saved many of them $1,250 in worthless upfront mutual load costs and unnecessary high annual expense ratios,” Alexenko said. “Even the robot advisor can’t beat that deal.”


Buy Term Life Insurance to Replace Your Income for the Necessary Time Period

Written by Michael Alexenko, CFA.

If you think about the purpose of life insurance it becomes much easier to determine how much you need and for how long. Life insurance is an income replacement or liability matching tool and as long as your heirs need your income for sustenance your need for life insurance remains.

Life insurance may create uncomfortable thoughts or an assumption that it is an unaffordable expense, which are possible causes that people attempt to ignore a critical topic for their heirs’ financial security. Anyone who fails to address the life insurance issue is exposing his/her family to an unfair risk.  

Assume you are a married 42 year old male and the father of two children who earns $125,000 annually. To date you have long term retirement savings of $325,000 and college savings for each of your children of $25,000. Your children are ages nine and seven. In this example you have two specific insurance needs; the payment of college education and the replacement of your lost income. To cover the education need the husband and father could buy a $200,000 15 year term life insurance policy for about $200 annually. Assuming the married couple continues to save for education expense the need for the insurance will diminish over the years but they have to insure against the possibility of an immediate tragedy.

The second and larger insurance need is the father’s lost income. My estimation is that the husband needs to buy about 20 years of coverage for no less than $2.25 million. By the time the man approaches 62 he should have accumulated most of the money that will be needed for retirement. At that point the need for income replacement drops significantly.

I arrive at the $2.25 million figure by assuming that the insurance proceeds will be invested and the survivors can draw about 4% from the principal value of all investments each year. Restricting draws to 4% of total investable balances will help the family to maintain purchasing power for the remainder of their lifetimes. Total investable assets with the policy proceeds will equal $2,575,000 and 4% of that amount in year one is $103,000. This doesn’t equal the total lost current salary of $125,000 but you have to account for the fact that the family is now three people rather than four. For a healthy male the cost of this policy is about $1,800/year. As an option, the insured could distribute the need over two policies; one ten year term policy for $1 million and a second 20 year policy for $1,250,000. The cost savings by splitting the policies into two is about $300 annually.


The Best Investing Advice for Beginners (From 13 Experts)

Use this link to read the full article from "The College Investor" featuring comments by Michael Alexenko, CFA

Don’t neglect your employer’s retirement plan. Allocating 5% -10% of your income to a 401(k)or SIMPLE IRA that offers matching contributions is possibly the best way to accumulate wealth.

Assume that you earn a starting salary of $40,000 and your employer offers a 3% matching contribution on your annual salary if you participate in the company’s retirement plan. This benefit amounts to a tax free raise of 3%. Or you might consider it to be like a built-in investment return on the funds you invest.

If you contribute $2,500 annually and your employer kicks in $1,200 then your assets have an automatic capital gain of 48% on your annual contribution amount. This is a return that every Wall Street hedge fund manager would love to have.

Keep your investments simple. Until you gain some experience in investing you would be wise to invest money into asset allocation funds or target date funds. If your retirement plan offers target date funds find one that matches your risk tolerance.

As a young investor it’s likely that a fund that holds at least 70%-80% in stocks is a fund that would match your risk tolerance. Because the funds provide broad diversification and consistent asset allocation strategies they are perfectly acceptable for 100% of your investment amount.

The only caveat is that it is best to identify a fund that is low cost (no more than .25% -.75% in annual expense ratio) and is not considered to be “actively managed."


Why Goals-Based Investing Might Be Right for You

Use this link to read the full article from Investopedia featuring comments by Michael Alexenko, CFA

 “If you don’t put your plan in writing and you’re not specific about your financial objectives you’ll be more likely to make ad-hoc decisions,” according to Michael Alexenko, chartered financial analyst (CFA) of Royal Asset Managers.The ad-hoc decisions Alexenko mentions might make sense in the moment though they can have a disastrous impact on a portfolio in the long-term. Think of the goal-based approach as a means to ground your investing, so you're driven to accomplish the specific goals you have in place. (For more, see: Your 401(k): How to Handle Market Volatility.)