Retirement | Live a Life By Design

Retiring On Your Own Terms

Posted on January 17, 2020January 16, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

“I want to live by the beach,” said his wife. “I want to live in the mountains,” said the husband. Differences of retirement plans typically exist within the same family. One person may wish to retire in a different environment than the other. Many of our clients come to their complimentary initial consultation without a complete understanding of their spouse’s desires for retirement. Simply because someone is married to another person for many years does not translate to an understanding of that person’s long-term goals and dreams. Communication is critical in all relationships, in a couple pondering retirement plans it is vital.

To help our clients resolve differences of opinion, and desires about retirement, we developed an approach that addresses the three “E’s”: Environmental, Economic and Emotional. To fittingly address the needs of each of the partners, these three “E’s” provide a comprehensive background for each to gain a deeper understanding of the other. This article will provide you considerations for each of the three components of retirement planning.

Environmental considerations are critical due to the impact your surroundings play in the overall happiness and health of a person. For example, scientists have proven that environment affects a person’s overall satisfaction in life attributed to their surroundings. Some people are happier in sunny, warm climates while others enjoy the cold, harsh tundra. By understanding your partner’s thoughts on environment, each of you will gain knowledge about the type of surroundings desired by the other. We work with a client who enjoys mild weather and sandy beaches. To compromise, we divided the year into quarters and accommodated her wish for salty water in the winter and his mountainous terrain for game hunting in the fall of each year. They remain content at their primary residence for six months of the year during seasons that are not extreme. Compromise is the key and extending understanding with a mindset of flexibility helps with the creation of a joyful retirement.

Economic factors contribute to the retirement quality of all of us. Considering that you have accumulated more than a sufficient amount of assets to live anywhere you wish, economic factors play less of a role in the retirement decision process. However, lets assume you have saved but may have some cash flow difficulty in the future. It is necessary to consider all means of support and the term in which that support will be available. As presented in our last article, the location of your retirement home will be a considerable outcome based on your economic means.

After considering environmental and economic factors, the most influential of these three factors, emotional, must be broached. To illustrate the power of emotions in decision making, we will share this short story. Tom and Linda decided to retire. Tom had his mind made up that he would retire in the mountains with a cabin and enjoy the land around him for his ideal retirement. Linda, often submitting to Tom’s decisions, was in misery in the mountains. Her asthma, allergies and other minor health conditions only worsened in the humid, hot summers in the mountains. She tolerated the first couple of years in the mountains and simply decided to make her wishes known to Tom. After a deep discussion of all the desires for her retirement, it was decided that they would share their time in retirement between the mountains and her beachfront condo she had been dreaming about for many years.

Compromise and consideration of the environmental, economic and emotional factors of retirement will yield the most effective choice for couples. The transition time to retirement is difficult for many people. Seek out someone who understands the needs and desires of retirees as well as possesses the expertise to help design and execute a plan that is pleasing to both partners. Life is short. Focus on these three factors and live life on your own terms!

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Relocation Considerations for Retirement

Posted on January 10, 2020January 8, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

One of the most difficult decisions in retirement planning is to relocate. If you reside in a state that has a high income tax rate, sales tax rate and/or ad valorem tax, it may be something to consider. During the retirement phase of life, your savings must last beyond your lifetime. To ignore the cost of living could be the difference between truly enjoying a lifetime of income and experiencing worry at a time in life that you shouldn’t.

A recent study of individual taxation by state yielded some not-so-surprising news. California, Hawaii, New York, Connecticut and Illinois are the highest taxing authorities on individuals. These states are currently seeing an exodus of its citizens to lower cost of living states. To eliminate 15% of your tax liability by simply relocating to Texas or Florida, states without individual income tax assessments, may provide the additional savings needed for your savings to last to lifetime.

Another area of consideration is property tax. If a state does not assess an income tax on individuals, it will, in most cases, utilize an ad valorem, or property tax, to generate revenue needed to fund the state’s functions. For example, some people consider moving to Texas due to its absence of individual income tax assessments. However, in most of the counties contiguous to the Dallas metroplex, the rate of assessment for property taxes creates more of a tax burden than one would pay by remaining in Oklahoma.

Personal property tax is another consideration when relocating in your retirement years. States have begun to assess sales tax on automobile purchases versus the excise tax previously charged for such transactions. It may take some of the joy out of your new purchase when you realize the bill from the state could be as much as $5,000!

Lastly, two of the necessities of life are utilities and food. When considering relocating, the cost of meals and household utilities should be considered. In extreme temperature climates such as experienced in Alaska, the cost of food and utilities, compared to Oklahoma, are very expensive. Due to the lack of fruit, vegetable and dairy production facilities and farms, these important staples of life must be flown into the location. The costs of delivery cause extremely high retail costs for consumers.

Although Hawaii may be the land of paradise many of us enjoy on vacation, the cost of living on the islands is very high compared to other states. Recently, we enjoyed a stay on Oahu and the cost of a gallon of milk was $7.99! If you are raising kids in your family, it may be cheaper to buy a cow.

It is important to consider many aspects when thinking of relocating during retirement. Cash flow is the ultimate factor coupled with your ecological requirements. One of the lowest costs of living states is Tennessee but you may wish to see the beautiful ocean shore each day. Trade-offs are a part of our lives. Rate the most important factors for you before undertaking a move to another state.

If you have questions as to how you can create a lifetime income plan, contact a Certified Financial Planner^TMpractitioner to assist in the analysis so that you can make the best decision for your family’s needs.

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Big Changes Affecting Your Retirement

Posted on January 3, 2020January 2, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

A couple of bills containing significant changes to retirement planning were signed into law by President Trump on December 20, 2019. We will provide just a few of the sweeping changes that affect most of us planning or currently in retirement. The Setting Every Community Up for Retirement Enhancement Act of 2019 (commonly referred to as, “The SECURE Act of 2019) is effective for tax years beginning January 1, 2020.

If you are reaching the age of 70-1/2 and anticipated taking a distribution from your IRA, or suffer a penalty, the Act extends the date of required minimum distributions to age 72. When the present age of 70-1/2 was applied to IRA distributions, U.S. citizens were living fewer years, on average, than they are now. By increasing the age of required minimum distributions to age 72, the federal government has deferred revenue for another one and a half years which allows continued growth of the retirement funds. Many of our clients do not need or desire the distributions required under previous law. However, the penalty for failing to withdraw the IRA funds was more costly than the effective tax rate applied to the distribution. In other words, it was far cheaper to simply take the distribution and pay the tax bill.

The Act has closed a very effective generational planning strategy used by many people. No longer can your IRA be utilized for multi-generational planning (i.e., your grandchildren could have benefited from a “stretch” IRA strategy in the past). Under the provisions of the Act, the non-spouse beneficiary, or any beneficiary more than 10 years younger than the IRA owner, must take the full IRA value by the end of the tenth year after the death of the IRA owner. Of course, taxation will occur at a much sooner date than previously recognized due to the distribution occurring within ten years of death of the IRA owner.

Congress and President Trump have expressly acknowledged that children require families to spend money for housing, clothing, food, etc. Another relief item for individuals adopting or birthing children is the use of $10,000 of your employer-provided retirement plan assets without penalty. Although the participant will be required to pay income tax on the distribution, the 10% penalty for early withdrawal will not subject the family to additional burden.

IRAs can be confusing for individuals. To assist you with helpful information, please go to Compass Capital’s Resource Center and watch one of our instructional videos. If you have any questions regarding your particular retirement plan facts, seek out a Certified Financial Planner practitioner and CPA that specializes in families just like yours.

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How To Avoid Common IRA Mistakes

Posted on December 27, 2019December 27, 2019 by Jimmy J. Williams, CPA/PFS, CFP®

Most retirees have heard the word “IRA” and may not fully understand this retirement savings plan. An IRA, or Individual Retirement Account, is merely a type of account that allows for the owner to grow, tax-deferred, the underlying investments within the account. I often hear people say that “I have an IRA for each year to diversify my investments.” It is often misunderstood that the IRA owner can own one IRA and maintain many different investments within the account. This article will help you avoid some of the common mistakes made by IRA owners.

Mistake Number 1: Avoid ineligible rollovers.

Under the current federal tax code, owners of IRA may rollover the IRA once-per-year. The confusion, and resulting taxable event, occurs when the owner interprets, incorrectly, the “once-per-year” requirement. This descriptor of time means literally one year from the date of the last rollover, not the calendar year. For example, if you performed a rollover on March 1, 2018, and performed another rollover on February 28, 2019, you would be subject to a penalty.

Mistake Number 2: Missing the 60-day deadline.

A gentleman came to our office recently with a concern about his IRA. After much discussion, we provided him several alternatives to resolve his issue. His concern was due to advice he received from a friend that he could withdraw money from his IRA to purchase a piece of property and then seek financing from his bank to return the withdrawn funds. However, the friend, not a licensed financial adviser, failed to mention the strict timeline for such transactions. The Internal Revenue Code allows 60 days to accomplish the rollover to prevent taxation of the event. In this instance, the man was informed by his bank the process of underwriting the loan would take longer than 60 days. To illustrate the tax cost of this transaction, the man had withdrawn $200,000. The penalty of 10% assessed to the distribution, the man was under 59½ years of age, and the income taxes due now cost the man approximately $80,000! We quickly worked with his local bank to structure a lending arrangement that would allow him to return the withdrawn funds to his IRA within the 60-day mandatory deadline. We solved the problem but the stress it created was unbearable for the gentleman.

There is no IRS relief for missing the 60-day rollover deadline unless you file for a Private Letter Ruling with the IRS which will cost thousands in filing fees and you may not receive relief if your facts do not warrant such. The simple mitigation strategy is to not use your IRA as a lending source. Congress meant for these accounts to be long-term in nature and for retirement purposes.

Mistake Number 3: Failing to Meet a Hardship Exception.

One of the greatest contentions of angst to individuals is when hardship is being experienced by the family and funds in the IRA can’t be utilized for the particular relief needed. Unless the IRA owner experienced a natural disaster that is described in the Internal Revenue Code, the hardship distribution received from the IRA will be taxable and subject to a possible penalty for early withdrawal if the owner is less than 59½ years of age.

The confusion that causes this mistake to occur is that employer plans generally provide for a hardship distribution. IRAs do not. By statutory language, few exceptions to the penalty application to the distribution apply. Two of the primary exceptions we have seen are higher education expenses for a dependent and a first-time home purchase by the IRA owner.

This area of the U.S. tax laws is very complex. It is vital you seek appropriate guidance before potentially committing the mistake. If you are concerned about your investments and/or your IRA account, you may qualify for a Complimentary Stress-Test. Seek out a Certified Financial Planner™ practitioner and CPA to give you the confidence you are in compliance and meeting your retirement objectives.

For additional, free information about investing and tax planning, go to compasscapitalmgt.com where you will find a wealth of information to help you navigate life!

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Last-Minute Retirement Planning Ideas

Posted on December 20, 2019December 20, 2019 by Jimmy J. Williams, CPA/PFS, CFP®

When you look at the calendar and realize another year has passed, it is time for a few more strategies to enhance your retirement account. Some of these actions may seem simplistic in nature but investing is not as difficult as many people would like you to believe. Investing in a diversified portfolio and rebalancing periodically is about as simple as any process can be for protecting your future.

Before you leave the office for the holiday season, consider reviewing your current portfolio within your employer-provided plan. 2019 has been a year of significant market growth in the United States. Record highs have been reached this year and this is a good result for most equity investors. With such growth in a diversified portfolio it is likely that your risk level within the portfolio has increased, too.

To maintain the acceptable level of risk you originally desired at the onset of your portfolio development, it is critical to sustain the original allocation. This is accomplished by rebalancing your portfolio based on one of two methods: 1) time; or 2) asset class. This example is purely for educational purposes. When the portfolio was originally established, you may have chosen a 50/50 equity to fixed income allocation. Considering the markets have been very positive on your portfolio and your allocation has expanded to 60% equities. Based on the current allocation, you are now experiencing a greater level of risk than you desire.

By performing the task of rebalancing (i.e., selling your equities and buying more fixed income) you are keeping your level of risk in line with your original target. This strategy is the basis for most theories of portfolio design and risk acceptance. However, you must possess a degree of discipline that does not become greedy when times are good and fearful when the economy is contracting. As an anecdote, we often inform our clients that they must “be fearful when others are greedy and greedy when others are fearful.” The stock markets are auction-based markets. Someone must be selling something for someone to buy it. This belief applies to new issues when a company desires to “go public”. The issuer of the stock is asking for a certain price (i.e., Initial Public Offering Price our IPO) and the public may desire to buy at that price.

Another yearend strategy we recommend is a review of the individual assets classes within an allocation. For example, small cap stocks performed excellently in 2017 and declined in performance in 2018. However, in 2019, the asset class is, once again, performing well. I am not saying that you should own small cap mutual funds. As an illustration, you should review each of the different assets classes and determine the inherent risk within your portfolio.

To help our clients control the amount of risk within their portfolios, we developed a system that “stress tests” their holdings and overall allocation. By analyzing the risk of the portfolio, the investor can be more comfortable knowing their portfolio is not invested at levels of risk that cause them worry. Also, we believe diversification must be achieved in market sectors and geographically to control the risk component.

If you are confused by some of the language in this article, don’t let it keep you from moving forward to protect your future security. You may wish for someone to “stress test” your holdings, asset allocation and project potential for your future. Seek out a Certified Financial Planner™ practitioner and CPA that can help guide you through the confusion and help you reach your goals in a non-emotional and logical manner.

For additional, free information about managing your portfolio in a manner that allows you to sleep at night, go visit the Compass Capital Management website. You will find a wealth of information to help you navigate life!

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3 Mistakes Most People Make With Their Retirement

Posted on November 15, 2019November 15, 2019 by Jimmy J. Williams, CPA/PFS, CFP®

During my thirty year career of guiding individuals to realizing their retirement goals, I have reduced the most critical of mistakes people commit when accumulating retirement assets in their employer’s plan. These mistakes can be overcome and people have a higher probability of reaching their intended goals.

Mistake #1: Making Decisions through Fear

Investing should be performed with a clear mind and thoughtful research being the driver for change. Too often people accumulating for retirement commit the mistake of making changes to their retirement plan account after the negative impact has occurred. This is the equivalent of turning on the hydrant and spraying water on your house after the structure has completely burned to the ground.

We believe everyone should self-assess their goals for retirement. These goals should be attainable. For example, everyone uses the same phrase when thinking about investments: “High return on my investments with no risk.” This, of course, is a fantasy. Risk is present in every facet of life including your employer-provided retirement plan.

To correct for this mistake, learn to keep calm during temporary market disruptions. With the volatility of our current markets, you would be buying and selling all the time and miss the opportunities to meet your goals for long-term growth.

Mistake #2 – Timing the Market

One of our clients informed us that a former colleague of his was constantly buying and selling in his Thrift Savings Plan. His friend thought this approach would prevail for better growth in his account. However, just the opposite has been proven true by economists and researchers of behavioral finance. To believe a long-term perspective can be maintained with such a short-term approach to finances is not a valid one.

To overcome this mistake, each investor should realize he doesn’t possess all of the knowledge of the market and may turn his retirement plan assets into a speculative investment. This does not have to be the case. We firmly believe proper allocation and diversification of your portfolio will keep risk at acceptable levels while obtaining long-term potential for your assets.

Mistake #3 – Borrowing from Your Retirement Savings

As individuals it becomes difficult for us to look at this bucket of money and experience struggle in our lives. Instead of adjusting our lifestyle and budgeting within our means, we use loans from our retirement plans with the understanding that we are “borrowing from ourselves so it isn’t hurting my account”. The fallacy of this statement is that you’re, in fact, providing for a shortfall in your retirement account during possible peak earnings or growth seasons.

Your plan will require interest to be paid on your “loan”. The rate of interest is usually lower than your market returns and the smaller payments returned to your account may grow but your overall compounding effect will be diminished.

The overall solution to these critical mistakes is to ask for advice from someone that can hold you accountable to a plan that you design for your future. We serve as an advisor as well as life coach for our clients. To be that calming voice of assurance when you are making progress or the soft correction needed when you attempt to deviate from your plan allows us to help you achieve success on your terms.

If you are concerned about your current ability to reach your retirement goals in your TSP, IRA, 401(k) or other employer plan, contact a CPA/PFS or Certified Financial Planner™ practitioner for a complimentary consultation. You may find the answers you need.

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Simplify Your Life, Consolidate Your IRAs

Posted on November 8, 2019November 7, 2019 by Jimmy J. Williams, CPA/PFS, CFP®

Diversification is a common term heard by most investors. However, its true meaning is sometimes lost. Recently, we were meeting with a new client of ours that is retired. When the woman brought her giant, purple, three-ring binder to the first meeting, we were somewhat puzzled. Near the end of our first meeting, she opened up the binder to reveal that she owned six, yes six, different IRAs with a total of three advisors!

She must have noticed the look of shock on my face and responded with a phrase we hear, although erroneously, that this is a form of diversifying her portfolio. We examined her statements for the different custodians and asked if we could provide her a “second opinion” as to the state of her investments according to her goals. She quickly responded affirmatively and we set the next meeting.

After much review of the statements, we noticed a trend among the various advisors. Each advisor had taken a similar strategy to helping the client meet her lifetime income goals! Further analysis explained what we previously thought about her approach to diversification – the client had not truly diversified her portfolio but had concentrated her portfolio, inadvertently, by never informing the advisors of her use of multiple advisors. In other words, she was highly concentrated in certain assets classes within her total holdings that exposed her to significant risk. We use the term “overlap” to describe the result of using several advisors that essentially invest in the same assets classes.

During the second meeting we verified her goals, risk tolerance and cash flow needs to confirm our understanding. We provided her a consolidated report of all six IRA statements and she was alarmed at the problem she created with so many accounts. After explaining our recommendation of diversification in many different forms – asset classes, geographically, market sectors, etc. – she was ready to simplify her life.

By combining all of her IRAs into one account, she reduced the amount of paperwork necessary to be maintained for tax purposes and monitoring of her investment positions. Additional diversification was achieved by including asset classes not previously in the portfolio that would reduce her exposure to risk while maintaining her need for immediate cash flow each month. Her smile was all we needed to see to know that we had provided her the highest level of response and service as well as a resolution to a worry she had been carrying for some time. She also through away the giant, purple binder!

If you have multiple accounts with multiple advisors, you should consider a simpler approach to achieve your desired result with a consolidated account of truly diversified investments. We have a saying in our company, “To make things complex is simple. To make things simple is complex.” In other words, let us help you make life simple that you can enjoy retirement on your own terms. Stress? We don’t think it’s necessary when you work with a retirement planning specialist.

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It’s That Time of Year for IRA Owners

Posted on November 4, 2019October 31, 2019 by Jimmy J. Williams, CPA/PFS, CFP®

For many years you saved taxes by contributing to your Individual Retirement Account (IRA) or employer-provided retirement plan. Now, it is time to retire and the IRS says, “Do you remember all of the tax savings you realized for the past 35 years? We want it back!” Perhaps this is a bit extreme but there is an Internal Revenue Code section that requires you take required minimum distributions (RMD) from your IRA or pay a 50% penalty. Ouch!

To mitigate or eliminate this penalty it is critical that you aggregate all of your IRAs to calculate the total RMD that must be distributed by December 31, 2019. Over my 32-year career as a CPA and wealth advisor I have seen many instances where this simple task was erroneously performed and clients paid significant penalties. For example, Bill (not his actual name) was approached early in his retirement years to establish several IRAs to “diversify” his portfolio. This is not a form of diversification but merely a way to create more paperwork.

After he established six IRAs, he sat back and relaxed thinking retirement is a pretty good time of life. Time passed and the year came that Bill was required to take a RMD from his IRAs. The CPA for Bill thought he had accounted for all of Bill’s IRAs when, in fact, he had overlooked two of the accounts. The total funds in the two omitted accounts were $300,000! Imagine the impact this amount of funds would have made to the RMD calculation. Bill actually owned a total of $1,000,000 in IRAs and claimed a RMD on only $700,000. Bill failed to claim $10,949 of RMD and suffered a penalty in the amount of $5,474 for simply failing to account for all of his IRAs.

How can you avoid this negative impact? When we meet with new clients we perform a review of their income tax returns as well as all of their investment statements. Many people don’t understand the types of investment accounts they own.

To mitigate all of this confusion, we look for ways to eliminate or minimize paperwork to make your record keeping much simpler. As stated earlier, more accounts does not equate to diversification.

Required Minimum Distributions are required from IRAs the year after the owner turns 70½ years of age. To reduce the RMD amount you may wish to consider Qualified Charitable Deductions. This is a strategy in which the trustee of the IRA will distribute the RMD, or a portion thereof, to a qualified charity. To meet the criteria for this type of distribution, the taxpayer must meet the age criteria for RMDs. The limit for the charitable deduction is not the RMD limit for the year but a statutory limit of $100,000 per taxpayer.

IRAs can be confusing. Don’t take chances with your financial future. Seek out a CPA and Certified Financial Planner practitioner that specializes in retirement and tax planning. If you own an IRA, don’t give your money to the government. You worked for it, we can help you keep it!

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What Is Causing All of the Market Volatility?

Posted on September 23, 2019September 20, 2019 by Jimmy J. Williams, CPA/PFS, CFP®

Have you noticed your retirement portfolio activity looking like a bad EKG? Market fluctuations have been extreme the past few months. This type of market experience is a test of your investment philosophy and willingness to “stick with your approach”.

Many different factors create market volatility. One area that causes market concerns is the geopolitical risks faced by investors. This type of risk is controlled by policy of the U.S. Government and its leaders. The impact of geopolitical risks can be significant to our economy such as the tariffs currently imposed on a few of our trading partners. These countries have maintained a rather fluid trading program with our country and, due to the recently imposed tariffs, the cost of goods flowing from these countries to the U.S. are much higher. The purpose of the tariff is to persuade the trading partner to amend trade agreements on a more equitable basis. For example, the U.S. imports a significant number of consumer products that are considered necessities for Americans (i.e., electronics, appliances, clothing, etc.).

By forcing tariffs on the imported goods, Americans will consider alternatives that may be produced in the U.S. or another country that is not, currently, burdened with a tariff. Too often trading agreements become one-sided or inequitable. This simply means that we are importing far more in foreign goods than we are exporting to our trading partners’ countries. An imbalance results from this these transactions called a trade deficit. The role of the current policy makers in the U.S. is to create a balance of trade (i.e., our imports equal exports).

A concerted effort by the U.S. Congress and President determine the fiscal policy of our nation. This policy is primarily affected by two main tools – taxes and spending. Congress establishes, or approves, the appropriations (or spending) on various programs and it is ultimately signed by the President. Different approaches to the budget can cause significant market fluctuations. For example, if the Congress increases spending in the defense sector of our economy, the market may interpret this action to mean defense stocks could see a growth in the coming years. The inverse could be true if Congress were to reduce spending on defense. Social programs such Social Security and Medicare consumes a majority of the annual federal budget. These commitments to the participants, who are beneficiaries of the programs, are strongly defended against cuts in spending due to political will.

The Federal Reserve Board controls the monetary policy in the U.S. This regional banking system is responsible for the management of our banking processes and the supply of currency within the system. One of the most critical functions of the Federal Reserve Board is the gathering and interpretation of economic data to determine inflationary impacts on the domestic economy. Our current market conditions have created a prolonged lower interest rate environment and, coupled with the tariffs, a strong U.S. Dollar. Inflation has been relatively controlled through the efforts of the Federal Reserve Board members.

By developing a strong, long-term plan for investing to meet your goals and objectives, you should not be ruled by the recent volatility. Too often, investors react to volatility by trying to time the market. This approach could lead to a catastrophic ending for your retirement plans. If you are concerned about your current investment strategy meeting your needs, seek out a Certified Financial Planner practitioner to assist you with a “second opinion”. The only thing you have to lose is worry.

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Why Your Credit Score Is So Important

Posted on September 16, 2019September 12, 2019 by Jimmy J. Williams, CPA/PFS, CFP®

Are you considering the purchase of a retirement home? Or perhaps simply leasing a seasonal residence in a retirement community? Your credit score, no matter your age, is critical to managing your financial matters. Let’s discuss the various components and uses of a credit score that will assist you in achieving your retirement goals.

If you own property and/or an automobile, your insurance rate is partially dependent upon your credit score. The FICO (Fair Isaac Corporation) Score is an industry standard that allows lenders and other service providers to evaluate your capability and mindset toward credit. We highly recommend our retiring clients eliminate all indebtedness before retiring. However, many forms of credit extension, other than bank loans, rely on your credit score for purposes of granting the credit. Property and casualty insurance companies use your credit score to determine how responsible you operate your car. How is this possible? The company attributes your good credit history to also being a responsible automobile owner. Granted such attribution is not the only factor but it is a prominent function of the determination of your premium for insurance.

Your credit score is computed based on several factors:

payment history;
types of credit you obtain;
total amount of credit compared to income; and
amount of unsecured credit available to you (i.e., credit card lines of credit that are not used but available).

One of the goals of my life is to achieve a perfect credit score of 900. This is a Herculean task simply because of the manner in which the score is computed.

For years, I have maintained an 800+ credit score, which, at times, would drop for no apparent reason. Further research revealed that my score would be reduced because I didn’t use my credit cards! Yes, you read this statement correctly. I didn’t use my cards and my credit score would be reduced because of available unsecured credit that was not used but could be used immediately. Seems a little draconian to me but this is the rationale of the FICO algorithms.

We have many clients who have not utilized credit for many years. The only form of credit that is available to them is their credit card. With significant cash flow and net worth, you would think their credit score would be perfect. Not so. Their scores will be reduced for a lack of credit history of sufficient volume.

Even in our retirement years, the need may arise for you to borrow from a bank, request a better credit card and/or require insurance for your property. All of these transactions require an excellent credit score. If you are concerned about your credit score, or feel your credit history is incorrect, request a free copy of your credit report from Experian, Trans Union or Equifax. (Go to www.annualcreditreport.com to request your free report.) By law these credit reporting agencies are required to issue you one free copy of your credit report annually.