Andrew Westlin

What’s A Checking Account, And How Does It Work? A checking account is a bank account for your normal money: the cash you might need day to day. Here’s everything you need to know about how they work. Checking accounts are at the core of all of our financial lives. Like many folks, I’ve had a checking account since I was 18, and while I’ve personally bounced between several banks (mostly because of geographical needs), one thing has remained constant. My checking account is the first thing I turn to for my daily needs: whether that be to pay my energy bill (which is continuously rising in this NYC heat), or to withdraw a $20 bill for pizza and some ice cream. Checking accounts are for your daily or monthly money. Because of this intimate relationship, your checking account should have some key functionalities.  Below, you will find Betterment’s guide to checking accounts and the details you should consider when selecting what’s right for you. Please note that Betterment is not a bank and this information is intended to be purely educational. What are checking accounts good for? Monthly Transactions: Checking accounts generally do not have limits on the number of monthly transactions you can make electronically, through your debit card, or at the ATM. On the other hand, with savings accounts, you may be limited. Variety of ways to use: You can use your debit card at merchants around the globe, withdraw cash from an ATM, make electronic transactions, and even write checks. Automatic transfers to other financial institutions: With a checking account, you can easily transfer money between your own personal accounts or to others. FDIC Insurance: If your bank is an FDIC member, your money in a checking account is insured by the U.S. Government for up to $250,000. See the FDIC's website for more information. What are checking accounts not good for? Interest Rates: Banks pay an average of 0.06% on checking accounts, and most pay as little as 0.01%. Because of this, you should consider limiting the amount of funds that you keep in your checking account to cover daily or monthly expenses. Keeping too much cash may harm you in the long run due to inflation. What kind of fees can be expected with a checking account? Monthly Maintenance Fees: Most checking accounts come with a monthly maintenance fee. The fee varies by bank, but is generally in the range of $0-20. Oftentimes there are easy ways to get around this fee, by maintaining a certain average daily balance (set by each bank), or by establishing and maintaining a direct deposit to your account. This can come right from your paycheck. Overdraft Fees: If you withdraw more than the available balance in your checking account, you may be subject to overdraft or Non-Sufficient Fund fees. These fees are generally in the range of $35. Many banks offer overdraft protection, which allows you to link another account (i.e. savings account or credit card) to your checking to prevent overdrafts. ATM Fees: If you withdraw from an ATM outside of your bank’s network, you may be charged a fee, generally $2.50-$3, sometimes more. If you believe that you’ll frequently be in need of physical cash, you might choose to open an account with a bank that has several ATM locations in your area. Some Things To Know When Opening A Checking Account Requirements: To get your account open, you’ll generally need a government-issued ID. You may need to provide proof of address as well through a copy of a bill. Some checking accounts require a minimum deposit upon opening (can be as low as $25). If you are under 18, you’ll need a cosigner to open. Features: Many of these are listed in the bullet points above, but are all factors you should consider when choosing a checking account. What are the fees associated with your bank? What are the balance requirements? Do you have any withdrawal restrictions? Are there ATMs near where you live or work? Your everyday money doesn’t need all the thrills, but needs to fit in with your lifestyle. Promotions: Some banks will offer promotions for moving over a certain amount of funds or opening multiple accounts at the same time. Of course, this shouldn’t be the only factor you consider, and you shouldn’t keep too much cash in your checking account just to get a bonus. Make sure to read the fine print and familiarize yourself with the promotional details so that you know what you’re signing up for. Recommended Use Of A Checking Account A checking account should be used to pay bills and for your day-to-day transactions. Therefore, you need to keep enough to cover these expenses—Betterment estimates that you need five weeks’ worth of expenses in your checking account. Basically, enough to cover one month of bills and other expenses in advance. Some customers may ask: why not more? We recommend limiting your checking balance for the following reasons: Limits Excessive Spending: The more “free cash” you have, the more likely it is to be spent. Maintaining an appropriate checking balance can help you stay within your spending range. Make Your Money Work Harder: As we reviewed earlier, checking accounts pay a nominal interest rate, making them a poor option for you to grow your money. For the five weeks’ worth of expenses, we are sacrificing growth for every day needs. For longer term financial goals, consider opening a Betterment investment account that can help you grow your money further. Betterment’s Solution: Checking A checking account is the core to personal finance. Betterment’s mission has always been to help our customers do more with their money so that they can live better. Because of that, being our customers’  primary financial relationship has always been a key part in achieving that mission. With the launch of Checking, we’ll be one step closer to that. Below are some of the highlights of Checking, made specifically to align with your best interests: No minimum balance. No monthly maintenance fees. Unlimited worldwide ATM reimbursements using your Betterment Visa Debit card. Direct deposit from your paychecks. Ability to fund Checking from external bank accounts. Transfer directly to and from Betterment Checking to Betterment investment goals $250,000 in FDIC insurance Join us as we redefine the future of banking services to meet the needs of everyday consumers.

5 Financial Steps To Take After Getting A Raise When you get a raise at work, consider how you can maximize your earnings to identify new financial opportunities. If you’ve recently received a raise, congratulations! You worked many long hours to deserve this, and now your hard work has paid off. Whether this pay increase was expected or whether it was a complete surprise, you may have many thoughts running through your mind, including calling your spouse or your Mom, deciding what restaurant you are dining at for a celebration, or how your new salary will give you more freedom to take that vacation you’ve been wanting to go on. While you should be excited, it’s important to take a step back to reassess your new pay and how it impacts your financial situation. Without doing so, you might find that your raise is more harmful than when you were making less money. To avoid having “raise-regret”, consider these five tips. 5 Things To Do After Receiving A Raise 1. Understand your new salary. While you deserve to celebrate, you may want to hold off on making any large purchases that were unplanned and not saved for with your new cash flow. Unlike a bonus, where you receive a lump sum, your raise is going to be broken out across all pay periods. Additionally, your raise is going to be stated as an increase to your gross pay. In other words, if you receive a $5,000 annual raise, that does not mean that you are pocketing $5,000 over the course of the next year because we have to pay taxes. If you aren’t familiar with the amount of taxes you pay, it could be worthwhile to check your last few pay stubs to determine how much was going to taxes versus how much you were keeping. Also note that depending on the amount of your raise and the time of year, it may push you into a higher tax bracket. You may want to speak with your Human Resources and Payroll departments to discuss your tax withholding, as well as an accountant or qualified tax professional to see how your increased earnings could impact your personal tax situation. 2. Increase your retirement savings. If your employer offers a 401(k) plan and matches your contributions, you should consider contributing at least enough to get the full match amount. Granted that you were already doing so, or that your employer does not offer a match, increasing your retirement savings may still be a great option. And, for those who are comfortable with their lifestyle prior to receiving a raise and don’t plan to make any changes, you can supercharge your raise by increasing your savings rate at an equivalent rate to your bonus. Determining how much you need to save for retirement will depend on several factors. Betterment offers retirement planning tools that can provide guidance on not only how much you should save, but the optimal accounts for you to do so based on your situation. 3. Establish, or revisit, your emergency fund. Having an emergency fund is one of the most important financial savings goals, as it can help ensure a level of financial security for yourself and your family. An adequate emergency fund will allow you to cover truly large and unexpected expenses, and can also cover your costs if you end up losing your job. It can even provide financial freedom in the case that you want to try your hand at a new career. Typically, Betterment advises that your emergency fund should cover three to six months worth of expenses. If you didn’t have one prior to your raise, now would be a great time to start. If you already have an emergency fund, you may need to reevaluate the amount needed if your spending does increase. 4. Pay off debt. If you have any debt, especially high interest debt, you may choose to use this new capital to pay off some of your loans. Let’s assume that you are a single taxpayer, live in a state with no state income tax, and at the start of 2019 your pay went from $60,000 to $65,000. Assuming you don’t itemize, that would place you squarely in the 22% Federal tax bracket. If you get paid twice per month (24 times per year), your net paycheck would go from $1,950 to $2,112, an increase of $162. If you have student loans of $50,000 at 7% interest that were to be paid over 10 years, your minimum monthly payment would be about $580. Increasing your monthly payment by $162 would allow you to pay off your loans almost three years faster, and also help you save almost $6,000 in interest payments! 5. Invest in yourself. Okay, let’s say you’re already on track with your retirement goals, have an emergency fund, and paid off your debt. What do you do then? Investing in yourself can have immense value. And the best part is, it can be done in many ways. Whether that’s taking a vacation to reset your mind after months of diligent work, taking a class to enhance your skills or learn a new one, or even making a material purchase that you feel will better your quality of life, investing in yourself can be a great way to reap the benefits of your hard earned work. If you plan on spending this extra money, just make sure that it’s within your means—don’t fall victim to lifestyle creep. Inherently, you may be a saver by nature. While it’s important to set goals, you may not have a specific goal for these additional savings. By investing additional cash flow in a well-diversified portfolio, you can help to create an even larger raise for yourself at some point down the line. For example, using a taxable investment account will give you more flexibility as to how and when these savings can be used.

Should I Speak With A Financial Advisor? As a robo-advisor, we give you automated advice that’s accessible through our website and mobile app. We also have a team of CERTIFIED FINANCIAL PLANNER® professionals who can help answer your burning financial questions. Betterment believes that every investor should have access to fiduciary advice that helps them achieve their financial goals. That’s why our investment accounts have no minimum balance requirements, the tools are easy to use, and our fee is only 0.25%/year. For many investors, our online tools are all they need. We love that. But we know that personal finance is complicated. For some investors, having the ability to speak with a professional financial advisor is important. An advisor could help you: Personalize your account setup and features—such as your portfolio settings, account types, and tax strategies. Obtain financial advice on topics we haven’t yet automated—such as Social Security, budgeting, and life insurance. Coordinate with your other financial professionals—such as your CPA, real estate agent, and attorney. That’s why—in addition to our online tools—we offer access to CERTIFIED FINANCIAL PLANNER™ professionals who can provide the reassurance, personalization, and fiduciary advice that you need. Our CFP® professionals are salaried employees who don’t make commissions, which means that the advice that they provide to you is meant to put you on the best path forward. How do you know if you should speak with one of our CFP® professionals? Below is a list of the most common questions our advisors can help with. If any of these questions apply to you, consider reaching out to our advisors. Common Questions Our Advisors Can Help With GETTING THE MOST OUT OF BETTERMENT Which accounts are right for me? Which tax strategies are appropriate? How do I personalize my investments? What is Betterment’s investment strategy? How do I factor in my outside accounts? GOALS AND CASH MANAGEMENT What should my budget look like? How much should I be saving? How do I prioritize my goals? How much cash should I hold? Should I dollar cost average or make a lump sum deposit? INVESTMENT ANALYSIS Are my investments appropriate? What risk level should I choose? How do I factor in my outside accounts? Am I properly diversified? What fees am I paying elsewhere? How do I customize my portfolio? CREDIT AND DEBT Should I pay off debt or invest? How can I improve my credit score? How can I optimize my credit cards? TAX OPTIMIZATION Which tax strategies are appropriate? Should I use tax loss harvesting? Is asset location right for me? Am I withholding the right amount of taxes? Which municipal bonds are best for me? How do I move my accounts tax-efficiently? Which accounts can help me control taxes? EQUITY-BASED COMPENSATION Should I exercise my stock options? What are the tax consequences of doing so? How much of my employer’s stock should I hold? RETIREMENT PLANNING Is a Roth or Traditional IRA better for me? Is an IRA or 401(k) better for me? Should I do a “backdoor” Roth IRA? Should I roll over my accounts? How much do I need to save for retirement? Which funds should I choose in my 401(k)? When should I claim Social Security? Is asset location right for me? EMERGENCY SAVINGS How much do I need? Where should I keep my emergency funds? Should I invest my emergency funds? COLLEGE PLANNING How much do I need to save for college? Does a 529 account make sense for me? Which 529 account should I choose? How should I invest for college? PURCHASING A HOME What home can I afford? Should I invest my down payment savings? Will buying a home help me save on taxes? Can you coordinate with my mortgage broker? GETTING MARRIED How do we combine our investments? Should we merge our bank accounts? Should we update our W-4s? Which accounts are we eligible for? How do we update our beneficiaries? Do we need an estate plan? How can I coordinate with my CPA? LIFE INSURANCE AND ESTATE PLANNING How much life insurance should I have? How do I “ladder” term policies? Can you coordinate with my estate planner? Ways To Get Help From An Advisor At Betterment Each investor is unique. That’s why we offer multiple ways for you to work with one of our advisors. You can choose the service that best matches your needs and price point. Compare services and sign up for what's right for you. 1. Betterment Advice Packages One-time access Costs $299 to $399 per call No minimum balance Our Advice Packages allow you to speak to a Betterment CFP® professional on a one-off basis. Simply pay a flat fee each time you call. This can be the best option if you only want one-time or infrequent access to a financial advisor. Choose your package and book your call. 2. Betterment Premium Plan Unlimited access Costs 0.40% per year $100,000 minimum This plan offers unlimited phone and email access to our team of CFP® professionals. The cost is only 0.40% per year. This can be the best option if you want an ongoing relationship with our team of advisors. Open an account, if you haven’t already done so. Then just click “Settings” to upgrade your account to the Premium Plan. We’ve Got You Covered We are known for our automated technology, which is informed by our investment experts. If you want the best of both worlds—technology and a CFP® professional to guide you—consider speaking with our financial planners.

Managing Student Debt Without Compromising Financial Goals If you're one of the millions facing student loan debt with no idea how to tackle it, there are options available to you that can help you manage your loans and get on track with the rest of your finances. Thanks to one generous donor, not one of the Morehouse College 2019 graduates are leaving school with student loans. It’s a tremendous gesture, but as they say: right place, right time. Not all of us have that same fortune. In fact, 69% of 2018 college graduates left school with loans with an average balance of $29,800. They join the 45 million strong that have student loan balances today, and their balances contribute to the $1.5 trillion in outstanding loan balances today. There are lots of staggering statistics that may discourage you if you do have student loans, but let’s look on the bright side. You are not alone. Not even close. Those loans provided opportunities at school you may not have had elsewhere, and helped prepare you for your career and future. And most importantly, you have options. Your loans may not disappear overnight, but creating a plan and sticking to it will help you pay off debt and build towards your financial future. Remember, debt payoff is a goal just like saving for retirement or buying a home. As you tackle your student loans, make sure to keep these four things in mind. Know Your Types of Loans Broadly speaking, you can have two types of loans: Federal or Private. There are four types of Federal loans that are offered through the Department of Education. You can double check your Federal loans through the National Student Loan Data System. Private loans are obtained through a non-government source, like a bank. Since there is a cap on how much Federal loans one can take, you may even have a combination of Federal and Private loans. While it might seem like a simple suggestion, understanding the type of loans you have is the first step in determining your available payment options and other potential ways to manage your loan payments. Pro tip: Federal loans come with a 6-month grace period after graduating (private loans may offer a grace period, depending on the loan provider). If you’ve just graduated and still have time before you have to start making loan payments, use it to start building your emergency fund, or Safety Net. Generally, you want to have 3-6 months of expenses in a Safety Net, but at the very least you should have about one month of living expenses saved before you focus on loan payments. Federal Loan Repayment Options This largely depends on the type of loans you have. If you have private loans, you’ll generally be subject to the repayment schedule set by your lender. Pro Tip: See if you can negotiate a fixed interest rate on your loan to keep your payments steady and to help ensure there are no surprises if interest rates go up. Additionally, set up an automatic payment plan, as lenders may offer a discount of 0.25% or more on your interest rate when you set up automatic payments. If you have Federal loans, you get the benefit of flexibility in payment plans. If you’re struggling to meet your monthly payment, consider one of the Income-Driven Repayment (IDR) plans. The four available options are: Pay As You Earn Revised Pay As You Earn Income-Based Repayment, and Income-Contingent Repayment Under these IDR plans, your payment is generally based on a percentage of your income, which is subject to change each year. Note that other factors, such as your tax filing status, can impact your payment, so be conscious of any changes to your household. Payments under an IDR are generally made over 20-25 years, which can allow you to better control your monthly cash flow, but you will likely pay more in interest over the course of the loan. If you can’t qualify for an IDR plan but need some relief early in your loan payments as you get your career started, consider a Graduated Repayment Plan. Your loan payments start out smaller but increase every few years, so that ultimately the balance is paid off in 10 years. If you can afford to pay your loans under a standard 10 year repayment plan, it may be best to stick with that as you’ll likely pay the lowest amount of interest compared to other repayment options. StudentLoans.Gov offers a calculator so that you can estimate your monthly payment using each of the options above. Loan Forgiveness Did you just say the “F” word? Let’s say you’ve opted for an IDR plan, but it seems as though you’ll never have your loans paid off. There are programs that you could qualify for to have your loan balance forgiven. One of the most popular forgiveness programs is Public Student Loan Forgiveness (PSLF). This is available to people who work for non-profits, government agencies, or other public sector jobs and have Federal loans on an IDR plan. After ten years of monthly qualifying payments, your remaining balance could be forgiven. Even if you aren’t working in the public sector, your Federal loans may be forgiven if you are on an IDR plan. You’d have to make payments for a longer time - i.e. on-time payments for 20-25 years - to qualify for forgiveness. If your Federal loan balance is much higher relative to your income and you’re set on sticking to an IDR, forgiveness may be right for you. But just like with all things, there are some drawbacks. With PSLF, if you are granted forgiveness, your remaining loan balance will not be considered taxable. But “if” is the big question; only a small percentage of those who qualify have been granted forgiveness. Plus, there is always the chance that this program could be eliminated some day. Also, you may decide that you want to change careers in the middle of your path to forgiveness, which could change your loan payment plan altogether. Those on IDR plans but not in the public sector have to wait a longer time for forgiveness, and could pay a lot more in interest. Additionally, if your loans are forgiven after all those payments, you may have to pay income tax on the amount that is forgiven. This is known as a “tax bomb”, and is something that those aiming for this type of forgiveness should plan ahead for so that you don’t accrue additional tax debt after being relieved of student debt. While loan forgiveness is most commonly in reference to Federal Loans, there are some programs for Private loans as well. These are generally profession-based (healthcare, lawyers, military) and may be offered on a state-by-state basis. Pro tip: While not necessarily forgiveness, more employers are starting to offer student loan assistance as an employee benefit. These programs function similarly to a 401(k) match and can help you pay off your loan balance more quickly. Consolidation And Refinancing While both Federal Loan Consolidation and Private Refinancing allow you to consolidate your loans, there are some key differences that you should know before making any decisions. With Federal Loan Consolidation, you can take all your different Federal Loan payments and group them together. Doing so won’t lower your interest rate, but you do get the benefit of making just one monthly payment. Additionally, you get to keep all the flexible benefits of Federal Loans, so you can still choose an IDR and qualify for Loan Forgiveness. However, when it comes to forgiveness, consolidating may wipe out the past qualifying payments you’ve made and in those cases the payment countdown to forgiveness would restart. Private Loan Refinancing, on the other hand, is available for both Federal and Private Loans. We previously wrote about the pros and cons of refinancing, but the main benefit would be to consolidate different loans into one easy payment while also potentially reducing your interest rate and/or changing your payment time horizon. Note that while lowering your interest rate could save you thousands of dollars in interest, refinancing Federal Loans to Private loans means that you are forgoing the Federal payment flexibility and loan forgiveness options. Minimum Debt Payments Before you get started on your journey to zero debt, there is one rule you should live by: always, always, always make your minimum loan payments. If you are struggling to make payments, review the options above. If you need additional relief, review options to defer your loans as a potential short-term solution. Depending on your loans, you may not even have to pay interest during the time you aren’t making payments. There is no set deferment program for Private loans, but it can never hurt to ask your lender if you can pause or adjust your payments. Despite difficult times, simply stopping your payments without contacting your loan provider to discuss potential options will only make a bad situation worse (crush your credit score, being subject to additional fines/fees, or even sued). Of course, it is good practice to limit expenses while paying loans, knowing every extra dollar you save each month can go a long way. Using 529 Money to Pay Off Student Loans On December 19th, 2019, the U.S. Congress passed the SECURE Act, which stands for Setting Every Community Up For Retirement Enhancement. The SECURE Act also includes an additional benefit to help with student loans. You can now withdraw $10,000 tax-free from a 529 plan to make student loan payments.  Keep in mind that $10,000 is a lifetime limit that covers the 529 plan beneficiary and each of the beneficiary’s siblings. If you are a parent and custodian of a 529 plan, you can use $10,000 for each of your children to pay off their student loans. If you happen to have a 529 that you are the beneficiary of, perhaps leftover from school, you could withdraw up to $10,000 tax free to make payments on your own student loans. With regards to taxes, while the SECURE Act allows for another avenue to pay for student loans, it does not allow you to take double-dip on other existing federal tax benefits. In particular, note that student loan interest paid for with tax-free 529 withdrawals cannot be deducted using the student loan interest deduction.  My colleague, Eric Bronnenkant, shared his key takeaways from the SECURE Act. The SECURE Act contains 30 sections in all, which you can read about in more detail in Division O of H.R. 1865. Light At The End Of The Tunnel So you’ve finally freed up your cash flow and have extra money each month after making minimum monthly debt payments. If you’re wondering what to do next, consider following our 5 step action plan: Continue making minimum debt payments on time. If your employer offers a match on your 401(k), make sure you are contributing enough to get the full match. Next, make extra loan payments if your debt is above 5%. If you have multiple loans at one provider, make sure to contact them to ensure that your extra payments go to the right loan. Continue building your emergency fund. Save more for retirement/other goals.

How To Invest When You Have Family Members With Disabilities Having family members with disabilities requires lifelong planning that might not be easily addressed by typical financial planning advice. Planning appropriately for their lives can ensure they are protected and secure. If you have children or other family members with disabilities, one of your most precious financial priorities may be providing security for your loved ones. As a caretaker, you may be able to provide attention and financial stability during your lifetime but there are a different set of challenges to overcome if you are to pass away. Special Needs Trusts are an extremely beneficial tool that can ensure that your family member will be taken care of and provide you with peace of mind. What Is A Trust Account? Generally speaking, a trust allows an individual - otherwise known as the grantor - to provide specific guidelines on how funds that are placed in a trust can be used. Essentially, a trust allows the grantor to have more control over what happens to their assets after they pass on, while also providing unique estate and tax planning benefits. Along with the grantor, there are two other major players involved with the creation of a trust: A trustee, who is an individual or group of individuals charged with the responsibility of adhering to the rules outlined in the trust documents by the grantor. A beneficiary, who is the person or person(s) that are entitled to the trust’s assets. In most circumstances, the grantor, trustee, and beneficiary are different people; in some cases one person can play multiple of these roles. There are two broad categories of trusts: revocable (able to be changed) or irrevocable (not able to be changed and considered to be a final gift). Special Needs Trusts Benefits Special Needs Trusts provide three specific advantages for a beneficiary with disabilities. First and foremost, the creation of the trust allows you to set aside funds in a specific vehicle that is intended to support your beneficiary with disabilities. Additionally, you have the luxury to hand-select the trustee who will manage finances accordingly when your beneficiary otherwise may not be fit to manage this on their own. Finally, by having assets placed in a Special Needs Trust, you can ensure that government benefits, such as healthcare coverage, Supplemental Security Income (SSI), rent subsidies, and job assistance, will still be available for your loved one. Many of these public programs have financial limitations that could prevent someone with disabilities from receiving benefits. For example, someone may be eligible for SSI, but if they have assets in their name of over just $2,000, SSI is not available. A Special Needs Trust can shield those assets and keep your beneficiary eligible to receive SSI. These types of government benefits can be extremely valuable for someone with a disability to help make sure they have an income stream and a place to live after you have passed. To be effective, a Special Needs Trust should be irrevocable, otherwise these benefits may be at risk. Types of Special Needs Trusts There are three types of Special Needs Trusts: First Party The assets in a first party Special Needs Trust rightfully belong to the person with disabilities. Commonly, this pertains to inherited assets, settlements, or windfalls - even their own personal savings. As long as these funds are held within the Special Needs Trust, the beneficiary can still qualify for government benefits. During the beneficiary’s lifetime, funds in the trust can be used to pay for the needs not covered by government program support. When the beneficiary passes away, any remaining funds must be paid back to the government, up to the amount of Medicaid care that the beneficiary had received during their lifetime. Third Party A third party Special Needs Trust can be established by any parent or family member of someone with disabilities. The grantor gifts their own assets into the trust, such as bank or investment accounts, that can be used during the beneficiary’s lifetime to cover their needs. Like the first party trust, the third-party trust doesn’t negatively impact the beneficiaries ability to receive government benefits. However, unused funds at the end of the beneficiaries lifetime do not have to be paid back to the government. This allows grantors to ensure that their beneficiary with disabilities is taken care of first, but then funds can be left to other family members after. Pooled In first and third party Special Needs Trusts, you must appoint a trustee(s). If you don’t know an individual that you are confident can act responsibly as a trustee, a pooled trust allows you to name a charity as manager. Funds for multiple beneficiaries are pooled together for investment purposes, but each beneficiary has their own respective account. At the end of the beneficiary’s life, there is a payback clause to the government for Medicaid benefits, and the charity will also receive payment for managing the trust. Managing A Special Needs Trust At Betterment Trustees have a long list of responsibilities, including a fiduciary responsibility to make sure the trust’s assets are in a sound investment plan with the right risk profile that meets the needs of the beneficiaries. Betterment trust accounts can be ideal for trustees who seek a professionally managed portfolio with a hands-off approach. Betterment will provide automated fiduciary advice that includes risk recommendations, a diversified investment portfolio, automated rebalancing, tax-efficiency, and low fees. As trustee, you can create multiple goals for an individual trust, allowing you to customize investment needs for each financial objective. For example, this means that you can invest funds for short-term and long-term needs at varying risk levels. Additionally, our platform allows you to manage multiple trusts at once, and you can access them all from one single login. While Betterment can help trustees invest trust assets appropriately, we are not able to help in the creation of a new trust. If you are considering establishing a Special Needs Trust, we recommend seeking the guidance of an estate attorney.

Why Flexibility is Key in Withdrawing Retirement Income A strong retirement plan relies on proper preparation. But flexibility in your plan may be the most important quality you can have. When I think about financial planning, I often draw parallels with athletic training. Star athletes win over the long-term by remaining flexible and putting in a great deal of effort. Saving and financial planning works much the same way. We often focus a lot on athletes’ effort—their time in the weight room and practice. That’s like saving. It’s hard work to hold off your spending and put your money aside for later. But what we often forget is the focus on flexibility that goes into becoming a great athlete. You might be surprised to learn that the strongest athletes spend more time with their backs on a yoga mat than on a bench press. That emphasis on flexibility and our common oversight of it: that’s how I think about financial planning. Just look at Tom Brady, quarterback for the New England Patriots. He’s adopted a deeply personalized approach to how he prepares his body. And it’s not a focus on lifting heavy weights. Instead, Brady focuses on pliability and a proper diet. What has that done for him? 6 Super Bowl titles, 3 MVP awards, 14 Pro Bowls, and he’s still dominating the NFL at age 41. He’s defying odds, and he’s mastered longevity in a game where the average career length is just a few seasons. That same focus on flexibility is critical to how you think about your retirement finances—especially because, like in a season of football, there are many unforeseeable possibilities when investing for retirement. In this article, we’ll discuss what analysts called the “sequence-of-returns risk” and why it means you need to retain flexibility when you’re nearing retirement. Why Retiring Changes Your Reaction to Market Volatility When you retire, your relationship with market volatility sees a sudden change. Instead of depositing against market changes as you do when you’re saving, retired individuals generally just have to ride out volatility, making withdrawals along the way. That can make volatility feel different than it did when you were simply saving for retirement. The timing of your first withdrawals and market volatility can also lead to very different retirement outcomes. This possibility is called the “Sequence of Returns Risk” in financial planning. While you can’t control this risk specifically, you can control your behavior and flexibility for reacting to the sequence of your returns. Let’s review the historical performance of a Betterment portfolio at 70% stocks, 30% bonds over a seven-year period from 1/1/2012-12/31/2018 to demonstrate how the sequence of returns matters, especially as you hit your retirement age. An Overview of the Risk in Your Sequence of Returns This Betterment portfolio’s historical performance numbers are based on a backtest of the ETFs or indices tracked by each asset class in a Betterment IRA portfolio as of December 2018. Though we have made an effort to closely match performance results shown to that of the Betterment Portfolio Strategy at 70% over time, these results are entirely the product of a model. Actual client experience could have varied materially.  Performance figures assume dividends are reinvested and daily portfolio rebalancing at market closing prices. The returns are net of a 0.25% annual management fee and fund level expenses. Backtested performance does not represent actual performance and should not be interpreted as an indication of such performance. Actual performance for client accounts may be materially lower. This figure does not reflect the potential for loss or gain, nor is it any indication of future performance. Backtested performance results have certain inherent limitations. Such results do not represent the impact that material economic and market factors might have on an investment advisor’s decision-making process if the adviser were actually managing client money. Backtested performance also differs from actual performance because it is achieved through the retroactive application of model portfolios designed with the benefit of hindsight. As a result, the models theoretically may be changed from time to time and the effect on performance results could be either favorable or unfavorable. See additional disclosures. Annualized, this portfolio returned 6.9% per year for the time period. But, that’s on average. In actuality, the portfolio did not return 6.9% each year. In fact, the returns in each calendar year were as follows: 2012 +13.3% 2013 +16.2% 2014 +4.2% 2015 -1.2% 2016 +8.4% 2017 +17% 2018 -7.4% If you invested in such a portfolio, making just one initial deposit and no subsequent transactions, your ending balance would change with the returns, but remember, most investors deposit over time. We generally do not recommend holding onto cash with the idea of depositing at the “right time”, as we believe that the amount of time spent in the market is more important than timing the market. But once you’re retiring and start making withdrawals, this is where the order of returns can make a huge difference in your final outcome. If your first year of retirement is like Year 7, and you’re making withdrawals, that impact on your future portfolio value will look far different than if your first year looks like Year 2. Depending on the timing of withdrawals, two customers who start off with the same balance and invested in the same portfolio at the same risk level could have drastically different end results. Withdrawing while markets are down means that you may be selling a higher quantity of shares to generate your withdrawal amount. When markets eventually recover, your portfolio has taken a hit because you have less shares in your account that are taking advantage of the market rebound. When we offer advice to customers, we want them to focus on what they can control, and the sequence of returns risk isn’t controllable. But you can control your behavior, fees, target allocation, and taxes. The key is flexibility in how much you’ll spend in retirement and solid planning to make that possible. Below are some of the ways that Betterment helps you maintain flexibility and mitigate risk. How Betterment Helps Manage the Sequence of Returns While there’s no getting around the inherent risk in making the shift from planning for retirement to withdrawing retirement income, Betterment has several components that aim to manage your risk. 1. Automatically adjusting your allocation The challenge many people face is having too risky a stock-to-bond allocation near retirement. This can augment the impact of the sequence of returns risk. Over time, as you near a goal like retirement, your risk level should adjust accordingly. Betterment automatically manages your allocation, adjusting by rebalancing according to our automated allocation advice. By reducing volatile assets, your portfolio is better protected against large market swings. With a narrower range of outcomes, sequence risk can be mitigated. Our retirement income advice recommends a gradual reduction of risk throughout retirement, starting at 56% stocks and gliding down to 30% stocks towards the end of retirement. You can turn automatic allocation adjustment for your retirement income goal at Betterment. 2. Rebalancing using deposits, withdrawals, and dividends. Any cash flows, like withdrawals and dividends, are automatically used to rebalance your Betterment portfolio to keep your portfolio within a target allocation as it drifts with market returns. This works to your advantage when rebalancing in down markets - if stock markets are down and your bonds are overweight compared to stocks given your target allocation, we will first sell bonds when you when you make a withdrawal. This leaves more of your portfolio invested in the stock funds that form part of your target allocation. 3. Retirement income withdrawal advice Betterment aims to account for the sequence of returns risk with our safe-to-withdraw recommendation for your retirement income goal. We provide you with a personalized recommended withdrawal amount based on your portfolio’s balance and risk level. This recommended withdrawal amount is estimated, assuming that you’ll see only the lowest 4% of projected expected returns—a very conservative projection—so, in other words, our advice provides a 96% likelihood that you will not run out of money during your lifetime. The consequence, of course, is that if you follow our withdrawal advice, a low returns period could mean our recommended withdrawal is less. This same advice is incorporated while you are accumulating wealth for retirement. We account for this withdrawal approach when estimating how much you’ll need to save in order to reach your desired retirement spending goals. See our Retirement Methodology for more detail. While our retirement withdrawal advice is designed to be conservative, the advice you receive from Betterment is dynamic. Your recommended monthly withdrawal amount could change based on market performance. When markets are up, our advice will show that you might be able to withdraw a bit more (but beware of lifestyle creep). When markets are down, we might suggest you not withdraw quite as much. Over time, flexibility in your spending can extend your capital if necessary, helping to prevent your portfolio from being depleted prior to the end of your lifetime. Additional Ways You Can Stay Flexible to Mitigate Risk Aim to set an income floor. If you can’t be flexible in your spending, or just hold a strong preference to have guaranteed income to cover your expenses, you may consider options to create an income floor. Careful Social Security planning can help you maximize your benefit based on your needs. You may receive a pension, depending on your work, and if given the option, may choose to annuitize rather than take a lump sum. Other options could range from purchasing an annuity product to finding part-time work. If you are considering any of these options, our team of financial experts is able to address your questions. Express your preference for income-focused portfolio strategy. Another option could be to explore removing the risk of holding stocks in your portfolio. While this isn’t recommended, we understand many people have a strong bias to only generating income in retirement, which is why we offer target income portfolios by BlackRock in Betterment accounts. Have a safety net, even in retirement. Create a separate, low-risk portion of your overall portfolio that covers six months of expenses for the possibility of a poor sequence of returns. Betterment offers a Safety Net goal, which is intended to help you set aside and grow your emergency money. Aim for retirement savasana—final relaxation. Sequence of returns risk is a part of retirement you should be aware of—not afraid of. Betterment’s portfolio advice is designed to help you plan around it; just remember to practice your retirement yoga regularly.