Investment Answers Summer 2021 News

It has been a wonderful summer so far, connecting with so many of you in appointments and at our events. We have been updating all of our presentations with new information and post-Covid data and writing new ones, as well!

We are curious to learn if you are interested in having virtual webinars of our events. We know many of you have challenges attending events in person. If we receive interest from multiple households, we are happy to create those and send links to view the events virtually. Please let us know if this is of interest to you!

If you are not receiving our weekly Market Update email but would like to, or if you need to update your email address with us, please let us know. As always, we do not share or sell your information. We often have limited capacity for venues, so the email is a great way to get in a quick RSVP. In addition to events, our email includes office updates, motivational quotes, and pertinent financial topics of which you should be aware. Hit “reply” as an easy way to email us, and, as always, we encourage you to forward them to friends, co-workers, and loved ones, as well, so they can also stay informed.

 

Copyright © 2021. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed but should not be regarded as a complete analysis of these subjects. Professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material. 

 

Beneficiary Designations Override Wills

When was the last time you looked at your beneficiaries on your retirement accounts, insurance policies, annuities, and bank accounts? If you marry, divorce, or have other changes to your family situation, you need to update your beneficiaries. Some people think their will or trust is all they need to ensure their assets go to the desired recipients. A beneficiary designation is a legally binding document that supersedes a will or trust. That means that regardless of your current family status or what your will or trust says, the assets will go to the beneficiary you named when you last updated it. And if you don’t have anyone named as your beneficiary on these types of accounts, state laws will determine who receives the benefit.

It’s a good idea to get into the habit of reviewing them on an annual basis to help ensure your assets will be distributed based on your wishes.

 
 
 

Copyright © 2021. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed but should not be regarded as a complete analysis of these subjects. Professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material. 

6 Signs You Need a Financial Plan

A clear financial plan helps you prepare for the future, brace yourself for the unexpected, and positions you to pursue your goals. Below are six signs it may be time for you to get a financial plan or amend one you have in place.

You’re Planning (or Just Had) a Big Life Change

New job. New baby. New house. All of those milestones and more are signs you should take a big picture look at your finances. When your life changes in big ways, it often brings with it changes in how you approach money.

You’re Worried About Your Finances – and Your Future

If money worries keep you up at night, a financial plan can help ease your mind. Whether you have immediate worries or are just feeling uneasy about what tomorrow may hold, you can regain control over your life by having a clear direction.

You’re Making Good Money, but You’re Not Sure Where It Goes

If you want to turn today’s income into tomorrow’s wealth, you need a financial plan. That way, you’ll be able to take the money you’re bringing in today and use it to create a secure future for yourself and your family.

You Have Financial Goals, but You’re Not Sure How to Make Them a Reality

Does retirement seem like a distant dream? Do you wish you could upgrade to a bigger home, send your kids to college without taking on debt, or start a business? With a financial plan, you’ll know what you need to do financially to make those dreams a reality.

You and Your Partner are Fighting About Money

If you and your partner can’t see eye-to-eye on money issues, a financial plan might be part of the solution. Meeting with an objective third party can help you both recognize where you stand when it comes to your finances, and then negotiate a path forward that works for both of you.

Your Investments and Finances are Getting So Complicated, It’s Difficult for You to Keep Track of Everything

Many people start out managing their investments and finances on their own. That often works for a time, but as your money and life get more complex, it can be difficult to manage all the details or realize your plan’s shortcomings without help.

Reach out to the team at Investment Answers to get started on your financial plan today!

 

Copyright © 2021. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed but should not be regarded as a complete analysis of these subjects. Professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material. 

 

Do You Have a Rainy Day Fund?

None of us know when a crisis is going to hit, and a job loss or sudden disability can be financially devastating. A common financial planning rule-of-thumb suggests you should have at least six months of living expenses readily available to meet urgent short-term needs.

If you haven’t established a cash reserve, here are some steps you can take to build that rainy day fund:

  • Budget a savings amount as part of your regular household expenses.
  • Use payroll deductions, so the money automatically goes into your savings account.
  • If you get a raise or bonus, put some (or all) of it into your savings fund.
  • Reduce your discretionary expenses and put them toward your fund.
  • Consider banking earnings from investment dividends.
  • Set up a money jar where change and small bills are put in at the end of each day.
  • Open a savings account at a different institution, so you are less likely to spend the money.

You’ll want to make sure that your cash reserve is readily available when you need it. Considering loans as part of your cash reserve strategy is disadvantageous. When absolutely necessary, look at other loan sources, such as a home equity or personal line of credit, as these often have lower interest rates than credit cards.

 
 
 
 

Copyright © 2021. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed but should not be regarded as a complete analysis of these subjects. Professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material. 

Overcoming 5 Retirement Fears

We’ve all heard stories about people losing their retirement money in a stock market crash, outliving their money, or incurring unexpected medical expenses that force 80- year-olds back into the workforce. At times, these stories can seem overwhelming — even to the point of deterring people from planning for retirement. Are these fears likely to become realities? The truth is that they can happen. Are any of these your concerns?

Outliving Your Money

There’s a financial rule of thumb designed to decrease the odds of outliving your money over a 25-year retirement. By the time you’re ready to retire, the theory suggests that you should have saved eight times your annual salary. This is where starting early can be a lifesaver. To get there, gradually work up to it. For example, at age 35, it helps to budget for having one times your current salary saved, then three times by 45, 5 times by 55, and so on. For many, this plan wasn’t realistic at age 34 or 45, and their saving may be far less than this rule of thumb at each of the age thresholds. This is where we can provide tremendous value for you.

The amount of money you need to have saved by the time you’re ready to retire depends on a huge range of individual factors: What are your plans for retirement? How old are you? Will you still have a mortgage? Do you have long-term-care insurance? To truly decrease the odds that you’ll outlive your money, work with a qualified financial advisor to develop a robust retirement plan. Stick to the plan and revisit it often to help ensure the plan—and your spending—remains in alignment with your goals and your circumstances.

High Inflation

What if inflation went up to 12–14% like in the 1970s? What would you do? The Federal Reserve is saying that present-day high inflation is transitory. However, because it has happened before, you’ll want to be prepared. This is where an annual review of your financial strategy can be wise. In periods of very high inflation, you may need to adjust your investment strategy. It may be wise for your portfolio to include investments that move opposite each other—so when one asset class or subclass is down, another is up.

Unexpected Medical Expenses Before Retirement

Unexpected medical expenses you may incur while you are still working could totally derail your retirement. To prepare for them, it’s important to have insurance in place. Disability insurance can help to ensure that if you lose your income due to a disability, you will still be able to take care of your basic necessities. Life insurance will protect your family in the event of your death. This is especially important if your income was the key to your spouse’s retirement.

Unexpected Medical Expenses During Retirement

For most people, healthcare is one of the largest (often the largest) expenses incurred during retirement. There are a few ways to prepare for medical emergencies: private health insurance to fill the gaps in Medicare, long-term-care insurance, and rainy-day savings. For today’s retirees, Medicare takes care of most medical expenses. However, you’ll need savings to cover what insurance won’t — like copays and expenses exceeding your insurance limit. And just as you save before retirement for unexpected expenses, ideally, you should continue your rainy day fund in retirement. Even if you are adequately insured, copays can be significant if you have a medical emergency.

Market Crash

As with high inflation, the key to surviving a market crash often is diversification. (To be clear: there is no way to insulate yourself completely from the effects of economic turmoil. But you can take steps to help ensure that turmoil doesn’t completely ruin your retirement plans.) This is an area where we can make valuable, personalized recommendations for you.

Need guidance planning for your retirement? Investment Answers is here to help.

 

Copyright © 2021. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed but should not be regarded as a complete analysis of these subjects. Professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material. 

Pump Up Your Retirement Savings

Have you reached middle age without accumulating much in retirement savings? Don’t stay stagnant. It’s time to make a plan that you can live with now, so that you can live your idealized lifestyle in retirement. While it may be more challenging to reach your retirement goals than if you had started in your 20s or 30s, there are some strategies to consider:

Reanalyze Your Retirement Goals

First, it’s important to thoroughly analyze your situation. One of our areas of greatest acumen is helping you to calculate how much you realistically will need for retirement, what income sources you may need to draw from, how much you have saved and invested, and how much you likely need to save monthly/annually to reach your goals. If you’re unlikely to save that amount, it may be time to change your goals.

If you have delayed beginning your retirement planning and saving, it is realistic to assume that you may need to consider postponing your retirement start-date so that you have more time to accumulate savings, as well as delay withdrawals from those savings. While leaving your job may be your primary motivator, you may find that you don’t want to leave the workforce altogether. Many retirees work after retirement at least part-time and many return to their company or field as consultants. Even a modest amount of income or workplace health benefits after your initial retirement can substantially reduce the amount you need to save and/or spend.

Depending on how long you delayed saving for retirement, it’s realistic to assume you will need to lower your lifestyle expectations for a while to bridge that gap — possibly traveling less, gifting less, or moving to a less expensive city or smaller home. One important caveat: If you have already started your Social Security benefit, or you are considering it, you’re going to need to do some financial planning before you implement employment and your benefit together.

Contribute the Maximum to Your 401(k) Plan

Your contributions, up to a maximum of $19,500 in 2020 and 2021, are deducted from your current year’s gross income. If you are age 50 or older, your plan may allow an additional $6,500 catch-up contribution, bringing your maximum contribution to $26,000. Find out if your employer offers a Roth 401(k) option and ask your accountant if you qualify. Even though you won’t get a current-year tax deduction for your contributions, qualified withdrawals can be taken free of income taxes.

If your employer matches contributions, you are essentially losing money when you don’t contribute enough to receive the maximum matching contribution. Matching contributions can help significantly with your retirement savings. For example, assume your employer matches 50 cents on every dollar you contribute, up to a maximum of 6% of your pay. If you earn $75,000 and contribute 6% of your pay, you would contribute $4,500, and your employer would put in an additional $2,250.

Look Into Individual Retirement Accounts (IRAs)

In 2020 and 2021, you can contribute a maximum of $6,000 to an IRA, plus an additional $1,000 catch-up contribution if you are age 50 or older. Even if you participate in a company-sponsored retirement plan, you can make contributions to an IRA, provided your adjusted gross income does not exceed certain limits.

Reduce Your Preretirement Expenses

Typically, you’ll want a retirement lifestyle similar to your lifestyle before retirement. Become a big saver now, and you enjoy two advantages. First, you save significant sums for your retirement. Second, you’re living on much less than you’re earning, so you’ll need less for retirement to maintain your lifestyle. For instance, if you live on 100% of your post-tax income, you’ll have nothing left to save toward retirement. At retirement, you’ll probably need close to 100% of your post-tax income to continue your current lifestyle. When saving 10% of your income, you’re used to living on 90% of your income. Remember, at retirement, your taxable situation changes, but your expenses are unlikely to go down significantly, if at all.

Move to a Smaller Home

As part of your efforts to reduce your preretirement lifestyle, consider selling your home and moving to a lower-cost one, especially if you have significant equity in your home. If you’ve lived in your home for at least two of the previous five years, you can exclude $250,000 of gain if you are a single taxpayer and $500,000 of gain if you are married filing jointly. At a minimum, this strategy will reduce your living expenses so you can save more. If you have significant equity in your home, you may be able to use some of the proceeds for savings.

Substantially Increase Your Savings as You Approach Retirement

Oftentimes, your last years of employment are your peak earning years. Instead of increasing your lifestyle as your pay increases, consider saving pay raises. Anytime you pay off a major bill, such as an auto loan or your (grand)child’s college tuition, take the money that was going toward that bill and put it in your retirement savings.

Restructure Your Debt

Check whether refinancing will reduce your monthly mortgage payment. Find less costly options for consumer debts, including credit cards with high interest rates. Systematically pay down your debts. And most important — avoid incurring any new debt when possible. If you can’t pay cash for something, don’t buy it. Large purchases often loom on the horizon. Opening a savings account for those types of purchases and making monthly deposits to address those needs when they arise helps to mitigate paying for those on credit.

Stay Committed to Your Goals

It’s imperative to initiate and maintain your commitment to saving. If you are planning to eliminate or at least reduce your debt or are wondering if you can afford to retire, we are happy to help you set a strategic plan in place.

 

Copyright © 2021. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed but should not be regarded as a complete analysis of these subjects. Professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material. 

 

Small Tax Change Makes Big Impact on Permanent Life Insurance

Typically, when Congress passes a bill, it has many additional items in the small print that can be quite impactful. Late in December 2020, federal lawmakers’ gigantic year-end spending package included a barely noticed tax code revision which is of enormous benefit to those who have, or are planning to purchase, permanent life insurance (Source: Wall Street Journal, 2021).

Life insurance is one of the most profoundly beneficial financial planning tools that money can buy. Life Insurance transfers financial risk upon death (i.e. loss of income, future earning potential, loss of benefits, and more), off of an individual, and onto the financial institution that holds your life insurance policy. It has many tax advantages to other financial products, and it is a cornerstone of a balanced estate.

There are two types of life insurance of which you may be aware: term life insurance and permanent life insurance.

Term Life Insurance

Term life insurance is often the most affordable option and it is limited by a specific amount of time—the term of your policy—be it 20, 30 years, etc. You make your payments to the policy on a regular basis, either monthly or annually. The price is fixed for the policy and during that term, you immediately have built an estate for yourself upon death, which is equal to the death benefit you purchased with your policy. The stated policy’s death benefit is transferred to the policy beneficiaries income tax-free. If you do not pass away during the term, the policy expires, and other than having insured yourself in case of the worst-case scenario, you will not receive further benefit at the end of the term.

Permanent Life Insurance

Permanent life insurance is a different beast—and it is the beneficiary of the recent tax code changes, for which you should be aware.

Permanent life insurance includes Whole Life Policies and Universal Life Policies. These two options are typically more expensive than term life insurance. Once purchased, as long as premiums are paid according to your payment schedule, these policies last the duration of your life. You make your payments to the policy on a regular basis, either monthly or annually. The price is fixed for the policy and upon its inception, you immediately have built an estate for yourself upon death, which is equal to the death benefit you purchased with your policy. Whole life insurance builds up a cash value inside of the policy, while universal life insurance generally does not. Owners of permanent life insurance policies defer the taxes on their investment gains inside of the policy, and their stated beneficiaries receive the death benefit income tax-free. Choosing a whole life insurance policy is usually based on the benefits your estate is looking for, and the amount of premium that you can afford. However, once in place, the policy does not expire.

Many things have changed in insurance since the 1980s, including interest rates. Life insurance is an estate planning tool—quite powerful, indeed. In 1984, Congress sought to identify investment products disguised as life insurance, as life insurance receives a favorable tax treatment. They hoped to find policyholders who were stuffing large sums of money into these tax-advantageous policies, in hopes of bypassing tax billings from the government. In this rule—Section 7702—the 1984 tax code adopted an assumption of a guaranteed 4% growth rate in cash value for a permanent life insurance policy to enjoy its tax advantages.

As you may be aware, the life insurance world has changed substantially- not only in the types of products available for consumers, but also in the interest rate environments in which these policies have resided in, since the 1980s. This 4% assumption has been particularly problematic for whole life insurance policies, which is a very popular type of policy for middle class families and small business owners—the bedrock of America.

Life insurers earn part of their profits by investing customer’s premiums until they are needed for a payout. Many profitable life insurance companies are heavily invested in high-quality bonds. These portfolio yields peaked in the 1980s at nearly 16%, whereas the 10-year Treasury yield is currently just over 1%.

After the recent pandemic-related promise of continued low interest rates, life insurance trade groups lobbied Congress to switch that floating interest rate, saying that without the change, whole life insurance policies would likely go extinct. This law lowers the minimum interest rate used to determine whether combination savings and death benefit policies inside of permanent life insurance are too much like investments to qualify for the tax advantages granted to insurance.

Because of this rule change, companies that offer these policies are likely to continue to offer permanent life insurance policies, and this lowered threat to such products is likely to lead to a resurgence in quality permanent life insurance options, with greater benefits for consumers who want to take advantage of one the most powerful financial vehicles available.

Estate Planning for Blended Families

Every family has a unique culture which brings about unique challenges. In a blended family, determining what’s “yours, mine, and ours,” is an issue that is better addressed proactively, rather than reactively. Have these important talks with those who would be impacted in case of a death or disability. Doing so proactively helps to ensure that priorities and intentions are communicated before there is a misunderstanding or the loss of a loved one. Utilize this article as a blueprint or a checklist to help remove the emotion as you work through the myriad issues that need to be reviewed when you blend a family.

Discovery

The first step in developing an estate plan in a blended family is for you and your spouse to have a very open conversation to discover:
  • Plans that you may have from previous marriages — To understand how previous arrangements might impact your new plan, you will need to review any plans that you have in place from previous marriages, including wills, trusts, beneficiary designations, guardianship, etc. For example, your current spouse may not be entitled to a retirement account if it was part of a divorce settlement specifying that it goes to your previous spouse.
  • Goals and wishes — Each of you needs to clearly define your goals for upholding previous obligations, how guardianship will be handled for both biological and stepchildren, and how you want your separate or combined assets distributed. This is extremely important, because how assets are owned determines how they will be distributed in the future. For example, imagine if your spouse passes away and unbeknownst to you, all assets were left to the children from a first marriage, while you don’t have enough money to pay the monthly bills. Straightforward communication is the key to developing a blended estate plan.
  • Together or separate — Commingling or keeping assets separate can depend on several factors a couple needs to decide. If one party brought in significant assets, you may decide to keep those separate while commingling assets that you build together. Children also play a major role in this decision. Maybe you already have college accounts or trusts established for your children from a previous marriage and those assets should remain separate. Many parents feel strongly about setting aside assets specifically for their children from a previous marriage. Again, forthright communication is key.
  • Review the marital property laws in your state — Make sure you understand how your state laws govern the way you hold assets. For example, if you live in a community property state, any assets not identified as separate will be considered equally owned as community property of the couple, even if they were assets you intended to keep separate because they were acquired prior to the marriage.

Documentation

While you may feel it’s overkill, you need to document every detail of your estate plan to avoid potential issues down the line, especially if you have children and former spouses. Also, this legal documentation will help avoid the expensive and potentially emotional issues involved with probate court.
  • Wills You should create a will that provides clear instructions on how all of your assets are to be distributed, guardianship for minor biological and stepchildren, healthcare directives, and any other wishes to be carried out should either of you become incapacitated or die.
  • Trusts Blended families should consider developing a trust, which holds the assets on behalf of and defines how and when the assets pass to the beneficiaries. A trust can also last for years, through the lifetimes of a surviving spouse, children, and even future generations. For blended families, certain types of properly established trusts can provide financial support for your spouse and still make sure something is left for your children.
  • Account titles Even if you have a will or trust, you will also want to make sure that accounts such as a retirement account have defined beneficiaries. Additionally, other accounts can be owned as joint tenants with right of survivorship or transfer on death, making the owner’s intentions clear that the assets go directly to the party named on the account.
This is one of the most important ways we can provide resources for you. We’re here to help.

 

Copyright © 2020 This article is published in its original form from its original publication with Investment Answers and Integrated Concepts, a separate, non-affiliated business entity. The original newsletter publication, Investment Answers Financial Success Winter 2020, is intended to offer factual and up-to-date information on the subjects discussed but should not be regarded as a complete, evolving, or personalized analysis of the topics, and should not be construed as personalized investment advice. Qualified financial professionals should be consulted before implementing a personalized financial plan. Please reference the original publication for additional disclaimers. 

 

Keep Track of Retirement Accounts

Most of us change jobs at least twice before retiring, leaving a trail of retirement nest eggs behind us. Now that defined-contribution plans are much more prevalent than defined-benefit plans, we have more responsibility for financing our retirement.  So it’s important to manage our retirement accounts actively.  But how can you do that if your accounts aren’t even located in one place?  Here are a couple of tips:

Organize Your Records

As long as you continue to hold your account in a former employer’s plan, you should receive statements.  Keep them all in a file —or even better, enter them all in a spreadsheet, tracking the combined balances and amounts in each type of investment.

Consolidate Your Accounts

It’s much easier to manage your assets if they’re all in one place.  Fill out the paperwork necessary for rolling them over into one account.  That single consolidation account could be the plan you are currently contributing to if it permits rollover contributions.  You can also open a rollover individual retirement account (IRA) and have the funds from your other accounts directly transferred there.

If You’ve Lost Track of Accounts

If you’ve lost track of one or more of your accounts with a former employer, contact your old employer and ask them to confirm that you participated in the plan and the steps you need to take to get a current statement of your account. Or find an old statement and look for a contact phone number or address.  As long as there are assets in the account, the financial institution can probably still account for them.

 

Copyright © 2020 This article is published in its original form from its original publication with Investment Answers and Integrated Concepts, a separate, non-affiliated business entity. The original newsletter publication, Investment Answers Financial Success Winter 2020, is intended to offer factual and up-to-date information on the subjects discussed but should not be regarded as a complete, evolving, or personalized analysis of the topics, and should not be construed as personalized investment advice. Qualified financial professionals should be consulted before implementing a personalized financial plan. Please reference the original publication for additional disclaimers. 

 

5 Reasons to Start Saving Money

If you’re interested in getting started with savings or want to save more, here are five reasons to help keep you motivated.

1. You’ll Be Prepared for Emergencies

Here’s an alarming fact: most Americans don’t have enough money saved to cover even relatively small unexpected expenses. Without cash on hand to cover these irregular but inevitable costs, you’re more likely to turn to credit cards or loans when the need arises. Plus, the more debt you have, the more difficult it is to save. The result? A downward financial spiral that can be difficult to pull yourself out of.

2. You’ll Be More Independent

With a healthy amount of savings, you can feel more free to take risks, like starting your own business, heading back to school to train for a new career, purchasing a home of your own, or moving to a new city. Plus, without savings, you’re living on the financial edge.

3. You’ll Be Able to Reach Your Goals

We all have goals. Maybe you simply want to enjoy a comfortable retirement one day. Or perhaps you’re dreaming of a second home by the lake, sending your kids to college, or starting your own business. Whatever your dreams, they likely have one thing in common — they probably require some money to become a reality. Few of those dreams are achievable if you don’t save for them.

4. You’ll Be Able to Earn More Money

Saving isn’t just about setting aside what you’ve already earned. It’s also about putting your money to work for you. Depending on where you save and invest your money, you can earn more just by being diligent about saving. Because of the power of compounding earnings, even relatively small amounts can grow significantly, provided you don’t touch your principal.

5. You’ll Be Happier

Money isn’t the only thing that can make us happy. But there’s evidence that saving money, even in small amounts, can make us happier. In contrast, having debt (often a consequence of a lack of savings) tends to lead to unhappiness.

 

Copyright © 2020 This article is published in its original form from its original publication with Investment Answers and Integrated Concepts, a separate, non-affiliated business entity. The original newsletter publication, Investment Answers Financial Success Winter 2020, is intended to offer factual and up-to-date information on the subjects discussed but should not be regarded as a complete, evolving, or personalized analysis of the topics, and should not be construed as personalized investment advice. Qualified financial professionals should be consulted before implementing a personalized financial plan. Please reference the original publication for additional disclaimers.