Need a New Year’s Resolution Do-Over?

Is your New Year off to a rough start – More strength needed to birth a new habit, rocky investment markets, or perhaps your team didn’t make it to Super Bowl 50? Well, you’ll have the chance for a do-over. Chinese New Year – Spring Festival – is coming up.

The traditional Chinese calendar is old and complex. It dates back to the 14th Century BC (time of Egypt’s King Tut) and has been used to mark the best times to plant and harvest, festivals, and lucky times for your special events. And it uses various modes – lunar and solar, Ying and Yang, and the Chinese zodiac. Each year is represented by an animal of the zodiac, and legend says the order of the animals in the calendar was determined by how they finished a race across the river. 2016 is the year for monkey.

The most visible traditions for Chinese New Year include red and gold, loud and angry dragon dancers, and feasts with friends and family.  They make for great photos and memories. However, the more subtle traditions or taboos, serve as powerful shapers of character and values. These include: Cleaning house, settling unfinished business, resolving quarrels, and paying off debts. And, its bad luck to sleep past noon on the day after… it indicates a year ahead of laziness. Can you apply these to your on-going financial planning?

What should I contribute and how should I invest my retirement plan? Investors have big decisions to make. I’ll discuss the Federal Thrift Savings Plan (TSP) and common planning issues. If you’re working in the private sector, please read on because TSP is similar to 401k plans. The features and planning issues are related.

  • TSP Overview: Federal employees and servicemen and women are eligible. Augments other retirement benefits including FERS, CSRS, military retirement, and SS. Contributions are made via payroll deduction and ‘matched’ to a degree, several investment options, and 3 ways to access funds (loans, in-service and post-separation withdrawals). You may consolidate other retirement accounts. Please refer to for all details.


  • Contributions: Specified as a percentage of your compensation (3% automatic enrollment) and subject to a match up to 5% (via formula). If goal is to save 10% of pay, your ‘cost’ is 5%, and the Agency funds the rest. Members of the uniformed services have some special rules including the ability to contribute part or all of their incentive, special or bonus pay, but none from housing or subsistence allowances; and matching agency contributions are subject to rules specific to each individual service. Contributions are subject to IRS limits (e.g. $18,000 plus $6,000 catch ups for those 50 and above). Check with your HR department for specifics.


  • Traditional TSP vs Roth TSP: Your choice is paying taxes now, or later. Traditional contributions are tax deferred; withdrawals trigger tax. Roth TSP contributions are made after-taxes (i.e. pay taxes up front); withdrawals may be tax free. Consult your CPA for tax advice.


  • Investment Options: Five investment options include guaranteed account, and four index funds (bonds, large and small US stocks, and international stocks); plus five Lifecycle Funds (target funds).

How much to contribute? Your goal is to accumulate “your number” for retirement. Consider diversifying your wealth buckets. TSP saving is easy (save it before you can spend it). However, don’t have all of your retirement cash flow fully taxable. Consider a “3-legged stool” model consisting of Pre-Tax funds (traditional retirement accounts), After-Tax funds (joint, trust, Roth’s, etc.) and Business/Real Estate. Thus you’ll have various sources (and taxation) to fund your retirement. It’s multi-dimensional diversification – you’re diversifying investment risks, taxation, and liquidity – plus matching contributions.

Tax deductible contributions or Roth? Tax planning is complicated – balancing current taxes, guessing future tax policy, and simplicity. If your retirement tax brackets are lower, then consider tax deductible contributions. If opposite, consider Roth contributions. If taxable income fluctuates, you might ‘switch’ – make deductible contributions one year, and Roth the next. Others do a hybrid (fund both). Bottom line: Map things out so you’re not making decisions solely on short-sighted benefits (e.g. taxes).

What to do at retirement? This is Challenge #1 for investors. TSP participants have numerous options including a lump sum payment, monthly payments and a life annuity. You’ll face tax, financial and estate planning, and significant emotional issues. Investors tend to get serious about financial planning 5 to 10 years prior to retirement. You shift from saver to spender, don’t want to ‘screw things up,’ and the world gets a little more complicated when the world becomes your investment oyster. It’s a path you best not walk alone.

Prudent planning creates pathways towards your financial success, and breaks down the barriers (via education and good investor behavior). The choice is yours. You can count on others (marry wealth, live off SS or pensions, etc.), or do it yourself. Good luck!

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When Your Treasures Have More Than Sentimental Value

What would you bring to Antiques Road Show? It’s a popular show combining history and treasure hunts. And who wouldn’t want to stumble upon a treasure? You’ve heard the stories of the family who had a garage sale “ugly” bowl perched on their mantle for years – sold for $2.2 million at Sotheby’s, or the person who bought an old folded manuscript at a Pennsylvania flea market for $4 –it went for auction for $2.4 million as one of the 25 or so remaining official copies of the Declaration of Independence (500 were printed).

The host, Mark I. Walberg, not to be confused with the actor with ripped abs, talks about appraising art, antiques and collectibles – Note: The values on the show are “estimates,” not appraised values. What generally enhances an item’s value is its authenticity, rarity, condition and providence – it must be true, one of a kind, rich with TLC, and have a story. The item retains sentimental value; however, if lacking any of these criteria, the item’s economic value diminishes. And appraisal is an art unto itself requiring knowledge and experience that goes way beyond a weekend certification program. Many of the nation’s best appraisers are second and third generation.

Valuation of personal property occurs in many aspects of personal finance. Say for example, you’re the trustee of your parents’ estate. They recently passed and you’ve got the Sisyphean task of managing their estate, keeping the beneficiaries outside the fence as you clear the barn and prepare for distribution, and adhere to the legal and accounting requirements. Joy Berus, of the Berus Law Group of Newport Beach, CA, presented “Art Law – Everything You Have Ever Wanted to Know” to the Estate Planning Council of Northern Nevada. I’ll share several areas involving valuation that may trigger some ideas for you, including hustling up your team of experts.

1. Why get you “stuff” valued? Valuations are needed in instances of division or selling, or insuring property. These include estate tax and equitable distribution, divorce, donation or gifting, insurance, or outright selling.

2. I don’t have anything of significant value, so why worry? You may be surprised how quickly an estate value grows as you inventory assets, or the non-descript porcelain has something in addition to sentimental value. Joy shared a helpful “checklist” of personal property. For example, here are three “P’s” – paintings, pottery, porcelain, three “S’s” – sculptures, sports memorabilia, silver, and three “Collections” – coin, stamp, wine, to name a few. You want to successfully survive an estate tax return audit, especially when there is art, antiques and collectibles. And an appraisal may be required to be filed with your return – articles with artistic or intrinsic value in total in excess of $3,000 (e.g. jewelry, furs, silverware, paintings, antiques, oriental rugs, coin or stamp collections, etc.), or a collection of similar items valued in excess of $10,000. The Art Advisory Panel assists the IRS in reviewing taxpayer submitted appraisals. Per the Panel’s 2013 report, they reviewed 291 items; their total value was very close to that submitted by taxpayers; however, they recommended adjustments (up or down) for roughly half.

3. I’m not going to report (aka the “empty jewelry box”). Joy gives many public talks, and the audiences’ attention may drift. However, they tend to wake up when she mentions ‘stepped-up basis.’ Generally, this means estate assets may be eligible for a step up in basis to the fair market value at time of death (there are exceptions, e.g. irrevocable trusts). This means the beneficiary may have little to no capital gains tax liability when he or she subsequently sells the inherited asset.  Here’s an example… you inherit your father’s ’57 T-bird. His original cost may have been $4,000 (about the current price to replace the car’s front fender), and it’s worth $20,000 to $90,000 today. You list the qualified valued on the estate tax return, there’s no estate tax because the estate is under the $5.45 million exclusion for 2015, and you may have little capital gains tax to report.

4. Where to find a qualified appraiser? Avoid being the $4 seller of that 1776 document. First, he or she should be a disinterested party (i.e. not be involved in selling your items) and certify as such. Second, they must be qualified and competent. Your attorney, accountant or advisor may have recommendations for you. And Joy recommends researching appraisal websites, including the ASA (, AAA ( and ISA ( The ASA has all types of appraisers and searchable categories, AAA is limited to fine art, and ISA is limited to personal property only.

Valuations of art, antiques and collectibles are tricky. There’s no on-line quote system such as that for Apple stock, no Kelly Blue Book-like reference, and how valid are the listings on eBay or Craigslist compared to your item? As trustee, you have a fiduciary duty. I wish you the best in being a good steward.

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Happy 4th! – Beware of Greeks Bearing Bonds

The bald eagle is an icon that symbolizes American ideals and spirit. The image rode Westward stamped on the lockplates of firearms carried by explorers and settlers, landed in Normandy for the liberation of Europe, rests on the Sea of Tranquility, and even adorns your 4th of July ice cold Bud .

However, here’s a short story about an earlier icon and our oldest founding father. Ben Franklin published a satirical commentary in 1751 that the colonists should send rattlesnakes to England as a thank you to the Brits for sending their felons to America. In a more serious tone during the French and Indian War, he later used a political cartoon asking for unity amongst the colonists. The snake was cut in 8 sections representing the individual colonies, curved like the coastline, with the words “Join, or Die.” It played on the superstition that a chopped up snake would come back to life if the pieces were rejoined by sunset.

Variations of the snake symbol later emerged reflecting liberty and freedom as tensions with England grew. No longer cut up in pieces, the serpent battled a British dragon. In December 1775, Ben published an essay under the pseudonym “American Guesser.” He had seen Marines preparing to board Continental naval warships and carrying drums, each painted yellow and adorned with a fierce rattlesnake coiled to strike and “Don’t Tread on Me.” The popularity of the rattlesnake symbol grew.

He wrote “the rattlesnake is found in no other quarter of the world besides America… Her eye excelled in brightness and she may therefore be esteemed an emblem of vigilance… She never begins an attack, nor when once engaged, ever surrenders – She is therefore an emblem of magnanimity and courage… She never wounds til she has generously given notice, even to her enemy, and cautioned him against the danger of stepping on her. Was I wrong, Sir, in thinking this strong picture of the temper and conduct of America?”

That image of a coiled rattlesnake and “Don’t Tread on Me” became one of America’s first flags, the Gadsden Flag. The rattlesnake was adopted by the Continental Congress, and along with the motto, “This we’ll defend,” has been part of the US Army’s pledge for 240 years.

And in current events, news commenters blast the Greek debt crisis, and fears of contagion and the break-up of the EU. Greek’s PM Alexis Tsipras and his Syriza Party seek freedom from the European Union and the austerity measures demanded by the bankers. They failed to make their debt repayments, and the money spigots have been turned off. European Council President Donald Tusk said “Europe wants to help Greece, but can’t help anyone against their own will. Let’s wait for the results of the Greek referendum.” A more colorful analogy was commentator Jeff Macke – “Greece is Europe’s ne’er do well kid refusing to work. German is harsh but enabling mother.”

How can Greece, the physical size of Alabama and economic output equivalent to Boston, cause such a stir in global economics? Perhaps the EU would have been better off without Greek membership – a country prone to economic woes, excessive government spending at 59% of GDP (the long term average in the US is about 20%), and corruption. Tax dodging is a national sport. Per a Columbia University paper, professionals reported that about all their income goes to personal debt repayment. However, it’s not a debt issue. It’s an underreporting issue – professionals, including doctors, accountants and lawyers, reported average monthly income of about $1,800. And the Greek tax collection chief, Harry Theoharis, resigned after just 17 months attempting to crack down on tax evaders and threats of “break your legs.”

A more important question you should be asking is “What relevance is the Greece situation (or other crisis du jour) to my financial well-being?” Markets hate uncertainty, are globally connected, and they’re complex. That’s why it’s important to have a plan, balance returns and risks (diversify), and keep your wits as you make adjustments for life’s surprises .

Are you weary of low interest rates on your savings? Which would you take if offered a 2.3% or 14.5% return per year on your investment? Those are the rates on 10-year US Treasuries and Greek bonds, and illustrate the risk-return trade off.  Good luck and don’t let hype or fear tread on you.

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Upsizing Your Home in Retirement – Are You Nuts?

Imagine moving one more time to live your golden years of retirement until independent living is no longer practical or safe. What would you want in the new home and where would it be? Fewer stairs to climb, easier yardwork, or possibly, a tighter circle of community? In short, simplicity, convenience, and ease – as Steve Martin would say, “Getting small.”

Sounds reasonable.  “Honey, let’s downsize in retirement. Life can be more manageable, and maybe, we’ll have some money left over to add to our retirement savings.” A recent study analyzed home moves by retirees – half moved into smaller homes and 20% stuck to a similar sized home. However, what were the rest thinking? Three out of ten went for larger homes.

Merrill Lynch in partnership with Age Wave, a thought leader on population aging, released a study called “Home in Retirement: More Freedom, New Choices.” The survey of 3,638 American adults represented a wide range of ages, incomes, gender and regions, and revealed their hopes and worries about where and the type of home they wish to live in retirement. Some interesting results included the notions of the “Freedom Threshold” – about age 61, the majority of people feel greater freedom from work and family obligations and can better chose where they want to live – and a “Downsize Surprise” – that a significant number of people opt not to move to a smaller home.

I’ll share some of the study’s findings about why retirees move, or not, that upsizing not downsizing in retirement isn’t a crazy idea, and some financial planning considerations.

Dig in or move on? Of retirees surveyed, about a third didn’t anticipate moving in retirement. However, two out of three plan to move at least once. Last year an estimated 4 million retirees switched roofs. Primary reasons for moving included: Being closer to family (29%), reducing home expense (26%), changes in health or marital status (17% and 12%), and empty nesters or cashing out home equity (7% for each). And the top reasons why retirees would not leave their current home: I love my home (64%), family close by (48%), don’t want to lose independence (44%), love my community (42%), friends are close by (31%), and can’t afford to move (28%). In both cases, emotional reasons outnumber financial reasons.

However, in either case – staying put or moving – there are some commonalities that are arguably related to “upsizing,” whether or not the current or future home is actually bigger.

A larger or cushier welcome mat – Three of the four top reasons retirees upsized their homes had to do with relationships – more room when the family visits, family members move in, or friends visit – and the fourth was for a more prestigious home. Family members may be spread across the country like seeds scattered in the wind, busy calendars make family retreats more challenging, or mature adults grow weary of airport shuffles and hustles. More people join the sandwich generation – caring for elders or kids moving back home to regroup and make another run at life. And another biggie, the desire or need to make living quarters more comfortable, versatile and safe as we age – everything from mobility alternatives to smooth stair ascents, lower cabinets for accessibility, and higher technology for healthcare monitors and connectivity via video chat.

Planning considerations

Continue to review your priorities of where and how you want to live, and balance them against the realities of affordability, medical/physical/mental conditions, and resources including family.

Consider your alternatives. Too often we reduce decisions to A or B. What about more of the letters in the alphabet and having more chairs at the kitchen table discussing options?

And finally, engage the specialists when YouTube videos and DIY blogs may lead you somewhere you’d rather not be. You’re dealing with several moving parts including finance, legal, healthcare, tax, design and construction, to name a few.

T.S. Elliot said “Home is where one starts from.” Good luck in your journey.

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Give Your CPA a Heads Up

Some surprises bring great joy – a call from an old friend, a door opened, or an unsolicited “You’re awesome!” But walking into your CPA’s office and saying “Oh, one more thing… Did I tell you about a little thing that happened to us last year?” is likely to test her or his humor. There are two types of CPAs – historians and advisors. The first may tell you “Yes, you’re hemorrhaging, and here’s your tax bill for 2014.” The other offers “Here are some ways to stop the bleeding.” Use the conversations now as you work on your 2014 tax filings to prepare for the year ahead. It benefits both – your CPA may have the satisfaction of engaging creativity, research and planning skills, you’ll have more focus on exploring the various paths you may take, and ideally, you’re writing the smallest tax check legally required, and minimizing surprises.

Here are some questions to ask your CPA.

Expected impacts of major changes that are likely to occur in 2015? Three areas of change include family, income and significant transactions.

  • Family – Births or adoptions; marriage or splitting the sheets; children advancing in their lives; and death or caregiving. Each may impact filing status, income, expense or asset changes. For example, your child enters or advances in the workplace. Who’s going to file the return, the kid or the CPA? What guidance should be given to them regarding tax withholding, budgeting, saving and investing? Will your tax situation change – dependents, exemptions, credits, kiddie tax, etc.


  •  Income – Can be either significant increases (business income, promotions or bonuses, option exercise, retirement plan distributions, Roth IRA conversions, investment income, etc.) or reductions (business decline or exit, retirement, unemployment, maturity of a note receivable, paying off debt, investment loss, etc.). Let’s take new business income as an example – spouse becomes an independent contractor, director fees, or an expansion of your business. Will a new entity be formed (another tax return) or file a Schedule C? What management decisions are advised including financing, budgeting and planning, staffing, insurance and risk management, employee benefits, and how should you take money out of the business?


  • Significant Transaction – The purchase or sale of house or major asset, business exit or acquisition, inheritance, retirement plan distributions, etc. These too warrant additional planning and engagement of your other trusted advisors. Assume the case of a couple downsizing their home. What’s the likely order of the transactions – sell the current home, take on interim housing, then buy the new place, or take on a temporary two homeownership status until the first home is sold? In the case of the latter, how are you financing the purchase (the current home equity isn’t available until later)? What are the funds required (selling expenses and taxes, move-in costs, down payment)? Will the funds for down payment come from selling investments? A retirement account?

Our estimated 2015 tax bill? Explore opportunities to reduce that bill, and prepare to fund it (adjusting withholdings and quarterly tax payments). Here are three areas to consider for tax reduction.

  • Are you saving enough for the future? How should savings be directed to tax-advantaged retirement plans and after-tax investing? Maxing out your 401k contributions may not be sufficient to fund your retirement lifestyle, nor is it prudent to have all of your retirement income to be taxed as ordinary income. If you are the business owner (plan sponsor), what are your options for design or redesign of your retirement plan to tweak the allocation of contributions or expected benefits?


  • Eligible for a Health Spending Account (HSA)? If you have a qualifying high deductible medical insurance plan, you may be eligible to fund a HSA. Contributions may reduce your taxable income and may grow tax free if withdrawn for qualified medical expenses.


  • High income taxpayers – Don’t forget about the additional 3.8% net investment income tax and 0.9% Medicare surcharge tax (wages and self-employment income) exposures, phase-out of deductions, exemptions, and credits, and utilizing capital loss carryforwards.

Tax planning and financial planning are very intertwined. If I don’t pick up the phone and talk to the client’s CPA of a major potential event, I risk three things: “I didn’t think of that” (another option), client gets a nasty tax surprise come April, or I’ve aggravated the CPA “Why am I hearing about this after-the-fact?” So one last thought… bring a smile and a cup of cheer to your tax accountant. They’re the ones who wrestle with the 74,000 pages of the Tax Code on your behalf. You’re just writing the check.

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5 Financial New Year’s Resolutions

Do you keep your New Year’s resolutions, or take them as folly?

The 6th Allianz Life New Year’s Resolution Survey was released last month. It is a national survey with about one thousand respondents. The respondents said their top areas of focus are fitness, finances and family – in other words, health and wellness, financial security and spending more time with loved ones. Interestingly, two other survey results were (1) only 15% said “financial planning” was part of their NY resolutions, and (2) respondents said they were generally more stressed going into this year than they were last year. Their top worries included data breaches/identity theft, terrorism threatening safety and security, stagnant paychecks, and market uncertainty.

If I were “more stressed,” then shouldn’t I pay more attention to my finances? Is this part of the part of the paradox of rational thinking versus human behavior which is often irrational? Or is it that people don’t put much seriousness into resolutions? I think it’s a little of both, and emphasizes the importance of the financial planning industry.

Inertia is tough to break – if my life’s going “pretty good,” then why mess with things? Perhaps those surveyed had more confidence in their financial affairs and thus discounted the need to revisit their planning – the US economy seems healthier, markets show strength (at least in the US), reports of lower unemployment, and maybe the pains of 2008-09 have been forgotten. However complacency can be dangerous, and ironic it is that we often need a little pain to push us into action – a financial crisis, health scare, etc.

So I offer five New Year’s resolutions to improve financial health.

Have a budget for life – Know where your money goes and make sure you’re well-funded for the future

  • Take a financial snapshot at least annually – Cash flow and net worth.
  • Create a budget (or spending plan) – Some people are more detailed in their budgeting than others, however, both stay within the lines (spend less than they make) and make saving a priority (pay themselves first).
  • Maintain sufficient reserves (money in the bank that’s not at risk). Targeted reserves are equal to 3-6 months’ living expenses (1 – 2 years if retired), plus planned big ticket expenditures (e.g. home repair, college costs, new car, etc.).

Manage your debt – Some abhor debt (“We haven’t paid interest in 32 years!”), and others use it as a tool (home mortgage, or cheaper than investment returns)

  • Understand the difference between what you can vs should borrow.
  • US student loan debt exceeds $1.2 trillion and 7 million borrowers are in default (The Economist, June 2014).
  • Consolidate debt where prudent to make it easier and quicker to pay off. Look for fixed rate terms (interest rates will rise) and avoid extending the payoff date.

Rebalance and optimize portfolios – Avoid making the “Big Investor Mistakes” (e.g. greed vs panic, under or over diversification, speculation, leverage, chasing performance, etc.).

  • Portfolio allocations should be in synch with your required returns, acceptable risk level, and time horizon.
  • Diversify investments and strategies.
  • Minimize expenses, including taxes.
  • Revisit the portfolio and make adjustments to stay on track.

Establish contingency plans – Life’s curly!

  • Review and update your estate plan and beneficiary designations.
  • Insure for those risks you can’t afford to pocket on your own – e.g. health, disability, life, property & casualty, liability, etc.). Review them with your insurance agent for adequate coverage and cost competitiveness.

Have balanced goals“The key to keeping your balance is knowing when you’ve lost it.” (Anonymous)

  • Vistage (an international association of CEOs) taught me this tool to be used as a scorecard.
  • Goals set for 6 categories (professional/financial, personal, well-being, spiritual, relationships, and wild card).
  • You are held accountable for your progress and outcomes.

Some may take New Year’s Resolutions as folly. However, planning for a lifetime of financial success is serious business. May your list of worries be shorter than your New Year’s resolutions. Happy New Year!

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Ordinary People Do Extraordinary Things

The Americans’ goals were huge and the challenges overwhelming. The British expected a swift end to the war. How could a group of squabbling colonies and her untrained army overcome the powerful British Empire? America’s Commander in Chief had his doubts. Washington wrote his cousin “I think the game is pretty nearly up.” But leadership, ingenuity and resolve reemerged – “victory or death” – and the strategists devised a surprise attack. Under Christmas stars, Washington led a scrappy army towards a Hessian garrison in Trenton. Their victory would serve as a lightning bolt and refreshed the Continental Army. Yet, six more grueling years of sacrifice and bloodshed lie ahead.

Victory by the American underdogs was unfathomable to The Empire. Artist Benjamin West was commissioned to capture the signing of the Treaty of Paris on September 3, 1783. The painting pictures the American delegation. However, there is a vacant splotch on the canvas’ right side. The British had great contempt towards the Americans and refused to poise. The “Pale Ghosts of England” didn’t want to be depicted in defeat and the painting was never finished.

The Americans had two main advantages – the British had spread themselves too thin and the Americans were fighting for a grand cause. The war had been won by a ragtag group of men, women and children – common people often overlooked in history books. John Honeyman, a butcher and weaver, served as Washington’s spy and contributed to the victory at Trenton. Peter Francisco, a Portuguese blacksmith, was also known as the Virginia Giant – 6’ 8” and 260 pounds. Elizabeth Burgin led the escape of over 200 American prisoners from the deadly British prison ships where more colonists would die than on the battlefield. And teenager Betty Zane in a daring mission resupplied Ft. Henry’s defenders with gunpowder in one of the final battles of the war. These and many others were ordinary people doing extraordinary things – unsung heroes who knew something bigger.

Retirement planning isn’t the drama of war. However, it has similarities. Success requires clarity of the mission, battling with life’s uncertainties, and there will be victories and defeats. And throughout the journey, you’ll remain steadfast to your battle plan, and have the strength and wisdom to make adjustments along the way.

I often reflect on the many client conversations I have about retirement, and life. So I thought I’d share three common themes. But first a quick story…

“I’ve picked my retirement date and I want to make sure I’ve got my financial affairs in order,” said the lady. “Oh, and I’m inheriting some money. My aunt passed recently, and as her executor and trustee, I’ve been liquidating things. I’m heading out of town for the holidays. I’ll talk to my CPA early next year when I make the distributions to beneficiaries, my sister and I.”

Hold on, let’s review her estate summary. Significant income was going to be taxable, but to whom – beneficiaries or the estate/trust – was unclear. That is a big tax planning issue. Income at the trust level is often taxed at the highest rate. An individual hits the top tax rate with taxable income about $407k (about $458k for a family); however, the trust may hit it at $12,500. The tax bill might be cut in half if that income was “passed through” to her in 2014, rather than the trust incurring the higher tax liability for 2014 and deferring the distribution to 2015.

Life is busy. But why allow big things to fall through the cracks? Her CPA was consulted for his tax advice and actions necessary prior to New Year’s Eve. She might have a nice tax savings in her Christmas stocking when she returns.

Retirement Can Surprise You – It’s not a lifetime of cruise ships, golf, or whatever leisure activity the ads suggest. Mitch Anthony, author of The New Retirementality, discusses the importance of finding and maintaining “purpose in life.” Retirement is a great transition in life. For some, work is their life – so there’s the need to develop other hobbies and interests. And working beyond age 62, or 65, or whatever mythical goal line for “normal” retirement, doesn’t make you a loser. Some continue to work for the paycheck. Others do it for benefits, including the payback from “being engaged.” Anthony writes, and I paraphrase, “If I took up a lifetime of golf, first I’d become bored, and eventually I’d become boring.” So practice retirement before you pull the trigger.

Retirement’s More than Managing Investments and Money – Money is a yardstick for some. For others, it’s a tool. Things it doesn’t buy are time, happiness, love, wisdom, talent, curiosity, or trust. My mentor at Vistage, an international organization of CEO’s, stressed the importance of having “balanced goals” – family and relationships, professional, personal, financial, community, spiritual, etc. What do you want your life to look like? Yes money is a tool to help support that. But knowing the “whys” of your life is a much more relevant and compelling driver to the “hows” – how much you need to save (or can spend), and to invest, insure, tax and estate planning, etc.

Life’s Tough… As is Retirement and Planning – I still chuckle when I think about Erma Bombeck’s book titled If Life’s a Bowl of Cherries, What am I Doing in the Pits? Tony Blair, former British Prime Minister,described the complexities of life and challenges today. No longer can we solve problems sequentially – one at a time; today’s world is multi-dimensional and challenges multi-directional. Often, it’s then prudent to get several heads together, each representing different expertise and perspective, to think things through, and to have shoulders to lean on when times get tough.

Life doesn’t move in a straight line. Life’s curly. I wish you health, prosperity and strength in the years ahead.

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3 Thoughts Before the Holidays

Today we honor we honor many – the men and women who made the ultimate sacrifice on the decks and fields of Oahu, and those who served in the Pacific and European Theaters of WWII. That Day of Infamy ignited a period of suffering, death and destruction, as all wars bring; and ended with the first and hopefully only time that atomic weapons were deployed. Yet, how many teachers, scientists, doctors, artists, and the like, both Japanese and American – great women and men who created great works or have impacted positive change for others – are on this Earth because their fathers avoided an inevitable and devastating land invasion of Japan triggered by the surprise attack on Pearl Harbor seventy-three years ago?

Money is a tool that can bring security, freedom, and opportunities in our lives. It can help preserve and protect life. It can change lives. I’ll share some reflections that hopefully give you some ideas for the many seasons ahead, and waken the sleeping giant inside you.

Trends in Retirement Plans – I’ll share some thoughts expressed from a panel discussion of three retirement industry executives, and my insights.

• Defined contribution plans (e.g. 401k’s) evolved to supplement defined benefit plans (pension plans) and Social Security. Furthermore, the amount you can contribute annually is limited by the IRS, and each year those limits are subject to increase, maybe. For 2015, the limit for 401k contributions increased by $500 or $1,000 (depending if you’re 50 or over), SIMPLE’s up by $500, but IRAs are unchanged.
• Income from retirement plans may be limited due to insufficient contributions, poor investor behavior or investment performance, or the type of retirement plan, if any, offered by your employer.
• These emphasize the need to control the things we can control. It’s about being a model for good investor behavior, and investing the time to develop multiple sources of retirement income, including after-tax investments, business or real estate income, and retirement accounts. And perhaps you need to defer the retirement party, or work part-time in retirement.

Some Solutions
• Ok, you’re “In” unless you “Opt Out” – More employer plans offer automatic enrollment and/or investment option defaults to help increase participation – to help overcome “I’ll do it later” or confusion. And other plans nudge you to up your contribution rate, say in increments of 1% annually, until you hit 10%. These help “force” you to save for the future.
• Play with the big kids – Some investors are fully capable of DIY investing. However, others may benefit from a little help. So retirement plans offer a combination of DIY investing (menu of fund options), and institutional management services (e.g. target date funds, allocation funds, and customized portfolios). Target date funds (TDF) get a lot of attention (e.g. may be a default investment option), and may be appropriate for the average participant or casual investor. However, all TDFs are not created equal. They come in all shapes and sizes, and there are about three dozen TDF fund providers.
• Income guarantees – Drivers tend to put the foot on the brakes when road conditions become dicey. Similar behavior occurs as we near retirement age. We don’t have time to earn it again, can ill-afford to make a “big mistake,” and market calamities scare the bejesus out of us. People like “sure things” and converting a mountain of retirement assets into a steady retirement paycheck is nirvana. However, the problems with “guaranteed income” are two-fold. First, the retirement plan industry isn’t quite there for 401k’s. Second, annuities may provide an alternative solution. However, caveat emptor. Be careful of the annuity mumbo jumbo. Ask about the guarantees for inflation-protected income in retirement. Remember the eternal risk/return tradeoff. says you should plan on a 2% to 5% return with a hybrid or equity-indexed annuity, or an immediate annuity. So if your lifestyle plan requires a higher return or flexibility, consider annuities for a portion, and seek caring and professional help for the rest.

When to Take Social Security
Benefit calculations are complicated by covered earnings, age, and post-retirement earnings. And there are numerous options when to start benefits. One rule of thumb is to defer filing to age 70 for maximum benefits. However, Wei-Yin Hu, a researcher at Financial Engines estimates there are over 8,000 ways a couple can file for retirement benefits. Check your projected benefits at And check the calculators at and I ran a hypothetical on myself assuming my wife and I elected to start drawing at full retirement age 66. Their calculator suggested we’d increase our lifetime benefits by about 12% if my wife filed for earned benefits at 66, I file for spousal benefits at 66 (with restricted application to exclude earned benefits), then at age 70, I file for earned benefits and she files for spousal benefits. The calculator makes numerous assumptions including the exclusion of widowed or disabled benefits, “start and suspend” options, and inflation. Nevertheless it’s interesting to consider options, and suggests one should get help in thinking this one through.

“They want you to say Grace… The blessing!”
The year’s end can be chaotic – tying up loose business ends, managing for travel and “time off” schedules, and boxing the packages to meet Steve the mail guy’s shipping deadlines. However, the conversation between Aunt Bethany and Uncle Lewis warms me with the holiday spirit. It’s a time for friends and family, caring for those in need, and to smile. May you have health, prosperity and strength. Thank you.

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The Monty Hall Paradox & More Nuggets from Denver

You remember Monty Hall and “Let’s Make a Deal” a popular game show in the 60’s and 70’s? He’d present contestants with a common scenario. There are three closed doors – you win the prize behind the door you choose. A shiny new car is behind one door. Two smelly goats are behind the others. However, you don’t know what’s behind door one, two or three. You choose door number one. Monty opens one of the other doors – one which he knows holds a goat – and asks if you want to switch your choice to the unopened door you didn’t choose. Do you switch or stay?

Many people think that once one door is eliminated, then switching does not matter – they think the probability between the remaining two doors is 50-50. But this is incorrect statistically. And psychologists point to the behavioral phenomena behind the dilemma of “choice” – people prefer to stick with the choice they’ve already made. The pain of sticking to your original choice, even if it turns out to be wrong, is a lot less than the risk of switching a winning hand for a loser.

The math says you should switch because the probability of winning is two out of three; and sticking with your first choice remains at one out of three. Suppose you play this game 600 times. You will correctly pick the right door at the outset about 200 times. But 400 times you’d bring home a goat if you didn’t switch. Monty won’t open the door with the car. So in 400 times, the car will be behind the door you didn’t originally pick. This is similar to the street scam of “three-card monte.” What we intuitively think is a 50-50 probability, is not.

Recently I attended a national conference with some 2,000 fellow advisors in Denver. The four day event was rich with half a dozen keynote speakers, a choice of five dozen education sessions, and conversations with peers and service providers. I’ll share two.

Jay Mooreland, a financial planner and host of website, discussed how advisors can help their clients achieve their financial goals by preventing behavioral biases from sabotaging long-term objectives. He opened with “let’s play a game” and presented two questions. How would you answer?

• A bat and ball cost $1.10 in total. The bat costs $1 more than the ball. How much does the ball cost?
• It takes five machines five minutes to make five widgets. How long would it take a hundred machines to make a hundred widgets?

Moreland’s “game” focused on the human temptation to make mental shortcuts when faced with uncertain situations that often result in foolish decisions. Often, we trade intuition for analysis – the later takes time and effort. Behavioral experts expand the human challenge of making rational decisions in an irrational world in books including MIT professor Dan Ariely’s “Predictably Irrational” and Nobel Laureate and Princeton professor Daniel Kahneman’s “Thinking, Fast and Slow.”

The correct answers to the two questions? They’re five cents, and five minutes. The vast majority of people respond quickly and confidently… and are wrong. And education doesn’t necessarily help. More than half of Harvard, Princeton and MIT students routinely answer incorrectly.

International economist Dambisa Moyo warned us of the risks of being blindsided by unaddressed negative trends. You may have heard of Ms. Moyo from her book “Dead Aid, Why Aid is Not Working and How There is Another Way for Africa,” Bill Gates’ criticism, and her fiery response last year. Nevertheless, Ms. Moyo, a Zambian national and former economist for the World Bank, said not to be overly optimistic of some short-term advancements such as US job gains (are they “good” jobs?) and the temporary fixes from quantitative easing. Rather she had a less sanguine view longer term from four trends – technological advancements (putting unskilled out of work), changing demographics (aging populations), income inequality, and resource scarcity.

I share these two nuggets from Denver for a couple of reasons:

• Recognize that we’re human. Emotions and biases can hinder rational decision making.
• Have a process and plan with updated assumptions.
• Stay focused on the things we can control and make adjustments – short term results can be misleading when judging long-term success.
• Life’s a lot more interesting than a simple choice of “Door number one, two or three?”

Good luck!

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Need a nudge, or kick in the pants – Changes to Social Security

Johnny Depp movies romanticize life on the high seas and naval warfare of the 18th century. But war is hell and dangerous duties abound on the square-rigged frigates. One of the jobs was to quickly and efficiently supply the canon gun crews with gun powder. Mere boys, some as young as eight, were “recruited” for their size and agility to make the trip from the ship’s magazine, upstairs to the main deck, and back, as the carnage of another broadside battle continued. Those lads carried the ridiculous title of “powder monkeys,” had one of the most dangerous jobs on board, and many didn’t see their homes again.

I hope your life expectancy is longer than that of a powder monkey. Three decades of retirement deserve careful planning. Here are three planning insights about recent changes in Social Security retirement benefits.

Yay, a 1.7% raise!

Retirees can expect a bump in their monthly SS retirement checks starting in January. The average retired worker will see a $22 cost of living adjustment (COLA) to $1,328, and $36 for the average retired couple to $2,176. The maximum SS for a retiree reaching full retirement (age 66) in 2015 will be $2,663. The “taxable earnings” – workers and employers will each continue to contribute 6.2% of every paycheck – tops out at $118,500. Medicare B premiums remain unchanged ($105 per month). High income seniors will continue to be charged an additional Medicare Part B premium (based on income) and tops out about $231 a month – plus they may be subject to the 0.9% Medicare surcharge tax (under Obamacare) on excess earnings.

Since 1975, the COLA has been linked to the Consumer Price Index for Urban Wage Earners (CPI-W). It is set each October based on the prior 12 months’ data. Some advocates argue the CPI-W understates the rising costs seniors face. Others suggest the COLA should be linked to a lower measure of inflation – “chained CPI.” Nevertheless, the COLA adjustments have averaged about 3.8% annually since 1975 (a high of 14.3% in 1980, and zeros in 2010 and 2011). And they’ve averaged 1.7% for the past five years.

Planning Implications

Fill the gap – Even if you earn the maximum SS retirement benefit, it may only account for half of a $5,000 per month retirement lifestyle – and a lot less if future SS benefits get reduced or “full retirement age” is extended to preserve the sustainability of an entitlement program threatened to go bust. You may have a gap to fill, either by necessity or planning conservatively.

• Current investments (after tax-savings, retirement accounts – IRA, 401k, Thrift Savings, Deferred Comp, etc. – rental real estate, etc.)

• Future savings, business sales proceeds, and windfalls (inheritances, insurance benefits, lottery, etc.)

Protect from the secret menace, inflation – What can you do to put things better in your favor so that the total of all your retirement paychecks (SS, pensions, annuities, account distributions, etc.) keep pace with rising living costs and you don’t run out of money? Inflation is like another tax. Say your retirement income rises 3% annually, but inflation averages 4%… your income will be worth 83% of what it is today in twenty years. And God forbid you’ve locked yourself into a fixed payout – $100 a month, and every month until you leave this Earth. That $100 bill will be worth about half as much as it is today in twenty years if inflation taxes you at 3% a year.

• Heed one of the “Five Rules of Gold” in the George S. Clason classic, The Richest Man in Babylon, which was “don’t kill your slaves.” Don’t spend all your investment returns… reinvest some for the future to multiply (compound).

• Have some “growth” in your portfolios… don’t invest solely for “income” (which is close as a gnat’s bottom to the ground these days, unless you “reach” for riskier investments).

• Downsize your debt, living costs (including taxes), and your house (and your knees might appreciate fewer stairs).

Double check those Social Security Statements – Miss those green statements containing estimated benefit forecasts? They’re back! SSA bowed to public pressure after they stopped mailing them in 2011 in a cost-cutting move. Workers were advised to set up online accounts at, but apparently only 14 million logged on. Watch your mailbox for statements in those milestone years (age 25, 30, 35… to age 60), and register online.

• Check your benefit estimates, descriptions of the Windfall Elimination Provision and Government Offset rules that can reduce benefits for the so-called “double dippers,” and your earnings history.

I read an interesting survey by American Century that asked workers participating in their company’s retirement plan “what intervention, if any, do they want from their employers?” Forty percent wanted “a slight nudge” to encourage them to save for retirement. Another two in five wanted something a bit stronger – “a strong nudge” or a “kick in the pants.” So I suggest “Please sir, may I have another?” and chat with your advisors. Good luck.

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