Yes, Even Celebrities Make Estate Planning Mistakes

Americans are drawn to celebrities. We read about their lives, gossip about their deeds and ogle their pictures. Perhaps it is admiration of glamour, fascination with royalty or learning their tricks of the trade. However, celebrities often make the same mistakes as us “commoners.” Let’s use their stories as lessons learned in protecting our wealth and values.

Here are the top four estate planning mistakes by celebrities we want you to avoid:

No will.

We want our affairs to be properly handled and loved ones protected when we are gone. However, neither Aretha Franklin nor Amy Winehouse had a will. The Queen of Soul left behind four sons with some financial headaches. Winehouse left an unwritten song about her finances. How did she want her $6.7 million estate to be distributed? To her brother, ex-husband and charity? Absent her written instructions, her estate went through probate and was distributed to her parents. Only one in four Americans have wills according to a 2018 survey by Caring.com. The main purposes of a will are to name guardians of minor children, an executor of your estate and which beneficiaries are to get what assets.

Failing to set up a trust.

Glamorous photographs are one thing, but do you really want your financial affairs given red carpet treatment? A will is a public document. With a living trust, your wishes remain private. Several tragedies followed Whitney Houston’s death at age 48. First, Houston’s will named her daughter Bobbi Kristina Brown as sole beneficiary. Second, her daughter unfortunately died three years later at age 22. Third, Houston’s estate was involved in a battle with the IRS over the valuation of recording royalties and was assessed an additional tax bill of $2.2 million. Finally, and ironically, her ex, Bobby Brown, may be the heir of the Houston estate.

A living trust can help keep your estate plan private. It designates who is entitled to your assets and how they are to receive them. The document names trustees and the trust may provide estate tax benefits. In the Houston case, a living trust may have helped by providing guidance to Bobbi following her mother’s death. A trust can help leave the legacy you want including harmony in the family.

Not updating the plan.

Life changes. Shifting financial conditions, health, family dynamics and relationships may signal the time for an estate plan tune-up or overhaul. Michael Crichton, author of Jurassic Park, was an unfortunate example. He was diagnosed with throat cancer, his sixth wife was pregnant and he didn’t update his estate plan to include his eventual son. His wife sued to include the baby as an heir, and Crichton’s daughter from a prior marriage opposed. Ultimately, the judge ruled the baby could inherit. However, anguish and expense could have been avoided by simply updating the documents. Is it time to contact your attorney to account for important life transitions and reflect your current wishes and situation?

Disabled before death.

Also, consider planning for living before you pass. You may be disabled and require assistance in managing your affairs. For example, one out of 10 people aged 65 is diagnosed with Alzheimer’s. The rate grows to one out of three at age 85 and quickly moves to one out of two. Powers of attorney and living wills help protect you and your loved ones in case of incapacity. They too need to be reviewed and updated. The last years of blues singer Etta James, known for “At Last” and “Tell Mama,” were mired in court. The legal battle was between her husband of 42 years and her son from a prior marriage. Etta James signed power of attorney over to the son in 2008, at a time her husband argued that she suffered from dementia and was incompetent. The son wanted to limit the amount of money the singer’s husband spent for her medical care. They finally settled, and the husband was named as conservator, however, he was limited to $350,000 for medical care for his wife. Etta James passed shortly thereafter.

Celebrity misfortunes with their estate planning could be our very own. Avoiding them shouldn’t be left to divinity or luck. Your financial successes in life require a dedicated process of setting goals, making decisions, adapting the plan, and repeating the process. Secure your future wisely.

You can view this article on the Reno Gazette Journal.

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End-of-year financial checklist, pt. 2

Vincent Price’s rap at the beginning of Thriller was a warning: “Darkness falls across the land. The midnight hour is close at hand …” October certainly has been a spooky month for some investors. Nevertheless, fall is time to wrap up your personal finances for the year.

Here are five additional items to include on you end-of-year financial checklist:

30-minute family financial report card

How do you want your personal State of the Union address to read? Two planning mantras are “control what you can control” and “have a written plan.” However, long-term planning can be frustrating – delaying gratification and fuzziness of the future. It can feel like walking to the horizon – and you never get there. What if you periodically paused to assess your situation and celebrate the year’s achievements? Did you meet your financial goals? Are you on track with your budget? What adjustments should you make for the New Year?

Stay on your debt diet

What if you approached debt reduction like a weight-loss program? The average American with personal debt (excluding mortgages) holds the following balances according to NerdWallet.com – credit cards ($15,482), auto loans ($27,669) and student loans ($46,950). On a parallel path, many of us eat too much and about 70.7 percent of Americans are overweight or obese, according to NBC. Similar analogies between excess pounds and debt include how easy it is to add but difficult to shed, how it can grow with little effort, and how it can cause problems later in life if left untreated. The programs for weight loss and debt reduction often include setting reasonable goals, changing one’s lifestyle, avoiding temptation and having a buddy or cheerleader. Stay in shape!

Tax reduction

Are you paying the minimum amount legally required? Profitable companies tend to command higher stock prices. Two ways to increase the bottom line include growing revenue or reducing expenses (including income taxes).

Financially successful households run their personal finances like a business. Common tax reduction strategies include:

  1. Deferment: Pushing income into future tax years and accelerating deductions (e.g. retirement plan contributions, buying business equipment and installment sales).
  2. Tax-free income: i.e., municipal bond interest).
  3. Preferential capital gains treatment and matching gains with losses.

Taxes are complicated and the biggest tax law changes in over 30 years took effect this year. Review your situation with your CPA, enrolled agent and trusted financial advisers.

Charitable giving

Would you consider making a charitable gift, or possibly one in the name of a family member? People share their wealth (or volunteer their time) for many reasons, including trust (making a difference), altruism (helping others in need), social (couples make giving decisions together or the cause benefits someone close to you) and egoism (it feels good, or you enjoy the recognition).

Year-end giving for tax reasons might be straightforward or not. Writing checks is pretty simple. However, you may be giving appreciated stocks, real estate or collectibles, or distributions from your IRA (if you’re 70 1/2 or older) that require paperwork or special services (tax, legal, appraisers, etc.). Give yourself sufficient time.

Protecting loved ones

When’s the last time you updated your estate plan? Estate plans can be magical – helping you maintain control of your assets and protect you should you become incapacitated. They can take care of family and pets, and can save you time, money and stress. Estate plans can protect your privacy and help keep harmony in the family. However, they can’t update themselves.

Have your estate plan reviewed if your situation has changed — for example: marriage, divorce or death; financial status; a new baby or grandchild; moving to another state; or other circumstances. Maybe your successor trustee is your college buddy and he or she is as old as you. Kids get older and can serve in trusted helper roles. Relationships change or you feel the need to protect beneficiaries from bad habits or overspending.

Life is full of opportunities and distractions. And as humans we are influenced more by psychological factors in making financial decisions – fear, overconfidence and biases – than by rational factors.

Don’t get spooked! Plan out your finances with your trusted financial advisers.

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End-of-year financial checklist, pt. 1

Fall is a busy time at home and in the office. You’re wrapping up the quarter at work, preparing for the holidays and ensuring your home is ready for the upcoming winter season. It’s also time to get serious with year-end financial planning. Prioritizing responsibilities can get tricky, but some items have hard deadlines or deserve immediate attention. End-of-year financial planning is one of those items.

Here are five items that you should include on your end-of-year financial checklist:

Max out your 401(k) contributions

Hit your savings goals. Most people prepare and save for retirement. Others can live off Social Security benefits alone or may have married rich. Retirement plans – 401(k), thrift savings, deferred compensation and others – can be excellent vehicles. They provide forced savings, convenience, matching employer contributions and tax benefits. If you’re in the 22 percent federal tax bracket, each $100 you contribute to your 401(k) plan only “costs” you $78 out-of-pocket with the balance coming from tax savings. Plans are subject to maximum funding limits, so be sure to check the rules.

Rebalance portfolios

What is more important to you: maximizing returns or minimizing risk? Prudent investors diversify asset allocation — how you “slice the pie” among asset classes such as equities, fixed income and cash — drives the risk-return characteristic of the portfolio. Assume the target allocation was a third to each. The assets will produce different returns over time and if left alone, the portfolio becomes unbalanced. Rebalancing can pay you big dividends. You’re reducing risk, selling high (trimming equities in this market) and buying low (adding to cash and or fixed income). Rebalncing helps you emotionally handle midterm elections and other uncertainties.

Review tax planning strategies

Trim your tax bill or avoid surprises. Your income may be higher from a good economy, selling a home or rebalancing your investments, or required minimum distributions (RMD) from an IRA. Are you eligible to fund a different type of retirement account? Will you contribute to charity or increase your donations? If so, would you donate appreciated investments or use your RMD in a special way to reduce taxes?

What are you going to owe in taxes? The Tax Cuts and Job Act represents the biggest change to the US tax code in more than 30 years. Most taxpayers will pay lower income taxes, but not everyone. Tax brackets are lower, fewer taxpayers might itemize (since the standard deduction roughly doubled), the personal exemption was eliminated, state and local tax deductions are capped to $10,000, and mortgage deduction may be limited. More dramatic changes were on the business side, including a 21 percent corporate tax rate, incentives to repatriate foreign assets and elimination of the corporate alternative minimum tax. And some business expense deductions are gone (i.e., tickets to sporting events) or harder to take (business interest and net operating losses).

Update beneficiary designations

Protect your loved ones and favorite organizations. A lot can happen between Thanksgiving and Christmas dinners, including your preferred heirs. Two popular stories illustrate the benefits of periodic updates, and being on your best behavior during the holidays.

The first is about Warren Hillman, who was married three times. He named his then-wife Judy as beneficiary of a $125,000 life insurance policy, divorced her and later remarried Jacqueline. Warren didn’t update his policy and died 10 years later. Ex-wife Judy filed for and received the $125,000. Widow Jacqueline sued in state court, and the case eventually went to the U.S. Supreme Court, which ruled in favor of the ex-spouse.

The other story is about a 17-year-old waitress named Cara. Bill Cruxton, an 82-year-old widower with no children, was a frequent customer. They became friends, she ran errands for him and helped him at home. He rewrote his will, naming her as primary beneficiary. Bill died later that year and left her half a million dollars.

Schedule medical and dental appointments

Take care of yourself. Schedule tests and procedures before the end of th year. It may save you insurance plan deductibles and co-pays that reset Jan. 1. Also, remember to use your FSA (flexible spending account) because unspent balances may be subject to a “use it or lose it” feature. (Note: HSA, or health spending accounts, generally allow balances to carry forward).

Make time to celebrate the arrival of fall with your family’s personal traditions but don’t neglect your end-of-year finances. Also, tax planning issues can be complicated, so be sure to contact your CPA or enrolled agent earlier rather than later. Trusted advisers are always available to help!

You can view this article on the Reno Gazette Journal.

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Capture financial gains, or prepare for stormy weather?

What do you do when you get conflicting advice? There are two choices when the sun is shining. One person remembers the saying as “you build an ark when the sun shines.” Another says no, the saying is “make hay when the sun shines.” Market conditions have been sunny this year. Should an investor prepare for stormy weather, or should he or she stay invested and capture more gains?

We’re entering the fourth quarter, which traditionally has a remarkable track record. For example, the S&P 500 has been positive for 25 of the past 30 years, ranging from a high of plus 21 percent (1998) and a low of minus 22 percent (2008), and averaged 5.3 percent for the quarter. However, there is a wide range of forecasts and interpretations of current conditions. The “hay makers” talk about slow but growing economies, low inflation and low unemployment. And on average, election outcomes have little relationship to S&P market performance – so best to separate investment decisions and politics.

However, the “ark builders” talk about slowing economies, rising interest rates, and “Katy bar the door!” if both the House and Senate go blue and impeachment talks go viral.

Thus, the dilemma. You and I are standing on the same street corner; one’s advised to turn right, the other left. I have yet to meet a consistent and accurate forecaster. As much as we expect the best and plan for the worst, prepare to be surprised. Should an investor “make hay” or “build an ark” in this relatively sunny weather?

You are right – the prudent answer is a bit of both.

We each face issues today. They run the gamut – simple, complex, emotional and some that are polarizing and divisive. However, I’m reminded daily to focus on things that we control, prioritize what will have the greatest impacts, and seek objective and qualified feedback. Isn’t it better to get help in thinking things through? We benefit from expertise, different perspectives, and checking our blind spots and biases, to name a few.

One of the reasons you invest wisely is to adequately fund retirement. Retirement age is a key variable in planning. There are several studies that show a noticeable gap between expected and actual retirement date. It is wise to make planning adjustments for the potential for early retirement. I’ll highlight some of the findings of David Blanchett of Morningstar and share some planning implications you might discuss with your family and team of trusted advisers.

  • Major variables in retirement planning include age of retirement, annual funds needed, returns and life expectancy. (These factors themselves may change throughout retirement.)
  • People tend to retire earlier than expected by about four years; the average age of retirement has increased to 62 (from 59) as has the expected age to 66 (from 63). (Waiting until Medicare eligibility makes sense!)
  • Earlier retirement can have negative impacts — less time to save, reduced Social Security benefits, higher medical insurance costs, and money needs to last longer assuming health stays the same. But 28 percent of retirees still work!
  • A driver of early retirement is health. It can impact life satisfaction and ability to adapt; and bad health can shorten life expectancy and increase costs of care.
  • Postponing happens in economic downturns; work also serves to provide purpose and meaning.

Goals are an important part of planning; however, they’re not the central conversation. There’s a big difference between goals and transitions. Goals are what we want to happen (i.e., retiring at age 65). Transitions are what’s happening anyway: my health declined; my company restructured and I’m retiring at 62; my daughter’s getting married; my nephew is graduating from college. And who has a goal of Dad getting Parkinson’s?

That’s life. Transitions are important because they often have financial implications. And it’s much better to prepare than to repair.

Good luck!

You can also view this article on the Reno Gazette Journal.

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Mine, Yours and Ours: Guidance for Unmarried Couples on Joint Banking Accounts, Co-Signing Loans and Buying a House

Unmarried couples face unique money issues and financial planning opportunities. For example, how do you own your assets?  There’s a shared joy from living together and a temptation to own things “together.” There are going to be expenses – some shared and others where you find yourself saying, “I’m not paying for that!”

Here are three financial planning areas for unmarried couples.

  1. Are we ready to have a joint bank account? Most individuals will find it safer to maintain a “what’s mine is mine and what’s yours is yours” attitude early in the relationship – keep your bank accounts, investments, credit cards and debt separate. Uncertainty and finances create stress in relationships. Until you develop trust, are comfortable in talking about goals and expectations, and work closely as a team, it makes sense to keep financial accounts separate. Even after the relationship blossoms and you’re finishing each other’s sentences, having separate bank accounts can save you from squabbles.

    An important discussion is deciding how to split joint expenses and who pays the bills. Some couples split expenses 50/50. Others pay for things in proportion to their income – I’ll pay A and C and you’ll pay B and D. It becomes a matter of communication and compromise. However, in other cases it may make sense for couples to contribute monies to a joint account to pay certain bills.

    The key advantages about joint accounts are convenience and building trust about your shared finances, spending and saving habits. However, there are disadvantages. There’s a loss of privacy – you both see what the other is spending. Second, your finances could be at risk if one partner is financially irresponsible. If one has debt problems, his or her creditors could go after a joint account regardless of who contributed funds. And third, either party can clean out that account without the other’s permission. You may want to limit the balance of that account to a month or two of expenses.

  1. Thinking twice before co-signing on a loan. This includes co-signing a lease, applying for a joint credit card, or taking out a mortgage as an unmarried couple. It might sound like a good idea to help out your partner with bad credit. However there are many reasons not to co-sign a loan per Bankrate.com. It’s high risk and low reward. The individual with a bad credit score has little to lose and you assume all the risk if the loan isn’t repaid timely. Your ability to get credit when needed may be restricted due to excessive credit. And life happens – what if the other party loses their job or you break up? The banker’s not going to care, and you’ll get a call. There’s a reason why a 200-ton sculpture of black marble at the Bank of America Plaza at 555 California Street in San Francisco is also known as “The Banker’s Heart of Stone.”
  2. Purchasing a house. Weigh your options before making the plunge in three primary areas. First is title of ownership. It might be single ownership simply because one party has more substantial assets; or it can be joint tenancy or tenants in common (TIC). A major distinction upon death – if joint then the other party inherits, and if TIC the decedent’s ownership will pass by his or her will or trust. Second is how you split the costs including down payment, closing costs, utilities, taxes and repairs. If it’s single ownership, why would the other party pay property taxes? In that case, he or she pays “rent.” And finally, negotiate and write down your break–up plan for the house. Who gets to keep the house? And what are the buyout terms?

As young relationships blossom, we hope couples grow together personally and financially. However, life throws curve balls. Plan accordingly. It may be prudent to have written agreements, and get legal advice, especially when the stakes are high.

Good luck.

You can also view this article on Reno Gazette Journal.

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Getting Hitched? Ask These 9 Financial Questions Before Living Together

Millennials experience more stress and don’t manage it well, according to a survey by the American Psychological Association. Compared to other generations, they’re the most stressed, followed by Gen Xers, Boomers and finally, Matures. Over half of millennials report lying awake at night worried during the past month. Primary stress culprits include money and work. At Sage Financial Advisors, debt and planning for the future are some of the most common worries we hear from young adults.

Additionally, millennials dominate the ranks of renters, are less likely to own a home or marry than prior generations at a similar age, according to Pew Research. Young adults aged 25 to 29 cohabitate almost four times the rate of Boomers at a similar age.

This is the second in a series of articles focused on helping young adults have less financial stress and plan a successful path ahead.

Here are questions that young adults should ask before moving in together or marrying:

  1. Discuss reasons for moving in together. The list should be long. The phrase “makes financial sense” should be one of the benefits, not the primary one. Yes, a break up between non-spouses is less legally complicated than a divorce. However, how much more stress do you want and why enter a problem relationship? Separate living arrangements might be preferred.
  2. What are your expectations of each other? How will chores and bills be split? Will it be okay to hang out late with your co-workers? Who will cook and who does the dishes?
  3. Talk about finances. It’s good to know upfront about each other’s current financial condition – prior bankruptcies, significant debt and poor credit scores. Whose name is on the lease? Is the bill pay schedule manageable for both of you? Should you have mine, yours and our bank accounts? Here’s a sample couples money worksheet.
  4. Agree on the address. Does it provide equal commutes? Is it affordable and match your needs?
  5. Prepare for the good, the bad and the ugly. A mentor taught me how to read a contract – if you can live with the “come hell or high water” provisions (consequences of breaching the contract), then it’s probably an okay deal. This includes piled dishes, sleeping in until noon, snoring, and slow pays after the courting days are over. And have a break-up plan in advance.

What about marrying? Add these to the list:

  1. Discuss your money views and saving/spending habits. Money talks are emotional and personal. Openness and transparency take priority. What would you do if given a million dollars? How do you feel about money?
  2. Discuss family plans. More women are waiting longer to be mothers. It’s not unique to millennials – it’s been a trend since 1970 with a shift away from marriage and increasing educational attainment. Delaying parenthood is not due to a lack of interest though. Pew Research says over half of millennials say being a good parent is one of the most important goals in life – higher than having a successful marriage.
  3. Open the financial kimonos. Full disclosure becomes more critical with the legal issues of combining assets, pre-nuptial agreements, wills, trusts and life insurance.
  4. Negotiate priorities. I met an interesting gentleman years ago at a business retreat. He shared his key to marriage: Learn when to negotiate your priorities. For example, if the topic was where to dine that night, he’d ask his wife, “How important is that to you?” On a scale of one to 10, if she said “8” and he ranked it a “3” then she gets to decide. When deciding where to vacation and your destination ranks highly for both of you, then it’s time to sit down, discuss and negotiate. It’s a mindset of working together and compromise.

Remember to treasure your relationships more than your possessions and ask the hard questions before moving in with your significant other.

Good luck!

You can also view this article on Reno Gazette Journal.

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Young Adults – 5 Milestones to Celebrate

Why do young adults risk being the “lost generation” and not being as wealthy as their parents? It’s because those born in the 1980s grew up and entered the workforce during the Great Recession and have not recovered financially like those born in other decades, according to a recent study by the Federal Reserve Bank of St. Louis. The report concludes those born in the 1980s have 34 percent less wealth than previous generations at that same age, and that debt and homeownership may have played important roles.

I’m not here to question the methodology of the survey. Rather I ask two questions: “Are you average?” and “Why not put things in your favor?”

The group of young adults known as Millennials gets a bad rap with references as the Boomerang, Selfie or The Tolerant Generation. But they’re also stereotyped as open-minded and collaborative. And they’re well-educated and have many years ahead of them. We at Sage Financial Advisors are fans of this age 22 to 37 year-old group. They’re our future, our daughters, nephews and grandkids, and our employees. They will soon become America’s largest generation and bypass Boomers by 2019 as the largest living adult generation, according to the U.S. Census Bureau.

This article kicks off the first of a series about financial issues unique to young adults. The purposes are to stimulate conversations and for you to explore financial solutions with your family and trusted advisors. Future articles will provide financial education and share entrepreneurial advice. Topics include:

  • Redefining financial goals
  • Paying off debt vs. maxing out your 401k
  • Hers, his and our bank accounts (and how you own your own stuff)
  • Conversations to have before getting married
  • Financial adjustments for young parents

Good financial health pairs well with other aspects of your life. Yet the path can be long and painful. Don’t forget to celebrate the successes along the way.

Here are five financial milestones young adults should celebrate:

  1. Eliminating debt – Young adults face unique challenges including enjoying today vs. saving for tomorrow. Unfortunately, millennials have an average of $42,000 in debt according to a Northwestern Mutual 2018 study. The biggest form of debt is credit cards, followed by student loans. You can only do two things with a paycheck – save or spend – and debt reduces both. Consider checking out some debt reduction tools and support groups available online – David Ramsey, Mary Hunt’s Everyday Cheapskate Monthly, to name a few.
  2. Emergency funds – These free you from living month-to-month, help during emergencies, and provide peace of mind during major life changes such as relocating due to a job or living independently and confidently after a divorce. A common guideline is to have enough money saved to cover three to six months’ of living expenses. You should also consider parking the funds in a competitive online FDIC money market account.
  3. Your first $100k – Pick a number that’s large enough to stretch you, but not unattainable within a few years. Too high of a goal is like walking to the horizon: (a) you never get there and (b) you’re frustrated, or “retirement” may be too nebulous of a concept – I remember thinking that being 60 sounded old.
  4. Getting paid in stock – Cash pays the bills. Equity feeds the entrepreneurial spirits and can be rewarding. Ask artist David Choe who painted the walls of Facebook with murals in 2005. He was advised to take his $60,000 fee in shares rather than cash. Those options were worth $200 million when Facebook went public at $38 a share in 2012 (now trades around $172). I use the term “stock” loosely – can be shares, options, or even cash in the form of profit-sharing incentives. Begin to think and act like an owner with a focus on growing customer satisfaction.
  5. Making a charitable impact – People do the right thing because it’s the right thing to do. You can be impactful and make this world a better place by giving your time, talent or treasure to a local non-profit.

Remember, “The art is not in making money, but keeping it.” Good luck and remember to celebrate your financial successes.

You can also view this article on Reno Gazette Journal.

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Sage Financial Advisors Webinar: Retirement, New Challenges Facing Young Investors, and Outlooks

personal-financial-planning

“Hazy” yes, but “lazy days of summer” no – It’s been a busy summer. We greatly appreciate playing a role in your lives – keeping you on track, helping you think things through, or just listening. Please join us next Wednesday, Aug. 22nd at 4:30 p.m. PST for our quarterly conference (30 – 45 minutes). We host them to keep you informed and educated, and more importantly, to discuss what’s on your minds.

We’ll cover several areas that may impact your lives and accordingly, may require adjustments in your financial plans:

  • 3 Phases of Retirement – A recap to our 3 part series
  • Challenges Facing Young Adults – Debt free, shifting retirement vs college funding
  • Investment strategy updates
  • What’s on your mind?

And feel free to share this invitation with family and friends. Please RSVP to Kirstin and she’ll send you a link to log on.

RSVP

We look forward to talking with you soon!

Brian & Kirstin

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Top 5 Favorite Online Financial Tools and Their Limits

financial-worldImagine you’re being shipped to a deserted tropical island. What one item would you take? Now ask a thousand people the same question. We’d face similar conditions but would choose different things. Some would go for survival – drinking water, fire starter, Swiss Army knife, or a first aid kit. Others might go for comfort – sleeping bag, comfy recliner, hair conditioner, a solar lamp or a tube of lipstick. And the creative might take a lifetime supply of Tecaté.

There are many choices in online tools for a game of Financial Survivor including retirement, insurance and tax calculators. Perhaps not the utility of a shiny Leatherman tool, but useful gadgets nonetheless. These tools help you see finances in a unique way and explore different “what ifs” so that you stay on track with financial goals, protect your loved ones and have flexibility and freedom to do the things you love to do. There are tons of tools – you can visit websites such as your favorite financial institution, AARP.org, or Dinkytown.net where you’ll find over 400 calculators for free.

What are your favorite online financial tools that make planning easier? We surveyed our Sage Financial team and here are the top five calculators:

  • Budget
    You’ve got to be more serious than anyone on the planet about your finances. Spending plans are important for several important reasons – living on less than you make, knowing where your money goes, and funding emergency reserves (rainy day fund). Online tools range from Excel spreadsheets to those with supporting processes and forums (communities) such as YouNeedABudget.com, Dave Ramsey and others.
  • Loan Amortization
    Financial priorities often shift in time. Often, the early goals are to accumulate emergency reserves and pay off debt. It’s a joy to watch a person or couple see what it takes to get out of debt (payoff accounts with smallest balances first then move to the next, refinance to lower rates, making extra payments to the mortgage, etc.). And lower rates are the payoff of building and protecting your credit rating.
  • Social Security
    How much do you have to save for a comfortable retirement? What is your projected social security retirement? When do you take social security benefits – age 62, full retirement age or 70? Are your earnings being accurately reported to social security? The maximum monthly social security benefit in 2018 is about $3,698 whether you’re 62 or 70. It’s designed to replace about 40 percent of a retiree’s pre-tax income. The more you make, the lower the percentage of income social security will replace. Your monthly benefit is figured around something called “bend points.” Example – if you were born in 1954 or later, you’d be credited about  90 percent of average monthly income to $895, 32 percent between $895 and $5,397, and 15 percent for the excess; add them all up for the retirement benefit payable at full retirement age. Log on to ssa.gov and sign up.
  • BankRate.com
    Bank Rate is rich with interest rate information for both savers and borrowers. It includes regional and global market data including major indices, CD and loan rates. And it’s a good resource to shop for online money markets to check out competitive yielding alternatives for cash reserves.
  • Tax Tables
    Most people hate getting surprises including unexpected tax bills and underpayment penalties. Ask your CPA or enrolled agent for 2018 tax estimates or go online for tax tables. There are significant tax law changes and your situation may have changed – new job, major asset sale, family change, and others.

What about how much do I need to save so I don’t run out of money in retirement calculators? Absolutely retirement calculators are important for planning. Prudently used, they can help us by showing us the probable future impacts of decisions we make today. There are numerous online tools including some of the websites previously mentioned, your 401k plan provider and others. However, they vary from simple (a couple of variables) to complex (numerous variables), and a very user-friendly (simple) calculator might be a poor simulator of reality.

3 Reasons Retirement Calculators Don’t Work

  1. Generally, retirement calculators attempt to answer a very basic question, “We have savings of $X…will it last our lifetimes if we spend $Y per year?” However, life is seldom a straight line and periodically surprises us. What if we don’t live the same number of years (or live longer than expected) – how do we protect the survivor (or hedge our bets)? Our spending in retirement will vary – higher in the early years, stabilize in the middle, then kick up in our later years – how do we plan for that? We’re a blended family – we’ve got my wealth, his wealth and our wealth – how do we factor that and keep peace in the family? We’re planning to resize our home once, maybe twice as we move to be closer to the grandkids – how does that impact our future?
  2. Can’t maintain our desired lifestyle – This rhymes with haven’t saved enough. What is feasible with a financial reboot? Work longer? Spend less? How do you re-prioritize the goals? How do you negotiate a re-alignment?
  3. We (I) don’t want to do this alone – Sometimes it’s a confidence thing (moving outside the 401k cocoon) and other times it may be complexity or you’d rather be doing other things in life. This is where delegation, partnering or simply having a feedback mechanism to help you think things through is needed.

In closing, some projects are completely do it yourself, and others are where you use tools to validate what’s being recommended to you or confirm your thinking. Remember, they’re tools, and sometimes you need a special touch. Imagine three people standing in line at Home Depot. We’ve each got an orange bucket containing the same tools – the same brushes and paint. It’s you, me and a guy named Michelangelo. One of us will have a very special outcome.

Good luck!

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The Third Phase of Retirement: Reflection

Traditional discussions about retirement planning often involve two objectives – accumulating enough money to last a lifetime, then having a way to pass it on to your loved ones. However, there’s a big chunk between retiring and dying where you’re navigating life’s transitions. This three-decade period has been the focus of this series. There are three phases of retirement. Each is defined more by distinct situations, needs and financial needs, than by time. And each has unique planning opportunities and challenges.

The third phase known as Reflection isn’t as fun or active as the first two – Honeymoon and New Directions – because you’re making the more difficult medical and lifestyle decisions. There are two sub-components – the longevity phase (accepting the inevitability of aging) and the solo phase (where a couple becomes single).

  • Primary retiree concerns – It’s often a time of reflection – a life well lived, and uncertainty – how our exit will go. Life has slowed and you’re spending more time at home preserving memories and talking with family and old friends. Health and finances may limit your choices in life. Doctor visits rise as physical and cognitive conditions decline. Caregiving increases as a receiver or giver – one in four American families provide nearly 21 hours per week for care to a loved one. You don’t want to be a burden and focus is getting loose ends wrapped up for less mess left for the kids; and there’s a renewed concern – will my spouse be ok without me? Simultaneously, the kids are worried if mom and dad are going to be ok and what changes they may need to make.
  • Cash flow planning – Three challenging situations require management – Declining revenue and assets, and rising costs. A couple’s income might decrease after a death from reduced pensions and Social Security. Costs rise for healthcare and professional caregivers. Fidelity Investments estimates healthcare costs for a couple age 65 to be $280,000 (excludes long-term care) and inflation. And living alone at home might be cost prohibitive if professional aids are needed – 24/7 care at $20 per hour is $14,400 a month and excludes the cost of Boost drinks and personal care goods. The most expensive period for a couple may be when the first spouse moves to assisted living – you’re maintaining two households. Finances are easier when the second spouse needs advanced care – you sell the house.
  • Legal and estate planning – Your professional advisory team and estate plan should be in place due to the higher risks of diminished capacity and health. And estate plans should be updated at a minimum for any of the “5 D’s” – decade, divorce, death, diagnosis and decline (American Bar Association).

How’d you do in Mind Reading class? Getting your wishes in writing will greatly help your loved ones. Conversation Project was a survey that included end of life planning. Over 80 percent said it was important to have their wishes written down, but only a quarter had done so.

Many tools are available including advanced medical directives, POLST, Power of Attorney for Healthcare, etc. through your attorney, healthcare professionals and online. However, I will highlight a couple to stimulate deeper thought.

  • “Five Wishes” helps remove the guesswork. You express how you want to be cared for at end of life. The five areas include who you want to make decisions for you when you cannot, types of medical treatment you want (or not), your desired level of comfort, how you want people to treat you, and what you want your loved ones to know.
  • Check out Susan Turnbull’s website on ethical wills and letters to trustees. The legacy you leave goes beyond material wealth – your personal stories, wisdom, feelings and advice are worthy of being passed on. The practice of communicating what one thinks is important to younger generations dates back to the first parents. Jewish men began to formalize this practice in the 12th century by writing personal treatises to their sons on how to live an ethical life. And Susan’s modernized it into “love letters” to family members, letters of wishes to trustees and expressions of donor intent.

I end with a story about a beloved comedy team, Burns and Allen. The duo’s career started in vaudeville theater and spanned four decades including theater, radio, TV and film. Burns signature sign-off to their popular TV show was “Say goodnight, Gracie.” Gracie said her final “Goodnight” in 1964 when she died from a heart attack at age 69. But with his trademark cigar, George continued his career as a comedian, actor and singer for a total of seven decades. He’d visit his beloved Gracie’s grave once a month to share what was going on in his life. His onstage characters and jokes reflected his attitudes about life and often poked fun at aging. One of them was “How can I die? I’m booked.” George Burns died at age 100 in 1996.

Good luck to you!

You can also view this article on Reno Gazette Journal.

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