Planning Under the Clouds of Dementia and Reducing Financial Elder Abuse

“It’s not the men in your life that matters, it’s the life in your men.” Mae West had a way with words and exuded a playfulness in life. The legendary actress and playwright delighted audiences and horrified guardians of morals with her hourglass figure wrapped with feathers and furs and husky voice that purred double entendres. She said, “If I had known I was going to live this long, I would have taken better care of myself.”  Paradoxically, she lived a more disciplined life, she didn’t smoke or drink, and died at 87 in her LA home.

Living longer challenges our basic wants of freedom, dignity, health and not being a burden. We need more wealth, experience and negotiate the process of aging, strive to reduce the high cost of elder financial abuse. This article outlines some actionable steps to help you prepare and protect your future and that of your loved ones.

The costs of living longer are financial and emotional. When are you ready to retire, enjoy a life of leisure and hang up your tool bag, briefcase or lab coat? The decision for some is easy. Others struggle because it can be a big transition mentally and emotionally. Do you have enough wealth, or on track, to last a lifetime? If your lifestyle requires $100,000 a year over and above your pension and Social Security benefit, and you retire at 65, you’d need about $1.6 million in wealth if you expect to live for 20 more years, assuming 5% return and 3% inflation. If you live 30 years, you need $2.2 million, and $2.7 million for 40 years. Serious saving and prudent investing is required. And as we grow older, emotional challenges shift to making life simple (less lawn), using alternative transportation (lunch with friends), and the assistance of caregivers (changing light bulbs).

As we get older and capacity diminishes, the risks rise for elder financial abuse.  And the costs go beyond money lost. According to figures reported by, elder abuse costs US seniors about $36.5 billion annually, one in five seniors report being a victim of financial fraud or abuse, and nine of ten abusers are family members or other trusted individuals. This abuse can lead to distress and depression. And despite being widespread, the crimes often go unreported or undetected.

Dementia is a general term for a decline in mental ability severe enough to interfere with daily life. Alzheimer’s accounts for about 80% of the cases, and afflicts one in nine Americans age 65 and older and one in three age 85 and older per the Alzheimer’s Association. Another type of dementia is Parkinson’s. And here are three stages of decline and planning steps to consider.

Mild decline – Time for difficult conversations with he or she, the family and professional advisors. Discussions include financial, legal and caregiving plans, and for the afflicted about his or her wishes with loved ones for future care. Planning steps include reviewing estate plans and beneficiary designations, and executing durable powers for finances, power of attorney for health care and living will.

Moderate decline – Time to deepen the working relationships between family and professionals. Financial planning should be wrapped up because legal capacity may be in question.

Severe decline – This is when the family is working primarily with professionals. Legal capacity might be lost, and proper planning helps continuity amongst the family – otherwise guardianship may be necessary.

May West also said, “You only live once, but if you do it right, once is enough.” Amen to that.  Life has its ups and downs. It’s the rough spots that give us the most grief, and why we plan. Paraphrasing the words of Denis Waitley, we expect the best, plan for the worst and are prepared to be surprised. Good luck to you.

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6 Things a Graduate Should Do

Congratulations graduates. It’s exciting as you’re about to embark on new journeys and blaze individual paths into the world.  Yet maybe it’s a time of uncertainty. What are you going to do with your life, where are doing it, and who will you be doing life with? Three big questions, but you’ll figure things out. You’ve learned how to learn, and life now shifts to choosing what you’re going to learn. Meanwhile, here are six smart financial moves for graduates.

  1. Use your time wisely – Job prospects are strong. Take your time and pursue the right opportunities. Most employees want honesty and marketability. The better long-term career investments are often jobs that develop your skills and expand your network.
  2. Start saving early – Here’s a test question. You’re offered a choice (a) $1 million in cash now, or (b) magical penny that doubles in value daily for 31 days. Take the magic penny! It’s boring for a while (1 penny turns to 2, 4, 8, and so on), but things get exciting. End of week 1 you have $1, week 2 is $100, and week 3 is $10,000. You hit $10.7 million on the 31st day! Compound interest is a powerful principal. Consistency and time matter. Save and invest X dollars monthly (401k and personal investments) towards your goal – newer vehicle, fund college or trade school, or retire on your terms.
  3. Build cash reserves – Most Americans have less than $1,000 in bank savings. It’s wise to have three to six months’ living expenses socked away in an interest-bearing money market for emergencies, reserves and flexibility. You’ll have more flexibility and less stress – move apartments, switch jobs, or pay a surprise bill.
  4. Stick to your spending plan – A ton of money will pass through your fingers in lifetime earnings over the next forty-some years work. Ignoring inflation, Average Joe earns $35,000 annually, or $1.4 million over forty years, and $100,000 a year is $4 million lifetime. How much of that will you save? Most don’t save enough. Schwab’s 2018 Modern Wealth Study reports that three in five Americans live paycheck to paycheck and only one in four have written financial plans. Affluent people spend less than they make, know what they spend, and budget money to save to maintain their future lifestyle and minimize “surprises.”
  5. Manage debt – Goals are to eliminate debt (pay off student loan or credit cards), or use wisely for major purchases (cars and house). Rising rates or poor credit rating mean more expensive debt. If you’re buying a vehicle, consider the savings of new versus used, and refrain from buying the “extras.” Say you’re comparing a $20,000 used vehicle at 6% interest for 36 months versus $30,000 new vehicle at 4% for 72 months. Used vehicle may sound expensive ($608 monthly payment versus $469). However, the new vehicle means monthly payments twice as long, spending $10,000 more in price and twice as much interest expense.
  6. Protect yourself – Boarders and cyclists wear helmets. Protecting your financial health is also important. Review and enroll in health and disability insurance (and life if needed) as appropriate possibly via your employer. Review your estate plan and beneficiary designations (life insurance and retirement plans) as needed. And periodically shop your car and homeowner’s insurance to save money and make sure you’re adequately covered.

Celebrate graduation with your family and friends. There may be some lingering worries “What am I going to be when I grow up?”  Take a deep breath. You may be feeling a little intense right now. The world changes. There are careers today that didn’t exist ten years ago – AI Engineer, Digital Marketing Specialist, Telemedicine Physician, or Uber Driver. And there will be new advancements in the future. If that didn’t help, remember back to your childhood when you first pedaled your bicycle on your own – without your mother or father running alongside holding your seat. Overwhelming feelings of freedom… and fear? Do the same today as you did back then – keep pedaling. Congratulations and good luck!

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Widows and Widowers and Getting the Right Social Security Benefits

Are the majority of widows and widowers making the wrong decisions regarding Social Security survivor and retirement benefits? Or are they getting limited information regarding the benefit options available?  The Office of Inspector General suggests that thousands of widows and widowers may be shortchanging themselves by millions of dollars in a recent report titled “Higher Benefits for Dually Entitled Widow(er)s Had They Delayed Applying for Retirement Benefits.” This article explores that study and several planning issues regarding Social Security benefit elections.

What is Dually Entitled? Social Security provides benefits to retired and disabled workers and eligible dependents and survivors. You may be entitled to retirement benefits based on your earnings starting as early as age 62, full retirement age (65-66 for most), or deferred to age 70. The later you wait, the higher the benefit – deferring benefits from age 62 to 70 is about a 76% larger monthly check. Additionally, a widow(er) may be entitled to a survivor’s benefit as early as age 60. Thus, a dually entitled person could be a widow(er) age 62 or higher – she (he) may be entitled to survivor and retirement benefits. In 2010, about 28% of SS beneficiaries had dual-entitlement status.

What’s the problem? We’re each responsible for contacting SSA to understand our benefits and options, then decide and file for benefits. If you’re eligible for benefits as a widow(er) or surviving divorced spouse, you might be able to switch to your own retirement benefit as early as age 62 (or defer them to as late as age 70), assuming your retirement benefit is greater.  SSA is supposed to explain the options so that we can make an informed decision. OIG feels that SSA employee guidance and advice to beneficiaries needs improvement. Based on their random sampling they estimate thousands of widow(er)s have lost more than $130 million in benefits because SSA employees failed to adequately advise widows/retirees of their benefit options.

Furthermore, they estimated that 82% should have delayed filing for retirement benefits, 10% had family members (e.g. children) eligible for benefits, 6% were not eligible for higher retirement benefits and 2% did delay filing for retirement benefits.

Here’s an example they provided. A woman applied for widow’s and retirement benefits in 2011 and was eligible for $1,403 and $1,140 per month, respectively. She’ll get the higher of the two, not both. SSA paid her a combined monthly benefit of $1,403 consisting of $263 (widow) and $1,140 (retiree). However, she could have limited the scope of her application… file initially for the survivor benefit, and later submit her retirement application at age 70. Apparently there was no discussion of such option in her SSA files.  She turned 70 in 2015. SSA has paid her about $39,700 from the time she turned 70. Had she deferred taking retirement benefits to age 70, she would have received 25% more. She was underpaid $13,000 by not deferring her retirement.

The key conclusion by the OIG is apparently to talk up deferred retirement elections (age 70) because beneficiaries get more money. Is that the best recommendation for you? I’m not here to critique their study. Perhaps a solution to Social Security’s underfunding problem is telling us all to defer filing for SS benefits until age 70 and hoping we have short life expectancies. However, I do have two closing thoughts specifically as they relate to widows and widowers and generally as they relate to personal financial planning.

  1. Don’t rush into making big decisions. We share a checklist for executors to help them through a difficult time. It’s intended to help keep things from falling through the cracks. There are many items on the list – the deceased, family, financial, legal, etc. However, “Don’t Rush” tops the list. It’s an emotional time. Hopefully, you have good shoulders to lean or stand on and help you prioritize and handle the pressing issues, and maintain flexibility until things become less cloudy.
  2. Think things through. Many planning issues are complicated. They’re not limited to choose A or B, and often they’re multi-dimensional. How can analysts of this study conclude that 82% made the wrong decision? Deferring retirement checks until age 70 may have meant higher benefits down the road. How about the survivor who has a short life expectancy, needs the cash flow now (e.g. reduced pension benefits), or is “comfortable” financially now?

Like most things, the best choice for you is “it depends” and your plan’s unique. Good luck.

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Reasons People Get Off Track Financially

Staying on track is challenging. Investors face too many choices – including the lure of “almost too good to be true” solutions – that make mapping their financial plan confusing. And distractions pop up – crisis du jour – that threaten to blow us off course. Generally, it’s not a single issue such as market uncertainty – is now the right time to invest or how to adjust my 401k – but bigger issues that come into play. Let’s review some of the major reasons people get off track so that you can better negotiate decisions you may face in life.

Planning is a combination of art and science. First it must be easy to implement. Your financial life may be complicated, however, if the plan is too complicated, it won’t be executed – picture dusty blueprints for the house that will never be built that sit idly in the corner. And second, it must be based on evidence – both relevant to your situation and pass the tests of time.

More US workers are dissatisfied with their financial situation than they reported two years ago per the 2017 Global Benefits Attitudes Survey by Willis Towers Watson. This biennial survey measured 30,000 private sector workers in 22 countries – roughly 5,000 were American workers – and was conducted in August and September 2017. It represented a slight reversal of financial well-being following several years of steady growth. About a third (35%) said they were “satisfied” with their current financial situation today, down from roughly half (48%) two years ago. 34% believe that their “financial woes are negatively impacting their lives” – up from 21% two years ago. About half reported a major life event in their lives – divorce, health event, or borrowing from their 401k or payday loan. These coupled with stagnant wage growth cause worker angst.

How many of the two-thirds “dissatisfied” would improve their situation with financial planning and guidance?

Investors may be concerned about market uncertainty, volatility or whatever the current crisis du jour. They’re important. However, bigger issues deserve attention such as not having saved enough, and your overall financial health is determined by more than your cash flow. Prudent planning considers up to six or seven areas (investments, tax, insurance, business, etc.) to build and protect from a major setback from jeopardizing your and your family’s future. Thinking about the survey above, here are four ways (non-investment related) people get off track.

  • Helping too much – It’s natural to lend a helping hand and see our kids and grandkids more successful than us. Find the right balance between your financial future and theirs.
  • Too much debt or the wrong kind – There are smart ways to use leverage such as large asset (home, business acquisition, etc.) or super cheap car loans. However, the most financially successful have no or little debt. And payoff or fix variable rate debt including ARM mortgages and student loans – rates are rising.
  • No spending plan – Know how much you can spend (and save) and budget a rainy-day fund for ‘surprises.’
  • Alone at the wheel – There may come a point when a couple becomes solo. It’s hard enough to read minds, especially when one’s gone. The burden of financial decisions can be heavy resting on one. Written plans and shared passwords are helpful, as is having another to bounce ideas or think things through.

Who amongst us doesn’t prefer short cuts over long hauls, or the magical power to turn lead into gold? I think about our fascination with magic and the realities of science. Take alchemy. It tends to get a bad rap with wizards and bubbling potions. It blended mysticism and science to help men understand forces in the world, including some brilliant minds such as Isaac Newton and Robert Boyle. Over time, alchemy faded but something else emerged. Experimentation and exploration paved the way for modern chemistry. Let’s remember that fulfilling goals and negotiating life’s “surprises” takes a balance of part art and part science. Good luck.

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Crossing the Rubicon

The triumphant Julius Caesar stood on the northern banks of the Gaul River with his army. He agonized over his next move. Caesar had expanded the borders of the Republic into modern France, Spain and Britain in a decade long campaign. Should he stay in Gaul and forfeit his power to enemies in Rome, or take Rome by force with his sword and army? He had little choice, but if he crossed, there would be no turning back.

Roman law required generals returning from military conquests to disband their armies.  Senators said it was “for the safety of Rome” and avoiding an internal military coup – and it protected their positions, power and wealth. However, this time opposition against Caesar had escalated. His unprecedented victories earned him unrivalled power and influence Caesar was ordered to relinquish his command and there were rumors to take him out by any means necessary.

Caesar had no intention of obeying the Senate. Inspired by a vision from the gods, he took charge of his men and said, “The die is cast.” He crossed the small stream and started a great war. And his successes continued until he was assassinated five years later. He established a new constitution, brought order to the Roman Empire, reformed the calendar with the Julian calendar, and was snuggle buddies with Cleopatra.

“Crossing the Rubicon” for Caesar meant leading the greatest empire of the times. It also brought him death. The phrase is used today when you face a difficult decision. You commit to a specific course and it becomes a point of no return. Examples include having a family, expanding into a new business area, retirement, divorce, or a tattoo. Not all are irrevocable and some have more significant consequences. And some can be reshaped or enhanced with adjustment and planning.


10 Ideas for Your Tax Refund (or Reasons Why We Save)

  • Build cash reserves – Amount equal to three or six months’ living expenses if working, one or two years if retired. Check online FDIC insured money markets for competitive yields (vs local banks).
  • Pay off debt.
  • Add to 401k or your after-tax savings – Retirement plans generally provide tax benefits. Reasons to invest outside of retirement accounts include liquidity, real estate, or you don’t want all your future retirement checks to be fully taxable.
  • Fill gaps in insurance and reduce risks – $1M umbrella liability policy might cost $300-$400 or buy a home generator.
  • Fund vocational or college expenses – Also 529 plans have been expanded for elementary and secondary private schools (but not all states have agreed to piggyback on the new Federal rules so check).
  • Build your HSA account – If you’re eligible, Health Savings Account are excellent with triple tax breaks (deductible contributions, tax-deferred growth, and withdrawals tax-free for qualified expenses).
  • Honey do’s – Maybe not enough for a car wash in the shower, but maybe programable thermostat, closet organizer, or yard project.
  • Kickstart the kid’s savings – Consider funding $5,500 to his or her Roth IRA, or their W-2 earnings, whichever is less.
  • Update your estate plan – We’re not getting out of this world alive. And aging can be a double-edged sword. Consult your attorney regarding your will, power of attorney, medical directive and maybe a trust.
  • Give to others – Most people give because it’s the right thing to do. A tax deduction may be a bonus. Some might “lump” contributions to every couple of years to clear the higher standard deduction.


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Tax Reform and Impacts to Business Owners

March Madness can be unpredictable, just like life. And Americans like to root for the underdog. Many Cinderella teams have captured our hearts since the first NCAA tournament in 1939. North Carolina State was a 6 seed that won it all in 1983. Butler almost beat Duke at the buzzer 61-59 in 2011 – 8 seed versus number 1. And this year a history making 16 seed took out a 1 when UMBC dominated Virginia, two 13 seeds defeated 4 seeds (Buffalo over Arizona and Marshall over Wichita). And because the Tourney is still on, I won’t talk about the others for fear of jinxing them.

We build March Madness brackets. We build plans for retirement and financial success. Both provide thrills. Both have uncertainty. However, one has much bigger stakes, and hopefully, demands greater focus and energy. May what remains of your bracket be successful. More importantly, may your future be secure and prosperous.

The Tax Cuts and Jobs Act represents one of the most significant tax changes over the past three decades. It impacts all taxpayers. This article focuses the possible implications to business owners, and briefly summarizes related details.

  • How does this impact me? – Tax simplification, while a worthy goal, continues to be an oxymoron. And rather than talk about generalities of “most” or “some” people, cut to the chase and meet with your CPA and other advisors and fine-tune a plan specific to you.
  • Flexible and adaptable – Be prepared for change. The 1,000-page legislation will need reform of its own to fix or clarify. And expect revision as the political pendulum shifts direction.
  • Global tax shakeup – You don’t always want to be at the top of the list. US moves from being the highest corporate tax jurisdictions of the 35 developed countries, to number thirteen. Tax reduction has global and domestic economic implications – stimulative for the short-term, however, some worry long-term if budget deficits persist. Will lower corporate taxes attract more interest by foreign investors and might this be an opportunity for private companies to sell?

Lower personal tax brackets and simplified deductions – Many individuals may be paying less taxes and filing may be easier. However, taxpayers in high income tax states may pay more due to limited deductions. Rates have come down until 2025. And three out of four taxpayers may be taking the standard deduction rather than itemizing. The standard deduction is increased to $12,000 for single and $24,000 for married filing jointly.

Corporate taxes – The most notable change has been the reduction of the highest corporate tax rate from 35% down to 21%. And corporate alternative minimum taxation was repealed. Including state corporate taxes, the average US company pays 25.75% versus 38.9% before tax reform. The intent was to increase business cash flow (less taxes) to encourage increased plant and equipment investment and hire more employees.

Qualified business income deduction – Some companies might be tempted to corporate entities given the lower corporate tax. The qualified business income deduction was meant to help address this. Pass thru entities (Sub S, LLCs, partnerships, sole props, etc.) may be eligible for a deduction of 20% of their qualified business income. Eligible businesses include manufacturing and real estate companies, but not professional services. Talk to your CPA to determine if you’re business is eligible. Professional services including doctors, lawyers, accountants, financial advisors, performing arts, athletes, etc. are ineligible. However, architects and engineers may be eligible for the deduction.

Repatriation – There’s an incentive for companies to bring back business profits to the US that may fuel spending and investment.  The one-time repatriation tax is 15.5% for liquid and 8% for illiquid assets.

Higher expensing – Businesses may be eligible to expense up to 100% of certain business assets acquired through 2022. This means increased free cash flow for operations or to fund acquisition.

Miscellaneous deductions – Deduction for business related entertainment (e.g. sporting events) has been spiked, but businesses are eligible to deduct 50% of qualified meals. Deduction for business interest expenses is limited to 30% of adjusted taxable income.

This is a summary of the tax reform. It’s difficult to generalize on how taxpayers should cope with the new rules. Consult with your CPA or enrolled agent for more details and specific advice relevant to your situation. They’re going to be busy with preparation of 2017 returns, but not too busy to schedule an appointment to review 2018 and beyond for you to pay the minimum tax legally required.

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Tariffs, Inflation and Tax Time

Life isn’t easy, simple or smooth. March is Women’s History Month which recognizes great contributions women have made to our country. Elizabeth Blackwell was the first women to graduate from medical school in 1849 and is recognized as our first woman doctor. Blackwell faced many prejudicial challenges in education and medicine. She was rejected by most schools, one accepted her on the condition she dress as a man, and was finally accepted by Geneva Medical College in NY. She and her sister Emily (graduated from med school in 1853) opened a women’s clinic. Elizabeth marched on, trained women physicians and nurses in the Civil War, and founded hospitals and women’s medical colleges in the US and England. She was a pioneer in preventative medicine and helped open the doors for other women. At the time of her death at age 85 in 1907, there were over 7,000 women physicians in the US.

Let’s shift gears and talk about three challenges facing investors today, and actions you can take to better put things in your favor:

Volatility vs Risk – Volatility has returned with the US stock markets in correction territory last month and Bitcoin cryptocurrency fell almost 60% from its peak. Numerous culprits have been suggested. The cause doesn’t really matter. Volatility makes people uneasy.

  • Volatility is natural. However, it doesn’t necessarily mean risk. Take two investments, one with an average return of 6% but about two-thirds of the time it ranges from being minus 6% to positive 18%. The other averages a 1% return per year and consistently earns 1% with zero volatility. Is it less risky than the other earning 6% on average with volatility?
  • Consider risk as things that jeopardize your expected outcomes (e.g. comfortable retirement). Volatility can be managed – prudent diversification. Consider risks – not having a written game plan, business cycles, divorce, aging, etc. What actions should you take to manage them?
  • Your response to volatility can be risky. Investors can be their own worst enemy. Some try to time the market diving in at the high and bailing at the bottom – buy high and sell low. DALBAR, a research company, calculates the average equity investor lags the index by three to four percent over a 20-year period (12/31/2016) and similar lags for fixed income investors. Instead, schedule reviews with your financial advisor when times are good (and adjust if prudent), so hopefully in bad times, the conferences will be “You’re going to be ok.”

Rising Inflation and Interest Rates – Some impacts are good, others bad. Example, Social Security retirees received a 2% pay raise (COLA) this year, the highest since 2012. The average retiree saw a monthly increase of $27, and those at the maximum benefit got $101. While payouts increased, so do costs. Full retirement age for younger workers rose. Taxable income cap for FICA taxes increased $1,600 to $128,700.

  • Investing: Higher interest rates can benefit savers. Talk to your advisor about using high yield, online, FDIC insured savings accounts paying 1.5% or higher, look at CDs but keep them short (go longer when rates rise), and the risks of owning long-term bonds in rising rate markets.
  • Borrowing: Flip side is that borrowing is more expensive. Consider moving adjustable rate debt to fixed rate (e.g. home and student loans). HARP home refinance program has been extended to the end of 2018 – contact and see if that benefits you. And request credit card issuers to review and reduce your interest rates.

Tax Time – Income taxes were illegal until Congress ratified the 16h Amendment. There were 7 brackets from 1% to 7%. Most Americans were at 1% which was for income to about $490k in today’s dollars adjusted for inflation. Times have changed.

  • You still have time for 2017 tax savings by contributing to certain retirement – IRAs and SEPs – if eligible and it makes sense for you.
  • For 2018 and beyond, higher contribution limits apply for defined contribution plans (including 401k), defined benefit plans and Health Savings Accounts. IRA, Roth and Simples generally remain unchanged.
  • Tax Cuts and Jobs Act contains major tax changes affecting both individuals and businesses. Ask your CPA how it will impact you, collaborate with advisors, and adjust tax planning strategies.
  • Finally, CPAs are under the gun with filing deadlines and clients who prefer paying less taxes. Organize, be timely, and bring them a latte to brighten their day. And most people hate surprises. Ask for their advice before you do the big transaction – sell a major asset, acquire a business, remarry, etc. – rather than “One more thing, did I tell you about…?”
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Alternative Thoughts on Education Funding

The world changed with the discovery of a hidden stairway in Egypt’s Valley of the Kings in 1922. Tomb raiders plundered the pharaohs’ tombs for centuries. And extensive excavations by archaeologists in the late 1800’s uncovered what they thought were any remaining secrets. However, British archaeologist Howard Carter and his team unsealed the door to King Tutankhamun’s tomb. The Boy King, his treasures, and new discoveries about Egyptian life were found largely undisturbed. This wealth remained hidden and overlooked for over 3,000 years. Tut’s father had been unpopular and Egyptians wiped history clean of Akhenaten’s legacy, and the boy king’s reign fell to obscurity. Tomb raiders overlooked Tut – in their books, he never existed.

Solutions to life’s mysteries often require persistence, new thinking, and a little luck.

The incoming class of 2018 anxiously awaits their letters of acceptance. College education is important for educating, preparing and re-tooling our workforce. It provides professional, personal and social benefits as skills are developed and networks are created linking people, talents and opportunities. And it enhances lifetime earnings potential. I’ll share alternative thoughts about college planning – “college” might be community college, vocational school, four-year college or graduate and professional degrees.

Should education funding take priority to retirement funding?

  1. It’s important to start early – time value of money – but savings can be “lumpy.” Young adults may be focused on paying off student loans and building reserves, shift to home acquisition and family, and finally, focus on retirement funding. If that’s the progression, then recognize the potential conflicting tendencies of “being safer because I’m not 30 anymore” (looking backwards) versus “need to stay growth-oriented to fund a three or four-decade timeframe” (looking ahead).
  2. Ironic situations can arise when life intersects with financial advice. One family sets limits on what they will fund such as X dollars or four years of in-state tuition. Should they feel guilty about saying “no” to their kid’s #1 school choice, or that the kid takes out student loans? Or consider retirees who preserve their retirement assets (don’t spend it) and pass it on to heirs who may become wealthier than they.

How active is the student involved in the planning process? It’s helpful to have both parents and students involved in conversations about the implications of college decisions. Issues include what’s the college choice priority – academic fit versus affordability? Who is primarily responsible for funding – parent versus student? And how school/career ready is the student – GPA, career or major, and drive?

What costs are being considered?

  1. Financially, you have tuition and fees (averages range $10k for in-state, $26k out-of-state, and $35k annually for private). There’s also room and board, books/computers/supplies, and personal/transportation.
  2. How long is school? Two-year program, four or more? What about potential over-enrolled public colleges where it may take more than four years to get the necessary courses versus private schools who say, ”We’ll get your kid out on time?”
  3. Opportunity costs? Consider a student entering the workforce with a technical or vocational degree at potentially less cost, debt and time than a four-year college graduate taking a position different than his major. Or alumni networks or specialty programs at various institutions.
  4. Weight of debt? Recent statistics show about $1.5 trillion of student debt (exceeds credit cards by $620 billion). Average 2016 graduate had $37k of debt. Graduate and professional students were higher – MBA $42k, law $140k and medical $162k. Debt service means less money to buy cars, make house payments, etc. and it gets more expensive as interest rates rise. A 2% rise in interest rates extends the payoff period ($37k of debt at 6%) by 2.6 years or increases the monthly payment 27%.

Planning involves working multiple dimensions simultaneously, not unlike the search for treasure. Good luck.

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Roth IRA Conversions Might be a Smart Move for 2018

The world’s best winter Olympic athletes meet in PyeongChang. Alpine skiers Vonn, Shiffrin, Ligety, Nyman and their teammates have a job which is basically to get from the starting gate to the finish line with a few obstacles to navigate in between. They face conditions they cannot control – weather, visibility, and snow to name a few. However, they can focus on the things they can control including the line or track they’ll take. And we’ll root them on their way to hopefully gold and joy.

Managing personal finances, and life, have similarities. We’re trying to get to where we want to be, with life’s surprises helping or hindering our progress. Either way, we adapt and adjust course and tactics. One area of change currently is tax reform (Note:  there are plenty of other commentators talking about shifts in investments). Tax rates have been reduced. What if Congress hikes future tax rates? Thus, Roth IRA conversions might be a smart conversation with your CPA and financial advisor.

There are two types of IRAs – traditional versus Roth IRAs.  Generally, the decision to contribute currently ($5,500, or $6,500 if you’re 50 or older) to either a Roth or traditional IRA is largely based on current versus future expected tax brackets. If future brackets are higher, then consider a Roth, and if lower, then consider the other.  In traditional IRAs, you may get a tax deduction up front for the contribution, the monies grow tax deferred, and future retirement withdrawals are taxable as ordinary income (Note: non-deductible contributions may be non-taxable). Roth IRAs are treated the opposite. You contribute money on an after-tax basis, monies grow tax deferred, and generally, if withdrawn during retirement, those retirement checks are non-taxable.

To summarize, Roth IRAs are generally better for people who are in low or relatively lower tax brackets while they’re saving versus when they later retire. (Please note, taxes are complex, I’m oversimplifying this for discussion purposes, and you should seek expert tax advice from your CPA relevant to your specific situation).

But wait, there’s one more thing – are you earning too much money that would prohibit you from making a Roth IRA contribution? For 2018, the phase out for Roth IRA contributions is MAGI between $189,000 and $199,000 for married, and $120,000 to $135,000 for single.

However, regardless of your income level, you may be eligible to convert a traditional IRA account to a Roth IRA. Consider the expected differential between current and future tax brackets as previously discussed. The conversion will trigger taxation of the IRA amount. If you convert a $100,000 IRA, then you’ll have an additional $100,000 of taxable income. In essence, you’re making a long-term bet for higher income tax rates and buying out Uncle Sam early.

There are two things about Tax Reform relevant to Roth IRA conversions. First is the elimination of the “do over” option after 2017 – you formerly could change your mind and “undo” a Roth IRA conversion as late as October 15th of the following year.  Second, the tax brackets are lower under Tax Reform. If you are high income and are considering Roth IRA conversion, the amount may have been taxed at rates ranging from 28% to 39.6% – under Tax Reform, it might “only” be taxed at 24% to 38.5%. And consider future tax policy. If nothing is done, the old tax brackets return in 2026. And if, the US deficit widens due to insufficient revenue (taxes) or higher expenses (more services, higher interest expense on government debt, etc.), what’s the bet for higher tax rates?

This is one more planning “what if” to consider – a window of potentially lower income tax rates.  But save  yourself, and your CPA,  the bother if you’re one of the fortunate savers  who will be passing wealth on to your heirs. If that’s the case, why are you paying taxes for your kids’ inheritance?

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The Silk Road and Planning for Federal Employees

Beasts carried and merchants traded silk, porcelain, gold, spice and gunpowder along a 4,000 mile corridor between China and Greece for almost 2,000 years. It was called the Silk Road, and started about 200 BC when wealthy Romans sought soft and shimmering silk, and Chinese nobles wanted a special breed of horses that symbolized the sports car of their day.  The overland routes were valuable not only for the exchange of goods and luxuries between East and West, but also for the trade of philosophy, culture, religion and technology that helped shape the world.

The Silk Road had two unique features. First, it is not a single road, but rather a series of strategically located and connected trading posts, marketplaces and routes. It was a web similar to woven silk threads. Second, the flow could be interrupted due to weather, natural disasters, politics and marauding raiders to name a few. And it’s a good metaphor for one’s journey through life – there are multiple paths to the top of the mountain, and there’s likely to be numerous detours along the way.

Households across America pay close attention to their finances for New Year’s Resolutions and gearing up for income tax preparation. Others focus on planning summer vacation. Here are some issues Federal employees face as they consider employee benefit decisions. If you are not a Federal employee, consider reading on because we’re covering retirement and health planning issues.

Retirement benefits – Components may include Basic Annuity (FERS and CSRS), Thrift Savings Plan (TSP), and Social Security. (Note:  FERS and TSP are similar to PERS and 401k plans). The annuity benefit is based on your length of service and “high-3” average salary, reduced for survivor benefits, and subject to cost of living adjustments.

Retirement benefits from TSP are based on the account value – similar to 401k plans. Think of “fives” regarding TSP. First, consider contributing at least five percent to get matching contributions which are often five percent. (You may need to contribute more based on your situation). You get a huge return (100 percent here) on your contributions and ten percent of your pay goes to savings. Second, it’s simple investment menu – five index funds and five lifecycle funds. It’s a cheap way to invest – low management fees with index funds.  And you can contribute on a pre-tax or Roth option – the later may be better for those in a low tax bracket.

There are a couple of quirks to TSP such as (1) limited diversification – invest elsewhere if you want gold, real estate, small caps, etc.; (2) consider the other side to the “cheapest is best” rant – a bad (or poorly timed) investment, albeit cheap, is still a bad investment; and (3) limited withdrawal/distribution options – TSP encourages participants to transfer money in, but getting out is another issue.

Health benefits – The Feds have mass and offer a broad benefit and insurance program. I’ll cover three areas. Take a look at HSA (health savings) and FSA (flexible spending) to help cover out-of-pocket eligible healthcare costs on a tax-advantaged basis. Read the fine print of each. Second, review your life insurance needs and the group life program. Three reasons for insurance include income replacement, debt payoff, and estate taxes. The first two decrease over time, and few people have estate tax issues. And third, consider long-term care at  We’re not going to get out of this world alive and consider potential LTC costs of four to eight thousand bucks a month for up to four years. Note:  The second spouse can sell the house, but who is the first spouse needing LTC?

Some experts say the three biggest threats to a successful retirement include inflation, taxes and down markets. Only three? Consider the path being more like the Silk Road. The journey can be great, and the road bumpy, so let’s plan for it. Good luck.

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