Category Archives: Estate Planning

Protecting Your Parents — Financially

People reach their peak decision-making abilities sometime in their 50s, and then decline slowly until after age 70, when the decline starts to take off more dramatically.  This helps explain why sweepstakes frauds, Nigerian investment schemes and other scams target seniors and retirees.

Continue reading Protecting Your Parents — Financially

Kindle

Preliminary Tax Forecast

screen-shot-2016-11-27-at-7-27-40-pm

Many of President-Elect Donald Trump’s policy proposals are too vague to analyze, but one area where he has been clear is on reforming our tax system.  Here’s a quick primer on the changes that you can expect to be introduced to Congress in the coming year.

Continue reading Preliminary Tax Forecast

Kindle

Not-So-Powerful Powers of Attorney

power of attorney

Everybody should have a power of attorney—that is, a legal document that gives a designated individual the right to act on their behalf when making financial decisions. The power of attorney is most often used by adult children to make decisions on behalf of aging parents when they are no longer capable of making sound decisions on their own.

Continue reading Not-So-Powerful Powers of Attorney

Kindle

New Guidelines, Better Advice?

images-4

Most people think that the Securities and Exchange Commission (SEC) regulates the investment markets and providers of investment advice, and that the Financial Industry Regulatory Authority (FINRA) regulates the Wall Street sales agents.

But in fact, when it comes to your retirement plan, like a 401(k) account, the chief regulator is actually the United States Department of Labor.  Anybody who provides advice to these plans has to meet standards generally defined in the 1975 law known as ERISA (Employee Retirement Income Security Act), which is administered by the Department of Labor.

Continue reading New Guidelines, Better Advice?

Kindle

MyRA May Not Be YOUR RA

Myra-buzz-words-300x300Suppose somebody offered you a choice between two cars.  The first car was identical to the second car, with one exception: it would only travel at a constant speed of 30 miles an hour.  In the other car, you could could choose to travel at any legal speed, and quite a number of illegal ones.  Meanwhile you can only buy the one-speed car if you make less than a certain threshold income, and eventually, if you drive enough miles in the one-speed car, you’d have to buy the car that can travel at any reasonable speed anyway.

Which car would you choose?

That’s the interesting choice posed by a new retirement account that was launched on Wednesday.  In his 2014 State of the Union address, President Obama announced that he was directing the U.S. Treasury Department to create a new retirement savings initiative: the myRA, officially named My Retirement Account.  This week, the first retirement savers will put the first dollars into the program.

The myRA is basically a government-sponsored Roth IRA with the same contribution limits ($5,500 a year, or $6,500 for those 50-and-older).  Like the Roth IRA, all myRA contributions will be made after-tax (in other words, no deductions for the contributions), but the money will come out tax-free when the taxpayer reaches age 59 1/2.  However, unlike the Roth, where the money can be invested in zillions of possible combinations of thousands of mutual funds, ETFs and individual stocks, the myRA participant has exactly one investment option: the government’s Securities Fund for federal employers, which earned 2.31% last year.

Moreover, there are limitations on who can participate in the myRA.  Only people with no 401(k) or 403(b) retirement plans at work can make myRA contributions, and even then, only those with an adjusted gross income less than $131,000 a year ($193,000 for couples).  Also: once you’ve accumulated the maximum myRA balance of $15,000, you have to move the money over to a private-sector Roth IRA.  The only benefit: the myRA doesn’t come with any custodial or account fees, but those are typically nominal when you open a private sector Roth IRA.

So why would people contribute to a retirement option that is identical to a Roth IRA, but with roughly a zillion fewer investment options?  It’s possible that unsophisticated investors will appreciate the simplicity of the myRA solution, where, instead of having to decide where to invest, they simply lend their money to the federal government and collect the (modest) interest.  The fact that the myRA account has no minimums could be attractive.  Most private sector Roths require at least $1,000 to be invested, but theoretically you could start your myRA with a penny.

It’s also possible that the U.S. Treasury Department is about to discover that there’s less demand for an inferior retirement plan than government economists had projected.

About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years.  Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.

Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association. 

Sources:

MyRA Starter Retirement Accounts Launch Nationwide

For beginning savers, a MyRA is a safe way to get started.

Government officially launches ‘myRA’ program for retirement savings

MyRA, the Obama administration’s free, guaranteed-return starter retirement account, launched nationwide on Wednesday. The government-backed plan is an option for the tens of millions of U.S. workers whose employers don’t offer a retirement savings plan. MyRA accounts are open to anyone earning an annual salary of less than $131,000, or $193,000 if they are married and file taxes jointly.

Expert: myRA is a misguided bureaucratic mess

The Treasury Department officially rolled out its new myRA retirement plan on Wednesday, deeming it a free, no-risk savings plan. The truth is that the newly launched retirement account will do very little to help the working poor and will quickly become another bloated bureaucratic system that wastes billions of taxpayer dollars.

Kindle

Retirement at 75?

images-19Chances are you’ve wondered about the prospects of younger Americans.  Will they enjoy the same economic conditions that their parents lived through?  Will retirement still be an option for them?

The NerdWallet organization recently issued a report which found a few differences between today’s college graduates and those of 20 to 40 years ago.  For one thing, they carry a lot more student loan debt: $35,051 on average.  That means, again on average, that the new graduates will be paying $4,239 a year for ten years before they can properly start saving.  NerdWallet estimates that these higher loan payments could potentially reduce future retirement savings by 32%—an average of $700,000.

In addition, today’s younger generation faces higher rental payments—up 11% since 2012—and having to delay home ownership to a median age 33.  This, too, reduces their ability to squirrel away money for the future.

Finally, millennial investors have apparently been powerfully impacted, psychologically, by the Great Recession.  NerdWallet found studies showing that younger savers keep an average of 40% of their saved money in checking and savings accounts or CDs.  This means they’re missing out on investment returns, which would cost them more than $300,000 in future retirement funds, on average.

Add it all up, and the NerdWallet researchers estimate that today’s college graduate won’t be able to retire at the traditional age 65.  On average, they’ll have to wait until age 75 before work (and an income) is optional.  The site notes that the graduate would have to save 15% of his/her income a year starting at age 23 to bring retirement back down to age 65—which may not be possible due to higher student loan debt and rent, and won’t be anywhere close to possible with a 40% allocation to cash.

About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years.  Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.

Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association. 

Source:

http://www.nerdwallet.com/blog/2015-grad-retirement-rep

Kindle

The Value of Objective Planning

images-2What is the value that people get when they work with an objective, client-focused financial planner?

Most planning firms are reluctant to toot their own horns—partly out of modesty, and partly out of a conviction that you probably have better things to do than read about how they help you with your financial life.  But every once in a while, it’s a good idea to stop and think about what you get for what you pay.

This list is organized in rough order of value, and if you feel you aren’t getting any of these benefits, please let us know immediately.

1) An independent financial planner helps protect you from financial predators.

It’s a touchy issue in the profession whether advisors who put their clients’ interests first should be “bashing the competition,” but in fact the Wall Street firms that pretend to offer financial planning guidance are seldom (if ever) looking out for the best interests of their customers.  When you work with a broker (also known, on the business card, as a “vice president of investments,”) you will be presented with separately-managed accounts that look like mutual funds except they share their fees with the brokerage firm, plus a lot of investments that have to pay people to recommend them—never a good sign for the end investor.

And since the investment markets are extremely complicated, it’s usually hard for a layperson to know when there are much better alternatives than the “opportunities” being presented.

2) An independent financial planner helps you keep track of–and make more efficient–your financial affairs.

It is not uncommon for financial planners to talk with clients who once had a will drawn up, but they’re not sure exactly when.  Now that you mention it, they’re curious about what, exactly, it says.  There’s an insurance policy in a drawer somewhere, and it may be term or it may be a cash value contract; all the client knows for sure is that he writes a check to the insurance company every year.  Upon inspection, it turns out the auto insurance policy he happens to own is way more expensive than the lowest rate available in the market, and the homeowner’s policy hasn’t been updated since the Clinton Administration.

And the investments are not uncommonly a hodgepodge of what a broker sold the client based on what he was told by his bosses to recommend at different times during the relationship.

Hopefully, this was never you.  But it does offer a certain peace of mind to know that everything is organized, in one place, and that somebody is paying attention to the details.  Because in your financial life, the details matter.

3) An independent financial planner will stand between his/her clients and the dysfunctional emotional decisions that everybody makes with their own investments.

Do you remember how it felt when Lehman Brothers went down, and the U.S. government was bailing out General Motors?  Many people sold everything at the bottom, and then waited, and waited, and waited to get back into the markets until it was “safe.”  They never dreamed that the markets would go on a six year bull run that would take us to new record highs.

The Morningstar organization has calculated the difference between investment returns and investor returns—that is, between the returns people get vs. what the markets (or individual mutual funds) have delivered.  Results?  It is not unusual, during various time periods, for individual investors to get about half the returns of the market.  How is that possible?  They may be moving the portfolio around, or buying an attractive-looking hot fund or selling a great fund that’s going through a rough patch.  They may sell out at the bottom of a scary period, or go all-in when the markets are about to take a nasty tumble.

For many of us, the best approach is to find good, solid investments and stay the course through thick and thin, ups and downs.  But it’s very hard to do those things on your own.  An independent advisor provides a dose of objectivity right when you need it.

4) An independent financial planner is a strong advocate for your future.

You know the statistics about the savings rate in America (the 2000-2008 numbers hovered around 0% of income, spiked briefly after the Great Recession and are now back in the 1% range again).  But the keepers of these statistics don’t tell you that they probably overstated the actual rate, because they didn’t include things like increasing credit card balances or home equity loans.  When people put money in their savings account, and at the same time run up more debt, it counts as an increase in their savings.

The problem for most consumers is that there is no voice in their environment advising them to pay themselves a fair percentage of the income they earn.  Instead, they’re bombarded by messages which make powerful arguments to do the opposite: to buy this, that or something else.  The entire advertising community conspires to take those dollars out of their hands before they ever hit an investment account.

Advisors become that rare voice speaking out in favor of saving.  And in some cases, they help identify expenditures that are not in line with your stated future goals.  Which leads us to:

5) An independent financial planner helps people identify what is important in their lives and prioritize their goals.

How many people do you know who have taken the time to identify what they really want out of life?

The incredibly sad truth is that the vast majority of people in our advanced, prosperous society have not taken the time to figure out what they really want out of the all-too-brief time they will spend on this planet.  And because they don’t know their destination, they will never reach it.  They are, in a very real sense, at the mercy of whatever agenda others have for them.

An independent financial planner will ask questions in your initial interview which help you recognize what you don’t know about what you want, and help you identify your most personal goals and desires.  That, alone, can be a priceless service.

6) An independent financial planner can help people turn seemingly impossible goals into a routine that can achieve them.

After years of running retirement planning spreadsheets, and working with successful individuals in the community, advisors eventually master one of the truly magical lessons of life: that any enormous goal can be broken down into manageable, monthly increments, and achieved by routine and persistence.  You save X amount of dollars every month in a portfolio that gets something close to what the market offers, and you will retire with a sum of money that seems impossible to you now.

Clients who have goals that they don’t believe they can achieve are put on a schedule that will get them there as a matter of routine.

Of course, this list doesn’t include specialized services like making retirement planning projections, charitable planning, creating special needs trusts for a disabled child, evaluating disability and long-term care insurance—and it doesn’t mention the comfortable knowledge that you can call an expert for advice on virtually any financial subject, and you’ll get an answer that is not tainted by a sales agenda.

The point is that the services offered by an independent financial planner can have enormous value to people who are motivated to enjoy successful, prosperous lives.  An independent planner’s only goal is your success and prosperity, which should not be—but is—unusual in our financial world.

About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years.  Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.

Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association. 

Kindle