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By Steven T. Merkel, CFP®, ChFC®
Most of us at some point have received one of those emails claiming that we’ve been chosen as “the lucky winner of a million dollar jackpot” or have seen an ad for a product which claims to fix everything for “just three easy payments of $19.99!” When something seems too good to be true it usually is. Despite the various over-exaggerated financial “opportunities”, there are still investment accounts which could make you go “WOW”. While no investment has a one-hundred percent guarantee of returns, these accounts have opportunities for tax-deferral, attractive contribution limits, tax deductions, and even tax-free earnings.
Employer Retirement Plan Match
As of March 2019, the U.S. unemployment rate has dropped to 3.8 percent and nearly all job sectors continue to add new positions. A growing job market means that many employers are having to offer competitive employee benefits packages to pull in new talent. One of the most popular, and often beneficial, is the employer retirement plan match. The most popular plans include 401(k) plans, 403(b) plans, 457 plans, and SIMPLE IRA’s. Many of these plans include a contribution match from the employer up to a certain percentage of a salary (basically free money). Also, contributions made to the account are typically tax-deferred until you start taking withdrawals.
Tax-deferred Variable Annuities
This is a retirement account option which is often overlooked. Similar to the previously mentioned retirement accounts, income and investment gains are taxed-deferred until you begin withdrawals. It may also provide a stream of income throughout retirement, which could be helpful for those concerned about outliving their current retirement account assets. During the accumulation phase, where payments are made to the account, the interest accumulates similar to a savings account. This could allow for great growth potential. In many cases, if the annuitant passes before the defined benefit is paid, the remaining benefits can still be passed to a beneficiary.
Qualified Tuition Programs (529 Plans)
With the rising cost of higher education and the growing need for a highly skilled workforce, tuition is a present concern for many parents and grandparents. The good news is that there are options for parents that want to get a head start on savings. 529 college savings plans are specialized savings accounts that are sponsored by states, state agencies, or educational institutions. 529 plans usually allow for earnings to be deferred from, federal and in many cases, state taxes. You are typically not taxed on the money you withdraw for qualified education expenses. Contributions are considered gifts for tax purposes, and as of 2019, yearly contributions of up to $15,000 per individual will qualify for the exclusion. They also allow a one-time contribution of 5 years’ worth of gifting for parents and grandparents. In 2019, that would equal $150,000 for a married couple.
Employee Stock Options
Being part of a company that offers this is similar to landing an underhanded half-court shot seconds before the bell rings. In other words, very lucky. An employee stock option grants specified employees of a company the right to buy a certain amount of company shares at a predetermined price (typically discounted) for a specific period. There is typically a vesting period which an employee must wait to pass before purchasing. This allows companies to invest in the long term potential of an employee and allows employees to invest in their company. If you own the stock for at least one year after the exercise date they are also typically taxed at long-term gain rates.
Cost Basis Step-Up at Death
Losing a loved one is never easy. The tax consequences of inheriting their estate can often add unnecessary pressure during an already trying time. The good news is that some of those assets may be eligible for the “step-up in basis” rule. This allows a readjustment in the value of non-retirement account inherited assets. When a decedent passes on qualifying assets, the heir receives a “step-up” in basis to its fair market value at the time of the owner’s death. The benefactor can then continue to hold onto the asset and defer any new capital gains until they decide to sell the stock. Keep in mind this does not apply to 401K and IRA type retirement assets.
Roth IRAs are often considered the golden egg amongst retirement accounts. With Traditional IRAs and 401(k) s, taxes are deferred until you begin to receive withdrawals. With a Roth IRAs, you make contributions with after-tax income and are therefore not required to pay taxes on withdrawals as long as you are over 65 ½ years of age and have had the account for at least 5 years. There is also no age limit for making contributions, and you are not required to begin taking withdrawals at 70 ½.
Health Savings Accounts (HSA)
Rising health care costs have never been in the spotlight more than they are today. With many insurance plans requiring high deductibles, and a single hospital visit often incurring tens of thousands in medical bills, it’s no mystery why HSA’s are being adopted by so many. These tax-advantaged medical savings accounts allow those with high-deductible insurance plans to make tax-free contributions to an account. Those funds can then be put toward qualifying medical expenses. Also, unlike Flexible Spending Accounts, there is no time frame in which you have to spend the funds. This means funds that you do not use can be rolled over to the next year and continue to grow.
In Some Cases Too Good To Be True IS TRUE!
Sometimes that needle in a haystack ends up being made of gold. While there are scores of false financial “opportunities” out there, some types of savings accounts do offer many of the “bells and whistles”. Having options when it comes to your investment accounts could provide you with ample opportunities to preserve and protect your family’s financial well-being.
Investment advisory services offered through Ciccarelli Advisory Services, Inc., a registered investment adviser independent of FSC Securities Corporation. Securities and additional investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment adviser. 9601 Tamiami Trail North, Naples, FL. 239-262-6577.
By Jill Ciccarelli Rapps, CFP®
Keeping your important documents neat and tidy can be a challenging endeavor even for the most organized person. Many of these documents end up buried away in a spare drawer or closet, lost or forgotten. If your family needed a copy of your living will or healthcare proxy, would they know where to find it? Would they be able to retrieve it today if required? If you had to evacuate suddenly due to a natural disaster, would you be able to grab your family’s social security cards, birth certificates, insurance, and property records at a moment’s notice?
Some documents, such as bank and credit card statements could be quickly pulled from an online account. Of course, your family would need to keep updated on all your passwords if you were unable to access them yourself. Other documents require lengthy requests through a records department and may not have an available copy. Having an organized and convenient way to retrieve copies of your most important documents could save you time and stress.
With an online vault, you can keep all these important documents in a single organized location where they can be securely shared and viewed at any time.
Think of it as an online filing cabinet. You log in with your individual password, and your documents are there. Your documents are then separated into folders and subfolders. Most are customizable with the ability to add to or update as you gather more information. The information is kept encrypted, so it is inaccessible to those who do not have authorized access to the account.
The online vault can simplify the process of sharing your documents with family and other important individuals.
Communication is key when it comes to your estate’s legal and financial considerations. Important people named in your estate documents may not live nearby. Having online access becomes critical with your quality-of-life healthcare wishes, where time is of the essence. You may want to ease the strain on your family, and give them the ability to access up-to-date details of your healthcare and financial roadmap. After you have uploaded files into your vault, you can delegate access to select individuals. Most of these systems will either provide them with their own login or a code. If they are out of the state or the country, they will still be able to view and access your documents if they have a secure Wi-Fi connection.
You could be more prepared for emergency situations.
Disaster could strike at any time without notice. The Department of Homeland Security recommends that everyone have a safe and reliable way to organize and contain your most important documents so they are prepped for a quick evacuation. Driver’s licenses, social security cards, insurance policies, and property records may all be required following a disaster to gain temporary housing and replace lost belongings. Recovering items stored in a “stormproof” safe may be futile if a cataclysmic event renders an area inaccessible. Storing the items in an online vault ahead of time could allow you to focus solely on getting you and your family out of harm’s way.
Staying organized and connected to your documents and accounts could give you more control and oversight of your financial goals and vision for the future. As you approach retirement and beyond, you may want to consider importing your information into a vault to help you stay on track and protected from life’s unexpected events. Ciccarelli Advisory Services utilizes its own vault system for clients, which an advisor would be happy to discuss with you. They can help you decide if it is a good fit for you and your family.
Investment advisory services offered through Ciccarelli Advisory Services, Inc., a registered investment adviser independent of FSC Securities Corporation. Securities and additional investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment adviser. 9601 Tamiami Trail North, Naples, FL. 239-262-6577.
Your financial plan serves as the cornerstone of your retirement, providing you with the foundation you need to enjoy your desired retirement lifestyle. That being said, an effective financial plan goes beyond the management of your assets and investments.
Health care is an issue that impacts everyone in a deeply personal way, especially as we enter the golden years of retirement.
Given the steadily rising costs of services and the ever-growing complexity of health care decision-making, the need to weigh legal and medical considerations has never been more critical for promoting your continued financial success.
I interviewed Jill Ciccarelli Rapps, a financial advisor at Ciccarelli Advisory Services, Inc.; Dr. Susan Cassidy, a physician and attorney who owns CriticalMD; and Marve Ann Alaimo, an estate planning attorney at Porter Wright to discuss how you can prepare for the inevitable medical decisions that lie in your future.
Q: What are the most common mistakes you see when evaluating a client’s health care plan?
Jill – Failing to communicate your wishes seems to be a common pitfall – not just the what, but also the why and how. You have to start the conversation early with the health care surrogates you have chosen to discuss these uncomfortable issues in a meaningful way.
Marve Ann – A common mistake I see is assuming that a living will and health care surrogate form are nothing more than boilerplate forms. But these documents are essential; they are more than just add-ons to a will or trust. The living will and health care surrogate documents require careful consideration.
Susan – It’s imperative to remember that, just like estate planning or financial planning are necessary, medical planning is equally important. You need your specific wishes and values to be in writing and official – all the way down to the specialized situations or complications you might face.
Q: Which legal documents will I need to ensure that I remain in control of my health care plan?
Marve Ann – The basic foundation would be a will and your health care documents – the living will and health care surrogate form. Within these documents, you need to address quality-of-life issues as they relate to your medical care. All of your other priorities also need to be documented formally.
Susan – On top of that foundation, I use a tool called a medical roadmap for care. The roadmap lays out your values and preferences, highlights major life transitions, and outlines how to make decisions about which medical interventions fit those values and preferences.
Q: What’s the best approach for talking to my family about my health care wishes?
Marve Ann – Ideally, you should gather all involved parties together for an in-person family meeting. Start by explaining the reasoning for your health care plan. One key reason is to prepare yourself to live a dignified life during the months or even years between incapacitation and death. Then, discuss who you have appointed as your surrogates (and why) and how that person should make decisions and communicate on your behalf.
Jill – We have had great success when a third-party moderator drives the health care discussion with the whole family. Select a facilitator who is independent and experienced. That person will often bring up questions that the family never even considered before. Of course, this health care discussion isn’t a one-time deal, either. The key for effective family communication is having these open conversations on a regular basis.
Q: What is the single most critical piece of health care planning advice you could provide for someone who is approaching retirement?
Jill – A well-thought-out health care plan is an integral part of an effective financial plan. Find an experienced advocate who can guide your family through your health care plan and handle the regular updates and maintenance of your plan. Working with your family dynamics and personal circumstances is a huge part of building a successful health care plan. It’s also a great opportunity to start engaging your children and get them thinking about their own plan.
Marve Ann – As people build their savings during their lifetime, the legal and financial considerations they face get more complex and difficult to navigate. There is a serious need to recognize the complexity of medical considerations and to prepare the appropriate legal base of documents that address the details of your plan.
Susan – Communication alone is not enough for your health care plan. You must draft your plan! That means having official written documents that reflect the values that are important to you. Many doctors don’t have the training to read legal documents and may misinterpret your wishes if the living will is not laid out clearly. Without detailed, well-drafted documents, you could put yourself in a position where the care you receive actually induces more suffering.
Despite the heated and sometimes hostile dynamic that arises when discussing hot-button issues, you may be surprised to discover that many Americans agree on one thing: health care is the single most pressing issue of our day.
A March 2018 Gallup poll indicates that health care availability and affordability is the #1 issue on the minds of the American people. Americans worry more about health care than any other issues: 55% worry a great deal, 23% worry a fair amount, and only 23% worry a little/not at all.
In addition, a June 2017 Gallup poll found that health care costs are viewed as the most important financial problem facing American families; in fact, this concern is even more prevalent among U.S. households than debt, lack of income or college expenses (see chart).
Four Issues to Watch in 2018
Four key themes will likely emerge as the Congressional candidates deliberate the path forward for the American health care system:
Molding the Future of the Affordable Care Act: Given that the individual mandate of the ACA was repealed as part of the 2017 tax reform bill, the penalty for having no insurance is set to be eliminated in 2019.
The lack of a mandate could reduce the number of people enrolled in the insurance market and cause an increase in premiums; although as long as subsidies are available, enough incentive still remains to keep people in the insurance pool. A mass exodus is unlikely.
The Democrats will likely push for the restoration of the individual mandate, as well as the protection or expansion of other ACA provisions and services; whereas the GOP will likely continue their efforts to repeal subsidies and most other aspects of President Obama’s signature health care bill.
Apart from creating the subsidized market for individuals and expanding access to Medicaid, the ACA also played a role in addressing some of the shortcomings of Medicare: including coverage for the prescription drug “donut hole” payment gap and cost controls for Medicare Advantage. If the ACA were to be completely repealed, the affordability and availability of these health programs could also be called into question.
Restructuring Medicaid and Medicare: With respect to Medicaid and Medicare, most of the Democratic Party are split between either expanding access to Medicare and Medicaid or maintaining the status quo. On the other hand, the GOP has long sought to restructure these programs to mirror a free market system.
In regards to Medicaid, the GOP might explore instituting premiums for Medicaid beneficiaries and tightening standards for eligibility.
For Medicare, GOP proposals include providing government vouchers to purchase private insurance coverage, promoting the usage of tax-advantaged health savings account, and increasing the age threshold for those who are not yet receiving entitlement benefits.
Reducing Prescription Drug Prices: Corporations that hold the patents and production rights for prescription drugs have limited competition and are subject to almost no cost controls; as a result, Americans pay considerably more for their medications than people in any other developed nation.
Despite the contrasting visions of the two parties, there does seem to be bipartisan interest in reducing prescription drug costs for consumers.
Both public and market forces could help to reduce the strain of prescription drug costs. A proposal to allow Medicare to negotiate drug prices with the distributors has been floated but has not gained much traction. A potential merger of CVS and Aetna could also enhance their bargaining power with pharmaceutical companies – allowing policyholders to access their prescription drug at lower rates.
Discussing Publicly Funded Healthcare Coverage: A handful of top Democrats in the Senate and the House have started pushing for a single-payer universal health care system (similar to Canada and most of Europe); while others within their party are advocating a “middle-of-the-road approach”, such as a Medicare buy-in public option.
Both proposals would involve a significant restructuring of health care coverage and delivery of services, although the specifics about the funding structure remain unclear. Widespread public support exists for single-payer health care among Americans, but Congressional support is sparse and these policies face staunch opposition from the insurance and pharmaceutical industries.
How to Effectively Manage Your Health Care amidst Ambiguity
Although it is nearly impossible to predict exactly how our health care system will change over the coming years, you do have the ability to take tangible steps towards enhancing your financial preparedness for medical expenses that may loom in the future:
- Understand how health care costs may affect your retirement nest egg. Proactive planning for expenses provides you with a better opportunity to afford quality health care for the duration of your life; failing to do so can have life-or-death consequences.
- Gain a functional understanding of the nuances of health care costs and different planning opportunities. Then, evaluate all aspects of your current (short-term) and anticipated (long-term) health care needs to create a personalized health care savings plan that can afford you more control and autonomy from government jurisdiction.
- Work with a financial advisor who specializes in health care planning. An experienced financial advisor can help you estimate and prepare for your future health care expenses, as well as guide you to simplify and organize every facet of your health care plan.
- Ensure that your estate planning health care documents (durable power of attorney, living will, will and testament) are up to date and accurately reflect your wishes. Additionally, you should communicate all of this information to your health care surrogate(s).
- Document your preferred living situation in the event that you need extensive health care or caretaking needs down the road (i.e. Do you prefer to remain at home? Stay with relatives? Buy into a continuing-care retirement community or assisted living facility?). Also, come to terms with how each of these decisions could affect your financial plan and your tax liability.
With these five action items and the guidance of your family and team of professionals, you can be financially prepared for your health care needs!
As we grow wiser and more experienced over the course of our lives, we often begin to ponder our final moments and the legacy we will leave for future generations.
Who will handle my medical decisions if I become incapacitated or lose my mental faculties? How will I be remembered? What will I endow to my family and loved ones? Will they handle their inheritance responsibly and in accordance with my wishes?
Considering our own mortality is often viewed as uncomfortable and heavy at best (as well as gloomy or even morbid), and is a topic that is too often avoided.
According to a recent survey by The Conversation Project, 90% of people say that talking with their loved ones about the end of life is important; but only 27% have actually done so. Similarly, a survey by the California HealthCare Foundation found that 82% of people say it’s important to put their wishes in writing; but only 23% have actually done so.
Many of us are unsure of how to facilitate the conversation about our end-of-life wishes – even if we understand the importance of having the discussion with our loved ones. So how can we accomplish this awkward yet vital goal?
What Matters Most to You at the End of Your Life?
The end-of-life conversation encompasses many topics, but all of the areas that need to be addressed revolve around one central theme: What matters most to me at the end of my life?
One way to organize your thoughts and questions for your family is by using a web diagram or flowchart. Start with this one underlying question in the middle and consider which broad topics (or “big questions”) fall underneath that question. As an example, you may start with the categories of family, health care, intangible values, special heirlooms or items of sentimental value, and finances.
Note: Your categories will vary based on how you choose to prioritize or organize your end-of-life considerations; but generally speaking, everyone ought to prepare for the immediate financial, medical and emotional decisions that arise as we reach the end.
Once you’ve laid out a few crucial areas that matter most to you, hone in on about 5-10 follow-up questions that relate to the category. As you dig further into these questions, you will inevitably come up with more specific questions that help to bring more clarity and precision to your final desires and goals.
To help you find the inspiration for your own set of conversation starter questions, let’s walk through a couple of sample “questionnaires” for the topics of health care and family considerations.
BIG QUESTION: If I become incapacitated or lose my mental faculties, who will make decisions on my behalf?
–Do I have a health care proxy? Who is listed as my agent?
–How have I communicated with my agent?
–Will this person feel comfortable asking questions and gathering information from your health care providers?
–Will this person ask for clarification if they don’t understand a situation?
–Will this person be immediately accessible and able to make a quick decision if the need arises?
–Will that person stand up for you if the doctors propose an action that contradicts their wishes?
–Will their decision-making align with your values?
BIG QUESTION: How will I overcome any contentious family issues that could be problematic?
–Have I clearly laid out my wishes in writing? Do I have a legally binding will?
–Is my will (and other estate planning documents) up-to-date and reflective of my desires?
–How will my family access the information they need to make decisions on my behalf?
–Are my files organized and easy to locate? Have I shared these documents with my loved ones in advance?
–If I have second or third marriages, how do I balance the responsibilities and bequests among my loved ones?
–Do my values conflict with that of particular family members?
–How do I determine which family member(s) will best carry out my legacy?
–What questions do I need to ask to determine if my values align with my decision makers?
Where Do I Even Start?
If you are finding it difficult to initiate the conversation – either due to logistical difficulties of getting everyone in the same room or due to anxiety or uncertainty – a third-party facilitator can be enormously valuable in sparking a meaningful end-of-life discussion with your loved ones. With an experienced mediator who helps to guide the direction of the meeting, you can focus on expressing your wishes in the most productive way possible.
The use of video conferencing tools or online vault storage can also be helpful in sparking a conversation with family members who are not geographically close to you – especially when connecting with grandchildren or younger, tech-savvy people. Utilize these technologies to bridge the gap and keep all of your loved ones in the know!
Lastly, for additional resources and conversation starters about end-of-life care, we recommend visiting www.theconversationproject.org. The website has plenty of ideas for broaching the conversation with your family about the weighty decisions that lie in your future.
As your reflections on your final moments and legacy are translated into written and informal communications with your loved ones, you will likely find that an uncomfortable, uncertain situation will be addressed in a manner that fulfills your wishes and builds a strong foundation for future generations.
When it comes to the special bond you share with your spouse or significant other, consistent communication can make or break the relationship.
Arguments about personal finances have consistently ranked as one of the primary causes of marital distress. In many cases, minor financial disagreements between married couples have been bubbling under the surface for years; and in the absence of open communication, these unspoken conflicts eventually lead to a heated dispute.
While having regular conversations about money is a good start for maintaining harmony with your spouse, you have almost certainly encountered a situation in your relationship where he or she seems to be speaking an entirely different language. So how do you engage in meaningful financial conversations when your spouse’s attitudes and behaviors seem entirely disconnected from reality?
When you and your spouse are struggling to find common ground in regards to your personal finances, it may be beneficial to closely evaluate your individual philosophy about money. Because conversations about money are often considered taboo in our society, a surprising number of people haven’t taken the time to reflect on their own beliefs and assumptions.
What is a Money Personality?
At the core of our own financial habits and attitudes, we all possess a guiding principle about money. For instance, some people equate wealth with success, happiness, or power; whereas others associate money with anxiety or evil.
This deeply rooted belief – known as your money personality – is shaped by experiences during your upbringing and by sociocultural norms. Take a minute to consider 2-3 core beliefs you have about money.
Psychotherapist and author Olivia Mellan has focused extensively on the distinctive money personalities that are most prevalent among Americans. In her book Money Harmony: A Road Map for Individuals and Couples, Mellan outlines five major personalities:
1) Spenders derive great pleasure from putting their money to immediate use. In some cases, this may lead them to spend most or all of the money they earn.
Most spenders view money as a means of achieving short-term gratification and happiness – not only for themselves, but for their loved ones and community as well. It may be difficult for spenders to save or invest enough money for future-oriented purchases and long-term financial goals.
2) Hoarders prefer to delay gratification in pursuit of long-term financial security. They most likely have a hard time spending money on themselves and their loved ones – even on practical purchases that other personality types would consider necessities.
Hoarders typically have well-defined financial goals and budgets and take a conservative approach to investing. They view money as the key to stability and are fearful of any financial dilemma that could threaten their orderly lives.
3) Avoiders seek every possible opportunity to procrastinate or delegate their personal financial decisions. Most avoiders believe that the day-to-day details of financial management are a nuisance. Most avoiders want simple, automatic ways to handle their money, or seek out a financial planner to handle financial affairs on their behalf.
Financial avoidance is often rooted in feelings of uncertainty or incompetence when dealing with the details of managing money, but can also be a sign of a deep-seated, paralyzing anxiety that arises when faced with money tasks.
4) Amassers view money as the source of power and self-worth. The more money they have at their disposal to spend, invest and save, the more alive they feel; and a lack of money may lead to feelings of emptiness or depression.
As a result, amassers have a tendency to obsess over generating more money to sustain and enhance the lifestyle they have come to enjoy.
5) Money Monks have a disdain for wealth, believing that money has a corrupting and evil influence on people. They tend to live modest, frugal lives, and they feel uneasy – even guilty – when they believe that they possess too much money.
Many people with this personality also believe that their money should serve as a reflection of their deeper moral values and convictions. As a result, money monks tend to donate money to charities or social causes in lieu of spending, saving or investing.
Discover Your Money Personality!
Take the Money Harmony quiz on Olivia Mellan’s website: www.MoneyHarmony.com
Achieving Money Harmony
Throughout your life, you have probably known someone who matches the description of one of the money personalities to a tee. However, most people can relate to several of these personality types, with one or two dominant traits that guide their financial behavior.
While there is some degree of overlap between certain money personalities (i.e. amassers and hoarders), others are diametrically opposed (i.e. amassers and money monks). That being said, none of the personalities are inherently good or bad. Each personality carries both positive and negative characteristics, and the triumphs and struggles you experience in your financial life are often the result of this underlying philosophy.
Once you have gained a better understanding of your own tendencies, you must learn to appreciate your partner’s money personality. In doing so, you can empathize with your partner’s strengths and weaknesses and actively bridge any gaps that exist between your perspectives.
As you develop a deeper understanding of money personalities, you will open the door to more fruitful conversations about personal finances with your spouse – empowering you to work towards money harmony in your love life.
As residents of Southwest Florida, we enjoy a vibrant, growing community of people who hail from all across the country.
Amidst the sea of transplants and snowbirds who have relocated to the Paradise Coast, you will occasionally encounter one of the native Floridians of Collier County – someone who called Naples their home long before the community developed into a tropical haven for retirees and tourists.
Deeply Rooted in Naples
Meet Beatrice, a retired Florida native who has spent her entire life in Southwest Florida. Her family has been cultivating the land as subsistence farmers since the late 1800s!
In the late 1950s, her husband Bob took the risk of expanding the family vegetable farm to an entrepreneurial venture; and they were the first people to commercially farm citrus in Collier County.
As Beatrice and Bob developed their business and started their family during the 1960s, they were always cognizant about saving money consistently and carefully prioritizing their spending needs.
They also knew that the need to diversify their assets and develop multiple streams of income was paramount and could be necessary for the survival of their business. Farming is a risky industry, with the potential for huge fluctuations in income from year to year. One powerful storm could destroy a large swath of the crop, so Beatrice and Bob were always preparing for the worst.
While Bob handled the business decisions and operations of the family farm, Beatrice was hard at work raising their children and instilling the values of hard work, perseverance, love of family and faith within the next generation.
Of course, once their children were old enough to work, Bob introduced them to the challenging yet fulfilling profession of farming.
Bridge to the Next Generation
As Bob continued to succeed in his entrepreneurial pursuits and the family continued to build on their farming tradition throughout the 1980s and 1990s, he and Beatrice were adamant about leaving a lasting legacy – both financial and intangible – that would be preserved for posterity during the new millennium.
Our CAS team began working with Bob and Beatrice in the early 2000s. Although they had a great track record of saving and a clear vision of their goals, they knew very little about investing. Their financial records were totally disorganized, with stacks of papers and statements stashed around their home – making it difficult for them to see their full financial picture and nearly impossible for their children to piece together.
We helped them to open trusts, educational savings and other investment accounts for themselves and their children, organize and simplify their financial documentation, and facilitate consistent communication about money between their family members.
Fortunately, they were able to establish these sound financial practices before a heart-wrenching transition began to unfold.
A few years later, Bob’s health and mental capacity began to decline as he battled Alzheimer’s disease. Beatrice was devastated. Not only was her beloved starting to deteriorate, but she also found herself in the immensely difficult position of managing the farm.
Although she had never managed the business aspect of the family farm, she was forced to step up and make more of the decisions – much to the surprise of their children, who were unaware of their father’s struggle during the early stages of his Alzheimer’s.
Fortunately, Beatrice and Bob had dedicated several years to developing a strong succession plan and system of family communications. In addition to annual family meetings with myself and the CAS team, Beatrice organized monthly meetings with a psychologist to help the family come to terms with the emotional trauma and communication difficulties associated with their father’s dementia.
Without this foundation, Bob’s illness could have seriously jeopardized the family’s financial security – and their ability to carry on the farming legacy.
They continued these meetings for more than five years, with Beatrice and Bob sharing their financial knowledge, farming insight and wisdom with the whole family. If not for their advance planning, clear goals and time commitment, the children may not have been able to build upon their lifetime of progress.
Bob passed away peacefully in 2010 with the peace of mind that their children would continue to serve as good stewards of their land and their wealth. The next generation has certainly stepped up to continue the tradition, with three of their four children working as independent farmers in Collier and Lee counties.
However, Beatrice and her children were not finished with their work.
The Tradition Lives On
Beatrice’s four children have blessed her with 12 grandchildren and two great-grandchildren; and in the same way she instilled her values and knowledge within her children, the whole family is eager to follow her example of pursuing education, hard work, and always maintaining open communication.
Beatrice and her children are providing the grandchildren with the opportunities and support to lead successful lives – regardless of which profession they decide to pursue. They have established and funded 529 education savings plans, Roth IRAs and other investment accounts.
Above all, the whole family is continuing the tradition of family meetings – providing the youngest generation with effective channels of communication, comprehensive financial education and sage guidance, so they may remain good stewards of their legacy.
Note: The case study presented is based on the story of a real CAS client, but the names have been changed to protect anonymity.
Throughout your lifetime, you worked hard to save for your golden years. As you climbed the ladder of success, you likely accumulated several sources of deferred income to sustain your desired retirement lifestyle.
The most common forms of retirement savings plans are IRAs and defined contribution plans – 401(k)s, 403(b)s, etc.
While these plans are designed for effective retirement savings, often times these assets are scattered across numerous custodians from multiple employers. It may seem tempting to consolidate all your accounts for the sake of convenience.
However, before you merge your retirement accounts, you should map out the full picture of your qualified plans to avoid negating any of your benefits. Simply merging all of these accounts might eliminate the potential for any efficiencies that could be achieved through proper planning for lifetime distributions and legacy considerations.
Flowcharts serve as an especially effective tool for mapping out your full financial picture – empowering you to simplify your financial life in a way that prevents costly fees and accentuates the potential for tax savings.
An organized, well-designed flowchart allows you to delve into the nuts and bolts of each specific IRA or retirement program.
Figure 1. A sample financial planning flowchart for a hypothetical client scenario (Click the image to view full size).
Two of the most critical areas of your retirement plan to address are:
Distributions (lifestyle considerations): Qualified plans require you to take certain distributions once you or your beneficiaries hit a certain age (e.g. RMDs at age 70 ½ and older). Failing to adhere to the particular regulations and timelines associated with each plan can result in costly penalties and fees.
These programs add an additional layer of consideration in comparison to other assets, due to the income tax consequences that result from distributions and the fact that ownership may not transfer during your lifetime. You can make the most of any tax-deferred opportunities by executing a well-thought-out financial plan.
Beneficiaries (legacy considerations): Ensuring you have up-to-date beneficiaries listed that reflect your wishes may be more complex than you think. The most effective means for protecting your IRA and other qualified assets for your heirs is to understand what your custodian agreement will and won’t allow for at the time of death, as well as maintaining a time-stamped, up-to-date beneficiary designation form in your files.
If your beneficiary forms are not in good order, you may forfeit control of where your assets will end up after your death. In contrast, accurate beneficiary forms enhance the potential for your IRAs and other retirement programs to provide steady income for your heirs in the event of your passing.
In comparison to 401(k)s and 403(b)s, IRAs provide you with more flexibility when distributing your assets to beneficiaries: a lump-sum payment, consolidation into a qualified trust, merging or segregating various IRAs, use of disclaimers to pass wealth to contingent beneficiaries, and so on.
While you have discretion in incorporating some of these various approaches during your lifetime, most of these arrangements need to be in place prior to your death – or within a pre-defined period after your death – in order to take effect.
Pensions and deferred compensation plans generally have more restrictive clauses and stipulations for beneficiaries, which can vary widely depending on the administrator of the plan.
Lastly, you should review your entire retirement savings plan every 2-3 years. By doing so, you can address any ambiguity you may feel about your plan and identify new opportunities.
By mapping out your full financial picture and regularly updating your plan to reflect current circumstances, you will be well-positioned to protect and optimize your assets throughout retirement and impart a lasting legacy to future generations.
Jill Ciccarelli Rapps | èBella Magazine | January 2018
As we ring in the New Year, many of us reflect on our long list of new or old intentions and goals for the upcoming year. What if you were to throw away that list and consider just one thing that would make you the happiest – something that will really give you a YES year!
What is stopping you from making 2018 your best year yet? As you’ve probably seen throughout your own life, even the best-laid plans are bound to encounter numerous roadblocks. In particular, we’ve observed three major trends that hinder a person’s ability to achieve their YES:
Fear. Fear is a natural human response that tends to arise when we feel that we don’t have control; that we may fail; that we may be letting others down by doing something for ourselves.
The Fix: Accept that these feelings you have are completely normal, but that your fear must never define you. Make a conscious effort to re-focus your thoughts towards the feelings of accomplishment and joy you will experience when you persevere to claim your YES.
Time. Time is perhaps our scarcest resource. Our inclination is to organize all of our time around the dreaded to-do list or schedule. While this approach is effective in managing many tasks, we often feel as though our highly structured lives result in major constraints on our freedom, on our ability to fully experience the limited time we have.
The Fix: Every week, set aside some “me” time to claim your YES. Don’t look at your watch or your to-do list, disconnect from your phone, and hone in on the commitment you made to yourself. Breathe. Relax. Then, with a renewed dedication to that one underlying goal for 2018, consider how you can best structure your time going forward to ensure that your YES will come to fruition.
Money. Your money is a means to an end; the end is your happiness and fulfillment. Saving money is an important virtue, but many of us feel reluctant to spend money: some feel the need to hoard their assets, others may feel averse to “wasting” money on extravagant experiences or luxury items.
The Fix: Whereas saving is the key to long-term financial wellness, spending may be the key to claiming your YES. When you synchronize your spending with your deepest aspirations, your money can begin to achieve a grander purpose – and the true power of your financial plan becomes evident!
So how do you overcome these obstacles to claim your YES? Let’s take a look at Linda.
How Linda Claimed her YES
Linda had a difficult year in 2017. After turning 72 in February, she lost her husband of 46 years, John, in March after a long battle with a rare heart condition.
Linda had always loved traveling throughout Europe and was especially fond of her annual two-week excursion to Italy with John. However, since he passed away, she hasn’t felt comfortable traveling alone. In addition, her only son and her three teenaged grandchildren live in California and rarely have the opportunity to visit Southwest Florida. Linda felt isolated.
At her annual financial review, Linda shared her predicament with her advisor, who shared a curious idea to overcome her loneliness:
“Have you ever considered taking your grandchildren one at a time on the trip of their lifetime?” the advisor asked. “What if, after each of your grandchildren graduates from high school, you let them select any destination in Europe they would like to travel? You will have quality time with them, instill your passion for travel, and give them new perspectives and unforgettable experiences that will be meaningful to them throughout their lifetimes.”
Linda was ecstatic about the idea at first and went home feeling invigorated about her possible future travels. However, throughout the next week, she began to worry about money. Could she really afford three separate vacations in five years? How would these travel excursions impact her grandchildren’s inheritance? Would she need to make significant sacrifices in order to make it happen?
Wait a minute! Linda thought. I can either give them my money when I die, or I can use my money with them while I live. I have a perfect opportunity to enjoy Europe again with three very special travel partners. I can do it – I will do it!
That positive self-talk – overcoming the obstacles – was the turning point for Linda. In summer 2018, Linda will be traversing the mountains of Switzerland with her eldest grandson, and she is eager to explore new territory in 2019 as she and her granddaughter plan their trip to Czechia.
With Linda’s success story in mind, circle back to that one goal or action that will make 2018 your best year yet. Ponder how energized and happy you will feel when you fulfill that promise to yourself, how you will take the obstacles in stride, and how you will go forth with confidence and strength to make it happen!
The persona of Linda is fictional but is based on a CAS client experience. The names in the anecdote have been changed to protect their anonymity.
Lynn A. Ferraina | èBella Magazine | Updated for accuracy and clarity
2018 is upon us! As we start compiling New Year’s resolutions, the primary focus is usually to improve our health or maybe to lose those extra pounds gained during the holidays.
But how about making some resolutions to improve your financial health as well? Here are some ways to get started:
Dump the Debt
Not only may we have eaten too much at holiday time, we may have spent too much as well. Make a commitment to pay off credit card debt as soon as possible. Many credit cards, especially store credit cards, can have interest rates in excess of 18 percent. Get in the habit of paying off your credit cards in full each month to avoid racking up high balances and interest accumulations. Review your credit scores with one of the three major providers (Equifax, Experian or Transamerica) to avoid potential identity theft.
Set an Investment Goal
If you are still working, make a commitment to max out your company’s retirement plan. Many companies offer to match a certain percentage of their employee’s contribution. For example, if you put 5 percent of your salary in your 401(k) and your company matches 3 percent, that’s a 3 percent raise. If your company doesn’t offer a plan, you can create your own by establishing an IRA (individual retirement account). You are allowed to deposit up to $5,500 in 2018 (or $6,500 if you are over age 50).
When depositing to a 401(k) or IRA, not only does it help you save for retirement, but it gives you a nice tax break as well. If you have old 401(k) plans from previous employers, consider consolidating by rolling over your old plans to the IRA you have established.
Review your Investment Plans
Whether you are still working or retired, it’s a good idea to see how last year’s financial plan met (or didn’t meet) your financial objectives. Is your current asset allocation working to achieve your short- and long-term goals? Financial objectives to consider each year are: time horizon, risk tolerance, how much you need to invest each year to meet your goals, and what investment vehicles to use to keep your plan on track.
Save for Emergencies
Before investing for the long term, make sure you have liquid funds available to cover short-term emergencies so you will not be forced to sell long-term holdings at market value. Six months of living expenses is advisable.
Check your Coverage
At the beginning of the year, it is also a good time to review your insurance plans. Make sure you are adequately covered for all of life’s contingencies, including health, life, homeowners, auto, disability and long-term care insurance.
Avoid Estate Issues
Reviewing your legal plans every other year or when you experience a life change is important as laws change all the time. Evaluate your will, trust, health care surrogate, living will and power of attorney to make sure they reflect current laws and your current wishes. Also, review your beneficiary options on life insurance, annuities, pension plans, IRAS, and 401(k)s to make sure they are correct and consistent with your legal documents.
Seek Professional Advice
Most people cannot do it alone. Advisors have years of education and experience to help you find the gaps in your current plans. They also have witnessed mistakes people make and know how to avoid them.
One word that generally turns folks off is the word “budget.” Instead, I refer to it as a “system” to know what you own, what you owe, and what your income and taxes are. Basically, it is a way to keep track of what you spend and save each year. It should also include a “system” to list where your personal information and documents are, including your passwords, tax returns, insurance information, investments, legal documents and a listing of who you do business with (your financial advisor, lawyer, CPA, insurance agent, bank, etc.).
This system is crucial if you become ill or incapacitated, so that your previously named, trusted advocate can walk right in and take over your financial life if you can’t.
If you haven’t worn an article of clothing or won’t be using a particular item in the future, start to downsize your closet and your life. There is something rewarding about giving away what we no longer need. Not only do you help your favorite charity, but you may receive a tax deduction as a reward for your giving nature.
Now is the time to review and set your 2018 financial resolutions. Good luck and may 2018 be a financially productive year!