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Post-Election and Financial Planning Webinar Recording!
Thank you to those who attended our recent Post-Election and Financial Planning Discussion on Tuesday, November 10th as we discussed navigating the election landscape and the financial road beyond.
Our team of advisors enjoyed the opportunity to connect with you and we hope you took away some valuable knowledge and insight.
If you still have any questions, please do not hesitate to reach out to us at Ciccarelli@CAS-NaplesFL.com.
If you enjoyed the webinar and would like to watch it again, we have a recording below.
Thank you again and have a wonderful day!
Is Now the Time to Refinance?
By Jasen M. Gilbert, CFP®
Home is where the heart is, but it often involves one of the more important financial decisions many people will make in their lifetime; deciding to refinance your home’s mortgage. It is quite common for people to refinance their 30- and 15-year loans. Just because you had a certain interest rate at the time of taking out your initial loan does not mean you are stuck at that rate forever. According to the Mortgage Bankers Association, the typical American homeowner will refinance their mortgage every 4 years. They also found that refinancing activity is about 50% higher than it was a year ago.
Refinancing a mortgage means paying off an existing loan and replacing it with a new one. There are many reasons why homeowners refinance:
- obtain a lower interest rate
- shorten the term of their mortgage
- convert from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage, or vice versa
- To tap into home equity to raise funds to deal with a financial emergency, finance a large purchase, or consolidate debt
Currently, mortgage interest rates for 30- and 15-year fixed-rate mortgages (FRMs) are at all-time lows. On Friday, November 06, 2020, according to Bankrate’s latest survey of the nation’s largest mortgage lenders, the benchmark 30-year fixed mortgage rate is 3.060% with an APR of 3.790%. The average 15-year fixed mortgage rate is 2.620% with an APR of 3.310%. Many consumers are taking advantage of the lower rates to lower their monthly payments, which means they can spend, save, or pay down debt.
When the mortgage and real-estate conditions change, it can be beneficial for borrowers to have a loan that meets their financial needs and goals. If your financial situation has changed since you took out the initial loan, and you plan on remaining in the home for several years, it may help to look at refinancing. When you have a longer loan term, such as a 30-year FRM, you often end up paying more in just the interest of the loan. When you refinance at a time when rates are low, you may be able to shorten the length of the loan and also save some money on interest. A lower interest rate on your mortgage means smaller monthly payments, and more of your payments going toward paying off the principal of your loan.
Also, with the consideration of taxes, starting in the tax year of 2018, couples filing jointly can deduct the interest on up to $750,000 of qualified home residence loans; couples filing separately can deduct interest on up to $375,000 of qualified debt. The amount decreased from $1M ($500,000 for couples filing separately) under the Tax Cuts and Jobs Act. If you secured your loan before Dec. 16, 2017, the previous limits apply to your deduction. For taxpayers who are able to itemize their deductions, their after-tax cost of the mortgage may be even less.
However, there are also some potential obstacles to consider before refinancing. Refinancing loans have closing costs just like a regular mortgage and they can take quite a bit of time and paperwork to get approved. There is generally no guarantee on how much you will save, and sometimes the savings may be minimal, depending on your financial situation. If mortgage rates are 1% less than your current rate, it may make sense to consider your refinance options.
If you are considering refinancing a mortgage, or are wondering if it may align with your future financial goals, it may be a good idea to discuss with your Ciccarelli Advisory Services financial advisor first.
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.
Prescription Services – How Do They Work? Are They for You?
By Jasen Gilbert CFP® and Judith Alexander-Wasley MBA, CFP®
Rising prescription prices have been absorbed by many individuals relying on medications for managing a condition or disease state. Whether for lowering cholesterol, managing diabetes, controlling high blood pressure, or preventing blood clotting, the most common means for obtaining medications has been through one’s health insurance coverage, including Medicare and the affiliated drug plans. These transactions typically take place at the drug store, in-store pharmacy at a grocery or variety store, or through mail order.
In the recent past, several prescription services have become available that offer pricing alternatives, over the insurance offering, for one’s medications. The names of these services may include GoodRx, RxSaver, SingleCare, US Pharmacy Card, among others, and may warrant investigation as to whether the pricing for medications through them is more favorable compared to the pricing of the same medication, through one’s health insurance.
Insurance companies negotiate pricing for any products needed by their insured client base.
Alternatively, prescription services offer pricing they’ve secured through partnerships with pharmaceutical companies or with pharmacy benefit management companies. The results of these negotiated partnerships may mean a lower price to the consumer, for whom the medication is prescribed. Many of these services tout significant savings over the quoted amount obtainable through insurance.
How do Insurance-Alternative Prescription Services Work?
Most of them offer access to coupons or discounts aligned with pharmacy chains in the vicinity of the consumer. These savings can be accessed either through a mobile app or through a website by entering the drug name and your zip code. It’s through this means that pricing comparisons can be made relative to the price one would pay if obtaining the prescription through their health insurance drug plan.
How Does This Affect My Health Insurance? What about My Deductible?
Interestingly, these insurance-alternative services offer point-of-service transactions with the consumer such that you pay in cash or charge and present the coupon, and the entire transaction takes place without involving your health insurance provider. Because of this, the cost of the medication is NOT applied to your annual health insurance deductible.
Each family has unique health insurance circumstances, prescription costs, and the ability to satisfy the annual deductible; therefore, it’s important to discuss any healthcare cost concerns with your advisor to understand your situation and whether the potential savings of obtaining prescriptions through one of these alternative services may be beneficial to you.
In line with the slogan for one of them, you may want to “check it out!”
References:
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.
Ciccarelli Advisory Services – Staying in Touch
We understand that uncertain times can be worrisome. As you are aware, we have seen significant changes to the financial markets, the economy, and generally, our everyday lives in a very short period of time.
As a valued member of our CAS family, we want you to know that we are here for you.
We are reaching out to let you know that we are here for you in the event you need to speak with us. Please feel free to contact us via phone or email at ciccarelli@cas-naplesfl.com if you would like to schedule a 15-minute call with us to discuss your portfolio.
We have suspended taking on new referrals, new client relationships, marketing, and all non-essential client work for the time being so that we can focus on client portfolios.
During this time, we are not only considering your financial security and asset protection, but we are also looking at opportunities. The bottom line is we will get through this; it is just a matter of time. Here are some considerations that are top of mind.
1) Primary Concerns:
- Cash Flow – Your cash flow needs are an important factor. We want to avoid selling securities at a lower value, if possible. If you have enough cash to support your cash flow needs for the next 6-12 months, let’s stay the course. If you do not, we need to connect to begin strategically raising cash.
- Market Risk and Volatility – Volatility in the markets tend to play on our emotions. You and I react when our account values drop as they have been over the last several weeks. This is human. The coronavirus is likely to get worse before it gets better. With that said, research and history show us that the prudent thing to do in times like these is to remain invested and focus on your long term objectives.
2) Opportunities:
- For individuals that have been overweight in cash, this may be the time we have been waiting for. By observing current valuations, we feel there will be great companies and industries that are priced for opportunities to buy for long term growth, income, and appreciation. We suggest that excess cash be invested for long term objectives. A dollar-cost averaging strategy has been proven to work well during these times. Please contact us if you would like more information on this strategy.
- Tax Loss Harvesting – Due to the recent pullback we are now seeing an opportunity to realize losses on taxable accounts to offset future gains.
- For some individuals, we can take a loss by selling what may be considered a riskier asset and purchasing into an equity position that has less inherent risk…potentially reducing the overall risk level of your portfolio.
- These losses may be useful to offset gains from the sale of positions that are significantly overweighted in your portfolio. The gains from the sale of the highly appreciated stock can be offset by the realized losses and then the proceeds can be re-invested in a more diversified way. This strategy may serve to reduce single stock risk in your portfolio.
- If you are comfortable with your cash cushion, perhaps consider deferring or minimizing withdrawals from your portfolios.
We will be communicating on a regular basis via email, newsletters, and by telephone. If you have any questions or concerns, please do not hesitate to give us a call or email. We are here to serve you.
Stay safe and healthy!
How Anxiety Changes Our Financial Decision Making
Paul F. Ciccarelli CFP®, CHFC®, CLU® and Steven T. Merkel CFP®, CHFC®
Across the world, a whirlwind of events brought many people’s lives to a halt. The outbreak of the COVID-19 virus has caused a global pandemic and forced massive country-wide quarantines to lessen the spread of the disease. Amid this health crisis, an oil price-war between Saudi Arabia and Russia has triggered a fall in the price of oil. Both of these events have subjected the economy and individuals to a great deal of stress and anxiety.
People may be experiencing and coping with emotions in a variety of ways including modifications to judgment and decision making processes. While this is essential in life-or-death situations, it could be unintentionally problematic regarding long-term decision-making.
Anxiety and stress are the manifestations of thoughts and fears about the ability to manage circumstances. [1]
Anxiety developed from our natural fight or flight response which early humans relied upon to tell when a situation was too dangerous. Humans still need this process to avoid potentially fatal outcomes, but the brain can have a difficult time differentiating between actual life-threatening situations and those which we perceive as being life-threatening due to certain circumstances remaining out of our control. [2]
Most know that long-term exposure to stress is not healthy and can lead to multiple serious conditions.
One of the lesser-known effects of stress is that it changes the way we think. Through attention bias, stress and anxiety alter what we are conscious of, and how we perceive the world around us. Think of it this way, if all you think about are yellow cars, suddenly all you see are yellow cars. In reality, the roads haven’t been overtaken by golden-hued vehicles, that’s just what your mind is focusing on. [3]
Stress and anxiety will change the way your brain functions, and in turn, disrupt your long-term decision making, problem-solving, and risk calculating abilities.
By disrupting the proper functioning of neurons in specific regions of the brain, stress could prevent you from making the types of decisions you would typically make. [4] If not careful, those panicked decisions could have a lasting impact on your long-term goals and full financial picture.
Stress even changes the way men and women think about risk.
A study from the University of Southern California found that under stress, men are often more willing to take risk while women tend to take a more conservative approach, despite previous ideas or plans. [5]
As short-term survival takes over, long-term considerations are either pushed aside or are influenced by widespread panic.
The prevalence of sensationalized news, which often relies upon fear, makes it easier to focus on certain messages and topics. This may not provide all the necessary facts needed to make informed choices. Now, more than ever, you may need to rely upon those who have an outside perspective and experience guiding during times of turmoil.
When we look at the big picture of market performance over the long haul, we find that – in many cases – the most prudent course of action is to (1) stay the course and (2) capitalize on any untapped opportunities that may arise as a result of recent events.
One of the recent updates that may be beneficial to many is the postponement of the due date for filing Federal income tax returns and making Federal income tax payments. Any person (the term “person” includes an individual, a trust, estate, partnership, association, company, or corporation) will be able to hold off on filing and paying without accruing interest or penalties till July 15, 2020. Also, H.R. 6201, the Family First Coronavirus Response Act outlines certain requirements for paid sick leave and expanding the Family and Medical Leave Act. We will continue to keep you informed if there is further COVID-19 financial relief legislation.
Psychologist Henrie Weisinger, the author of “The Genius of Instinct,” writes that people who learn to change the way they think about their problems rather than try to overcome their anxious feelings are more likely to live stress-free lives. [1] As the situation with COVID-19 and the economy continues to evolve, we want you to remember that your CAS advisor is always available to help you look past the fear and anxiety and bring the big picture into focus as we weather the turbulent tides. Today, tomorrow, and for generations to come.
Sources
- https://healthfully.com/193037-what-are-the-causes-of-anxiety-from-a-behavioral-perspective.html
- https://www.healthcentral.com/article/what-is-fight-or-flight-and-how-does-it-relate-to-anxiety
- https://www.bbc.com/future/article/20160928-how-anxiety-warps-your-perception
- https://www.psychologytoday.com/us/blog/the-athletes-way/201603/how-does-anxiety-short-circuit-the-decision-making-process
- https://www.psychologicalscience.org/news/releases/stress-changes-how-people-make-decisions.html
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.
Ideas to Engage Your Family in Financial Education and Communication
By Josh Espinosa CFP®, CIMA®
As a parent or grandparent, it can be difficult to ensure your children and grandchildren have the wisdom and knowledge necessary to take on life’s obstacles. It can sometimes feel like a minefield trying to navigate the difficult waters of providing just the right amount of assistance and security while giving them room to build resilience and independence. There is no one-size-fits-all when it comes to parenting, but instilling positive financial habits early in life is beneficial to everyone. There are many different ways to engage your family in financial education. Below are some ideas to involve the next generation in the financial planning process:
- Purchase a piggy bank for new births in the family or a US coin map. Additionally, stock certificates from familiar brands are an interesting and relatable way to start teaching kids about stock ownership and investing. You might have them choose from a selection of companies they enjoy, such as Lego or Disney. Framed certificates could also make a great gift and some are even considered collector’s pieces.
- Open a 529 plan when there is a new birth; you could also gift up to 5 years upfront. Under the Tax Cuts and Jobs Act passed in December 2017, you can use $10,000 to pay for secondary education per year. In addition, under the Secure Act that passed in December of 2019, the federal government allows a one-time payment of up to $10,000 to be used to pay back student loans for any family member. State Education Plans, such as the Florida Prepaid College Plan, is another great way to save for college while locking in today’s tuition rates.
- Give the gift of stock or mutual funds via a UTMA (Uniform Transfer of Minors Act) orUGMA (Uniform Gift of Minors Act) custodial account. These accounts allow minors to receive assets and allows the gift giver or an appointed custodian to manage the minor’s account until they are of age. They often shield the minor from tax consequences on the gifts, up to a specified value. If the family member has earned income, you could also help fund a Roth IRA account. This is often a great way to accumulate after-tax savings. Savings accounts can also be a nice way to start saving for a special milestone.
- Share books at an early age that can make an impact – (i.e. Lemonade in Winter, Pretty Penny Cleans Up, I Will Teach You to Be Rich, The Intelligent Investor, The Greatest Salesman in the World, Richest Man in Babylon, Rich Dad Poor Dad, etc.). As they get older, challenge them with book reports, while providing financial incentives. Expose them to thought leaders via live presentations, podcasts, or TED talks. In Naples, we have the Speaker Series and Imagine Solutions events; in New York State, there is the Chautauqua Institute.
- Involve your family in charitable giving to pass on a legacy of philanthropy. This can be done via a Donor Advised Fund or gifting to an organization of their choosing.
- Introduce your family to your financial advisor and other financial professionals. Having them involved early on in the legacy planning process helps create a connection, which could lead to further communication, preparation, and organization.
- Hold family meetings to discuss responsibilities, goals, and wishes. This can include charitable giving, end of life wishes, transfer of heirlooms, etc.
- You may also want to have meetings with your family and financial advisor, who can act as a facilitator to review your estate documents, financials, and family communication.
- Setup and share important financial and estate documents with your family utilizing online document storage and secure file sharing system. Ciccarelli Advisory Services has a system, cas360, which offers clients their own personal financial website where they can securely access all their financial information and save important documents.
- Most importantly, give the gift of a financial plan to your children and family. Many of our client families have taken advantage of this great benefit. If you would like to learn more, our advisors can provide further details on this thoughtful gift option.
Financial literacy is not something most people learn overnight, but like many assets, its value can potentially increase over time. As your children and grandchildren grow and develop their own financial goals and dreams, a foundation of fiscal knowledge and open communication could help them build upon the legacy you set forth.
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.
Bring Your Future into Focus
Recap of The Topics Discussed at Our 2020 Wealth Symposium on February 5th
By Jill Ciccarelli Rapps, CFP®
Originally published in the January 2020 edition of eBella Magazine
On February 5th, we had the honor of hosting the “2020 Wealth Symposium: Bringing the Future into Focus” at Grey Oaks Country Club in Naples, FL. At the event, our advisory team presented on a number of financial, estate, tax, and retirement community planning strategies. This article summarizes the main points covered in the presentations.
1. Familiarize
yourself with the SECURE Act
Some have called the SECURE act the most important piece of tax legislation for IRA owners in a generation. If passed, among other changes, it could have a profound impact on non-spouse beneficiaries when it comes to inheriting large IRA assets. The bill would modify the current requirements for employer-provided retirement plans, individual retirement accounts (IRAs), and other tax-favored savings accounts. Some individuals may need to consider modifying their current retirement plans.
2. Prepare for the inevitable need for the cost of health care.
Healthcare is often one of the largest expenses in retirement, and most individual’s healthcare costs are expected to increase as they age. It could also be the worst time to take on sudden unplanned expenses. Today, even just a minor procedure can end up costing thousands. Some experts expect the industry to go through substantial adjustments in the near future, so it may be a good time to review your healthcare plan. There are also various factors you may want to consider when looking at your long-term future healthcare; will you stay in your home or move into a Continuing Care Retirement Community. Your decisions will make a major impact on your finances.
3. Tax deductions for 2019-2020.
April 15th can creep up on you, and not taking the proper time to compare your itemization options could cost you. In 2018, the standard deduction went up, making it a more advantageous option for many individuals. However, homeowners, those in a higher tax bracket, with significantly high medical bills, and who make large charitable donations, are amongst those who may benefit from an itemized deduction. The start of the New Year could be a good time to assess your expenses and see if there are tax opportunities you could take advantage of.
4. Clearly and effectively communicate the parameters of your estate plan.
How do you clearly and effectively communicate the parameters of a protected, but flexible, inheritance? The intent is often not carried out if not explicitly stated. How do you wish to empower your children? How do state and federal laws put at risk your child’s trust when they serve as their trustee? Letters to children can help describe your wishes and intent as well as Incorporating trustee designation and trust protector language to serve your family’s best interests. Changes in family circumstances including incapacity, state or federal laws, wealth or in circumstances around balancing family happiness and protection all are critical to successful legacies. Titling and beneficiary alignment, as well as handling the risks of aging during a lifetime, are all important areas to align in your estate plan. Your estate plan must live throughout your lifetime and after to be effective.
5. Include your Children in the financial planning process.
Most people don’t know what their first step should be in communicating with their family so the tenancy is to procrastinate until something urgent happens. Your planning begins and ends with bridging together family, whether through life needs such as birth to education to healthcare to a career move to weddings to buying a house and leaving a legacy…all the things parents care about and try to plan for their families. Money integrates with everything we do…unfortunately, many people don’t spend the time educating and preparing their families to carry on their family legacy. If you have not begun the conversation with your children or grandchildren, this may be a great time to discuss with your advisor on how to begin the process of educating and communicating to your children about your finances so they may be better prepared to step up and make future financial decisions.
Start your New Year out with selecting two of these strategies that you feel will make the biggest impact for you and your family, then set up a meeting with your advisor(s) to ask them for their guidance in helping you to set up a successful strategy and timeline for implementation – you will be happy that you did!
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.
Protected: Meet Our 2020 Wealth Symposium Guest Speakers
Financial Escape Velocity
By Jasen M. Gilbert, CFP®
The year 2019 marked the 50th anniversary of the Apollo 11 mission and landing on the moon – one of the greatest accomplishments for the US in space history. This was a successful culmination of many years of research, testing, and many earlier missions that laid the groundwork for Neil Armstrong and Buzz Aldrin to make the “giant leap for mankind.” In order to accomplish space exploration, we had to achieve Escape Velocity of the Earth which is approximately 33 times the speed of sound. In other words, a tremendous amount of energy is needed to overcome the Earth’s gravitational force.
How does this relate to retirement planning? You may have saved and worked all of your life to put away enough money and get to a point where you are financially independent. This may have included raising a family, putting kids through college, developing or building a business, or possibly a long career climbing the executive ladder. Along the way you have developed a significant nest egg – maybe through disciplined savings, maxing out your retirement plans each year, saving additional funds into non-retirement accounts. Whatever path you took, you finally reached financial escape velocity, a point where you are now financially independent and confident to take the plunge into the next chapter.
You finally get to retirement or the next chapter and you are faced with a multitude of challenges – issues or situations that you have not been faced with during your working years, some very difficult to plan for, which challenge your financial escape velocity. Situations may include:
Financially Assisting Adult Children
Through childhood and adolescence, it’s a parent’s duty to provide support for children by helping them mature and grown into adults who will, in turn, support themselves. However, some children may struggle more than others to find their footing. The instinct to shelter and protect your children is one that really never leaves a parent, even once they have reached the age of adulthood. Many parents may continue to attempt to protect them from financial hardship. An occasional helping hand may be ok, but continually shouldering expenses could cause detriment to your retirement plans.
Parents who find themselves in a difficult spot where they are spending significant funds might be unwilling to confront their children in fear of damaging the relationship. This may be a good point to bring in your financial advisor to help mediate and facilitate discussions with your children to advance them toward a place of their own financial independence.
Unforeseen Medical Needs
High medical costs are a concern for most retirees, and it’s a reasonable concern. According to the Employee Benefit Research Institute (EBRI), a 65-year-old couple with median prescription-drug expenses who retire this year will need $295,000 to enjoy a 75 percent chance of being able to pay all their remaining lifetime medical bills, and $360,000 to have a 90 percent chance. Those figures factor in the premiums for Medigap and Medicare Part D outpatient drug benefits to supplement basic Medicare but do not include the cost of long-term care facilities or additional insurance plans.
A sudden illness, accident, or the need to move into a long-term care facility earlier than expected could quickly dwindle down savings. Even a simple surgery could cost tens of thousands of dollars. Pre-retirees may want to look at their own family health history to gauge an idea of conditions they may want to financially prepare for. For those who qualify, a Health Savings Account (HSA) could help future retirees build a nice healthcare nest egg.
Longevity
People are living increasingly longer lives. Babies born today are likely to live longer than ever before. Living longer may have many advantages: more time to spend with loved ones, to travel, achieve your hopes and dreams. However, additional years may require you to rethink your retirement considerations and expectations.
One major hurdle may be the cost. The percentage of people in defined benefits plans or pensions has declined, leaving a population with less longevity protection. The low-interest-rate environment also means that “safer” (lower-risk) investments may not offer high enough returns for investors. Individuals may want to have allocations for various retirement goals such as basic living expenses, healthcare/long-term planning, enjoyment, charitable giving, and bequests. Retirees may also need to consider “rebalancing” their life verses their portfolios. How will you spend the extra time? Will you stay where you are, or move closer to your family? How will you and your spouse adjust to the additional time spent together?
Market Volatility
Unless you have a good crystal ball lying around, there is really no way to perfectly predict every dip or change in the market. There is typically some level of risk in every investment, whether monetary or otherwise. However, once you have surpassed your working years, and begin pulling from your nest egg instead of contributing to it, market corrections may seem to hold a greater risk to financial stability.
Retirement planning should ideally be about the long journey, including market fluctuations. A diversified portfolio may help to minimize the impact of a market downturn. A proper tax preparation strategy could also help you reduce the tax hit that could accompany future interest rate changes.
As we start out the New Year and new decade there is never a better time to take a look at your financial plan and ensure that it is up to date and provides you and your Family with “Escape Velocity” to get you where you want to be.
Please join us for our CAS Wealth Symposium on February 5th where we will be talking about some key topics relating to maintaining financial wellness.
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.
Behavior, Psychology, and Making the Most of Family Discussions
By Anthony J. Curatolo, Advisor
The holiday season has begun. With that comes the gathering of loved ones to celebrate the season and share in hopes and dreams for the New Year. It is not uncommon for families to share glimpses into idealized futures, but one area that is often left untouched is the discussion of legacy planning. Leaving a legacy that thrives and grows is a goal of many, but the undertaking itself involves a great deal more emotional strain.
Humans are complex. Unconscious psychological phenomena are ingrained into nearly every decision, whether we like it or not. Understanding the behavior behind decision making could assist you with the conversations you have with your loved ones.
One is the loneliest number
It’s in our nature to crave familiarity. Most of us have our daily routines which provide a sense of comfort and security. This can also occur with our loved ones. Within your family structure, you may have a child or family member who you have a close relationship with who you place a greater deal of responsibility.
In behavioral finances, the tendency to seek out the known is called the familiarity bias. Though it may be helpful to have an individual who can take charge when the time comes, overburdening one person, and potentially leaving out others, could lead to stress and discord within your family
Sometimes less is more
Individual autonomy and freedom of choice are important pillars of the human experience. It’s estimated that an individual makes roughly 35,000 conscious decisions a day. While having greater freedom of choice may allow you to personalize your life in ways not previously available, too many choices could become stifling.
Overchoice or choice overload is a cognitive process in which a person becomes overwhelmed with the sheer abundance of options. This typically leads people to select the easiest and least complicated option. The same principles could apply to involving your family in your estate planning process. It could be beneficial to have discussions early on with your family to layout the framework of your plan so they are less burdened with the difficult decisions surviving relatives often have to make.
You miss every shot you don’t take
The feeling of regret is a bit like a heavy, wet, wool blanket. It’s confining, uncomfortable, and difficult to shake off. The feeling is so universally disliked that many will forgo decisive action to avoid it. Regret aversion bias is a cognitive bias where a person, to avoid the emotional toll of a regretful decision, forgoes taking any action. Research has shown that in terms of financial reward, people typically feel the pain of financial loss to a greater extent than the satisfaction from a gain of equal value.
The same behavior could occur when handling estate planning discussions with your family. The fear of possible discord or repercussion could prevent you from discussing the more difficult points of your estate plan’s palliative care wishes. It may be beneficial to first discuss with a third-party mediator, such as your attorney or advisor, about your goals and desires for end-of-life care. They may be able to help you then create a guide for starting the conversation or possibly sit in on the discussion to assist.
The pen is mightier than the sword
Our teachers may have been on to something when they told us to take notes. Aside from a written record typically being essential for preventing legal difficulties, it could be imperative to full mental acknowledgment. Psychological research has demonstrated that written intention can be quite powerful. In a study done at Dominican University in California, researchers found that participants were 42 percent more likely to achieve goals just by writing them down.
When it comes to laying out your legacy, various strong emotions tend to bubble to the surface. Articulating those ideas and then conveying them to your family may seem like a difficult task. If you don’t have a written statement clearly outlining the intent of your plan, you may be susceptible to the influence of your relative’s whims. While it may be helpful to allow feedback from your loved ones, your estate plan is a reflection of you and should encompass the legacy that you hope to leave for generations to come.
Overall, the legacy planning process is often not a one-time event and may take multiple conversations over years to accomplish. Predictive models and graphs can be a great asset, but they may not include the complexities of human behavior. Utilizing the concepts of behavioral finance into your family discussions could help to bridge the gap between strategic planning and emotional biases.
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.
Sources
