Sunday, August 19, 2018

Finally, Some Protection for Seniors

A major concern of financial advisors is senior financial abuse. Until recently our hands have been tied for fear of liability breaking privacy laws by contacting family members or halting suspicious transactions. Many advisors are aware their elderly clients are being scammed or taken advantage of by unscrupulous relatives. Client conversations curtail some activities but most advisers hands were tied as they watched assets be drained away.

Finally some protective measures have been put into place effective February 2018:
1. when a new account is opened by someone over 65 the broker or advisor must request the name of a trusted contact person who may be called about questionable transactions. This trusted individual may also share current contact and health concerns as well as guardian, trustee or POA (power of attorney) holder.

The brokerage firm may also request the name of a trusted contact person when it annually or biannually updates records and pertinent account information.

2. brokers are now allowed to place a temporary hold on disbursements they deem suspicious. The rule not only covers investors over 65 but also account holders with mental or physical impairments who may show difficulty protecting their own financial interests. Before making disbursements the broker or money manager may put a temporary hold on the money while he/she investigates and reaches out to the investor, trusted contact or appropriate agency including the police.

This is a big step in the right direction. Now firms may use the trusted contact as a resource to protect assets of the elderly and help reduce financial exploitation. It also allows for proactive measures to stop the crime as once the assets are gone, there is little chance of recovery from fraudsters and scam artists.

Be $ Smart - Encourage your elderly friends and relatives to register a trusted contact with their financial institutions as protection against fraud.

Pro's of a Roth IRA Conversion

The Roth IRA is possibly one of the best savings vehicles Congress has given to the American taxpayer. You get to save after-tax dollars, allow them to grow tax-free and take distribution in retirement tax-free.

In 2010 Congress allowed owners of traditional IRA's to make a full or partial conversion to a Roth IRA. Yes, the tax is still due on the money held in your Traditional IRA but once the tax has been paid and the money transferred into the Roth, you are done.

Roth IRA's have many benefits. Today we will address the reasons for converting a Traditional IRA to a Roth. Next week we will cover the reasons when and why you might not/should not convert to a Roth. Note that most reasons are not hard and fast rules. As conditions change, e.g. tax bracket, employment, etc. your decision needs to be reviewed, maybe annually.

Benefits of converting are numerous:
- retirement assets taxable on distribution now move into an account that will grow free of taxes and be distributed free of taxes as well.

- Roth IRA's have no required minimum distribution at age 70 1/2. You may hold a Roth as long as you like and take distributions whenever you like (once you are over 59 1/2 and the account has been opened for 5 years.)

- Distributions, also know as income, pass through as non-events in the federal tax system so payouts do not count as increased income to raise your income tax bracket, Medicare premiums or impose the 3.8% tax on investment income.

- Roth IRA's prove beneficial during the in-between years of retirement before Social Security kicks in.

- Distributions provide necessary income boost without increasing taxes as in filing FAFSA for college aid.

- A Roth conversion helps you better control your tax strategy as once you have paid the tax you no longer worry about tax increases or changing tax policy. Your income/distributions will be tax free.

Be $ Smart - consider the benefits of converting all or part of your Traditional IRA to a Roth IRA. Be sure to consult your tax preparer before making the move.

Sunday, July 15, 2018

Summer $ Reading

Many newspapers and magazines offer book lists for light, summer reading.

As you know, if you want to learn something, read.
Read books. Read magazines. Read websites.

Perhaps reading about money and investing is not considered light reading but when you are determined to care for your money and make it work for you, it is essential reading.

Here are a few books to consider:

The Little Book of Common Sense Investing
by John Bogle, the father of index investing.
Mr. Bogle, also the founder of Vanguard, offers timeless and sensible advice.

A Random Walk Down Wall Street
by Burton Malkiel, helps you understand the workings of Wall Street.

The Investment Answer
by Daniel Goldie and Gordon Murray, give easy to understand investment knowledge.

The Little Book of Main Street Money
by Jonathan Clements (often seen on PBS) provides good, basic financial advice.

One book I suggest for widows or newly divorced is
On Your Own: A Widow's Passage to Emotional and Financial Well-Being
by Alexandra Armstrong and Mary Donahue, offers easy-to-follow advice with step-by-step guidance.

If tackling a book is too heavy for your summer schedule pick-up a financial magazine like MONEY, Kiplingers or FORBES. Read it all - read the ads, the comments, the table of contents, the articles, cover to cover. The more you read the more familiar you become with the terms and the language of finance. The better you understand the language, the less intimidated you feel.

Be $ Smart - Build your confidence. Grow your assets. Learn about investing. Your future is yours to create.

Sunday, July 8, 2018

The Magic Of Compound Interest

Here's a topic we've addressed before. It is a topic worth repeating. I took the simple explanation directly from the U.S. Department of Labor, Employee Benefits Security Administration.

Compounding investment earnings is what can make even small investments become large investments given enough time.

How It Works – The money you save (either in a savings account, a mutual funds or in individual stocks) earns interest. Then you earn interest on the money you originally save, plus on the interest you've accumulated. As your savings grow, you earn interest on a bigger and bigger pool of money.

Start Saving Early - For every 10 years you delay before starting to save for retirement, you will need to save three times as much each month to catch up.

Starting at 20 - If you put $1,000 a year into an IRA every year from age 20 through age 30 (for 11 years) and stop - and the account earns seven percent annually - your savings will equal $168,514 at age 65.

Starting at age 30 - If you don't start until age 30, but save the same $1,000 amount annually but for 35 years straight at the same seven percent rate, you will have saved three times as much money but your account will grow to only $147,913 at age 65.

Where you might obtain a steady 7% return puzzles me, especially in this low interest rate environment but the point is clear even on a lesser scale:
- Start early!
- Save regularly or automatically!


The difference is significant if you wait. Even small amounts saved early have many more years to grow.

Be $ Smart
- Start saving now! Any amount is better than none. Your future depends on it.

Sunday, June 24, 2018

Measuring Risk

Risk comes in many forms. The numerous types of insurance available help us mitigate some risk. Often folks take elaborate measures to avoid any kind of risk. But risk abounds. Life is a risk.

To avoid risk it may make sense to keep your money in cash, money markets, CD's or stable value funds. You watch as the stock market completes daily gyrations. After a huge downturn you express relief that your pile of cash is safe. But then you groan during an upturn, lamenting all the profits "you could have made"!

Running water, over time, wears away stone or carves a riverbed.

So too does inflation and taxes which wear away at your purchasing power when you keep your money "too safe". Little by little, year by year your pile of cash shows the same amount, or maybe a tiny gain. But below the surface, inflation has dramatically reduced the goods and services you are able to buy.

Over time, your cash will suffer the same fate as the stone - it will be worn away.

Bite the bullet. Put your money to work for you.
Yes, keep your emergency fund in cash or money markets.
Yes, keep the money you'll need for purchases in the near future (12-18 months) safe. Invest the rest. The stock market goes up and down. If you draw a trend line on a stock market chart you will see that the trend, over time, has been up.

Be $ Smart
- Work hard. Save. Make your money work hard too.

Sunday, May 13, 2018

Promoting Financial Literacy

It is sad to say that in our amazing country where we have so many opportunities and access to so much that we are sorely lacking in financial education. Personal finance is not taught in schools. Decades ago I learned budgeting and money while working on a Girl Scout badge. At 10 years old, not much stayed with me. Unfortunately, that was my only exposure.

On the whole, we are all working/living with a handicap. Some folks have a knack for handling money, some have a mentor but most fly by the seat of their pants. Too many people are embarrassed to admit what they don't know. This struggle breeds fear, stress, anxiety and illness.

Good money skills have far reaching effects. They allow me to:

- control my day to day spending,
- effectively allot my month to month finances and live within my means,
- create, track and meet my financial goals,
- be prepared for emergencies with a $ cushion,
- understand complicated transactions like loans, insurance and mortgages,
- have a feeling of success and self-sufficiency, and
- make sound choices to live life to the fullest.

Those are the personal benefits. On a wider basis, for the general public, good financial skills:

- increase every one's ability to meet basic needs,
- improve their purchasing power,
- allow folks to work, spend and play putting their earnings into circulation,
- increase overall productivity, profits and economic growth,
- reduce general stress and illness, and
- keep personal wealth and the economy growing.

After the "big financial meltdown" in 2008 we became acutely aware of our financial savvy deficiency. Many programs were proposed for schools. Was anything ever done? For ourselves and the future of our country it is important that we pursue and encourage financial literacy.

Some ways we can help:

1. Take a class - at a local high school or library.
2. Read a financial book - increasing vocabulary recognition.
3. Ask your HR director to provide a class at work.
4. Teach your children or your grandchildren shopping skills and how to make change.
5. Approach the principal at school to request money ed be added to the syllabus.
6. Encourage students to take a financial basics course in college.

Be $ Smart - talk about money with your kids, grand kids and family. Bring money out into the open. Make financial literacy important, we all will benefit.

Monday, April 30, 2018

The Cost of Financial Abdication

In spite of decades of the women's movement some attitudes are difficult to change. Many more women are in the workforce than 30 or 40 years ago. Many women make substantial salaries - some even make more than their spouses. A recent survey showed that 56% of married women still leave major investing and financial decisions to their spouses. 61% of that group, qualified as millennials, fall into that category. (Those born between 1981 and 1991.)

Women who have experienced divorce or widowhood plead with their colleagues to pay attention to important financial decisions that will profoundly impact their future! These women suffered the consequences of lack of involvement in financial decision making and urge others to break the cycle of financial abdication.

Some of the surprises that surfaced:
- outdated or lost wills making the estate distribution more costly and time consuming.
- hidden debt and credit cards,
- shared beneficiaries,
- hidden spending,
- secret accounts,
- undisclosed IRA's or 401k plans,
- lack of adequate life insurance or huge loans against life insurance policies.

Remember, women usually live longer than men. Whether you choose to be single or become single as a result of death or divorce, you will need the confidence and experience of being financially savvy.

Be $ Smart - make financial decisions a partnership. You need to protect your future.