Financial Planning

Spring is here! Time to get your finances in shipshape condition. Here are five ideas to get you started.

1. Check your credit reports.

While you’re reviewing your expenses and debts in order to see how you are faring in terms of staying within your personal budget, make sure that there aren’t any expenses or debts on your credit report that aren’t yours.

It’s free to check your credit reports once a year to ensure no one has used your name or identity to make unauthorized purchases. Here is what to do: https://www.consumer.ftc.gov/articles/0155-free-credit-reports

2. Consider banking / credit card changes.

If you find yourself with open accounts at multiple banks, it may be time to consolidate, depending on your total balance/s. (FDIC insures each account up to $250,000.) By consolidating, you may be in a better position to negotiate for lower fees and better interest rates.

You may find that you want to move your banking life online in order to reduce clutter and find a bank paying the highest rates / charging no fees. But be sure to download and back up your statements (and make backups of the backups) since most banks only keep them around for 12-18 months.

While you’re taking stock of your banking situation, take a look at your credit cards and assess whether or not you’re getting the best deals. It’s easy to do a little online investigating about cards have the best cash back benefits. (But make sure you pay off the balances monthly.)

3. Home maintenance to save money in the long run.

Your home is often one of your bigger assets, so consider putting these important home maintenance projects on your financial to-do list:

• Repair any roof leaks the minute you spot them to help prevent mold, structural damage and loss of personal property. Make sure your gutters and downspouts are clean and debris-free every year.
• Water on the ground can cause even more expensive problems. Grading and drainage issues need to be dealt with lest they damage your home’s foundation or cause flooding, often not covered by insurance.
• Deal with plumbing leaks immediately. Inspect and caulk around showers and tubs as well as windows and doors on a regular basis. Caulk is cheap, but water damage is very expensive.
• Just like you remove lint from your dryer vent with each load of laundry, you should change your HVAC filter monthly to prevent system problems as well as reduce monthly electric bills.
• Take immediate measures to eliminate pests like termites, roaches, ants or rodents if they take up residence. Waiting can only lead to more damage.

4. Tax changes / tax record storage.

Very importantly this year, get up to speed on the new tax changes and how they might affect you by meeting with your financial advisor and tax specialist. The two disciplines often have different perspectives and you can often benefit by including both of them in your discussions. Make sure you review your retirement tax distribution plan in terms of RMDs (Required Minimum Distributions) which start at age 72, because there may be ways to mitigate income taxes for the long term if you start early.

In terms of tax document storage, Kiplinger recommends keeping your tax returns indefinitely, and supporting documentation for seven years. If you decide to clean out old tax supporting documents, make sure to shred them to reduce the possibility of identity theft.

5. Beneficiary review: Insurance policy / retirement accounts / estate plans.

You may not realize that the beneficiaries you have listed on your insurance policies and retirement accounts take precedence over wills and trusts. It’s really important to keep all of your documents, including your estate documents, up to date at all times. Life changes, and so does your family. You probably don’t want an ex-spouse receiving your 401(k) money if you pass.

If you have a lot of assets and a very large estate, you may want to meet with your financial advisor and estate attorney since the new, higher estate tax exclusion sunsets in 2026 (or may be changed sooner by Congress under the new Biden Administration.)

If you want to discuss any of these ideas, or have questions about your financial or retirement plan, please don’t hesitate to contact us. You can reach Bulwark Capital Management at 253.509.0395. 

No matter how long you have been together, financial issues can wreak havoc on a committed relationship. According to Investopedia, some of the top money issues between partners include money/personality style clashes, debt, personal spending, children, and extended family differences.

When couples don’t agree about spending and saving habits, it can lead to stress, arguments and resentment. Here are seven ways you can address financial issues positively, preferably before they arise.

1. Understand Your Money Styles

Think of some extreme examples of money styles in your circle. Like your friend, the foodie, who won’t touch a bottle of wine that costs less than $75. Your sister who constantly surfs Amazon with boxes showing up at the doorstep day and night. Your mom who washes aluminum foil, folds and reuses it. And your stepdad who always insists on buying everything for the grandkids, fixing his own 30-year-old car, and keeping his handwritten savings ledger to the penny.

Everyone has a money style, and it’s helpful to talk about it without any name-calling or labeling involved. Understanding your partner’s spending habits often involves a deep-dive into money fears, scarcity memories and childhood traumas. Empathizing with your partner while freeing yourselves from negative patterns can be done if you work together. The most important thing is to come up with a spending plan that works for both of you, and hold yourselves accountable to work the plan together.

It’s also very important to check any power plays that may be happening at the conscious or subconscious level. The biggest money-earner shouldn’t think they have the largest say or the only right to dictate how the money gets spent; a marriage should be equally balanced. The partner who earns less and the partner who earns more both need to cooperate as a team to create a spending plan that’s fair for both of them.

So, check your ego at the door. It’s true that money is power, and few things build resentment faster than being made to feel inferior. The person earning more should take great care to act with empathy while taking care of their own needs reasonably rather than selfishly.

2. Decide How to Divvy Up Bills…and Save for Future Goals

There are several ways to pay the bills. You can both put all your earnings in a joint account and pay everything out of that. You can divide bills based on a percentage of your earnings. Or you can split bills down the middle and keep the rest of your own earnings for yourselves.

Once you have decided how the bills get paid, you need to devise a plan for saving for your long-term goals—like purchasing a home or securing your retirement. Remember that you need to work closely together as life changes arise—such as one of you losing a job, cutting back on hours to care for a parent, or one of you becoming disabled. If 2020 has taught us anything, it’s that contingency plans are always advisable. Putting together a financial plan for your future is a great first step toward a financially healthy future.

3. Create Personal Spending Allowances…That Stay Personal

Having some personal money that’s designated just for you each month can really help how you feel about your relationship. It can also help avoid relationship-ruining behavior like “financial infidelity,” when one spouse hides money or purchases from the other. The personal spending allowance gives each partner the chance to spend their money however they wish, no questions asked—including gifts to each other, a new pair of shoes, or coffee every day on the way to the office. In most cases, the personal monthly spending allowance amount should be equal for both of you so that resentments can’t arise.

4. Compromise on Spending for Children and Family Members

On average, it costs $233,610 to raise a child to age 18, according to the U.S. Department of Agriculture. That doesn’t include expenses for grown children, helping them with the purchase of cars or homes, or funding other (expensive) needs that might arise for them.

Furthermore, spending related to the extended family on both sides can also be tricky, especially as your expectations can be very different from your spouse’s when it comes to helping family members out or getting involved with costly family vacations or activities.

Addressing these discretionary expenses and agreeing on them before to committing to children or other family members is critical.

5. Face and Eliminate Undesirable Debt

Some debt may be necessary or even advisable depending on your tax situation, for instance, some people need or want a mortgage interest write-off. Other debt should be paid off following a plan that you both agree upon—be it credit card, car loan or student loan debt.

In most states, debts brought into a marriage stay with the person who incurred them and are not extended to a spouse, but debts incurred together after marriage are owed by both spouses. Debts incurred individually married are still owed by the individual, with the exception of child care, housing, and food, which are all considered joint debt no matter what.

There are nine states where all debts (and property) are shared after marriage regardless of individual or joint account status. These states include Arizona, California, Nevada, Idaho, Washington, New Mexico, Texas, Louisiana, and Wisconsin. In these states you are not liable for most of your spouse’s debt that was incurred before marriage, but any debt incurred after the wedding is automatically shared—even when applied for individually.

Both partners should have an honest discussion about curtailing bad spending or financial habits. Couples should also employ a strategy to pay off debt—such as paying off the higher-interest debt first or paying off the smallest loans first (the snowball method).

6. Set a Budget You Can Both Live With

One of the best ways to keep in sync with your partner when it comes to finances is to have a budget as part of your overall financial plan. The budget includes your household bills, your personal spending allowance, your debt-paying strategy, and your monthly budget for long-term goals like retirement.

7. Communicate Honestly

Lack of communication is the source of many marital issues, and talking regularly, honestly, and without judgment is where the hard work of marriage comes in. Some couples may even find it helpful to actually schedule a time once a month or once a quarter to revisit short- and long-term goals with each other, and meet at least once a year to discuss objectives with their financial advisor.

Don’t talk about things when you’re tired, angry or have had too much to drink—organize and adhere to clearheaded discussions for success. Honest communication can help you both face and conquer the financial challenges of life, changing course and adjusting along the way.

If you have any questions, or would like to review your finances together as a couple, call us! You can reach Bulwark Capital Management at 253.509.0395. 

Sources:

https://www.investopedia.com/articles/pf/09/marriage-killing-money-issues.asp

https://www.usda.gov/media/blog/2017/01/13/cost-raising-child

https://www.kiplinger.com/personal-finance/602036/a-marriage-starter-plan-for-finances-even-if-youre-late-to-the-party

https://www.marriage.com/advice/finance/how-to-overcome-financial-conflict/#:~:text=Married%20couples%20fighting%20over%20financial,couples%20fail%20to%20do%20so.

Things you can do for your future as the year unfolds.

What financial, business, or life priorities do you need to address for the coming year? Now is an excellent time to think about the investing, saving, or budgeting methods you could employ toward specific objectives, from building your retirement fund to managing your taxes. You have plenty of choices. Here are a few ideas to consider:

Can you contribute more to your retirement plans this year? In 2021, the contribution limit for a Roth or traditional individual retirement account (IRA) is expected to remain at $6,000 ($7,000 for those making “catch-up” contributions). Your modified adjusted gross income (MAGI) may affect how much you can put into a Roth IRA. With a traditional IRA, you can contribute if you (or your spouse if filing jointly) have taxable compensation, but income limits are one factor in determining whether the contribution is tax-deductible.

Remember, withdrawals from traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty starting again in 2021 because the CARES Act ends December 31, 2020. Roth IRA distributions must meet a five-year holding requirement and occur after age 59½ to qualify for tax-exempt and penalty-free withdrawal. Tax-free and penalty-free withdrawals from Roth IRAs can also be taken under certain other circumstances, such as a result of the owner’s death.

Keep in mind, this article is for informational purposes only, and not a replacement for real-life advice. Also, tax rules are constantly changing, and there is no guarantee that the tax landscape will remain the same in years ahead.

Make a charitable gift. You can claim the deduction on your tax return, provided you follow the Internal Review Service (I.R.S.) guidelines and itemize your deductions with Schedule A. The paper trail is important here. If you give cash, you should consider documenting it. Some contributions can be demonstrated by a bank record, payroll deduction record, credit card statement, or written communication from the charity with the date and amount. Incidentally, the I.R.S. does not equate a pledge with a donation. If you pledge $2,000 to a charity this year but only end up gifting $500, you can only deduct $500.  You must write the check or make the gift using a credit card by the end of December.

These are hypothetical examples and are not a replacement for real-life advice. Make certain to consult your tax, legal, or accounting professional before modifying your record-keeping approach or your strategy for making charitable gifts.

See if you can take a home office deduction for your small business. If you are a small-business owner, you may want to investigate this. You may be able to write off expenses linked to the portion of your home used to conduct your business. Using your home office as a business expense involves a complex set of tax rules and regulations. Before moving forward, consider working with a professional who is familiar with home-based businesses.

Open an HSA. A Health Savings Account (HSA) works a bit like your workplace retirement account. There are also some HSA rules and limitations to consider. You are limited to a $3,600 contribution for 2021 if you are single; $7,200 if you have a spouse or family. Those limits jump by a $1,000 “catch-up” limit for each person in the household over age 55.

If you spend your HSA funds for non-medical expenses before age 65, you may be required to pay ordinary income tax as well as a 20% penalty. After age 65, you may be required to pay ordinary income taxes on HSA funds used for nonmedical expenses. HSA contributions are exempt from federal income tax; however, they are not exempt from state taxes in certain states.

Review your withholding status. Should it be adjusted due to any of the following factors?

* You tend to pay the federal or state government at the end of each year.

* You tend to get a federal tax refund each year.

* You recently married or divorced.

* You have a new job, and your earnings have been adjusted.

These are general guidelines and are not a replacement for real-life advice. Make certain to consult your tax, human resources, or accounting professional before modifying your withholding status.

Did you get married in 2020? If so, it may be an excellent time to consider reviewing the beneficiaries of your retirement accounts and other assets. The same goes for your insurance coverage. If you are preparing to have a new last name in 2021, you may want to get a new Social Security card. Additionally, retirement accounts may need to be revised or adjusted?

Consider the tax impact of any upcoming transactions. Are you planning to sell any real estate this year? Are you starting a business? Might any commissions or bonuses come your way in 2021? Do you anticipate selling an investment that is held outside of a tax-deferred account?

If you are retired and in your 70s, remember your RMDs. In other words, Required Minimum Distributions (RMDs) from retirement accounts. Under the SECURE ACT, in most circumstances, once you reach age 72, you must begin taking RMDs from most types of these accounts.

Vow to focus on your overall health and practice sound financial habits in 2021. And don’t be afraid to ask for help from professionals who understand your individual situation. Give us a call if you would like to discuss. You can reach Bulwark Capital Management in the Seattle area at 253.509.0395.

Sources:

https://thefinancebuff.com/401k-403b-ira-contribution-limits.html

https://money.usnews.com/money/retirement/iras/articles/what-is-the-secure-act

https://www.irs.gov/publications/p590b

https://www.azcentral.com/story/money/business/consumers/2020/11/22/these-tax-laws-charitable-donations-were-changed-help-pandemic/6295115002/

https://www.investopedia.com/articles/tax/09/self-employed-tax-deductions.asp

https://www.investopedia.com/articles/personal-finance/082914/rules-having-health-savings-account-hsa.asp#:~:text=You%20can%20only%20open%20and,as%20a%20catch%2Dup%20contribution.

https://www.thinkadvisor.com/2020/11/29/10-tax-tips-to-take-by-year-end/

October is Financial Planning Month which serves as a useful, annual checkpoint to make sure you are on track to meet your financial goals. A written, up-to-date financial plan encompasses not only investments, but risk management solutions, tax reduction strategies and estate planning.

10 Reasons You Need a Financial Plan

1. To have one comprehensive document to address your finances.

Financial planning provides one summary location for everything related to your family’s financial life. From your budget, to your savings, to your investments, to your retirement, a financial plan helps you consider your finances in a holistic manner, and gives you one central place to see everything at a glance.

2. To ensure your investments are in line with your current short- and long-term goals.

A financial plan includes short-term goals like buying a house and long-term goals like saving for retirement, as well as everything in between. As your goals change through time, your financial plan is a living document that should get updated with your advisor on at least an annual basis.

3. To ensure you’re not spending too much money each month—to have adequate cash flow.

A realistic budget is very important to keeping you on track with your goals. This doesn’t mean you have to deprive yourself of little luxuries—it just means that those are already built into the plan so you don’t overspend.

4. To ensure you’re saving enough money, in the right places, including adequate reserves.

As many of us have learned during the pandemic, having adequate emergency funds is important. That amount varies from person to person, and your advisor can help you define the amount you have saved for emergencies, and help you find the right strategies to use so that your savings are liquid and accessible when you need funds.

5. To ensure your retirement is on track.

Making sure your retirement funds are invested for best performance while matching your risk tolerance and time horizon to retirement is one part of making sure your retirement is on track. Another part is making decisions about your desired retirement lifestyle and the corresponding monthly budget you will need later. These retirement lifestyle decisions can change throughout your working career, but should get more solid as you get from five to 10 years away from retiring.

6. To put and keep adequate protection in place against risks—like health, disability, accidental death and liability.

Providing for your family’s financial security is an important part of the financial planning process, as is assessing other risks you may face such as liability from lawsuits. Having the proper insurance coverage in place can protect your whole family. And today’s policy designs mean you may be able to cover multiple risks with fewer policies—and may even be able to enjoy “living benefits” while providing death benefit protection for your family members.

7. To address and have a plan in place for your estate.

Everyone needs an estate plan. A will allows you to spell out your final wishes, such as listing recipients of each of your possessions and designating minor children’s guardians. A trust can bypass probate court, saving money and keeping things private while easily transferring wealth. Health care directives and powers of attorney are critical should you become incapacitated. When creating your estate plan, your ideal team should include an estate attorney, your financial advisor and your tax professional.

8. To help you manage changes.

A financial plan includes all its various parts and pieces so that you can quickly see what needs updating when life changes happen. Remember, the beneficiaries you list on your individual insurance policies and your retirement accounts (like 401(k)s) take precedence over what is in your estate planning documents. Too many people have had their ex-spouses receive money because they forgot to update all documents properly.

9. To help you mitigate taxes.

It’s truly not how much you have; it’s how much you get to keep. Tax reduction strategies can help you annually, but your advisor can also help you look further ahead to reduce taxes later, such as during retirement. Remember, all the money you have saved in accounts like traditional 401(k)s are pre-tax dollars—you will have to pay ordinary income tax on that money when you withdraw it, which you have to do starting at age 72. Making a plan for taxation can help.

10. To help enhance your peace of mind.

Reducing stress and sleeping more soundly may be the best reason of all to have a financial plan in place.

If you would like to create, update or review your financial plan, please call us. Contact Bulwark Capital Management in the Seattle area at 253.509.0395.

The coronavirus has given us all a lot of stress, as well as a lot of free time to think. If you’re postponing your summer vacation plans, now may be the perfect time to implement some financial planning “to-do’s” that could enhance your personal wealth and financial well-being.

Here are seven things to consider:

1. Is there too much risk in your portfolio?

If you’re younger, you may have been told to just wait out the volatile stock market, and indeed that may be best for you. But some people—no matter what their age—are more risk-averse than others, and that’s where working with a qualified financial professional comes in. They can help make sure your portfolio matches your individual tolerance for market risk.

As a general rule of thumb, every year as you get older, your financial advisor should ensure that your portfolio contains less and less risk, as asset preservation and protection from market risk becomes more critical with a shorter timeline to retirement.

2. Does your portfolio contain a lot of bonds or bond funds?

Some financial advisors only have one tool in their toolbox when it comes to lowering risk in your portfolio as you get older—bonds or bond funds. But with today’s low interest rates, and bond yields tied to those interest rates, bonds or bond funds may not be your best option. And with some public figures¹ asking that the Fed consider negative interest rates (like they have in seven other countries), bonds could offer you less than ever in the future.

There are financial instruments like annuities which are not correlated to the stock market and offer guaranteed returns regardless of interest rates. Annuities are not investments, they are complex contracts with insurance companies. The guarantees they offer are based on the financial strength and claims-paying ability of the issuing insurance company, some of which have been around for more than a century. Some annuities offer potential for market growth along with protection from stock market risk, or even lifetime retirement income. Examining the options and clauses for various annuity contracts which might (or might not) work for you requires expertise from a qualified financial professional.

Make sure your financial advisor isn’t a “one-trick pony” and has more than just bonds or bond funds to recommend to you for the fixed, or safer part of your portfolio. You deserve access to other options.

3. Do Roth conversions make sense for you this year?

Roth IRA accounts have many long-term tax advantages, including tax-free earnings with no RMDs (required minimum distributions) due in retirement—meaning you never have to withdraw any money if you don’t want to. Additionally, you can leave Roth IRAs to your heirs tax-free.

If you roll money over to a tax-free Roth from a taxable retirement account like a traditional IRA, you will pay ordinary income taxes on the amount rolled over in the year that the rollover is completed. This year may be ideal if you’ve earned less and will therefore be in a lower tax bracket already. Or if your traditional IRA account is down in value, you could withdraw some of that money and reinvest it inside a Roth IRA. That way, when the stock market rebounds, those earnings could be tax-free.

NOTE: Rollovers can’t be undone, so it’s best to work with an advisor to do this.

4. Do you have enough money in your emergency fund?

If the pandemic has taught us anything, it’s to be prepared for the unprecedented. Now is the time to make sure you’ve set aside adequate liquid funds for emergencies. A rule of thumb is three to six months’ worth of living expenses.

5. Do you have an estate plan in place?

If there is one thing we all hate thinking about, it’s passing away from this earth. But in today’s crazy world, it’s more important than ever to make sure you have everything in place to make things as smooth as possible for your loved ones should the worst happen to you.

Some people think they don’t have enough money to need an estate plan, or they think they are too young, but pretty much everyone needs one to protect their family members. Estate planning includes a will containing your final wishes, possibly a trust which can bypass probate, a health care directive and a power of attorney should you become incapacitated, and other documents depending on your state of residence.

Don’t put this off. And don’t leave your financial advisor out of the process, either, they often have real-life experience and knowledge about what happens to families in cases of death and can help you and your estate attorney address issues you may not have considered.

6. Do you understand the basics behind filing for Social Security and Medicare?

The age that you file for Social Security—at age 62 when you are able to file, at your full retirement age of 66 or so depending on your month and year of birth, or at age 70 when your Social Security benefit stops growing—is pretty much your only decision if you are single. But if you are married, widowed or are divorced but had been married for 10 years, getting advice on filing to optimize your Social Security benefits is critical.

Similarly, some people don’t understand that Medicare is not free; it is usually deducted from your Social Security check. If you fail to file for Medicare by age 65, you could have higher premiums for the rest of your life. Get the facts well in advance, and know that co-pays, deductibles, and other out-of-pocket health care expenses can really add up even when you’re on Medicare.

7. Do you have a plan for long-term care?

People still believe that Medicare covers long-term care (LTC). It does not. Medicaid can cover long-term care if you or your spouse needs a nursing care facility, but in order to qualify for it, you have to spend down all of your assets leaving your spouse and/or heirs with nothing.

It’s very important to have LTC coverage in place. The good news is that the traditional long-term care insurance model has been upgraded to plans that can pay for LTC if you need it, but pay other benefits if you don’t.

We are here for you as a sounding board on these and many other issues. Call us. Contact Bulwark Capital Management in the Seattle area at 253.509.0395.

This article is provided for informational purposes only, and is not intended to provide any financial, legal or tax advice. Before making any financial decisions, you are strongly advised to consult with proper legal or tax professionals to determine any tax or other potential consequences you might encounter related to your specific situation. Insurance products like annuities contain fees, such as mortality and expense charges, and may contain restrictions such as surrender periods.

Source:

¹ https://www.cnbc.com/2020/06/10/heres-what-negative-interest-rates-from-fed-would-mean-for-you.html