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The Power of Goal Setting

By Arlen T Olberding, CFP® on November 1, 2015

Antoine de Saint-Exupéry, author of The Little Price, observed that “a goal without a plan is just a wish.” And yet many of us move through life without a plan or even a goal. When we do this, the outcome is unpredictable. Think of it like taking a road trip without a destination in mind (the goal) or without a map (the plan). Sure, we’ll get somewhere, but is it a place we really wanted to reach? Stephen Covey, the author of The 7 Habits of Highly Successful People, used to encourage people to write their own obituary. Sound a little weird? Maybe, but it really clarified life goals and gave you time to achieve them. If you want your obituary to talk about the wonderful volunteer work you did, it’s important to be doing such work.

Now financial results are probably not something that most people want in their obituary, but they can enable some of the things you may want mentioned — sending your kids to college, contributing to your favorite charity, traveling all over the world and so on. As part of the Guidepost Financial Planning process, we use a tool called SMART. You can see one of the related worksheets on our website. SMART is a planning acronym which means Specific, Measurable, Attainable, Realistic and Timely. Let’s take a brief look at each of aspect of SMART goal setting.

Specific. Your SMART goal should be a clear statement of what you want. For example, a general goal would be, “Get in shape.” But a specific goal would say, “Join a health club and workout 3 days a week.”

Measureable. There is an old saying that says “what gets measured gets done.” Making your goal measurable helps you see your progress, recognize if you are moving in the right direction and see how far you still need to go.

Attainable. When you identify goals that are most important to you, you begin to figure out ways you can make them come true. You develop the attitudes, abilities, skills and financial capacity to reach them. You begin seeing previously overlooked opportunities to bring yourself closer to the achievement of your goals.

Realistic. To be realistic, a goal must represent an objective toward which you are both willing and able to work. Your goal is probably realistic if you truly believe that it can be accomplished. Another way to know if your goal is realistic is to determine if you have accomplished anything similar in the past or ask yourself what conditions would have to exist to accomplish this goal.

Timely. A goal should have a time frame. With no time frame tied to it there’s no sense of urgency. If you want to lose 10 lbs., when do you want to lose it by? “Someday” won’t work. But if you establish a deadline, like “by May 1st,” then you’ve set your unconscious mind into motion to begin working on the goal.

It’s often helpful to have someone who can act as a sounding board when setting your goals. We have been exposed to many financial goals and can help you apply the SMART process to your own. Please visit our website or give us a call at 970.419.8212 so that we can discuss your financial goals in a no-charge, no-obligation initial meeting.

This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.

Posted in Fundamentals | Tagged fundamentals

Plan Now to Minimize Your Taxes

By Arlen T Olberding, CFP® on October 1, 2015

There are a number of ways that many of us can us to lower our tax bills. These include Traditional IRA and 401(k) contributions, gifting, charitable contributions, income deferral, offsetting investment gains with losses and so on. Many of these techniques can be implemented late in the year when your tax situation is more clearly defined. However, some of these strategies are best implemented now.

For example, for many people, the single-best savings strategy is a 401(k) plan. It’s funded with pre-tax dollars and many employers match your contributions up to some defined limit. The 2015 maximum is $18,000 for most people. If you’re 50 or older a catch-up contribution is allowed so your maximum is $24,000. You should at least capture your employer’s matching funds, so it’s good to see where you’re at now and increase your contribution rate if needed. Spreading this out over several months should make the reduction in your take-home pay more manageable.

Traditional IRA deductions are similar. If you are married and file jointly and your adjusted gross income is less than $98,000, you can contribute $5,500 if you’re less than 50 and $6,500 if you’re 50 or older. (For other situations, IRA deductibility varies.) You can contribute for calendar year 2015 until April 15, 2016 if you like. As with a 401(k), it’s easier to spread out your contributions to even out cash flow during the year.

Many companies offer flexible spending accounts (FSA). These are pre-tax savings accounts that must be used for child care or for qualified medical expenses. Currently, qualifying participants may be able to carry over up to $500 of unused funds to the next year (check with your employer). Since the contribution limit is $2,550, you may need to spend at least $2,050 in 2015. If you want to use these funds for elective medical procedures, eye care or other medical expenses that may have a lead time, it’s best to plan for them now rather than at the end of the year.

As usual, there are a number of important details that need to be considered here. Fortunately you don’t have to figure this out on your own. Guidepost Financial Planning is able to help you with this and all other aspects of your financial planning. Please visit our website or give us a call at 970.419.8212 so that we can discuss your financial goals in a no-charge, no-obligation initial meeting.

Posted in Taxes

Paying for Long-term Care with Health Savings Accounts

By Arlen T Olberding, CFP® on September 1, 2015

A health savings account (HSA) is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a high-deductible health plan (HDHP). There are no taxes on the contributions and no taxes on qualified withdrawals.

As the cost of long-term care (LTC) insurance rises and the benefits decline, alternatives are appearing on the market. An HSA is one such alternative. Here’s how it would work. You (and many times your employer) contribute the maximum permissible amount each year. For 2015, if you have self-only HDHP coverage, you can contribute up to $3,350; if you have family HDHP coverage you can contribute up to $6,650. Now here’s the trick, don’t withdraw funds to meet your current medical costs. Instead, pay those costs out of pocket. This allows your annual HSA contributions to grow tax free!

As an example, suppose you are currently 45 years old and are eligible for an HSA at work. Also, assume that you and your employer’s combined contributions hit the maximum allowed contribution of $6,650 (for you and your spouse) and that 1/12 of this amount is contributed at the beginning of each month. Assume that you make these contributions every year until you reach age 65 when Medicare makes you ineligible for HDHP insurance which makes you ineligible for an HSA. Finally, assume that your HSA funds grow at 3.5% per year. This will produce approximately $190,000 when you reach age 65.

A couple of key points about this:

It’s important to hold your HSA account in a place that gives you access to mutual funds. (Many HSAs default to a very low-rate bank account. Banks, credit unions, insurance companies and IRS-approved entities are generally the best places to look for an HSA custodian. Vanguard or another brokerage firm with low-cost funds is a good place to start. While companies like Vanguard can’t act as your HSA custodian, many of their funds are accessible through other companies. For example, HealthSavings Administrators specializes in HSA accounts and is the sole provider to offer only Vanguard investment options.
Many people feel the best age to purchase LTC insurance is in your mid-50s. With this HSA strategy, it’s best to start as young as possible. Often this is when you get your first job.
If $190,000 (or whatever your situation produces) doesn’t seem like enough protection, consider a hybrid approach. Build your HSA account and purchase a LTC policy to increase your coverage.
Note that your spouse can be your HSA beneficiary. Then, upon your death, your HSA will become your spouse’s HSA.

Posted in Retirement Planning, Saving

Saving for College

By Arlen T Olberding, CFP® on May 1, 2015

Okay, you don’t need to read an article to know that college costs a lot more than when you went to school. Despite the breathtaking numbers, lots of kids still go to school and there are strategies to help accumulate the required funds.

To get started, let’s ballpark the amount of money we’re talking about. Suppose you need to accumulate $80,000 for a four-year education. There are lots of variables here. Tuition is rising or your child may choose to go to a more expensive school. On the other hand, your child may qualify for a scholarship, financial aid or may be able to help save for school or even work while attending.

Saving $80,000 is just like saving for any large purchase in many ways. The longer you can save and the more you can save in the early years, the easier it is to achieve your objective. Suppose you start saving $200 per month as soon as your child is born. Assume they start school at age 18 and graduate at age 22 and that you continue saving until they graduate (22 years). Investment returns will vary, but let’s assume you earn 3.5% over the life of the savings program. This will produce the desired $80,000.

Now that’s a realistic plan for many families. The challenge comes in when your child decides to go to a more-expensive, out-of-state school. Also, most of us don’t start saving the day our child is born. These factors definitely make it harder, but not impossible. For example, suppose you don’t start saving until your child is ten-years old? In this case you need to save $450 per month for the remaining 12 years (graduation at age 22 minus the current age of 10) to end up with the desired $80,000.

You’ve probably heard that there are a variety of savings programs for college. These include 529 plans, Coverdell Education Savings Accounts, qualifying U.S. Savings bonds, Roth IRAs, Traditional IRAs, UGMA/UTMAs and mutual funds. Many Coloradoans choose the 529 plan since your contributions are deductible from your state income taxes. (There are no federal or state taxes on the growth of your 529 plan if the funds are used as intended.) Colorado offers several versions of their CollegeInvest 529 plans, so that decision must be made too (we like the low-cost Direct Portfolio option using Vanguard funds).

There are a number of consequential other factors too such as penalties for not using these funds for college. Additionally, there are some special considerations for grandparents. Fortunately you don’t have to figure this out on your own. Guidepost Financial Planning is able to help you with this and all other aspects of your financial planning. Please visit our website or give us a call at 970.419.8212 so that we can discuss your financial goals in a no-charge, no-obligation initial meeting.

Posted in College, Saving | Tagged College, Colorado State University, CSU, saving

IRA Rollover Rules Change in 2015

By Arlen T Olberding, CFP® on February 1, 2015

As a refresher, IRA rollovers are simply the transfer of funds from a retirement account such as a 401(k) into an IRA, or an IRA-to-IRA transfer. There are three ways to accomplish this rollover or transfer:

Direct rollover – The administrator of your account may issue your distribution in the form of a check made payable to your new account. No taxes will be withheld from your transfer amount.
Trustee-to-trustee transfer – This is an institution-to-institution transfer. No taxes will be withheld from your transfer amount.
60-day rollover – If a distribution from an IRA or a retirement plan is paid directly to you (or a check made out to you), you can deposit all or a portion of it in an IRA or a retirement plan within 60 days. Taxes will be withheld, so you’ll have to use other funds to roll over the full amount of the distribution.

It’s the 60-day rollovers that are changing in 2015. Simply put, the IRS will enforce a one-rollover-per-year rule. This means that you can make only one rollover from one IRA to a new IRA in any 12-month period, regardless of the number of IRAs that you own.

The most important exception to this new rule relates to any rollovers made in 2014. Such rollovers will not prevent a 2015 distribution from being rolled over provided the 2015 distribution is from a different IRA than was involved in the 2014 rollover. Also, the following situations are exempt from this new rule:

Trustee-to-trustee transfers between IRAs are not limited
Rollovers from traditional to Roth IRAs (“conversions”) are not limited.

It’s still safest to do a direct rollover or a trustee-to-trustee transfer unless you need a “60-day loan” from your IRA. When 60-day rollovers are done, you’ll need to be cautious about early distribution penalties if you’re under age 59 ½ and required minimum distributions if you’re over 70 ½.

The good news is that you don’t have to sort this out on your own. Guidepost Financial Planning is able to help you with this aspect of your financial planning. Please visit our website or give us a call at 970.419.8212 so that we can discuss your financial goals in a no-charge, no-obligation initial meeting.

Posted in Retirement Planning, Taxes | Tagged fee-only, Fort Collins Financial Planner, IRA, retirement planning, RMD, Taxes

Retirement Planning for CSU Employees

By Arlen T Olberding, CFP® on November 3, 2014

CSU employees do not pay Social Security taxes. Because of this, employees are not eligible for Social Security benefits (see the exceptions discussed below). Because your earnings from CSU are not covered under Social Security, employees are mandated to participate in one of the following retirement programs:

• Colorado Public Employees Retirement Association (PERA)

• The Defined Contribution Plan (DCP)

• Colorado Student Employee Retirement Plan (SERP)

One of these plans will serve as your “Social Security replacement” when you retire.

An important special case is those employees who have had many years of service outside of CSU. They may have accumulated enough credits to qualify for Social Security benefits. In this situation, a law called the Windfall Elimination Provision (WEP) reduces the amount of Social Security that you can receive. AARP explains the intent of WEP as follows, “people who got both a pension from non-Social Security work and benefits from Social Security-covered work were enjoying an unfair ‘windfall’ due to technicalities of how benefit amounts are calculated.”

Another factor comes into play if your spouse is eligible for Social Security benefits based on your work history, In this case, your university pension may affect your spouse’s benefits. A law called the Government Pension Offset (GPO) covers this situation.

To complicate things a bit more, CSU employees can avoid the WEP-based Social Security benefit reduction if they withdraw their contributions and interest before they are eligible to receive such a pension. The Social Security Administration clarifies the importance of the withdrawal date as follows, “if you withdraw your contributions and interest after you are eligible to receive such a pension, SSA treats the withdrawal as a lump-sum pension and your Social Security benefit is subject to the WEP. It makes no difference whether you are working in Social Security-covered or non-SS-covered work before you are eligible for your Social Security benefit. The rule turns on whether you are eligible for the pension from the non-SS-covered work.”

As usual, there are a number of details that vary from person to person. The good news is that you don’t have to sort all of this out on your own. Guidepost Financial Planning has experience advising CSU employees on their retirement plans and other financial matters and we’re located right here in Fort Collins. Please visit our website or give us a call at 970.419.8212 so that we can discuss your financial goals in a no-charge, no-obligation initial meeting.

Posted in Retirement Planning | Tagged Colorado State University, CSU, Fort Collins Financial Planner, retirement planning

Variable Annuities – Beware!

By Arlen T Olberding, CFP® on October 7, 2014

Variable annuities are insurance products. These contracts are marketed by insurance companies as investments. However, due to fees, surrender charges, tax issues and limited investment choices, annuities should be avoided if possible.

Generally, two versions are offered: immediate and deferred. With immediate annuities, you give the insurance company a lump sum of money and they promise you an income stream for your lifetime or for the life of both you and your spouse. With deferred annuities, your money is invested in a mutual fund-style account until you either withdraw it or annuitize it.

You’ll find that most financial advisors who are paid a commission (brokers and fee-based financial advisors) strongly recommend variable annuities. Unfortunately, the reason for this often has more to do with the high commissions that they are paid rather than what is best for you. Fee-only financial advisors typically do not recommend variable annuities.

Why do fee-only financial advisors stay away from these types of investments? In short, there are almost always better investments available. Some of the negative aspects of annuities include high fees (2-4%); disadvantageous tax consequences on withdrawal; long surrender periods (typically 7-20 years where you pay a penalty for withdrawing funds) and the lack of a step-up in basis for your non-spousal beneficiary.

Are there any times when annuities make sense? As I noted, generally there are better investment options. However, immediate annuities may make sense for a small number of people who feel the need for a guaranteed income stream (beyond Social Security and/or employer pensions) or who are pretty certain that they’ll live longer than an average person.

You can always purchase a variable annuity if you determine that it’s right for you, but you’re pretty locked in once you do. Therefore, it makes a lot of sense to review your situation with an independent, fee-only financial advisor before you make a move. Guidepost Financial Planning can help you sort through your options. Please visit our website or give us a call at 970.419.8212 so that we can discuss your financial goals in a no-charge, no-obligation initial meeting.

Posted in Fundamentals, Investing, Retirement Planning | Tagged fee-only, Fort Collins Financial Planner, fundamentals, retirement planning

Reasons to Delay Social Security Payments

By Arlen T Olberding, CFP® on September 12, 2014

In this article, I want to share some information on the benefits of waiting to begin Social Security. Industry research has confirmed that most retirees benefit from delaying Social Security payments. There are, of course, reasons why people don’t do this even though it might benefit them to do so. Some simply need the money now rather than later. Some have health issues which cause them to think they might not live to a very old age. And some have a bird-in-the-hand philosophy.

You can start receiving reduced benefits as early as age 62. However, the size of your monthly payments increases the longer you wait up until age 70. If you can wait until age 70, your monthly benefits will increase by 76% (compared to claiming at age 62). Couples have even more options by coordinating their start dates. I described a scenario that’s useful for many couples in a previous article entitled Reasons to Delay Social Security Payments.

If you’re able to wait, here are some of the reasons that delaying payments often makes a lot of sense. First, there are the higher monthly payments that I mentioned. Another very important reason to wait is that doing so will increase the chances that you’ll have enough income should you live to a ripe old age. Running out of money is a top concern of retirees and delayed Social Security can really help out here. Another reason to wait is that research has shown that Social Security returns are superior to annuities, bonds and equities in many ways. Finally, delayed Social Security benefits can help protect you against increased inflation and down markets. The very things that your other investments are not immune from.

Outside of these when-to-start considerations, Social Security payments can change if a divorce occurs or when a spouse dies. Guidepost Financial Planning can help you sort through your options. Please visit our website or give us a call at 970.419.8212 so that we can discuss your financial goals in a no-charge, no-obligation initial meeting.

Posted in Retirement Planning | Tagged retirement benefits, retirement planning, social security

The Role of a Financial Advisor When a Spouse Dies

By Arlen T Olberding, CFP® on August 8, 2014

Hopefully you are reading this article prior to the death or incapacitation of your spouse. If your spouse has recently passed away, please accept our sincere condolences.

Numerous organizations have offered helpful suggestions for coping with the loss of a loved one. One that is repeatedly mentioned is well summarized by CancerCare when they say, “Wait to make major life-changing decisions. While you are grieving, it is hard to bring clear judgment to major life decisions. If you can, wait to make these kinds of decisions until your feelings of grief are less intense.” While this period of cloudy thinking varies, it is not uncommon for it to last at least a year.

But, how do you avoid major decisions when you need to deal with Social Security, life insurance policies, IRAs, estate matters, tax preparation, bill payments, cash flow management and other pressing financial decisions? Worse yet, what if your spouse mainly handled these matters?

This is one of the advantages of starting a relationship with a financial planner before these inevitable life events occur. Starting now gives you time to develop confidence in your advisor. It also permits him to become familiar with your financial situation and to suggest estate planning and other steps that the two of you can take to be prepared.

Guidepost Financial Planning would be honored to help you with this difficult and important part of your life. Please visit our website or give us a call at 970.419.8212 so that we can discuss your financial goals in a no-charge, no-obligation initial meeting.

Posted in Estate Planning, Fundamentals | Tagged estate planning, Fort Collins Financial Planner, fundamentals

Retirement Account Bankruptcy Protection

By Arlen T Olberding, CFP® on July 7, 2014

In 2005, a set of Federal bankruptcy law amendments added protection of retirement accounts from creditors. However, a few weeks ago, the U.S. Supreme Court unanimously ruled that inherited individual retirement accounts are not protected.

What this means is that your own IRAs and other retirement accounts are protected from creditors while you are alive. If a spouse is your beneficiary, they can move these assets into their own IRA and close the inherited accounts. These assets are then protected from creditors.

A non-spousal beneficiary cannot move the assets to their own IRA account. Therefore, the IRAs and other retirement accounts that they inherit are not protected from creditors. Further, this lack of protection from creditors is not limited to bankruptcy proceedings. Any creditors potentially have access to inherited IRAs and other retirement assets since they have no legal protections. For example, these assets are at risk in the case of a major accident, negligence or other legal claim on assets.

We might immediately think that this is bad and that we need to take some action to protect our children and other non-spousal beneficiaries. While this is possible, such actions complicate things and cost money. So, it might be best to first ask ourselves, how much does this really matter? For example, how likely is it that significant IRA assets will remain after both you and your spouse have died. Also, how likely is it that your children or other non-spousal beneficiaries will find themselves in bankruptcy?

If you think your estate needs protection in this area or have other estate planning questions, Guidepost Financial Planning can help you analyze your situation. Please visit our website or give us a call at 970.419.8212 so that we can discuss your financial goals in a no-charge, no-obligation initial meeting.

Posted in News | Tagged Fort Collins Financial Planner, IRA