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Do You Really Need This Insurance?

By Arlen T Olberding, CFP® on October 1, 2021

Some insurance is certainly essential to our financial health. This normally includes health insurance, auto insurance and homeowner’s or renter’s insurance. Often it also includes long-term-care insurance and personal liability umbrella insurance. Business owners need additional coverage. However, there are several types of insurance that just aren’t worth the money for most of us. Here’s a quick overview of them.

Extended warranties and service contracts. This type of insurance seems to be offered more and more frequently. Buying an appliance, some electronics, etc.? You’ll certainly be offered a chance to sign up for some type of product-protection insurance. Almost always, you’re better off keeping that insurance money in your pocket and mentally reserving it for the infrequent product problems that can come up. The exception to this might be people who make a big-ticket purchase like a new appliance and who are fairly risk adverse. For them, the peace of mind might be worth it.

Pet insurance. For many of us, we’re better off self-insuring for pet care. We simply pay out of pocket whenever we visit the vet or have an emergency. On the other hand, vet bills are getting bigger and bigger. Should you decide to get pet insurance, there are three tiers of coverage. Tier 1 covers accidents. Tier 2 covers accidents and illness. Tier 3 covers accidents, illness and wellness. The cost typically ranges from $20-$80/month/pet. That’s $240-$960/year/pet. So, for a two-pet family, the insurance comes in at around $2,000/year for tier 3 coverage. If you put aside $2,000 per year to cover future needs and just pay for vet visits as needed, you are likely to come out ahead.

Flight accident insurance. This used to be fairly popular, but most people skip it nowadays. Most of us have other insurance (health and life) that should cover things if disaster strikes.

Wedding insurance. There are two basic types of wedding insurance – cancellation/postponement and liability. You should already be in fairly good shape on liability if you own a personal liability umbrella policy as noted above. On cancellation, it must be said that most weddings occur pretty much as planned. Should major problems come up, and if some peace of mind will help you enjoy the big day, maybe you should consider it. $225 policies can provide up to $25,000 in coverage. If you decide to get some coverage, be sure to read the fine print as coverage varies and restrictions are common.

Smartphone insurance. Okay, you just shelled out hundreds of dollars for a new smartphone and the salesperson wraps things up by offering phone insurance. This is probably an item that you can self-insure for. Just mentally put aside the cost of the insurance and if problems come up, consider them prepaid with the insurance premiums you saved.

Identity-theft insurance. It seems like we regularly see news stories about people having their identities stolen. So you might be thinking about identity-theft insurance, especially since it’s not very expensive (around $50/year). However, there are laws that protect you from excessive financial harm when your identity is stolen. The key is to report the theft immediately to your financial institutions.

Laptop insurance. This is another form of an extended warranty. And as we noted above, it’s seldom worth it. Average repair costs for laptops and iPads is $100-$150. That’s about the price of a year of insurance, so for most of us, we’re better off keeping these premiums in our pocket.

Travel and trip cancellation. If you’re taking a trip to visit family or something simple like that, trip insurance is probably overkill. However, if you’re planning a 6-month, around-the-world cruise that costs a ton of money, insurance might be worth it. The key is to figure out what your nonrefundable deposits add up to and see if you want to self-insure for that amount or if you want insurance coverage. Trip insurance is typically 5-10% of the total cost of the trip, so it’s not cheap. Also, airlines typically let you reschedule for a reasonable fee. Finally, some credit cards offer some degree of coverage when they’re used to pay for the trip. If you chose to buy this insurance, be sure you read the fine print so you know what’s covered and what isn’t

Rental car collision. Generally, you don’t need this – despite the hard sell that many rental agents use. For most of us, our existing personal automobile insurance covers any car that we drive. In addition, many credit cards provide some level of coverage if they’re used to rent the car.

Of course insurance needs vary from person to person. And there are other types of insurance (accidental death and dismemberment insurance, mortgage life insurance, cancer insurance, etc.) that you may be considering. If you’d like to go over your situation, or any other financial matter, we can discuss this in a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual 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 Insurance

Top Reasons to Become Debt-Free

By Arlen T Olberding, CFP® on September 1, 2021

For most of us, debt is a necessary part of life. It’s the only way we can afford big-ticket items such as a home. Unfortunately, many of us get too attached to using debt to obtain things we want (but may not actually need). So, how bad is this, really? Well, studies have shown that too much debt can affect our financial health, our mental and physical health and our relationship with our partner and with others. In short, it’s best to minimize or even eliminate debt. In this article, we’ll take a closer look at some of the reasons for eliminating debt.

Improve Financial Health

Less debt can improve our financial health in a number of ways. For starters, lower debt frees up money that can be used for other things. We can save for retirement or college. We can save for a dream vacation. We can save for an emergency and a rainy-day fund. Beyond that, less debt can raise our credit rating which lowers the cost of borrowing. So, less debt really does improve our financial health.

Help Your Mental and Physical Health

Less debt can actually lower the stress in our lives and that’s a very good thing. Lower stress can reduce anxiety and help us feel positive about life. As stress goes down, our energy goes up which makes it possible to be our best self. So, when we’re not stressed out, we feel better about ourselves and life in general. And that’s a very good thing. You’ve probably read about the mind-body connection – how one affects the other. It’s no surprise then that we’re better off with less stress. Reduced stress strengthens our immune system and that can keep us healthy. Lower stress can lower our blood pressure which is good for our cardiovascular system. So, less debt can reduce stress which can improve both our mental and physical health.

Strengthen Relationships

Less debt can help you feel relaxed. Your relationships will be smoother – including with your partner and your kids. This will reduce problems at work. And that’s got to be good. In terms of your partner, money troubles are a primary issue cited in many divorces. And who wants to hurt their own kids? It goes without saying that it’s probably not a good idea to antagonize your boss either. So, for all these reasons, life will be better and relationships will be smoother when you have a feeling of well-being.

Naturally, everyone’s situation is different, but some of the things we’ve discussed are pretty common. I’ve written before about dealing with debt, about reasons to eliminate credit card debt and about lowering your mortgage. I suggest you read over these articles and if you’d like to discuss your own situation, we can discuss it in a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

Posted in Fundamentals

Document Retention

By Arlen T Olberding, CFP® on August 1, 2021

Who hasn’t wondered how long we should keep various documents? Keep them too long and it becomes unwieldy and makes it hard to find what you want. Don’t keep them long enough and you may not be able to respond to the tax man or some other authority. Is an electronic copy good enough or do we need hard copy? What’s the best way to get rid of documents we no longer need? There are many documents that you should keep for at least some time. We’ll take a look at some of the more common ones in this article.

Taxes
Retention Rules. The rules on this are reasonably straightforward. Here’s a chart from the IRS:

For most of us, 3 years is probably a pretty good retention period. On the other hand, who knows what the IRS may want to look at. So, unless item 6 applies to you, a 6-year retention period seems like a pretty safe bet.

That covers Federal tax returns, but how about your state returns? There is variation from state to state on this. Colorado, for example, is 4 years from the date you file your return or the date it is due — whichever is later.

Electronic or Hard Copy? Either.

What to Keep? You probably already have an idea which documents might be useful during an IRS audit since you needed those items to prepare your return. Naturally you’ll want to be able to verify your income (W-2, 1099, K-1, etc.) and expenses (invoices, receipts, cancelled checks, etc.). If you itemize you may have additional documents (charitable contributions, medical expenses, etc.).

Home Ownership
This is really an important special case of taxes. The price you paid for your home is its basis. The difference between that and the amount you receive when you sell it is the capital gain. It used to be that the entire gain was taxable, but you could reduce the gain by documenting all qualifying improvements that you made. This was pretty cumbersome, so the IRS now allows the first $250,000 of gain to be tax-free for individuals and the first $500,000 for joint filers. If your gain is higher than that, you may want to document at least major improvements (new addition, etc.) You should also keep the property’s abstract, title, appraisals, deed and all closing documents as well as receipts for major improvements. Mortgage documents, including the certificate you’ll receive once you pay off the mortgage, are also important.

Retention Rules. The same rules as for your taxes.

Electronic or Hard Copy? Either.

IRA
This is another important special case of taxes. Contributions to your IRA may include deductible or nondeductible funds. (This is typically based on your income in the year the contribution was made.) Naturally contributions of nondeductible funds become part of your IRA basis and are not taxed upon withdrawal. The best way to track your IRA basis/nondeductible contributions is to file Form 8606 each year that you make such a contribution.

Retention Rules. Until all of the funds have been distributed to you or your heirs.

Electronic or Hard Copy? Either.

Power of Attorney
Hopefully each of you has a medical and financial power of attorney document. This is used by your agent to take care of financial and healthcare decisions while you’re still alive, but unable to make such decisions yourself. Healthcare directives are useful in communicating the kinds of medical treatments you do or do not want to receive.

Retention Rules. As long as you are alive.

Electronic or Hard Copy? Original hard copies. Keep originals where your agent can access them. That means they should not be in a safe deposit box.

Estate Documents
As with Powers of Attorney, you should have your estate documents in order no matter what age you are and no matter how healthy you are. (The pandemic has certainly taught us that things can change very quickly.) Of course your key estate document is your Last Will & Testament. It tells your agent (executor) how to dispose of your assets. Trust documents are often part of your estate plan too.

Retention Rules. Until your estate is completely settled.

Electronic or Hard Copy? Original hard copies. Keep originals where your agent can access them. That means they should not be in a safe deposit box. (It’s interesting that your Will often grants access to your safe deposit box and if your Will is kept in the safe deposit box, it will be difficult to gain access!)

Protecting Documents
If your documents are kept as hard copies, the most important ones might be kept in a safe deposit box at your local bank. See Power of Attorney and Last Will & Testament exceptions to this. POAs and Wills might be kept in a safe at home (should be fire, water and theft resistant). Bulkier documents like 3-7 years of tax records and the supporting paperwork are often stored at home. This also makes the annual destruction of the oldest records and the addition of the newer records easier. People have different approaches to this. Many feel that the likelihood of record loss and an IRS audit are low and they just keep one copy at home. Others want more protection so they create an electronic copy of such documents to act as a backup. For electronic record keeping, it’s important to be sure the copy is legible. The other significant consideration is a good backup in the event that your primary copy is lost or damaged. Cloud services are one option for this if you’re comfortable with this important information being in the hands of others. You could also make a copy onto some storage device like a memory stick or DVD and place that in your safe deposit box. If you use this method, remember to update the offsite copy whenever important new documents occur.

Document Destruction
Hard copies can simply be run through an in-home shredder. Electronic copies can be deleted. However, you should know that even after deletion, the documents may still be present of the disk drive. So, it’s important to use some type of file wipe software to totally remove the files.

Of course document retention plans vary from person to person. If you’d like to discuss your situation, or any other financial matter, we can discuss this in a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

Posted in Estate Planning, Fundamentals, Taxes

How to Recognize and Address Cognitive Impairment

By Arlen T Olberding, CFP® on July 1, 2021

Many of us have experienced our own “senior moments.” Where are the car keys? Why did I come into this room? What’s the name of that person? Most of these memory lapses are a normal part of life and are very manageable. On the other hand, cognitive impairment can progress to a point where it’s difficult to live independently. It’s been reported that more than 16 million people in the United States are living with cognitive impairment and age is the greatest risk factor. As the Baby Boomer generation passes age 65, the number of people living with cognitive impairment is expected to jump dramatically. An estimated 5.1 million Americans aged 65 years or older may currently have Alzheimer’s disease, the most well-known form of cognitive impairment; this number may rise to 13.2 million by 2050.

What is cognitive impairment? Cognitive impairment is when a person has trouble remembering, learning new things, concentrating, or making decisions that affect their everyday life. Cognitive impairment ranges from mild to severe. With mild impairment, people may begin to notice changes in cognitive functions, but still be able to do their everyday activities. Severe levels of impairment can lead to losing the ability to understand the meaning or importance of something and the ability to talk or write, resulting in the inability to live independently

How to Recognize Cognitive Impairment. Cognitive impairment is not caused by any one disease or condition, nor is it limited to a specific age group. Alzheimer’s disease and other dementias in addition to conditions such as stroke, traumatic brain injury, and developmental disabilities, can cause cognitive impairment. A few commons signs of cognitive impairment include the following:

Memory loss.
Frequently asking the same question or repeating the same story over and over.
Not recognizing familiar people and places.
Having trouble exercising judgment, such as knowing what to do in an emergency.
Changes in mood or behavior.
Vision problems.
Difficulty planning and carrying out tasks, such as following a recipe or keeping track of monthly bills.

How to Address Cognitive Impairment. Dealing with cognitive impairment can be extremely tricky since none of us want to give up our decision-making independence. Family members can be very helpful in recognizing a problem and arranging resources to assess your health. Other people who you interact with regularly may be able to see cognitive changes over time.

As with many things in life, the best way to prepare for cognitive impairment is to act while you’re still healthy. Normal estate planning documents are the core of this preparation. In particular, healthcare power of attorney and financial power of attorney documents help others help you when you’re not able to make good decisions for yourself. A financial power of attorney authorizes some trusted person (such as a spouse, family member, etc.) to conduct your financial affairs while you’re unable to do so. Additionally, it makes good financial sense to prepare for long-term healthcare costs – which can be very significant. (See my previous article on this.) Finally, having a team of professionals who are familiar with you and your financial situation can really help. This might include your CPA, your attorney and your investment advisor.

If you’d like to sit down and talk about cognitive impairment, or any other financial matter, we can discuss this in a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

Posted in Estate Planning, Fundamentals, Retirement Planning

Common Issues Found in Estate Planning Documents

By Arlen T Olberding, CFP® on June 1, 2021

You don’t have to be a skilled estate planning lawyer to spot an issue that should be addressed in your estate planning documents. Here are some common areas you can review for potential changes.

No Documents Hopefully none of you are in this situation, but if you are please begin your estate planning soon. Indeed, the pandemic should have taught us all that there’s not always time for estate planning in the future. If you don’t create an estate plan, the state will decide who gets what and the estate taxes may well be higher than necessary.

Significant Life Changes Often there are major life events (marriage, divorce, new child, moving to a new state, etc.), which affect your documents in many ways.

A new child may or may not require updated documents if you already had provided for children in your wills or revocable trusts. If the current documents don’t contemplate additional children, failure to revise them could be a disaster.

A major change in financial position might require new planning documents. For example, one scenario is if your estate was so small at the time of the initial estate planning that it used simple outright bequests instead of trusts for heirs. Meaningful growth in wealth should be accompanied by a new plan and appropriate documents.

Moving to a new state (change in domicile) requires creating new documents under the new home state law.

Were documents updated after a marriage or a divorce? While that may seem so obvious that it might be hard to forget it happens and it can be a disaster.

Incorrect Beneficiaries Imagine going through the effort of having an estate plan only to accidentally leave assets to an ex-spouse, a deceased person, the trust of a child who is now a capable adult and so forth. This is worth keeping an eye on as the years pass by and situations change.

Aging A younger person might view a living will (statement of healthcare wishes) as more theoretical, and not give it the thought it deserves. That same person two decades later may think much more deeply about the decisions that now feel like they’re approaching more rapidly. Documents should be updated to reflect that evolution.

A younger person might rely on a simple durable power of attorney to address disability. For an older person, a more robust revocable trust may be prudent. A younger person might have a lot of term insurance to protect children. Alternatively, the older person might have a permanent need for life insurance for estate liquidity or asset transfers.

Document Age When legal documents are old, they can be viewed as stale, so third parties like banks may be reluctant to accept them. Also, as documents get old it’s more likely that relevant laws or circumstances have changed. It’s probably good to check documents roughly every 7-10 years.

Major Changes in the Law If the federal estate tax exemption is $11.58 million in 2020 and the exemption drops to $3.5 million in the future, you may need an estate planning checkup.

A new exemption amount is not the only change that could lead you to suggest recommending an estate planning review. Even if an estate is currently valued at less than the new exemption amount, inflation or investment growth can increase an estate’s value. Also, The SECURE Act was enacted at the end of 2019. Among other things, it eliminated the Stretch IRA which allowed beneficiaries to withdraw funds over their expected lifetime. Now, most beneficiaries must withdraw these funds within ten years. Yet many people haven’t considered whether the beneficiary designations for their retirement plans should change.

Organization and Coordination The world’s greatest trust document may not mean much if the assets you think are in the trust were never properly transferred to the trust.

Many times, there are loans between family members, family trusts or entities. Have those loans been corroborated with a written signed note agreement and has interest been paid regularly? Does your CPA or financial planner have copies of your estate documents in their permanent file?

Overall, there are numerous vital issues to understand regarding estate planning documents and plans. But be careful of overlooking something. Be certain to collaborate with all of your advisors to avoid the risk of missing a key issue, or misunderstanding a nuance of the planning.

Other Documents Often, beneficiaries are named outside of your will. This can include life insurance, home ownership, investment accounts and so forth. It’s easy to overlook such items when creating an estate plan, but really they are a very important part of the overall plan.

Incorrect Representatives The best estate planning can go off the rails if you haven’t selected the right representatives. While you’re still alive, the key representatives include the person who handles medical decisions when you can’t and the person who handles your financial matters when you can’t. After your death, the key person is the executor. They will administer your estate — including the payment of final expenses and taxes, asset distribution and so forth. If you have an existing estate plan, the representatives you initially named may no longer be suitable. Professionals who you named (CPA, attorney, etc.) may have retired or even died. Perhaps your children are now adults and you can ask them to assume some of these roles. So, it’s apparent that this is a crucial aspect of your estate plan.

If you’d like to sit down and talk about your estate, or any other financial matter, we can discuss this in a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

Posted in Estate Planning

The History of Money in America – Part 2

By Arlen T Olberding, CFP® on May 1, 2021

Last month, I posted the first part of this article. It talked about the origins of money, money in the colonies and money used during the revolution. It also included the first part of our use of money after the revolution. That’s where we’ll pick up the story this month…

Post-Revolutionary Coins – Part 2

The Coinage Act of 1792 specified that all coins have an “impression emblematic of liberty,” the inscription “LIBERTY,” and the year of coinage on the obverse side. The Act required that the reverse of gold and silver coins have a representation of an eagle and the inscription, “UNITED STATES OF AMERICA.” The only requirement of copper coin reverses was to list the denomination of the coin, although a wreath became the standard design until the 20th century. Later Acts were responsible for changing the inscriptions and elements that we recognize on our coins today.

The face of Lady Liberty appeared on our circulating coins for more than 150 years. When considering options for our first coins, Congress debated over whether to feature George Washington and later presidents. Many believed that putting the current president on a coin was too similar to Great Britain’s practice of featuring their monarchs. Instead, Congress chose to personify the concept of liberty rather than a real person.

The figure of Liberty, often with a cap and pole, had been a symbol used during the American Revolution. Because of Liberty’s origins as a Greco-Roman goddess, early coin designs portrayed her with classical style clothes, facial features, and symbols.

In 1909, Abraham Lincoln replaced Liberty on the penny. Presidents then appeared on other denominations: the quarter in 1932; the nickel in 1938; the dime in 1946; the half dollar in 1964; and finally, the dollar in 1971. Liberty last appeared on a circulating coin in 1947 in the final year of the Walking Liberty half dollar.

The bald eagle appeared on the reverse of gold and silver coins, often as a heraldic eagle modeled after the Great Seal of the United States. The heraldic eagle with wings spread clutched an olive branch in one talon and arrows in the other with a shield in front. Sometimes stars and clouds appeared above the eagle to symbolize America as a new nation.

The eagle has endured longer than Liberty on our circulating coins, still appearing on the Kennedy half dollar today. The Buffalo nickel was one of the first coins to deviate from the traditional eagle or wreath designs by featuring an American bison on the reverse. Since then, Congress sometimes authorizes new reverse designs to commemorate certain events or places, such as the Lincoln Bicentennial One Cent Program, the Westward Journey Nickel Series, and the America the Beautiful Quarters Program.

Post-Revolutionary Currency

After the Revolutionary War, currency had kind of a bad name and coins were preferred. In fact, Article I of the Constitution gives the government the right to coin money and made no mention of printed paper money. Nonetheless, a number of different currency approaches were tried. Mainly this consisted on bank notes issued by individual states. As you might imagine, this was pretty out of control with over 8,000 entities issuing their own currency. The Republic of Texas had its own currency and, of course, the Confederacy issued its own money. (An interesting footnote to the Confederate currency is that George Washington and Andrew Jackson were pictured on some of their bills as these men were former slaveholders.)

To try and bring order to this financial chaos and to raise money for the Civil War, President Lincoln, along with his Treasury Secretary, Salmon P. Chase, conceived the national banking system and the Office of the Comptroller of the Currency to regulate and supervise it.

On February 25, 1863, President Lincoln signed The National Currency Act into law. The Act established the Office of the Comptroller of the Currency (OCC), charged with responsibility for organizing and administering a system of nationally chartered banks and a uniform national currency. In June 1864, the legislation underwent substantial amendment and became known as the National Bank Act. One of the objectives of this Act was to get state banks to convert to national charters. Not every state bank converted, so congress slapped a 2% tax on state bank notes (which increased over time). This proved very effective and by 1885 over 80% of bank funds were in national banks. However, state banks weren’t throwing in the towel and their creation of demand deposits (savings and checking accounts are examples of demand deposits) resulted in them having more depositors than the national banks within 10 years. Modified and supplemented over the years, the National Bank Act continues to provide the basic governing framework for the national banking system today. This system is referred to as the dual banking system since national and state banks coexist.

Through the National Bank Act, Congress sought to achieve both short- and long-term goals. One crucial objective was to generate cash desperately needed to finance and fight the Civil War. After prospective national bank organizers submitted a business plan and had it approved by the OCC, they were required to purchase interest-bearing U.S. government bonds in an amount equal to one-third of their paid-in capital. Millions of much-needed dollars flowed into the Treasury in this manner.

But the national banking system was also designed to achieve longer-term economic goals. Under the new system, the purchased bonds were to be deposited with the Treasury, where they were held as security for a new kind of paper money: national currency. Bearing the name of the issuing national bank and the signatures of its officers, these notes were otherwise identical in design, size, and coloration. Anyone holding a national bank note could present it for redemption in, gold or silver coin, at the issuing bank or at reserve banks around the country. If, for whatever reason, the issuing bank was unable to meet the demand for cash redemption, the system was set up so that the government could sell the bank’s bonds and pay off the noteholders directly.

Once accepting and holding national currency became essentially risk-free, it gained in public confidence and circulated throughout the nation. This represented a marked improvement over the pre-Civil War money supply, which had involved thousands of different varieties of paper money issued by local banks, rampant counterfeiting, chronic uncertainty about the value of paper money, and, as a result, difficulty conducting private business.

Over the years, the government has issued multiple types of bank notes including Federal Reserve Notes, Silver Certificates, Gold certificates and United States Notes. Federal Reserve Notes replaced National Bank Notes, which national banks issued from 1863 to 1935, and are what we use today.

I hope you enjoyed the conclusion of this brief overview of the history of our money. If this has gotten you thinking about your own personal wealth, we’d be glad to sit down and talk about your financial matters in a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

Posted in Money

The History of Money in America – Part 1

By Arlen T Olberding, CFP® on April 1, 2021

Investors commonly think about their wealth in terms of money. We say that a person is worth so much money even if their actual assets are stocks, bonds, real estate, commodities or whatever. Their value is assessed in dollars which makes it very easy to convert from one asset type to another or to transfer assets from one person to another. In this article, we’ll take a look at the history of money – in the United States in particular. (For convenience, I’ve divided the material into two parts. The second part of the story will appear next month.)

The Origins of Money

Before we had money, people swapped one asset for another – maybe a cow for some grain. However, this was cumbersome and complicated in that the person with the cow needed to find someone with grain who wanted a cow. Maybe a third party needed to become involved so that the cow could be traded for a wagon which could be traded for the grain. It worked, but you can see how much easier life is today with money.

The history of money is actually pretty interesting. Coins came first. The Zhou dynasty in China had something called spade money around 1000 BC. The first manufactured coins seem to have appeared separately in India, China and the cities around the Aegean Sea in about 700 BC. It is believed that all modern coins are descended from the coins that appear to have been invented in the kingdom of Lydia in Asia Minor somewhere around 700 BC. Disk-shaped coins followed and spread throughout Greece. They were made of gold, silver, bronze or imitations thereof, with both sides bearing an image produced by stamping — one side is often a human head.

The Colonies

Okay, fast forward to the American colonies. Barter certainly still had a role. Who hasn’t seen a movie where French trappers are exchanging blankets, beads or even weapons for beaver skins? The colonists tried various kinds of money. This included British money (which was in very short supply) and notes based on mortgaged land. It’s an interesting historical footnote that the most common coin in the colonies for a while was the Spanish pieces of eight.

During the Revolution

These approaches got us by until the revolution began. Then we needed our own form of money. Enter Continental currency (1775-1790). It coexisted with state issued currency and with British supplied counterfeit bills which were used as a form of economic warfare. By the end of the war, the Continental currency became so depreciated that the saying “it’s not worth a Continental” was in common usage.

After the collapse of Continental currency, Congress appointed Robert Morris to be Superintendent of Finance of the United States. Morris advocated the creation of the first financial institution chartered by the United States, the Bank of North America, in 1782. The bank was funded in part by bullion coins loaned to the United States by France. Morris helped finance the final stages of the war by issuing notes in his name, backed by his personal line of credit, which was further backed by a French loan of $450,000 in silver coins. The Bank of North America also issued notes convertible into gold or silver. Morris also presided over the creation of the first mint operated by the U.S. government, which struck the first coins of the United States — the Nova Constellatio patterns of 1783. So, thanks to Robert Morris!

Post-Revolutionary Coins – Part 1

After the Revolutionary War, the Articles of Confederation governed the country. The Articles allowed each state to make their own coins and set values for them, in addition to the foreign coins already circulating. This created a confusing situation, with the same coin worth different amounts from state to state.

In 1787, after much debate about national coinage, Congress authorized the production of copper cents. Called Fugio cents (designed by Benjamin Franklin), the coins featured a sundial on the obverse and a chain of 13 links on the reverse. However, the following year, a majority of states ratified the Constitution, establishing a new government and creating a new debate over national coinage.

The Coinage Act of 1792 established a national mint located in Philadelphia. Congress chose decimal coinage in parts of 100, and set the U.S. dollar to the already familiar Spanish milled dollar and its fractional parts (half, quarter, eighth, sixteenth). This resulted in coins of the following metals and denominations:

Copper: half cent and cent

Silver: half dime, dime, quarter, half dollar, and dollar

Gold: quarter eagle ($2.50), half eagle ($5), and eagle ($10)

In 1792, during construction of the new Mint, 1,500 silver half dimes were made in the cellar of a nearby building. These half dimes were probably given out to dignitaries and friends and not released into circulation. The Mint delivered the nation’s first circulating coins on March 1, 1793: 11,178 copper cents.

These new cents caused a bit of a public outcry. They were larger than a modern quarter, a bulky size for small change. The image of Liberty on the obverse showed her hair steaming behind her and her expression “in a fright.” The reverse featured a chain of 15 links, similar to the Fugio cent. However, some people felt that it symbolized slavery instead of unity of the states. The Mint quickly replaced the chain with a wreath, and a couple months later designed a new version of Liberty.

Although individual states were no longer authorized to produce coins, legislation temporarily allowed certain foreign coins to continue to circulate until the Mint released enough coins to handle the country’s needs.

Unfortunately, the Mint struggled with putting enough coins into circulation. Copper cents enjoyed relatively stable production, but not in high enough numbers. This was partly due to the rise in the cost of copper. In 1857, Congress discontinued the unpopular half cent and made the cent smaller to cut back on the amount of copper needed.

Coinage of silver and gold coins started in 1794 and 1795. But at first, these coins didn’t circulate. The Coinage Act of 1792 set the ratio of silver to gold at 15:1, which was different than the world market. U.S. gold coins were undervalued compared to silver, so they were exported and melted. Silver dollars were also exported for use in international trade or stored as bullion.

During the early 19th century, depositors such as banks supplied the silver and gold for coining and chose which coins they wanted back. Their preference was for the largest denominations of each metal. The Mint rarely coined the smaller denomination silver coins – half dimes, dimes, and quarters – needed for daily transactions.

In an effort to bring gold and silver coins into circulation, Congress passed various Acts to discontinue the silver dollar and gold eagle, and to change the weight of coins and ratio of gold to silver. With the help of these laws, new coining technology, and the opening of branch Mints around the country, production increased. Smaller denominations entered circulation in great enough numbers to provide for the country’s needs. Finally, with the passage of the Coinage Act of 1857, Congress banned foreign coins as legal tender.

To be continued…

I hope you enjoyed the first part of this brief overview of the history of our money. Next month we’ll wrap up our look at coins and get into the fascinating history of currency after the American Revolution. If this has gotten you thinking about your own personal wealth, we’d be glad to sit down and talk about your financial matters in a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

Posted in Money

Saving vs. Investing

By Arlen T Olberding, CFP® on March 1, 2021

Many of the things we’d like out of life require the accumulation of wealth over time. Our first home, a new car, college for the kids, money to use should we lose our job and planning for retirement are common examples. There are two high-level approaches to collecting enough wealth to meet such needs. These are saving and investing. In this article, we’ll take a closer look at when to use which approach.

Saving

Saving involves cash or very liquid assets that will be needed in the relatively short term (within 3-5 years) or at unknown times (to cover emergencies). Saving involves putting money into a savings/money market account, CD or other very liquid and very safe investment. We save for things such as the down payment on our first home, a new car, money to tide you over if you become unemployed and appliance repairs or replacement.

Investing

Investing involves ownership of an asset that we hope will increase in value over time (5 years and beyond). Investing involves putting money into stocks, mutual funds, bonds and similar assets. Investments offer the potential for higher returns and also the risk of substantial loss. We use investments for things such as college and retirement.

Returns

Currently, online savings accounts have interest rates in the 0.5% range. By way of comparison, the market went up about 16% in 2020. In 2019, it was up about 30%. So why not always invest: Because in 2008, the market was down 37%. So, while it’s true that the market averages about 9% gain per year over time, it will also go up and down over time. That’s why investments should always be for a longer period of time.

Getting Started

Generally, savings come before investments. This is a generalization and doesn’t apply 100%, but it’s a good guiding concept. While our goals may vary, a typical person might organize their saving and investment program as follows. First, establish rainy-day and emergency savings accounts to be prepared for the unexpected. Second, pay off high-interest-rate debt. (This will free up money over time that you can save or invest to achieve your other goals.) Third, invest in your employer’s 401(k) fund if they contribute to the plan. (This return is hard to beat and you it puts time on your side as you accumulate the large sums that retirement requires.) After that, strategies vary based on your personal goals. Many people want to save for their first home. Families typically need to invest to accumulate the substantial sums needed for college.

If you’d like to sit down and talk about your saving and investment goals, or any other financial matter, we can discuss this in a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

Posted in Investing, Saving

Saving 101

By Arlen T Olberding, CFP® on February 1, 2021

If you’re just starting out in life or maybe never established a regular saving habit, this article is for you! Many of our goals in life can only be achieved by saving for them. They’re simply too expensive to come up with the required funds on the fly.

The Keys to Saving

The #1 key to saving is to get started. Really, it’s that simple and that hard. It’s simple because putting aside $100 or whatever per paycheck is not difficult. It’s hard because it’s a new habit and humans often have trouble with changes. Another key to saving is to pay yourself first. That means, don’t save if there’s money left, but rather take your desired savings off the top and then do your other spending. Another key is to automate your savings. Maybe have your paycheck direct deposited and then use automatic transfers to immediately move the target savings into the appropriate accounts.

Common Savings Goals

Obviously each of us wants different things out of life and therefore need a personalized plan. Nonetheless, it’s common for many of us to want to own a home, send our kids to college, retire comfortably, get through a layoff (your emergency fund), replace your roof after a hail storm (your rainy day fund), take a nice vacation, replace your vehicle from time to time and so forth. Each of these goals can best be realized by saving for them.

How Much to Save

This is fairly easy to figure out. We simply determine the funds required for each goal and the timeframe for needing them. Maybe we want to take a monster vacation in two years that costs $15,000. Okay, so $15,000/24-months says we should be saving about $625 per month. Too rich for your budget, then maybe switch from a 5-star to a 3-star resort or push it out to three years. Each goal can be analyzed in this way to determine your overall savings goal. Maybe you can’t afford the total amount you come up with. That’s good to know! You can prioritize your savings goals and remember to use windfall income (bonuses, inheritance, etc.) and raises at work to increase your savings rate. No matter what the situation looks like, remember to get started.

Retirement

I dedicate this section to retirement because it requires such a large amount of money. How much you’ll need varies from family to family. However, we have found that when you start makes a big difference on how much you need to save monthly/yearly. If you’re a younger reader, that means time is your friend. You can save less per year because there’s more time for it to grow before you retire. In general, you should be saving at least 10% of your gross income for retirement at 65. A final thought on this is to remember to fund your 401(k) (or its equivalent) first if your employer offers matching funds. This situation simply offers the best rate of return due to the matching funds.

If you’d like to sit down and talk about your savings goals, or any other financial matter, we can discuss this in a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

Posted in Saving

2021 Tax Law Changes

By Arlen T Olberding, CFP® on January 1, 2021

Well, it’s finally a new year. I know we’re all hoping it will be better than 2020! As you make your plans for 2021, one of the things to take note of is the change in contribution limits and other tax changes.

401(k)
Let’s start with 401(k) contributions, since that’s a retirement fund that I view as a high priority — especially if your employer does contribution matching. Most things remain unchanged this year. That means the maximum contribution is $19,500 and the annual catch-up limit is again $6,500 for those age 50 or older. The one change is the total contribution made by employees and employers. That increased from $57,000 to $58,000 (plus the $6,500 catch-up contribution if you’re eligible). The same rules apply to 403(b) and most 457 plans.

IRA
For both traditional and Roth IRAs, there are no changes this year. That means the contribution limit is $6,000 with an additional $1,000 catch-up contribution for those 50 and older.

Tax Rates
Marginal tax rates have not increased although the tax brackets have been raised a bit. Here are the rates for single filers for 2021:

37% for incomes over $523,600 ($628,300 for married couples filing jointly)
35% for incomes over $209,425 ($418,850 for married couples filing jointly)
32% for incomes over $164,925 ($329,850 for married couples filing jointly)
24% for incomes over $86,375 ($172,750 for married couples filing jointly)
22% for incomes over $40,525 ($81,050 for married couples filing jointly)
12% for incomes over $9,950 ($19,900 for married couples filing jointly)
10% for incomes up to $9,950 ($19,900 for married couples filing jointly)

Standard Deduction
The standard deduction for those who do not itemize increased to $12,550 for singles filers and $25,100 for married couples filing a joint return.

Estate Taxes
Estates will be exempt from Federal taxes up to $11,700,000. The limit in 2020 was from $11,580,000.

Required Minimum Distributions
RMDs were suspended in 2020, but they’re back in 2021. So, anyone who turned 70 ½ on or before December 31, 2019 must make this withdrawal from their retirement accounts. If you reach 70 ½ after then, you can delay your RMD to the year you reach 72.

Naturally there are other changes in the tax laws and there are a lot of details as to what applies to whom. So, if you’d like to discuss how the 2021 tax rules affect your situation, or any other financial matters, we can discuss this in a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.

Posted in News, Retirement Planning, Taxes

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The History of Money in America – Part 2

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Saving vs. Investing

Saving 101

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