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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.

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 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

Year-End Financial To-Do List

By Arlen T Olberding, CFP® on December 1, 2020

Yep, 2020 is almost over. (I know, many of us are saying thank goodness!) There’s so much going on in December that it’s difficult to find time for the important, but none urgent items. Here are a few important financial items that it would be good to take a look at.

Holiday Debt

It’s so easy this year to just click a mouse button and send a gift to someone. This is certainly the time for such things. The caution is that a little budgeting in December, can help you get off to a debt-free 2021. Even if you don’t have a formal budget, you can at least look at your cash flow and savings and think about how much debt you can pay off entirely when the bills roll in in January. You can get some additional ideas on this from my previous article Budgeting for the Holidays.

2021 Budget

Think how much easier it would be to budget for the holidays (and other expenses) if you had an actual budget to refer to. How detailed you want to be in your budgeting process is a personal decision. Some clients have spreadsheets that offer up-to-the-minute expense summaries. Some people still have envelopes filled with cash – one for groceries, one for rent and so forth. My article How to manage expenses in retirement has some good tips whether you’re already retired or not.

Reducing Interest

Why not go into 2021 with a plan to pay down your high-interest debt and minimize you mortgage costs? Credit cards are always worthy of debt retirement because their rates are so high. My article Using Credit Cards Wisely includes a discussion of the importance of paying off your debt monthly. A companion article talks about Another Reason to Eliminate Credit Card Debt. In terms of your mortgage, the interest is always a significant expense, so it’s well worth keeping an eye on rates which are still historically attractive. My articles Reducing Your Monthly Mortgage Payment and Should I Refinance My Home? Can help you evaluate this.

Finances and Your Spouse

Do you and your spouse regularly sit down and discuss finances? This can help align your goals, reduce financial tensions in your marriage and prepare each of you to take over if one of you is incapacitated or dies. I recommend scheduling a monthly meeting on this subject for next year (and beyond). How about just agreeing to go over things the first Sunday of every month over brunch or something enjoyable? Here are a few articles to get you thinking about these meetings: Talking Money with Your Partner, Financial Preparation for the Loss of a Spouse and The Role of a Financial Advisor When a Spouse Dies.

Savings

Unless you’re struggling with a job loss, you may have been able to save a little more in 2020. Maybe you had a staycation. Maybe you didn’t go out to eat or catch a movie. Maybe you didn’t hit the stores so much (or at all). Whatever your situation, it makes sense to look at the dollars you didn’t spend and consciously target them toward specific goals. Maybe increased retirement savings if your employer reduced his contributions. Maybe replenish your rainy-day or emergency funds if you had to use them this year. Whatever your savings goals are, unspent 2020 money is an opportunity for you.

Financial Advisor

It’s always a good idea to have an expert go over your plans with you and discuss any potential revisions. (Or maybe even develop your first formal plan.) You might check out my article The Value of a Financial Advisor to get some ideas. The key thing is to make an appointment to do this now. Whether you actually get together before or after the holidays is not that important. The important thing is planning to do this.

I really encourage you to find some time to consider these suggestions. They’ll make your financial success in 2021 so much brighter. No matter which topic you want to drill down on, 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 Fundamentals

Comprehensive Financial Planning

By Arlen T Olberding, CFP® on November 1, 2020

Your financial well-being depends on a number of factors and they’re all important. For example, suppose you don’t properly understand how much you need for retirement and you consequentially run out of funds near the end of your life. Or, suppose your savings are on track, but that a major medical event or a liability lawsuit depletes your savings. Or, maybe you haven’t reviewed your investments for a while and your asset allocation is now not what you planned for and a fall in the market leaves you overexposed. There are numerous examples of why it’s important to do comprehensive financial planning from time to time. The figure below identifies the areas that are typically covered in such a review. Let’s take a brief look at each area.

Cash Flow. Some people have substantial investments, but they’re not liquid enough to meet current expenses. When discussing cash flow, it’s common to go over emergency savings, reducing credit card and other high-rate debt, making sure that income can cover essential expenses and a developing a spending plan.

Insurance. Many of us think primarily of health insurance when insurance comes up. That is important – especially catastrophic health insurance. However, life insurance, disability insurance, liability insurance and long-term care insurance are vitally important too. Covering all of your insurance needs can give you peace of mind and protect your hard-earned investments.

Tax Planning. Naturally the goal of tax planning is to minimize your taxes so as to retain as much of your income as is possible. Last month I wrote an article on tax planning that you might like to review. During a tax-planning discussion, it’s typical to talk about your various sources of income and the tax-deferred investment options that might fit into your portfolio.

Retirement Planning. In retirement planning, you estimate your retirement expenses and plan out how to save enough to cover them. In addition to identifying savings targets, you’ll typically review IRAs, employer plans (401(k), 403(b), etc.) and deferred compensation. Finally, a review of Social Security, pensions and other income sources round things out.

Investments. Investments are, of course, at the heart of your financial plans. Reviews in this area typically include asset allocation, tax efficiency, diversification and the impact of the economy on financial markets.

College Funding. If you’ve got kids (or maybe grandkids), this can be a very important topic considering the cost of higher education. Discussions often include your current savings for college, ways to accumulate the desired funds (such as the use of 529 plans) and how to pay off any loans after graduation.

Estate Planning. This discussion includes much more than how much you want to leave to whom — which is typically covered in wills and trusts. It also covers healthcare directives, final arrangements, how best to title your assets and any legacy contributions you hope to make.

Other Goals/Planning. The previous categories cover most of the important topics, but there may well be some other areas that are specific to your situation. These might include purchasing a second/vacation home, travel plans, how to handle inheritance and other sudden-wealth situations and so on.

I hope you can see the importance of a comprehensive financial review. We can get you started on this or discuss other 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 Fundamentals

Tax Planning 2020

By Arlen T Olberding, CFP® on October 1, 2020

Believe it or not, we’re about three months from the end of the (calendar) tax year. However, there’s still time to lower your 2020 taxes. Here are some commonly used approaches to reducing taxes.

Lower Your Income via a Tax-Deferred Savings Plan

Tax-deferred savings plans let you reduce your Adjusted Gross Income by the amount that you contribute AND they help you prepare for retirement. The most common savings plans are 401(k)s and traditional IRAs. You can check out an article on this that I wrote back in March. Briefly stated, you can reduce your income by the amount you contribute — subject to contribution limits, your current age and, in the case of IRAs, income levels. A bonus is that the growth on these investments is also tax-deferred until withdrawals begin (usually in retirement).

Find Deductions

Tax deductions reduce the amount of income used to calculate your taxes. Some common deductions for working individuals include: mortgage interest, student loan interest, medical expenses, state and local taxes, Health Savings Account contributions and charitable contributions as well as the tax-deferred savings plans discussed above.

Utilize Tax Credits

Tax credits reduce the taxes you owe. Interestingly, they actually have a bigger dollar-for-dollar effect on your tax bill than deductions do. Some common tax credits for working individuals include: child tax credit, child and dependent care credit, earned income tax credit (for those with low or moderate income), savers credit (for those who make retirement plan or IRA contributions and have low or moderate income), plug-in electric vehicle credit and residential energy credit (solar panels) among others.

Watch for Break-Points in Tax Brackets

You probably know that we use a progressive tax system which means that your income is divided into buckets that are taxed at increasingly higher rates. For 2020, the tax rates are as follows for couples who file jointly.

Tax Rate		Income Range
10%		$0 to $19,750
12%		$19,751 to $80,250
22%		$80,251 to $171,050
24%		$171,051 to $326,600
32%		$326,601 to $414,700
35%		$414,701 to $622,05
37%		$622,051 or more

So, if your taxable income (income after deductions and credits) turns out to be $85,000 in 2020, the tax on the first $19,750 is $1,975. The income on the next bracket is $7,260. And the tax on the remaining $4,749 of your taxable income is $1,045. So, it would be good to avoid the higher tax rate on the $4,749 if possible. One strategy is to move that income into next year if possible (called income shifting). To do this, some people are able to defer salary and or bonus payments until the following year. In addition to income shifting, you could revisit your deductions and tax credits. Have you contributed the maximum permissible amount to your 401(k) and IRA? Does your employer offer Flexible Spending Accounts and, if so, have you maxed that out? If you’re itemizing, have you considered increasing your charitable contributions? If you’re unable to itemize this year, you might consider “bunching” your charitable contributions into an every-other-year schedule.

Many of us are facing financial challenges due to the pandemic. Minimizing taxes is one good way of keeping money in your pocket. We’re available to discuss your tax situation or any other 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 Taxes

The Value of a Financial Advisor

By Arlen T Olberding, CFP® on September 1, 2020

We’ve talked before about the value of a financial planner, but the current pandemic has brought certain aspects of this value into sharper focus. One could construct a laundry list of reasons a financial planner can be an important partner, but I really liked a recent Vanguard study that organized these benefits into three categories: portfolio value, financial value and emotional value.

Portfolio Value. Fee-Only financial planners can help you create additional wealth. With the creation of an investment plan, an advisor can assist in growing your assets to meet your financial goals and to help insulate them from the ups and downs that we must expect. They will also help you focus on net return – that is, taking fees, taxes and other costs into account to maximize what stays in your pocket. In its study, Vanguard found that working with an advisor can add up to 3% in net returns, particularly for taxable investors.

Pandemic Perspective. All three major indices were down 20-35% in March. Ouch! (They have been recovering since with NASDAQ leading the way.) Your advisor should have diversified your investments before the pandemic in order to insulate you from these unprecedented conditions as much as possible. Portfolio value also meant understanding and reacting to changes in income tax rules and as well as to the Required Minimum Distribution rules.

Financial Value. Fee-Only financial planners can help protect your wealth. They help you set goals and develop plans to meet those goals — such as saving for college, retirement and for any estate aspirations. They aid in controlling expenses through spending plans and debt management. And, they can help protect your wealth from catastrophes through things like life insurance, liability insurance and health insurance.

Pandemic Perspective. For some of us, a job loss profoundly affected income. Hopefully you had a rainy-day fund to help you through tough times. Even if you didn’t, this is a great reminder to start building one for next time. For the rest of us, income was probably affected in one way or another such as by decreased investment returns. With reduced income, some of us faced increased debt levels. It’s nice to have an advisor who’s familiar with the various debt-relief programs that are being offered. Some companies and institutions have decreased or even suspended their retirement savings contributions. For those who can, it’s been important to increase our personal contributions to stay on track for retirement. If you or a family member did contract coronavirus, healthcare costs were a major concern and hopefully you were covered by a good insurance plan.

Emotional Value. Fee-Only financial planners can help by reducing the anxiety of financial ups and downs that are simply part of life. A fiduciary advisor (if he or she is a Certified Financial Planner ^TM)should help reduce some of your financial worries as they are required to act in your financial best interests.

Pandemic Perspective. The emotional value of having a financial advisor during these times is huge. It’s so reassuring to have someone who has seen the ups and downs before and who can reassure you that things will recover. It lets you focus on things like how to handle your kids’ schooling and how to go to work safely. And, should your family be negatively affected by COVID 19, it is such a comfort to have an advisor who understands your financial situation and is there to help.

These are tough times and we’d like to help you in any way that we can. We’re available to discuss your situation 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, News