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Financial Navigation During the Pandemic

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

The coronavirus pandemic continues and certainly will do so through at least the end of the year. While this is an unprecedented period for almost all of us, there are some well-known things we can do to successfully navigate our way through it. I’ve summarized a few of them below.

Watch Cash Flow. This is not the time to dig yourself into a financial hole. Cash flow has two parts: income and expenses. Naturally, the goal is to have income exceed expenses.

Expenses. If you currently track your expenses, congratulations! If you don’t, why not use the enforced at-home time to start doing so? Once you’ve collected a little expense history, you can pretty easily set up a rough budget. With this information you can better control expenses. For example, with your expense history, you’d probably see some items such as entertainment and travel drastically reduced. On the other hand, you’d probably see an increase in grocery expenses due to delivery charges and/or increased internet spending. Having a handle on things lets you adjust your lifestyle in near real time.

Expense Relief. This deserves its own section because there is so much help available during this pandemic. Banks are cutting consumers some slack on loans, same for credit card payments and student loans (payments can often be suspended through the end of September). Just go to the appropriate website and see what’s available.

Income. Sources of income will vary depending on your particular situation. If you’re still working, your paycheck is normally the biggest component. If you’re retired, social security, pensions, RMDs and investments provide most of your income sources. If you’re unemployed, you might have unemployment insurance (including the $600 added-benefits check from the government) and hopefully you have a rainy-day fund to help get you through this. And, of course, many of us received the $1,200 COVID-19 relief check through the CARES Act.

Scam Alert. The scammers are super active right now trying to take advantage of the crisis. It seems like I get several emails a week asking me to click here to reactivate my Amazon account or to verify my banking information. You know the drill on this, but just increase your caution for now. The FTC has actually provided some specific scam warnings:

Don’t respond to texts, emails or calls about checks from the government. Here’s what you need to know.
Ignore offers for vaccinations and home test kits. Scammers are selling products to treat or prevent COVID-19 without proof that they work.
Be wary of ads for test kits. Most test kits being advertised have not been approved by the FDA, and aren’t necessarily accurate.
Hang up on robocalls. Scammers are using illegal robocalls to pitch everything from low-priced health insurance to work-at-home schemes.
Watch for emails claiming to be from the CDC or WHO. Use sites like coronavirus.gov to get the latest information. And don’t click on links from sources you don’t know.
Do your homework when it comes to donations. Never donate in cash, by gift card, or by wiring money.

Donate. Even though you need to watch out for scammers, this is a wonderful time to support your favorite charities if you’re in a position to do so. More and more people need help during these difficult times.

Buy Locally. This is a tough time for many companies – large and small. If you can find your items locally, why not help keep our businesses afloat? If you aren’t able to go out yet, ask the business if they offer delivery.

Invest in Yourself. Maintaining your finances is certainly important, but don’t forget to also maintain yourself and your family. A top priority in this area should be exercise. You don’t need to go to the health club to stay fit. If you have some home equipment, dust it off and start riding (or whatever). Take a walk (wearing a mask and social distancing where appropriate). Eat healthy food. Being at home may provide the time to prepare your own meals – and they can be very tasty! Attend to significant medical problems – maybe your doctor offers virtual appointments. Limit your consumption of bad news. Check what’s going on, but don’t live on your phone or laptop all day. Maintain social contacts – remotely. It might be dangerous to get together in person, but many of us have more free time to call (or FaceTime) family and friends.

If you’d like to further discuss managing your finances during the pandemic or have other financial questions, we’d be happy to discuss things 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 Fundamentals, News

Using Credit Cards Wisely

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

During the coronavirus stay-at-home and safer-at-home periods, many of us have been buying groceries and other necessities on the internet using our credit cards. This has reminded me that it might be a good time to review some of the basics for the use of credit cards.

Fully Pay Card Debt Each Month. It’s important to use your credit cards wisely. The thing that I stress is that it’s best to pay off the balance in full each month. Paying in full avoids interest payments which are notoriously high for credit cards. Paying in full also helps to ensure you are spending less than you earn since carrying a balance on a credit card is a red flag for overspending. If your card offers an automatic-payment feature, just select the pay-in-full option. Carrying credit card debt is not only costly, but it can also adversely affect your credit score. For example, one factor in calculating your credit score is the ratio of total debt to available credit. If you are not able to pay the entire balance monthly due to short-term income issues, you should always make at least the minimum payment to avoid penalties and higher interest rates.

Keep an Eye on Charges. Another best practice is to monitor your credit card statements looking for errors and fraudulent behavior. Minimally, you should carefully review your monthly statement. Better yet, review your statement online weekly or biweekly to look for problems.

Get the Right Card. You probably already have one or more credit cards. However, it might be worthwhile to review whether it’s the best card for you. These days, many companies offer some kind of a premium for having their card. For example, some cards offer airline travel points or cash back or a discount at the issuing company. It’s good to see which benefits best suit your needs and whether they’re worth the annual fee that is often charged. If these premiums aren’t useful to you, it’s probably best to search for a no-annual-fee card. Certainly the interest rate and the late-fee charges are important considerations too.

Don’t Cancel All of Your Cards. You might think that it’s a good idea to cancel all your infrequently-used cards to simplify things. That sounds good, but can actually damage your credit score. The reason is that the denominator of the debt-to-credit ratio is the total of all of your credit card limits. Closing a card reduces that denominator which increases the ratio. I do want to emphasize that it’s important to not think you can improve your credit score by taking out a bunch of credit cards all at once to increase the ratio’s denominator. This is because the credit agencies’ models frown on taking out cards too frequently so this will actually hurt your credit score. Also, your length of credit history is important to your credit score. So you should consider keeping your oldest card.

Immediately Report Card Loss. One final credit card tip that is hard to overemphasize is to promptly report the loss of a credit card. This will allow the credit card company to freeze your account before someone tries to make fraudulent purchases and will also help protect you against having to pay fraudulent charges should any occur.

Naturally the optimal use of credit cards depends on your individual circumstances. For example, you may be part of the large unemployment population right now. In this case, you need a strategy which tides you over rather than one that might be textbook perfect. Whatever you situation, we’d be happy to 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

Using the Pandemic as a Catalyst for Financial Change

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

As I write this article, Colorado is transitioning from stay-at-home to safer-at-home rules. We’ve had almost 24,000 coronavirus cases and over 1,300 coronavirus deaths, our unemployment rate is currently about 11.3% and our older citizens or those with health risks are still advised to stay at home. So, while we’re trying to find the right balance between safety and an acceptable economy, life will continue to be very different — at least until sometime into 2021.

Lately, I’ve been thinking about how these difficult times can act as a catalyst for change. Many of us have a new appreciation for our health. We have an increased respect and appreciation for our healthcare providers, for our grocery workers, for our delivery infrastructure and for the millions of other people who are keeping us going. We also have an increased awareness of the value of financial preparedness.

What are some of the key financial lessons that we might learn (or be reminded of) during these times? One thing that comes to mind for me is perspective or maybe priorities. It allows us to compare the importance of having the latest luxury item with having enough to eat and having the ability to pay the rent or the mortgage. It reminds us of the importance of setting our goals and then pursuing them. For example, I’ve written before about the importance of a rainy-day fund to help us get through unexpected financial challenges. If you don’t have such an emergency fund, this is a reminder to start one for next time. Since we’re spending so much time at home together, we’re afforded an opportunity to have frequent family discussions about our finances – what to spend our perhaps constrained money on right now. The speed with which this pandemic overtook us reminds us to review our life insurance and get our estate in order sooner rather than later. The stock market dive has reminded us of the importance of portfolio diversification. What lessons we take away from this once-in-a-lifetime experience will vary, but each of us will benefit from some financial reflection before life gets back to its usual fast-paced speed.

I know that how we deal with this situation depends on whether we’re unemployed, still working or retired. If you’d like to discuss the details of your situation, we are offering a no-charge, no-obligation initial meeting that can be arranged by calling us at 970.419.8212 or by visiting our website. Meetings can be in person or conducted over the phone.

Posted in Fundamentals, News

2020 RMD Waived

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

As part of the recently enacted Coronavirus Aid, Relief, and Economic Security Act (CARES Act), required minimum distributions (RMDs) from IRA, 401(k), 403(b) and other qualified retirement plans are waived for 2020. If you don’t need the cash this year, this law will allow you to avoid withdrawing funds when the market is down substantially.

If you’ve already taken your 2020 RMD, the law allows you to roll it over into an IRA within 60 days of the RMD withdrawal. One tax note on this, when you took your RMD, your brokerage firm withheld the associated state and Federal taxes. If you roll over the RMD, you’ll be “repaying” the gross amount and the taxes can’t be reclaimed. For example, suppose your RMD withdrawal was $70,000 and your combined state and Federal taxes were $14,000. When you withdrew the $70,000, you actually received $56,000 and $14,000 was submitted to the government. When you roll over the RMD, you’ll want to pay the full $70,000. You can reduce your estimated tax payments by the $14,000 that was withheld or you can get the money back when you pay your 2020 taxes if a refund is due.

Some people are not subject to the 60-day repayment rule. They include those who contracted coronavirus, have a spouse or dependent who contracted the virus or have experienced adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury.

There are a few details associated with this RMD waiver that may apply to you such as the ability to move your RMD into a Roth IRA account. If you’d like to discuss how the CARES Act affects you or review any other financial questions that you may have, please visit our website or give us a call at 970.419.8212 so that we can discuss your situation in a no-charge, no-obligation initial meeting.

Posted in News

Coronavirus

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

We’re sure all of our readers are very familiar with the coronavirus pandemic that the world is experiencing. You’ve been told to wash your hands, don’t touch your face, practice social distancing (or in some cases, isolation) and so forth. As we write this article, Larimer County has 101 confirmed cases (61 of which are in Fort Collins) and 5 deaths (2 in Fort Collins). Recently, both Larimer County and Colorado have issued stay-at-home orders.

Businesses have been asked to do their part in combating this pandemic. The Colorado stay-at-home order requires many businesses to close. Among the exceptions to this are “financial institutions including services related to financial markets.” As a result, we are open, but are limiting our hours in the office. We are available via phone and email during regular business hours. The in-person office hours are by appointment and our normal hours are M-F from 9-5.

We’ve heard repeatedly from medical experts that our personal behavior is the single-most-important way to manage the coronavirus. Often we have no idea whether we carry the disease or not. If we do carry it and if we ignore the medical advice, we risk spreading the virus which may cause our hospitals to be overwhelmed, put our elderly and at-risk neighbors in jeopardy and endanger our health-care providers.

We are offering a no-charge, no-obligation initial meeting if you’re concerned about the stock market, your portfolio or any other financial matter. Please visit our website or give us a call at 970.419.8212 so that we can discuss your situation.

Posted in News

Retirement Accounts & Taxes

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

You probably already know that there are several common ways to save for retirement. These include 401(k) and IRA accounts. What you might not be as familiar with, is how these various retirement vehicles are taxed. There are four concepts in the taxation of retirement accounts. First, some accounts allow you to invest money without paying any taxes on the invested principal (at least up front). Second, some accounts allow the investment to grow without paying taxes on the growth (at least prior to withdrawals). Third, some accounts offer tax-free distributions. And finally, some investments offer none of these tax advantages – all funds are taxed. Stock market investments are an example of this. Let’s take a brief look at the first three situations.

Tax-Deductible Contributions. Traditional retirement accounts such as 401(k) and traditional IRA accounts are good examples of this. You lower your gross income by the amount invested. The investment grows on a tax-deferred basis. You pay ordinary income taxes when you withdraw. There are rules that limit the size of your annual investments, penalties if you withdraw funds before age 65 and distribution requirements (RMDs) starting at age 72 (that’s a new age beginning in 2020).

Tax-Deferred Growth. Tax-preferred retirement accounts offer tax-deferred growth. This includes 401(k)s, traditional IRAs, Roth IRAs and non-qualified annuities. In these accounts, your investments grow without having to pay any taxes (for most traditional investments). For traditional IRAs, 401(k)s and non-qualified annuities, taxes are paid at ordinary income rates upon withdrawal. For a Roth IRA, withdrawals are tax exempt and penalty exempt if you’re at least 59½ years old and you’ve had a Roth IRA for at least 5 years.

Tax-Free Distributions. As noted in the previous section, retirement-account taxes are paid upon withdrawal with the single exception of Roth IRAs. This can provide a very attractive source of tax-free retirement income.

How your retirement investments are taxed can guide where you invest your retirement dollars. However, there are other important considerations too. For example, many companies match your 401(k) contributions up to some limit. Often, the match is 100%. No tax break can match an immediate doubling of your investment. Also, there are limits as to how much you can invest in most of these vehicles which cause people to use multiple approaches. Additionally, some tax benefits are not available to taxpayers who have a significant income. Traditional IRAs are an example of this.

In addition to the above considerations, there are other investments such as Health Savings Accounts (HSAs) and 529 college savings plans which offer tax advantages. (Indeed, HSAs are the only plans that offer all three of the tax advantages described above: tax-deductible contributions, tax-deferred growth and tax-free distributions.) If you’d like some help mapping out the right retirement-account strategy for your situation or if you want to review any other financial questions that you may have, please visit our website or give us a call at 970.419.8212 so that we can discuss your situation in a no-charge, no-obligation initial meeting.

Posted in Retirement Planning, Saving, Taxes

What Does the New SECURE Act Mean to Your Retirement?

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

Congress has recently passed new legislation that probably affects your retirement plans. It’s called the Setting Every Community Up for Retirement Enhancement (SECURE) Act. It became effective January 1, 2020. The Act is meant to help more people better prepare for retirement. A summary of the Act follows.

Delayed RMDs. Until now, Required Minimum Distributions had to begin in the year you turned 70½. This legislation allows you to begin RMDs in the year you turn 72. This change recognizes that people are living longer. (Note that if you turned 70½ in 2019, you’re subject to the old rules. This means you must begin RMDs in 2019.)

Elimination of Stretch IRAs. For many of us, this is a negative aspect of the new law. Previously, non-spouses could withdraw from an inherited IRA over their own lifetime. The new Act requires beneficiaries to withdraw all of the IRA funds within a 10-year period. Withdrawals need not be equal, but the entire IRA amount must be withdrawn no later than year 10. Spouses, minors and a few others are exempt from this change.

Better Small Business 401(k) Access. The law makes several changes that make it easier for small businesses to offer 401(k) plans. The highlights include:

Increased Tax Credit. The Act increases the small business tax credit from $500/year to $5,000/year over the first three years of the plan. This will offset many of the startup costs.
Multiple Employer Plans. MEPs allow small businesses to pool their resources under a single plan which should lower per-company overhead.

Improved Part-Time Worker 401(k) Eligibility. Until now, part-time workers needed to log 1,000 or more hours per year (about 20 hours/week) to be eligible for 401(k) plans. This has been reduced to 500 hours/year (over 3 consecutive years).

Elimination of IRA Age Restrictions. Prior to the Act, people 70½ or older could not contribute to their IRA. This restriction has been eliminated for any earned income up to the normal contribution limits. (As a reminder, you’ve always been able to contribute earned income at any age to your Roth IRA.)

Penalty-Free Birth or Adoption Withdrawals. You can now withdraw up to $5,000 per person ($10,000 for couples) from your retirement account (IRA, 401(k), etc.) to help pay the expenses for a new birth or child adoption. This avoids the normal 10% penalty for early withdrawal.

Lifetime Income Disclosure Statements. If you have a 401(k) plan, you know that you receive periodic statements of the current value of your investments. Under the Act, plans must now tell you how long your investment would last if you should choose to purchase an annuity.

401(k) Annuities. The new law reduces an employer’s liability when offering an annuity plan in a 401(k) portfolio. This enables a company to add annuities to their mutual fund and other investment options. Annuities can now be rolled over when moving from one 401(k) plan to another. (In general, we aren’t big fans of annuities. Please see our 2014 article on this.)

There are more details on this legislation and the IRS has yet to issue any guidance on it, so additional information is advised. If you’d like to discuss how the SECURE Act affects you or review any other financial questions that you may have, please visit our website or give us a call at 970.419.8212 so that we can discuss your situation in a no-charge, no-obligation initial meeting.

Posted in News, Retirement Planning

Financial Resolutions for 2020

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

Let me start out by wishing you a Happy New Year! There’s no better time to think about your financial resolutions for the coming year than January. This gives you the full twelve months to pursue these objectives.

401(k) Plan. I’ve said it before and I’ll say it again, fully funding your 401(k), 403(b) or 457 plan is my top financial recommendation for the new year. And why wouldn’t it be? It’s a tax-deferred investment which decreases your income and therefore decreases the taxes that you owe. Also, many employers match your contribution, so not investing up to their maximum match just leaves money on the table. In 2020, the contribution limit increases from $19,000 to $19,500 per person. Additionally, the catch-up contribution limit for employees aged 50 and over who participate in these plans is increased from $6,000 to $6,500.

IRA Plans. The limit on annual contributions to an IRA remains unchanged at $6,000. The catch-up contribution limit for individuals aged 50 and over remains at $1,000. For many of us, this is another good way to reduce our taxes and increase our retirement savings.

Unused Services. What better way to increase your income than to not spend money on things you really don’t use. Start out the new year by inventorying the services you’ve signed up for – especially those that are on automatic payments. You can learn more about this by reading A Hidden Expense: Subscription Services.

Planning for the Loss of Your Spouse. Since we don’t know when our spouse might die or become incapacitated, I strongly recommend that people prepare for this now rather than later. Check out Financial Preparation for the Loss of a Spouse to get some ideas on this.

Reduce Credit Card Debt. You may know that credit card debt carries one of the highest interest rates of any type of loan. So, a great resolution is to really try to eliminate your credit card debt this year. A previous article, Another Reason to Eliminate Credit Card Debt, will give you some ideas on this.

Save for College. Sure, the kids are still little, but college is expensive and it’s so helpful to start saving as early as you can. You can get some ideas on this by reading Saving for College.

Review Insurance. It’s a great idea to review your insurance coverage to be sure you’re properly protected. Is your total life insurance adequate? Does your home owners insurance cover the current (appreciated) value? Should you look into some type of long term care protection?

Portfolio Diversification. It’s important to check your portfolio diversification at least annually. It is likely that some sectors grew more last year than others and your target investment profile may be off. This can increase your investment risk as you’ll be too susceptible to market changes.

Rainy Day & Emergency Funds. These are the very liquid investments you need to cover future surprise expenses. While you don’t know exactly what they will be, you are pretty certain that they will occur. Check out this article for some tips on setting up this important investment.

Review Your Budget. Hopefully you’re using some form of budgeting to manage your expenses. January is a terrific time to see how you deviated from last year’s budget and to adjust your goals for the coming year.

I hope that this list of financial resolutions has given you some ideas for your 2020 goals. If you’d like some additional help with any financial questions that you may have, please visit our website or give us a call at 970.419.8212 so that we can discuss your situation in a no-charge, no-obligation initial meeting.

Posted in Fundamentals

Financial Preparation for the Loss of a Spouse

By Arlen T Olberding, CFP® on December 1, 2019

You can lose your spouse in a number of unpredictable ways. Certainly death is a certainty at some point, but incapacitation and divorce are other examples of the loss of a spouse. The effect of such a loss on you is magnified if your spouse handled many of your financial matters on his or her own.

It’s really advisable to begin preparing for this loss now. Even if you’re young, such losses can occur at any time in life. I typically recommend that spouses have a monthly meeting to review finances. Hopefully that ensures that both spouses have a reasonable idea of their affairs if something were to happen. You can prepare for such meetings by thinking about the things that your spouse takes care of and that you’d have a hard time picking up if he or she suddenly died. You might also read a previous article on this topic to help you generate some ideas. Some common things to talk about are listed below. As you begin sharing information, it’s important to somehow capture it in a printed or electronic format. Be sure that both of you know where this information is kept and that you also alert your executor in the event you both die at the same time.

Professional Help. First, if you have professionals who know your situation, go to them to get all the help they can provide. Not only can they fill in some of your knowledge gaps, but they can also partially protect you from making poor decisions while your judgment is clouded with grief. Such professionals can include your financial advisor, your tax professional, your estate attorney and your spouse’s executor (although for many couples, this may be you).

Assets. Not only is this generally useful information, but you’ll need immediate access to cash to pay bills and meet other financial requirements. This part of the conversation includes such things as where the assets are, what the ownership arrangements are (joint tenants in common, individual ownership, etc.) and access information (such as passwords for online accounts).

Bills. It’s good to have an understanding of routine bills and how they’re paid. This may include bills that are automatically paid out of a checking account or by a credit card. If these things are not jointly owned, they may stop working. Also, credit card information needs to be updated from time to time to account for things such a new expiration date.

Life Insurance. You should file for benefits so that they’ll be paid out in a timely manner.

Social Security. Contact Social Security promptly so that they can make the necessary benefits adjustment. It will help to know your spouse’s Social Security number when doing this.

Health Insurance. Contact your provider promptly to eliminate payments that are no longer required for your spouse. If you’re on Medicare, contact them and also contact your supplemental insurance provider if you have an Advantage or similar enhanced insurance plan.

Safe Deposit Box. Often, many important documents are kept here and it’s a good place to check early on. If you don’t both have access to your safe deposit boxes, you should correct that to avoid having them sealed during probate. This might be a good place to keep the original copies of your wills and powers of attorney. Also your home deed/mortgage, car titles and other important documents could be centralized and protected in your safe deposit box.

Wills and Medical and Financial Powers of Attorney. For many couples, the surviving spouse has the powers of attorney and becomes the executor at the time of death. These documents should be in a known location that can be accessed by both spouses. Some couples use the safe deposit box for this and others prefer to keep such documents in a safe location at home. Some do both.

If it’s hard to find the time to get started on this, just imagine your situation if you lost your spouse tomorrow. What are some of the things you’d have trouble handling on your own? If you’d like some help thinking about this very important topic, we’d be happy to help you think this through. Please visit our website or give us a call at 970.419.8212 so that we can discuss this important topic in a no-charge, no-obligation initial meeting.

Posted in Estate Planning, Fundamentals

Commission-Free Investments

By Arlen T Olberding, CFP® on November 1, 2019

You may know that Guidepost Financial Planning uses TD Ameritrade as its broker. They execute your trades, hold your securities and provide insurance on your investments. They’ve always been a low-cost brokerage house, but a couple of weeks ago they eliminated base commissions for online exchange-listed U.S. stock, ETF (domestic and Canadian), and option trades—moving from $6.95 to $0.00. (Option trades will now have only a $0.65 per contract fee with no exercise or assignment fees.) This is actually an industry trend. Charles Schwab and Interactive Brokers led the way on this with TD Ameritrade following suit one week later. Fidelity and E*TRADE are expected to eliminate commissions too.

How much will this mean to you? Well, it depends on your portfolio and the frequency of your trades, but you can get a feel for the total dollars involved when you learn that TD Ameritrade previously derived about 15% of its revenue from commissions — and dollars that don’t go into their pockets stay in yours!

Zero-commission ETFs (Exchange-Traded Funds) make a lot of sense. Examples include Vanguard ETFs and SPDR ETFs. For many investors, ETFs are an important part of their portfolio. They’re basically baskets of assets (like mutual funds) that are traded exactly like stocks (unlike mutual funds). No commission is certainly a good thing for investors, but don’t forget that ETFs have various other fees (similar to mutual funds, but generally lower). These fees vary, so it’s important to understand them when picking a specific ETF.

These non-commission expenses still need to be scrutinized to maximize the return on your investments. If you’d like some help thinking about the best way to benefit from the new commission-free structure, we’d be happy to help you think this through. Please visit our website or give us a call at 970.419.8212 so that we can discuss this important topic in a no-charge, no-obligation initial meeting.

Posted in Investing, News