Financial Planning In Your Sixties

Posted On September 9, 2018 By Scott Stratton, CFP(R), CFA In Financial Planning /

Investors in their sixties are in a decade of decisions. Up to this decade, you could do very well by putting your saving on autopilot, and doing little more for your portfolio than occasionally rebalancing it. Now, you’re faced with some important decisions, whether you are planning to retire soon or to wait many years down the road.

See: Six Steps at Age 60

1. Social Security. The decision of when to start receiving your Social Security benefits is independent from when you retire from your job. The Full Retirement Age (FRA) today is 66, but you can start early benefits from age 62 on. Or you can delay past FRA, all the way to age 70, and receive an 8% annual increase in benefits for waiting.

Where else can you get a guaranteed 8% increase in benefits? It’s a great deal to wait, even if it requires that you spend down some of your cash. Guaranteed benefits are the best way to offset longevity risk, so maximizing your Social Security can be a great idea if you are healthy and have a family history of long lives. For married couples, there is a survivor’s benefit, which means that the spouse with the higher benefit has essentially a joint benefit. There are a lot of things which people don’t consider about Social Security, and that’s why it’s best to talk to me first.

See: Social Security, It Pays to Wait
See: Guaranteed Income Increases Retirement Satisfaction
See: Social Security Planning: Marriage, Divorce, and Survivors

2. Health Care. Medicare starts at age 6r5. If you retire before 65, you will have to figure out how you will be covered until age 65. And when you do reach age 65, you will sign up for part A, and probably Part B (unless you have proof of employer coverage), and will then need to consider whether a Medicare Supplement or Advantage plan makes sense for you. Again, lots of decisions here, and if you don’t sign up at your “window” at age 65, you may have to pay permanent penalties on Part B when you do enroll.

See: Types of Medicare Health Plans

3. Retirement Age. The most dangerous thing I can hear is “It’s okay, I don’t plan to retire.” There are so many people in their sixties who planned to work for another decade or more and things didn’t work out as planned. Maybe they were laid off, or had a health situation, or their spouse had a health issue, or their employer asked them to relocate. Things change. We can’t assume that we have the ability to maintain the status quo indefinitely by choice. My goal for every sixty-something client is that you work because you want to and not because you have to. So even if your planned retirement age isn’t until sometime after 75, make sure you and your family will be all set financially if you decide to retire earlier.

See: How Much Income Do You Need In Retirement?

4. Withdrawal Strategies. If you are retiring and starting withdrawals from your accounts, you will need to make decisions about how much to withdraw and from which account or assets. If the market goes down, can you withdraw the same amount? What is the most tax efficient way to withdraw from your accounts?

See: Taxes and Retirement

5. Asset Allocation. We typically plan for a 20-30 year retirement period, so even if retirement is close, we are still investing for the long-term. Even so, we want to reduce market risk in the five years before retirement to mitigate the potential impact of a bear market right before you plan to begin withdrawals. After retirement has begun, there is evidence that it may be beneficial to sell your bonds first and not rebalance your portfolio. This would mean that your equity holdings would become a larger weighting in your allocation over time.

See: What Is The Best Way To Take Retirement Withdrawals?

Of course, there are many other decisions which we evaluate in a financial plan, such as whether to take a pension or a lump sum upon retirement. When you are facing these decisions, what you don’t know can hurt you. That’s where I can help you navigate these decisions whether you have already retired, are retiring soon, or have many years before you plan to retire.

Financial Planning In Your Fifties

Posted On August 8, 2018 By Scott Stratton, CFP(R), CFA In Financial Planning /

My hope for every fifty-something investor is that you have by now attained financial independence, where you have enough assets to stop working if you wanted and live off your investments. Most aren’t quite there yet, but if you’re working with me, we have a good idea of your finish line, a quantifiable goal, and the steps needed to get there.

What does scare me is when someone says that they plan to never retire, so this doesn’t matter or apply to them. While it’s natural to wish that time would stand still or that things won’t change, it’s a poor plan to assume that change isn’t going to happen to your life.

I think of a relative who worked for one company for 30 years, until age 59, when they went out of business. He was used to making a certain level of income, which just wasn’t available in his small town, for someone with skills that didn’t easily carryover to other types of business. He was planning to work forever, but it turns out, he wasn’t interested in jobs that paid 50% of his previous salary. He was unemployed for three years, before starting Social Security at age 62.

See: The Boomer’s Guide to Surviving A Lay-Off

For many employees in their fifties and sixties, they want to keep working, but if they lose their job, they discover how tough it is to get another high-paying job in today’s economy. Others leave work due to health issues, or to care for an ailing spouse. The point is that things change. It’s great to work if you want to, but not because you have to. The single-minded goal of every fifty-something investor should be to build their nest egg to where they would be fine if they didn’t work.

1) Prepare your retirement finish line. What size nest egg should you have? At a 4% withdrawal rate, you need 25-times your annual needs. Need $50,000 in withdrawals? Your goal is $1.25 million. Are you there now? How much do you need to save to get there? And while you are at it, download your Social Security statement.

Why 3% withdrawals might be better for retiring early: Can You Retire In Your Fifties?

2) Increase your contributions to catch-up levels. In the calendar year that you turn fifty, you can now contribute an extra $1,000 to an IRA ($6,500 total), and an additional $6,000 to your 401(k) or 403(b) ($24,500 total for 2018). There’s also a $1,000 catch-up for Health Savings Accounts (HSA), but you have to be 55 for the HSA catch-up.

Learn about The Secret Way to Contribute $35,000 to a Roth IRA.

3) While it’s possible to manage debt into retirement, most people are more confident about their finances when they are debt-free before they retire. I’d suggest you avoid creating new debt in your fifties and consider paying your mortgage off entirely.

4) Many of us are going to need some type of long-term care in the future, especially as life expectancy rises with medical advances. Increasingly, in-home care can allow people in their eighties to remain in their home. Why are we talking about this now? The most cost effective time to buy long-term care insurance is in your fifties to early sixties. You can’t wait until you have a need for care, and then apply for insurance. Instead, we ought to look at creating a pool of funds that could provide this care should you or your spouse need it, decades in the future.

5) Rethink Retirement. Some of you will have a traditional retirement, where one day you stop working and never work another day. However, many of you will have a very different “retirement” than your parents. Maybe you change careers, go to part-time, start a business, or find new sources of income. It’s all possible! Let’s figure out how to make it happen.

See: Replacing Retirement With Work-Life Balance.

Financial Planning In Your Forties

Posted On August 8, 2018 By Scott Stratton, CFP(R), CFA In Financial Planning /

In your forties, it’s time to get serious about your money. Let’s take care of business and establish your financial plan. You can create your future. When I meet with people in their sixties, their net worth and retirement preparedness has little to do with their income, but has a lot to do with how consistent they were with their planning and saving in their thirties and forties. So, be the 40 year old that will make your 65 year old self proud.

1. You are behind. Chances are that you have neglected some aspects of your financial planning at this point and many people in their forties are not on a trajectory that will lead to a comfortable future. Some people are only a little behind and just need to add a few things, but others are severely in danger. You still have the potential for significant compounding of your investments so take advantage of the fact that time is on your side.

Here’s a checklist of what you should have:

savings plan of how much to save and where;
a retirement plan that calculates a finish line when you can retire;
an estate plan;
a college funding plan for your kids;
comprehensive insurance for your assets, life, and for unexpected liabilities;
tax strategies to minimize your tax bills;
a disciplined, investment program and target asset allocation.

Catch up: Financial Planning In Your Twenties
Financial Planning In Your Thirties

2. Get Rid of Debt. At this point, you should have a mortgage as your only debt. You should have paid off your student loans, and should be paying your credit cards in full every month. “Living within your means” means you don’t borrow money for furnishings, vacations, or toys.

If you are serious about your financial future, you will recognize that cars are a terrible waste of money. All cars lose about 50% of their value within five years. I see a lot of people who are leasing a Mercedes or driving a new $65,000 truck who tell me they cannot afford to put $400 a month into an IRA. My advice: keep your current car for as long as possible, 100,000 miles or more, then buy used and pay cash.

See: Rethink Your Car Expenses
Should You Get A New Car to Save Gas?

3. Save Based on Goals. In your twenties and thirties, you probably saved based on ability: I can afford to save $300 a month, or, I’ll save 10% to my 401(k). That’s okay to start, but it’s not looking at what is actually needed to accomplish your goals. Maybe you didn’t even have a goal! When your goal is specific, a course of action becomes obvious. If your goal is to pay for four years of tuition at a certain university, we can project how much that will cost and how much we need to save to achieve that goal.

For financial independence, start with your living expenses and apply a 4% withdrawal rate. If you need $60,000 a year to spend, that would require a portfolio of $1,500,000 (4% = $60,000). Now you have a specific goal. How much do you need to save to get to $1.5 million at age 65? Can you do it by 62? Are your investments likely to achieve the return necessary to reach your finish line? Your actions – spending, saving, and investing – should be based on a plan for your goals.

See: Setting Your Financial Goals

4. Family Needs. Increasingly, we are seeing adults who besides having to plan for their own future and their children’s needs are having to help their retired parents with care or financial support. Have a conversation with your parents and understand how they have planned for their retirement. Do they have a retirement income plan and an estate plan? Are you seeing any signs of memory loss or a decline in cognitive skills? These are signs of potential difficulty managing money in the future. If your parents are in their seventies or older, it might be a good idea to have conversations about money and their wishes. And of course, they might need a financial planner to help them as well.

See: Financial Planning for the Sandwich Generation

5. Umbrella Policy. When it comes to insurance, don’t just get “a” policy. Take the time to understand what your policies cover and exclude and make sure your coverage is more than adequate. People who look only at getting the lowest rate on their home and auto insurance are likely to be disappointed by their coverage, exclusions, and deductibles if, or should I say when, they have a claim. It’s important to make sure you have enough insurance, especially as your net worth grows.

That’s why I recommend clients consider an Umbrella Policy, which will supplement the liability coverage on your home and auto policies. If you have a car accident, your umbrella policy can provide another $1 million or more in coverage above the $250,000 limit on your auto policy. For a few hundred dollars a year, it’s worth owning an umbrella. If you don’t have a policy, or want to shop rates, I can refer you to an independent agent who can help you consider your options.

See: Don’t Forget Your Umbrella

Financial Planning In Your Thirties

Posted On June 23, 2018 By Scott Stratton, CFP(R), CFA In Financial Planning /

In your thirties, you are establishing the financial habits which will last for the rest of your life. Choose carefully! You might think that it was tough to save and invest in your twenties. Well, I wish I could say things get easier in your thirties, but there are going to be new demands and expenses. You might still have student loans, but will be adding in a mortgage and car payments. Besides your own expenses, you may have a young family and all the joys and bills of day care, pre-school, and then clubs, sports, and music lessons. Your time and your money can disappear very quickly!

It’s important that you don’t delay your financial planning for another year. One year can turn into five or ten before you know it. I know it is easy to feel overwhelmed with all the financial pressures you face. Although there is a lot to do, we can help you get through the process and take the steps to create financial security and eventually, financial independence.

1. Catch Up. Most people in their thirties still need to do some of the key steps we discussed for your twenties: establishing an emergency fund, managing debt, tracking net worth, starting investing, and getting term life insurance.

See: Financial Planning in Your Twenties

2. Increase Savings. As your career progresses, you may find you are being promoted from entry-level to higher paid positions. You might change employers, relocate, or even pursue a new, more lucrative career. From 30 to 39, you might see a significant increase in your income. The question is: When you get a raise, will you spend it or save it? If you can get in the habit of increasing your saving and investing, you can generate a significant amount of investment capital in your thirties.

The challenge is that you will see so many friends who are buying a bigger house, leasing two luxury cars, taking lavish vacations, or buying a boat or a lake house. You have to resist the temptation to “Keep up with the Joneses”. They may be taking on a vast amount of debt to fund their lifestyle and are not being responsible with their money. Just because a bank will give you a credit card or loan, doesn’t mean it’s a good idea to spend the money.

3. Put Your Investing on Auto-Pilot. What works is squirreling away money consistently. Set up the accounts you need: 401(k), Roth IRA, 529 Plan, Health Savings Account (HSA), etc. Pay yourself first and set up monthly automatic contributions to each account. Don’t worry if you have to start small, you can always increase your amounts later. If you don’t make contributions automatic, you probably aren’t going to have an extra $5,500 lying around at the end of the year to fund your IRA.

See: How Much Should You Contribute to Your 401(k)?

4. 15-Year Mortgage. If you begin your house search process with the pre-approval for a 15-year mortgage, you can save a fortune in interest over the life of the loan. Of course, you also have the opportunity to own your house free and clear in just 15 years. Even if you move after 10 years, you will have significantly more equity if you started with a 15 year rather than a 30 year loan.

See: The 15-Year Mortgage: Myth and Reality

5. Start a 529 College Savings Plan. The sooner you can starting saving for your kids’ college, the more time you can enjoy the benefits of compounding. And since a chief benefit of 529 Plans is tax-free growth, you get more benefit by starting at age 6 than at age 16. An early start is helpful.

See: How Much Will It Cost to Send Your Kids to College?

6. Establish an Estate Plan. No one wants to think about their own mortality, but this is an important step that you need to take. If you have minor children, you really do not want to leave decisions about what happens to your children (and the money to support them) in the hands of a Judge who doesn’t know you. Courts are bound by rules that may lead to outcomes that you would not have wanted. I can refer you to an attorney who can complete this process with you. The cost for most plans will be only $750.

See: What Happens If You Die Without a Will.

Financial Planning in Your Twenties

Posted On June 23, 2018 By Scott Stratton, CFP(R), CFA In Financial Planning / 2 Comments

In your twenties, you are out of college, starting your career and maybe will be starting a family soon. What is most essential is to realize is that financial planning is not just for people your parents’ age who are getting ready to retire. Financial Planning is for YOU!

The steps you take in your twenties will lay the groundwork for the rest of your life. Will you become wealthy or will you be just one step ahead of your bills and debt like many Americans? A lot of us older folks wish we could be twenty-five again but with what we know at 45 or 65. Then we could get an early start and be in much better position later.

So, let’s get organized, educate ourselves about money, investing, and taxes. Define your goals and create a written financial plan. It’s an exciting time to be seeing your hard work starting to pay off. There are plenty of money issues that create a lot of stress: student loans, credit cards, buying a car, housing affordability, low paying entry level jobs, etc. We need to tackle those issues head-on.

Here are five crucial steps for being in your twenties.

1. Emergency Fund. Keep three to six months of living expenses in a safe, liquid account that is separate from your regular checking or bank account. Unplanned expenses are an inevitable reality of life. Cars break down, houses need repair, injury or illness happens. It’s not really a matter of “if” these things will occur, but just when. An emergency fund is a prerequisite before you can start to invest for long-term goals.

2. Manage Debt. Avoid taking on new debt and be smart about managing your existing liabilities, such as student loans, car payments, and credit cards. You have to plan for how to pay off your loans, while still having a plan for the rest of your financial goals, too.

See Should You Invest or Pay Off Student Loans First?

3. Annual Net Worth Statement. Adding up all your assets and liabilities is a key step to managing your financial life. Understand where you are today and direct your cash flow to grow your net worth. By tracking this annually, you are not only measuring your progress, but creating a sense of urgency that will help align your short-term decisions with your long-term goals and dreams.

4. Start Investing NOW. Don’t think that you can make up for lost time later. Compounding works over time and the earlier you start, the earlier you can reach the finish line.

See The Cost of Waiting from 25 to 35

5. Term Life Insurance. You might not have significant assets today, but when you are young, you have the largest amount of future lifetime income. If you have a spouse or family, the greatest need for protection is at age 25, not at 65, when most of your earnings years are behind you. We don’t use insurance as an investment; it is to protect against potentially devastating and rare risks. So, buy a term life policy. If you are healthy, it may be only a few hundred dollars a year. And if something were to happen to you, the term policy would be the most important financial planning step we took. Don’t skip this!

See A Young Family’s Guide to Life Insurance

The Cost of Waiting from 25 to 35

Posted On June 2, 2018 By Scott Stratton, CFP(R), CFA In Financial Planning /

I am on a mission to get people in their twenties saving and investing. Why? Because an early start on good financial habits creates an exponential difference later. The solution to the next generation’s retirement crisis of a bankrupt Social Security, underfunded pensions, and increased longevity will require people get an early start.

Let’s compare two investors, both of whom will earn an 8% return over time. Smart Sally starts a Roth IRA at age 25 and contributes $5,000 a year through age 35 (11 years). Then she makes no further contributions.

Late Larry starts his Roth at age 35, also contributes $5,000 a year, and makes this contributions all the way through age 60. He will end up contributing for more than twice as long as Sally.

At age 61, both Sally and Larry retire. Who has more money in their Roth IRA? Sally has $615,580. Larry, although he contributed for longer, never caught up to Sally’s early start. He has only $431,754.

Of course, if Sally had contributed all the way through age 60, which is what I hope she would do, she would have the sum of both amounts: $1,047,334. If you can start a Roth IRA at age 25, you could have a million dollars by retirement. But if you wait just a decade, until age 35, you will likely lose more than $600,000 from your retirement.

It’s that first decade of investing that is so important. At an 8% hypothetical return, you are doubling your money every nine years. The early bird will likely finish with at least twice as much money as someone who starts a decade later.

If you are a recent college grad, please sign up for your 401(k) and put in at least 10%, preferably more if you can afford it. Most of your friends will only contribute up to the company match. Do better, contribute more. If you don’t have a 401(k), determine if you are eligible for a Roth IRA, a Traditional IRA, or a SEP IRA.

But most of all, just do it now and don’t wait. Because when you wait one year, one year has a way of turning into 10 years, and then you are the 35 year old with no retirement savings. I know you have student loans, are saving for a car, house, wedding, etc. You may have kids of your own. No excuses, you just have to find a way to get started. Even if you can only start with $100 a month, get going, and then increase your contributions when you can afford it.

The truth is that there is never an easy time to save and invest. It will always require planning and maybe even a little sacrifice. At 25, you have student loans and credit card bills. At 35, you may have a big mortgage and young kids. At 45, you might be trying to figure out how you are going to pay for your own kids’ college. So don’t think that it will be easy to save later. That day may never come!

For the parents, grandparents, aunts, and uncles reading this, you have the opportunity to help your twenty-something young adults get a leg up and make a positive impact on their whole life, even after you are long gone.

Talk about investing and the importance of starting early. Ask about their 401(k) and IRAs. Forward this article. Kids are NOT taught to be financially savvy in school. If parents don’t teach this, young adults are likely to miss the opportunity of an early start. (And thank you to my Mom and Dad for their wisdom.)
Send them this book: The Elements of Investing. It’s short and an easy read, but contains essential information for becoming wealthy.
Hire me to be their financial advisor. I love helping young investors, to teach them the ropes and help establish their financial foundation at an early age. See our Wealth Builder Program.
Instead of leaving a lump-sum inheritance when your children are middle aged, you might establish better money habits by funding their Roth IRA at an early age and involving them in the process. If a 16-year old has earned income, they can contribute to an IRA, or you can let them save their money and make the contribution for them. (Note that a student’s IRA is not reportable on the FAFSA, although some colleges will count the account as a part of their expected contribution.)

Good habits last a lifetime. While it is never too late to invest, there is an enormous cost to waiting from age 25 until age 35. It’s potentially the difference between having a million dollars or $431,000. You can’t control what the market is going to do, but the real game changer could be getting an early start. Of all the levers we can control, an early start is going to make a bigger difference in your lifetime outcome than anything else.

Reducing the Cost of Healthcare

Posted On May 26, 2018 By Scott Stratton, CFP(R), CFA In Financial Planning /

The Tax bill passed in December eliminated the individual mandate requiring consumers to have health insurance or pay a tax penalty, starting in 2019. As healthy individuals drop their insurance, it is expected that premiums will rise by an average of 20% next year for individual plans on the insurance exchange. As prices rise, this creates a negative feedback loop where more healthy people cannot afford insurance, the insurance pool becomes worse for insurers, and premiums increase again.

As a result, more consumers are adopting higher deductibles and pay for more of their care out of pocket. Health Insurance will shift from being used for every appointment to being catastrophic coverage where you will only have claims in rare years. Think of your auto insurance – you don’t expect it to pay for oil changes, only when you have a wreck.

This will shift the burden of cost-savings to the consumer rather than the insurer. Unfortunately, doctors offices and hospitals are terrible at sharing price information with patients, so it’s extremely difficult to know how much something will cost at one office, let alone be able to determine if you could save money by going elsewhere.

Cost transparency is the only thing that is going to save our health system from continuing to escalate out of control. We have a fee for service system which encourages for-profit hospitals to charge as much as they can and to add on extra tests, services, and procedures to increase their bills. And it’s not easy being a doctor, where every patient wants a quick-fix (other than eat right, exercise, and take care of your body in advance). With the risk of malpractice claims, doctors order extra tests to cover themselves even if the actual need for those tests is small. That’s called “Defensive Medicine”, and it’s not about defending the patient.

At a conference I attended last week, a Doctor turned financial advisor presented information on how to save money on your health care. Here are nine tips:

1. In-Network. Don’t ask a doctor if they take your insurance, ask “Are you in my network?”. Write down who you spoke with and the date and time. Later, if you get a bill that shows out-of-network charges, you can contest that with the evidence of what you were told. In fact many doctors offices record their calls, and you can demand to listen to your call.

2. PPOs used to offer choice of going anywhere, but networks are often very narrow for small plans. A cheap plan usually means that very few doctors are in that network. You have to ask at each step. If you have a planned hospital procedure, get a signed estimate in advance, and write on your paperwork: “I will only allow in-network care.” Otherwise, you may find out that some of your care is out of network even when you are at an in-network hospital!

3. Balance Billing. If you are out of network, you may be billed for the difference between the in-network price and what the hospital wants to charge you. For example, in Texas, insurance will pay up to $12,668 for an Appendectomy, but the average hospital bill is $40,893. So when you get an outrageous bill, you can find out this information to negotiate a lower price. This information is published by the Texas Department of Insurance Healthcare Costs Guide.

4. If you go to an in-network hospital and receive charges from an out-of network provider for over $500, you have the right to seek Medical Bill Mediation again through the Texas Department of Insurance. They have been able to lower these bills in 90% of the cases submitted to the state.

5. Reduce unnecessary tests and medications. The vast majority of a doctor’s diagnosis comes through patient history and the physical examination. Doctors today have to see a large number of patients and are in a hurry, so they often default to ordering expensive tests to save time. Before going to an appointment, type up your symptoms, medical history, medications, and diet. Write down the questions you have. Print three copies. Mail one in advance. Give one copy to the receptionist when you arrive. And if the doctor walks in without it, give them the third copy.

If they want to order additional testing, ask: What do you hope to learn from this test? How will the results of this test change the approach to treatment? If they are going to prescribe medicine, ask how long you will take the medicine. What are the benefits, side effects, and risks? What alternatives (i.e. lifestyle) are there to this medicine?

6. Independent Practice or Hospital. Hospitals are buying up doctors offices in their area and raising prices. Where a doctor might charge $100 for an office visit, a hospital can charge $250. Ask if an office is an independent practice or part of a hospital.

7. Ask your pharmacist if there are generics or less expensive substitutes for your medicines. Doctors are not always aware of the price of the medicines they prescribe.

8. If you hit your deductible during the year, try to take advantage of the fact that insurance has kicked in. Fill your prescriptions in December for the year ahead. Complete any tests that you should have done. If you’ve put off knee surgery or other procedures, try to get those done as well.

9. If you have a High Deductible Health Plan, fund your Health Savings Account (HSA), so you can pay your co-pays, deductible, prescriptions, and other costs with pre-tax money. That’s like saving 12-37% on every dollar you spend.

If you don’t have an HSA, but your employer offers a Flexible Spending Account (FSA), that will also allow you to pay medical bills with pre-tax money. Just remember that unlike an HSA, FSA is use it or lose it – money not spent before December 31 is forfeited.

Healthcare costs have increased by 7.76% a year since 1970. The US spends about 19% our GDP on healthcare each year, significantly more than any other nation. Even countries which guarantee healthcare for everyone only spend 11-13% of their GDP. We have a broken system but seem unwilling to learn from what works in other parts of the world.

The trend will continue: to reduce insurance claims, more expenses will be shifted to the consumer. Capitalism works to bring down costs, but it requires that consumers have price transparency, something which doctors and hospitals have been unwilling to do. They should publish their prices and post prices on their website. Today, we have to ask and be our own advocate to keep healthcare costs down.

What Happens If You Die Without a Will?

Posted On April 27, 2018 By Scott Stratton, CFP(R), CFA In Financial Planning /

Last April, a long-time client passed away unexpectedly at his home. I ask all clients if they have an estate plan. If they do not, I recommend they get one and provide a referral if they do not have an attorney. Unfortunately, not everyone follows my advice, and this client passed away without a will or estate plan in place.

It has been over a year now, and his estate is still not settled. I was able to transfer his IRA to his spouse within days of receiving the death certificate. But, his individual account and his home and business assets remain tied up in Probate Court. His account, which I was managing, is frozen, and I cannot place any trades in the account or pay any bills (yet) for the estate.

Assets which have designated beneficiaries, such as life insurance policies, retirement accounts, or annuities, will go to the beneficiaries without the involvement of the Probate Court. Additionally, joint accounts with rights of survivorship, may go to the survivor, such as a spouse, almost immediately.

For all other types of assets, their disposition is determined by your Will. When you do not have a Will, it is said that your estate is “Intestate”. In these cases, your individual assets will be distributed based on state law. For real property, for example, one-half of your home would go to your surviving spouse, and one-half would go to surviving parents or siblings. But you wanted your spouse to receive all of your house or real estate investments? Too bad, you don’t have a will with those instructions.

Chart of Distribution of Assets in Texas Without a Will.

For parents of minor children, not having a will means that a court will determine who gets custody of your children. And since minors cannot own, inherit, or manage investments, any funds designated for their care would have to be placed in trust under the management of a court-appointed trustee (not of your choosing). Expenses for your children would need to be approved by the court.

Everyone does need to have a will and a few other estate planning documents. Typically, you will also want:

Durable Power of Attorney: authorizes a person to make financial decisions and enact transactions such as paying bills on your behalf, in case you are incapacitated or unable to make those decisions.
Health Care Power of Attorney: designates someone to make health care decisions if you are too ill or injured to speak for yourself.
Physicians Directive: instructions on what care or life support you would like to receive or not.

Here in Texas, we are a Community Property State, but even for married people you still need a will. If you die “intestate”, your assets could be tied up for a year or more, assets might not automatically go to your surviving spouse, and you increase your expenses and the potential for fights and lawsuits between family members. I have seen a LOT of families fall apart over disagreements about a parent’s estate, and yet parents never think it would happen with their kids. But it does, with sad consequences that no parent would want.

Do you need a trust? The majority of people do not. It used to be that a trust was needed to avoid the estate tax. But for 2018, a married couple has basically $22 million that can be passed on without any estate taxes at all.

I have an experienced attorney here in Dallas who will create a complete Will and set of Estate Documents for you. Like me, he believes this is essential protection which every family needs. He will meet with you face to face and determine your needs before making a recommendation. For families needing standard documents, the cost is a flat $750, which is less than some online services.

After my experience of having a client pass away without a Will, I wished I had been more adamant about insisting he had gotten this done. I realize it is a morbid topic that most people don’t want to think about. But the responsible way to take care of your loved ones is to make sure your Estate Plan is in place.

If you have a Will, you may need an update or a new one, if:

you have moved to a different state,
you have gotten married, divorced, or had children,
any of your beneficiaries have passed away,
your documents are more than five years old.

This is so easy to put off for another day because you are “too busy”. Please don’t wait. There is never an ideal time. Let me help you get this done, and I promise you will feel better once you have this settled.

5 Steps to Boost Your Savings

Posted On April 21, 2018 By Scott Stratton, CFP(R), CFA In Financial Planning /

The key to financial independence is your commitment to saving.

The market has captured our attention in the past quarter, as volatility spiked and concerns have risen about everything from interest rates to North Korea. While everyone is fixated on how the Dow is doing or how much the S&P 500 is up or down each day, we all need a reminder from time to time that the only way you accumulate money is by setting it aside. Saving is the real growth engine for investors, not rates of return.

It’s not that returns don’t matter. It’s just that we have no control over what the market does, and worrying about those short-term gyrations is a waste of your time and energy. Volatile markets often make people not want to invest, preferring to wait until there is more clarity.

Uncertainty is always going to be part of investing; long-term investors have done very well by ignoring what they can’t control and concentrating on saving as much money as possible.

Here’s a guarantee for you: if you save $2,000 a month, you will accumulate ten times more money than if you had saved $200 a month. If your plan is to reach $500,000 or $1,000,000 or $5,000,000, the sooner you save, the faster you will accomplish your goal.

Saving is the most difficult, simple thing in the world. There is nothing complex about saving money, but actually doing it is quite challenging. Let’s break it down into five steps:

Step 1. Update your attitude about saving. Thoughts become actions.
Do You Hate Saving Money?

Step 2. Create an ambitious goal.
How To Become a Millionaire in 10 Years

Step 3. Find ways to reduce your expenses.
23 Ways to Save Money

Step 4. Create a Financial Plan.
How Some Investors Saved 50% More

Step 5. Stick with the program.
How Exercise Can Make You A Better Investor

Want more evidence?
Study: Deferral Rates Trump Fund Performance

A lot of financial advisors only want clients who are already very wealthy. They can charge more fees that way. For me, I love helping investors who are at all points on their financial journey and my purpose in life is to lift others up to achieve the American Dream. That’s why we have no investment minimums at Good Life Wealth. I can help you the most if you are committed to saving and recognize that saving is the key to your financial future.

What Q1 Suggests About the Rest of 2018

Posted On April 14, 2018 By Scott Stratton, CFP(R), CFA In Financial Planning /

Now that the dust has settled on the first quarter of 2018, investors are trying to figure out what this renewed volatility means. Although we experienced a drop of roughly 10% in February, the overall return for the first quarter was a negligible loss: if you invested in an S&P 500 Index Fund, such as SPY, you had a return of -1.00% through March 31.

For the most part, portfolios were close to flat for Q1. Nevertheless, investors are quite concerned about where we go from here and worry that we may have more losses ahead in 2018. Here’s what we think:

1. Technical Analysis. The 200-day moving average, a key level of support, has held since February. The market went straight up in December and January, and the subsequent pull-back simply returned prices to the longer-term trend line. We have not seen a crossover of the 60 and 120 day averages, which would be expected to precede a prolonged downturn. Presently, the Q1 pullback appears to be a temporary correction and is not worsening.

While that could change in the months ahead, we will continue to use an evidence-based process to examine the trend. For investors who want to be more nimble, we are now offering the Equity Circuit Breaker, which uses Technical Analysis to move in and out of the market based on these trends.

2. Fundamentals. The economy remains strong. Leading Economic Indicators suggest that the potential for a recession in 2018 is extremely unlikely. Unemployment is so low that many employers are now finding it difficult to fill positions and are having to raise wages. All of which provides a positive backdrop for the stock market.

3. Bonds, however, have turned negative in the past six months. The Federal Reserve has increased short-term interest rates through the Fed Funds rate, and has planned another two or so rate hikes in 2018. As rates go up, the price of bonds goes down. The total return of the US Aggregate Bond Market, if you invested in the AGG exchange traded fund, was -1.47% for Q1.

Short-term rates have crept up to nearly 2% on a 1-year T-Bill, but the yield on the 30-year Treasury bond has hardly budged and is only 3.03% today. If the yields on long-term bonds had moved as much as short-term rates, the return of the bond market would have been worse than it was in Q1.

Anticipating more rate increases ahead in 2018, I think investors would be smart to seek out the safety in short-term, high quality bonds, like 0-2 year Treasuries. There remains a high risk for those in long-term bonds. The chase for yield in recent years drove the price of junk bonds to very high levels. We sold our position in high yield last summer, as we posted here on August 13. Since that time, prices have moved down on junk bonds. If you really want to understand the economy, follow the bond market.

4. Total Return. While a large drop in the price of the bond market is unlikely, it seems very possible that returns could be zero or negative for 2018. This is a tough market for investors who want income, and what income is available today comes with elevated risks. We think that investors would be well served to invest with a total return objective rather than investing for income or yield.

5. Volatility is back. Three thoughts on risk and investing:

Diversification is crucial. That’s why we invest in broad-based ETFs as our core holdings. Don’t risk too much on any one stock, sector, or country.
Asset Allocation, specifically your weighting in bonds, remains the best measure to achieve a targeted level of risk and return for a portfolio.
Quarterly fluctuations are mostly just noise for long-term investors. Focus on what you can control and the markets will likely serve you very well over your decades as an investor.

2018 is already proving to be a harder year than 2017 for investors. We will continue to watch the market closely so that we can provide informed, timely guidance for you. What is most important, however, is to have a strategy in place for your personal situation. Is your investment allocation optimized for your needs, time horizon, and risk preferences? If you don’t know – or know that it is not – we need to sit down and go through our financial planning process first, before we make any conclusions about how you are invested today.