Graduation Gift? How About Legal Documents?

Graduation gift how about legal documents

Graduation gift – How about legal documents? Arguments have been made that a set of legal documents are the best gift for a high school graduate. Now that’s not quite as bad as coal in a Christmas stocking. But not quite as much fun as a MacBook Air, either. A recent USA Today article explained why it’s worth considering.

Think about it – an 18-year-old is a legal adult.  

“What this means to each of us is the only individuals that can make financial or health care decisions for us are the individuals we legally appoint.  Mommy and Daddy are no longer the legal guardians,” says Clearwater, Florida attorney Linda Chamberlain in her own blog post on the topic: The Best Gift for the Graduate

But They Don’t Own Anything!

You might say, “But my 18-year-old doesn’t own anything. Why do they need a will?” There are other documents that become important upon reaching adulthood. For 18-year-olds who don’t own anything, they still have rights, such as:

  • to private medical records,
  • to make their own health care decisions,
  • to sign their own lease or
  • to open, close or pay bills on a bank account.

If the young adult is incapacitated, parents can no longer legally do those things for them.

The most common worst-case scenario described is an accident where the young adult is hospitalized. This is when documents like:

  • a HIPAA designation (allows consent to share medical records),
  • Health Care Surrogate (consents to have health care decisions made),
  • Durable Power of Attorney (for managing money and accounts), and
  • Living Will

could be crucial.

In Florida, most estate planning attorneys will provide a set of documents for a small flat fee, especially for children of their established clients. Ask your attorney, check your local estate planning council directory, or ask your professional advisors for referrals.

Contact us if you need referrals for Tampa Bay area attorneys or if you have other financial concerns for someone becoming a newly-minted adult. Schedule a call with the online calendar button at our page: Contact.

Continue ReadingGraduation Gift? How About Legal Documents?

New Year: What’s In Your Notebook?

Keep important data in a Notebook

It’s a new year: what’s in your notebook? You know, that one with all of your passwords, account numbers, doctor names, and that very important song that must be played at your funeral.

Yeah, that notebook. Where is it? It might reside digitally on your computer or in the cloud, or it might be a pile of papers in a file cabinet, or it might be in an old-fashioned 3-ring binder. The new year is a good time to ask: how easily can someone who needs it find it?

Who Might Need the Notebook and When?

Everyone needs a someone in mind for the notebook. Your someone (Kate Hufnagel, the Digital Wrangler, calls this Your Person) is who will step in for you and help to handle things when you can’t. If an immediate someone does not spring to mind, consider asking a professional to be that someone – an attorney, accountant, or professional fiduciary, for example.

When will someone step in? At a time when you need the notebook, but can’t get to it. We can imagine all kinds of accidents and tragedies that might bring about a need for the notebook. Rather than dwell on those, let’s imagine that you are suddenly swept away on an all-expenses paid trip out of the country to a remote island with spotty cell coverage.

While you are whale-watching and snorkeling the reefs for an indefinite period, things still need to be handled back home. Bills to be paid. Taxes to be filed. Gifts to be given. People to be notified of your absence and introduced to Your Person who is handling things.

What Goes in the Notebook?

In essence, the Notebook is a central place you keep information that your someone will need in case something happens to you.

Common and essential items in the Notebook include:

  • Your five basic estate planning documents: original will (drafted by an attorney in the state where you reside), living will, health care power of attorney, durable power of attorney, and HIPAA designations.
  • Advanced estate planning documents: trusts, partnership agreements, business buy/sell agreements, shareholder agreements, etc.
  • Insurance policies. ALL of them: life, long term care, health, property, car, boat, liability, and any others.
  • Contact information for professional advisers: attorneys, bankers, accountants, investment advisers, insurance agents, and (of course) your Certified Financial Planner™.
  • Also, if your adviser has an assistant or paraprofessional who knows you and your situation, write down their contact information and a little note to that effect. (“Sharon is the assistant and she runs the whole place.”).
  • All of your health care providers – doctors, dentist, optometrist, veterinarian (who is going to take care of Fluffy?). Put similar information by each one – what they helped you with and if any office or nursing staff know you and your history.
  • Important to remember also, anything handled online: digital password manager, online user ids and passwords, bank statements, investment accounts, real estate deeds and mortgages. So much of our financial lives nowadays keys off of our email address. Can they even get into your email? (See also: Document Your Digital Assets for more online stuff to consider.)

Extra Items for the Notebook

In addition, not-as-essential items some people include are:

  • An “ethical will” outlining your values. This often gives family members guidance when they are unsure what you would want. Writer Susan Turnbull’s book, The Wealth of Your Life, can help guide you through this process.
  • An end-of-life health care management booklet, like Five Wishes.
  • An Aging Plan – describing your wishes for the potential time of life when you may need assistance with activities of daily living, transportation, and housing transitions.

Notebook Update Season

It’s a good time of year to check in on your notebook. The end of January brings tax notices from bank accounts, investment accounts, mortgage statements, health insurance, employers, IRA providers, and more. Take this opportunity to pull together scattered pieces of your financial life. Consider collecting everything not only for the accountant, but also for Your Person.

One way to keep the notebook updated is to check each tax statement and match it up with a corresponding account in the notebook. Perhaps you forgot about those I-bonds you bought on Treasury Direct – no paper statements, all online. Better add that account to the notebook. All those deductions for insurance from your employer – would someone know how to contact the insurance companies if needed? Would the insurance companies talk to them? That contact info, power of attorney forms, and beneficiary designations are good updates for the notebook too.

Think of your notebook as a bread crumb trail helping Your Person work backward from that remote island to the place where you are sitting with paid bills, up to date connections, easily-accessed email and your personal address book at your disposal. A little effort each year will save Your Person many headaches later.

Got a notebook you love already? Comment below on what makes it uniquely yours. Share your best ideas.

For more on this topic, see The Mindful Money Mentality: How To Find Balance in Your Financial Future. Struggling with issues mentioned here? – Schedule a call.

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Challenges and CoastFire: My Story

Headshot of Holly Donaldson

My story: The following is an updated excerpt from the introduction to my book, The Mindful Money Mentality: How To Find Balance in Your Financial Future (Porchview Publishing, $20).

As a behavioral economist (in a field that studies the psychology of personal economic decisions), I have a keen interest in our relationships with money. I care about maximizing its usefulness as a tool rather than elevating its status as an end.

But for much of my life, I had those two reversed.

I did my own financial planning backwards. I put the pursuit of money first, life second, and myself last. In other words, I floated in a fog about my attachment to money, swept along by society’s encouragement and my own beliefs. My money mentality was not aware, awake, or intentional. It was unconscious. It was anything but mindful. 

Ironically, I was one of those successful savers. Starting when I was a teenager, I kept track of every penny I spent. I could not wait until my 21st birthday so I could start contributing to the 401(k) at work. 

Money as the Main Goal

In my 20s and 30s, I focused on money as an end, determined to define my success as a person by the amount of money I made. As a result, I made some choices that caused me, and those around me, to suffer unnecessarily. I fretted over how much essential things cost. It hurt me to spend on myself for anything nice, much less on anybody else. I now realize that having money was a way to feel good about myself. In my mind, my earnings defined my success as a person. This is the area where I was most imbalanced, and I regret some of the decisions I made then. 

After college, I joined a Miami bank training program. I saw that most of the trainees chose to live in a new suburban complex requiring a Metro commute. I chose to live in cheaper North Miami, only ten minutes from downtown, proud that I was saving on rent, gas, and Metro fares. The building was newly renovated but occupied mostly by taxi drivers who kept odd hours, and the crime rate was higher in my neighborhood. My car was broken into in the parking garage. I did not get much exercise because, as a 5-foot-3-inch 20-year-old, I didn’t feel safe going outside. 

Further, while my coworkers were discussing the fun evenings they had had at south Miami neighborhood restaurants, I thought, “Bah, humbug!” I was proud not to “waste” my money on frivolities. I ate mostly sauteed vegetables and microwave popcorn in my apartment. Over the seven-month training program, I not only did not exercise enough, I unconsciously distanced myself from the camaraderie of the other trainees. While I eventually fixed the exercise deficiency later in life, the friendships I might have made and enjoyed today are absent. 

A Vicious Cycle

It was not easy for me to accept that what you have is not who you are. I didn’t understand that if you looked to your net worth to find your self-worth, your net worth would never be high enough. It was a vicious cycle: I never felt good enough, so clearly I didn’t have enough; when I had more, I still didn’t feel good enough, so clearly I still didn’t have enough, and so on. 

The Turning Point

When I was 39 in 2005, my then-employer, a regional bank, merged with another one. The new bank had very different priorities. A startup division of a brokerage company had been trying to recruit me, so as part of the decision to make a jump, I ran a financial analysis to see how much risk my then-husband and I could take on.

I told him, “I have done these calculations six ways to Sunday. It appears that right now, if we do not save another dime, when we are 60 we are guaranteed a double-wide mobile home and early-bird specials at Denny’s.” I was being facetious, but it was clear to me that this was not good enough. We would need to keep working and saving for more. 

To my surprise, he said, “Sounds good!” 

I had always assumed that I would have to maximize my earnings as much as possible until age 60 because that was what everyone was supposed to do. Suddenly I had the space to step back and think: what do we really need? I thought: “I guess it’s not too bad to be nearly 40 and know I have at least what I have now. In fact, if I had to, I could definitely live with that.” Nowadays my story would be called “reaching CoastFIRE.”

I felt liberated. Suddenly I had a world of choices before me. 

New Choices

When I began to understand the meaning of “enough,” the pursuit of money ceased to control me. As a result of changing my money mentality, within a few years I was able to:

  • start my own business
  • write a book about money and mindfulness
  • realize I would rather be debt-free than live in a big house in the city
  • build a small house in the country
  • spend more time on my new porch.

From that point on, I made more decisions from a position of security and confidence, rather than pursuing the vague goal of achieving another dollar without knowing why. 

Sacrifices Without Regrets

As I near 60, I have no regrets about the decision to leave corporate life. Financially, I have made sacrifices. I have had to pay (a lot) more for health and disability insurance. I won’t have as big of a pension as if I had stayed for seven more years. (But oh, how long those seven years would have been.) I haven’t had an employer match to my retirement plan. On paper, becoming self-employed vs. staying as a corporate executive is not a move many financial advisors would recommend making.

But even with a divorce and remarriage in my story in the meantime, I’ll still be okay. Looking back, the best investment over the past nearly 20 years has been the freedom of time to work how I wanted, doing what I love to do in the way that suits me best. It’s also meant plenty of time for important people in my life, as well as for my physical and mental health. 

It’s Never Too Late

Money is not the destination; it is merely the vehicle. The hardest work for me has been to figure out what life I wanted to live to be happy. Once that became clear, the tough decisions fell into place. 

If I had figured out what I wanted first, I might have saved myself a couple of decades of unnecessary work and worry about not having enough. The irony is, those years probably shortened my life, which is one way to avoid running out of money!

CoastFire isn’t for everyone. But the principle of mindfully paying attention to the pursuit of money is. It’s a joy for me when a successful saver discovers that they might actually have a choice to hop off the savings hamster wheel and start enjoying what they’ve got.

Got a similar story? Share your thoughts below.

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Roth: To Convert Or Not To Convert

checkbook

Roth: to convert or not to convert. Converting to a Roth IRA might be worth consideration if you have been saving for retirement in a traditional IRA (TIRA)

As you may know, when it’s time to take the money out of your TIRA, you will owe tax on the amount you withdraw (called a “distribution”). So when you think of the balance in your TIRAs, give that number a haircut of 10% – 40% (using current tax rates) that will be sent to Uncle Sam.

Further, when you reach age 73 or 75 (depending on your birth year) whether you need money or not, you will be required to take an IRS-calculated required minimum distribution (RMD). The RMD income can push you into the next tax bracket or, more commonly, into a higher bracket for Medicare premium surcharges. Surcharges mean you could pay up to several hundred dollars more per month for Medicare.

Finally, if you are married and leave TIRAs to your spouse, he or she must eventually take RMDs. When they start filing as single the year after you die, there is a greater likelihood the RMD will push them into the higher income tax or Medicare surcharge brackets.

Review of Roth Advantages

Roth’s have several advantages over traditional retirement accounts (TRAs).

1) When you think of the balance in a Roth IRA, there is no tax haircut. Money in a Roth grows tax-free forever. That’s a bigger balance to spend on world cruises, grandchildren, or a Winnebago.

2) Your heirs will have to withdraw the Roth money if you don’t, but they won’t owe tax then, either.

3) Roths have no RMDs. So that might save you from Medicare surcharges and other additional taxes such as the Net Investment Income tax (NIIT).

4) If you are married and die before your spouse, your spouse will not have to take RMDs from them.

5) If you have a trust, it may be much more beneficial to leave a Roth to the trust than a TIRA. Ask your CPA or tax attorney about this one.

What’s the Catch with Roths?

What’s the catch? The amount of TIRA that you convert to a Roth gets taxed in the year you make the conversion. If you convert $100,000 this year, that’s $100,000 added to your income.

So if you are still working, and you convert some or all of your retirement money to a Roth, you will be paying tax on the converted amount at today’s tax rates, hoping/betting that the growth in the Roth will make the extra tax bite today worthwhile later.

For the hope/bet to have the best chance to work, a few things help:

– You expect to be in a the same or higher tax bracket after you quit working. Otherwise you could wait and pay less tax on the conversion at a lower tax bracket later.

– You don’t expect to need the money in the Roth for many years. To reap the biggest benefit, the Roth needs time to grow.

– You are ok taking more risk with money in the Roth. Since more risk means greater return over the long haul, more risk in the Roth helps to juice the tax-free growth for which you are aiming. Having Roth money sit in CDs or money markets isn’t going to reap the big benefits.

– You can pay the Roth conversion tax bill out of non-retirement money. Otherwise you might have to take an even larger distribution, which then creates higher income and even higher tax.

Have a Strategy

Because of the tax hit from a Roth conversion, one popular strategy is to wait to convert until you quit working, or otherwise experience a big drop in income, and take advantage of the lower-income year(s). The amount to convert is then carefully calculated each year to keep you out of higher tax brackets for both income taxes and Medicare.

This strategy works especially well if you are younger than 70, delay taking Social Security, and live off of already-taxed savings or investments. You may have a couple to several years where small incremental amounts are used to fill up a relatively low bracket. Over that time it’s possible to build up a nice-sized conversion amount in a Roth.

When NOT to Convert

Converting to a Roth may not be the best strategy if any of the following are true for you:

·        You have kids in or going to college over the next 2 to 6 years. The increased income from the conversion (beginning from 2 years prior to enrollment) will possibly increase the amount on the FAFSA (Federal student aid application) you would be expected to contribute toward tuition.

·        You plan on donating most or all of your RMDs to charity. You can do this tax-free anyway by making a Qualified Charitable Distribution (QCD) from IRAs (but not employer retirement plans) beginning at age 70 1/2. You can also count your QCD towards your RMD after age 72. No sense paying tax on the conversion when you’re going to do QCDs.

·        You expect to have high medical and/or long-term care expenses. These will offset the tax on your TRA distributions too. Like QCDs, there’s no sense paying tax on the conversion if you will have high deductions to offset future distributions.

Getting Help

Getting help to convert to a Roth is usually a good idea. The easiest system is to have a Roth at the same firm where you have a TRA. Usually you can make the conversion by doing a simple transfer between the two accounts. Find out how the firm will report the distribution and conversion on your tax records. When you have more than one firm involved, get detailed information from each firm about how to make the transfer show up on their tax records properly.

The next step is to pay the tax on the conversion. Firms may ask about withholding for taxes – this can get tricky to calculate, but in general, as mentioned above, you would want “0” withheld and then submit an estimated amount from your non-retirement funds as soon as possible.

Due to the large tax consequences typically involved with Roth conversions, it’s best to consult with a CPA, tax attorney, and/or CFP™ for more detailed advice. In some cases, the future savings and flexibility a Roth affords may be well worth some extra effort and expense today.

We love to talk taxes. Schedule a 30-minute call and let me know what questions you have: https://bit.ly/3GWZNrc

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Using A Retirement Income Buckets Approach

buckets

Using a retirement income buckets approach: One of the most common questions financial planners receive from soon-to-be-retirees is, “What’s the safest way to give myself a paycheck once I quit working?”

The question often stems from the knowledge that needing to withdraw funds in a down market can be both ill-advised and scary.

Those who have been around long enough probably know someone who retired close to a particularly bad market year, like 2001, 2007, 2008, or now 2022. Because that someone had to, or chose to, sell some investments at that terrible time, they ended up living off of much less than they originally thought. This can be a scary thing to watch. It makes one wonder, “How do I make sure that doesn’t happen to me?”

A Buckets Approach

Enter a buckets approach to retirement income. Below is a link to a video excerpt from the online course, “Retirement Readiness,” outlining the approach in more detail. (A link to the course can be found at the bottom of this article and here.) A description for each of the buckets follows below.

https://youtu.be/mkeqzgJfeFc

Bucket 1 – Cash and Money Market Accounts

The first bucket will provide your paycheck. Here is how it works.

  1. Calculate any retirement income you will have (pension, Social Security, dividends, interest, rental property, for examples);
  2. Figure your annual recurring expenses (do not include one-time expenses such as replacing a car, roof, or paying for a special trip or wedding);
  3. Subtract 2 from 1 to come up with the difference; and
  4. Keep 1 to 2 years of that difference in Bucket 1.

For example, Justine retires at 65. She expects to live past age 82 so she is waiting until 70 to claim Social Security. She has a pension of $800/month ($9600/year). Her recurring expenses are $70,000 annually. The annual difference is $70,000 – $9,600 = $60,400. To start retirement, she decides to keep 1.5 years of the difference in Bucket 1 so $60,400 x 1.5 = $90,600. She puts that in a high-yield money market account and sets up an automatic transfer of $5833.33 monthly to her checking account. Voila – she has a new paycheck.

When she turns 70, she will collect $45,000 in Social Security. At that time the annual difference will fall to $70,000 – ($9,600 + $45,000) = $15,400. She decides to keep 2 years of the new difference in Bucket 1, so $15,400 x 2 = $30,800. She reduces the monthly transfer from the money market to $1283.33 per month.

Bucket 2 – Bonds, CDs, and Bond Funds

The second bucket replenishes Bucket 1. As the paychecks come out, the principal in the money market account will naturally decrease. Eventually it will decrease to a level that makes you say, “Yikes! I only have xx in my checking and money market.” Everyone has a different level of “Yikes.” When the balance approaches your unique Yikes level, a transfer is made from Bucket 2 into Bucket 1.

Bucket 2 is comprised of a combination of CDs, bonds, and/or bond funds. CDs and bonds have maturity dates, so they are structured in a ladder (staggered maturity dates usually 6 to 12 months apart into the future). As each one in the ladder matures, the principal is either transferred to Bucket 1, or, if Bucket 1 is comfortably above the Yikes level, redeployed into a new CD or bond with a maturity date at the end of the ladder. If bond funds are used, they are laddered according to the duration in the fund, and funds are sold as needed to replenish Bucket 1. Using bond funds is a bit riskier due to the lack of maturity dates, so at least some portion in CD and individual bonds are recommended.

Bucket 3 – Stocks and Stock Funds

Bucket 3 replenishes Bucket 2 through harvesting gains in stocks. Here is how that works.

  1. Review Bucket 3 on a regular but infrequent schedule (at most quarterly and at least annually).
  2. If there are gains, transfer those to replenish Bucket 2.
  3. If there are no gains (i.e. the market is in a correction), then do nothing until the next scheduled review.

In this way, stocks are not sold at the most inopportune time. With up to 5 years of paychecks in hand in Buckets 1 and 2, you have provided yourself a secure cushion from market corrections.

Final Notes

Whether each bucket is held in a tax-deferred account or a taxable account makes a big difference. Buckets may be spread across accounts in different combinations to minimize taxes.

You can find many varieties of Bucket approaches online. The goal of this particular Bucket approach is not to generate the best returns of any retirement portfolio ever on record, but rather to help prevent retirees from selling during downturns by providing security in Buckets 1 and 2. It works best for people who want the feeling of security from retirement income but don’ t need the high cost of an annuity to get it.

For monthly tips on retirement income, taxes, and psychology of money in retirement, subscribe to the free e-letter, “The View from the Porch, ” at https://bit.ly/3t2uwfn. And for a short online course on retirement readiness, see Simple Finance Retirement Readiness: https://bit.ly/3p3BkXE.

Continue ReadingUsing A Retirement Income Buckets Approach

When She’s Better Off Than He Is

when she's better off

When she’s better off than he is: Some couples find finances difficult to discuss when she makes or has more money than he does.

In the July/August 2019 issue of Psychology Today, Esther Perel, a New York psychotherapist, said that women’s liberation has freed them from dependence on men. “But it hasn’t prepared women for men’s dependence on them. Women often have a lot of resentment when they find themselves responsible in the way men have for generations.”

In his blog post, “Why Wealthy Divorced Women Don’t Remarry and Men Do” dating coach Evan Marc Katz wondered whether women might rethink their expectations for the man’s financial contribution to the relationship. This makes sense especially when all other aspects of the relationship are equal. After all, many wealthy men remarry to women who are not as financially well off, and why? Companionship, compatibility, and physical attraction.

If a wealthy man is happy to pick up the tab for trips and dinners, why aren’t wealthy women?

Case Studies Where She’s Better Off

Here are a couple of cases to illustrate the dynamic. I asked Licensed Mental Health Counselor Ken Donaldson for his thoughts on some fictional case studies.

Alan and Donna: Donna is a 53-year-old professor who became disabled after an accident. Her disability is not evident to most people, but at any moment she could be hospitalized. She received a large settlement from the accident. She is making a new life for herself and wants to live well while she can. Alan, her 55-year-old boyfriend, is a painter. He is handsome, romantic and kind to her. Alan does not know Donna’s financial situation. He does know he cannot always afford the restaurants where Donna wants to eat, though. Much of the time she picks up the tab. They both feel awkward about it.

Janet and Harold: Janet is a 52-year-old retired author. Her books have sold enough copies that she can live comfortably without working. Her boyfriend, 58-year-old Harold, had an IT career before he was downsized. Since then he has not found a new job or career that seems to be a good fit. Janet loves Harold’s athleticism, his sense of humor and tenderness. They connect on many levels. The problem is, she wants to travel with him to places like Australia, Alaska, and Europe. Neither Harold nor Janet like the idea of Janet paying for the whole trip. Harold does not know Janet’s financial situation, but he does know she is better off than he is.

Q & A With Relationship Counselor Ken Donaldson, LMHC

Q: How does avoidance of the activities that both couples want to do affect their relationship?

A: This would only add to distance in the relationships. Although both people will benefit from doing separate activities that they enjoy, there is much to be lost by leaving the other out when it is motivated by fear and/or avoidance.

Q: How could each couple stay together in a healthy way?

A: Every healthy, harmonious and lasting relationship is built on the HOW factor: Honest, Open and Willing. Those are the cornerstones that prevent the termites of deceit, deception, distance and breakdown. I believe these cases both require a lot of extended processing and perhaps the assistance from both a marriage counselor and a financial expert would be extremely helpful.

Q: What kind of paradigm shift might they try, and how could such a shift be brought about through seeing a professional?

A: As mentioned above, a qualified marriage counselor, especially one who had experience with these types of cases, can only help. Openness, although not rocket science, is always the best policy in cases like this. If either or both can’t handle “the truth” it says something about the foundation of the relationship, which signals that it needs to be strengthened. Harville Hendrix, author of Getting the Love You Want, has some great dialoguing tools I use often with in couples counseling and in all conflict resolution and intimacy-building situations.

Q: What is your opinion about the line between sharing financial information and keeping financial secrets?

A: It is a fine line at times, but it is also based on trust. Trust is probably the cornerstone of all cornerstones. It’s like poker: Sometimes you have to hold your cards for a long time before you show them (or fold them). But, when the time is right, right action is the only move.

Avoidance leads to more avoidance, and openness leads to more openness. However, it is all based on the level of relationship they want. If they only want a level “7” then maybe total transparency is not needed. But if they want a “10” then, again, nothing will be better than open, honest and willing.

Questions to Ask

Are there aspects of your financial relationship that you would rather keep at a “7” than a “10”?

How have you handled the transition from cards-folded to open-hand in your finances with a significant other?

What would you advise others in similar situations? Leave a comment here to help the reader community.

And if you’d like monthly tips on the psychology of money, subscribe to our award-winning e-letter, “The View From the Porch.”

Continue ReadingWhen She’s Better Off Than He Is

New Year: Got Your Notebook?

Keep important data in a Notebook

It’s a new year: got your notebook? You know, that one with all of your passwords, account numbers, doctor names, and that very important song that must be played at your funeral.

Yeah, that notebook. Where is it? It might reside digitally on your computer or in the cloud, or it might be a pile of papers in a file cabinet, or it might be in an old-fashioned 3-ring binder. The new year is a good time to ask: how easily can someone who needs it find it?

Who Might Need the Notebook and When?

Everyone needs a someone in mind for the notebook. Your someone is who will step in for you and help to handle things when you can’t. If an immediate someone does not spring to mind, consider asking a professional to be that someone – an attorney, accountant, or professional fiduciary, for example.

When will someone step in? At a time when you need the notebook, but can’t get to it. Like the new commercial for disability insurance, we can imagine all kinds of accidents and tragedies that might bring about a need for the notebook. Rather than dwell on those, let’s imagine that you are suddenly swept away on an all-expenses paid trip out of the country to a remote island with spotty cell coverage.

While you are whale-watching and snorkeling the reefs for an indefinite period, things still need to be handled back home. Bills to be paid. Taxes to be filed. Gifts to be given. People to be notified of your absence and introduced to the someone who is handling things.

What Goes in the Notebook?

In essence, the Notebook is a central place you keep information that your someone will need in case something happens to you.

Common and essential items in the Notebook include:

  • Your five basic estate planning documents: original will (drafted by an attorney in the state where you reside), living will, health care power of attorney, durable power of attorney, and HIPAA designations.
  • Advanced estate planning documents: trusts, partnership agreements, business buy/sell agreements, shareholder agreements, etc.
  • Insurance policies. ALL of them: life, long term care, health, property, car, boat, liability, and any others.
  • Contact information for professional advisers: attorneys, bankers, accountants, investment advisers, insurance agents, and (of course) your Certified Financial Planner™.
  • Also, if your adviser has an assistant or paraprofessional who knows you and your situation, write down their contact information and a little note to that effect. (“Sharon is the assistant and she runs the whole place.”).
  • All of your health care providers – doctors, dentist, optometrist, veterinarian (who is going to take care of Fluffy?). Put similar information by each one – what they helped you with and if any office or nursing staff know you and your history.
  • Important to remember also, anything handled online: digital password manager, online user ids and passwords, bank statements, investment accounts, real estate deeds and mortgages. So much of our financial lives nowadays keys off of our email address. Can they even get into your email? (See: Document Your Digital Assets for more online stuff to consider.)

Extra Items for the Notebook

In addition, not-as-essential items some people include are:

  • An “ethical will” outlining your values. This often gives family members guidance when they are unsure what you would want. Writer Susan Turnbull’s book, The Wealth of Your Life, can help guide you through this process.
  • An end-of-life health care management booklet, like Five Wishes.
  • An Aging Plan – describing your wishes for the potential time of life when you may need assistance with activities of daily living, transportation, and housing transitions.

Notebook Update Season

It’s a good time of year to check in on your notebook. The end of January brings tax notices from bank accounts, investment accounts, mortgage statements, health insurance, employers, IRA providers, and more. Take this opportunity to pull together scattered pieces of your financial life. Consider collecting everything not only for the accountant, but also for your family or special someone.

One way to keep the notebook updated is to check each tax statement and match it up with a corresponding account in the notebook. Perhaps you forgot about those I-bonds you bought on Treasury Direct – no paper statements, all online. Better add that account to the notebook. All those deductions for insurance from your employer – would someone know how to contact the insurance companies if needed? Then would the insurance companies talk to them? That contact info, power of attorney forms, and beneficiary designations are good updates for the notebook too.

Think of your notebook as a bread crumb trail helping your loved ones work backward from that remote island to the place where you are sitting with paid bills, up to date connections, easily-accessed email and your personal address book at your disposal. A little effort each year will save your someone(s) many headaches later.

Got a notebook you love already? Comment below on what makes it uniquely yours. Share your best ideas.

For more on this topic, see The Mindful Money Mentality: How To Find Balance in Your Financial Future. Struggling with issues mentioned here? Tell me more – Schedule a call.

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Student Loan Forgiveness 2022? 6 Questions To Ask

Student loan forgiveness 2022? Where do your student loans stand right now? It can be pretty confusing to figure that out. Covid deferrals, loan servicer mistakes, and now forgiveness have led to a mish-mash of options. However, the big financial mistake you can make is to assume you don’t qualify for some kind of relief.

One piece of good news on the mish-mash front, especially if you have more than one loan: Those loans can now be seen on one page at www.studentaid.gov. No more checking on each servicer’s website for your information. It has a helpful feature. The site divides your loans into those that can be forgiven (through any existing forgiveness program, not only the most recent one), and those that cannot (mostly private loans).

To use studentaid.gov, you will need an FSA ID. This is different from your loan number. Apply for one at the website, and you’re in.

6 Questions to Ask Yourself

Before deciding, like Seinfeld’s Soup Nazi, “No forgiveness for you,” (90s reference – might make no sense to recent graduates), ask yourself these 6 questions to start:

1) Were your loan payments ever on some kind of income-driven repayment plan (IDR)? If so or you are not sure, see “Income-Driven Repayment Loans,” below.
2) Have you worked in medicine, education, or for government, at all since graduation? You may have been given bad advice about Public Service Loan Forgiveness. Skip to “Public Service Loan Forgiveness,” below.
3) Does your employer offer any type of student loan reimbursement benefit? If not, might they consider one? It’s tax-free to both you and them until 12/31/25. For more info, see “Tax-Free Student Loan Reimbursement,” below.
4) Did you repay some or all of your Covid-deferred loans in the last 33 months despite the fact they were on deferral? Skip to – “Forgiveness – What We Know So Far,” below.
5) Is your household Adjusted Gross Income (look on your tax return or ask your CPA or CFP) less than $125K (single) or $250K (married)? Skip to – “Forgiveness – What We Know So Far,” below
6) If you are a parent of a current student getting loans, is your household Adjusted Gross Income (look on your tax return or ask your CPA or CFP) less than $125K (single) or $250K (married)? Skip to – “Forgiveness – What We Know So Far,” below

Income-Driven Repayment Loans

If your loan payments were ever calculated based on your income, you may be entitled to some relief. Many errors were made in the calculations of those payments, mostly in the loan servicers’ favor. Most of those errors have now been corrected. You may owe less than you think. You may also qualify for lower payments.

Go to student aid.gov, sign up for an FSA ID, and find out.

Public Service Loan Forgiveness

A study showed that nearly all applications for PSLF had been rejected over the past several years when many of them should have been approved. Additionally the loans suffered from accounting errors.

Plus, more jobs have now been added to the PSLF program eligibility.

****But in order to have your case reviewed, you have to enroll at the student aid.gov site by getting an FSA ID by 10/31/22.****

Anyone in medicine, education or government work should go ahead and enroll. Enrolling sooner than later will reduce the chance of getting caught up in a last-minute rush of applicants.

Tax-Free Student Loan Reimbursement

With the 2017 Tax Act, employers and employees were given a special benefit. Employers can reimburse employee’s student loans up to $5250 (but any tuition directly reimbursed is subtracted first). The employers get to deduct the compensation, and the employee doesn’t pay tax on it. This benefit is available regardless of salary, income, or occupation.

Because the 2017 Act sunsets in 2026, however, this means that this benefit is only available until 12/31/25, unless it’s extended by Congress.

Ask your employer if this benefit is available to you. If you work for a small-ish employer, that employer may not be aware of this benefit. Given the tight labor market, it might be a good time to make the request to add it, or to provide it for you.

Forgiveness – What We Know So Far

While many of the details still have to be worked out, you’re probably aware that the recently-enacted loan forgiveness applies if you are single with Adjusted Gross Income (AGI) of less than $125K or married with AGI of less than $250K.

Again before letting that internal Soup Nazi strike you down, remember AGI is not your gross income/salary. If you are a W2 employee, your AGI would be approximately:
Salary+Bonus minus Retirement contributions minus HSA (Health Savings Account) contributions.


In addition to retirement and HSA contributions, there are many other adjustments that can affect your AGI, but they are less common. The point is that if you make $135K and think you don’t qualify, think again. If you contribute $6K to your 401K and $6K to your HSA, your AGI is $123K, so you actually do.

If you are self-employed you probably have even more deductions, so a thorough tax review would be in order. Maybe an amended return for 2021 might be worthwhile if you find a deduction that was missed.

The amounts that can be forgiven are $10,000 for all borrowers with public loans (not private ones), and an additional $10,000 if they were also Pell Grant recipients. The website at student aid.gov will tell you which loans you have that are forgivable.

What if you paid off your loans within the past year and you would otherwise qualify for forgiveness? Surprise – you will be able to apply for a refund. Details on that yet to come, though.

What if you are the parent of a current student? As long as the student had loans as of 7/31/22, and your household’s AGI falls below the income eligibility figures, your child’s loan(s) would qualify for forgiveness.

Summary – Several Strategies

In summary, now there are several strategies to employ that can help ease the burden of student loan debt. Consult with a knowledgable CPA or CFP on what opportunities there might be for you.

You can make an appointment to speak with us about your student loans or other concerns on our Contact Us page.

Continue ReadingStudent Loan Forgiveness 2022? 6 Questions To Ask

A Buckets Approach To Retirement Income

buckets

A buckets approach to retirement income: One of the most common questions financial planners receive from pre-retirees is, “What’s the safest way to give myself a paycheck once I quit working?”

Those who have been around long enough probably know someone who retired close to a particularly bad market year, like 2001, 2007 or 2008. Because that someone had to, or chose to, sell some investments at that terrible time, they ended up living off of much less than they originally thought. This can be a scary thing to watch. It makes some wonder, “How do I make sure that doesn’t happen to me?”

The Buckets Approach

Enter the buckets approach to retirement income. Below is a link to a video excerpt from the online course, “Retirement Readiness,” outlining a buckets approach in more detail. (A link to the course can be found at the bottom of this article and here.) A description for each of the buckets follows below.

https://youtu.be/mkeqzgJfeFc

Bucket 1 – Cash and Money Market Accounts

The first bucket will provide your paycheck. The rule of thumb is to
1) calculate any retirement income you will have (pension, Social Security, dividends, interest, rental property, for examples);
2) figure your annual recurring expenses (do not include one-time expenses such as replacing a car, roof, or paying for a special trip or wedding);
3) subtract 2) from 1); and
4) keep 1 to 2 years of that difference in Bucket 1.

For example, Justine retires at 65. She expects to live past age 82 so she is waiting until 70 to claim Social Security. She has a pension of $800/month. Her recurring expenses are $70,000 annually. The annual difference is $70,000 – $9,600 = $60,400. To start retirement, she decides to keep 1.5 years of the difference in Bucket 1 so $60,400 x 1.5 = $90,600. She puts that in a high-yield money market account and sets up an automatic transfer of $5833.33 monthly to her checking account. Voila – she has a new paycheck.

When she turns 70, she will collect $45,000 in Social Security. At that time the annual difference will fall to $70,000 – ($9,600 + $45,000) = $15,400. She decides to keep 2 years of the new difference in Bucket 1, so $15,400 x 2 = $30,800. She reduces the monthly transfer from the money market to $1283.33 per month.

Bucket 2 – Bonds, CDs, and Bond Funds

The second bucket replenishes Bucket 1. As the paychecks come out, the principal in the money market account will naturally decrease. When the balance reaches a level you have predetermined, a transfer is made from Bucket 2.

Bucket 2 is comprised of a combination of CDs, bonds, and or bond funds. CDs and bonds have maturity dates, so they are structured in a ladder (staggered maturity dates usually 6 to 12 months apart into the future). As each one in the ladder matures, the principal is either transferred to Bucket 1, or redeployed into a new CD or bond with a maturity date at the end of the ladder. If bond funds are used, they are laddered according to the duration in the fund, and the funds are sold as needed to replenish Bucket 1.

Bucket 3 – Stocks and Stock Funds

Bucket 3 replenishes Bucket 2 through harvesting gains in stocks. To do so, the general rule of thumb is:

  1. Review Bucket 3 on a regular but infrequent schedule (at most quarterly and at least annually). I
  2. f there are gains, transfer those to replenish Bucket 2.
  3. If there are no gains (i.e. the market is in a correction), then do nothing until the next scheduled review.

In this way, stocks are not sold at the most inopportune time. With up to 5 years of paychecks in hand, the first two buckets provide a secure cushion from market corrections.

Final Notes

It’s worth noting that whether the buckets are held in a tax-deferred account or a taxable account makes a difference. Buckets may be spread across accounts in different combinations to minimize taxes.

The goal of the Bucket approach isn’t to generate the best returns of any retirement portfolio on record, but rather to help prevent retirees and pre-retirees from selling at an inopportune time. Thus, a new retiree could use the bucket concept to replace their paycheck without worry about what markets are doing that month.

For a short online course on how to speak “finance” about retirement readiness, see Simple Finance Retirement Readiness: https://bit.ly/3p3BkXE.

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Minimalism, Kakeibo and Happiness

saving money

Minimalism, Happiness and Kakeibo: Minimalism trends have been around at least a decade. They contributed to the rise of the FIRE (Financially Independent Retiring Early) movement, where 20- to 40-somethings shared ways to “retire” before the conventional 60-something age. Much of the movement’s advice questions how much one really needs to spend to be happy.

While staying-at-home one morning in 2020, my husband and I had a heartfelt talk about the future. We began with guessing how the world might change; and then how our microworld-within-the-world might change. We braved scary thoughts about health, family, finances, and society. Then we shifted to how little we need to be happy.

Choosing Wisely

In other words, should scary stuff happen, we agreed to make a choice about our response to it. The pandemic helped affirm that stuff, even money, isn’t our highest priority.

It’s possible we aren’t the only ones coming to these conclusions. Minimalism might enjoy a pandemic-inspired boost. For example, in 2020 journalist Sarah Harvey described her discovery of the Japanese art of kakeibo (“kah-keh-bo”) in this article: https://www.cnbc.com/amp/2020/01/08/how-this-japanese-method-of-saving-money-changed-my-lifeand-made-me-richer.html

What is Kakeibo?

Kakeibo is the Japanese art of keeping a written financial ledger. Writing Harvey’s expenditures down brought their relative need (or lack thereof) into sharp focus for her. It helped her spend less by watching what she spent on. As a result, she chose more wisely in her spending.

For me, I already keep a spending journal, but joining Weight Watchers also worked the same way. By tracking what I ate, I quickly learned where excessive calories came from. As a result, I ate more mindfully. More frequently, I paused before grabbing the next snack. As a result, I chose more wisely in my eating.

So, kakeibo kind of works like Weight Watchers but for wealth.

Paring Down the Excess, Like, a Car

Looking at our spending during the pandemic caused us to wonder, if we are being forced to do without, what won’t we miss? While being forced to stay home, we discovered upsides to more home-cooked meals; more family time (even if on Zoom); more movies at home; and more neighborhood bike rides. More downsides were discovered to driving, commuting, and shopping in stores.

We began to realize – could we slow down, spend less, and actually be a little happier?

For example, because we got outside more, we met more neighbors. We stayed closer to home for socializing as well as shopping and working. In fact, I was using my car so much less that it began to feel like excess. Why were we paying insurance, license renewal fees, and letting it take up room in the garage? So In July 2021, we sold it.

Minimalism, Money, and Mindset

Like an ecosystem hit by a natural disaster, some parts of our old lives may now begin to feel excessive, or may crumble and not come back. Others will adapt and grow to take their place.

Having to make do with less highlighted that happiness is more dependent on our mindset than our stuff and our money.

What discoveries have you made about your spending in the last 2 years? Share a comment below.

For more psychology of money, tax, and funny video tips, subscribe to the award-winning monthly e-letter, “The View From the Porch,” at https://bit.ly/3t2uwfn.

For a short online course on how to speak “finance” about retirement readiness, see Simple Finance Retirement Readiness: https://bit.ly/3p3BkXE

Continue ReadingMinimalism, Kakeibo and Happiness