Insuring for Your Level of Wealth

Insuring for Your Level of Wealth

Insurance is not always an exciting topic to talk about, but financial planners are well aware of the risks their clients can face when they are underinsured. Whether it is homeowners insurance or life insurance, the different types of risks people face can easily wipe out a portfolio or other assets when their clients are unprepared with inadequate levels of coverage. The more wealth people have, the greater exposure they have to other threats such as cybersecurity and unfortunately lawsuits; these are the types of incidents many people fail to consider when determining their policy coverage amounts. Amassing assets is one thing, but keeping them safe is another.

Consider finding out more about these types of insurance to help protect your wealth:

Life Insurance and Long Term Care Insurance (LTC): These are both primary types of insurance for protecting assets for the living. Life insurance should calculate on income replacement and asset accumulation of the deceased for many years, the impact to the beneficiaries from their income loss during the adjustment period, and paying off all outstanding debt associated with the deceased. LTC insurance protects assets that would otherwise need to be liquidated to pay for individual care in an LTC facility for an extended period. Depending on your state of residence, minimal assets are shielded from liquidation to pay for care with your home being one of the only assets protected if you’re the remaining spouse.

The Federal Deposit Insurance Corporation (FDIC): This covers money deposited in member banks for up to $250,000 per depositor per bank, and per ‘ownership category.’ Depending on the type of account and the ownership category, coverage can easily exceed beyond the $250,000 per depositor level.

The Securities Investor Protection Corporation (SIPC): This secures your cash and securities in member brokerage houses against the failure of the firm and theft. The maximum coverage of SIPC protection is $500,000 which includes a $250,000 limit on cash. You can structure your accounts in different ways (called “separate capacity” by the SIPC) to increase your total coverage. SIPC insurance is automatically part of investor protection when you invest in a member brokerage house. However, SIPC insurance does not cover investment loss due to declining stock market valuations.

Liability Coverage: If you own property such as a car or own a business, liability coverage is added to your insurance policies beyond casualty coverage for your homes, commercial buildings and your vehicles to cover beyond the repairs of the incident, injury, or death in case of being sued. For individuals with a high net worth, this is a way to offset millions from being liquidated from your assets if you end up in a legal battle with a lawsuit award going to the other party.

Umbrella Insurance Coverage: This is added additionally beyond regular property and casualty coverage and can cover items of value such as art, jewelry and sometimes irregular catastrophes such as identity theft or cybersecurity attacks.

Financial security starts with saving and investing, reducing debt and having the appropriate level of insurance coverage that increases as you accumulate wealth over your lifetime. These are not the only types of coverages available but are a good start if you have concerns about being insured for your level of wealth.

 

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

Financial Literacy in America: We Are Failing

Financial Literacy puzzle

“Financial literacy refers to the set of skills and knowledge that allows an individual to make informed and effective decisions through their understanding of finances. Education on the management of personal finances is an essential part of the planning and paying for postsecondary education.”– Webster’s Dictionary

 

Financial literacy includes having a basic understanding of how to pay bills online, manage bank accounts, manage debt, fill out income tax withholding forms at work, and understanding how to save and invest. If financial literacy is education, shouldn’t it happen in schools? Unfortunately, most school districts don’t offer a financial literacy course, and most colleges don’t either. That leaves financial literacy up to parents to educate their children, individuals to learn on their own, or education through a trusted source.

Numerous studies indicate there will be consequences that will hurt our country for years to come. How can we overcome a lack of financial literacy in America?

Bring Financial Literacy into the Work Place

When employees are invited to attend workplace classes on budgeting, saving, and investing, they are more likely to save for retirement and not live beyond their means. These classes are commonly conducted by the financial advisor that oversees the company retirement plan, the HR Department, and other financial literacy educators.

  • Attending an employer-sponsored retirement seminar saw a net worth increase by nearly 27% for those who were in the lowest income bracket (Dartmouth College Study)

Require a Financial Literacy Class to Graduate

  • Only 17 states require a financial literacy class to graduate from high school (the latest study released in 2018)
  • Zero – The number of states that require the passing of a test on basic financial concepts
  • Zero – The number of states that have added financial literacy courses since 2014

Financial literacy experts know that teaching people how to manage their income and expenses and giving them a basic understanding of financial concepts will enable them to have financial successes regardless of their future income.

Credit Scores Improve After a Financial Literacy Class

Having trained teachers that know financial literacy content can help develop better credit behaviors early, even in childhood if offered through the school system. This leads to making on-time payments and understanding how to manage debt and credit.

Who Can Help if You Have Questions About Basic Financial Concepts?

  • A capable educator or financial literacy teacher
  • Securities licensed Financial Advisor
  • A Certified Public Accountant (CPA) Financial illiteracy affects all ages and all socioeconomic levels.

It’s up to all of us to improve financial literacy here in the U.S. if we are to move away from being a debt-ridden society and toward being a society that has financial security.

 

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment advisor. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

Investment Advice Before Turbulent Times

Investment analysis charts

It is human nature to seek advice only when things aren’t going as planned or when some unforeseen situation arises. Take one’s health for example- some people routinely have an annual exam, while others seek medical advice only when they suspect a health problem and the symptoms have become severe. Just like seeking medical advice only when something is wrong, some seek financial advice from a professional only when the stock market and their investments are experiencing turbulent times.

Being reactive during turbulent stock market periods sometimes leads people to consider leaving their current financial advisor to one that wants to change their entire portfolio composition during a market downturn. Moving investments over to a new advisor during a bad time can be a bad decision when investors fail to consider the possible longer-term consequences of liquidating portfolio holdings at a low valuation and then repurchasing new shares. Advisors that are ready to move a client’s assets during their lowest valuation are not working in the client’s best interest and may be working for the commissions created through the client’s panic.

Here are few things to consider before the turbulent period arrives:

  • Market swings are a sign of a healthy market that is working toward a market correction.
  • Don’t make sudden decisions to quit investing or ‘go all in’ and keep investing through dollar cost averaging over the turbulent times the stock market may be experiencing.
  • Your investment’s time horizon is likely over many years (20 or more years) and not affected by a drop over a short period. Consider how long your 401(k) will be in the accumulation stage; it has experienced many market swings.
  • Short term investments should be moved into cash and not the stock market if you think you will need it in the next one to two years.
  • Evaluate your advisor’s performance during the good and bad times the stock market is performing. If there are issues that can’t be resolved, the best time to change advisors (and your portfolio) is when market valuations, and your portfolio’s valuation, is positive.

If you have concerns about your portfolio and how it will fare when the stock market corrects itself again, now is an excellent time to meet with us to develop a plan for the future. The best time for making financial decisions is during ‘the good times,’ not the turbulent times when an investor may be prone to emotions hindering good decisions.

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*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

Are Early Retirement and Pension Buyout Offers a Good Deal for You?

Early Retirement

In today’s economy, offers of an early retirement buyout for a current employee or a pension buyout directed at a former employee are becoming common as companies look for ways to cut costs.

Many large employers are offering employees who are not yet at retirement age the option to take an early retirement buyout. Each company has their reason for providing the buyout, but mainly because it will save the company money to hire a junior employee to fill a senior employee’s role when the yearly salary is a factor.

For companies that had a pension plan for their employees, pension buyout offers have become standard practice due to the increasing costs of administering pension plans. Even though pension plans may not be currently part of the employer’s retirement plan, there may be former employees that have the pension plan. Companies have a desire to get the liabilities associated with the pension payments for retired employees off their balance sheets well ahead of their retirement start dates.

Both of these types of offers usually come with several options:

  • Take the value of your early retirement or pension buyout as a lump-sum payment which can be rolled over to an IRA. The advantage is the ability to manage this money outside the employer’s plan, perhaps growing the value to a level that would provide a more significant benefit than taking your payments every month.
  • Take a monthly payout now (earlier than your average retirement age) with tax consequences.
  • Do nothing and take your original pension payment (or a lump-sum if offered) at your planned retirement age.

Factors to consider:

  • Will taking one of the buyout options put you in a better financial position than doing nothing and waiting until your normal retirement age?
  • Are you comfortable managing a lump-sum yourself or do you prefer a financial advisor you trust to help?
  • Is your financial or health situation such that taking the monthly payments now would make sense?

These types of offers are likely to continue given the unknown financial future, the tariff environment, and the worldwide economy. If you receive an early retirement or pension buyout offer, please contact our office for a consultation. We can help you evaluate your offer and make the best choice for your personal situation. Contact us today!

 

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

GDP: Does It Affect Your Portfolio?

Stocks vs GDP

Gross Domestic Product (GDP) is the total of everything produced in a country, even if it is made by a foreign company or foreign workers within a country’s borders. GDP counts the final value of a product, but not the parts that go into producing it as a way to avoid ‘double counting.’ In many countries, GDP is measured quarterly by adding personal consumption expenditures plus government spending plus business investment plus exports minus imports (GDP Standard Formula: C + G + I + (X-M). But does GDP have a bearing on your portfolio?

GDP growth is a measure of an economy’s growth but is not an accurate indicator of stock market performance. Although politicians like to use GDP as a goal in measuring the health of the economy, stocks don’t track upward or downward depending on the GDP.

There are continuing factors impacting the U.S. GDP:

  • The U.S. has shifted from an Industrial Economy to a Service Economy (not counted in GDP)
  • We are becoming ‘more efficient’ consumers, purchasing fewer non-essential goods than previously.
  • Low energy prices = reduced economic expansion

Indicators that are relevant to stock market performance include current economic conditions, changes in financial conditions for companies, and future production forecasts. Two industries that affect the stock market, regardless of the country of origin, are the automotive industry and the technology sector. When production booms or lags in either of these, it reflects in the stock market where the company is based.

However, when the stock market is over-performing or under-performing, consumer confidence directly affects GDP. During a bull market, there is optimism about the economy and consumer spending increases. As a result, company valuations increase, expansion happens due to increased product demand, companies can borrow easily, and more jobs are available. When the stock market is underperforming, consumers are reluctant to spend and impact on GDP.

If you have questions or concerns regarding the stock market and how your portfolio is performing, now is a great time to review it and plan for a market downturn. Contact us today!

 

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

Planning for the Long Haul: Is Your Plan for Retirement Bullet Proof?

Long Haul Runner

The good news is we are living longer, but the bad news is that having irregular employment, higher health costs and the premature depletion of retirement assets is becoming a reality for many Americans. Despite plans for retiring later (compared to previous generations) at age 69 or into the 70’s, unplanned events are contributing to earlier retirement, despite the best retirement planning preparation.

According to a 2018 survey by The Employee Benefit Research Institute (ERBI), 40% of participants in the study plan to retire after age 70 citing personal financial concerns. However, previous research studies by the same group revealed that many workers are forced to retire before age 60. Consider why the outlook for an unexpected early retirement is happening to many people:

Layoffs and Terminations

The ERBI survey revealed that 26% of workers terminate out of their jobs before turning age 60. Older workers are often paid higher wages than their younger counterparts and unfortunately are often the first to be terminated. Even with an early retirement buyout, many have a hard time finding work with the same pay rate and benefits.  The change in income is creating negative consequences for many as suspended savings contributions and premature liquidation is occurring when retirement assets become necessary for living.

Health Issues

Despite longevity increasing worldwide, many workers are forced to retire early due to health reasons. What we do to our health in our younger years affects us later; smoking, alcohol consumption, lack of a healthy diet and exercise and sleep deprivation are the most significant contributors affecting our health later in life with genetics being secondary

Keeping yourself healthy and employed is imperative to your retirement plan’s success. By preparing yourself financially and taking care of yourself, your plans for retirement have a better chance of being bullet proof-regardless of what life hands you.

 

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

When Your Child Inherits

For many parents, planning to leave their estate to their children is a common practice. There are many things to consider when planning to leave your children an inheritance, but the complexity increases when your child is beneficiary to someone else’s estate. What happens when the minor child becomes an heir, or when the child’s parent (a beneficiary) passes away before the benefactor? 

Children can’t legally own property until they become of legal age, even if they inherit. This can be a problem when wills and estate plans are not updated, and when the benefactor (a non-parent) doesn’t understand the complications of leaving an estate to a minor. If this is a situation you see your minor child being in, seeking legal advice to help you plan a course of action to address this in your own will or estate plan is essential.

As recent as 2016, the celebrity deaths of Carrie Fisher and her mother Debbie Reynolds show how relatives can die in close proximity. Although Carrie Fisher had no minor children at the time, this illustrates the likelihood a child could receive an inheritance from an unintended source at an unanticipated time.  Planning is crucial for high net worth individuals, those in second marriages, and for those planning to leave their children (especially minor children) an inheritance. 

For parents with minor children, having an estate plan for yourself and the other involved parent is important in case you both die in close proximity. Secondly, have a discussion with other relatives that may leave an estate to you or your minor child. Discussing the details of their will and estate plan can be uncomfortable, but relaying the reasons for your concern can make the discussion easier. 

In your own will, you have the legal right to determine who will assume responsibility for the management of your assets on your behalf until your child becomes of legal age, or when your will directs the age your estate will pass to your child.  However, be advised that with securities and life insurance policies there are additional requirements and paperwork if you choose to name your minor child as a beneficiary.

For minor children who inherit in this unintentional way, the timeline of passing the inheritance can be drawn out and expensive as the case moves through probate.  Each state has its own laws regarding passing assets to minors.  Planning for your own state’s laws can be beneficial for the time being, and keeping your will and estate documents updated is crucial while your children are minors.

As always, feel free to consult our office on the requirements for transferring assets to your minor children if part of your estate plan or will. Contact us today!

 

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

The Perils and Possibilities of Self-Employment

Cheerful smart self employment

 

More people are choosing to become self-employed with one in three Americans leaving their jobs to go on their own. According to a twenty-year Harvard University Study republished in November 2018, the top reasons many are leaving stable employment is wanting more control over how and why they work and choosing who they work with for clients. This trend is expected to continue as older and highly educated workers choose the alternative working arrangements of self-employment.  

Other workers are forced to start their own business due to down-sizing by American companies as more companies are choosing to hire contracted labor versus hiring full-time employees and paying benefits. Necessity has also created an entrepreneurial opportunity for many to become self-employed due to technology advances eliminating workers, people working past age 69 in comparison to previous generations, and the slow recovery of business growth resulting in fewer positions with wages above the minimum wage.

Self-employment creates an interesting problem when it comes to benefits that others receive through their full-time employment such as health insurance and a retirement savings plan. Most U.S. workers rely on a three system approach to retirement savings: a governmental savings plan (Social Security), employer savings plans (401(k), etc.), and personal retirement savings.  Self-employed individuals are not always participating in these same savings plans, often they are only paying into the governmental plan of Social Security.

If you are self-employed or considering becoming self-employed, it is important for you to continue saving for your retirement on a regular basis. Your business may liquidate at some time in the future and provide you with retirement assets, but that is an unknown until the event happens. In the meantime:

  • Move your former employer 401(k) into an IRA to manage and avoid liquidating it to fund your business or the lean-times in cash flow.
  • Continue health insurance coverage and shop for a plan that is affordable and provides you with protection.
  • Keep your property and casualty insurance up to date.
  • Plan for retirement by meeting with a financial advisor and have a financial plan done that reflects this major life change of self-employment.
  • Set up a self-employment retirement savings plan such as a solo 401(k) and save regularly, even if at a minimal level.
  • Keep yourself focused, healthy, and stress-free. Self-employment can be stressful and take a toll on you if you don’t take care of yourself both physically and mentally.

If you have questions about setting up a self-employment retirement savings plan, contact our office to schedule a meeting.

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

Looking Ahead: The Tax Cuts, Jobs Act, and 2018 Income Tax Filing

Tax Cuts and settlement

 

This is the first tax filing season since the Tax Cuts and Jobs Act (The Act) was passed. Even though 2018 is over, there are tax planning strategies you should think about before you file and plan accordingly for 2019. There still remain 7 income tax brackets and the marginal rates have been lowered

However, many deductions have been eliminated which will necessitate that you plan ahead for 2019 and think about the losses and expenses you had this past year. Some over-looked items that may help to lower your taxable income:

  • Medical Expense Threshold- For 2018 The Act lowered the floor from 10% to 7.5% of adjusted gross income that must be exceeded in order to take a deduction for medical expenses on your 2018 tax return.
  • Combine Charitable Giving into the Same Year- The deduction for cash donations to charities has increased to 60% of the giver’s adjusted gross income. Charitable donations can be combined every other year to exceed the new higher standard deduction ($24,000 married; $12,000 single).
  • The Gift and Estate Tax Exemption- The exemption amount has almost doubled to $11.18 million per person and will increase through 2025 with inflation. The exemption amount is set to return to pre-2018 levels after 2025, so ‘use it or lose it’ if you want to pass assets now to your heirs and tax-free to both parties.
  • Harvest Your Investment Losses- This past year has been challenging for the stock market and investor portfolios. Consider harvesting your 2018 losses on your taxes to offset the capital gains in your securities portfolio from this past year.
  • Maximize Pre-Tax Retirement Savings Contributions Now- If your account was open prior to the end of December 2018 and you didn’t fully fund your accounts, now is the time to do so before Tax Day 2019.
  • Review Your Withholding for 2019- If you haven’t reviewed your tax withholding from your paycheck in the last few years, now is the time you can make adjustments before 2019 gets further underway. It may mean the difference in paying in on your tax return next year or not.

I’m able to provide you with information as it pertains to specific securities investments and their tax consequences, but recommend you consult your tax professional for additional tax savings strategies for your situation. Contact us today with your questions!

 

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

High Income, High Financial Planning Risk?

High Income Workers

Despite having a high income from owning a business or being an executive, these individuals can experience retirement savings problems. They have missed savings opportunities or put off financial planning. Often they assume that everything will work out with their retirement plan, and it can, but their high-income can hide the reality of a retirement savings deficit when their career ends.  They failed in their early working years to consistently save, but why?

Many high-income and self-employed people often focus on the business being their retirement nest egg. The sale of the business being the funding source or an executive benefits package is sometimes an unknown in the early working years. Retirements today are different from the past since retirees desire the flexibility of choosing to work, volunteering, golfing daily, or doing anything they choose. This lifestyle is only possible if they have saved enough for retirement or are financially fortunate when they sell their business.

Consistent financial planning puts the self-employed and high-income executive in a better position to retire on their terms and when they choose. Here are some retirement plan ideas specific to these individuals:

  • Maximizing a Solo 401(k) or SEP IRA each year allows self-employed earners to save more than in a traditional 401(k), but with some additional requirements. For the self-employed or executive, these retirement plan options are the most obvious way to save and should be considered regardless of the financial status of the business.
  • Having a Deferred Comp Plan (DCP) allows larger deferral of compensation to help supplement other retirement savings plans later on.  A strategically planned DCP creates the option to choose an IRS contribution limit determined by the employer’s corporate lower tax bracket or the employee’s higher personal tax bracket when determining contributions for each year. 
  • A Defined Benefit Plan (DB) Provides the opportunity to contribute to retirement benefits well ahead of retirement time. A DB plan is a qualified-benefit plan and differs from a pension fund where the payout amounts are often dependent on investment returns. In a DB plan payments are determined by a formula that considers the length of employment, salary history, and other factors. If poor investment returns result in a DB plan funding shortfall, the employer must tap into the company’s earnings to make up the difference.

For those that are self-employed, avoid putting all of your additional revenue back into your business. Choose to contribute to a retirement savings plan and avoid believing you can ‘always make it up later’ when it comes to financial planning and retirement savings. Having a high income enables you to save more, but only if you consistently engage in planning for your retirement.

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

*These links are being provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. Contact the external site for answers to questions regarding its content.

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