The Gap in Financial Planning

The Gap in Financial Planning

Have you ever assembled a piece of equipment, or perhaps a toy for a child, stepped back and admired your great handiwork, only to find a part (or two) leftover which should have been used? On the outside, your masterpiece looks flawless. On the inside, however, you’re wondering just how important those pieces are. That “gap” could be the most important pieces.

When it comes to financial planning, there is an area we most often see as the “gap” after 35+ years of us working with clients.

The “gap” is this: What happens to you and your family in the event of an unexpected death or disability? We can plan for your investments, savings, insurances, budget and retirement. And all of that is good. But what happens to your minor children in the event you pass away prematurely? I know…not a fun read for today. But, it happens, and we all need to have a plan in place for what we desire to occur when, not if, we pass away. What I am talking about here is an estate plan.

Let me address a few myths when it comes to estate planning:

1) Estate plans are only for rich people. False. Estate plans are for ALL people. We ALL have an estate (https://www.estateplanning.com/What-is-Estate-Planning/)

2) My family will just cordially work out who cares for our minor children. False. More often than not, a judge listening to both sides of the family makes the best decision that he or she can. Whew! How much easier this would have been with simple wills declaring his or her wishes for who should care for the children.

3) The courts will just work out what is fair for everyone involved. False. What is considered “fair” is relative to those involved. Did you know that in many states, Mississippi being one, a spouse receives the same percentage share of an asset as a child would should the deceased die without a will and the asset had no named beneficiary?

These are just a few myths that come to mind. Over the years, we have seen the heartache involved when a person’s estate is not planned well, or at all. They may have sufficient assets to care for loved ones. However, without a properly designed estate plan, disaster can occur, causing stress for loved ones.

We often get asked: “Should I pay an attorney to help, or could I write my own will?” Well, “yes and yes.” You should pay an attorney, and you can write your own will. However, we believe it is much wiser to get professional help, especially should a problem arise down the road. You can attempt to diagnose that continual headache, rash or stomach pain all day long using webmd.com. Or, you can pay a doctor who does this type of work on a daily basis.

So, what are essential parts of an estate plan? Our industry has called it the “Three-legged stool”:

1) Last Will and Testament
2) Durable Power of Attorney for Finances
3) Advanced Healthcare Directive

That stool could have a fourth leg for situations needing a Revocable Living Trust. We won’t go into detail on any of these today, but it’s worth bringing up each of these items to the attorney you choose.

I have observed that the hardest step is the first step – not just in estate planning, but in many important areas of life: Making that first phone call and asking for help.

I am a big believer in professional help. That includes the work we do as financial planners. All your ducks may be in a row, but it’s worthwhile to have a second set of eyes to make sure. We think you’ll be glad you did.

Scott is the founder and a partner at Rivertree Financial Planning. Scott and his wife Helen currently reside in Jackson, MS with their three children Artur, Taylor, and Molly. They are members of Redeemer Church, PCA in Jackson.

A Wake-Up Call

A Wake-Up Call

It’s that time of year for many of us – kids back to school, a new routine established, and a list of to-do’s. I’m a big fan of the change of seasons (but a change in plans, now that’s another story!)

I love that there are biblical writings about different seasons of life, none better than Ecclesiastes 3. Listen to what Solomon wrote:

 For everything there is a season, and a time for every matter under heaven:

a time to be born, and a time to die;
a time to plant, and a time to pluck up what is planted;
a time to kill, and a time to heal;

a time to break down, and a time to build up;
a time to weep, and a time to laugh;
a time to mourn, and a time to dance;
a time to cast away stones, and a time to gather stones together;
a time to embrace, and a time to refrain from embracing;
a time to seek, and a time to lose;
a time to keep, and a time to cast away;
a time to tear, and a time to sew;
a time to keep silence, and a time to speak;
a time to love, and a time to hate;
a time for war, and a time for peace.

(Now some of you may have thought the Byrds would be credited for the above with their hit song, “Turn! Turn! Turn!”, but that’s certainly not the case.)

Some view the book of Ecclesiastes as a depressing read. I get that. But I’ve always read this book as a wake-up call. The writer is one of the wisest men to ever live, and he’s reflecting on life at the end of his own. What a gift for us!

“For everything there is a season, and a time for every matter under heaven.” That’s how this chapter begins – to let us know to expect different seasons of life. There will be seasons to rejoice, and seasons to mourn.

I’ve written in a previous newsletter about learning to live in the good and bad of life. This journey continues. I’ve not yet arrived…nor will I. But it’s worth honestly engaging in the journey rather than ignoring its existence.

What season of life are you in? Mixed emotions of kids going back to school? Rejoicing in an unexpected blessing? Mourning the loss of a loved one? Feeling ashamed for procrastinating in an important area of life, including money?

Know this – you are not alone. My encouragement to you is to bring others into whichever season you are in. We are not wired to go it alone. Connect with others, share with others, mourn with others, and rejoice with others. Our circumstances may not change, but, as we take these steps, our ability to cope does.

Know this also: There is a Savior who walked this earth and experienced different seasons of life: rejoicing at a wedding, mourning at a death, trusting while suffering. Be comforted in this truth.

Scott is the founder and a partner at Rivertree Financial Planning. Scott and his wife Helen currently reside in Jackson, MS with their three children Artur, Taylor, and Molly. They are members of Redeemer Church, PCA in Jackson.

Tax-Wise Giving and Ways to Lower your Taxes After Retirement

Tax-Wise Giving and Ways to Lower your Taxes After Retirement

What if I told you that there was a way to never pay taxes again when you retire? Well, I’m sorry – I can’t tell you that. But now that I have your attention, there are certainly some ways to lower your tax liability in retirement, particularly as it relates to charitable giving. Let’s look at a few of these strategies:

 

1)      Donating low tax-basis capital assets, such as stocks or mutual funds: How does this work? Generally, when you sell a capital asset, you have to pay taxes on any gains. For example, if you bought 400 shares of a stock (or a mutual fund) at $25, held them for at least one year, then sold them at $30 per share, you would owe taxes on the $5 gain per share (400 shares x $5 gain per share = $2,000 in taxable gain).

Using this example, let’s say you planned to give $12,000 to charitable organizations. Normally, you would just write a check from your checking or savings. However, by donating the stocks at fair market value of $12,000, you get the same tax deduction AND avoid paying capital gains tax. For the charity, it’s the same amount of money. But for you, it’s less taxes.

 

2)      Donating your Required Minimum Distribution (RMD): When you turn age 70 ½, the tax code requires that you begin taking minimum distributions from your pre-tax retirement accounts (Possible exception: 401k plan while still employed). Why can this be a problem? Well, one, you may not need or want the additional funds. And two, these distributions are direct increases to your taxable income.

Rather than receiving these distributions, the tax code allows us to donate up to $100,000 as a “qualified charitable distribution (QCD).” For the receiving charity, they receive the same amount. But for you the taxpayer, your taxable income is reduced by the amount donated.

 

3)      Reducing your living expenses: How does this help? Well, in two major ways. First of all, living on less means you’re taking out less from your retirement accounts. That strategy is a direct reduction of your taxable income and reduces the chance of paying taxes in a higher marginal bracket on a portion of your income.

Secondly, lowering your monthly expenses can reduce the amount of taxes you pay on social security income. (Yes, I know…taxes on social security income after paying into the system all these years? Sadly, yes.) For single tax filers, social security income starts being taxable when “modified adjusted gross income” exceeds $25,000. For married couples, taxes on social security income begins at $32,000. (Be sure to discuss this strategy with your tax preparer as the calculations can be complex.)

 *What’s a sure-fire way to reduce your living expenses in retirement? Being debt-free!

 

4)      Fund Roth 401k’s and Roth IRAs: This strategy particularly applies to our “Accumulator” folks. Why? You have more time to fund retirement accounts that do not require minimum distributions beginning at age 70 ½. Often, we have clients who do not want to take their required minimum distribution but are forced to, increasing their taxable income.

 

These are just a few ways to lower your tax liability in retirement and give in a more tax-wise manner. If we can be of assistance in any way, please don’t hesitate to contact us. We’d love to help.

 

Disclosure: Be sure to discuss these strategies with your CPA or tax preparer as each individual’s tax circumstances are unique. These planning strategies are not considered “tax advice” but merely strategies to consider.

Scott is the founder and a partner at Rivertree Financial Planning. Scott and his wife Helen currently reside in Jackson, MS with their three children Artur, Taylor, and Molly. They are members of Redeemer Church, PCA in Jackson.

Why Everyone Needs a Financial Quarterback

Why Everyone Needs a Financial Quarterback

I’ve always loved sports – playing, watching, and understanding sports has always been a hobby. From my earliest memories, our family journeyed to various sporting events. One of my treasured memories was going to Atlanta to see Dale Murphy play for the Braves. He was my favorite player, and he did not disappoint in live view as he hit two home runs.

I’d argue that few things teach more about life than sports. You learn submission to authority, how to play as a team and work with people you like (and don’t like) to accomplish a greater goal. One of my greatest joys has been transitioning from being a player to being a coach. It’s a total gamechanger: who plays where, who bats when, and who attempts to explain the win or loss. It’s a blast, but being a coach comes with an enormous burden.

Think of your finances: Who is the overseer? Is it you? If so, that’s okay for now, but what about when (not if) you’re gone? How can you best care for those you love most with your finances? By having a financial quarterback.

Learning to Delegate

I distinctly remember a watershed moment early in my career. As my client base grew, I found it harder and harder to proactively manage 1) their investments and 2) their overall financial plan. I needed to choose: Do I want to manage investments, or do I want to do financial planning? I chose the latter and have not looked back.

Part of my growth was learning to let go and delegate, not just within my business but with my own personal finances. For example, I used to prepare my own tax return. And, it used to be fun. But was that the best use of my time and resources? No. I freed myself by handing that task over to a CPA.

Think of head coaches. They love to coach players and positions. But as a head coach, you’re now in charge of the overall game plan. You must delegate tasks to your coaches. It’s not easy, but the great coaches learn to let go and chime in during the game only when needed (insert: Nick Saban).

What gives me great peace of mind is knowing my wife and family will be cared for when I’m gone. They’ll have a team of experts surrounding them to hold their hands throughout the process. What a blessing!

So, reader, do you have a financial quarterback to care for those you love most when you’re gone? I know… It’s hard to let go. But you must for the sake of a greater goal.

We’d love to talk with you about being that quarterback for you and your family. Schedule a meeting today.

Scott is the founder and a partner at Rivertree Financial Planning. Scott and his wife Helen currently reside in Jackson, MS with their three children Artur, Taylor, and Molly. They are members of Redeemer Church, PCA in Jackson.

Three Things You Can Do to Start Planning for Retirement

Three Things You Can Do to Start Planning for Retirement

To prepare for this writing, I just spent about 30 minutes updating my personal retirement and education savings plan. All the basic facts were there — it just needed some minor tweaking. As a nerd, it’s fun to track progress towards meeting our goals. But, being married to a sweet lady who defines “fun” differently from me, I understand we are all wired differently.

Maybe you or someone you know would like to start planning for retirement, but they don’t know where to start. Whether you’re a nerd or a free spirit, here are three things you can do to start planning for retirement.

1. Take Inventory

There’s no way around organizing what you have. For many, this step is the greatest fear. Why? It’s a reality check. Start with your most recent bank statements and other account statements. Soon to follow would be your tax return and other financial records. We have a one-page checklist that’s extremely helpful. Let us know if you would like to receive it.

2. Know Your Number

No, it’s not the balance of your overall retirement nest egg. I’m talking about the number it takes you to live each month. We have to use certain assumptions when developing retirement plans, such as inflation, rates of return, monthly savings, etc. But we would argue no assumption impacts the success of your plan more than minimizing this number. How do you reduce it? Have a plan to be totally debt-free when you reach your retirement age. We can help.

3. Work with a Professional

I know…but what about online retirement estimators? Sure. You can try it. But know that all aspects needed to develop a sufficient retirement plan are rarely included in these tools. For example, does the online calculator factor in social security maximization strategies, tax-efficient withdrawals strategies, realistic growth rates, etc. You may enjoy managing your own investments and do well with it. So maybe you need a fee-based financial plan to make sure you’re not missing any critical pieces to your plan.

I often say that there is only one guarantee when presenting a retirement plan: It won’t look exactly this way. Life happens, and goals can change. So then why plan? Managed money goes farther….period. As the late Zig Ziglar said, “If you aim at nothing, you’ll hit it every time!” Let’s aim at something. You might be surprised. Schedule a call today so we can help you plan for tomorrow.

Scott is the founder and a partner at Rivertree Financial Planning. Scott and his wife Helen currently reside in Jackson, MS with their three children Artur, Taylor, and Molly. They are members of Redeemer Church, PCA in Jackson.