Beware of Predictions

Beware of Predictions

If you are like me, the fatigue of social distancing and sheltering-at-home has come. Although we have had sweet times as a family during these times, I am ready for some (but not all) of the normal to come back. And speaking of normal, what is normal during times of uncertainty are predictions – predictions about the stock market, economy, politics, etc. I know you have seen them, and I have too. What are we to do with so many “expert” opinions? I have some thoughts.

Eventually, They Get It Right

Just this morning I saw this headline: “Expert who predicted the 2008 Great Recession has another prediction.” I bet he or she does! And I bet this person had many more unfilled predictions. Soon after I saw, “Americas         #1 Futurist 2020 Prediction Will Stun You!”

My favorite quote about predictions is this: “If you are going to make predictions, you better make a lot of them!” Eventually, you will get it right. This has been my experience during my time as a financial advisor. You will ALWAYS have someone predicting the sky to fall and never return again. You will ALWAYS have someone predicting the next recession. You will ALWAYS have someone predicting now is the best time to buy gold!

Most likely, these forecasters will eventually get it right. When they do, they can then write a book on just how they knew this bad time was coming. And they can be interviewed on the major networks to share their expertise. When I see this, I often want to ask them: “So what about the 99 predictions you got wrong?” Hold them accountable when they are wrong. But that doesn’t sell advertising as well…

How to Respond

Blocking out the noise is difficult. The voices and headlines surround us. They beg for our attention. So what’s a person to do? Go back to the tried and true financial principles that have guided the wise through turbulent times: Remain calm. Have a plan. Remain diversified (i.e. Don’t put all of your eggs in one basket). Focus on what you can control. Voice the things you can’t control. 

This pandemic will certainly go down as a historic event. The loss of lives is tragic. The uncertainty can be paralyzing. But I’m also amazed and encouraged at the resilience of our people. In the midst of a presidential election year, we are seeing Americans come together for a cause greater than themselves. It’s refreshing. 

In closing, we say “Thank you!” for those on the front lines serving others. We greatly appreciate your sacrifice and service! May we all look for ways to be of encouragement to others. And when we need encouragement, let’s reach out to those who love us. Hearing a voice or seeing a familiar face is good for our souls!

This too shall pass. We hope and pray for your safety and health during this time. Please do not hesitate to contact us.

*For financial planning clients of Rivertree Financial Planning: Please contact us as soon as possible if you have had any changes in circumstances, objectives, goals or risk tolerance.

Reasons to be Hopeful

Reasons to be Hopeful

These are certainly days we will remember – for our generation, and generations to come. The COVID-19 pandemic has rocked our world…literally. We are being tested – our beliefs, our resolve, our plans. “Does it feel different this time?” Yes. It always does. But can we still be hopeful? We can. Here are some thoughts on how. 

Remember Our Past

Black Monday: To say I remember the day October 19, 1987 would not be truthful. I was 7 years old. But I assure you early in my career this day was referenced many times. The Dow Jones Industrial Average lost over 22% value in just one day. This day is referred to as “Black Monday”. And what did most every investor fear? The next Great Depression. Did this occur? No.

Tech Bubble Burst: Now, I do remember where I was on September 11, 2001. I was a college student returning from my morning class. My friends were all gathered around the TV as the Twin Towers were on fire, soon to fall. This occurred right in the middle of the tech bubble bursting. How could we as a nation survive this? We did.

Great Recession: This time period from 2007 to 2009 was…let’s say it…unprecedented. Our country and world had never experienced anything like it. The stock market dropped approximately 57% from top to bottom (we are not there as of this writing). I vividly remember this time as an investor and financial advisor. To be honest fear did reign at times. Could we survive this? We did.

Remain in the Present

We are prone to become emotionally paralyzed in times as these. We digest news and information at a rate our minds and bodies just were not designed to do. How are we to respond? Well, we’d offer this: What can you control? Certainly not the stock or bond market. But how about these:

  • Reduce the amount of news and information taken in each day. Start and/or end each day with silence and solitude. Relax. Meditate. “Be Still, and Know that I am God.” (Psalm 46:10)
  • Revisit your overall financial plan. Are you still on track? If not, what adjustments can you make? Reduce withdrawals; eliminate certain expenses; and rebuild your emergency fund to name a few.
  • Remember what you are invested in – stocks and bonds of companies. Although it can feel like your monthly or quarterly statements are just paper, they actually represent the ownership you have in companies or debt and interest owed to you (bonds). Question: Do you believe that the overall values of these assets will be higher in 1-5 years? If so, then remaining invested with goals in mind is prudent. 

Reassure Your Future

“Cash is king,” my old boss Dave Ramsey still says. No doubt – in this economy, cash is king, whether as an emergency fund or an investment opportunity. Maintaining a healthy cash position is critical to weather these storms. 

But here is the sobering reality: We all know our time on earth is limited. “Death and taxes”, right? They’re unavoidable. But what is your ultimate treasure? Hopefully, it’s not cash in the bank, under the mattress or buried in the ground. That paper is only as valuable as the country backing it. 

Now do we believe that our USA currency is heading that direction? No. But is this a “gut check” time on what we ultimately value? Yes.

Is your future secure? Ponder this as we weather this storm.

As a Christian, it’s a great time to meditate on the truths of Scripture.

Psalm 78 says, “Give ear, O my people, to my teaching; incline your ears to the words of my mouth! I will open my mouth in a parable; I will utter dark sayings from of old, things that we have heard and know, that our fathers have told us. We will not hide them from their children, but tell to the coming generation the glorious deeds of the Lord, and his might, and the wonders that he has done.” (v. 1-4)

We are here for our clients and will remain in close contact. Reach out to us anytime.

*For financial planning clients of Rivertree Financial Planning: Please contact us as soon as possible if you have had any changes in circumstances, objectives, goals or risk tolerance.

From Dream Crusher to Valentine’s Gift

From Dream Crusher to Valentine’s Gift

This month’s blog title might have caught your attention. Rather than the stock market or coronavirus, we are talking about crushing dreams and a Valentine’s Day gift. If you stick with me, you will see where we tie these into financial planning.

One Day. Two Meetings. Two Titles.

The day started with a financial review meeting for clients of ten plus years. These clients are also great friends, so our meetings are often filled with stories, laughter, and some (very) direct guidance. Soon into the meeting, the wife shared how her husband referred to me the previous day: “The Dream Crusher.” I burst into laughter as I knew exactly what he meant.

In the early years of our meetings, his dreams, desires and wants were often met with a direct “No.” If you don’t have the cash saved for the purchase, home renovation or trip, then, “No.” Delay pleasure. Delay gratification. Don’t pay for these with interest of 5% to 29.99%. No, you can’t use emergency fund for “the trip of a lifetime.” These decisions so often come back to bite you.

The Dream Crusher. The title is fitting.

Valentine’s Day Gift

Fast forward a few hours that same day. I was meeting with clients I hadn’t met with in several years due to various life circumstances. They apologized several times for not coming in to review their financial plan. Some time into the meeting, the wife shared that this meeting was her Valentine’s Day gift to her husband (I clarified later that our meeting was more of a gift to them as a family). I was silent…and shocked. “Your Valentine’s Day gift?” I asked curiously. How could our meeting together mean that much to her?

She shared that she was continuously thinking about money and worrying about it. Some of the same concerns she had several years ago she still had today. Coming to their financial review meeting brought peace to her as we discussed steps to make financial progress.

I can see financial peace being a Valentine’s Day gift…quite a good one I would say.

Reconciling the Two

I wrote an article three years ago about living in the good and bad of life. We are often prone to paint life as all good or all bad, depending on the circumstances. This can be the case with other people as well. We see a public servant fall morally and can paint them as all bad. On the other hand, we see our life circumstances turn the corner positively and think it’s all good from here. We know there are peaks and valleys of life. Solomon wrote about these instances in Ecclesiastes 3: “For everything there is a season, and a time for every matter under heaven.”

So how do I reconcile the two? Some days, yes, we are the Dream Crushers, advising clients to not take a path they so desire. And sometimes, we are hopefully a gift to our clients, guiding them in financial matters that bring long-term financial peace.

Ultimately, our clients are the decision makers, not us. It’s their money (although I would argue it’s truly God’s money for which they are to oversee and manage).

Through the years, I have found great wisdom and peace by asking for help and guidance from others. I don’t have to have all of the answers. I must lean on my resources just as our clients must lean on theirs. Left to ourselves, we are prone to wander!

Maybe the year 2020 is a year of finding more dream crushers and gifts in our lives. Maybe 2020 is when you realize your dream crushers can be gifts.

*For financial planning clients of Rivertree Financial Planning: Please contact us as soon as possible if you have had any changes in circumstances, objectives, goals or risk tolerance.

How the SECURE Act 2020 Affects You

How the SECURE Act 2020 Affects You

I hope 2020 has started off well for you. In Mississippi, we have recently been having to choose between wearing rain gear or shorts (or both). It has been an interesting time of weather!

On the business front, did you happen to see what law was signed just before Christmas? The SECURE Act (The Setting Every Community Up for Retirement Enhancement) was signed by the President on December 20th with a January 1, 2020 effective date. This Act was part of the Spending Bill and significantly affects IRA planning.

We have summarized a few of the major changes that might affect you and your accounts. It’s worth a quick read to see if any of these apply to your current situation. Of course, contact us directly should you have any questions specific to your accounts or overall financial plan.

Required Minimum Distributions

Starting in 2020, the required minimum distribution (RMD) age changes from 70 ½ to 72. So those of you who are turning age 70 ½ in 2020 have another year and a half before you have to start distributions! If you turned 70 ½ in 2019, the old rules still apply and you must take your first distribution by April 1, 2020.

Qualified Charitable Distributions (QCDs)

Some good news from the law is that the opportunity to donate your RMD is still available, even at age 70 ½. Therefore, even though you are not required to take any distributions at age 70 ½, it could still make sense to donate from your IRA using the qualified charitable distribution up to a maximum of $100,000 per person. Utilizing this strategy allows you to give pre-tax dollars to charities rather than after-tax.

Non-Spouse Beneficiary/Inherited IRAs

Unfortunately, a quite common planning strategy called the “Stretch IRA” does not stretch as far. For spousal beneficiaries, the rules are unchanged. But for non-spouse beneficiaries, the inherited IRA must be depleted after 10 years if the IRA account holder died on or after January 1, 2020. Inherited IRAs previously set up are “grandfathered” to the old rules if the IRA owner died on or prior to December 31, 2019.

There are a few exceptions in the new rules applying to minor children, disabled and chronically ill individuals, and individuals not more than 10 years younger than the IRA account owner. Therefore, work closely with your financial planner and tax professional ensure your calculations are accurate.

Contributions into Traditional IRAs after age 70 ½

Lastly, a significant change occurred regarding contributions to Traditional IRAs after age 70 ½. Starting in 2020, every IRA account holder may make contributions to his or her Traditional IRA after the age of 70 ½ if they have earned income (W-2 or self-employment income).

We understand that changes in retirement and tax laws can be confusing, so please contact us with any questions. We are glad to help.

Here’s to a great 2020! Blessings to you in the New Year.

Important: Specific tax guidelines exists for each of these items mentioned, so be sure to talk with your tax professional before implementing any of these strategies.

*For financial planning clients of Rivertree Financial Planning: Please contact us as soon as possible if you have had any changes in circumstances, objectives, goals or risk tolerance.

Jesus and Taxes (Ways to Pay Less)

Jesus and Taxes (Ways to Pay Less)

You may recall the story of Jesus being confronted by the Pharisees about whether or not to pay taxes to Caesar. This was not the first attempt to trap Jesus in his teachings. His response was surprising and enlightening. (And if you keep reading, you might find new ways to reduce what is “Caesar’s”…)

The Story

15 Then the Pharisees went and plotted how to entangle him in his words. 16 And they sent their disciples to him, along with the Herodians, saying, “Teacher, we know that you are true and teach the way of God truthfully, and you do not care about anyone’s opinion, for you are not swayed by appearances.[a] 17 Tell us, then, what you think. Is it lawful to pay taxes to Caesar, or not?” 18 But Jesus, aware of their malice, said, “Why put me to the test, you hypocrites? 19 Show me the coin for the tax.” And they brought him a denarius.[b] 20 And Jesus said to them, “Whose likeness and inscription is this?” 21 They said, “Caesar’s.” Then he said to them, “Therefore render to Caesar the things that are Caesar’s, and to God the things that are God’s.” – Matthew 22:15-21

Mic drop. (Well, pretty sure He didn’t have a microphone at the time, but if he did, a drop would be appropriate.)

The Response

How we most likely respond to this teaching is that we should pay taxes. If you believe in the Bible as the ultimate authority, there is further instruction found in Romans 13:

1 Let every person be subject to the governing authorities. For there is no authority except from God, and those that exist have been instituted by God…6 For because of this you also pay taxes, for the authorities are ministers of God, attending to this very thing. Pay to all what is owed to them: taxes to whom taxes are owed, revenue to whom revenue is owed, respect to whom respect is owed, honor to whom honor is owed.

Now let me be clear: I do NOT like paying taxes. Period. However, I also prefer to not be in jail while my kids grow up into adults. Therefore, I pay taxes that are owed to local, state and federal government entities. I also constantly look for opportunities to reduce what is owed.

As one of my tax professors asked: “What is the difference in tax avoidance and tax evasion?” Answer: Avoidance = Legal; Evasion = Illegal.

Ways to Pay Less

So how can you pay less in taxes? If you’re a resident of the State of Mississippi, you have a newly established tax credit opportunity! A tax credit is a dollar-for-dollar reduction of taxes owed.  A deduction lowers your overall taxable income. Bottom line: A credit is better than a deduction. You are redirecting tax dollars owed to the State to a select charity (or group of charities).

The Children’s Promise Act

The new credit allows for a State tax credit up to $400 (single) or $800 (married filing jointly) for donations made to a select list of charities. There is another $500 credit (single) or $1,000 (married filing jointly) for a separate list of charities. That’s a potential $900 total credit for single tax filers and $1,800 married filers! There is a $3 Million cap for the entire amount available. As of mid-November, there is approximately $2.8 Million still available! Click on this link to learn more. And of course, discuss with your CPA or tax professional to see if this opportunity works for your specific tax situation.

Retirement Accounts

Saving for retirement in tax-advantaged accounts continues to be a significant way to reduce your tax liability. The IRS recently released the new contribution limits for retirement plans and accounts. A highlight is that 401(k), 403(b) and most 457 plans allow for a $19,500 deferral, a $500 increase from 2019. Contribution limits for Traditional and Roth IRAs are unchanged at $6,000. However, don’t forget about the age 50 and over catch up contributions! (Click here for the IRS update on contribution limits.)

College Planning

Saving for college continues to be a struggle as college costs increase. Thankfully, there are several tax-efficient ways to save for college (and high school) for children and grandchildren, such as a 529 plan, Education Savings Account (ESA), Minor’s investment account (UTMA or UGMA) or a pre-paid tuition program. Each of these plans or accounts has its place in college planning. Deciding which one starts with the goal in mind. We would be glad to help walk you through the pros and cons of each option.

Hopefully, you have learned a new strategy or two that could help reduce your tax burden. The tax code continues to be quite complex. But if you look hard enough, you may find a way to better direct your hard-earned dollars.

*For financial planning clients of Rivertree Financial Planning: Please contact us as soon as possible if you have had any changes in circumstances, objectives, goals or risk tolerance.