Giving Freely versus Suffering Want

Giving Freely versus Suffering Want

This month’s newsletter is from April 2018, but we see the principles as timely.

There’s a story about a rich man whose land produced an abundant harvest. He was posed with a dilemma as he already had more than enough, but he didn’t have a place to store these additional crops. His solution was to tear down his existing barns and build bigger ones. He even imagined what he’d say to himself once done with this work: “Self, you’ve done well! You’ve got it made and can now retire. Take it easy and have the time of your life!”

So how do think this story ends?

“God showed up and said, ‘Fool! Tonight you die. And your barnful of goods – who gets it?’ That’s what happens when you feel your barn with Self and not with God.”

If you’re a Christian, this story may be familiar as it’s found in Jesus’ parable in Luke 12:16-21. If not a Christian, you may wonder what does this story have to do with you? A lot, I’d say.

We’re often asked at Rivertree, “What do y’all (or “you all” for my northerners) actually help people do?” We may answer that we help plan for their retirement. Isn’t that contradictory to the story above? It could be if we left out some essential pieces of the full process.

One of these “essential pieces” is us asking, “When you retire, what are you planning to do with your time?” A myth is the joy of the “couch potato retirement.” Now there’s nothing wrong with relaxing more and catching up on some shows. But is that your full-time plan?

I’ve read a book about those who bought into this plan. Their main purpose became themselves. Sound familiar? (Reference paragraph 1). What does the book say happens to these folks? They die sooner than statistically expected. Why is that? They lost purpose. Is there a better way to “retire,” you might ask? We’d say so. Insert “generous living.”

“One gives freely, yet grows all the richer; another withholds what he should give, and only suffers want.”  (Proverbs 11:24)

Listen to Tim Keller’s reflection on this verse:

“The more you scatter your wealth, the more you gather it, and the more you try to keep it for yourself, the more it dissipates. How could that be? Think of farmers. The more they scatter seed, the more they will reap. And keep in mind that the seed comes back in better form, as harvest you can eat and sell. In the same way, spiritually wise people realize their money is seed, and the only way for them to turn it into real riches is by giving it away in remarkable proportions (cf. 2 Corinthians 9:6).

This is not a promise that the more you give away, the more money you will make. Rather the more you give away wisely to ministries and programs that help people spiritually and physically, the more your money becomes the real wealth of changed lives in others and of spiritual health in yourself. And you will be walking in footsteps of the one who was literally broken and scattered so he could gather us to himself.”

See the difference in self-living vs. generous living? It’s suffering want vs. gaining more. That “more” isn’t money. It’s joy.

There’s a quote from Randy Alcorn that has stuck with me: “The only antidote to greed is giving.” When we are tempted to clinch our fists around money (or build bigger barns), give it away. This breaks greed’s power, whether you’re a Christian or non-Christian.

Tax Planning for College and K4-12 Expenses

Tax Planning for College and K4-12 Expenses

You most likely have heard the following quote most often attributed to Benjamin Franklin: “Our new Constitution is now established, everything seems to promise it will be durable; but, in this world, nothing is certain except death and taxes.” So far, Franklin’s quote has proven to be true.

I am sure we all could contribute a few more additional certainties in life. In today’s blog, we’ll consider an additional certainty: The ever-increasing costs of education. So how can we plan for these? Thankfully, the statutes give us many ways to plan for these expenses and save on taxes.

It Starts with a Goal

To decide on the appropriate account type, you need to first decide how you foresee using the funds. You also need to determine the amount of flexibility you want. In general, the more flexibility you desire, the less tax-advantages you receive. Below are some account types, common uses, advantages and disadvantages:

  1. Uniform Transfer to Minors Act (UTMA) custodial account
    • Common uses: Kid’s birthday funds, wedding, car, education
    • Advantages: No restrictions on uses; generally taxed at child’s tax rate; no limit on contribution of funds; potential capital growth depending on investments used
    • Disadvantages: Restricted use for child’s benefit; beneficiary (minor) generally cannot be changed; “kiddie tax” rules can apply; child receives full control of funds at adulthood (age 18 or 21 depending on state laws)
  2. Coverdell Savings Account (ESA)
    • Common uses: K-12 and college expenses
    • Advantages: Tax-free withdrawals of funds used for qualified education expenses; potential capital growth depending upon investments used
    • Disadvantages: $2,000 per beneficiary contribution limit; Income restrictions for contributors; less flexibility in changing the beneficiary to another family member; non-qualified expense earnings taxed at federal income tax rates plus a 10% penalty tax
  3. 529 Plan             
    • Common uses: K-12 private tuition expenses; qualified higher education expenses
    • Advantages: Tax-free withdrawals for qualified higher education expenses as well as K-12 private tuition; no income restrictions for contributors; extremely high contribution limits; potential capital growth depending upon investments used; ability to change the beneficiary to another family member; account owner remains in control
    • Disadvantages: Non-qualified expense earnings taxed at federal income tax rates plus a 10% penalty tax

A Tax Planning Strategy

If you live in a state where you pay income tax and also pay private tuition, the following strategy could help reduce your state income tax:

  1. Open a 529 for each child using your home state’s plan. (For Mississippi’s 529 plan, click here.)
  2. Contribute to each account for private K4-12 tuition due up to limits. (Currently, the max deduction in Mississippi is $10,000 for single tax filers and $20,000 for joint filers.)
  3. Leave the funds in the account for the required number of days (For Mississippi, it’s currently 10 calendar days).
  4. Request a withdrawal to pay for K-12 private tuition expenses (does not include registration, technology or supply fees…only tuition). The max tax-free distribution amount is currently $10,000 per beneficiary. (Click here for FAQs for the Mississippi 529 plan called “MACS.”)

If you implement this strategy each year, you could benefit significantly over time from a tax savings standpoint. We do not recommend implementing this strategy without working alongside your financial planner and tax professional.

A Financial Planning Strategy

As financial planners, we strongly believe in assigning goals to each bucket of funds. That said, opening additional 529 plans for each child can make great sense. Having 529s earmarked for college and others for private K-12 tuition can be quite helpful in achieving your goals.

And let’s answer the common question: What if my child receives scholarships in excess of what we have saved? Well first of all, that’s a great problem to have! Here are some thoughts:

  1. Most children who receive significant scholarships continue their education beyond their bachelor’s degree. Excess 529 funds can be used for those additional expenses (master’s, law school, medical school, etc.).
  2. You can change the beneficiary of those funds to another child or family member.
  3. You can withdraw any remaining funds. You’ll receive any contributions (basis) tax-free, but you’ll pay ordinary income tax and a 10% penalty on non-qualified withdrawals.

In summary, each type of account has its place. You just need to first decide on your primary goals. If you have questions, please do not hesitate to reach out to us. Education planning is a significant part of how we help our clients.

*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.

**Please check with each State’s 529 plan for specific rules and guidance before implementing any of the strategies discussed. This article is simply meant for informational purposes only and is not to be viewed as tax guidance or advice.

Reasons to Stay Invested and Reasons to Adjust

Reasons to Stay Invested and Reasons to Adjust

We are quickly wrapping up summer 2020. And wow…we won’t forget it! What is normally a time of recharging and checking out from the norm has been a time for many of checking in to the daily number of COVID-19 cases and deaths. The toll this can take on us is brutal. I don’t think we were designed as humans to digest constant news and data from around the globe. Of course, the bulk of this news is negative and life-taking, not giving.

But there is some good news that hasn’t been reported as much as COVID-19 – the stock market. Would you believe that on July 21st this year the S&P 500 index closed at the same value where it started the year (3,257)? Also, on July 22nd it even exceeded the starting value (3,276)? So what are investors to do? We have some suggestions.

Stock Market vs. The Economy

You might be asking: “How can the stock market be back up given the horrible news of COVID-19 and discouraging (to say the least) economic reports such as unemployment numbers?” Answer: The stock market and economy are not the same. Yes, there is some correlation between the two. However, as often said in our client email communications and previous blog posts, the stock market is a leading economic indicator. The stock market is forward-looking and prices in what it believes lies ahead.

No question the actions of Congress and the Fed has provided stability to the markets. Now, it comes at a cost to the government and eventually taxpayers. But in the short-term, the stock market is pricing in stability.

Reasons to Stay Invested

You might feel the temptation to bail-out now given you are back (or almost back) to your January 1st starting values. However, what is your motivation? Most likely it’s fear which is seldom a good reason to make adjustments. So why stay invested?

  • Remember why you invested in the first place. Investing was never a short-term plan (at least not for Rivertree clients). It’s not a sprint; it’s a marathon. Don’t lose focus of this long-term goal.
  • Recognize the Opportunity. For those still in the accumulation phase of retirement planning (i.e. still contributing regularly to retirement accounts), have you celebrated the investment purchases that occurred in February through May? You bought more shares of companies whose values were beaten-down. With this short-term recovery, you now own more shares than you would have previously! This valuable investment strategy is called dollar-cost averaging. And it works well with time.
  • Recognize the Alternatives. Should you choose to abandon your long-term investment plan, what are your investment alternatives? Cash? If you’re like me, you have received multiple emails from savings account companies stating that your interest rate was being lowered. You’re doing really good to get 1% now for online FDIC insured savings accounts. Is a 1% rate of return going to accomplish your long-term goals? Most likely not unless you have significant wealth and can afford for inflation to erode the purchasing power of your dollars. Savings accounts are great for emergency funds and short-term savings needs. They are lousy for long-term investing.

Reasons to Adjust

No question there are times to make adjustments to your investment allocations. These adjustments could better suit your long-term goals and needs. When is a time to adjust?

  • Your goals have changed. Perhaps your retirement age moved from 62 to 70 or vice versa. This eight-year difference could affect the amount of stock and fixed-income holdings you have. If your retirement is delayed until age 70, you could afford to have a larger allocation towards stocks. If your retirement age is expedited to age 62, consider allocating more to fixed-income investments.
  • Your risk tolerance has changed. It’s common that a once aggressive investor shifts to a more moderate investment risk tolerance, especially as one approaches retirement age and considers that little will be added to investment accounts. And, you wonder if you’ll live long enough to see your investments recover in the event of a downturn. Maybe the year 2020 has exposed this change in risk tolerance and it’s time to make adjustments.
  • Your financial circumstances have changed. Maybe you’ve had a change in income or lost a loved one. These life events would certainly be cause to revisit your investment allocations. 

Closing

In summary, there are wise reasons to revisit your investment strategies and goals. There are also unwise reasons to make adjustments. Presidential elections come and go. The pandemic will eventually pass. Volatility in the stock market will rear its head during times of uncertainty. But don’t let these fears be the driver of your investment decisions. Research continues to show that investment decisions based on fear do not produce long-term results.

Our job is to walk alongside our clients during these times of uncertainty and help them make wise long-term decisions. Should you feel the need to have a conversation, please don’t 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.

Self-Awareness and Money

Self-Awareness and Money

I hope your fall season is going well and that you’re enjoying the cooler weather. Our newsletter topic this month might seem peculiar. What does money have to do with self-awareness, and self-awareness have to do with money? Quite a bit I’d say.

A Case Made

“Without knowledge of self there is no knowledge of God…without knowledge of God there is no knowledge of self.” Who said this? John Calvin, the great reformer! Now, we can take this quote out of context and too far by saying that introspection or self-awareness is more important than a knowledge of God. Calvin makes the case that these go together. We must see ourselves for who we truly are before a holy, righteous God. After true introspection should come humility.

But what I would also argue is that Calvin saw a place for knowledge of self. We often hear of self-forgetfulness – ignore our needs and only focus on others. But as I reflect on the life of Jesus, I can’t help but notice how many times he left the crowd to be alone. He recognized the times he needed to be alone with the Father, even though there were sick people to heal and lessons to be taught. Jesus had greater self knowledge and awareness than any other man who has walked this earth. He knew his calling, his mission, and his identity. And these impacted every decision he made.

And Money?

We all relate to money in different ways. Some of us never (or seldom) worry about it. Others think about it more often. And others are consumed by it. Where do you fall?

I would argue that first knowing how you personally relate to money is critical to making progress financially. If we know we’re prone to blow cash the minute it comes out of the ATM, then maybe that method is not best. Or perhaps it’s the opposite for you: cash gives you needed boundaries of when it’s gone, the spending stops. If it’s plastic, then spending continues.

We’re often asked by clients: Which budgeting system is best? We respond: “The one that you’ll actually do.” If a yellow pad and pencil keep you on track, then that’s best. If an excel spreadsheet, great. If an app, so be it! Ultimately, which system best helps you accomplish your goals?

What about investment account balances? TV financial pundits? Research online? Are these helpful for you, or do they create more stress? Perhaps you check your blood pressure next time you partake. Or maybe you already know the answer…you just don’t want to change. That’s okay for now. At least you know. But maybe change will come when “the pain of staying the same becomes greater than the pain of changing.” -Dr. Henry Cloud

Having self-awareness about your tendencies with money is critical.

A Helpful Tool

The Rivertree Team recently started the book The Road Back to You: An Enneagram Journey to Self-Discovery by Ian Cron and Suzanne Stabile. Whew! We have already had some good laughs as we’ve discussed our types and tendencies (and some occasional grunts as we read about the not so good parts of ourselves). The goal is that we know one another and ourselves better to create an even healthier work environment.

And at the spiritual level, considering what Brother Dave said to Ian, the author of this book: “Just remember, it’s only one tool to help you deepen your love for God and others….There are plenty of others. What’s important is the more you and Anne grow in self-knowledge, the more you’ll become aware of your need for God’s grace. Not to mention, you’ll have more compassion for yourselves and other people.”

What used to frustrate us about ourselves and one another can hopefully be replaced with compassion…and some friendly chuckles. 

Now What

Have you taken this journey before? If so, has it been helpful? If you haven’t taken this journey, I’d encourage you to do so. I am confident you’ll find it worthwhile.

*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.

Financial Planning – Outside the Lines

Financial Planning – Outside the Lines

Are you tired of taking sides? Tired of having to choose one over another? Simply tired of making so many decisions every day? Well, I’m not surprised given that some studies estimate the average person makes 35,000 decisions a day. I feel exhausted just thinking about this!

So, what’s a person to do? Well, a starting place is simply to acknowledge the exhaustion that comes from having to choose so many times on a daily basis (enter “decision fatigue”). And if you are symptomatic of the condition “paralysis of analysis,” it’s just that much harder.

What about financial planning? Think you have some choices to make? Well, I think we’d agree that you do. So, what does financial planning “outside the lines” look like? We have some thoughts.

Firstly, Giving Credit Where It’s Due

I read Scott Sauls’ book Jesus Outside the Lines about 2 years ago. The timing of this book was perfect for me. Scott’s writings resonated with me, particularly as it related to politics, money, and hope (or realism). He approached these quite sensitive topics with humility and grace. I greatly appreciated this. So, thank you, Scott, for your book and helping me with the title of this post.

Investments

Let’s name a few choices you have: stocks, bonds, mutual funds, ETFs, annuities, passive, active, momentum, contrarian, etc. Shall I go on? I’ll spare you.

So, what’s an investor to do? And which of these options are best? Ultimately, you have to make a choice. Or, you choose to hire someone to help you.

Insurance

Buy term and invest the rest? Buy term and spend the rest? Or buy permanent, whole life insurance? Perhaps variable universal life? Follow the duck to Aflac or rely on your traditional health insurance? Work with an 800# rep or have a local agent? Which is best? (Answer coming…)

Estate Planning

Save money and do a cookie-cutter last will and testament? Or pay a local attorney to help? Retitle all assets possible into a revocable living trust, or go through the probate process? Name specific beneficiaries on all accounts, or let your will do the work?

So many decisions here. What’s a person to do?

Financial Planning (Outside the Lines)

It’s this: Developing a financial plan specific to you and your needs, goals and desires. It’s not a robo-advisor or robo-plan. It’s not a one-stop shop online or a local company advertising that they have all the right answers and solutions. It’s not an insurance company promising (almost) to save you 15% on premiums.

I remember early in my career thinking I had the perfect plan and most all of the answers to clients’ concerns and questions. My heart’s motive was to help. However, I learned with time and experience that I needed to step out of my personal story and enter into their stories.

The client may communicate their desire to have life insurance that is guaranteed to always be there. They may communicate their desire to have retirement income that they can never outlive, regardless of market conditions. The client may share their desire to work with a more traditional “brick and mortar” bank rather than an online bank paying a higher interest.

Where do we fit in?

It starts with you, not us. Our personal plan might (or will) look different than yours. We are happy to share what we are personally doing in our financial plan. But again, we expect our plans to look a little different.

Our job and passion is to walk alongside you in your life story. We are morally and legally obligated to put your interests above our own. That’s how it should be.

We are deeply thankful for those who have asked us to come alongside them. It would be a privilege to have a conversation with you about how that might look in your life journey. And be assured that your financial plan will be designed outside the lines.

*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.

When Things Don’t Go as Planned

When Things Don’t Go as Planned

Ever had a plan not go as expected? Yeah, me too. In fact, my family and I are living this reality right now.

After twelve years of being in the same house, we decided for several reasons that it was time to make a move. So, last fall we starting taking steps to get our house ready to sell. After decluttering, painting, and finally fixing those pesky issues we’ve been ignoring for months (okay, maybe years), we listed our house for sale. And yes, we then began to love our house more than ever! That’s how it goes, right?

We still decided to move forward with selling our house. Our house sold quicker than expected. So now what? Well, things haven’t gone as planned.

The Plan

We had a plan: Sell our house then quickly (and conveniently) move into the next house we’ll love for another twelve years at least. Many of us have a plan, right? The infamous boxer Mike Tyson had something to say about this: “Everyone has a plan ‘till they get punched in the mouth.” Pretty straightforward, you think?

I am a planner by personality…and trade. Heck, “planning” is in our business name. It’s what we do! Does that mean we develop the perfect plans without a hitch? Obviously, no. We often say the only 100% guarantee is that the financial plan will not go 100% as planned. Expect the unexpected: Family illness or premature death, job loss, market under-performance, etc. These are all things we plan for but don’t know exactly how these things will look for each client.

So, does that mean don’t plan at all? I’d say not.

The Response

How do you handle a plan gone awry? I will be honest (otherwise, my wife will call me out). Generally I don’t handle it well. I complain or stonewall. I may even sulk. Just when I get irritated reading and hearing about the Israelites wandering after being freed from slavery, I realize – I. am. them.

So, what might be a better response? Perhaps focusing on the things we can control: Voicing our frustration and anger in a healthy way; being thankful that we are not in control; trusting that there is a better plan ahead…much better than my own.

The Peace

“For I know the plans I have for you, declares the Lord, plans for welfare[b] and not for evil, to give you a future and a hope. 12 Then you will call upon me and come and pray to me, and I will hear you. 13 You will seek me and find me, when you seek me with all your heart. 14 I will be found by you, declares the Lord, and I will restore your fortunes and gather you from all the nations and all the places where I have driven you, declares the Lord, and I will bring you back to the place from which I sent you into exile.”

There is a plan for each and every one of us. We just don’t know (and won’t know) what it fully is on this side of eternity.

What can we do? Find peace in the fact that we are not in control. Rest easy that there is a plan for good, not harm, for those that trust in Him, our heavenly Father.

So, how am I now handling this time of uncertainty with housing? Honestly, I’m finding peace. We’re calling it a “family adventure!” The kids are onboard. Who doesn’t want adventure! (Well, me, sometimes…but ready or not, this one has begun).

If you’re looking for a financial professional to partner with on your next adventure, we’re on-board. Give us a call.