Navigating Life Events with Guidance

Navigating Life Events with Guidance

We have all seen timelines or charts which show a steady, linear progression. This could be an average rate of return on your retirement account with a nice ending balance. Maybe it is a life progression timeline showing graduation, a first job, marriage, a house, a child, family, empty-nesters, to grandparents, to retirement, to finally dying peacefully in your sleep in your late 80’s or early 90’s.

Sometimes life progresses this way, but in our observation- most of the time it does not. There is a layoff, a divorce, a recession, miscarriages, wayward children, sickness, death of loved ones, loneliness, etc. We have all experienced some form of these events. Life does not ask you permission as to how and when they occur.

So how do we navigate life events? We have some thoughts.

  1. Take time to process. Making big life decisions with emotions running rampant is seldom a wise decision. After the death of a loved one, the surviving spouse may be tempted to sell the house immediately. After losing a job, one might be tempted to buy a new car to temporarily cover up the disappointment. After marriage, a couple may feel the pressure to buy a house immediately rather than renting for a season.

To the extent possible, we would recommend hitting the pause button before making any big financial decisions. This could mean parking life insurance proceeds in a low interest savings account for six months, or not accepting the very first job offer after quitting a job, or being laid off. Allowing time for emotions to settle is prudent, particularly when making significant financial decisions.

  • Take inventory. After taking a clarity break, the time has come to put pen to paper (or fingers to a keyboard). This step could include preparing a personal financial statement and budget. For a career, writing about job interests and answering hard questions about gifts, talents and abilities could be a very fruitful process (Book plug: 48 Days to the Work You Love by Dan Miller).

As for other life events, writing down desires and disappointments can help bring clarity as decisions must be made. Some might call this a “brain dump” to help get out the cobwebs of thoughts and emotions. For those of faith, you might find your writings to evolve into authentic prayers to the Almighty.

There is no right or wrong way to take inventory as life events occur. The important step is beginning the process.

  • Get guidance. Some say the word “humility” is spelled H-E-L-P. We are prideful beings. We often do not want help. “I’ve got this!” is a common saying. Sure, some days we need to simply put our feet on the floor, make our bed, and knock out an item or two on the checklist. But when significant navigating life events, seeking counsel has proved to be a wise course.

As financial planners, we need help when making our own financial decisions. It is virtually impossible to separate all emotion as we strive to do when helping our clients. Swallowing our own pride is not easy, but we have found it worthwhile in our own life scenarios.

When (not if) life events occur, consider taking time to process, taking inventory, and getting some guidance. We are confident that you will be glad you did.

*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.

Of Presidential Elections

Of Presidential Elections

We hope you are well and getting back into some sort of normalcy. Some of you have kids or grandkids back in school. Others have begun virtual learning. Regardless of your circumstances, we hope you are remaining connected to friends and family as we all need each other during this time.

We are approximately two months away now from casting our Presidential ballots. And like all election years, fear can reign regardless of which candidate you support. Emotions run high. Feelings can be hurt. And you are forced as an investor to make decisions in regards to your portfolio.

We thought it would be helpful to bring in some facts and data in regards to investing to help counterbalance the emotions. You might be surprised as to what you see.

We Have Been Here Before

I know, I know: “This time it’s different.” Well true – It’s always a little different. But I’d like to share what is not different:

Bantering

Exaggerating

Manipulating

Attacking

Rhetoric

Yes, I could go on. But I think you’d agree that these actions typically are represented in election years. So how do you block out the noise and see the truth as investors? You find the true data.

Facts

Please click on this link from Capital Group, one of our investment partners. Check out the first graph which shows the rate of return of the S&P 500 Index going back to March 4, 1933. The colors represent a Democratic or Republican Presidency.

Do you see the trend? “Markets have tended to power through presidential elections – with some volatility along the way – regardless of whether a Democrat or Republican won the White House.”

Please hear me clearly: Your vote matters. What I’m pointing out though is that for long-term investors, they have generally fared well regardless of the political party in charge.

Have a Plan. Revisit the Plan. Update the Plan.

Those who have a plan do far better than those who don’t. Even more, those who revisit their plan and make any necessary changes do even better! This has certainly been our experience as financial planners working alongside our clients. This process helps us see the big picture and reminds us of why we invest for the long-term.

“By design, elections have winners and losers, but the real winners have been investors who stayed the course and avoided the temptation to time the market.” – Capital Group article

We are here to listen and help should you like to discuss your specific situation. We understand these times can produce uncertainty and fear. We are ready to engage in these conversations with you.

*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 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.

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.

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.