Summit Wealth

For most couples, the federal estate tax is a thing of the past.  The “fiscal cliff” legislation raised the federal estate exemption to $10.5 million per couple and made the exemption portable between spouses.  Given this big win at the federal level, you may be asking if estate planning is still critical for your family.  We say it is for the following reasons:

• Who:  You still need to designate whether your children, family and / or charity should be the recipient of your wealth.  You also need to tell the courts who should be in charge of distributing your estate should something happen to you.
• What:  You need to be specific as to who you want to receive what; otherwise, everything could be up for grabs.
• When:  In the case of your children, you may not want them to get all of your wealth at once (we typically counsel clients to spread it out over 3 to 4 payments, in case the children blow what they received).  You need to outline when they are to receive your estate.
• State Estate Tax:  Just because your estate is below the current federal exemption amount doesn’t mean you don’t have state estate tax to deal with.  Proper planning can help minimize or eliminate state estate tax.

We help our wealth management clients to determine the type of estate plan they need as well as how it should be structured.  We meet and gather the data, prior to retaining the attorney.  This way, we keep the client’s legal costs to a minimum.  Please let us know if you’d like some help with your estate planning questions.

I just read an article by Mark Miller that seems to confirm some thoughts we’ve been having about how Baby Boomers are rethinking retirement / financial independence.  Here are some of the high points of that article:

·         They are leaving the U.S.:  21% of boomers polled say they are interested in retiring abroad where they can reduce lifestyle needs and enjoy warmer climates.

·         They are starting new companies:  21% of new U.S. businesses started in 2011 were launched by entrepreneurs age 55 to 64 (up 14% from 2007).  Entrepreneurs age 45 to 54 accounted for another 28% of the 2011 startups.  Add them together and boomers started almost 50% of all new businesses in 2011.

·         They are borrowing more:  40% of homeowners over age 65 had mortgage debt in 2010, compared with only 18% in 1992.  One of the reasons is the extremely low interest rates available.  No sense paying down / off a 3% mortgage if you can earn 6% to 9% in a broadly diversified, balanced investment portfolio over time.

·         They are outliving their expectations:  Life expectancy for men has jumped an average of almost 2 years in each of the last 5 decades to 75.7 years in 2010.  For women, life expectancy has risen by 1.5 years on average to 80.8 years.  For a couple with above- average health, there’s a 60% chance one of them will live to age 90.

·         They are providing financial support:  58% of boomers are providing financial assistance to aging parents while 93% of those polled say they have given their children financial assistance as well.

·         They aren’t running to Florida:  Boomers aren’t embracing the Florida / Arizona retirement homes as they once were.  The reason they’re not relocating?  The pull of being near their children & grandchildren.

How are you rethinking your eventual financial independence?  We will have more discussion on this topic in our next blog.

According to a recent report by the Commerce Department, nearly 67% of Americans between the ages of 45 and 60 say they plan to delay retirement.  This percentage is a steep increase from just two years ago, when the Commerce Department found that 42% of those polled expected to delay retirement. 

Why the large increase?  This rise was driven by financial losses, layoffs and income stagnation sustained during the last few years.  These are issues many of us faced or are still dealing with.

Based on the above statistics, two out of every three of your friends, family members and co-workers (in this age group) need to reassess their financial game plan and make adjustments that can have a positive impact.  This may be easier said than done since we have a tendency to get very comfortable in our spending habits.  However, it certainly doesn’t have to mean working longer as there are trade-offs that one can consider that don’t involve more time at work.

For example, re-examining one’s household budget and discovering some belt-tightening opportunities is an excellent way to trim discretionary spending and increase contributions towards retirement.  Another is to take a “trial run” and begin living as if you were in retirement.  You may be surprised at what you actually need to live on.

If you know people struggling with their financial independence, please send them our way.  We’d be glad to help.

While reading the newspaper recently, I found that for the 48^th Sunday Journal Investment Dartboard Contest someone throwing darts at a listing of stocks was able to outperform specific stock picks of Wall Street Journal readers for the six months ended 12/31/12.  The readers’ picks lost about 11% while the stocks chosen by darts thrown at stock pages gained 7.2%.

The results of this contest seem to confirm the Dalbar Study finding that the average investor achieved an annual return of 3.49% for the 20 years ended 12/31/10 while the S&P 500 returned 7.81% per year during the same time frame.  Much of the significant underperformance of investors can be attributed to emotional investing and attempting to time the markets (something no one has been able to perfect, to my knowledge).

We feel it’s all about a low-cost, broadly-diversified, passive investment approach and methodically investing over time.  This is why DFA is such a great fit for our client portfolios.  Reduce your risk and take what the market has to offer (in terms of returns) over time–a winning long-term combination!

Deciding when to begin collecting your Social Security benefits can be a difficult decision.  Many want to begin collecting benefits ASAP as they feel this strategy is the way to ensure they receive the most benefits as quickly as possible.  Others that anticipate a lengthy retirement want to wait to begin collecting benefits as they’ve been told this is the best way to maximize benefits over the long haul.

I’ve read that married couples have 567 options for deciding when and how to file for their Social Security benefits while single people have 9 options.  We help our clients to review and narrow those options by making some assumptions about life expectancy and discussing other financial goals. We counsel clients on the potentially best strategies to consider.  The decision you make could cost you tens of thousands of dollars over your life time so be sure to work with someone that can provide you the advice you need.

• Federal income tax
• State income tax
• Social Security tax
• Medicare tax
• State sales tax
• Property tax
• Fuel tax
• Liquor tax

By no means is this list meant to be inclusive of all taxes; it merely serves as an example of the laundry list of taxes each of us pays every day.

And the argument continuously being presented is that the taxes we are currently paying just aren’t enough to cover the expenditures we are making.  I feel it is well beyond the time to take a hard look at the entitlement programs this country is paying for each year (both inside and outside the US) and make some hard decisions on how we can adjust or eliminate some of them.  Hard choices need to be made and its time they stop asking for a larger “allowance” when all they’re doing is blowing it in an inefficient manner.  Every dollar we can keep in our own pockets means we are that much closer to a comfortable retirement we have worked so hard for.