When Disaster Strikes: Navigating Financial Recovery

In last week’s blog, we discussed the importance of having a plan for recovering from natural disaster. Whether you live on the Texas Gulf Coast, in Oklahoma’s “Tornado Alley,” in the San Francisco Bay area, in Florida, in the middle of timber country in Idaho, or anywhere in between, disaster can strike with very little notice. After your personal safety and that of your friends and loved ones, nothing is more important than dealing as successfully as possible with the financial damage that natural disaster inflicts upon your property and financial resources, whether it be from storm, fire, earthquake, or flood.

Last time, we listed the crucial documents that you’ll need in order to begin the recovery process. Securing and having on hand items like your Social Security number, birth certificates, and other primary personal documentation will give you a big leg up on working with insurance companies, federal agencies, law enforcement, and other corporate and governmental entities that are able to offer assistance as you begin the recovery process. Now, let’s consider some of the practical steps you can take in the aftermath of a natural disaster.

First, let’s discuss which agencies and other entities you should contact as soon as possible. The American Red Cross is always one of the first organizations to respond to any natural disaster, and especially if your home is too damaged to inhabit. Contacting them, either at their website or by calling the number of your local chapter, can help you obtain emergency housing and other necessary immediate assistance. If your community has been declared a federal disaster area, the Federal Emergency Management Agency (FEMA) can also help with emergency housing and even emergency cash assistance. Such financial assistance may also be obtained through state or local government agencies; it is usually nontaxable.

If possible, you should next secure your property. If authorities allow it, go home and gather any valuables and important documents that are retrievable. If you can, carry out temporary repairs and other measures to prevent further loss or damage. The Red Cross and FEMA may also be able to help you obtain materials to make these repairs. You will need to keep good records; your insurance company will likely reimburse you for any expenses you incur, as long as you can provide proper documentation.

Speaking of insurance companies, you should now notify your claims representative. At this time, you may wish to inquire whether your policy contains provisions for reimbursement of emergency housing costs, food, laundry, and other living expenses. Sometimes, the insurer will issue a check up front; other companies may require you to provide receipts for reimbursement. In either case, it is important for you to keep receipts for your expenses. Some of these reimbursements may be taxable, but proceeds used for repair or replacement are usually not.

Now it’s time to notify your creditors of your situation. If you are unable to live in your house, contact your utility companies and request that they halt billing until their services are available again. Ask other creditors for additional time to pay. In such circumstances, most creditors will work with you, especially if you call them before the payment due date. Prioritize communications with your mortgage holder, your vehicle lien holder (if applicable), and your insurer.

These initial steps will help you begin the process of getting back on your feet. In a future article, we’ll take a look at the longer-term implications of disaster recovery and how you can minimize the amount of time it takes to get back to a more normal routine.

NOTE: Many of the ideas in this article come from “Disaster Recovery: A Guide to Financial Issues,” published with the cooperation of the National Endowment for Financial Education, the American Institute of Certified Public Accountants Foundation, and the American Red Cross.

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When Disaster Strikes: Tips for Financial Recovery

The tragic images coming from the Texas Gulf Coast over the past few weeks and from Florida and the Caribbean over the past few days have surely reminded us all that natural disasters are no respecters of persons. In Houston, flood waters inundated neighborhoods filled with shotgun houses and exclusive suburban areas featuring million-dollar homes located on previously serene, wooded lots. Once the rains came, it made no difference: homes in both locations filled with water, driving the residents to rooftops, second stories, and, ultimately, to shelters holding thousands of evacuees.

How do you recover financially from a natural disaster like Hurricane Harvey and Hurricane Irma? How do you prepare for the next one? Perhaps you don’t live on the coast and you aren’t worried about hurricanes, but flash-flooding can occur far inland. And what about earthquakes, damaging hail, tornadoes, or wildfires, like the ones threatening California and the Northwest as these words are being written?

Anyone who owns property or has any type of financial assets needs a recovery plan for natural disaster. Over the next few weeks, we’ll be examining various aspects of natural disaster and looking at ways you can prepare yourself, your family, your property, and especially your financial infrastructure. While none of us can control the weather or the global environment, we can take measures to aid the quickest possible recovery from those cataclysmic events that none of us like to think about.

First, let’s think about what you’ll need as you begin the recovery process. In order to work as efficiently as possible with insurers, law enforcement, public safety officials, federal assistance personnel, and others, here is a list of some of the main documentation you’ll need:

  • Birth certificates
  • Death certificates, if applicable
  • Marriage certificate
  • Wills and Powers of Attorney (POAs), including medical POAs
  • Social Security cards
  • Medical records, including prescriptions
  • Insurance policies (life, health, disability, long-term care, auto, homeowner’s, if applicable)
  • Checking and savings account information
  • Retirement and brokerage account information
  • Recent pay stub
  • Recent utility bill
  • Vehicle titles and/or registration
  • Mortgage and/or deed documents
  • Safe deposit box information and key
  • Credit card information

Keep in mind, this is not an exhaustive list. You may have other documentation particular to your situation that is just as important as anything shown above. The point is, you need to have a collection place for these documents, and it needs to be able to survive a natural disaster. Ideally, you should be able to grab the container with all these papers and carry it with you as you are evacuating to a safe location. It is also possible that some of this information is stored in digital form. If so, are the data backed up on a server or other device that would survive local flooding, a major earthquake, or a fire? Is the information secured so that only authorized persons can access it? There are a number of cloud backup services that can help you make sure your most critical data are safe. Even if you must pay a small monthly service charge, the peace of mind that comes with knowing your critical documentation is safe and readily accessible is far more valuable.

In a future article, we’ll look at the immediate aftermath of a natural disaster: whom should you call first? What creditors should you prioritize, and which ones should you reach out to earliest? Are there sources for emergency cash assistance? Answering these questions will form the basis for your natural disaster financial recovery plan.

NOTE: Many of the ideas in this article come from “Disaster Recovery: A Guide to Financial Issues,” published with the cooperation of the National Endowment for Financial Education, the American Institute of Certified Public Accountants Foundation, and the American Red Cross, available and can be found on the web at the link above.

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What Should You Do about the Equifax Data Breach?

Many consumers were unnerved to learn that Equifax, the giant credit-reporting corporation, suffered a data breach between mid-May and July that exposed sensitive personal information for an estimated 143 million individuals. The information obtained by hackers included Social Security numbers, dates of birth, address histories, driver’s license numbers, and legal names, all of which are often used to commit identity theft and other types of fraud.

According to the Federal Trade Commission (FTC) website, anyone with a credit report is potentially a victim. The FTC website also provides recommended steps to take in order to find out if your information was exposed, along with remedial actions you can take, including a year of free credit report monitoring from Equifax. The site also offers several practical suggestions, including closer-than-usual monitoring of your credit card and bank accounts, early tax filing, and fraud alerts on your files.

One item that is raising many consumers’ hackles is a provision in the Terms of Service for Equifax’s TrustedID credit protection program–the service currently being offered for free–that requires customers to waive their right to participate in any class-action lawsuits that might arise in the future from the use of the TrustedID service. It is important to note that this provision would not apply to claims arising from the current cybersecurity incident, according to an online statement from Equifax. Nevertheless, many consumers are wary of agreeing in advance not to sue a company that has just admitted a data breach that could cost millions.

In addition to the steps recommended on the FTC identity theft website, you should also be suspicious of emails that purport to come from Equifax. The company is directly contacting only the 209,000 customers whose credit card information may have been compromised, and they are doing this via the US Postal Service, not email. Hackers will use “phishing” emails that look like genuine communications from Equifax in order to entice consumers to click on links connecting with malicious websites. Such emails should be deleted immediately without being opened.

Other practical steps, not only now, but in general, include checking your credit report regularly at the government-authorized site: AnnualCreditReport.com. This is a good idea, not only because of the recent breach, but because it is not unusual for errors to show up on your report. In fact, a 2014 study by the FTC found that about one in four consumer credit reports contains errors. Unless you’re checking it yourself, they’ll just stay there and potentially hurt your credit. Also, don’t be hasty about closing credit card accounts, especially those that you’ve had for a long time and that are in good standing. Doing that can actually hurt your score, because it can look negative for your credit history.

For consumers who do not agree with the legal waiver included in Equifax’s free TrustedID service, there is another alternative. Experian and TransUnion, the other two major credit-reporting firms, offer consumers the ability to put an alert on their accounts for 90 days. An alert on any of the services will cover all three companies, and it is free. For more information on placing a free fraud alert on your account, see the information on the FTC website.

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Does It Make Sense to File Early for Social Security?

It may seem strange to some that this question should even be posed. After all, the conventional wisdom, which most of us have heard over and over, is “The later the better; wait until you’re 70 if you can, to get the maximum monthly benefit.”

Certainly, there’s a reason why this is the conventional wisdom. After all, it is true that the longer you wait after becoming eligible to begin receiving Social Security payments (currently, age 62), the larger your monthly paycheck from the government.

On the other hand, for certain people, there can be compelling reasons to consider drawing Social Security as soon as they become eligible. Let’s take a look at some scenarios when it may make sense to file early.

  • You are in poor health. Life expectancy following retirement is probably the number-one variable that we must contend with when helping people plan for retirement. If your health is poor, filing earlier for Social Security benefits may be a wise choice. Even if you file at the earliest possible time, at age 62, you are still eligible to receive 75 percent of your full benefit, and that extra monthly payment can make your life much easier, especially if you have other assets with which to supplement your income. But before committing, you might wish to have a frank discussion with your physician. A 2015 study by Stanford University researchers indicated that two-thirds of retirees who claimed early actually had enough assets to be able to wait two years or more before beginning Social Security payments. If your health is not great but also not dire, it could still make sense for you to wait until age 64 or 65.
  • Your spouse is ten to twelve years older than you. In this situation, claiming early, especially if you have significantly lower earnings, can put you ahead in certain circumstances. According to Baylor University’s Bill Reichenstein, if, for example, you are a woman who is twelve years younger than your spouse, and he waits until age 70 to begin claiming benefits, you might consider claiming at age 62. It would take you until about age 78 (when your husband is 90) before the money you would have received by delaying your payment would exceed what you received by filing earlier. Given the time value of money, collecting for a longer period of time is better than waiting for the bigger payments. And if, as is statistically likely, your husband predeceases you, you’d be able to switch to a survivor benefit equal to his monthly payment.
  • You have qualifying dependent children. When you file, your qualifying dependent children may also qualify for payments. This one can be complicated, so do the math carefully, and you may also want to consult with a qualified advisor. But in some cases, this can be a win-win strategy.

In all these scenarios, of course, it is always best to seek the advice of a qualified financial professional who is familiar with your situation and other resources. Remember though: later isn’t always better.

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Should Couples Retire at the Same Time?

Most of us have heard the stories: the wife of many years whose husband has always been the breadwinner–but who is now retired and, for the first time in either of their lives, is home with his wife most of the time, instead of at work. Many of these women, accustomed to being able to do pretty much what they like during the day–whether housework, shopping, a hobby, or volunteer activities–must now contend with a mate who is in unfamiliar territory, struggling to redefine himself, and generally underfoot. And the same applies to the working wife with the stay-at-home husband.

Though the above scenario is often presented in a humorous light, it points to a serious question: What happens when couples enter retirement at the same time? Baby Boomers, who are now retiring in droves, are the first generation to feature a huge number of two-income households. What are the implications for these couples as they transition simultaneously from career to retirement? What will they do as they both try to adjust to the very different challenges and opportunities of their post-working years? Should they even attempt to make the transition together?

Many advisors suggest they should not. These experts point not only to the financial disadvantages of simultaneous retirement, but also to its emotional and marital complications.

In many situations, it can make great sense for one spouse to continue working after his or her partner retires. Financially, this can benefit the couple by allowing more time for the working spouse to contribute to Social Security, a pension plan, and a 401(k) or IRA. Especially for those whose family histories indicate a probability of longevity, accumulating those extra assets can go a long way toward assuring greater comfort in the later years. Also, by working longer, the other spouse will increase the amount of his or her Social Security benefit upon leaving the workforce. Another financial benefit is that the working spouse can continue employer-sponsored health coverage that also includes the other spouse. Especially when the retired spouse does not yet qualify for Medicare, this can save hundreds of dollars per year that would otherwise have to be spent for obtaining individual coverage.

Emotionally, retirement can present steep challenges. For someone who has spent years in a career, retirement often occasions serious questions about self-identity and personal significance. And if both partners are undergoing this process of redefinition at the same time, major stress can be placed on the marriage. This can be particularly true of women, many of whom put careers on hold to raise children, then re-entered the workforce with renewed determination and ambition. Additionally, consider the adjustment needed between two people who have become accustomed to being active in their own individual spheres and must now figure out how to spend their time together, without the stimulation and sense of purpose afforded by work.

For all these reasons, it can make very good sense for couples to stagger their retirements. In this way, one partner can make the financial and emotional adjustments to a new lifestyle while still enjoying the support of the other, who remains anchored by familiar routines, surroundings, and income.

Certainly, togetherness is vital for the health of any marriage. But, contrary to Mae West’s famous dictum, in retirement, an excess of togetherness may actually be too much of a good thing.

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Tax-Savings Tips for the Self-Employed

Many of our clients are truly savvy individuals who have a firm grasp on not only the tax tips that follow, but on even more complex tax strategies that are often advantageous for larger businesses with millions in sales and dozens or even hundreds of employees.

However, such a successful business owner may have a child, a nephew or niece, or a young person that they have mentored who is launching a business as a solo entrepreneur. You may possibly know someone who, after years of working for someone else, has decided to strike out on her own. These simple tax-savings ideas, while probably “old hat” to some, may be eye-opening for others who are less experienced. And besides, a little review of fundamentals never hurt anybody! In that spirit, then, consider these basic tax tips for self-employed individuals.

Self-Employment Tax Deduction: While it’s certainly not enjoyable to pay extra taxes for the privilege of being your own boss, the tax code does allow you to deduct half of the employer portion of your self-employment tax as a business expense, thus reducing the amount of business income subject to ordinary income tax.

Home Office Deduction: Many small business owners do at least some of their business-related work at home, and if they do this in a space specifically set aside for the purpose, they may qualify to deduct certain costs as a business expense. The space must be a dedicated, enclosed space—in other words, a table in the corner of the dining room or bedroom usually won’t qualify—and it must be used regularly for the conduct of the business. If you qualify, you can deduct a portion of your utilities, and, depending on whether you own or rent, a percentage of home mortgage interest, depreciation, homeowner’s insurance, property taxes, maintenance costs, and rent, based on the square footage of the space as a percentage of the total square footage of your home. You will need to keep careful records, usually including a diagram of the space, with measurements.

Business Meals: If you are traveling for business or entertaining a client or prospective client, you may deduct half of the actual cost of the meal. It cannot be lavish, and the purpose of the meal and any guests must be clearly documented.

Business Travel: In order to be deductible, business travel must last longer than a typical workday, must involve the need for sleep or rest (overnight stay), and must take place outside the “home area” of the business (you probably shouldn’t try to deduct the cost of an in-town “retreat” as a business travel expense). The purpose for the travel must be established ahead of time. Documented lodging and meal expenses may also be included.

Personal Car Mileage: If you use a personal vehicle for business-related purposes, the mileage is deductible at the standard rate established each year by the IRS. Keep daily records of miles traveled and the related business purpose. Note that your commute to and from the office would not usually be allowed as business mileage.

And whether you are just starting your business or are a veteran business owner, be sure to consult your CPA to discuss tax strategies that are appropriate for you.

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North Korea and Your Investment Strategy

Should investors sell due to the tensions with North Korea? The short answer is, “Probably not.”

The longer answer has to do with the broader global and military context surrounding the recent well-publicized shouting match between North Korean dictator Kim Jong Un and President Donald Trump. While the latest headlines can make people nervous–and while we should certainly not blithely disregard the serious consequences of a miscalculation on either side–many experts do not believe that the fierce rhetoric of the two leaders indicates an imminent nuclear conflagration.

First, according to the Washington Post and other sources, the US military does not appear to be taking any of the preparatory steps that would normally precede a decisive military incursion. No US Navy carrier groups are being ordered to positions near North Korea, for example. Further, the US State Department has taken no measures to evacuate personnel from South Korea, which would almost certainly be on the “first targets” list for any strike ordered by Pyongyang. So, while the tough talk between the two heads of state may be unsettling and probably not conducive to productive discussions between the nations, it does not seem that it is time to head for the bomb shelters just yet.

Meanwhile, the US financial markets continue to bump against new highs. The economy continues its steady–if not spectacular–growth, and most companies continue to report earnings at least somewhat higher than they had forecast.

“But,” someone might say, “isn’t that all the more reason to pull back out of the market? Shouldn’t we take some profits and wait to see how things play out between Washington and Pyongyang?”

Here again, the best answer is “probably not.” Trying to time the market has been proven, by study after study, to be the very best way to miss important upside swings in value. Is it possible that hostile rhetoric or perceived threats could cause some panic selling? Yes, but many analysts would regard these as buying opportunities. There have been many serious world events that have pulled the markets down–9/11 being perhaps the most serious recent example. But even in that case, those who stayed in the market through the subsequent steep drop and slow recovery still achieved strong gains.

If you are feeling particularly vulnerable due to equity exposure in the current climate, by all means, speak to your financial advisor. Depending on your situation, it is possible that some portfolio rebalancing and restructuring could be helpful. But selling due only to ominous headlines is not a financial strategy; it is an emotional response to a perceived threat–in this case, one that has not yet materialized. Such emotionally driven decisions hardly ever bode well for your long-term financial well being.

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Five Retirement Savings Habits

When it comes to saving for retirement, sooner is always better. But even if you’re already well into your career, it’s not too late to form some useful habits. Let’s take a look at five very important habits everyone should consider to get on the road to a more financially secure retirement.

  1. Have a Spending Plan, and Stick to It: Remember that line your middle school teachers and parents used to pull? “Failing to plan is planning to fail.” Well, as annoying as it is to admit, it’s really true! Many people resist forming a spending plan because they perceive it as restrictive. However, the opposite is really true; when you have a plan, you gain a sense of freedom. You don’t have to agonize over a purchase decision, because, as long as you stick with the plan, you have the freedom of knowing it’s okay. Another benefit of having a plan is that it is excellent training for living in retirement, when most of us will be operating on a smaller budget. The discipline of budgeting teaches us to know the limits of our resources and allocate accordingly.
  2. Utilize Employer Matching: Many companies will match their employees’ contributions to certain types of savings and retirement plans. If you are fortunate enough to work for one of these companies, you should seriously consider contributing up to the maximum your employer will match. Think of it as doubling your money–immediately. And over the years between now and retirement, the compounding effect on that “free” money can add significantly to your retirement bottom line.
  3. Rollovers Are Your Friend(s): This is especially important to remember in the era of frequent job changes. Very few who have entered the workforce in the last ten years or so can realistically expect to work for the same firm for their entire career. We change jobs more frequently, which also means that many people forget all about the 401(k) they had at their previous place of employment. The result is either small accounts scattered all over the place–which makes it much more difficult to assess your assets and investment options–or simply cashing in the plan when you leave the company, which reduces the amount you’ll have in your retirement fund when you really need it. Instead, utilize rollovers to consolidate your accounts and retain the power of compounding on a tax-free basis.
  4. Know Your Options: There is no one-size-fits-all retirement strategy. Depending on your age, time until retirement, asset mix, and other variables, you may have a number of viable choices for both the timing and the funding of your retirement. The more you know, the better your decision.
  5. Start Now: This is the most important hint: no plan will help you until you start using it. The central, crucial factor in retirement planning is time. The earlier you start, the better your chances of enjoying a comfortable retirement lifestyle.

If you have a young person in your life, encourage them to implement these five habits now. They will be thanking you when they retire.

And if you have questions on these five habits or other wealth management topics, contact your financial advisor to discuss them with him or her.

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Discussion with Apollo Lupescu, PhD

Recently our clients had the privilege of hearing Apollo Lupescu, PhD, Vice President of Dimensional Fund Advisors. Dr. Lupescu, who taught finance at the University of California, Santa Barbara, prior to joining Dimensional in 2004, leads efforts to communicate to financial advisors and individual investors the academic and theoretical foundations that undergird the investment philosophies and practices of Dimensional Fund Advisors.

Apollo Lupescu is gifted with the ability to make complex financial principles understandable without oversimplification. For more than an hour at a dinner hosted for clients and friends of Bernhardt Wealth Management, Apollo fielded questions and explained important concepts about the financial markets. A few highlights from his presentation follow.

Interestingly, Apollo opened his remarks on a very similar theme to that with which he began on his last visit here: US presidential politics. On the previous occasion, the election of Donald Trump had not yet occurred, and many in the audience were very interested in Apollo’s take on the likely effects in the financial markets of various election outcomes. As he did on his first visit, Apollo shared with his most recent listeners his firm conviction that investors should not focus on the effect that a particular president may or may not have on the financial markets. Emphasizing that the financial markets in the aggregate, and specific companies in particular, are valued based on the fundamentals of earnings, profits, and competitive practices projected well into the future, Apollo posed the question, “Which do you think is more relevant for the companies: President Trump’s policies, or the products they develop and the execution with which they bring the products to market?” Apollo made the related point that during one of the most pro-business presidencies in recent history–that of George W. Bush–the stock market returned an annual average of -2 percent (i.e., a negative two percent annually) during the eight years of his administration. Conversely, during the administration of Barack Obama, often viewed as hostile to business, the markets returned an annual average of 15 percent. The moral? Who is in the Oval Office does not matter nearly as much to the financial markets as many investors believe. Rather, a long-term perspective on the value of the thousands of companies that make up the markets is much more important.

Continuing on another theme he sounded at his previous presentation, Apollo discussed the importance of adequate diversification as the best protection against the volatility and unpredictable nature of the financial markets. Pointing out that predicting the price movement of any particular stock is very difficult, he surprised his listeners with two pieces of information: 1) the U.S. stock with the highest performance in 2016 was not, as many might expect, a tech stock like Apple or Tesla, but US Steel, which was up 300 percent; 2) the country with the highest-performing stock market last year was Brazil, up 70 percent, despite the country’s well-publicized woes, both financial and otherwise. Apollo’s takeaway was that while short-term performance of any particular stock or sector is usually difficult to predict, investors should instead be looking at the long-term trends and should cast their nets as widely as possible in order to increase their chances of success.

Further illustrating the importance of diversification, Apollo shared the historical returns of various market segments. “If my grandparents had invested one dollar in the S&P 500 index in 1926, when my dad was born, what do you think it would be worth today?” The answer was just over $6,000–despite wars, the Great Depression, and the financial meltdown of 2008 and the Great Recession that followed it. But then, Apollo asked for the audience’s guess as to what that same dollar would be worth today if, instead of being invested in the largest companies in America, which make up the S&P 500, it was invested in a basket of smaller-capitalization stocks. In this scenario, he said, the dollar grew to $27,000, during the same period. “The very first thing you should look at as an investor is whether you are only buying large companies or also buying small companies. The greater the perceived uncertainty, the greater the potential return.” He also explained the concept of valuation of companies on the basis of their ratio of stock price to earnings per share. “The ones that have a lower price compared to their earnings are called ‘value companies,’ and they tend to provide a higher return over the long term than companies with stock prices that are high in relation to their earnings.” Apollo pointed out that on the same historic basis shown above, a dollar invested in smaller companies with high value ratios grew to $78,000.

Apollo shared an analogy that he used in order to explain the concept of sector-based investing to his mother-in-law. “I was swimming in the ocean in Florida, and I realized I was above a school of fish. If I tried to focus on one particular fish and predict which way it would go, it was very difficult. But after a while, I began to see a pattern in the movements of the school as a whole.” Researching large amounts of data covering large sectors of the markets–large vs. small capitalization, value companies vs. growth companies, U.S. stocks vs. foreign stocks, and other differentiators–analysts like those at Dimensional Fund Advisors are able to determine larger patterns with much more precision. “I cannot tell you how each stock will move, any more than I can tell you which way a single fish will swim. But when I look at the sector as a whole, I have a much better understanding of what to expect.”

Bernhardt Wealth Management is deeply grateful for the research- and evidence-based insights of Dr. Apollo Lupescu. As part of our fiduciary approach to helping our clients manage their assets for retirement, education of children and grandchildren, and other important life needs, we are strongly committed to providing our clients with the very best financial thinking we can find. Dr. Apollo Lupescu’s perspective, and especially his simple, common-sense way of sharing it, helps us meet that important educational goal for those we serve.

Of course, we invite our clients to contact us at anytime to discuss investments, their accounts, or any wealth management matter.

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Saving for Retirement

Many Americans are taking advantage of the Roth IRA, with its $5,500 annual contribution limit ($6,500 for those 50 or older), to sock away money for retirement and enjoy nontaxable growth on the invested funds. While Roth IRAs, unlike traditional IRAs, do not afford taxpayers a deduction from taxable income for the contribution. However, unlike traditional IRAs, on which withdrawals at age 59 ½ are taxed as ordinary income, Roth IRAs allow tax-free withdrawals, which can be deferred as long as the owner wants (another difference from traditional IRAs, which require withdrawals to begin by age 70 ½).

But suppose you’ve already made your maximum contribution to your Roth IRA for the year. First of all, congratulations on having the foresight to fund your retirement account to the highest level possible! But what if you want or need to save more? Are there vehicles you can use that offer tax advantages, either now, during the accumulation period, or when the funds are withdrawn in retirement?

The answer is yes; there are a number of plans and tax-deferment savings methods that many investors are eligible for. If you’ve already reached the annual limit for your contribution to your Roth IRA, consider some of the following options that may be available to you:

  • 401(k), 403(b), or 457 plans: Your employer may offer a 401(k) plan, which is a defined contribution plan that allows you to contribute on a payroll deduction, using either pre-tax or after-tax income, depending on the specific options in the plan. A 403(b) plan works in a similar way but is only available to employees of qualified, nontaxable institutions like public school systems, universities, and some religious organizations. Both 401(k) and 403(b) plans usually allow the individual employee to select the investments within the individual account, typically from a list of available options provided by the plan. You can contribute as much as $18,000 to a 401(k) or a 403(b) in 2017 (or $24,000 for those 50 or older). A 457 plan, which is a deferred compensation plan available to governmental and certain other employers, allows contribution of pre-tax income, which can grow on a tax-free basis until money is taken from the plan, when it is taxed as ordinary income.
  • SIMPLE IRA or SEP IRA for self-employed individuals: If you have self-employment income or a small business, you may be able to contribute up to $12,500 annually ($15,500 if you are 50 or older) to a SIMPLE (Savings Investment Match Plan for Employees) IRA. Once again, contributions to SIMPLE IRAs are deducted from taxable income, the plan grows tax-free until retirement, and withdrawals are taxed as ordinary income. The SEP (Simplified Employee Pension plan) IRA also grows tax-free until retirement and is taxed as ordinary income but the contribution cannot exceed the lesser of 25% of the employee’s compensation or $54,000.
  • Defined benefit plan: These plans are more complicated to set up and administer, but for a self-employed individual with high income who is nearing retirement, a defined benefit plan can allow you to contribute and defer taxes on up to $210,000 per year.

Of course, the most important retirement savings plan is the one you have! Even if you aren’t contributing the maximum each year, you can still make significant strides toward a financially comfortable retirement by making systematic contributions each year, and by carefully choosing your investment options. A qualified and experienced financial advisor can help you sort out the options that are best for you.

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