November, 2019 | Live a Life By Design

Thanksgiving – Wealth Is More Than Money!

Posted on November 27, 2019November 27, 2019 by Jimmy J. Williams, CPA/PFS, CFP®

It is that time of year when each of us should pause and reflect on the life we lead in the United States of America. While our nation is far from perfect, the freedoms, opportunities and rights we claim are superior to any other nation on the planet! I am often asked how I define “wealth”. Many people think it is about tangible goods (i.e., cars, houses, land, etc.) and intangible assets (i.e., investments, cash in the bank, etc.).

To me, to be wealthy simply means that I have the freedom to live my life in the manner I choose. An old friend, I will call “Bill”, was diagnosed with cancer and given a short time to live. He and I were talking and I thought I had known him pretty well. Boy, was I surprised with the words that came out of Bill’s mouth over the next thirty minutes!

By all outward appearances, Bill had a great life – money, land, houses, cars, boats, etc. When he started telling me about his life he quickly dismissed the value of his property, cars and investment accounts and began a story of loss in his life. His daughters had been estranged from him due to a misunderstanding when the girls were in the 20s. Now, with his daughters in their 40s and Bill dying of cancer, he realized the most valuable “asset” in his portfolio of wealth had been squandered many years ago. With tears in his eyes, I could see he was living a life of regret.

As I sat there intently listening, Bill continued his saga to define the difference between riches and true wealth. Although he had not worried or wanted for any material need during his life, his emotional void with his children had left him feeling that his life had been lived without meaning. I asked him a simple question, “Would you give it all away to spend some quality days with your daughters before your passing?” The biggest smile came upon his face and he nearly shouted, “You bet!”

After a discussion with Bill’s daughters, a meeting was established to reacquaint themselves. Bill and his daughters’ eyes were swollen with tears of joy as their family was reunited. Bill only lived a few more months but his daughters conveyed to me that those few months were the most happy he had been his entire life.

Remember, a thankful and kind heart is an asset that can’t be bought with material goods. I often define wealth to people as “those things in life that money can’t buy and death can’t take away.” Seek out the true “assets” in your life and enjoy a blessed Thanksgiving Day with family and friends!

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3 Mistakes Most People Make With Their Retirement

Posted on November 15, 2019November 15, 2019 by Jimmy J. Williams, CPA/PFS, CFP®

During my thirty year career of guiding individuals to realizing their retirement goals, I have reduced the most critical of mistakes people commit when accumulating retirement assets in their employer’s plan. These mistakes can be overcome and people have a higher probability of reaching their intended goals.

Mistake #1: Making Decisions through Fear

Investing should be performed with a clear mind and thoughtful research being the driver for change. Too often people accumulating for retirement commit the mistake of making changes to their retirement plan account after the negative impact has occurred. This is the equivalent of turning on the hydrant and spraying water on your house after the structure has completely burned to the ground.

We believe everyone should self-assess their goals for retirement. These goals should be attainable. For example, everyone uses the same phrase when thinking about investments: “High return on my investments with no risk.” This, of course, is a fantasy. Risk is present in every facet of life including your employer-provided retirement plan.

To correct for this mistake, learn to keep calm during temporary market disruptions. With the volatility of our current markets, you would be buying and selling all the time and miss the opportunities to meet your goals for long-term growth.

Mistake #2 – Timing the Market

One of our clients informed us that a former colleague of his was constantly buying and selling in his Thrift Savings Plan. His friend thought this approach would prevail for better growth in his account. However, just the opposite has been proven true by economists and researchers of behavioral finance. To believe a long-term perspective can be maintained with such a short-term approach to finances is not a valid one.

To overcome this mistake, each investor should realize he doesn’t possess all of the knowledge of the market and may turn his retirement plan assets into a speculative investment. This does not have to be the case. We firmly believe proper allocation and diversification of your portfolio will keep risk at acceptable levels while obtaining long-term potential for your assets.

Mistake #3 – Borrowing from Your Retirement Savings

As individuals it becomes difficult for us to look at this bucket of money and experience struggle in our lives. Instead of adjusting our lifestyle and budgeting within our means, we use loans from our retirement plans with the understanding that we are “borrowing from ourselves so it isn’t hurting my account”. The fallacy of this statement is that you’re, in fact, providing for a shortfall in your retirement account during possible peak earnings or growth seasons.

Your plan will require interest to be paid on your “loan”. The rate of interest is usually lower than your market returns and the smaller payments returned to your account may grow but your overall compounding effect will be diminished.

The overall solution to these critical mistakes is to ask for advice from someone that can hold you accountable to a plan that you design for your future. We serve as an advisor as well as life coach for our clients. To be that calming voice of assurance when you are making progress or the soft correction needed when you attempt to deviate from your plan allows us to help you achieve success on your terms.

If you are concerned about your current ability to reach your retirement goals in your TSP, IRA, 401(k) or other employer plan, contact a CPA/PFS or Certified Financial Planner™ practitioner for a complimentary consultation. You may find the answers you need.

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Simplify Your Life, Consolidate Your IRAs

Posted on November 8, 2019November 7, 2019 by Jimmy J. Williams, CPA/PFS, CFP®

Diversification is a common term heard by most investors. However, its true meaning is sometimes lost. Recently, we were meeting with a new client of ours that is retired. When the woman brought her giant, purple, three-ring binder to the first meeting, we were somewhat puzzled. Near the end of our first meeting, she opened up the binder to reveal that she owned six, yes six, different IRAs with a total of three advisors!

She must have noticed the look of shock on my face and responded with a phrase we hear, although erroneously, that this is a form of diversifying her portfolio. We examined her statements for the different custodians and asked if we could provide her a “second opinion” as to the state of her investments according to her goals. She quickly responded affirmatively and we set the next meeting.

After much review of the statements, we noticed a trend among the various advisors. Each advisor had taken a similar strategy to helping the client meet her lifetime income goals! Further analysis explained what we previously thought about her approach to diversification – the client had not truly diversified her portfolio but had concentrated her portfolio, inadvertently, by never informing the advisors of her use of multiple advisors. In other words, she was highly concentrated in certain assets classes within her total holdings that exposed her to significant risk. We use the term “overlap” to describe the result of using several advisors that essentially invest in the same assets classes.

During the second meeting we verified her goals, risk tolerance and cash flow needs to confirm our understanding. We provided her a consolidated report of all six IRA statements and she was alarmed at the problem she created with so many accounts. After explaining our recommendation of diversification in many different forms – asset classes, geographically, market sectors, etc. – she was ready to simplify her life.

By combining all of her IRAs into one account, she reduced the amount of paperwork necessary to be maintained for tax purposes and monitoring of her investment positions. Additional diversification was achieved by including asset classes not previously in the portfolio that would reduce her exposure to risk while maintaining her need for immediate cash flow each month. Her smile was all we needed to see to know that we had provided her the highest level of response and service as well as a resolution to a worry she had been carrying for some time. She also through away the giant, purple binder!

If you have multiple accounts with multiple advisors, you should consider a simpler approach to achieve your desired result with a consolidated account of truly diversified investments. We have a saying in our company, “To make things complex is simple. To make things simple is complex.” In other words, let us help you make life simple that you can enjoy retirement on your own terms. Stress? We don’t think it’s necessary when you work with a retirement planning specialist.

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It’s That Time of Year for IRA Owners

Posted on November 4, 2019October 31, 2019 by Jimmy J. Williams, CPA/PFS, CFP®

For many years you saved taxes by contributing to your Individual Retirement Account (IRA) or employer-provided retirement plan. Now, it is time to retire and the IRS says, “Do you remember all of the tax savings you realized for the past 35 years? We want it back!” Perhaps this is a bit extreme but there is an Internal Revenue Code section that requires you take required minimum distributions (RMD) from your IRA or pay a 50% penalty. Ouch!

To mitigate or eliminate this penalty it is critical that you aggregate all of your IRAs to calculate the total RMD that must be distributed by December 31, 2019. Over my 32-year career as a CPA and wealth advisor I have seen many instances where this simple task was erroneously performed and clients paid significant penalties. For example, Bill (not his actual name) was approached early in his retirement years to establish several IRAs to “diversify” his portfolio. This is not a form of diversification but merely a way to create more paperwork.

After he established six IRAs, he sat back and relaxed thinking retirement is a pretty good time of life. Time passed and the year came that Bill was required to take a RMD from his IRAs. The CPA for Bill thought he had accounted for all of Bill’s IRAs when, in fact, he had overlooked two of the accounts. The total funds in the two omitted accounts were $300,000! Imagine the impact this amount of funds would have made to the RMD calculation. Bill actually owned a total of $1,000,000 in IRAs and claimed a RMD on only $700,000. Bill failed to claim $10,949 of RMD and suffered a penalty in the amount of $5,474 for simply failing to account for all of his IRAs.

How can you avoid this negative impact? When we meet with new clients we perform a review of their income tax returns as well as all of their investment statements. Many people don’t understand the types of investment accounts they own.

To mitigate all of this confusion, we look for ways to eliminate or minimize paperwork to make your record keeping much simpler. As stated earlier, more accounts does not equate to diversification.

Required Minimum Distributions are required from IRAs the year after the owner turns 70½ years of age. To reduce the RMD amount you may wish to consider Qualified Charitable Deductions. This is a strategy in which the trustee of the IRA will distribute the RMD, or a portion thereof, to a qualified charity. To meet the criteria for this type of distribution, the taxpayer must meet the age criteria for RMDs. The limit for the charitable deduction is not the RMD limit for the year but a statutory limit of $100,000 per taxpayer.

IRAs can be confusing. Don’t take chances with your financial future. Seek out a CPA and Certified Financial Planner practitioner that specializes in retirement and tax planning. If you own an IRA, don’t give your money to the government. You worked for it, we can help you keep it!