September, 2020 | Live a Life By Design

Why Did I Do That?

Posted on September 25, 2020September 25, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

Humans are a curious bunch, aren’t we? Our brains work in one mode – survival. The programming of our brain is based on the strategies of fight, flight or freeze. Perhaps you have noticed these strategies at work when you find yourself in a dark alley, alone and facing a group of suspicious characters. Or, more often than not, you find yourself facing these strategies when investing your hard-earned money for the future.

Let’s examine one scenario that I have witnessed far too often when people are planning for their future. Having no particular knowledge of markets, money supply, economics or fiscal policy, and armed with only a social media account full of other lemmings (pardon the characterization) that are in the same situation as you, jumping out of the markets because of a perceived correction coming. Misery truly loves company!

The better approach would be to apply a method of managing your assets in a proven strategy that considers risk and the role it plays in our overall economy. Rebalancing your account to manage the level of risk to that you are glad to accept knowing that return on investment can only occur when risk is accepted. For example, you may have heard we are holding a presidential election in the United States in a few weeks. Many people are hypothesizing the end of the economy due to this quadrennial event. What if you approached this event with a calm mind and an eye for a long-term approach to your investments? Great! You would be one of those investors who believe a short-term market decline does not derail decades of savings.

What I am referring to in the above scenarios is called behavioral finance or, in laymen’s terms, why smart people make dumb investment decisions. I am not calling you names again but wanted to be very honest in how this has been applied by individuals who ultimately regret their short-term poor judgment. One of my favorite quotes describing the secret behind the success of the famed investor, Warren Buffett, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” Many investors are much smarter in their approach to lifetime income and savings by understanding the function of the markets in our country. If others are fearful and selling their investments, the wise investor may wish to buy during the downturn of the economy knowing that the prices will possibly be lower due to the oversupply of sellers.

If you are not retiring within a few months of the election, or even if you are, think about rebalancing your portfolio to an acceptable level of risk. Understanding that bond markets function inversely to equity markets, the strategically allocated portfolio will possibly suffer less volatility than a portfolio consisting of positions to chase returns. The person who utilizes a long-term approach to investing for her future with a sound strategy of diversified investments will be served better than those attempting to time markets and reap larger returns than that provided by the efficient movement of the economy.

Don’t make mistakes using short-term thinking when dealing with your lifetime income assets. Consider a consultation with a Certified Financial Planner^™ professional to obtain a second opinion of the risk and strategic allocation of your assets. You may live with a little less stress about your future. Be confident. Be opportunistic when others are fearful. Look to the future. Live your life by your own design not the same mindset as the lemmings running for the cliff. See you on the golf course!

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Did You Abandon Your Future?

Posted on September 18, 2020September 18, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

With all of the disruption in the economy, one negative result was the loss of jobs. From the perspective of the employee, the news of a layoff is devastating. To further complicate the financial situation, the employee, focusing on the current cash flow needs of her family, forgets about one of the largest opportunities that lingers behind at the former employer – her retirement assets.

Over the years, we have met with many clients who, during our discussions, apprise us of a job held many years before. We inquire as to the term of the employment and other aspects. You could literally see the light bulb shine above their heads as a smile develops on their face. The next statement uttered by the individual is something like, “I think I left my retirement at XYZ Company”!

We believe people can become so busy in life that mistakes made early in their careers can wreak disastrous effects on their long-term future. Three primary reasons prevail in the matter of transferring your retirement assets from a former employer’s plan.

First, the primary and most damaging impact of leaving retirement accounts with former employer plans is the lost ability to access the assets. Today, employers utilize online platforms to allow participants the ability to view their holdings within a plan and make necessary changes as the person desires. What a travesty if the participant has forgotten the username and password protocols! In a recent example, a client was receiving quarterly statements to follow the changes of their retirement assets remaining at a previous employer when the market correction occurred in February, 2020. Stress accumulated and he called us wanting to know how to make changes in the holdings to slow or mitigate the precipitous fall of his §401(k) account. The sad news is that he had long ago lost his credentials to log on and make changes on the platform. He spent time on the telephone providing background information and other proof of his identity to a call center on the other end of the line. Terribly frustrated, he finally received a temporary username and password only to realize the markets had closed for the day and his account would suffer whatever fate was dealt that day. Had the individual performed a trustee-to-trustee rollover of the assets to an Individual Retirement Account (IRA) after leaving the employment of the plan sponsor, the rebalancing necessary to relieve his stress would have been a simple and efficient task.

Second, most employer plans provide for a minimal number of investment options to maintain lower administrative costs of the platform. When you wish to appeal to the omnibus needs of a group of people that are not homogeneous, the general approach is to provide broad based investment options such as asset allocation mutual funds or a single option in a particular asset class. However, the possibilities are significantly better when you have your choice of thousands of investment options and types of positions. For example, you may wish to participate in nontraded assets as opposed to simply mutual funds or exchange-traded funds with lower internal expense ratios instead of actively traded mutual funds. Based on your risk tolerance, your investment options could be a significant population for you to choose for your account.

Lastly, plan sponsors do their best to accommodate the participants of their plan. However, you may have a need that is more critical and the process to obtain your funds could take significantly longer than you wish to wait. By utilizing an IRA, you can assume more control of the investment of the underlying assets, timing of rebalancing to remain within your risk tolerance levels and achieve your goal for distributions in a timelier manner.

With proper guidance from a Certified Financial Planner™ professional, you may find the investing, rebalancing and reporting of your IRA to be one with less stress and a more rewarding outcome. Don’t abandon your future by leaving vital assets important to your family to simply manage on its own. Take command of your future and utilize all available means to help you reach your ideal retirement! See you on the golf course…

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The Millennial Perspective: A Family to Call Their Own

Posted on September 11, 2020May 13, 2021 by Ashley Stieb

Many millennials, wrongly. get a bad reputation for “ruining” everything. One of the acts we have been blamed for is ruining the traditions and norms for starting a family. However, there are many reasons why millennials are starting families later in life than previous generations. In a previous article, I wrote about the cost of higher education and how it compares to wages in the United States. In that article I discussed how tuition and the cost of goods rise nearly every year, but average wages stay the same and, in most cases, don’t keep up with inflation. One factor that weighs mightily, as one of the primary reasons my generation delays starting a family until later in their twenties, or even their thirties, is money.

Starting a family can be difficult from the start. In this age where everything is digital, dating can be difficult for some. It seems to become more difficult to meet people unless you are matching on a dating app, but dating apps aren’t ideal for everyone. This is one reason that millennials are finding significant others and starting from point A later in life than previous generations. Weddings can be really cheap, but they can also be really expensive and for those that wish to have a big wedding, the money can be a set back and delay the process. This can delay everything that follows, including having children. Children are also very expensive and many millennials will opt to find the perfect time, though everyone will tell you the timing is never perfect, when they have a stable cash flow which can come later in life because of low wages in starting jobs with or without a college degree

Another reason that millennials may wait to start a family is school. Juggling a child and attending college can be difficult for many people, but the money factor also ties back into this equation. Oftentimes you will note that millennials will wait until they have finished school to even consider having a child and starting a family. You may also find that millennials may not hold a desire to have children. This can also be for many reasons which are personal to those individuals, but in passing, I have met couples that wish to travel more in life which could be difficult with children. Some have concerns about the state of the world and do not wish to bring a child into it.

On top of everything, we are now dealing with COVID-19. Pregnant women are on the high-risk list and have been from the start because scientists and doctors are not sure what the long-term effects could be on an expectant mother and the child. This can be scary when starting a family or even adding to one, so out of an abundance of caution for their future many people are opting to hold off on having children at this time.

At the end of the day, it is important to remember that everyone, no matter their generation, has their own reasons for why they do the things they do or don’t do. Times change as do ethics and even if something isn’t done exactly the way it used to be that doesn’t mean that the younger generations are ruining anything. Regardless of the reason they have, that choice is their own and there is nothing wrong with that. The liberties exhibited by millennials are those they learned from their ancestors – you. I would say, with great modesty, the millennial generation will build the future of this country and make their lineage proud.

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Clarifying Tax Law Confusion

Posted on September 4, 2020September 4, 2020 by Jimmy J. Williams, CPA/PFS, CFP®

Last month, President Trump issued an executive order to provide employees relief from withholding taxes. The result is additional take-home pay for the employee. This article focuses on the mechanics and results of this order. I will also opine on the impact of such order to the solvency of the Social Security Benefit Program which, as stated in my previous article, remains marginally funded through 2035.

We all wish to create greater amounts of cash flow for our living expenses but at what price does this wish come true? For example, if you are currently employed, you are contributing to your future through a withholding program titled “Federal Insurance Contributions Act” abbreviated as FICA. Two components make up the FICA portion of your paycheck withholding. The first component is the Social Security Tax, also called the Old-Age, Survivors and Disability Insurance (OASDI) Tax, at a rate of 6.2% of your gross wages to a maximum wage limit of $137,700.

The second component of the FICA is the Medicare Tax at the rate of 1.45%. This tax is applied to all wages paid to an employee. Unlike the Social Security Tax, the Medicare Tax has no annual wage limit. These withheld funds are committed, by the U.S Government, to your future for purposes of assisting with lifestyle expense.

The president’s order requires employers to discontinue withholding the 6.2% FICA from employees’ paychecks. However, the employer continues to be responsible for the matching funds at a rate of 6.2%. To further complicate the application of the order, employees with bi-weekly income of greater than $4,000 do not qualify for the deferral of the 6.2% Social Security Tax. Based on a weekly payroll of $2,000, employees earning less than $104,000 in annual wages will be eligible for the deferral and will take home more net pay.

As with any tax benefit, the applicable period for the deferral of Social Security Tax for eligible employees is September 1 through December 31, 2020. The desire of the Executive Branch of our government is to develop a law that will allow the deferred balance of Social Security Tax to be eliminated instead of repaid by the employee.

To remedy the confusion on which party, employer or employee, pays the deferred Social Security Tax, the IRS issued on August 28, 2020, Notice 2020-65. The notice directs employers to remit the deferred Social Security Taxes ratably over the period January 1, 2021 through April 30, 2021. Failure to remit the taxes deferred from 2020 will subject the employer to interest and penalties.

One could argue the additional cash flow required to pay both employee and employer shares of the Social Security Tax places a burden on the employer. What will be the tax deduction allowed the employer if both shares of the tax are paid by the employer? Tax policy would dictate the fairness of allowing the employer the deduction since the economic impact is actually borne by the employer. However, tax policy in the United States is not based on equality but rather revenue generation. Who knows what will happen until we receive additional guidance from the Treasury Department?

Until then, keep smiling, enjoy your extra cash and I’ll see you on the golf course!