Fear Is Not An Investing Strategy!

In recent days, the airwaves have been inundated with all things COVID-19! At the time of writing this article, the infectious disease had not been reported as a pandemic but may be on its way. It is often the mistake of many individual investors to attempt to know the movements of the stock market. When a disruptive force gives the markets an opportunity to correct, investors not only help the market correct but substantially contribute to the degree of correction. One method of assistance is the overwhelming and uncanny ability humans possess for allowing fear to grip their lives so dramatically that bad decisions are turned into horrific decisions.

At the turn of the new year, the coronavirus began its assault on the people of China. We can debate whether the communication and unified efforts of the Ministry of Health of the People’s Republic of China and the World Health Organization (WHO) may have stifled the transmission of the disease. The fact is that this strain of coronavirus has spread rather quickly from one hemisphere to the next arriving in our nation on the west coast.

What does this information have to do with investing, you ask? Fundamentally, the same companies that achieved record profits in 2019 are the same ones that investor are now selling because of potential supply line delays or collapse. China provides a significant amount of goods to the Unites States. However, the companies that purchase their primary inventories from China for further manufacturing their products in the U.S. continue to hold substantial cash positions on their balance sheets, enjoy full employment of their workforce and, as mentioned earlier, know how to make a profit.

So, what is all of the concern about COVID-19? First, the ability to cope with unknown environmental infirmity by individual investors is almost nonexistent. Two emotions drive most of the market purchases and sells – fear and greed. One of the most often quoted statements of wisdom about these emotions was coined by one of the greatest investors of our lifetime, Warren Buffett. He said, “It is wise to be fearful when others are greedy and greedy when others are fearful.” The markets’ precipitous drop, as reported by the S&P500 and DJIA, for the period of February 19 through 28 can only be explained with fear. Stocks that were successful and reported good growth in 2019 were now being liquidated so quickly the indices reported an 11% drop meeting the definition of a correction.

Understanding that people are concerned about their overall investment portfolios, I recommend they revisit their purposes for accumulating the investments. If you have a change in your long-term need, your physical well-being has improved or declined dramatically, your family has received an unexpected windfall of assets – these are valid reasons to rebalance your portfolio to reduce risk or increase opportunity. To attempt to time the market by simply selling out after the decline of the market only converts your unrealized loss to a realized one. In country terms of my father’s remarking, “that is about as wise as shutting the barn door after the horse has left the barn.”

The better approach to protecting your family’s long-term investment savings is to make decisions out of unbiased research and analysis. Study the fundamentals of the markets and set a level of expected risk that will trigger the time of rebalancing instead of allowing fear to drive your decisions and possibly cost your family the security you desired in the first place. 

If you feel that you can’t make the decisions necessary to stay the course of your original investment approach, seek out a Certified Financial Planner™ professional and ask for a complimentary consultation and stress-test of your portfolio. You may sleep better at night.

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Relocation Considerations for Retirement

One of the most difficult decisions in retirement planning is to relocate. If you reside in a state that has a high income tax rate, sales tax rate and/or ad valorem tax, it may be something to consider. During the retirement phase of life, your savings must last beyond your lifetime. To ignore the cost of living could be the difference between truly enjoying a lifetime of income and experiencing worry at a time in life that you shouldn’t.

A recent study of individual taxation by state yielded some not-so-surprising news. California, Hawaii, New York, Connecticut and Illinois are the highest taxing authorities on individuals. These states are currently seeing an exodus of its citizens to lower cost of living states. To eliminate 15% of your tax liability by simply relocating to Texas or Florida, states without individual income tax assessments, may provide the additional savings needed for your savings to last to lifetime.

Another area of consideration is property tax. If a state does not assess an income tax on individuals, it will, in most cases, utilize an ad valorem, or property tax, to generate revenue needed to fund the state’s functions. For example, some people consider moving to Texas due to its absence of individual income tax assessments. However, in most of the counties contiguous to the Dallas metroplex, the rate of assessment for property taxes creates more of a tax burden than one would pay by remaining in Oklahoma.

Personal property tax is another consideration when relocating in your retirement years. States have begun to assess sales tax on automobile purchases versus the excise tax previously charged for such transactions. It may take some of the joy out of your new purchase when you realize the bill from the state could be as much as $5,000! 

Lastly, two of the necessities of life are utilities and food. When considering relocating, the cost of meals and household utilities should be considered. In extreme temperature climates such as experienced in Alaska, the cost of food and utilities, compared to Oklahoma, are very expensive. Due to the lack of fruit, vegetable and dairy production facilities and farms, these important staples of life must be flown into the location. The costs of delivery cause extremely high retail costs for consumers. 

Although Hawaii may be the land of paradise many of us enjoy on vacation, the cost of living on the islands is very high compared to other states. Recently, we enjoyed a stay on Oahu and the cost of a gallon of milk was $7.99! If you are raising kids in your family, it may be cheaper to buy a cow. 

It is important to consider many aspects when thinking of relocating during retirement. Cash flow is the ultimate factor coupled with your ecological requirements. One of the lowest costs of living states is Tennessee but you may wish to see the beautiful ocean shore each day. Trade-offs are a part of our lives. Rate the most important factors for you before undertaking a move to another state.

If you have questions as to how you can create a lifetime income plan, contact a Certified Financial PlannerTM practitioner to assist in the analysis so that you can make the best decision for your family’s needs. 

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Maximizing Support Benefits for Families

Many families lack the capabilities to replace the income for their household when they lose a spouse. Depending upon the circumstances, there are many options to prepare for and replace the income from your spouse. 

First, life insurance is a means of replacing income by receiving, mostly if not all, tax-free income from an insurance company by claiming benefits against a policy owned by you or your significant other. To claim the benefits, simply complete a claim form, submit a copy of the death certificate and a copy of your identification. You are not required to be married to be the beneficiary of a spousal life insurance policy. One of our clients divorced after purchasing a life insurance policy. He never changed the beneficiary designation of the policy that originally stated that his wife would receive $500,000 of death benefit proceeds upon his passing. However, our client remarried and, by failing to change his beneficiary designation form, his former spouse received the life insurance benefit! 

Obviously, this could cause some difficulties for the current spouse who may have an outstanding mortgage and other living expenses to pay. The prior spouse is under no obligation to share the proceeds of the life insurance policy with the current spouse and the courts will typically not overrule a beneficiary designation form that has been properly completed by the decedent.

Absent life insurance, your family may be entitled to SSA benefits. If your family consists of children less than 18 years of age on the date of death of your spouse, you may file for survivor’s benefits. The benefit amount depends on the number of years worked by the deceased spouse. As a surviving widow/widower, you may qualify for benefits at age 60 (age 50 if you are disabled). If you care for unmarried children under the age of 16, you may qualify for benefits at any age.

The surviving children of the deceased spouse may qualify for SSA benefits, based on the deceased parent’s earnings base, if the child is younger than 18 years of age or disabled. Some specific requirements must be met to qualify. 

Your children may also qualify for SoonerCare (Medicaid for Oklahoma) to provide dental and heath care. This program will cover the child until he reaches age 19. Oklahoma citizens such as pregnant women and individuals 65 and older also qualify for SoonerCare benefits.

The greatest assets you own are your health and the health of your children. These programs don’t replace the value of a lost loved one but provide the minimal care necessary to give a family hope for the future. If your family has suffered loss, it is important to seek out the assistance of a certified financial planner practitioner that will help you care for your family currently and plan for the future.

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Disruption: Is It The New Way of Life?

In the past 50 years, our world has seen exponential change that affects all aspects of life. We now have more than 4 billion people using the internet for some purpose – work, purchasing, medical, research, etc. Have you found a pay phone in your community? Whereas, these devices were found on each corner, now cannot be found within most cities!

Some areas of life have benefited from disruption: orthopedic and other complicated surgeries are now performed with robotics, ordering food on an app on your smartphone that delivers to your location within minutes or safety in our vehicles is so advanced that emergency services are automatically called if in an accident. These benefits are simply the ideas of ten years ago. If that is truly the case, what does it look like 10 years from now?

Stress is created on individuals when their environment changes and the individuals seem to be simply blown about by the winds of change. To combat this feeling, we work with our clients to find a benchmark in their lives that is stable and within their control. For example, we create a Family Index for them to clearly and simply see their progress achieved in their investment portfolios. 

These three steps will help you mitigate stress from change.

  1. Acknowledge that certain activities in life are beyond your control. As an individual, you do possess a certain amount of control in your world. You should develop and maintain your residence in a manner that is relaxing, soothing and calm. If you wish to reduce stress in the home, turn off the TV! You have no control of the actions of politicians or can you impact the next international war that is brewing somewhere on the globe.
  2. Create and follow routines in life that require less decision-making energy. Personally, I have written, and follow, a morning routine and evening routine that helps me stay focused and keep my world intact. This sounds a little different, right? Think about the confidence level you would generate if you could control your environment and start you day with such positive thoughts!
  3. Adopt a mindset that limits the amount of change allowed in your life. You do not have to own the “latest and greatest” of gadgets: phones, television, automobiles, kitchen appliances, etc. The great news today is that you can adapt to change at your pace. You are in control of you!

In our profession, we are blessed with the most cutting-edge technologies to help us serve our clients’ needs and communicate with them in a more efficient manner. The goals and desires of retirees have become more complex and our role is to reduce the complexity to a simple, implementable process to bring confidence, not stress, to our clients. Markets change, health changes and other areas of life will not impact your mental state if you implement the above three strategies. 

Do you feel more stress today than 10 years ago? If so, seek out someone that can provide far more than simply investment advice. You are far more than money. If you are concerned about the world changing around you, do me a favor this week. Turn off the TV, read a great book and look in the mirror. You are in charge of your world!

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Proper Planning For Your Estate is Critical

“Should I have a trust? A will? Which is better for my heirs?” These are the types of questions many of our clients pose when we are planning for their estates. The short answers to these valid questions are: Maybe, maybe and depends.

Now that I have clearly confused you, this article will provide you a simple strategy for determining the most important documents to meet your estate planning needs. First, determine what you wish to happen with your estate after your death. Notice I stated the phrase “after your death” in the preceding sentence. The reason for this qualification is that we perform two type of estate planning for our clients: Inter Vivos Planning and Post-Mortem Planning. 

During the phase of Inter Vivos Planning, we utilize tax-free gifting and charitable donations to accomplish a reduction of the estate or meet some other objectives. Inter Vivos is a Latin word that means “between two living persons”. Many people have heard of a Living Trust or Inter Vivos Trust. These documents are established while the trustor, the person establishing the trust, is living. If a trust is developed and funded after the individual dies, it is referred to as a Testamentary Trust. Don’t allow the terminology to confuse you. Either way these trusts function in the same manner – distributing your assets to a beneficiary of your choosing.

Post-Morten Planning requires additional thought and serves as strategy to reduce the estate from taxes or to direct trust distributions to other than those individuals listed by the decedent. For example, we utilize disclaimers to avoid estate assets from being received by named beneficiaries, if the person does not wish to receive the asset. Some instances may occur where the decedent, the person that died, failed to update their documents prior to death and their family dynamic may have changed. 

Trusts also serve another purpose for families – privacy. If someone dies with a Last Will & Testament, the document must be subjected to the district court’s jurisdiction to provide the recipients marketable title to property, release of any liens from taxes and all potential heirs have been given notice of the right to protest the estate administration. By utilizing a trust, the decedent does not require, in most cases, the decision of the court to disburse the estate assets and the document maintains its private nature with only the filing of a Memorandum of Trust if real estate is owned by the decedent. 

We have experienced many different scenarios for families during our 30 years as a financial planner. Do not assume there is a “cookie cutter” approach. This is an area of law that can be very complicated and requires significant time to cure problems if the trust is not funded properly, titles do not reflect the correct ownership or the trust is defective in language.

Your lifetime of assets should be transferred to your intended heirs or charities in a manner that is cost-effective, tax-efficient and private. We provide proactive planning for our clients with estate concerns and work with estate attorneys to guide you through the process efficiently. Have you reviewed your documents lately? If you want peace of mind, spend a few minutes each year to confirm your documents are current. Seek out a CPA and Certified Financial PlannerTM practitioner to assure your family that necessary steps are taken to protect your family’s legacy.

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The Power of Habits

Habits are much easier to form than to change. Good or bad, habits are formed by all of us, sometimes subconsciously. For example, which leg do you place in your trousers each morning while dressing for the day? Do you even think about the process of dressing or is it simply a routine that you follow because you have performed the same process for many years?

What do habits have to do with your finances? Everything! Many of the habits involving finances are passed down from generation to generation. Did you know that by simply saving $200 per month and investing it prudently for a period of 25 years, one could amass one million dollars? My personal habit of saving started when I was a young child. Granted, money was a little more difficult to accumulate in the 60’s and 70’s but I digress.

Analyze your living expenses and keep in mind the following phrase: “If your lifestyle exceeds your income, your outlook will be bleak.” One habit that should be learned by everyone is the habit of saving. For example, lets assume both spouses are working and the family has excessive (or discretionary) cash flow each month. Why not assign that excess to a savings plan for future needs? We inform many of our clients that their income needs in retirement will be approximately 80% – 90% of the pre-retirement income. Many are shocked with this statement! Think about what is happening during the retirement phase of life. Are you simply going to stop driving your car, eating regularly, utilizing electricity and other utilities in your home? Of course not.

Another habit we hope you will consider is the habit of exercise. By “investing” in your physical fitness, you will reap generous benefits later in life. Mobility and wellness are easily maintained in our 70’s and 80’s rather than being developed in the same time period. Start now to develop the habit of quitting, yes, quitting. Quit drinking sugar-loaded drinks and consume water instead. Limit your caffeine intake each day. Stop eating processed foods and refined sugar. If you find your willpower lacking, seek out an accountability partner. These simple steps will start you on a path of fitness that will create adventures unsurpassed in your retirement years. 

By combining your new habits of saving for the future and maintaining your physical fitness, you have conquered a tremendous number of these hardships experienced by most retirees. Don’t fear being in the minority of retirees who maintain their mobility, mental health and financial security. We believe life is far more than money. Actually, to us, true wealth is all those things that money can’t buy and death can’t take away. If you seek to reach your potential in life, seek out a specialist that works with retirees and understands the challenges faced by this amazing group of citizens.

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Living Life With Purpose

Planning for a major change in your life, such as retirement, requires a considerable amount of thought and planning. Up to this point in your life you have been contributing most of your energy, thoughts and resources to your chosen career. Your family has also played a big role in your day.

There are two important days in your life that should be given ample attention: the day you retire and the day you decide how you wish to spend the rest of your life! For many of our clients, the decision to change lifestyle from work focused to life focused is one that requires a tremendous amount of study. Can you play golf every day? Can you fish every day? How about simply sleeping in bed until noon each day?

Odds are that you are someone who needs a little more structure and the satisfaction that you are contributing to your community. Below are five strategies to help you continue to grow intellectually, spiritually and financially during retirement:

  1. Continue or start reading books. Many of the great minds of modern times attribute their knowledge, and continued growth past their active careers, to reading good books. The library has a great program for a cheap price – FREE! Yes, you can read some of the great classics by completing a library card application. What a great world we live in!
  2. Join a civic group. Man was meant to be active and provide charity to those less fortunate. Many communities have wonderful civic groups to help those in need. I am partial to the International Association of Lions Clubs. Helping others also helps you become a better person and it takes the focus of yourself.
  3. Attend the church or synagogue of your choice. Active participation and consistent attendance in spiritual worship creates a more fulfilling life. Many of our clients attend church every time the doors are opened. These individuals’ lives are more peaceful, tranquil and fulfilled due to the study of Holy Scriptures. 
  4. Become a mentor to younger professionals. One of my dearest friends serves as a mentor to younger professionals in his career field. His forty years of experience helps the younger generation of leaders make better decisions. He often tells me, “Just because you are not working for pay, doesn’t mean you quit working.” Wise words from a very wise gentleman.
  5. Keep a journal of your activities. For many years I have recorded life’s highs and lows in my journals. This activity gives my mind the opportunity to think clearly about challenges and develop solutions. Perhaps you could start a journal to leave your wise words to your family that will help them in times of need. This is a private book that you write in any manner you choose.

The key to living a successful life is to live it on your own terms. Define clearly what makes you happy. How can you help others find happiness? Don’t think of retirement as the end of a career, think of it as “reFIREment”- the start of another chapter in life.

One of my favorite roles is to help pre-retirees find their goals in the next phase of their life. If you truly want to live life to its fullest, it doesn’t simply take money. You are the secret ingredient! Go out today and change someone else’s life for the better. The one that receives the most benefit may just be you.

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Help for those that are “Suddenly Single”

The sudden realization that you alone are responsible for all of your household, financial and health matters can be a shock. Life changes even the most detailed of plans for the future. Many people suffer financial discourse during times of life change due to a lack of preparation. Not to discount the emotional trauma resulting from a sudden loss of a spouse, divorce or the incapacity of your partner, but confidence can be gained by understanding a few simple strategies to maintain your lifestyle.

Start today by discussing with your spouse/partner the complete financial picture of your family. Include such mundane tasks as identifying your insurance agent, where to pay utility bills and the location of the safe deposit box key. I have experienced too many client situations in my career where one spouse has controlled the finances for the family without much input from the other spouse.

Next, obtain copies of all of your bank statements and review the disbursements from your account. Do you know the company/person to whom the payment was tendered? Do you know why you pay this company/person? Look for any “automatic drafts” that occur without your knowledge and determine if it is a continuing valid need.

In matters of divorce, it is critical to correct beneficiaries on life insurance policies, retirement accounts, etc. once the divorce has settled. One horror story comes to mind. A client of ours divorced and when we inquired about his life insurance beneficiary designations, we were informed that he “had taken care of the matter and changed them to his current spouse”. The client unexpectedly died about two years later and during the process of administrating his estate, the life insurance policy and beneficiary designation form was discovered. He had not changed the beneficiary to his current spouse! Imagine the difficulty of explaining to your current spouse why the decedent’s former spouse is receiving $1,000,000 of tax-free life insurance proceeds. 

Property titles should be correctly titled after the loss of a loved one through divorce or death. Estate documents must be reviewed and amended for your current situation. This process may seem overwhelming but it is, in fact, very simple. See out a Certified Financial Planner registrant or attorney that can guide you through the changes and execution of the documents. You will be glad you did.

  • Action #1: Know where your income is deposited and where your money is spent.
  • Action #2: Review all IRA, qualified plans and life insurance statements for proper beneficiary designations.
  • Action #3: Consult an attorney or CFP® practitioner to confirm your property titles correctly reflect the appropriate individuals or entities.

Ignoring the situation is the worst action to take in these matters. What you don’t know, can truly hurt you.

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