Planning | Live a Life By Design

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 All Taxable, Unless…

Posted on October 21, 2019November 8, 2019 by Jimmy J. Williams, CPA/PFS, CFP®

All of your income is taxable! This is the premise of the United States Government. However, provisions are addressed through tax legislation that allows certain types of income to be partially taxable or fully exempt from taxation. How do you know which income is tax-free? Is it unpatriotic to pay the least amount of income taxes you lawfully owe?

Well, lets get one thought out of your mind. Judge Learned Hand, U.S. Court of Appeals in the early 20^th century, is credited with stating “nobody owes any public duty to pay more [taxes] than the law demands.” What is fair in our system? The U.S. tax system is based on the honor of its citizens and their willingness to remit taxes timely for the efficient function of the government.

The Internal Revenue Code of 1986, as amended, provides us guidance in the treatment of assets and monies received during the course of the year. For those of us employed, the compensation received from our employers is taxable. However, what about the gift received from Aunt Sally? Is there a limit to what she can give you? Good news! As a beneficiary, or donee, of a gift, of any size, you owe no federal or state income taxes. That means, you could receive a gift of $10,000,000 and owe no income tax. Wow! If that is true, why do we pay tax on other income that is not “earned” during employment?

Section 61 of the Internal Revenue Code states, “… gross income means all income from whatever source derived…” For an item of income to be exempt from taxation, the item must meet specific criteria within the Internal Revenue Code. How does anyone make sense of all of this legal speak? It is critical to understand your tax situation since this expenditure is one of the largest allocations of most individual’s annual budget.

Does this mean your Social Security Benefits are taxable? The answer is maybe. If your income from sources, other than the Social Security Administration, exceeds $25,000 as a single filer or $32,000 as a joint filer, you may have to pay tax on a portion of your benefits. To illustrate the changes in tax laws, the process used by Congress to create revenue for the federal government, in tax years prior to 1987, individuals were not taxed on their Social Security Benefits. Tax laws change, literally, daily.

The solution to this income tax conundrum is to seek a tax adviser that not only understands the tax laws but specializes in planning. Our role as wealth advisors, for our clients, is to provide guidance on the critical areas of their finances that may impair the clients’ abilities to live a life by design. Don’t simply sign your returns each year and send them off hoping for the best. To gain more confidence in your tax responsibilities, seek out a CPA and Certified Financial Planner practitioner that understands the interaction between your planning for the future and the impact of taxation on your investments and income. You can truly take control of your taxes. In the words of Nike, JUST DO IT!

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The Best Index to Gauge the Performance of Your investments

Posted on July 29, 2019July 17, 2019 by Jimmy J. Williams, CPA/PFS, CFP®

The DJIA, S&P500, Russell 2000, Nasdaq Composite, etc. There are hundreds of indices that report on a variety of investments. Which is the most appropriate for your family? How do you know if your investments are performing in a manner that will help you reach your goals? Keep reading, we have the answer.

While assisting our clients in reaching their retirement goals, we use our proprietary LifePlan Solution^TM process. An outcome of this process is a special index we use to provide our clients a better understanding, not to mention an easier process for monitoring their assets, by computing a unique index – The Family Index.

Your family is unique. Your tolerance for risk, cash flow needs and goals for the future may or may not require investing your lifetime savings in the same manner as the aforementioned indices. We apply our process to your family’s cash flow needs over its projected lifetime and determine the needed return to accomplish your goals. As simplistic as it sounds, the process is quite easy for our clients to understand and, more importantly, confidence is maintained because they realize it is particularly tailored to their family’s needs.

Discipline to adhere to the plan is necessary for your family to truly benefit. When the markets are reporting 10% returns for the year and your portfolio achieved 7%, it is vital to remind ourselves that you didn’t participate in the negative year so deeply nor the highs of the current year. Additionally, your family is most likely not 100% invested in the stock market as represented by the DJIA or S&P500.

Recent market performance has been setting record highs. All markets move in cycles. If you wish to reduce the volatility in your family’s investments, it is critical that you allocate the assets in a manner that meets your risk tolerance and other qualitative needs. Many of our clients appreciate the process mentioned above but seek guidance on a continuous basis to make certain any plan modifications required by changes in their family’s needs or desires are properly and timely addressed.

One of the most critical mistakes we have witnessed clients performing is market timing. It has been scientifically proven that the average investor is not capable of investing in a manner to predict the rise and fall of markets. Don’t fall into the trap of listening to “water cooler” experts that “know how to beat the markets”. Too often the “expert” has been proven wrong but your family is the one that pays the price for the lesson learned.

The Family Index is one tool we utilize in an arsenal of tools to help your family realize its dreams. Don’t attempt short cuts and expose your family’s future to gambling on market timing. Seek out a Certified Financial Planner^TM practitioner to help you prepare, implement and monitor a plan that is sound and provides your family with confidence about the future.

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How to Increase Your Retirement Assets in Three Steps

Posted on July 22, 2019July 17, 2019 by Jimmy J. Williams, CPA/PFS, CFP®

As we presented in the last article, we will focus, in this article, on the simple steps anyone can take to improve their retirement planning strategy. Time is of the essence. If you feel you have not saved well for retirement, by making these three simple steps a habit now, you will reap exponential benefits later.

Step One: Budget

First, review your family budget and immediately reduce the unnecessary cash outflows. These may be subscriptions to magazines never read, automatic renewals for insurance on your vehicles that are costing more than your 10-year old car is worth and those movie channels that are never watched since the kids moved out. Now, I know what you are thinking. “This isn’t that much money each month.” You are correct in the short-term sense; however, if you have more than 5 years until your desired retirement date the sum of funds can amount to a significant support for your future.

Step Two: Maximization

Second, immediately maximize your employer-provided return plan contributions. Remember, if you are age 50 or older, you may contribute an additional $6,000 per year as a “catch-up” for failing to fully fund a 401(k) plan in your younger years. The total for 2019 that you may defer from your salary is $25,000 if you at least age 50. This amount of funding for the next 5 years will add at least $125,000 (not including growth or employer matching) to your retirement funds.

If you are self-employed, review your company’s cash flow and find ways to fully fund a Simplified Employee Pension Plan (SEP). You may contribute up to 25% of your salary or $56,000 whichever is lower for 2019. If you were to establish your budget for accumulating the maximum amount for the next five years, you would contribute an additional $280,000 (not including market returns) for your retirement support.

Step Three: Asset Allocation

Third, review your investment asset allocation. Recent economic data reports the Dow Jones Industrial Average and Standard & Poors 500 Indices are at record highs. Do not anticipate these returns for your retirement planning. We use a phrase in planning, “Plan for the worst and hope for the best.” Your investment allocation during retirement will most likely be different than your investment strategy for the accumulation phase of your life.

Forget about the past and your lost opportunities. You can only control the present. Start today in making positive decisions and change your future. I purposely used the word “immediately” several times in this column to impart to you the importance of taking action now. By preparing a plan and following the strategy, no matter what anyone else does, you may improve your chances for a happier and better retirement.

Concerned about the adequacy of your assets for retirement? It is time to take action. Seek out the guidance of a Certified Financial Planner^TM practitioner to gain the strategies needed to live life on your own terms. You will be glad you did.

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Starting Late and Finishing Strong

Posted on July 15, 2019July 12, 2019 by Jimmy J. Williams, CPA/PFS, CFP®

Too many people give up on their dream retirement simply because they started too late (or so they think). One of the greatest opportunities to change your future to what you wish it to be is … to start today! Often, we experience a client that wishes to retire at age 65 and have saved little. Instead of simply acknowledging their lack of discipline, we provide solutions that will help them realize a better future but requires their participation on a plan that will be effective for them.

Let’s look at the most obvious savings point – employer retirement plans. If you work for an employer that provides a deferred savings plan such as a §401(k) Plan, you are in luck. Meet with your employer or human resource officer and determine when you can begin participating in the plan. If you are already enrolled in the plan but want to make changes to your savings rate (called your “deferral amount”) there are certain windows of time that must be observed.

If you are age 50 or older, you can take advantage of “catch-up” provisions within the law that can significantly reduce your current taxes and increase your savings exponentially. For 2019, the “catch-up” contribution amount is $6,000. Think about it. You can save an additional $500 per month on a tax-deferred basis. This will add up to a considerable increase in retirement savings over a ten-year period! If invested prudently, you will experience even greater potential growth until retirement.

The next step is to review your investments within the plan. Are you sufficiently allocated and diversified in your selection of investments? Don’t simply invest in the same manner as other employees. Invest in yourself by spending some quality time to understand the particular options and how you feel if the performance was not as projected. How would your retirement plans be affected if the performance was lacking?

By electing to save your maximum amount to your employer plan, you have essentially placed your goals on auto-pilot. You will automatically be saving money each pay period and it is a little more difficult to obtain the funds if an impulse to buy is experienced.

Now, the really good news. Your employer-provided plan matches a certain limit of your contributions each year. This is money you will receive in your account that helps you grow your retirement savings. Let’s assume that your employer matches up to 5% of your salary (assuming you defer or invest at least 5% of your salary to the plan) and your total compensation is $60,000 per year. This means your employer will contribute $3,000 (or $250 per month) to your retirement account each year. If you work at least ten years you will have gained another $30,000 plus potential growth for retirement support!

If you are self-employed, you have a number of options that will benefit you if you started late saving for retirement. We will discuss these options in the next article.

Now, take the initiative today to set your course for retirement to be your best years ever! If you have questions about your employer’s plan account, retirement strategies or the tax impact on your cash flow to and through retirement, contact a Certified Financial Planner^TM practitioner to construct a retirement plan that works for you. Until next time…

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Strategies for Filing for Medicare Benefits

Posted on July 1, 2019June 28, 2019 by Jimmy J. Williams, CPA/PFS, CFP®

One of the most complex benefits provided by the federal government is Medicare. Numerous elections that affect your lifetime benefits cause people much anxiety. You will learn when and why to file for certain benefits under the Medicare laws in this article.

While working, employers generally provide health insurance benefits for its employees. The coverages are broad and provide a level of safety for the participants. However, when a worker turns age 65, some strategies must be considered about filing for Medicare in a timely and appropriate manner.

Medicare Part A is the program that provides hospitalization coverage for in-patient care, hospice care, skilled nursing facility care and home health care. The cost for this coverage is free to individuals who have worked forty (40) quarters during their career and contributed to the system through payroll deductions. When examining your paystub, the payment for this program is deducted from your gross pay at 1.45% per pay period. All qualified individuals should file for Medicare Part A coverage upon turning age 65 regardless of employment.

If an individual continues to work beyond age 65, Medicare Part A serves as a supplemental to the person’s employer-provided group coverage if the plan covers equal to or more than 20 employees. However, if the employer plan covers fewer than 20 employees, additional research will need to be performed with your employer-plan provider. The insurance company may or may not cover your healthcare needs as the primary insurer.

Medicare Part B is the program that provides medical insurance for out-patient care. This type of coverage will provide payment for services from your doctors, durable medical equipment costs, preventive services and home health care. The premiums for Medicare Part B are borne, partially, by every participant. For 2019, the monthly premium for Medicare Part B is $135.50. However, some participants may be required to pay an additional amount referred to as the “Part B income-related adjustment amount” if his or her modified adjusted gross income is greater than $85,000 for a single person or $170,000 for a joint filer. Modified adjusted gross income is defined as adjusted gross income plus tax-exempt interest.

One area of the Medicare Programs that many people don’t understand, or utilize appropriately, is Medicare Part D, the prescription drug coverage. Anyone that is needing prescription drugs on a regular basis for their care should consider the benefits of enrolling in Medicare Part D. There are several punitive measures for failing to enroll at your first opportunity. Many different carriers provide plans for this program and a professional should be consulted to determine which plan is most appropriate for your needs.

Medicare is a wonderful program for those qualified individuals. You don’t have to worry or wonder if you are utilizing the program to its fullest extent. Consult a CPA or Certified Financial Planners^TM practitioner to assist you in enrolling for this important coverage. For additional information about retirement benefits and strategies, please go to our Compass Capital Management Resource Center.

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Disruption: Is It The New Way of Life?

Posted on June 24, 2019June 13, 2019 by Jimmy J. Williams, CPA/PFS, CFP®

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.

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.
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!
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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Planning for Disasters is Good Business

Posted on June 17, 2019June 6, 2019 by Jimmy J. Williams, CPA/PFS, CFP®

Recently, many American citizens have been subjected to tornadoes, flooding and other natural disasters. During these times of stress, it is critical to possess a plan that helps you stay focused and prevent panic. We believe the best time to prepare for inclement weather is during the time of sunny days.

The first item on your Disaster Plan should be the accountability of all family members (including our beloved pets). Communicate where and what should be the actions of each family member should a fire, flood or a tornado strikes the residence. Educate children on the location of preparedness kits (I hope you have one!) and the safest shelter area within your home or at a local FEMA-Certified Safe Area. It is during these frenetic times that we often overlook simple steps that could mitigate or prevent significant loss of family and/or assets.

A properly designed Preparedness Kit should contain, at least, the following items:

Weather radio
Blankets
Prescriptions and other medical equipment
Flashlights with extra batteries
Water and non-perishable food for at least a couple of days
Pet food and treats (keeping our pets stress-free is important to their health)
First Aid Kit
Cellphone and/or tablet
Clothing and coats/jackets
List of important numbers (i.e., doctor, veterinarian, insurance company, other family members, etc.)

Next, place the preparedness kit in the safe area or in a known location that is readily available for a quick trip out the door. Designate someone in the family to be responsible for the kit including its contents along with its placement in the safe area.

If the disaster is fire-related, discuss the plan of each family member meeting at a specific location away from the home to account for everyone. This could be a tree, a neighbor’s house, etc. Again, don’t forget your beloved pets. However, if it is a decision to save your family or your pets, we respectfully understand the love of our pets, but believe it is in the family’s best interest to focus on the human family members first. If your home is designed with more than one floor, an escape rope ladder should be stored in a convenient location upstairs to allow for family members to easily descend the upper floors to reach safety.

Lastly, inform the local fire and police departments that your family has a safe area and may need to be checked on in the event of a disaster. This piece of communication could be critical if your safe area is within the home and the structure is razed to the ground by tornado.

To help our clients during these tumultuous times, we have developed a Preparedness Kit Checklist which includes review dates to determine the kit is maintained properly. To request this complimentary checklist, simply go to www.compasscapitalmgt .com and look under the “Resources” tab. While you are on the site, you may wish to look at other helpful videos and white papers to improve your family’s lifestyle.

Don’t let Mother Nature dictate your future, take charge of your life by being prepared. You will be glad you did!

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Father’s Role in Financial Planning

Posted on June 14, 2019June 13, 2019 by Jimmy J. Williams, CPA/PFS, CFP®

Happy Father’s Day to all fathers reading this column! This is your special day. You may be wondering what a financial column and Father’s Day have in common. From the days of the founding of our country, fathers have played a special role in the family unit. In the past, fathers were the breadwinners of the family while mothers were responsible for the household and children. Being a father myself, I now see the inequity in this allocation of duties, but I digress.

Father’s Day is not simply a time of celebration but also a recommitment of our priorities and dedication to our loved ones. If your family is not experiencing the joy it once did, it is time to evaluate your role and contribute in a different manner to the family’s benefit. It is not the making of money that brings happiness to your children. It is the investment of time, your time with them that creates lasting memories and provides a platform for your children to learn valuable lessons that will serve them well in life.

Lesson 1: Find something you are passionate about in life and choose it as a career.

In most cases, your passion will provide the courage and defiance to failure that is needed to reach success. Water collected in a puddle does not produce much energy. However, water heated to 212 degrees produces such force that it can power an locomotive! Fathers should teach their children to be resilient in the face of challenges and think creatively to become the next Steve Jobs or Thomas Edison.

Lesson 2: Giving your time to those in need is a wonderful use of one’s day.

In today’s environment, the “me” attitude has created a selfish mode within our country. Most Americans are generous with their money. However, to forsake one’s personal goals to contribute to a needy cause does not inspire some people. I have been a member of McAlester Lions Club for most of my career. The most memorable times in my volunteer career have been those days spent helping less fortunate individuals reclaim their lives and rebuild families. By helping these individuals capture a second chance at a productive life, I received a feeling of accomplishment that can’t be measured in money or net worth.

Lesson 3: Saving for the future should be a habit.

Fathers teach their children many habits during their lifetime – some good, some bad. However, the habit of saving for the future should be a family legacy that each generation continues. By creating a habit of saving each pay period, each month, whatever frequency your cash flow creates, you will grow in confidence, security and capability. Typically, you need to save in three “buckets” in this order:

Emergency Fund (next 90 days)
Lifestyle Fund (cars, homes, education, vacation, etc.)
Lifetime Fund (retirement and legacy)

Focus one hundred percent of your initial savings on the first bucket, Emergency Fund. After saving sufficiently to cover 90-days’ living expenses, then start saving in the other two buckets.

Becoming a father is a simple act. Being a dad takes commitment, time and resources. You have the capability of all three of these characteristics. Take action and hug your kids today. The gifts you receive on Father’s Day are your children’s respect, love and admiration!

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Maximizing Your Day

Posted on June 10, 2019June 6, 2019 by Jimmy J. Williams, CPA/PFS, CFP®

Have you looked at your calendar lately? If many of you are like me, the days seem to be passing quicker than I experienced in my younger days. Now, I am not focusing on the topic of aging. I am, however, focusing on the more important aspect of time – maximizing the enjoyment of time’s passing.

When was the last time you sat down and simply wrote about the day’s events and documented the memories of the day? I highly recommend journaling to my clients, friends and family as a means of storing memories, working through difficult decisions, dispensing of emotional feelings without the fear of reprisal and, most importantly, to provide yourself the time needed to remove thoughts from your mind for complete and total rest. For many years, I have kept journals that are private and will not be reviewed by my family until my passing. The hope is that the stories will inspire my heirs to contribute to their communities, provide for those neighbors in need, seek a spiritual solution to many of life’s challenging times and to simply live a life by their design that leaves the world in a better place than they found it.

During my daily interaction with people, I often seek times to help others see the world for more than a harried existence where one day looks the same as all the others. We have three important facts of life to be thankful:

We were born as human
We were born or live in the United States of America
We can change our future by making decisions against nature

To be born human is vital in that we can utilize a highly sophisticated brain to change our futures for better. We can form or build our environment to our own liking. Unlike some reptiles, we can place warm clothing on our bodies and brave the frigid temperatures to accomplish our goals for the day. Unlike other mammals, we can elect our leaders in a formal election versus a duel or fight to the death to be the alpha male.

Living in the United States of America is one right, and privilege, many of us take for granted. Watch CNN, Fox News or any other news channel and watch the turmoil that is thrust upon the citizens of other countries by tyrants and other factions who wish to impose their will. Despite the sometimes disruptive nature of our freedoms and rights, the USA is the most sought after country for personal freedom, opportunity and a brighter future by those who are under despotism, tyranny and socialism. We are not a perfect country; however, our citizens have the right to participate in the development of the country’s future.

Changing our future is easily performed by writing down our desired outcomes and formulating the steps to achieve them. This is the reason for a semi-annual review of our goals. We, as humans, can change course today and seek a better outcome than we have experienced the first half of the year. Don’t simply allow your life to be drifting in the proverbial winds of chance. You have an opportunity to close the chapter of last month, last week or yesterday and form a brighter future.

Seek out positive, impactful and complimentary information by listening to podcasts, reading good books and associating with people that have kindness as a personal trait. One such podcast we recommend is “Live a Life by Design”. This podcast can be found on iTunes, SoundCloud, and right here on livealifeby.design.

Remember the words of Zig Ziglar, the renowned motivational speaker and author, “You were designed for accomplishment, engineered for success and endowed with the seeds of greatness.” The secret to success on this planet is to make tomorrow your best day ever! Then simply repeat this step everyday.