What is financial shock?

I would guess that when you read the term “financial shock”, you think of the market crash in 2008. Financial shock actually is an event that hits closer to home. Let me give you an example. In 1985, my father was a construction superintendent working on a high rise project. He got up at his normal 4:30AM to get ready for work, stepped into the shower, had a massive heart attack, and passed away. That is financial shock. He was 50, my mother was 48, and they were not prepared. Sudden death, the loss of a job, or costly medical issues can completely derail your life.
This is what we did to make sure the rest of our family was not caught unprepared:
When everyone was together for a happy family event we discussed these issues. One might think it is in bad form to discuss such depressing topics at a happy event, but it is not. We were all together, happy, and healthy, it was the best time to discuss these issues.
Please make sure that you have a good cash reserve, that your life insurance is up to date, beneficiaries are current, and the death benefit is enough to cover the unforeseen events. Make sure that all of your estate planning papers are in order and current.
Dealing with financial shock can take a huge toll on you emotionally, so please make sure it does not take a financial toll also.

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Aretha died without a will – so what?!

I grew up in a suburb of Detroit and the Queen of Soul was a big part of my childhood. Sadly, just days after she passed there was an article reprimanding her for dying without a will. I say “so what.” Her passing without a will may have made little difference to her heirs. Here is why.
If she had qualified retirement accounts, annuities, and insurance, all of those have stated beneficiaries so that those accounts would go directly to the beneficiaries without going through probate.
If she had bank accounts, or non-retirement accounts that had Pay on Death, or similar designation in the title, those accounts would pass to the heirs with a step-up in basis and outside of probate.
If she had any type of Trust set up for her heirs, the assets named in her Trust would pass outside of probate.
There may have been very little in her estate to be probated. While I don’t agree with not having all of the necessary estate planning papers in place, she may have done fine by her heirs without a will.

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How to keep up appearances and laugh all the way to the bank.

I am always concerned as to how my clients are spending. Is a purchase a need or a want? Did you do sufficient research before that big purchase? There are a number of ways to live frugally, but not look like a cheapskate.
Shop at the back of the store first.
It does not matter whether you are shopping for clothing or office supplies, the sale items are always in the back of the store.
Buy used.
We always buy cars that have been leased by someone else, then returned. If you lease a car you must maintain the car and keep the mileage low in order to not pay a big chunk when you return the car. Lease returns end up being good cars to buy due to the good maintenance records, low mileage, and the often still have warranty left.
We also have only bought homes that have been in foreclosure. This may not be a choice for everyone as I did grow up in a construction family, but you can often buy below market.
Buy quality
I am a lover of shoes. I used to buy based only on appearance, not how they were made. My Husband asked me why I didn’t buy better made shoes and then just get them re-soled or repaired when needed. I started buying better made shoes and doing just as he suggested. I still love shoes but am saving money by buying better quality.
How you spend is everything and may make for a more successful retirement.

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Who doesn’t love Google?!

I am not referring to owning the stock, I am referring to using Google to answer our urgent and burning questions. Here are a few of the most Googled financial questions:
In Maryland and New Mexico, there are a lot of questions about student loans. There are more questions about how to qualify vs. how to repay them.
People in Maine and Pennsylvania are looking into mortgage calculators. I would guess with the rates still on the low side, people want to know how much they can afford in a house.
Sadly, in Georgia the most Googled financial questions are about Pay Day loans. Many of the questions were about how they work and how you qualify for them. I really hope that is the loan of last resort as they are very expensive loans.
On a happier note, in too many States to list, the most Googled financial question is how 401(k) accounts work. Questions regarding the contribution amounts, fees, when you can/or have to withdraw, etc. were the most popular.
I love Google, but talking to a human can often be better.

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Is it time for the bank of Mom & Dad to shut down?

Supporting our kids is something we should do, but there needs to be a time when the Bank of Mom & Dad reduces its hours or shuts down completely. If your kids are well into their careers, it may be time for some tough financial love. Hopefully, you have done your job by teaching them how to budget, save, and spend wisely. It’s nice to be in a position to help, but you don’t want to be a lifelong ATM. If your adult children are still asking you for money, here are a few questions you should feel free to ask first:
Ask what it’s for. No matter the amount, you have a right to ask what the “loan” will be used for.
Set repayment terms. I put the word loan in quotes above due to the fact that often “loans” become gifts. You are not doing them or yourself any favors by not setting terms.
Feel free to say no. You may not be in a position to actually make the loan. If you are not on board as to the use of funds, or you will just help feeding a pipe dream, say no.

We owe it to our kids to teach them fiscal responsibility – do that and you will be able to gift them a lifetime of independence.

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“When do I transition my portfolio to bonds vs. stocks?”

I work with a number of clients that are at or near retirement, so this question comes up a lot. Everyone wants to know when they should get out of stock funds and move completely to bonds for income. The simple answer is never. Here are a few points to consider:
First, just because you are retired does not mean that you will no longer being living a full and active life. Many of my clients will live, statistically, 20 years in retirement. To me, that is a long time. Stocks have proven to outperform bonds over the long term and you need growth of a portfolio to keep ahead of inflation.
Secondly, there are a number of stock funds that pay nice dividends. A combination of dividend paying stock funds + bond mutual funds may provide the income you need in retirement while your portfolio continues to grow.
Lastly, I had a conversation last week with a 92 yr. old client who does not wish to change from his moderately aggressive risk tolerance. He likes the growth he has realized, and still has a lot of things he would like to do.

There is no set time at which your portfolio mix has to change. Your lifestyle and health will determine your mix.

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It’s time to enter the 21st Century.

A popular strategy for withdrawing from your retirement nest egg, the 4% rule, was developed in 1994 by William Bengen. This rule went under the assumption that if retirees only withdrew 4% from their retirement accounts, adjusted for inflation, their nest egg would last at least 30 years. This rule also assumes that the investment mix is one of 60% equities and 40% bonds, which at the time bonds were paying 5%, well below what they are paying today.
Another assumption is that the 4% rules is based on life expectancy vs. income needs. Spending in retirement is anything but static and simply adjusting for inflation does not allow for emergencies or major health issues.
Our tax system is another issue that may blow up the 4% rule. Currently, we all expect to pay less in taxes under the new tax laws. These laws will expire, and we have seen that tax laws can be ever changing. Add to that the various types of retirement accounts to draw from and the 4% rule simply does not apply anymore.
When planning for retirement, try to factor in some fluid spending in retirement, and make sure to review your accounts and spending annually.

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A taxing question.

I have been asked this question a number of times in the past few weeks, most recently by two men that are past age 70 but still working at their corporate jobs.

Q: “If I am older than 70.5 years but am still contributing to my 401(k), do I need to take withdrawals?”
A: Withdrawals need to be taken from any standard IRA, or Rollover IRA that you may have, but if you are contributing to your company 401(k), you do not need to take required withdrawals from that account.

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It is not too soon to think about your tax return.

2018 will bring a change that should be positive for most taxpayers – a lower tax bill. We are mid-way through the year, so now is the time to look at your potential tax-saving moves.
First and foremost, if you are still working and not contributing the maximum to your retirement account, do it now. You either send the money to Uncle Sam or yourself – I think your pocket is the better choice.
Check your deductions as the standard deduction has been increased for 2018. The standard deduction for single tax filers is $12,000 and for joint filers, it is $24,000. If you are just at the line between itemizing and using the standard deduction, try “bunching” your deductions. One way to do this is to pay your property tax for 2018 and 2019 this year to be able to itemize. Please keep in mind, you may have to use the standard deduction next year by bunching deductions this year.
If you have a lot of medical expenses, 2018 brings a lower threshold to qualify. For 2018, the medical expense threshold has dropped to 7.5% of adjusted gross income vs. 10%. Keep in mind that the threshold returns to 10% in 2019, so you may want to bunch in this area also.
By looking at your potential 2018 tax bill now, you will not over pay your estimated tax, thus giving Uncle Sam an interest free loan all year.

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