Richard A. Lindsey, CPA

Lindsey & Waldo, LLC – Certified Public Accountants

  • Oct 13

    As we transition from our income earning years to our retirement years we begin to realize that each period has a different set of tax pitfalls. Here are 5 of the most common. Each of which can be avoided with a little planning.

    Missing the tax impact on Social Security
    A portion of your Social Security benefits may be taxable. The formulas are complicated (see example later), but in general terms, if your “Modified Adjusted Gross Income” (MAGI) exceeds $25,000 ($32,000 for joint filers) then it’s likely 15% of your Social Security benefits will be taxable at your ordinary income rates. If your “provisional income” exceeds $34,000 ($44,000 for joint filers) then up to 85% of your benefits could be taxable. Receiving income such as retirement benefits or IRA distributions which cause your income to jump from one level to the next can have a severe impact. You’ll pay income tax on the distribution, plus you’ll increase the portion of Social Security benefits which are taxable, sometimes doubling the tax burden.

    Missing the difference between growth, income, and cash flow
    Growth is what you need your portfolio to do in order to have enough money to last your entire retirement. Income is what you will have to pay taxes on, and cash flow is the after tax cash you have to spend on your needs and desires. The goal is to have sufficient cash flow to live your life like you want while paying the least amount of tax possible, and, at the same time, leaving enough in your portfolio for it to continue to grow at a rate that keeps up with, or exceeds, inflation.

    Missing a required minimum distribution
    Failure to take a required minimum distribution could subject you to penalties as high as 50 percent of the missed distribution. You must take required minimum distributions from any qualified plan or traditional IRA once you reach age 70 ½, and every year thereafter. Don’t rely on your bank, or broker, or anybody else to remind you about this. They will not pay the penalty for you! Roth IRAs are exempt from this requirement.

    Missing beneficiaries on qualified accounts
    Without a named beneficiary, the money in a qualified account reverts to your estate. The name, or names, listed on the account supersedes anything named in your will or trust, so it’s also a good idea to name a successor beneficiary.

    Missing the right beneficiaries
    It is generally best to name individuals as beneficiaries instead of your estate or a trust. You also want to avoid multiple beneficiaries with wide age differences. The minimum distribution will be determined using the “life span” of the oldest beneficiary. To avoid this pitfall, consider dividing your IRAs into separate accounts, each with a different beneficiary.

    For those two of you who are interested, here’s the example I promised:
    John and Jane Smith have an adjusted gross income of $44,000 for 2016. John receives Social Security benefits of $7,200 per year and together they receive $6,000 a year in interest from tax-exempt municipal bonds. On their joint return, the couple would make the following calculations:

  • Jul 21

    Many Americans appear to be living one big expense away from disaster. A 2014 Federal Reserve poll discovered the startling fact that almost half of all U.S. households could not come up with $400 to cover an emergency expense. They would need to sell something, or borrow cash, to do so.

    If you find yourself belonging to that category, then I have some ideas (11 of them, in fact) I think will help. In my experience, if you want to get out of a hole, you study the behavior of those who have already made it out. And you do everything you can to copy that behavior.

    Yes, some people have been fortunate enough to inherit wealth, etc. But many, MANY more of those who have wealth came about it in a different way.

    Now, so that YOU do not find yourself in the unfortunate place of not being able to scrape up $400 in an emergency … read this now.

    Becoming a household that will be able to ride through instability and uncertainty is only going to become MORE important in future years, not less. So, that being the case, here is a portrait of those who are able to achieve this status.

    You’ll notice that these are just as significantly about your mindset as you relate to your finances, as about your behaviors.

    Here’s what the Financially Secure look like …

    1) He always spends less than he earns. In fact, his mantra is that over the long run, you’re better off if you strive to be anonymously rich rather than deceptively poor.

    2) She knows that patience is truth. The odds are you won’t become a millionaire overnight. If you’re like her, your security will be accumulated gradually by diligently saving your money over multiple decades.

    3) He pays off his credit cards in full every month. He’s smart enough to understand that if he can’t afford to pay cash for something, then he can’t afford it.

    4) She realized early on that money does not buy happiness. If you’re looking for financial joy, you need to focus on attaining financial freedom.

    5) He understands that money is like a toddler; it is incapable of managing itself. After all, you can’t expect your money to grow and mature as it should without some form of credible money management.

    6) She’s a big believer in paying yourself first. It’s an essential tenet of personal finance and a great way to build your savings and instill financial discipline.

    7) She also knows that the few millionaires that reached that milestone without a plan got there only because of dumb luck. It’s not enough to simply “declare” to the universe that you want to be financially free. This is not a “Secret”.

    8) When it came time to set his savings goals, he wasn’t afraid to think big. Financial success demands that you have a vision that is significantly larger than you can currently deliver upon.

    9) He realizes that stuff happens, and that’s why you’re a fool if you don’t insure yourself against risk. Remember that the potential for bankruptcy is always just around the corner, and can be triggered from multiple sources: the death of the family’s key breadwinner, divorce, or disability that leads to a loss of work.

    10) She understands that time is an ally of the young. She was fortunate (and smart) enough to begin saving in her twenties, so she could take maximum advantage of the power of compounding interest on her nest egg.

    11) He’s not impressed that you drive an over-priced luxury car and live in a McMansion that’s two sizes too big for your family of four. Little about external “signals” of wealth actually matter to him.

    And a little bonus, if you will: She doesn’t pay taxes which could have been avoided with a simple phone call to her tax professional. She plans ahead, before tax time.

    “You cannot control what happens to you, but you can control your attitude toward what happens to you, and in that, you will be mastering change rather than allowing it to master you.” – Brian Tracy

  • Jan 6

    A thoughtful estate plan can make your heirs lives easier. But it is your parents’ estate planning that will make your life easier.

    Not every family has fostered the ability to speak openly in love. But if you have begun that process, here is an outline of what grown children need to know about their parents’ business. In fact, adults of any age should update their estate plan every year.

    And, as a parent, if you are willing to share some of this information with your children—especially if one of them is also the executor of the estate— they’ll appreciate having the facts and be more prepared emotionally when the time comes. They will know your wishes ultimately anyway, and good communication will lessen any surprises ahead of time. They will benefit from knowing the answers to the following questions:

    Do you have enough saved for a comfortable retirement? Many financial planners use a safe withdrawal rate by age to make sure the clients will still have enough money toward the end of their retirement. But, this isn’t always the case, and is worth looking into. If your spending is under this withdrawal rate, you have more than enough and probably can leave a legacy to your heirs. But, if you are over this rate, you may run out of money and have to compromise your standard of living abruptly. It may be uncomfortable, even embarrassing, for parents to share their finances with their children, but grown children often want to know how their parents are doing.

    Where are the important documents? The five documents your children should be able to retrieve quickly are: a will; a living will; a power of attorney; a directory of basic information; and the latest end-of-year financial statements.

    The directory of information should list the assets of your estate, along with the account or policy numbers and contact phone numbers. It also helps to indicate your intentions for the distribution of each asset, which will help confirm you have the correct titling and beneficiary designations on every portion of your estate.

    You may have structured your will to divide your estate equally among your children. But, if you have tried to make it easy for one child to access your bank accounts by adding his or her name, you have overridden your estate plan and left that child joint tenancy with complete rights of survivorship. This can be a problem.

    Titling and beneficiary designations are legal estate planning actions. It’s best to review them with your legal advisor. Various types of assets are best designated differently in the estate plan. This is not the occasion for do-it-yourself thrift. It is a rare family that has compiled and reviewed a complete list of estate assets: bank accounts, investment accounts, retirement accounts, real estate holding, life insurance, health savings accounts, and so on.

    Are there any special bequeaths? Any promises you have made should be documented. Your good intentions won’t matter if you aren’t around to implement them. If you have promised money to a charity, and want that obligation kept, document it. If you have promised to loan a child money, document it. If you have promised to help fund your grandchildren’s college education, document it. Without documentation, none of these promises can be kept if you aren’t around to make the decisions.

    Are there plans to remarry? If parents have remarried, intergenerational estate planning is even more critical. Prenuptial agreements and careful estate planning are required in the case of second marriages, to avoid disinherited children or grandchildren from the first marriage. The default is rarely a good option.

    Do you have any prepaid funeral arrangements? Do you want to be buried or cremated? Do you have any preferences for a memorial service? Although it may seem macabre to plan your own funeral, a memorial service takes time and thought. It will be that much more special and comforting to your family when it is filled with your favorite music and readings. Encourage your children’s interest in your estate planning. Most of the time, their intentions are honorable. They may simply want to understand your values and therefore your wishes.

  • Dec 9

    Shhhh! I have a secret for you. I’m going to share it with you today, but you have to promise to keep it under wraps.

    Applied to your business correctly, this one “secret” could transform your business. If you have the faith to apply this secret correctly, it could be worth millions. Your life could change from struggling to keep the wolves at bay to successful entrepreneur nearly overnight.

    Okay, here’s your tip of the day. Well, it’s not so much a tip of the day, as it is the tip of the week, or maybe the tip of the year…

    Change your prices. That’s all you have to do. I have seen more people make more money simply by raising their prices than any other advice I’ve given them.

    Nearly every business person grossly underestimates the elasticity of price, and neglects the fraction of their customers/clients/patients who will cheerfully buy a higher priced premium option of what they sell if only it were offered. They leave a lot of money on the table by not offering a leather bound version of the paper bound product; a red door to walk through in the back instead of the blue door in the front.

    Marketing guru Dan Kennedy talks of the time he lived in Phoenix. At the time, there was a very popular nightclub in Phoenix that had a big, long rope line in the front where you could buy a card for $500 a year that allowed you to stand in the rope line in the back. Well, you say, who’s gonna buy a card for that? A lot of people did, based on the length of the line in the back. In fact, some nights the rope line in the back was longer than the rope line in the front.

    Not everyone will, but there are plenty of customers who will select a premium option. Price is very elastic. Most business people don’t understand just how elastic price is because of the manner in which they set their prices. Here’s what most people do, and I’d be willing to bet you’ve done the same thing. They look around at what everybody else in their industry is charging and set their price right in the middle. They think they’re being “competitive.” If they’re really daring, they try to be a little higher than the average; or if they think they can buy volume, maybe they set it a little lower than average.

    Alas, there are also those poor souls who attempt to price themselves at the bottom of the heap in order to proclaim they have the lowest prices on the block, in their town, their region, or whatever. It is a dangerous strategy because, as I’ve warned you time and again, there is always someone willing to go out of business faster than you are.

    Here’s the power of transaction size. Granted, it’s a very simple example, but one you might ought to post on your wall where you can see it every day. How do you get to a million dollars in sales in your business? You can get there with one transaction, if you can sell someone something for a million bucks. If you’re going to sell something for $100 it’s going to take you 10,000 sales to make it. Making a million dollar sale is not 10,000 times harder than making a $100 sale. It just isn’t. Now, I’m not saying Starbucks could figure out how to make a million dollar sale, but they did figure out how to sell a cup of coffee for $8. They didn’t do that by getting a committee together in a conference room and saying, “Let’s see, Denny’s sells their coffee for $0.55 and Dunkin Donuts is $0.72, so, let’s be courageous and go for $0.99.” That’s NOT how they got there.

    You’re familiar with Omaha Steaks, right? They come in a Styrofoam ice chest delivered to your door. They have good steaks. But, you know they also have hamburgers. And they have hot dogs. All of them delivered right to your door. So, Omaha steaks are, let’s say, double or triple the price of the best beef being sold in the supermarket or butcher shop. Maybe they’re five times as much as Sam’s or Costco. Yes, they do deliver, but a steak is a steak is a steak. Right?

    Wrong! Now, there’s Allen Brothers. Ever try theirs? I hear they are wonderful. It’s twice the price of Omaha. These guys are in the same business, catalogue selling of steaks, hamburgers, hot dogs, and they have the gall to charge twice as much as Omaha! And people are switching like there’s no tomorrow.

    I recently read about a cosmetic surgeon, Doctor Fairfield, who lives in the Philadelphia area. He does seminars to bring in new patients. At the seminar he offers a $25,000 membership in the practice for the patient to have all the cosmetic procedures they want or need for three years. So you want to come have a Botox shot every day? You can; $25,000 membership fee up front. Five people in a room of 150 chose this option, and three of them had no prior relationship with him. They showed up based on a newspaper ad and plunked down $25,000. That’s price elasticity. It’s everywhere. I promise you, most people don’t understand it and most people underestimate it.

  • Nov 11

    Steve Jobs was the co-founder, chairman, and chief executive officer of Apple, Inc. This is the fifth anniversary of his death. These inspirational words are often referred to as his last.

    I have come to the pinnacle of success in business.

    In the eyes of others, my life has been the symbol of success.

    However, apart from work, I have little joy. Finally, my wealth is simply a fact to which I am accustomed.

    At this time, lying on the hospital bed and remembering all my life, I realize that all the accolades and riches of which I was once so proud, have become insignificant with my imminent death.

    In the dark, when I look at green lights, of the equipment for artificial respiration and feel the buzz of their mechanical sounds, I can feel the breath of my approaching death looming over me.

    Only now, do I understand that once you accumulate enough money for the rest of your life, you have to pursue objectives that are not related to wealth.

    It should be something more important:

    For example, stories of love, art, dreams of my childhood.

    No, stop pursuing wealth, it can only make a person into a twisted being, just like me.

    God has made us one way, we can feel the love in the heart of each of us, and not illusions built by fame or money, like I made in my life, I cannot take them with me.

    I can only take with me the memories that were strengthened by love.

    This is the true wealth that will follow you; will accompany you, he will give strength and light to go ahead.

    Love can travel thousands of miles and so life has no limits. Move to where you want to go. Strive to reach the goals you want to achieve. Everything is in your heart and in your hands.

    What is the world’s most expensive bed? The hospital bed.

    You, if you have money, you can hire someone to drive your car, but you cannot hire someone to take your illness that is killing you.

    Material things lost can be found. But one thing you can never find when you lose: life.

    Whatever stage of life where we are right now, at the end we will have to face the day when the curtain falls.

    Please treasure your family love, love for your spouse, love for your friends…

    Treat everyone well and stay friendly with your neighbors.

  • Jul 8

    I recently read about a show on CNBC that was described as a cross between Shark Tank and Top Chef. (Seriously… Can’t you see that producer walking into a meeting with CNBC and pitching it exactly that way.) The show was called Restaurant Startup and I just had to check it out.

    The setup is that there are two teams of restaurant owners who approach the “sharks” with their concepts. In one episode there was a married couple who ran a Lebanese-themed deli in Oklahoma City that wanted to expand into a sit down restaurant, and the pair of good ol’ boys with a southern comfort food joint in Kingsport, Tennessee who wanted to open a second location in Knoxville. The sharks sample some dishes and quiz the competitors on their operations. They pick one and give them 36 hours and $7,500 to show off their food and their skills. After that “opening night,” they decide whether to invest their own money in the concept.

    Early in the show, the good ol’ boys serve the sharks some dishes prepared from the owner’s grandma’s recipe book. And the shrimp and grits did look mighty tasty. One shark asked the chef how much the owner currently charges for it in Kingsport, and learned it was $12. Then he asked how much the average check was, and learned it was just $13. “This is a $20 dish in Knoxville,” he said, pointing down at the grits. “You need a $35 average check to make it work there.”

    The chef did not want to hear that he had to raise prices, and much wailing and gnashing of teeth ensued. He objected that diners in his town wouldn’t pay that much for the food. His grandmother who came up with the recipe wouldn’t want him charging that much for the food. And he wanted everybody to be able to afford to eat at his restaurant and enjoy his grandmother’s great dishes.

    (Does any of this sound familiar? I can just hear some of you saying “my customers won’t pay any more!”)

    The sharks agreed that it would be a big jump to raise prices to those levels, but they insisted that the point of running a restaurant isn’t just to share grandma’s southern comfort. It is to make money—and making money, in this case, would require higher prices.

    The sharks chose the good ol’ boys for the test kitchen, and set them up with a local consultant to help walk them through the process. Once again, pricing came up. The owner said flat out “I don’t want to serve a $19 piece of fish.” The consultant explained the restaurant isn’t just serving a piece of fish, it’s serving an experience— then proceeded to show the owner how he could garnish and plate the fish to look like it’s worth the price he had to ask diners to pay.

    At that point you could almost see the light bulb go on over his head. He readily agreed to raise his prices, and the pop-up restaurant opened for business. Diners who filed in that night loved the food. Unfortunately for our good ol’ boys, service and management weren’t as good as they should have been and the sharks declined to fund the concept. It was a hard lesson for them to take home to Tennessee.

    And here’s our lesson for the day. If you’re like most small business owners I know, you at least profess to want to run your business to make money. You may think your customers won’t pay more— but you’re probably wrong. You may think that your mentor, or the person you bought your business from (who didn’t charge enough himself) would disapprove— but it’s your business, not theirs. And you may really want everyone in town to be able to enjoy your great product or service—but can you really make the kind of money you deserve if you price yourself into bankruptcy?

  • Mar 18

    “When planning for a year, plant corn. When planning for a decade, plant trees. When planning for life, train and educate people.” – Chinese Proverb

    Retirement used to mean not only a complete withdrawal from the workforce, but often a retreat from life. Even the word “retire” has the connotations of shuffling quietly off to bed.

    We call that traditional concept a “cliff retirement” because it is so abrupt. One day you are working full-time, and the next you are playing full-time (or slumped in your chair watching TV feeling unwanted and over the hill).

    We all need meaning and significance in our lives. And close social relations are an intrinsic part of our humanness. For many people, work provides meaning, significance and social relationships.

    Try this retirement planning exercise. Draw a large circle and write the names of 10 people inside the circle to whom you are genuinely close. Don’t include any relatives. To a certain extent, they have to love us, and although our connections with our families can be very nurturing, it is often friends who really help to validate us and widen our horizons.

    Now cross out any of the 10 names you know through your work, which might eliminate half or more of the people you listed. Thus a cliff retirement can devastate not only your meaning and purpose, but your social network as well. Retirees who no longer work at all say their close friends dwindle to an average of about nine people.

    As a result of their isolation, people who opt for a cliff retirement often deteriorate quickly and die relatively young. Financial planning is easy when you die young, but we don’t recommend it.

    Here are some suggestions to consider as you approach what is traditionally considered retirement age.

    Consider postponing retirement. Delaying retirement until age 70 increases your Social Security benefits and also shortens the time you will be withdrawing from your portfolio. It gives you additional years to save and your portfolio more time to grow. By delaying retirement from age 65 to 70, you may have more than a 50% higher standard of living when you do stop working.

    Or instead of taking a cliff retirement, think about retiring gradually. Move from full-time to 30 hours a week, and then to half-time. With this less hasty transition you can maintain contact with the people and purposes that give your life meaning, and also have the time to develop goals and a network of relationships for your later years.
    Envision your final years not as retirement, but as financial independence. Now that you don’t need to work exclusively for money, make a list of activities where you would like to focus your energies and use your skills and experience.

    Consider developing a health and fitness routine. If work kept your mind and body engaged, you will need to replace that activity with other pursuits. Again, going part-time allows you the luxury of processing the transition and adjusting to a new lifestyle.

    Challenge and reexamine those stereotyped and overly rigid assumptions about retirement. A book on the subject I highly recommend is Retire Inspired by Chris Hogan. One of Chris’ impactful messages is that retirement is not an age, it’s a number. “It’s an amount you need to live the life in retirement that you’ve always dreamed of.” The book is a $24.99 value, but, because I’m on Dave Ramsey’s tax and accounting team, I was able to purchase a few copies at a huge discount. For the first 15 people who ask, I’ll give you a copy. Not an eBook, but a genuine, off the presses hardback copy. Call the office, send me an email or just drop by, but when they’re gone, they’re gone.

     

    Of course crunching the financial numbers is critical as you begin to contemplate retirement, or any kind of financial or tax planning. But your personal calling, support network, and health and well-being are just as important. In the end, a holistic approach to your life is always the best starting place.

  • Mar 4

    Many years ago, Folgers® coffee scored big with a series of ads taking the viewer inside various gourmet restaurants while an announcer whispered “we’re here at such-and-such snooty restaurant, where we’ve secretly replaced the fine coffee they usually serve with Folgers® crystals. Let’s see if anyone can tell the difference.” And they interviewed diners, who expressed shock, and I’m sure no small amount of embarrassment, when they discovered how much they liked the cheap Folgers® Instant instead of the “gourmet” brand they expected. (This was way before Starbucks® elevated our palates and made us all coffee connoisseurs.)

    A few years ago, Walmart® shamelessly ripped off paid homage to Folgers® with their own ad promoting-believe it or not-Walmart® steaks. “We’re here at the famous Golden Ox Steakhouse in Kansas City, where we switched their steak, with Walmart’s choice premium steak…”

    Now, I can’t vouch for the quality of Walmart’s meats, but let me make two points about Walmart® steaks, with lessons for your own business.

    There is a placebo effect. Diners who gear up for a big night out at a fine steakhouse are primed for a great meal. They expect choice ingredients everywhere, and select service from a well-trained staff. And they’ll probably be pretty happy, even if the experience isn’t “objectively” all that great.

    This effect has been proven time and time again. Researchers at Stanford University used MRIs to study Caltech grad students’ brains as they swallowed five red wines priced at $5, $10, $35, $45, and $90 per bottle. They found that as the price of the wine rose, so did the activity in the subjects’ medial orbitofrontal cortices. (Apparently this is the part of the brain that experiences pleasure.) The “catch,” of course, is that the subjects didn’t drink five different wines-they drank three. The wine presented as costing $45 per bottle was really the one costing $5-and the wine presented as costing $90 per bottle really cost just $10.

    The placebo effect won’t work just anywhere. Diners have to really expect a great meal for it to work. Nobody who shows up at the squat-and-gobble all you can eat buffet expects a world-class steak. They are just happy they don’t see marks from where the jockey was hitting it.

    There is also a Walmart® effect. I understand Walmart® steaks are actually perfectly fine beef. They’re USDA “choice,” which is the same cut you find it mid-priced steakhouses like Outback® or Longhorn®. (The top 3% of beef, with the most marbling is graded “prime.” That’s the stuff you’ll find “dry-aged” at elite steakhouses, often drenched with butter, and sometimes served with a side of Lipitor®. The next 55%, with “slightly abundant marbling,” is graded “choice.” That’s the stuff you grill at home, and it’s really pretty good. Finally, there’s USDA “select,” which usually winds up ground into hamburgers.)

    The problem, of course, is that Walmart® has positioned itself as being the home of discount prices (cheap). And nobody associates “cheap” with “good.” Nobody expects good steaks at Walmart®. So how does Walmart® get around our prejudice?

    Well, here they resort to a classic “dramatic demonstration.” Showing happy diners enjoying Walmart® steaks is a lot like H&R Block® ads showing a stage full of happy clients stepping up to claim surprise refunds. It’s just like “Vince from ShamWow®” telling the camera guy to follow him as his miracle chamois soaks up a spill.

    The downside of this approach is that while Walmart® tells us their steaks are “surprisingly good,” at least some of us still focus on the “surprise” more than the “good.”

    To sum up: 1) the “placebo effect” actually lets us sell downscale stuff at an upscale price; however, 2) the “Walmart® effect” actually keeps us from selling upscale stuff in the downscale environment.

    Still skeptical? Ask yourself this-would you have nearly as hard a time believing steaks from Target® are good?

    The bottom line for your business is this: if you position yourself as a premium provider, clients may not even realize if you occasionally drop the ball. But, if you position yourself as a discounter-if you give yourself a reputation for being cheap-clients will have a hard time believing you’re good!

    You probably didn’t go into business to be the Walmart® of your profession. Let Walmart’s challenge in selling steaks remind you why you should position yourself as high up the food chain as you can!

  • Dec 11

    Congress just changed the Social Security benefit rules. On October 30, Capitol Hill lawmakers approved a two-year federal budget deal. As part of that agreement, they authorized the most significant change to Social Security policy seen in this century, disallowing two popular strategies people have used to try and maximize retirement benefits.

    The file-and-suspend claiming strategy will soon be eliminated for married couples. It will be phased out within six months after the budget bill is signed into law by President Obama. The restricted application claiming tactic that has been so useful for divorcees will also sunset.

    This is aggravating news for people who have structured their retirement plans – and the very timing of their retirements – around these strategies.

    Until the phase-out period ends, couples can still file-and-suspend. The bottom line here is simply stated: if you have reached full retirement age (FRA) or will reach FRA in the next six months, your chance to file-and-suspend for full spousal benefits disappears in Spring of 2016.

    Spouses and children who currently get Social Security benefits based on the work record of a husband, wife, or parent who filed-and-suspended will still be able to receive those benefits.

    How exactly did the new federal budget deal get rid of these two claiming strategies? It made substantial revisions to Social Security’s rulebook.

    One, “deemed filing” will only be allowed after an individual’s full retirement age. Previously, it only applied before a person reached FRA. That effectively removes the restricted application claiming strategy, in which an individual could file for spousal benefits only at FRA while their own retirement benefit kept increasing.

    The restricted application claiming strategy will not disappear for everyone, however, because the language of the budget bill allows some seniors grandfather rights. Individuals who will be 62 or older as of December 31, 2015 will still have the option to file a restricted application for spousal benefits when they reach full retirement age (FRA) during the next four years.

    Widows and widowers can breathe a sigh of relief here, because deemed filing has no bearing on Social Security survivor benefits. A widowed person may still file a restricted application for survivor benefits while their own benefit accumulates delayed retirement credits.

    Two, the file-and-suspend option will soon only apply for individuals. A person will still be allowed to file for Social Security benefits and voluntarily suspend them to amass delayed retirement credits until age 70. This was actually the original definition of file-and-suspend.

    Married couples commonly use the file-and-suspend approach like so: the higher-earning spouse files for Social Security benefits at FRA, then suspends them, allowing the lower-earning spouse to take spousal benefits at his or her FRA while the higher-earning spouse stays in the workforce until 70. When the higher-earning spouse turns 70, he/she claims Social Security benefits made larger by delayed retirement credits while the other spouse trades spousal benefits for his/her own retirement benefits.

    No more. The new law says that beginning six months from now, no one may receive benefits based on anyone else’s work history while their own benefits are suspended. In addition, no one may “unsuspend” their suspended Social Security benefits to get a lump sum payment.

    To some lawmakers, file-and-suspend amounted to exploiting a loophole. Retirees disagreed, and a kind of cottage industry evolved around the strategy with articles, books, and seminars showing seniors how to generate larger retirement benefits. It was too good to last, perhaps. The White House has wanted to end the file-and-suspend option since 2014, when even Alicia Munnell, the director of the Center for Retirement Research at Boston College, wrote that “eliminating this option is an easy call … when to claim Social Security shouldn’t be a question of gamesmanship for those with the resources to figure out clever claiming strategies.”

    Gamesmanship or not, the employment of those strategies could make a significant financial difference for spouses. Lawrence Kotlikoff, the economist and PBS NewsHour columnist who has been a huge advocate of file-and-suspend, estimates that their absence could cause a middle-class retired couple to leave as much as $70,000 in Social Security income on the table.

    What should you do now? If you have been counting on using file-and-suspend or a restricted application strategy, it is time to review and maybe even reassess your retirement plan. Talk with a financial professional to discern how this affects your retirement planning picture.

  • Nov 30

    It’s likely you’ve been bombarded with investment advice from every direction. Whether it’s “financial experts” from the media or on a commercial, it seems everyone is offering an opinion regarding your financial future. Regardless of these “expert” opinions, as your advisor I understand your unique financial situation, and can offer a recommendation that will truly benefit you.

    First things first. In order to avoid some of the bumps and pot holes along the way, let me lead you through a conversation to zero in on your unique needs. This will allow me to create an investment strategy designed to meet those specific areas, rather than sifting through the latest trends and investment hype. I can achieve this level of personalization by considering your:

     

    • Investment goals
    • Comfort level
    • Expectations
    • Tax implications
    • Risk analysis
    • Income needs
    • Family dynamics
    • Time horizon

     

    Leveling the Investment Playing Field

    Providing a sound wealth management roadmap begins with understanding your cash flow. It’s impossible to make any sound investment recommendations without having a clear picture of how your money is being spent. While cash flow is a critical component to any plan, there’s also another telling indicator to review – debt. Gaining a pulse on how you managed debt will help me devise a plan that factors in your credit history and overall financial decision-making preferences.

    By evaluating how you spend your money each month, I may be able to identify opportunities for improving your cash flow. This may include simple tax strategies and debt management solutions such as refining, debt consolidation, or changing tax withholdings. You may discover there’s more money to invest toward your financial goals than you originally thought.

    Establishing a Comprehensive Plan

    One thing is for sure – life is filled with a series of unexpected events. That’s why it’s important to help you consider potential risks when devising a financial plan. Even the most well-intentioned plans can crumble in a second when faced with a sudden death, disability, or long-term care need. Part of providing you with a comprehensive plan means knowing the possibilities that could threaten your financial future.

    Learning more about your situation enables me to identify potential risks and establish plans that will meet your needs now, and into the future. While you may believe your current insurance policy will provide ample security, it may not be enough. By taking a closer look, I will be able to provide you with insights as to whether your current plan is appropriate or needs modifications. This approach will be invaluable in protecting your most important asset – your family.