Making a List and Checking It Twice

As one of the strangest years ever thankfully draws to a close, it behooves us to take stock and see our situation as it now stands. A host of questions inevitably arise, the type that beg for our honest and, we hope, astute answers.

So let’s make a list. Look over each item and ask yourself how you stand. Try to envision any changes you think you should make. And for those questions that involve your account here at RFS, we invite you to raise them with us. Perhaps together we can come up with the perfect answer. You can always call me personally 301-294-7500.

Making a List

1. Do I Have Enough Cash?

Do you have enough cash available to pay for short-term needs. If not, you might raise cash by realizing some of the gains in your portfolio—either the one we manage or any self-managed accounts you might have. Potential 2021 changes to the tax laws—including significant increases in the capital gains tax—might make this the perfect time to set some gains at current tax rates. Any action along these lines must occur before December 31, 2020. See our Note in item #2.

2. Are Losses Really a Good Thing?

If you have other brokerage accounts, a careful look at your holdings might reveal some with that awful red color. Of course, everyone likes to avoid that color as best we can, but no one can predict where a particular investment might go. If a position does dip into the red, now might be a good time to sell it while at the same time selling some of those with that lovely green color. The red will cancel out the green, much to the tax man’s chagrin.

Note: We can look at any self-managed holdings you have and provide you with a “second-opinion” analysis. You might very well have some gains you should take and some losses to offset those gains.

3. Do My Retirement Accounts Need a Pick and a Shovel?

Retirement accounts can serve as your private gold mines. But to make those mines productive, you have to do some digging. Are you contributing as much as the law allows to your retirement accounts? If not, take your effective tax rate and multiply it by the amount you’re not contributing. The result is the amount you’re failing to find in that gold mine of yours.

Make sure you do some thinking and figure out if you’ve left some 401K or other retirement accounts at previous employers. These you should roll over into an IRA or other tax-deferred account.

Have you considered converting an IRA into a Roth IRA? Have you thought about gift-funding Roth IRAs to family members who have earned income?

4. How Can I Help My Family with the Costs of Education?

You might want to consider giving to 529 accounts for children or grandchildren. They can then enjoy tax-exempt growth if the account is used for educational expenses. You might even be able to “Superfund” these accounts by giving five years’ worth of exclusion gifts ($75,000 for individuals, $150,000 for married couples).

5. Am I Ready for Changes to the Gift-Tax Laws?

Right now, you enjoy an $11.58 million lifetime gift-tax exemption. But if you listen carefully, you can hear serious discussions in Washington about reducing this amount by 50% or more. Gifts now (before the law changes) can lock them in as free from gift taxes. And they can help reduce taxes by moving income-producing holdings to taxpayers in lower brackets.

6. Are There Some Charities I Want to Support?

If you have some assets that have appreciated significantly, you can give them to a charity and deduct the market value of the asset at the time of the gift. The charity can then sell that asset and pay no taxes on the gain. Poof! The gain escapes the clutches of the tax man.

The CARES Act changed deductibility of some charitable gifts. In 2020, if you itemize deductions, you can give away (and then deduct) your entire adjusted gross income and pay zero income tax. Of course, only some people can afford to live on other assets and ignore their adjusted gross income. But if you find yourself among those fortunate few, a charity awaits your generosity.

7. Am I Missing Out on Any Benefits Associated with COVID?

Congress responded to the COVID outbreak by passing a number of laws assisting businesses and individuals. Many of these advantages dwell within the tax code. According to Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting, “Both individual and business taxpayers may need to act before year-end to take advantage of many of these tax breaks.”[1]

Mr. Luscombe’s analysis appears in an article in Accounting Today, which summarizes his checklist as follows (some of these appear on our list above):

“Here’s a breakdown of the items that may need to be acted on according to Luscombe:

• “More than 30 tax breaks that Congress has permitted to regularly expire and then renew currently expire at the end of 2020, including individual, business, and energy tax breaks.
• “More generous charitable contribution deduction provisions expire at the end of 2020, including a new above-the-line charitable contribution deduction.
• “The ability to make expanded penalty-free withdrawals from retirement plans for COVID-related expenses expires at the end of 2020.
• “The deadlines to apply for Economic Impact Payments expire before the end of the year, although tax credit is available on the 2020 tax return.
• “Employers must continue to deal with a variety of tax credits and deferrals related to employee payroll taxes that expire at the end of 2020.
• “A number tax provisions provide retroactive relief, which might require filing of amended tax returns for prior years, including net operating loss carrybacks, modifications to deductions for non-corporate business losses, modifications to business interest deduction limitations, qualified improvement property, the Kiddie Tax, disaster relief, and the 30-plus regularly expiring provisions.
• “The possibility of higher taxes in 2021 might suggest a reversal of the usual year-end tax planning strategy, which is to defer income and accelerate deductions. Taxpayers may also want to realize capital gains, make lifetime gifts, and engage in Roth conversions.”[2]

Checking It Twice

The above list includes some of the major items you should consider as the curtain draws on 2020. After you review your list, you can call on me to help you with checking it twice; we can explore these and any other issues we might identify. Feel free to call my office at 301-294-7500. We can discuss your list and perhaps add to it.

All of Us

All of us here at RFS extend our best wishes to you in the holiday season. Play it safe. Wear your mask. No holiday hugs (bummer). And count the many blessings we enjoy as a free people in the country we all love.

Best wishes,

Jack, Val, Toni, Chris, Jim, Michael, Jay, Dinah, and David

[1] https://www.accountingtoday.com/news/new-end-of-year-tax-planning-issues
[2] https://www.accountingtoday.com/news/new-end-of-year-tax-planning-issues

Them’s your odds.

Heads a normal, relatively healthy retirement. Tails long-term care (LTC).

So it’s 50-50.

Actually, the stats show differing percentages for men and women over 65. For men, 46.7% will need LTC, for women it’s 57.5%. ¹

For all, roughly 50-50. Flip a coin. Heads or tails.

No one should plan a financial future with a coin flip.

Unfortunately, many do just that: they take the chance that the coin flips to heads. Then, something happens. A broken hip. Onset of dementia. Or these days, COVID-19. Suddenly, the husband or the wife, or both, need assisted care. The cost can spell financial disaster.

Horror Stories Abound

Writing for MoneyWatch, Steve Vernon recounted “3 Horror Stories” involving the need for long-term care. 

Here’s one:

A seventy-something friend of ours is taking in her 98-year old aunt, who ran out of money. The aunt’s son can’t or won’t help his mother, for whatever reason. Our friend and her eighty-something husband feel very strongly about letting her aunt live with them, despite the extreme disruption to their lives. But what happens when the aunt needs some form of long-term care? Our friend still works full time, and her husband isn’t really qualified or able to help if the aunt needs extensive care. ²  

​Many will face situations requiring LTC. And when they check their balance sheets, the question inevitably arises: Just how the heck am I going to pay for this?

Long-Term Care: The Price Tag

The numbers provide little solace. According to the National Association of Insurance Commissioners and the Center for Insurance Policy and Research, of those turning 65 between 2015 and 2019, 57.5% can expect to pay less than $25,000 on long-term care during their lifetimes. But 15.2% can expect to pay more than $250,000. ³

In 2016, the median annual cost of a semiprivate room in a nursing home was $82,125. A private room ups the ante to $92,378. ⁴

Planning for Long-Term Care

Many have looked to insurance to stave off the costs of long-term care. In the late 1970s, LTC insurance was called “nursing home insurance.” Only a few insurance companies wrote these policies. Back then, the annual national cost of long-term care totaled $20 billion. By 1980, those numbers grew to $30 billion. Now they have ballooned to $225 billion. ⁵

When the calendar flipped to the current century, many carriers started to exit the market. In the words of the NAIC Report:

Most insurers’ [LTC policies] issued before the mid-2000s have seen adverse experience when compared to their original pricing assumptions. Rising claims, low mortality and lower than expected lapses have led to higher prices often unaffordable to a large segment of the affected population. A number of insurers have also opted out of the market, leaving only a relatively few insurers to provide much needed LTC products. ⁶

The LTC policies provided back then were reimbursement, term-type policies. They resembled car insurance. They provided no cash value and no refund options if you died suddenly. You received no guaranteed renewal options. The insurance company could cancel your policy or raise your premiums. Not a pretty sight.

Needless to say, buyers of these products stopped buying. So insurance companies came up with hybrid products.

Now, using a guaranteed “no lapse” life insurance policy with two important riders, clients can protect their families from their early death, from disability, and from running out of money at, say, age 85.

The NAIC study describes this new approach:

One area of continued growth in the market is with combination or hybrid products. These products combine LTC benefits with either life insurance or an annuity. They can pay out if LTC is needed, but if not needed, there is a death benefit or annuity payout. In cases where an individual uses some, but not all, of LTC benefits, the remainder would be payable as a death benefit. This is one of the principal appeals of combo products. If LTC is never needed, there is still a return on the money invested in the premium. ⁷ 

Example of the Hybrid Approach

To take just one example, a one million dollar life insurance policy with LTC and annuity riders protects your family from your premature death with the payment of a tax-free amount of $1 million. If you become disabled and can show an inability to perform certain daily routines, the LTC rider provides up to $120,000 of annual long-term care costs. And, if you live to age 85, the annuity feature kicks in: you can receive the entire $1 million death benefit through 10 annual payments of $100,000.

Give Us a Call

For 30 years, Research Financial Strategies has helped families like yours achieve their financial goals by providing a customized investment solution that is not only easy to understand and but is also focused on meeting your goals.

This starts with an in-depth understanding of you and your family, your current situation and your aspirations—not just for your money, but for your entire life. Often, that’s where LTC insurance, life insurance, and annuities can play a big role.

We always provide first-class service by taking the time to gain a deep understanding of you and your family. We work closely with you to develop a customized strategy that connects all aspects of your financial life. By focusing on all risks, we can help you protect what you’ve earned and guard against events that can take it away.

​Give Jack Reutemann a call at (301) 294-7500.

1 75 Must-Know Statistics About Long-Term Care: Sobering data on usage, cost, insurance products, and the toll on unpaid caregivers, by Christine Benz, Aug 31, 2017. https://www.morningstar.com/articles/823957/75-must-know-statistics-about-long-term-care (“Morningstar Report”)
2 The Long-Term Care Threat: 3 Horror Stories, by Steve Vernon, Updated on: July 28, 2011 / 6:03 PM / MoneyWatch, CBS News. https://www.cbsnews.com/news/the-long-term-care-threat-3-horror-stories/
3  The State of Long-Term Care Insurance: The Market, Challenges and Future Innovations, by Eric C. Nordman, Director, Center for Insurance Policy and Research, May 2016 (“NAIC Report”). https://www.naic.org/documents/cipr_current_study_160519_ltc_insurance.pdf
4  Morningstar Report https://www.morningstar.com/articles/823957/75-must-know-statistics-about-long-term-care
5  NAIC Report https://www.naic.org/documents/cipr_current_study_160519_ltc_insurance.pdf
6  NAIC Report https://www.naic.org/documents/cipr_current_study_160519_ltc_insurance.pdf
7  NAIC Report https://www.naic.org/documents/cipr_current_study_160519_ltc_insurance.pdf

Investment advice offered through Research Financial Strategies, a registered investment advisor.
* This newsletter and commentary expressed should not be construed as investment advice.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject.

Investment advice offered through Research Financial Strategies, a registered investment advisor.

The best place to retire in the United States is in dispute. There’s no formal debate, but a review of reliable publications showed surveys have named different states and cities as the “best” place to retire. For instance:

• Iowa was #1 in a best places to retire survey cited by Yahoo! Money.¹
• Fort Myers, Florida was #1 in the ranking from S. News & World Report.²
• Athens, Georgia was the first name on a list of 25 places that are all the best, according to Forbes.³
• Catalina Foothills, Arizona topped com’s list of eight equally best places to retire.⁴

In 2019, Kiplinger offered a list of the 50 best places to retire. There was one in each state.⁵

It begs the question, doesn’t it? How can there be so many ‘best’ places to retire? The answer is it all depends on the criteria used to make the determination. If you plan to move and start life in a new place during retirement, there are a variety of factors to consider. Some are general, like cost of living, state tax rates, and healthcare services. Others are personal, like livability or proximity to children and grandchildren.

Here are a few of the issues to consider when deciding where you’ll spend retirement:

Cost of living.
Affordability is an important consideration. The cost of living – the amount needed to pay for basic expenses like housing, transportation, groceries, and healthcare, varies significantly from state to state and city to city. According to a study by GoBankingRates.com, those four items cost retirees in Hawaii about $118,000 a year, on average. In Mississippi, they cost about $53,000 a year, on average.⁶

Home prices.
While cost-of-living calculations often include housing costs, some focus on renting rather than buying. If you plan to buy a home, then it will be important to learn about the average housing costs in the regions you’re considering. In September 2019, the U.S. Census Bureau reported the median home price in the United States was $299,400.⁷

Taxes.
There is a lot to think about when it comes to taxes. Kiplinger determines the most and least tax-friendly states for “a hypothetical retired couple with a mixture of income from Social Security, an IRA, a private pension, interest and dividends, and capital gains. We also gave them a $400,000 home (with a small mortgage) and $10,000 in deductible medical expenses.”⁸

The publication evaluates state income tax, taxation of Social Security benefits, retirement income tax-exemptions, property taxes, and sales taxes. You may want to consider these as well.⁸

Fiscal soundness.
Fiscal policy is the way a government balances taxes and spending, which can affect economic conditions in a city or state. A government that spends profligately will need to raise revenue and that could lead to higher taxes. Similarly, a government that restricts taxation may have little room to innovate and govern. A 2018 Pew Research report described the types of steps some states are taking to evaluate and adjust fiscal policies.⁹

Livability.
It’s a catch-all category that speaks to quality of life. For instance, how does the crime rate compare to other places? Can you get around without a car? Is it easy to walk or bike around town? Are there opportunities to take advantage of continuing education? What types of cultural events and entertainment are available?

If your list of potential retirement spots includes places you have not visited before, make sure you travel to them more than once. If possible, live in the community for a few weeks or months.

Availability of healthcare.
If your list of possible retirement locales is comprised primarily of cities, healthcare services may be readily available to you. If your preference is for more remote locations, it will be important to investigate the availability of healthcare services.

One of the criteria that informed Kiplinger’s ‘10 Great Places to Retire for Your Health,’ was the availability of a hospital with a five-star rating from the Centers for Medicare and Medicaid Services. In rural areas, you may need to consider physicians per capita.^{10, 11}

Work prospects.
A lot of people would like to continue working in retirement. They may begin a new career, start a business, offer mentoring, or take on a part-time job. If a working retirement is a priority, you may want to research which cities have the highest percentage of workers age 65 and older, and where the growth of 65 and older workers is fastest. A 2019 CNBC article ‘Here are the cities with the biggest share of 65-and-older workers,’ offered some insights such as the top 10 cities, where these workers have a significant share of the workforce, five Texas cities are listed.¹²

Weather.
If you hate the cold, South Dakota will never be the best place for you to retire. Similarly, if you hate heat, Arizona may not be the most desirable choice.

The bottom line is the best place for you to retire is the place that meets your criteria. Money.com explained it pretty well:⁵

“What makes a great place to retire? It’s a trick question, of course – there are as many answers as there are retirees. Some love to golf in the sun, while others feel most invigorated by winter sports. For every history buff, there’s a modern art enthusiast, an adventurer for every homebody.”

The first step in finding your ‘best’ place to retire is to know yourself and your spouse and what will be important to you in retirement. If you would like to discuss the financial aspects of retirement, give us a call. We’d be happy to talk with you.

Sources:
¹ https://money.yahoo.com/best-states-retirement-211142233.html
² https://realestate.usnews.com/places/rankings/best-places-to-retire
³ https://www.forbes.com/best-places-to-retire/#486930521af5
⁴ https://money.com/best-places-retire-now/
⁵ https://www.kiplinger.com/slideshow/retirement/T047-S001-50-best-places-to-retire-in-the-u-s-2019/index.html
⁶ https://www.gobankingrates.com/retirement/planning/comfortable-retirement-cost-state/
⁷ https://www.census.gov/construction/nrs/pdf/uspricemon.pdf
⁸ https://www.kiplinger.com/slideshow/retirement/T037-S001-10-most-tax-friendly-states-for-retirees-2019/index.html
⁹ https://www.pewtrusts.org/en/research-and-analysis/articles/2018/12/17/states-strengthened-fiscal-policies-in-2018
¹⁰ https://www.kiplinger.com/slideshow/retirement/T006-S002-great-places-to-retire-for-your-health/index.html
¹¹ https://www.aamc.org/news-insights/press-releases/new-findings-confirm-predictions-physician-shortage
¹² https://www.cnbc.com/2019/06/27/here-are-the-cities-with-the-biggest-share-of-65-and-older-workers.html