Summary of 2018 Financial Planning Conference
Recently I attended a conference for sharing best practices amongst Advisors and bringing in those we view as the brightest minds in the industry to educate us on their respective specialties. I have pages and pages of notes that I’ve tried to summarize below. This was difficult to do as there was so much great information. I’ve broken up the notes into specific topics so it’s easier for you to digest or skip over things that might not be relevant to your situation.
Hope you enjoy,
- The recent tax bill cut taxes for most Americans. A well-respected tax and retirement specialist believes this will be the lowest tax rates we’ll see in a long time, given the amount of debt our country has.
- This is something I’ve been preaching for a while. It’s important to not only have diversification amongst your investments in the stock market (i.e. Don’t put all your money into 1 fund or stock) but it’s equally important to have TAX diversification.
- It’s important to understand the difference between tax-deferred and tax-free concepts.
- A good way to understand this is tax-deferred means you have not been taxed YET and will eventually owe taxes at whatever tax brackets are in the future. Tax-free means you will NEVER pay taxes on your money again. Most 401ks & traditional IRAs are tax-deferred. Roth IRAs and cash value life insurance generally offer TAX-FREE distributions.
- Example: two people each have $1million in their retirement accounts. Person 1 has $1mil in their pre-tax 401k (tax-deferred). Person 2 has $1mil in a Roth retirement vehicle (tax-free). When they reach retirement age of 59 ½ what happens if the top tax rates revert to 40%? If Person 1 withdraws all the funds from their retirement account they will owe 40%, netting $600,000. Person 2, still has $1million after they withdraw from their Roth since they have already paid the taxes before putting the money into the vehicle.1
- It is possible that you would be better off saving into a Pre-tax Retirement vehicle if in fact your current tax bracket today is higher than what your future tax bracket will be when you make withdrawals in retirement.
- It is difficult to predict the future and therefore we ask you to consider balancing out your savings into both pre-tax and post-tax retirement vehicles.
- If you are only saving into pre-retirement vehicles, consider taking a more balanced approach between investing in pre-tax and post-tax vehicles.
- Contact us to discuss this further
Charitable Giving in Retirement
If you or someone you know is 70 ½ or older they should consider making their charitable donations through their qualified retirement account, such as an IRA. This may help minimize taxes vs. making their charitable donations via their bank account.
How to Cover Your Maternity
- Long term disability policies do not cover maternity unless you become disabled for at least 90 days due to the pregnancy or birth.
- Short term disability policies that are available in the private marketplace do not cover maternity.
- GROUP short term disability plans available through your employer do cover maternity. Consider enrolling if it’s available through your employer and you plan on getting pregnant.
- If you do NOT have short term disability available through your employer, you only need 1 other person from the same employer to establish a group short term disability plan.
Long Term Care in Retirement and What to Do Now to Prepare for It Even If You’re Far Away from Retirement3
- 6.3 million: Number of Americans who have a need for long term care because they need help with two or more activities of daily living or are experiencing cognitive decline.
- 52%: The expected % of people turning 65 who will have a long-term care need during their lifetimes
- $217,820: Estimated end-of-life care costs in patient’s final five years for individuals without dementia.
- $341,651: Estimated end-of-life care costs in patient’s final five years for individuals with dementia.
- 65%: The percentage of older adults with long-term care needs who rely exclusively on friends and family members to provide that assistance.
- No one wants to have the conversation of which of the kids is going to take care of mom or dad when they can’t take care of themselves.
- Traditional long-term care policies may not be enough to cover your needs.
- A solution to this is to consider life insurance policies with a long-term care rider.
- These policies can provide 3 benefits: 1.) Life insurance death benefit 2.) You can advance the benefit to spend the money on long term care expenses. 3.) If you don’t use it you can get your money back and spend it on something else
- What are the benefits to purchasing a hybrid policy? 1.) Traditional LTC policies are if you don’t use it for long term care or medical expenses you lose all the money you’ve put into the policy. 2.) Traditional LTC policies can only be used as a reimbursement of expenses by a licensed health care provider whereas life/LTC policies are paid benefits regardless of how much your actual expenses are and regardless if it’s a family member or licensed health care provider taking care of you. 3.) Traditional LTC polices premiums have premium increase risks. Life/LTC policies premiums don’t change and are locked in.2
Employee Benefits for Business Owners
- If you are a business owner consider offering benefits to help with retention.
- Health insurance
- Disability & Life
- 401k or other Retirement vehicles
Property and Casualty Coverage:
Property and casualty coverage can easily be overlooked. Take the time to understand your policies and talk with a specialist to see if there are any gaps in your coverage.
We realized the importance of this and North Star formed an independent property and casualty division. What can they help with?
- Umbrella liability
- Medical/Dental Malpractice
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1Investors’ anticipated tax bracket in retirement will determine whether or not a Roth account versus a traditional retirement account will provide more money in retirement. Generally investors who are in a higher tax bracket at retirement relative to their current tax bracket while making contributions to a Roth account benefit more than an investor who is in a lower tax bracket at retirement.
1For a Roth IRA, earnings withdrawn prior to reaching age 59½ and/or not meeting the five-year holding period may be subject to a 10 percent penalty in addition to income tax. After-tax contribution amounts are generally returned income tax free.
2Life insurance with a long term care agreement may be subject to additional costs and restrictions. Agreements may not be available in all states or may exist under a different name in various states. Distributions under this agreement, as with any policy loans and withdrawals, may create an adverse tax result in the event of a lapse or policy surrender, and will reduce both the cash value and death benefit.
3Morningstar, 75 Must-Know Statistics About Long-Term Care, Aug 2017
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Financial Advisors do not provide specific tax/legal advice and this information should not be considered as such. You should always consult your tax/legal advisor regarding your own specific tax/legal situation.