As February began, most investors were keeping a cautious eye on the coronavirus that was spreading in China. While there were isolated outbreaks around the globe, they were just that – isolated.

Some firms began to back away from prior financial forecasts, but a mistaken belief the illness would be contained to China kept markets at inflated levels.

That changed dramatically when headlines surfaced that the coronavirus had spread to northern Italy, South Korea, and Iran.

The good news: new cases appear to have considerably slowed in China as of today (active cases down 83% from the high in mid-February), according to Worldometer, which combines data from global health organizations.

While the illness is currently spreading around the globe, China’s experience possibly provides some idea of the time frame we may be able to expect. The first known case was in December 2019. In less than three months, they have gone from the first known case to significant reductions in active cases. Additionally, little was action was taken initially to halt the spread. This was accelerated by millions of travelers attending Lunar New Year celebrations in the affected area. These travelers then returned home before any restrictions had been put in place.

The U.S. is not taking that approach: All the major sporting events have been canceled or postponed. Schools are closing. Movie theaters and museums are closing. Broadway has gone dark. Travel bans have been imposed. People are working from home and practicing “social distancing” of at least six feet, washing their hands regularly and crowds have been limited in many communities. This should have positive impacts to the severity and duration of the virus.

So what’s behind the market sell-off? Driven by computer sell programs that take their cues from headlines, the hit to stocks originates amid anxieties that coronavirus will damage the U.S. and global economy.

When it was contained to China, there were fears that shuttered factories would disrupt the flow of parts that are made in China and are used by U.S. companies. Economists call this a ‘supply shock.’ As the name implies, a supply shock reduces the supply of goods available to businesses and consumers.

Today, there are growing worries that any disruptions to normal routines could also pressure the demand for goods and services, delaying a projected acceleration in corporate profits this year. Economists refer to this as a ‘demand shock.’

Earnings in 2019 are forecast to rise just under 1% from 2018 (Refinitiv). For 2020, profits are forecast to rise 7.7% (Refinitiv, Feb 28). However, as analysts begin to ratchet down forecasts in response to the change in economic sentiment, these recent projections are probably out of reach.

Perspective: Coronavirus and past epidemics

So far, the damage has been mostly contained to the stock market, as the virus has shifted the calculus and created heightened uncertainty. Put another way, heightened uncertainty simply means that the number of economic outcomes has widened. In this case, they are all to the downside.

But, are investors overreacting? Is the public overreacting? The flu has infected 32 million–45 million people in the U.S this season per the CDC, which began on October 1. There have been 310,000–560,000 hospitalizations, and tragically, 18,000–46,000 deaths. Yet, our daily routine goes on uninterrupted.

In comparison, just 88 Americans have contracted the coronavirus as of March 1. Per the Wall Street Journal, “The new virus is particularly challenging for public-health officials because people who are infected and transmitting to others might have only mild flu-like symptoms, or no symptoms at all, making them difficult to identify.”

Knowing the virus creates only “mild flu-like symptoms” in some people may alleviate some worries. (Of course, the elderly and those with compromised health must be more cautious.)

On the other hand, compared to the seasonal flu, the coronavirus seems to be more contagious and deadlier, despite the fact that current confirmed U.S. cases number a fraction of the annual flu.

Health officials do not have a complete understanding of the virus, but our knowledge is progressing.

While we don’t know if this will eventually turn into a significant health crisis, we’ve lived with epidemics before, including the measles, polio, SARS, MERS, H1N1, and the flu, which strikes every year and can be deadly.

During the H1N1 pandemic of 2009 (coronavirus was just deemed a pandemic by the World Health Organization), there were approximately 60.8 million cases, 274,304 hospitalizations, and 12,469 deaths in the U.S. between April 12, 2009 to April 10, 2010. Despite the human toll, stocks were already in the early phase of a bull market.

Today, we’re being pelted by wall-to-wall media coverage of the coronavirus. In 2009, the media may have been more focused on a new president and the Great Recession, limiting the hysteria.

Fear spreads fast, but keep perspective

While we can critique the media and stock market reactions, what we know is that the market has sold off. Fear has spread far faster than the virus. As we enter March, the economy is on a very solid footing, and the banking system is in much better shape than 2008.

On Feb 28, Federal Chief Jerome Powell reaffirmed, “The fundamentals of the U.S. economy remain strong,” but added he is “closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy.”

The last sentence is the Fed’s way of hinting that a rate cut or other actions are being carefully considered. (Update: On Sunday March 15, the Federal Reserve announced  an interest rate drop to zero and and that it would be re-starting the program of bond purchases known as “quantitative easing”  in a wide-ranging emergency action to protect the economy from the impact of the coronavirus outbreak. 

In addition the President took some very strong actions this past Friday at the press conference, which seemed to have a positive calming effect on the financial markets.

That said, we know that volatility in markets is inevitable, but has typically been short-lived. Stocks seem to take the stairs up and the elevator down. This bout of volatility will end, but calling a bottom is virtually impossible. You and I know that no one has a window on the future.

Once again, I will emphasize that your holistic financial plan incorporates your goals and is crafted based on a number of factors, including your risk preferences and time horizon. Anyone that has worked with us knows all about having the proper balance in your portfolios.

It is a roadmap to your financial goals. It incorporates the inevitable market declines and keeps one from making rash decisions when markets turn volatile. Or, for that matter, when stocks surge ahead and one may be tempted to take a more aggressive but riskier posture.

These are trying times, not simply from the vantage point of the investment community. No one likes uncertainty, especially as it relates to our health and the health of our loved ones.

Uncertainty drains our most precious resource: happiness. Turn off the news, get outside, and turn to what brings you peace. I am confident that this too shall pass, and we will be better for it!

If you have any thoughts, questions, or concerns, feel free to reach out to us.

Financial Freedom Planners

(804) 277-9734

Table 1: Key Index Returns

Dow Jones Industrial Average -10.1 -11.0
NASDAQ Composite -6.4 -4.5
S&P 500 Index -8.4 -8.6
Russell 2000 Index -8.5 -11.5
MSCI World ex-USA* -9.1 -10.9
MSCI Emerging Markets* -5.4 -9.8
Bloomberg Barclays US

Aggregate Bond TR

1.8 3.8
Source: Wall Street Journal, MSCI.com, Morningstar, MarketWatch
MTD: returns: Jan 31, 2020—Feb 28, 2020
YTD returns: Dec 31, 2019—Feb 28, 2020
*in US dollars


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Stock Market Perspective – The Good, The Bad & The Ugly

Stock Market Perspective – The Good, The Bad & The Ugly

The Good: Thus far, we have felt the recent correction in the equity markets has been orderly and relatively normal. We have enjoyed the rising markets, seemingly relentless until it wasn’t.

We have been witnessing some incredibly positive economic numbers, the most recent being the Jobs Report Friday of last week. By almost every metric, we are in a surging and positive economic environment in the United States. This results in a positive trend for earnings and has been reflected in the markets. We remain very positive on the U.S. Economy!

The Bad: The excuse du jour for the above correction has been the Coronavirus. In our view, the reaction to the Coronavirus is beginning to have some impact on portions of the economy, such as travel, event cancellations, etc. Based on review of the actual numbers, we don’t believe this will be a sustained issue. Relative to other health scares we have had, while serious, Coronavirus seems already to be subsiding in China and South Korea. It has also garnered significant focus globally, and in our opinion will be under control relatively quickly.

The Ugly: Over the weekend, Russia and Saudi Arabia parted company regarding oil production cuts. Oil has been weak, and it appears Saudi Arabia is once again attempting market share dominance by threatening to flood the world in oil. This resulted in oil prices collapsing another 30% over the weekend, after oil began declining in January of this year from the low 60’s to the close Friday of 41.28. It is now trading in the low 30’s, having hit a low of 27.34 this morning.

The bad and ugly are potentially negative developments, and the question is whether this leads to a real crisis? Up until this weekend, we thought the probability of a crisis hitting the U.S. was quite low. However depending on how the above oil situation works out, there are now risks that have presented themselves:

  1. The U.S. corporate bond market – there is a substantial amount of High-Yield “Junk” debt, probably around 15%. A reasonable percentage of this is associated with energy, such as U.S. Shale Energy Bonds.
  2. Up until this weekend, the market was going down largely due to economic fallout from the Coronavirus. Today the market is reacting to the oil collapse, which could trigger a major credit event similar to 2008.
  3. If there is a major credit event as noted above, this could indeed end the bull market and create a crisis similar to 2008.

We are monitoring the situation closely, and trying to determine if this is going to result in a crisis, or is it the buying opportunity of a lifetime? In our view, it’s too soon to tell.

More GOOD:

  1. Lower oil prices will be a MAJOR benefit to consumers. This means less money at the pump, and more money available for spending on other items (consumer spending is still 70% of the U.S. economy).
  2. Interest rates are at historic lows. This results in lower mortgage costs, car loans, etc. Again, a MAJOR benefit to consumers, and beneficial to the economy. We are already seeing a spike in mortgage refinancing activity.
  3. This pullback in the stock market will clean out a lot of the froth that we’ve experienced of late. Assuming it doesn’t result in a crisis, this will help in stabilizing the financial system longer term.
  4. While never pleasant, we have witnessed real While counter intuitive, this is when market bottoms occur, and reversals happen. Selling becomes exhausted, and a bottom occurs.
  5. If this is a market bottom and we begin a new bull run later this year, you’ll be grateful you didn’t become a panic seller.

The situation is very dynamic, with many moving parts. Our clients know we stick to having proper balance in their portfolios, which has served us well over a long period of time. If you haven’t reviewed your portfolios regarding equity balance, etc. we encourage you to do so.

Bottom Line: Now is NOT the time to panic! Now is the time to maintain discipline, have proper balance in your portfolio, and keep a close eye on the situation. Let us know if we can help you with a portfolio tune-up!

Financial Freedom Planners

(804) 277-9734

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Reflecting on 2019, Moving Ahead + Market Recap

As a new year approaches, it is only natural for us to reflect on how things went in 2019. Personal and professional accomplishments may take center stage. Or, we may take stock of any disappointments and recalibrate as 2020 approaches.

Yet, it’s a busy time. Christmas shopping, holiday parties, tree trimming, family visits, and year-end cheer may already be stacking up on the calendar.

Nevertheless, it’s not too soon to start thinking about taxes. In prior conversations, we have talked about tax reform. Some are comfortable with the new rules. Others are still just wading into the tax reform pool, so to speak.

Before we jump into our year-end planning piece, it’s our job to partner with our clients. This can’t be over-emphasized, and we would be happy to review your options. As with any tax matters, also we encourage you to consult with your tax advisor.

Let’s get started

Late last year, the IRS announced the tax year 2019 annual inflation adjustments for more than 60 tax provisions, including those for tax brackets that determine the rate we pay on taxable income. Revenue Procedure 2018-57 provides details about these annual adjustments.

  1. Tax brackets and tax rates have changed. Table 1 and table 2 compare the tax tables for 2019 versus 2018. For example, if you are single and your taxable income on line 11b of the Form 1040 is $84,000, your top marginal rate is 22%.

Table 1: Single filers

Single filers 2019   Single filers 2018
Taxable income Rate Taxable income Rate
$0 – $9,700 10% $0 – $9,525 10%
$9,701 – $39,475 12% $9,526 – $38,700 12%
$39,476– $84,200 22% $38,701 – $82,500 22%
$84,201 – $160,725 24% $82,501 – $157,500 24%
$160,726 – $204,100 32% $157,501 – $200,000 32%
$204,101 – $510,300 35% $200,001 – $500,000 35%
$510,301 or more 37% $500,001 or more 37%

Source: Tax Foundation 2019 Federal Tax Rates, IRS US Tax Center 2018 Federal Tax Rates 

Table 2: Married filers

Married filing jointly 2019*   Married filing jointly 2018
Taxable income Rate Taxable income Rate
$0 – $19,400 10% $0 – $19,050 10%
$19,401 – $78,950 12% $19,051 – $77,400 12%
$78,951 – $168,400 22% $77,401 – $165,000 22%
$168,401 – $321,450 24% $165,001 – $315,000 24%
$321,451– $408,200 32% $315,001 – $400,000 32%
$408,201 – $612,350 35% $400,001 – $600,000 35%
$612,351 or more 37% $600,001 or more 37%

*or Qualifying widow/widower

Source: IRS provides tax inflation adjustments for tax year 2019

  1. The personal exemption has been eliminated with tax reform; child tax credit increased. The $4,050 personal exemption was eliminated starting 2018. However, the child tax credit doubled to $2,000 per qualifying child, subject to income limitations.

This is available to parents of children 16 or younger. It begins to phase out at $200,000 of modified adjusted gross income for single filers. This amount is $400,000 for married couples filing jointly.

  1. The increase in the standard deduction will simplify filing for some folks. The standard deduction for married filing jointly rises to $24,400 for tax year 2019, up $400 from the prior year.

For single taxpayers and married individuals filing separately, the standard deduction rises to $12,200 for 2019, up $200. For heads of households, the standard deduction will be $18,350 for tax year 2019, up $350.

  1. Some itemized deductions have been reduced or eliminated. If you itemize, state and local income taxes, property taxes, and real estate taxes are capped at $10,000. Anything above cannot be written off against income.

All miscellaneous itemized deductions are eliminated, including deductions for unreimbursed employee expenses, tax preparation fees, the deduction for theft, and personal casualty losses, although certain casualty losses in federally declared disaster areas may still be claimed.

For charitable contribution, you may generally deduct up to 50% of your adjusted gross income, but 20% and 30% limitations apply in some cases.

In 2019, the IRS allows all taxpayers to deduct the total qualified unreimbursed medical care expenses for the year that exceeds 10% of adjusted gross income. That’s up from 7.5% of AGI in 2017 and 2018.

  1. Penalties have been eliminated for not maintaining minimum essential insurance coverage. This is per the Tax Cuts and Jobs Act; for 2018 the penalty was $695. 
  1. Estates of decedents who die during 2019 have a basic exclusion amount of $11,400,000, up from a total of $11,180,000 for estates of decedents who died in 2018. The annual exclusion for gifts is $15,000 for calendar year 2019, as it was for calendar year 2018.
  1. Changes to the AMT – the alternative minimum tax. Tax reform failed to do away with the alternative minimum tax (AMT), but it snags far fewer people. 

For tax year 2019 the AMT exemption amount is $71,700 and begins to phase out at $510,300 ($111,700, for married couples filing jointly for whom the exemption begins to phase out at $1,020,600).

The 2018 exemption amount was $70,300 and began to phase out at $500,000 ($109,400 for married couples filing jointly and began to phase out at $1 million).

Yes, it’s confusing, but most tax software programs run both calculations for you.

  1. There is a 20% deduction for business owners. The new law gives “flow-through” business owners, such as sole proprietorships, LLCs, partnerships, and S-corps, a 20% deduction on income earned by the business. 

This is a very valuable benefit to business owners who aren’t classified as C-corps and wouldn’t benefit from 2018’s reduction in the corporate tax rate to 21% from 35%.

REITs and MLPs are also eligible for the deduction.

The deduction is generally available to eligible taxpayers whose 2019 taxable incomes fall below $321,400 for joint returns and $160,700 for single and married filing separately.

The deduction does not reduce earnings subject to the self-employment tax.

There are limitations to the new deduction and some aspects are complex. Feel free to check with your tax advisor to see how you may qualify.

The points above are simply summary. You may see provisions that will benefit you. You may also see potential pitfalls. If you have any questions or concerns, let’s have a conversation. 

9 smart planning moves to consider

  1. Review your income or portfolio strategy

Are you reaching a milestone in your life such as retirement or a change in your circumstances? Has your tolerance for taking risk changed? While market sell offs this year have been modest by historical standards, did you take volatility in stride, or did you feel any uneasiness? If so, this may be the right time to evaluate your approach.

One of our goals is to remove the emotional component from the investment plan. You know, the one that encourages investors to load up on stocks when the market is soaring or one that prods us to sell when volatility surfaces.

  1. Rebalance your portfolio

Market performance has been good this year. While U.S. equities have provided a nice lift to your portfolio, you may have too much exposure to stocks. Simply put, you may be taking on too much risk. If that’s the case, we may need to trim back on equity exposure. Given this year’s run-up in stocks, we may want to wait until January in non-retirement accounts so that any gains are booked in tax year 2020.

  1. Take stock of changes in your life

Review insurance and beneficiaries. Let’s be sure you are adequately covered. At the same time, it’s a good idea to update beneficiaries if the need has arisen.

  1. Beat the tax-loss deadline

You have until December 31 to harvest any tax losses and/or offset any capital gains. It may be advantageous to time sales in order to maximize tax benefits this year or next. We may also want to book gains and offset with any losses

But be aware that short- and long-term capital gains are taxed at different rates, and don’t run up against the wash-sale rule that could disallow a capital loss.  A wash sale occurs when you sell a security at a loss and then purchase that same security or “substantially identical” securities within 30 days, either before or after the sale date.

  1. Pay attention to mutual funds and taxable distributions

This is best described using an example:

If you buy a mutual fund on December 16 and it pays a dividend and capital gain December 19, you will be responsible for paying taxes on the entire yearly distribution, even though you held the fund for just three days. It’s a tax sting that’s best avoided because the net asset value hasn’t changed.

It’s usually a good idea to wait until after the annual distribution to make the purchase.

  1. Mind your RMDs

Required minimum distributions, or RMDs, are the minimum amounts a retirement plan account owner must withdraw annually, generally starting with the year that he or she reaches 70 ½ years of age. Some plans may provide exceptions if you are still working.

The first payment can be delayed until April 1 of the year following the year in which you turn 70½. For all subsequent years, including the year in which you were paid the first RMD by April 1, you must take the RMD by December 31.

While delaying the RMD until April 1 can cut your tax bite this year, please be aware that you’ll have two RMDs in 2020, which could bump you into a higher tax bracket.

The RMD rules applies to traditional IRAs, SEP IRAs. Simple IRAs, 401(k), profit-sharing, 403(b), 457(b) or other defined contribution plan. They do not apply to ROTH IRAs.

Don’t miss the deadline or you could be subject to a steep penalty.

One other matter, the IRS issued a draft of new life expectancy tables for RMDs that will lower the annual required distribution. The tables are simply a proposal, but if finalized, they could take effect in 2021.

  1. Contribute to a Roth or traditional IRA

A Roth gives you the potential to earn tax-free growth (not just deferred tax-free growth) and allows for federal-tax free withdrawals if certain requirements are met.

You may also be eligible to contribute to a traditional IRA, and contributions may be fully or partially deductible, depending on your income and circumstances. Total contributions for both accounts cannot exceed the prescribed limit. 

There are income limits, but if you qualify, you may contribute $6,000, or $7,000 if you are 50 or older. This is up $500, respectively, from 2018.

You can contribute if you (or your spouse if filing jointly) have taxable compensation but not after you are age 70½ or older. You can contribute at any age to a Roth if you (or your spouse if filing jointly) have taxable compensation and your modified adjusted gross income is below certain amounts.

You can make 2019 IRA contributions until April 15, 2020 (Note: State holidays can impact final date).

  1. Contribute to college saving

A limited option called the Coverdell Savings account did not get axed by the new tax law.

Currently, total contributions for a beneficiary cannot exceed $2,000 in any year and must be made before the beneficiary turns 18.

Any individual (including the designated beneficiary) can contribute to a Coverdell ESA if the individual’s modified adjusted gross income for the year is less than $110,000. For those filing joint returns, the amount is $220,000.

The $2,000 limit is gradually phased out if your modified adjusted gross income falls between $190,000 and $220,000 ($95,000 and $110,000 for single filers).

You have until April 15, 2020 to contribute for tax year 2019.

A 529 plan allows for much higher contribution limits, and earnings are not subject to federal tax when used for the qualified education expenses of the designated beneficiary.

Contributions to both accounts are not tax deductible.

  1. Do your charitable giving

Whether it is cash, stocks or bonds, you can donate to your favorite charity by December 31, potentially offsetting any income.

Did you know that you may qualify for what’s called a “qualified charitable distribution,” or QCD if you are over 70 ½ years old? A QCD is an otherwise taxable distribution from an IRA or inherited IRA that is paid directly from the IRA to a qualified charity.

A QCD may be counted toward your RMD, up to $100,000. This becomes even more valuable in light of the recent tax reform, as more taxpayers will no longer be able to itemize.

Given the increase in the standard deduction and limits on state income and property taxes, annual year-end gifts to your favorite charity may not exceed the higher thresholds. Therefore, you may consider giving an annual gift in early January. When coupled with an annual gift next December, you might reap the tax advantages from itemizing in 2020.

You might also consider a donor-advised fund. Once the donation is made, you can generally realize immediate tax benefits, but then it is up to the donor when distributions to a qualified charity will be made.

Hopefully you’ve found these planning tips to be helpful. Again, please let us know if you need assistance with any of your financial planning needs.

Market Recap: Buy high, sell higher

That is a counterintuitive headline. Isn’t it buy low, sell high?

Through the three years ended this November 29th, the S&P 500 Index has registered 115 new highs, including 26 this year. The last one occurred on the Wednesday before Thanksgiving. Some 53 closing highs were recorded in 2014, 10 in 2015, and 18 in 2016.

New highs tend to elicit two reactions:

  1. Fear that stocks are at a top. Aren’t stocks overvalued? Are equities headed for a big decline? We can’t buy at these levels. Shouldn’t we sell?
  1. Jubilation. For some, it leads to a feeling of invincibility. “Let’s load up on stocks (risk) and ride the bull higher.”

As said during volatile periods, your financial plan is a financial roadmap toward your personal financial goals. In part, it removes the emotional component that whispers (or screams) “Sell!!,” when stocks are declining. Conversely, it helps prevent undue optimism when shares are hitting new highs.

Selling when the major indexes are closing at a new high simply means that you’ll get a better price today than yesterday. That’s it. In a bull market, we’d expect a series of new highs. Driven by favorable fundamentals, that’s exactly what we have seen.

We are reluctant to forecast where stocks might be next month or next year. There are too many unpredictable variables that can influence short-term action.

However, over a much longer term, stocks have had an upward bias. As 1950 came to a close, the Dow Jones Industrial Average topped 235. By the end of 1975, the Dow closed above 850. At the turn of the century, the Dow had surged to 10,786.

Since 2000, we’ve experience two difficult bear markets. Yet, the U.S. economy and the stock market have proved to be quite resilient. As November came to a close, the Dow topped 28,000 for the first time.

A well-diversified portfolio is akin to an equity stake in the U.S. economy. We don’t know if the economy will be larger next year than it is this year. But 200+ years of history tell us that the economy has expanded over the longer period, and action in the stock market has reflected what’s happened in the economy.


Table 3: Key Index Returns

Dow Jones Industrial Average 3.7 20.3
NASDAQ Composite 4.5 30.6
S&P 500 Index 3.4 25.3
Russell 2000 Index 4.0 20.5
MSCI World ex-USA** 1.1 15.4
MSCI Emerging Markets** -0.2 7.7
Bloomberg Barclays US

Aggregate Bond TR

-0.1 8.8
Source: Wall Street Journal, MSCI.com, MarketWatch, Morningstar
MTD returns: Oct 31, 2019—Nov 29, 2019
YTD returns: Dec 31, 2018— Nov 29, 2019
**in US dollars

We hope you’ve found this review to be educational and helpful. Once again, before making any decisions that may impact your taxes, please consult with your tax advisor.

If you have any questions, or would like to discuss your plan to make a plan, please feel free to give me or any of my team members a call.

Financial Freedom Planners

(804) 277-9734

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6 Social Security Traps to Avoid

On January 31, 1940, the first monthly Social Security check was issued to Ida May Fuller of Ludlow, Vermont. She received $22.54, according to the Social Security Administration. She was 65 years old at the time. She passed away at 100 years of age.

Ida May Fuller worked for three years under the Social Security program, paid a total of $24.75 in payroll taxes, and collected $22,888.92 in Social Security benefits.

Today, nearly 70 million people receive some form of assistance from Social Security. You and I will never receive the return on our contributions that Ms. Fuller received, but Social Security can and does play a role in supplementing savings accumulated over a lifetime.

Recognizing that Social Security supplements other sources of income, we can take proactive measures that maximize benefits while avoiding the pitfalls that poor choices can create.

With that in mind, let’s review potential financial Social Security potholes that can cost you money.

  • 1. Collecting benefits too soon. You may begin receiving your retirement benefit at age 62…at a reduced rate. You probably know this, but let’s talk turkey.If you were born in 1960 or later, full retirement age is 67. At age 62, your monthly benefit amount is reduced by about 30% of what you would receive if you waited until you are 67. The reduction for starting benefits at 63 is about 25%; 64 is about 20%; 65 is about 13.3%; and 66 is about 6.7%.In casual conversation, it’s common for folks to ask us, “When is the right time for me to begin receiving benefits?” We usually respond with a less-than-definitive, “It depends,” because many variables, both objective and subjective, factor in.If you have questions, let’s talk. We believe it’s important to tailor our thoughts and recommendations to your specific circumstances.


  • 2. You collect prior to your full retirement age while still working. If you are under full retirement age for the entire year, Social Security deducts $1 from your benefit payments for every $2 you earn above the annual limit – For 2019, that limit is $17,640. Ouch!In the year you reach full retirement, Social Security deducts $1 in benefits for every $3 you earn above a higher limit. The 2019 income limit is $46,920. Only earnings before the month you reach your full retirement age are counted.In many cases, the price of collecting Social Security while working and under full retirement age can be costly.


  • 3. You are unaware that your Social Security may be taxed. IRA and 401k contributions may be deducted from income. However, Social Security taxes paid by the employee are not deductible. But that doesn’t necessarily translate into tax-free Social Security income.If you file a federal tax return as an “individual”  and your combined income (excluding Social Security) runs between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits. Earn more than $34,000, and up to 85% of your benefits may be taxable.If you file a joint return, the threshold rises to $32,000 and $44,000, respectively.


  • 4. You decide to defer the spousal benefit. The longer you wait to take Social Security, the greater the monthly benefit, up to age 70. So, why not employ the same strategy for your spouse, if money isn’t the primary issue? Unfortunately, that may not be a wise choice. The most your spouse may receive is 50% of the monthly benefit of the primary account that you are entitled to at full retirement age.  If your spouse waits past his or her full retirement age, he or she is leaving money with the government.


  • 5. Remarriage and your benefit. It’s complicated. You may already be aware that  divorced spouses are eligible for benefits tied to their former marriage. Eligibility is determined by these criteria: 
    • You were married for at least 10 straight years.
    • You are at least 62 years old.
    • Your ex-spouse is eligible for retirement benefits.
    • You are currently unmarried.

    However, if you remarry, you lose the rights to your former spouse’s benefits unless your new marriage ends, whether by death or divorce.

    I understand that the monthly Social Security check you receive may pale in comparison with the new journey you are about to begin, but it’s important that you are aware of the financial component.


  • 6. How many years have you worked? Most of us understand one simple concept: the longer we wait to take Social Security (up to age 70) the higher the benefit (spousal benefit may be an exception–see You decide to defer the spousal benefit). We also understand that higher wage earners can expect to receive a higher benefit. But did you realize that your monthly benefit is also based on your highest 35 years of earnings?What if you haven’t worked 35 years? Social Security averages in zero for those years, which reduces your benefit. If you have at least 35 years but some of those years are low earning years, they will be averaged in, creating lower benefit versus continued employment at higher wages.Are you still working in your 50s or 60s? Great! Those afterschool jobs in high school or years when your income may have been low are removed from the benefit calculation if you’ve exceeded 35 years of income.When we are factoring in pensions and retirement savings, those extra dollars may or may not amount to much, but I believe it is something to be aware of.

For some folks, Social Security may seem simple. For others, it feels as if you’re entering a complicated financial maze. If you have questions about Social Security or are uncertain how to proceed, feel free to give us a call.


Finally, feel free to run any tax scenarios by your tax advisor.

Financial Freedom Planners

(804) 277-9734

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Dodge the 9 Top Elder Frauds

You’ve saved money all your life. Or, maybe you sold your business after investing years of hard work. You’ve chosen the smart path and have a comfortable nest egg as you set sail into retirement.

But always be on guard! Criminals seek to trick you into willingly handing over your hard-earning savings.

I hope I have your attention!

Elder financial exploitation quadrupled from 2013 to 2017, according to the Consumer Financial Protection Bureau.

Specifically, these activities originated from unknown scammers, family members, caregivers, or someone in a nursing home. They involved more than $6 billion, with an average loss of $34,200. But in 7% of these instances, losses exceeded $100,000.

In 2017, elder financial exploitation reports totaled 63,500. Sadly, these reports probably represent just a small fraction of actual incidents.

According to the FBI, more than 2 million seniors were victimized in the past year.

Even former FBI Director William Webster, 95, was targeted in 2014!

Webster was promised $72 million and a new car…if he paid several thousand dollars to cover shipping. Ultimately, the caller was arrested. But not before his relatives in Jamaica had successfully scammed other U.S. citizens out of hundreds of thousands of dollars.

It won’t happen to me

If you’re thinking, “This can’t happen to me,” think again. The best and brightest can fall victim to a seasoned swindler.

While scams are only limited by the criminal imagination, the U.S. Senate’s Committee on Aging highlighted some of the more common scams in a report entitled, Protecting Older Americans Against Fraud.

Included are the top nine scams. Please familiarize yourself with this list. If you have any questions, we would be happy to talk with you.

  1. IRS impersonation scams

Scammers impersonating IRS officials claim you owe money and pressure you to settle immediately. If victims make an initial payment, they will often be told that new discrepancies have been found in their tax records, which must be satisfied with another payment.

Don’t fall victim! The IRS will never call you to demand immediate payment. If there is a question about your return, you’ll receive a letter, and there is a process to appeal any disputed amount. 

  1. Robocalls and unsolicited phone calls

Robo-dialers can be used to distribute prerecorded messages or connect the person who answers the call with a live person. IRS scammers may use this tactic.

Robocalls often originate overseas, and numbers are usually spoofed to hide their true identity. Have you recently received a call from someone whose phone number has your prefix? If you don’t recognize the number, it’s likely spoofed and not local.

The FTC has warned not to give out personal information in response to an incoming call. Identity thieves are clever. They often pose as bank representatives, credit card companies, creditors, or government agencies. They hope to convince victims to reveal their account numbers, Social Security numbers, mothers’ maiden names, passwords, and other identifying information.

Unsure who you are talking too? Just hang up the phone.

  1. Sweepstakes scams / Jamaican lottery scam

Sweepstakes scams continue to claim senior victims who believe they have won a lottery and need only take a few actions, i.e., sending cash to the con artists in order to obtain their “winnings.”

Sometimes, it’s best not to answer a call if you don’t recognize the number. If it’s a friend, they’ll leave a voicemail message.

  1. “Can you hear me?” “Are you there?” scams

The goal: get your voice print saying, “Yes.” Then, the scammer charges your credit card using your “Yes.”

If asked, don’t respond. Just hang up. If you get a call, don’t press 1 to speak to a live operator to be removed from the list. If you respond in any way, it will likely lead to more robocalls–and more scams.

  1. Grandparent scams

“Hi Grandma/Grandpa, guess who?” When you respond, “This sounds like ‘Sally’,” the fraudster will say “she’s” in trouble and needs money to help with an emergency, such as getting out of jail or paying a hospital bill.

If you send cash, expect “her” to call you again, asking for more cash. Victims who were duped later said they had wished they had asked some simple questions that only their true grandchild would know how to answer.

  1. Computer tech support scam

This is a scam near and dear to my heart, as my wife had this happen to her: Whether a computer pop-up screen or an alleged caller from Microsoft, scammers claim your PC is infected with a virus. Please note, Microsoft will never call you to inform you they have detected a virus.

Do not give control of your computer to a third party that calls you out of the blue. Don’t give them your credit card.

  1. Romance scams

More and more Americans are taking to the Internet to find a partner. While some find love, others find financial heartache.

Be wary of individuals who claim the romance was destiny or fate. Be cautious if an individual declares his or her love but needs money from you to fund a visit. Or claims cash is unexpectedly needed to cover an emergency. These are huge red flags.

  1. Identity theft

This was the most common type of consumer complaint in 2016, with nearly 400,000 complaints.

Placing a freeze with the major credit bureaus helps prevent credit cards or loans from being taken out in your name. If you believe you are a victim, call the companies where the fraud occurred, place a fraud alert with the credit bureaus, and file a report with your local police department.

  1. Government grant scams

In the most common variation of this scam, consumers receive an unsolicited phone call from a con artist claiming he or she is from the “Federal Grants Administration,” or the “Federal Grants Department”–agencies that do not exist.

Always remember, grants are made for specific purposes, not because you are a good taxpayer.

Do not wire funds to cover fees for the so-called grant.  Government grants never require fees of any kind. If you do, you’ll likely get more requests for additional unforeseen “fees.”

And, don’t give out bank information or personal information to these swindlers. Scammers pressure people to divulge their bank account information so that they can steal the money in their account.

You wouldn’t give bank information to a stranger at the supermarket. You don’t know them. So, why give personal information to someone you don’t know who unexpectedly contacted you?

Always remember, you are in control. When in doubt, hang up.

That is how you protect yourself.

If you suspect elder financial abuse, the American Bankers Association suggests the following steps:

  • Talk to elderly friends or loved ones. Try to determine what may be happening to their financial situation, such as a new person “helping” them with money management, or a relative using cards or credit without their permission.
  • Report the elder financial abuse to their bank. Enlist their banker’s help to stop it and prevent its recurrence.
  • Contact Adult Protective Services in your town or state for help. Report all instances of elder financial abuse to your local police—if fraud is involved, they should investigate.

Be on alert

 Attached is a list of useful tips. Place it near your phone. These cards can be a useful tool to help protect you against swindlers


Final thoughts

Our mission is to help you reach your financial goals. We are proactive in our recommendations. But sometimes, a good defense is the best offense. It’s heartbreaking to hear stories of theft. We don’t want you to become a victim and another government statistic.

Financial Freedom Planners

(804) 277-9734



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Records Are Made to Be Broken

We’ve all heard it said: “Records are made to be broken.” We celebrate record-breaking winning streaks from our favorite teams. Conversely, we hope to avoid a long string of losses.

The bull market that began in 2009 is not the best performing since WWII. That title still resides with the long-running bull market of the 1990s. But it is the longest running since WWII (St. Louis Federal Reserve, Yahoo Finance, LPL Research–as measured by the S&P 500 Index).

In the same vein, the current economic expansion is poised to become the longest running expansion since WWII. For that matter, it’s about to become the longest on record.

According to the National Bureau of Economic Research, which is considered the official arbiter of recessions and economic expansions, the current expansion began in July 2009. It has run exactly 10 years, or 120 months, matching the 1990s expansion–see Table 1.

Table 1: Economic Scorecard

Expansions Length in Months
July 2009 -? 120
Mar 1991 – Mar 2001 120
Feb 1961 – Dec 1969 106
Nov 1982 – Jul 1990 92
Nov 2001 – Dec 2007 73
  Average 64
Mar 1975 – Jan 1980 58
Oct 1949  – Jul 1953 45
May 1954 – Aug 1957 39
Oct 1945 –  Nov 1948 37
Nov 1970 – Nov 1973 36
Apr 1958  – Apr 1960 24
Jul 1980  –  Jul 1981 12

Source: NBER thru June 2019

Barring an unforeseen event, the current period is headed for the record books.

While the economic recovery is about to enter a record-setting phase, it has been the slowest since at least WWII, according to data from the St. Louis Federal Reserve.

For example, starting in the second quarter of 1996, U.S. gross domestic product, the broadest measure of economic growth, exceeded an annualized pace of 3% for 14 of 15 quarters. It exceeded 4% in nine of those quarters (St. Louis Federal Reserve).

Growth was much more robust in the 1960s, and we experienced a strong recovery from the deep 1981-82 recession.

Yet, economic booms and long-running expansions can encourage risky behavior. People forget the lessons learned in prior recessions and overextend themselves.

Consumers can take on too much debt. Businesses may over-invest and build out too much capacity. We saw euphoria take hold in the stock market in the late 1990s and speculation run wild in housing not too long ago.

That brings us to the silver lining of the lazy pace of today’s economic environment.

Slow and steady has prevented speculative excesses from building up in much of the economy. In other words, a mistaken realization that the good times will last forever has not taken hold in today’s economic environment.

Causes of recessions

The long-running expansions of the 1960s, 1980s, and 1990s led to a mistaken belief that various policy tools could prevent a recession.

Yet, expansions don’t die of old age. A downturn can be triggered by various events. So, let’s look at the most common causes and see where we stand today.

  1. Rising inflation leads to rising interest rates. In the early 1980s, the Federal Reserve pushed interest rates to historically high levels in order to snuff out inflation. The Fed’s policy prescription succeeded, but led to a deep and painful recession.


  1. The Fed screws up. A policy mistake can be the trigger, for instance if the Fed raises interest rates too quickly and restricts business and consumer spending. This is a derivative of point number one. There were fears the Fed was headed down this road late last year. Credit markets tightened, and investors revolted until the Fed reversed course.


  1. A credit squeeze can snuff out growth. In 1980, the Fed temporarily implemented credit controls that briefly tipped the economy into a recession.


  1. Asset bubbles burst. The 2001 and 2008 recessions were preceded by speculative excesses in stocks and housing.


  1. Unexpected financial and economic shocks jar economic activity. The OPEC oil embargo in the 1970s exacerbated inflation and the 1974-75 recession. The tragedy of 9-11 jolted economic activity in 2001. Iraq’s invasion of Kuwait pushed oil up sharply, contributing to the 1990-91 recession. Such events don’t occur often, but their possibility should be acknowledged.

Where are we today?

Inflation is low, the Fed is signaling a possible rate cut, and credit conditions are easy as measured by various gauges of credit. For the most part, speculative excesses aren’t building to dangerous levels.

While stock prices are near records, valuations remain well below levels seen in the late 1990s (I’m using the forward p/e ratio for the S&P 500 as a guide). Besides, interest rates are much lower today, which lends support to richer valuations.

Now, that’s not to say we can’t see market volatility. Stocks have a long-term upward bias, but the upward march has never been and never will be a straight line higher.

As I’ve repeatedly stressed, the financial plan is designed, in part, to keep you grounded during the short periods when volatility may tempt you to make a decision based on emotions. Such reactions are rarely profitable.

A sneak peek at the rest of the year

The Conference Board’s Leading Economic Index, which has a good record of predicting (if not timing) a recession, isn’t signaling a contraction through year end.

But one potential worry: a protracted trade war and its impact on the global/U.S. economy, business confidence, and business spending.

Exports account for almost 14% of U.S. GDP (U.S. BEA). It’s risen over the last 20 years, but we’ve never experienced a U.S. recession caused by global weakness.

By itself, trade barriers with China are unlikely to tip the economy into a recession. Per U.S. BEA and U.S. Census data, total exports to China account for just under 1% of U.S. GDP. Even with higher tariffs, exports to China won’t grind to a halt and erase 1% of GDP.

What’s difficult to model is the impact on business confidence and business spending, which in turn could slow hiring, pressuring consumer confidence and consumer spending.

Simply put, there isn’t a modern historical precedent to construct a credible model. Hence, the heightened uncertainty we’ve seen among investors.

Is a recession inevitable?

It has been in the U.S., but other countries have more enviable records.

Earlier in June, the Wall Street Journal highlighted, “Australia is enjoying its 28th straight year of growth. Canada, the U.K., Spain and Sweden had expansions that reached 15 years and beyond between the early 1990s and 2008. Without the Sept. 11, 2001 terrorist attacks, the U.S. might have, too.”

If trade tensions begin to subside (a big “if”) and if the fruits of deregulation and corporate tax reform kick in, we could see economic growth well into 2020 (and with some luck, into 2021 and beyond).

But, let me caution, few have accurately and consistently called economic turning points.

The Fed to the rescue

Rising major market indexes for much of the year can be traced to positive U.S.-China trade headlines (at least through early May), a pivot by the Fed, and general economic growth at home.

We witnessed a modest pullback in May after trade negotiations with China hit a snag. The threat of tariffs against Mexico added to the uncertain mood until June 4th, when Fed Chief Jerome Powell signaled the Fed would consider cutting interest rates to counter any negative economic headwinds.

While Powell’s not promising to deliver any rate cuts, one key gauge from the CME Group that measures fed funds probabilities puts odds of a rate cut at the July 31st meeting at 100% (as of June 28 – probabilities subject to change).

I’ll keep it simple and spare you the academic theory explaining why lower interest rates are a tailwind for equities. In a nutshell, stocks face less competition from interest-bearing assets.

But let’s add one more wrinkle–economic growth.

Falling rates in 2001 and 2008 failed to stem the outflow out of stocks as economic growth faltered. And, rising rates between late 2015 and September 2018 didn’t squash the bull market.

During the mid-1980s, mid-1990s, and late 1990s, rate cuts by the Fed, coupled with economic growth, fueled market gains.

It’s not a coincidence that bear markets coincide with recessions and the bulls are inspired by economic expansions. Ultimately, steady economic growth has historically been an important ingredient for stock market gains.

Table 2: Key Index Returns

MTD% YTD % 3-year* %
Dow Jones Industrial Average 7.2 14.0 14.1
NASDAQ Composite 7.4 20.7 18.2
S&P 500 Index 6.9 17.4 11.9
Russell 2000 Index 6.9 16.2 10.8
MSCI World ex-USA** 5.8 12.5 6.1
MSCI Emerging Markets** 5.7 9.2 8.1
Bloomberg Barclays US

Aggregate Bond TR

1.3 6.1 2.3

Source: Wall Street Journal, MSCI.com, Morningstar, MarketWatch, Yahoo Finance

MTD returns: May 31 – Jun 28, 2019

YTD returns: Dec 31, 2018 – Jun 28, 2019


**in US dollars


Final thoughts

Control what you can control.

You can’t control the stock market, you can’t control headlines, and timing the market isn’t a realistic tool. But, you can control your portfolio.

Your plan should consider your time horizon, risk tolerance, and financial goals. There is always risk when investing, but we tailor our recommendations with your financial goals in mind.

What we wrote a number of years ago is still true today: BALANCED INVESTING IS PART OF A BALANCED LIFE.

If you’re unsure or have questions, let’s have a conversation. That’s what we’re here for.

Financial Freedom Planners

(804) 277-9734

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A Positive Viewpoint – The American Tailwind

It’s common practice for the president or CEO of a company to include a letter to shareholders in the annual report. Berkshire Hathaway’s chairman and CEO, Warren Buffett, doesn’t buck the trend.

His annual letter (http://www.berkshirehathaway.com/letters/2018ltr.pdf) captures plenty of attention, and this year was no exception. The focus is on the investments and operating performance of Berkshire Hathaway, but the Oracle of Omaha also includes many sound principles for wealth creation as well as his general thoughts about the U.S. economy.

Buffett’s record

From 1965-2018, the market value of Berkshire Hathaway has posted a compounded annual gain of 20.5%, more than double the S&P 500’s advance, which averaged 9.5%, including reinvested dividends.

There are two things that pop out here. First, Buffett’s enviable record and his ability to create long-term wealth using time-tested principles. Second, the S&P 500’s record illustrates that a well-diversified stock portfolio has been a critical component of a long-term financial plan.

In case you’re wondering, Berkshire Hathaway’s overall gain has been 2,472,627% versus the S&P 500’s still-impressive 15,019%.

One more data point – Buffet continues to perform well, topping the S&P 500 Index in eight of the last 11 years.

Focus on the forest–not the trees

Your financial plan is comprised of many parts. This would equate to what Buffett calls the “economic trees.” In other words, let’s not get to caught up on any one investment.

“A few of our trees are diseased and unlikely to be around a decade from now. Many others, though, are destined to grow in size and beauty,” Buffett writes.

He won’t get every investment right. Neither will we. Berkshire holds a substantial position in Kraft Heinz (KHC), whose shares recently tumbled after the company delivered poor results and slashed its dividend.

But, if we review the portfolio as we’d view the forest, we find a diversity of trees, wildlife, and plants. It’s a work of beauty. Your portfolio is built from the bottom up. Like the forest it’s very diversified, and it is created with your financial goals in mind.

As Buffett opines (and we agree), “I have no idea as to how stocks will behave next week or next year. Predictions of that sort have never been a part of our activities.”

That said, how did the 19.8% drop in the S&P 500 Index (September peak to Dec 24th trough) sit with you? With your input, we do our best to gauge your tolerance for risk. If you found yourself fretting over the volatility, let’s talk.

On the other hand, if you slept soundly, it would suggest your investment mix in relation to risk is on target.

“At Berkshire, the whole is greater–considerably greater–than the sum of the parts.” We feel the same way about your financial plan.

The American tailwind

Warren Buffett is bullish on America.

In 1942, he invested $114.75 in three shares of Cities Service preferred stock. At the time, the country was mobilizing for what would be a massive war effort.

If Buffett had invested his $114.75 into a no-fee S&P 500 index fund, and all dividends had been reinvested, his stake would have grown to $606,811 (pre-taxes) on January 31, 2019 (the latest data available before the printing of his letter).

The U.S. was victorious in WWII, but challenges never cease.

We’ve endured the cold war, the divisiveness of the 1960s, OPEC’s oil embargo, double-digit inflation, soaring interest rates, a rising federal deficit, the tragedy of 9-11, the war on terrorism, the financial panic of 2008, the ensuing Great Recession, falling home prices, and more.

Let’s say that you had had the foresight to see the oncoming explosion in the federal deficit, one that is up 40,000% over the last 77 years.

“To ‘protect’ yourself,” Buffett said, “You might have eschewed stocks and opted instead to buy three ounces of gold with your $114.75. And what would that supposed protection have delivered? You would now have an asset worth about $4,200.” Compare that to the performance of the S&P 500!

What is this nation’s secret sauce? The answer is complex and difficult; yet, the overarching theme lies in front of us.

The experiment called the United States has birthed and attracted the best and the brightest. Freedom and opportunity are its calling cards. Today, we are the wealthiest nation on Earth, and we continue to ride the wave of innovation and enjoy the benefits.

But, is that wave about to crash on the shore?

A recent piece by Morgan Stanley entitled, Millennials, Gen Z and the Coming ‘Youth Boom’ Economy, complements Buffett’s optimistic viewpoint. The population of the Millennials will overtake the Baby Boomers this year, and “Gen Z, born between 1997 and 2012, will overtake the Millennials as the country’s largest cohort by 2034,” it said. For the U.S. economy, “The demographic tailwinds created by these high-population cohorts could be significant, delivering the kind of ‘youth jolt’ that the Baby Boomers were famous for.”

Sure, we can’t know when the next recession will ensue or some of the challenges we’ll face as a nation in the coming years. Yet, as Buffett sums up his annual letter, “Over the next 77 years, the major source of our gains will almost certainly be provided by The American Tailwind. We are lucky–gloriously lucky–to have that force at our back.”

Call us at (804) 277-9734 or email croberts@financialfreedomplanners.com for more information.

Financial Freedom Planners

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The upcoming holiday season can be joyful, but many people find it one of the most stressful periods of the year. Most of us are in the Spend Money/Buying Mode until the New Year begins, and then need to deal with the financial aftermath.

As a father of three and 2 grandchildren, I have some experience at this…the “I Wantitis” (a technical financial planning term) we experience with our kids, and these items add up to hundreds, and perhaps thousands of dollars at year end. We’ve heard how friends already have it, the cool kids have it, I’ll take care of the new pet, etc., etc.

Then there’s us, the “adults.” It’s very easy to fall prey to the myriad ways merchants help us decide to part with our money. Generally with us adults, the price tags of these items go up considerably.

This article is not to judge, nor is it going to discuss coupons, timing sales, or other ways to still spend money, albeit a bit less. Is it possible to spend money during the holidays without feeling guilt, stress, or weakening our financial situation?

We believe the answer is yes, absolutely, and have some thoughts about how to accomplish this. If you’re still with me, let’s explore some ideas and concepts to help you get through the holidays with less stress and more joy in your life.

Be Conscious and be Intentional

Having just downsized as an “empty nester,” my wife and I had the opportunity to sift through piles and piles and piles of “Must-Have” items that diminished our finances over time. It’s astounding how much of it became meaningless over time, and ended up donated, auctioned or thrown away. I mean a LOT!

Stuff is highly overrated, and in retrospect wish we had done things differently. We, like many, got swept up with “I Wantitis” as we raised our family, both our children as well as ourselves. For a variety of reasons we have started to pay much closer attention to our spending.

And guess what? The experience has been great! We are spending dramatically less, get much less stuff, and the stuff we get we really appreciate or need. We feel much more empowered and in control of our money.

Holiday time (Christmas for us) is a real test for our family and our approach to spending. More is not always better. Here are some thoughts on ways to be more intentional and conscious about your shopping and spending:

Step #1. Set a Dollar Limit for Spending

You may be saying to yourself, duh! However this is a REALLY important step most of us don’t take, particularly during the holiday season. Retailers are really really (really) good at convincing you to buy their stuff.

For example, how many ads do you think you see in a given day? Digital marketing experts estimate that most Americans are exposed to around 4,000 to 10,000 advertisements each day! It is likely even more during the holiday season.

If you don’t set a strict upper limit, most of us are likely to spend more than we want to or should.


  1. Decide at the beginning of the year how much you’re going to spend during the
    end-of-year holidays.
  2. Set up a separate “Holidays” bank account.
  3. Save to it incrementally from each paycheck throughout the year.

If you wait until holiday time to figure out how much you want to spend on the holidays,
there are going to be all sorts of external pressures to spend more. But think about how easy it’d be in January, when you’re not all amped up for the holidays, to think rationally and responsibly about spending during the next holiday season?


Holidays are a financial goal just like many other important things: travel, saving for
retirement, saving for a down payment, paying for your kids’ private school, etc.

So we should be approaching this the way we approach saving for any kind of goal: Consciously and Intentionally.

Holiday spending is not as “mission critical” as say, the house payment, food, etc. We categorize holiday spending as discretionary spending. In other words, it follows essential Living Expenses and other higher-priority discretionary spending.

If you’re looking for some guideline, the Better Business Bureau and Clearpoint Credit Counseling Solutions offer a holiday budget calculator based upon your income. For example, if your gross annual income is $50,000, the calculator will give you a recommended holiday budget of 1.5 percent of your annual income. From there, you can allocate how much you want to spend on gifts, holiday parties, travel and more.

Step #2. Keep a List of Stuff You Want to Buy

This accomplishes many things, and they’re all positive. Some of them are:

  1. Lists build anticipation of finally getting the gifts. Anticipation is a large part of the joy you get from spending money, and even more so if you’re intentional about it.
  2. Lists give us time to think about buying/spending decisions.
  3. Lists turn the eventual gifts into a treat. Treats bring joy.

Step #3. Prioritize that list

Prioritizing benefits you in two ways:

  1. You can stay within my spending limit, because you know which items you can’t buy without sacrificing much enjoyment.
  2. You are more likely to get the Most Awesome out of every Christmas dollar you spend.

I don’t know about you, but I really hate it when I spend money on something that, disappointingly soon, isn’t that useful or enjoyable after all. I don’t like that sense of wasted money. Prioritizing and only buying the top priorities limits that disappointment and sense of waste.

Spend Your Time and Energy as Meaningfully as Your Money

Some people really get into Black Friday, running spreadsheets to find the best deals, etc. Personally that makes me turn into a cold sweat even thinking about it. We all have limited amounts of time, energy and focus for dealing with our finances. Personally I’d rather spend those resources figuring out our values, and what is most meaningful to us…in other words, be intentional!

If you are looking for hourly or project-based financial advice with no conflict of interest, we can help at Financial Freedom Planners!

Smart Choices Today – More Choices Tomorrow!

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Tax Traps to Avoid in Retirement

Since we celebrated our nation’s birthday earlier this month, it’s only fitting to quote one of our founders:

“Our new Constitution is now established, and has an appearance that promises permanency; but in this world, nothing can be said to be certain, except death and taxes.”

It’s a quote that comes down to us from Benjamin Franklin, who uttered the phrase in 1789.

Taxes–federal, state, local, sales tax, property tax, gasoline tax, payroll tax, tolls, fees, taxes on capital gains, dividends and interest, gift tax, inheritance tax, and cigarettes and alcohol. There has even been a rising chorus that is calling for a special tax on junk food. Yikes!

Yes, Ben Franklin nailed it. We can’t escape taxes.

If you have already retired, you are aware that taxes don’t end when retirement begins. For those who are nearing retirement, it is important to recognize, plan for, and minimize the tax bite that awaits.

Before we jump in, let me say that this is a high-level summary. It’s designed to educate and avert surprises. Planning for tax outlays doesn’t reduce the discomfort that goes with paying Uncle Sam. But preparation can reduce the tax bite and eliminate unexpected surprises.

As I always emphasize, feel free to reach out to me with specific questions, or consult with your tax advisor.

That said, let’s get started.

1. Estimated quarterly tax payments may be required

If you have never been self-employed, you are accustomed to having federal, state (if your state has an income tax), and payroll taxes withheld from each paycheck.When you stop working, there are no more W-4s to complete and no one is withholding taxes for you. But that doesn’t absolve you of your year-end tax liability.You can make estimated payments each quarter. You can also have taxes withheld from your pension, social security, or IRA distribution.

If you have yet to file for social security, you may choose to have Social Security withhold 7%, 10%, 12% or 22% of your monthly benefit for taxes. Or you may decide not to have anything withheld.

But make sure enough is withheld or your estimated quarterly payments are sufficient. Otherwise, you may face a penalty.

Does it sound complicated? You don’t have to go it alone. Tax planning is a part of retirement income planning. If you have any concerns or questions, please reach out to me.

2. Social security may be taxed 

If you file as an individual and your combined income (adjusted gross income + nontaxable interest + half of your Social Security benefits) is between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits.If the total is more than $34,000, up to 85% of your benefits may be taxable.

If you file a joint return and you and your spouse have a combined income that is
between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits. If combined income is more than $44,000, up to 85% of your benefits may be taxable. (SSA.gov Benefits Planner: Income Taxes and Your Social Security Benefits).

Additionally, 13 states–Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia–tax Social Security. Fortunately for most of our clients that live in Virginia, Virginia does not tax Social Security.

3. Beware of the required IRA minimum distribution

Let me put this right up front: failure to take the required distribution could subject you to a steep penalty.

Required minimum distributions (RMDs) are minimum amounts that retirement plan account owners must withdraw annually starting with the year they reach 70½ years of age or, if later, the year in which they retire.

However, if the retirement plan account is an IRA or the account owner is a 5% owner of the business sponsoring the retirement plan, RMDs must begin once the account holder is 70½, regardless of whether he or she is retired (IRS: Retirement Plan and IRA Required Minimum Distributions FAQs).

Distributions are not required from a Roth IRA.

The first payment can be delayed until April 1 of the year following the year in which you turn 70½. For all subsequent years, including the year in which you were paid the first RMD by April 1, you must take the RMD by December 31 of the year.

The RMD rules also apply to SEP IRAs and Simple IRAs, 401(k), profit-sharing, 403(b), 457(b), profit sharing plans, and other defined contribution plans.

If you expect to have large RMDs that could push you into a higher tax bracket, it may be beneficial to begin taking distributions prior to 70½. Or, you could convert some of your IRA into a Roth, which will help shelter gains and future distributions from taxes. You pay a tax upfront, but it’s one strategy that can help minimize taxes long-term.

4. The hidden cost of selling your primary residence 

Downsizing can generate cash and reduce your daily expenses. But beware that it may also trigger a tax liability.

If you’ve lived in your primary residence for at least two of the last five years prior to selling, you can exempt up to $250,000 of the profit from taxes if you are single and up to $500,000 if you are married. If you are widowed, you may still qualify for the $500,000 exemption (IRS: Publication 523 (2017), Selling Your Home).

The sale may also trigger the 3.8% tax on investment income. It’s a complex calculation that can ensnare single filers who have net investment income and modified adjusted gross income above $200,000 and $250,000 for married filers. (IRS: Questions and Answers on the Net Investment Income Tax).

The decision to sell shouldn’t be strictly governed by the tax code. However, it’s important to understand the tax ramifications. Timing income streams might be beneficial if a sale will trigger a taxable event.

There are other methods to lower your taxes, including charitable donations. How we structure retirement income, your investments, and distributions from retirement accounts can help to reduce the tax burden. If you need assistance on any of the points I’ve shared, we are happy to assist.

Please email me at croberts@financialfreedomplanners.com or call me at (804) 277-9734 and we can talk.

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