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Financial Symmetry: Balancing Today with Retirement

When considering retirement, do you wonder what financial opportunities you may be missing? Busy lives take over and years pass without taking advantage. In this retirement podcast, Chad Smith and Mike Eklund unveil financial opportunities, to help you balance enjoying today so you are ready to retire later. By day, they are fiduciary fee-only financial advisors who answer questions about tax savings, investment decisions, and how to save more. If you’ve been putting off your financial to-do list or are just not sure what you’ve been missing, subscribe to the show and learn more at www.financialsymmetry.com. Financial Symmetry is a Raleigh Financial Advisor. Proudly serving clients in the Triangle of North Carolina for over 20 years.
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Now displaying: March, 2016
Mar 29, 2016

Young advisors often have more passion, technical knowledge and a longer runway than older financial advisors.

If we look like we could be your son or daughter, then you are likely on the right track to finding a financial advisor to form a relationship with. While we may look young, that doesn’t mean we are inexperienced or harder to relate to. Let me explain:

We entered the financial planning profession during the age of the rise of the comprehensive financial planner and we’ve had the unique opportunity of learning from a team of high quality financial planners. Many firms over the last few years have emphasized the hiring and developing of young talent. Financial Symmetry is no different and has been hiring and promoting advisors from within throughout the 15 year history of the firm. Young advisors are developed through an increased level of responsibility as well as the chance to benefit from years of observing older advisors in the firm. We have seen what type of advisor we want to be and have determined what approach best fits our personality and goals. We therefore know what we want to communicate with our clients and how to do it.

Think about those you are associated with that you trust the most…likely friends and family top the list. You have built a relationship with these individuals over time and have trusted their recommendations whenever you seek their advice. I can attest that the FSI advisors strive for this type of relationship with their clients. We want to get to know you on a personal level as well as your family so we can best see and understand your financial goals.

It is also easier to relate to us than you may think. After all our parents are just a few years from retirement themselves. We have observed firsthand from them as well as their friends and co-workers what their needs and concerns involving retirement and overall financial planning include. We are accustomed to conversing and socializing with people older than us as well as our clients are accustomed to communicating and interacting with individuals of the younger generation such as their children.

Benefits of A Young Advisor

There are some common differences you will find though, but I think they actually benefit us in a way that they won’t for older advisors.

  1. Technology: Yes, the amount of time we check our phones and social media sites may be unimaginable to you. However given this new technology age, knowledge and industry influencers are right at our finger tips. Every day we learn new and innovative ways to help us serve our clients better through reading of blogs, market commentary, and even sharing and learning ideas with other financial advisors. We are able to improve our processes utilizing the latest financial industry technology in order to better serve our clients.
  1. Retirement: We aren’t retiring soon…and that’s a good thing! As a result of this when we engage in a relationship with a client, we intend it to be for the long haul. If you are closing in on your retirement and are working with an advisor who is in the same stage of life as you then “guess what?”…they are going to retire soon as well! The years prior to and immediately after retirement can be some of the most challenging years as you juggle financial decisions and you want to make sure you have a reliable advisor by your side throughout this process, not one that is thinking about their own retirement and may pass you off to a new advisor during this time of need.
  1. Passion and Knowledgeable: No client wants to feel as if they are just a number, which can often happen when there is a lull in the advisor/client relationship. With a younger advisor we are “hungry” and “passionate” and helping our clients achieve their best financial life is our primary goal.

When you combine this passion with knowledge this can be a dynamite combination that can truly be the defining mark of an advisor/client relationship. At Financial Symmetry all of our advisors have obtained the CERTIFIED FINANCIAL PLANNER™ designation. As a result we have spent years in study, obtaining experience, and practicing in a fiduciary manner in order to engage in practices that are in the best interest of our clients.

Mar 15, 2016

I’m not sure about you, but we haven’t met many people that wouldn’t love to lower their tax payments.

As we move in to the heart of tax season, do you find yourself wondering every year around this time, what other opportunities you may be missing?

Millions of people who file their tax return themselves overlook tax opportunities each year that could save them extra money in April but they hesitate to pay to have a professional prepare them.  The hidden secret is that tax planning should be done year round.  So we put together a list of a few things we see most often missed on tax returns.

 

Maxing Tax-Deferred Savings

One of the easier ways of avoiding tax now, is to save the maximum amount in all your tax-deferred accounts (401k/403b).  Many have a tough time reaching the maximum savings limit ($18k per person in 2016).  This often brings the focus back to your cash flow as overspending keeps many from hitting the maximum amount.  Those over age 50 have an extra benefit where they can save $6,000 more each year until they stop working.

 

Not Funding HSA accounts

This is an excellent retirement account that offers a triple tax saving opportunity.  Problem is many aren’t taking advantage of it. If you have a high-deductible health insurance plan, you have an opportunity to sock away savings tax-free, that can grow tax-free and then be withdrawn tax-free.

 

Non-deductible IRA contributions & Roth conversions

High income earners still have a way to make Roth contributions. It just takes a few extra steps and involves some monitoring to do it successfully.  If you already have nondeductible IRA contributions, this is a great opportunity to get these contributions in to a Roth IRA, assuming you don’t have a larger deductible portion already built up (consider the pro rata rule in this case).  Don’t forget to fill out form 8606 to keep an accurate record of your nondeductible IRA contributions.

 

Charitable Deduction Opportunities

If you have large capital gains from appreciated stock, it may benefit you to donate these shares instead of making cash charitable contributions. Another opportunity for those who are over age 70 ½, is to make a Qualified IRA Charitable Distribution which also qualifies as Required Minimum Distribution.  This benefits you by not increasing Adjusted Gross Income on your tax return which in turn helps with medical expense deductions, social security taxation and Medicare rates to name a few.

 

Missing Any Deductions?

Some of the more common we see left off of Schedule A are car taxes, investment fees, and charitable donations. Go through your potential itemized deductions.  Look at the prior year return for some guidance.  Also, if you made a 2014 estimated payment to the state in January of this year and/or owed when you filed your 2014 state tax return then you can add those payments as a federal tax deduction on this year’s return.

If in a low bracket, you may want to delay deductions and accelerate income instead.  When your AGI ends up in the 15% tax bracket, capital gains are taxed at 0%.  So realizing gains could be beneficial here.

High tax bracket earners have an opposite focus as they are looking to reduce income. Word of warning: watch the Medicare Surcharge (3.8%) on income over $200k for individuals and $250k for joint filers. If you find yourself in this area, you may want to look for ways to delay income depending on the control you have in your income.

 

AGI thresholds You Don’t Want to Miss

  • Child tax credit (begins phasing out at $110k).  Can you make a deductible traditional IRA contribution? This could actually reduce your tax bracket from a boosted higher rate as you are not only reducing the ordinary income tax but getting an extra benefit due to the credit.
  • Itemized deduction limitations over $309k (single $258,250) – especially if restricted stock or stock options are vesting and you are selling in that tax year.
  • American Opportunity Tax Credit phases out at $160k AGI ($80k single).  If you pay for the first $4k of college expenses, you can use this credit (mentioned below).

 

ACA subsidy tax bubble

Many retirees who no longer have an employer continued health plan and haven’t yet reached 65 now have a new option – buying medical insurance through the health insurance marketplace.  Depending on the tax diversification in your investment accounts, some early retirees are receiving premium tax credits.  But be careful, if receiving the credit and your income rises above 400% of the Federal Poverty Level for the number of people in your household, you could lose all the credit.

In this situation, managing tax brackets become vital.  But to do so, you need to have saved in accounts with tax flexibility.  Tara Signal Benard summarized a breakdown of this strategy in a New York Times article titled, “Devising a Tax Strategy After the Paycheck Is No More.”

 

Don’t Forget About Other Credits

  • Pay for first $4k of tuition first to get AOTC – 3 million people missed this credit in 2014.
  • Residential energy credit for any HVAC replacement or energy efficient upgrade to house
  • Foreign Tax Credit – you lose this credit with foreign stock in IRA accounts. This is why asset location is important. Vanguard found this can add up to 0.75% per year in performance.  $7,500 for a $1 million portfolio.
  • Dependent care credit – If both spouses are working, don’t forget to include summer camp costs as this is very likely a deduction.

 

Feeling Like you Missed Something?

If you feel a bit lost after reading these examples then look to hire a professional.  Tax return for families can range from $300 to $500 depending on your situation.  Could be money well spent if they find tax savings you overlooked.

When digging in to the numbers CNBC found the more you make the more interesting IRS auditors find you.  The IRS begins to get more interested in those earning more than $200k.  According to turbotax – only 1 percent earning less than that are audited.  If you are over the $200k threshold, then 4% of your group will be audited.  It’s not until you begin earning more than a million, to where 12.5% get an audit notification letter.

If you feel like you would like a second look, we’d encourage you to find a fee-only financial planner who has knowledge in the tax planning area.  It’s very likely it could be worth it.

Other Links Mentioned During the Show

Mar 1, 2016

Do you have a mapped-out plan for your future?  Do you know the best steps to take to achieve your goals?  In a world in which 75% of America is winging it when it comes to their financial future, a holistic financial plan will set you ahead of the crowd.  Having a dynamic and workable financial plan helps you look at all aspects of your finances and project what things will look like on your current trajectory and if you make improvements.

With the help of a fee-only, fiduciary Certified Financial Planner™, you can have a 3rd party evaluate where you stand financially and help you set up realistic next steps to get you the direction you want to go to achieve the things you want to in life.

Examples of next steps you might receive include making sure you stay at a healthy spending level, saving the necessary amounts in the right types of accounts to prepare for retirement or future college tuition, getting estate documents updated to make sure you’re in control of your assets and body no matter the circumstance, and making adjustments to save on taxes.

A CFP Board 2012 survey found that over half of people with a holistic financial plan feel “very confident” about their financial picture vs. those who’ve never had financial planning completed.  And a 2016 study showed that simple online financial calculators are often wrong when predicting retirement readiness.

When Should You Have a Financial Plan Made?

If you have no plan in place, the best time for you to have one made is now.  It’s rare to accomplish a goal (and even more rare to accomplish multiple goals) without a plan of attack to get you there.

A financial plan is beneficial at any point in life, although the benefits can at times be more evident when preparing for major life events or going through life transitions.

Major life events that prompt one to seek a financial plan include the following:

Even if major life changes are not around the corner, financial planning will help you see if you are on the right path.  It’s like going to see the doctor.  You realize the need to visit a doctor when changes in your health occur.  But just as you should go see a doctor for regular health checkups because there could be something wrong you’re unaware of, financial checkups are also very important.

No matter where life has you, a financial plan can make sure you are reaching your peak financial fitness.

What Should You Do Once Your Financial Plan Has Been Created?

Once your financial plan has been made, monitor it.  This is the most important step!  We find that many clients who only have a financial plan created but do not move forward with an ongoing relationship with us typically do not implement all of the recommended changes, mostly because life is busy and the plan gets forgotten.

Having the regular accountability of a financial advisor is the best way to make sure you stay on track.

There’s no better time to start than now.

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