Talking to Your Aging Parents About Their Finances~Presented by Greg Shields

Each day between 2011 and 2030, 10,000 baby boomers will celebrate their 65th birthdays. As the boomers grow older, their middle-aged children may find themselves in a challenging situation: providing financial assistance to their parents as well as their own kids.   According to a poll by the Pew Research Center: • 75 percent of adults believe that they have a responsibility to provide financial assistance to their aging parents. • 63 percent of adults have given some type of financial support to their grown children in the past year.   Members of the Sandwich Generation—those who are taking care of aging parents while supporting their own children—often come under serious financial and emotional stress. As your parents move into retirement, it’s wise to plan ahead for any financial and legal responsibilities they may expect you to take on.   Starting the conversation These days, 65 is hardly considered old age. But it’s crucial to sit down with your parents and have an honest discussion about issues that may arise—before they need your help. What are their expectations for the future, and what kind of assistance will they need from you? Will they have sufficient resources to cover their care as they age? As part of this conversation, be sure that they have their important documents and information organized. You’ll want to know where to locate items such as: • Wills and legal documents • Investment, bank, and insurance account numbers • Safe deposit boxes, real estate deeds, and automobile titles • Emergency contact numbers (medical providers, neighbors and friends, and financial, tax, and legal advisors)   Looking into legal matters If they haven’t already done so, your parents may want to hire an attorney to help them manage their affairs. For example, they may need assistance with: • Appointing a health care representative. Without legal authorization, medical privacy laws prevent doctors from discussing a parent’s medical conditions with you. In addition to appointing a health care power of attorney, your parents may want to consider a living will, which provides instructions on how to manage treatment if they have a terminal or irreversible condition and cannot communicate. • Reviewing and updating estate-planning documents. Besides the basic estate planning documents, such as wills, durable powers of attorney, and revocable trusts, your parents may wish to draft a letter outlining who will receive personal effects like jewelry and family heirlooms.   Discussing their financial situation Depending on your parents’ circumstances and financial savvy, they might need help managing their money as they age. Making arrangements now can help prevent confusion down the road. • Look into banking options. Most banks offer automatic bill payment services from checking or savings accounts—a convenient option if your parents are comfortable with the Internet. • Review insurance coverage. Be sure to discuss your parents’ existing life and long-term care policies, and make changes if necessary. • Enlist an advisor. Now may be a good time to get to know your parents’ financial advisor, or to talk to your own advisor about your parents’ situation. He or she can recommend products that are suitable to their investment goals, whether that means income, capital preservation, or growth. An advisor can also propose cash management solutions, which allow your parents’ monthly social security, retirement plan, and annuity payments to be deposited automatically into an account. You can typically access these funds through a debit card, unlimited check writing capabilities, and online bill-pay services—everything that a bank checking account offers.   Looking to the future As your parents age, a number of other considerations will likely come into play. Will they be able to continue living at home? How long will they be able to drive? Although these topics may be difficult to discuss, it’s important to start the conversation early—for your parents’ sake as well as your own. By planning ahead for any financial assistance and other care they may require, you’ll help ensure that everyone’s needs are met.   Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.
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In-service distributions-Advantages and Disadvantages

In the past few weeks I have had two clients come into my office with the same dilemma. Both were nearing retirement age and had accumulated a significant amount in their employer’s 401(k) plan. They each intended to continue working for a few more years, but were concerned about the majority of their retirement plan being stuck in a plan with a limited number of investment options.     One client works at large publicly traded company and the other works at a regional lumber company – covering a large portion of the client spectrum. To my surprise, each of the plans offered only twelve investment options. The options only included stock and bond mutual funds. Their accounts have done very well to recover since the crash in 2008, but they were each concerned about rising interest rates and the volatility of the stock market as they near retirement. They each felt that they were stuck in their respective retirement plans and did not have any option other than moving the majority of their accounts into a money market (if available.)     I suggested to them that they explore the possibility of an in-service distribution. An in-service distribution is a distribution out of your company’s retirement plan while still employed. You must be 59 ½ years old in order to take an in-service distribution and your employer’s plan must allow for this type of the distribution. This allows you to continue working and contributing to your employer’s plan, while giving you potentially more investment options in an account set up outside the plan. If your distribution is rolled over into an individual retirement account, the distribution will not be subject to income tax. The in-service distribution can also be available from school (403b), hospital (403b) and government retirement plans (457).     There are advantages and disadvantages for this type of the distribution. You should discuss the possibilities of an in-service distribution with all of your professional advisors. The advantages are:     • Diversification: By rolling the distribution into an individual retirement account you have a very wide range of options for investment. For those clients wishing to limit exposure to the stock market and to bonds this could be quite beneficial.     • Control: As the IRA owner you can determine which investments to include and the timing of making investments, which can be restricted inside of an employer retirement account.     • Beneficiary Options: The options available for non-spouse beneficiaries of an IRA are typically much more liberal than the options available to a non-spouse beneficiary inside of an employer retirement plan.     • Professional management: It is normally much easier to find a professional money manager for individual retirement account. The limited options available inside of an employer plan makes it more difficult for a professional manager to provide adequate diversification.     The disadvantages of an in-service distribution are:     • Age limitation: You must be 59 ½ years old in order to take an in-service distribution and not be subject to a 10% penalty by the Internal Revenue Service.     • Creditor protection: Employer retirement plans may have more protection than an individual retirement account for claims by your creditors.     • Investment expenses: Your employer’s plan may have lower investment costs than your individual retirement account. Over a number of years any difference in the investment expenses can become a material factor for you to consider.     • Loans: Some employer plans allow for loans from your account balance. You cannot take a loan from an individual retirement account.     An in-service rollover from your employer’s retirement plan into an individual retirement account can be a useful option in the right circumstances. You do want to consult with your tax and investment professionals prior to taking any distribution from your retirement account. It might not be the fit for your scenario and if it is not done properly, an in-service distribution can become a taxable transaction.     If you are considering rolling over money from an employer-sponsored plan, such as a 401(k) or 403(b), you may have the option of leaving the money in the current employer-sponsored plan or moving it into a new employer-sponsored plan. Benefits of leaving money in an employer-sponsored plan may include access to lower-cost institutional class shares; access to investment planning tools and other educational materials; the potential for penalty-free withdrawals starting at age 55; broader protection from creditors and legal judgments; and the ability to postpone required minimum distributions beyond age 70½, under certain circumstances. If your employer-sponsored plan account holds significantly appreciated employer stock, you should carefully consider the negative tax implications of transferring the stock to an IRA against the risk of being overly concentrated in employer stock. You should also understand that Commonwealth and your financial advisor may earn commissions or advisory fees as a result of a rollover that may not otherwise be earned if you leave your plan assets in your old or a new employer-sponsored plan and that there may be account transfer, opening, and/or closing fees associated with a rollover. This list of considerations is not exhaustive. Your decision whether or not to roll over your assets from an employer-sponsored plan into an IRA should be discussed with your financial advisor and your tax professional.     If a Commonwealth advisor provides investment advice to the plan sponsor (or to plan participants) for your retirement plan, the advisor may only describe your ability to withdraw funds from your retirement plan; to roll those funds over into an IRA, including an IRA not affiliated with Commonwealth; and to educate you concerning rollovers in general. The advisor may not recommend, but may educate you concerning, an IRA affiliated with Commonwealth because the fees or commissions generated from the rollover assets would create a conflict of interest for the advisor.     Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.
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Timeline of Events for Greek Bailout

June 4: Greece asks IMF to postpone installment due until end of month   June 28: Parliament approves a referendum, Greek banks remain closed for a while. Imposition of capital controls (60 euro withdrawal limit)   June 30: Greece misses payment on IMF loan   July 5: Greek referendum– First held since 1974, resulted in bailout conditions being rejected   July 11: Greek parliament approves the government proposal about bailout plan   July 13: Greece and Europeans creditors strike a deal for 86 billion euro bailout over three years, must be approved by parliaments of all EU member states.   July 16: Greek parliament approves the first round of measures by creditors- Includes changes to pensions and taxes.   July 20: Greek banks reopen, but capital controls remain   July 23: Greek parliament approves the second set of bailout measures.   August 3: Greek Stock Exchange reopened and fell more than 16%, bank stocks lost an average of 30% in a single trading day.
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Have you planned for your Digital Assets?

In estate planning we traditionally have counseled our clients on how to protect and safeguard their assets. When we say assets, most people think of hard assets, such as real estate, retirement accounts, life insurance, investments, bank accounts, jewelry, collectibles, etc. With the cloud and internet playing a big role in our everyday lives, there is another form of asset that you need to consider when planning.   I had the opportunity to sit down with Steve Robinson, a founding partner at Robinson Wolenty & Yong, LLP to discuss some major changes and best practices for estate planning in a digital age. A practicing lawyer for 35 years, Steve concentrates his practice in estate planning, probate, business planning and real estate matters.   What are digital assets?   They are best understood in three different categories: social media, entertainment and financial accounts.   Social Media: Emails, Text, Twitter, Facebook, Snapchat, Instagram, etc. Entertainment: Amazon, Ebay, Netflix, Hulu, iTunes, Pandora, Spotify. Financial: Credit cards, mortgage/rent payments, car, utilities, cable.   Why are they important?   These different digital assets are all accessed through online accounts. In order to access your accounts you have to use a unique username and password combination, “soft assets.” I am not saying anything that’s ground breaking or new but I hope you can see where this is heading.   Let’s paint a scenario- You do not receive paper statements from your investment account, everything is sent electronically to your computer which is password protected. You pass away and no one knows about this account nor the password. How does your family find out about the hard asset? They could hire a forensic computer specialist to determine the password, but this can be expensive and time consuming.   Some of us maintain a record of our password(s), but how many of us actually share where it could be located by someone you trust? In addition, most social media companies will not allow access to customer files without knowledge of the password, which means obtaining a court order to access the account. Many people have family pictures and personal information on these outlets that would cause unnecessary hardships on their family if they couldn’t be easily accessed.   How do you plan for Soft Assets?   We currently use a digital asset estate information form that assists our clients in categorizing and maintaining their soft asset information. This is basically a soft asset inventory, which would include usernames, security questions and passwords. It helps sort one’s email accounts, domain names, banking, investments, tax information, insurance, credit cards, social and digital media accounts. There are several software programs you can purchase to manage your passwords such as:   • Robo-Form • Last Pass • 1Password   However, you still need a password to access your phone and the password manager. All of your estate planning documents should be located in one place, a fireproof safe or lock box work well. These documents should include updated wills, trusts, powers of attorney, and medical powers of attorney. The person responsible for handling your estate administration should know where this information is stored.   Midwest Wealth Management, Inc. does not provide legal/tax/estate planning advice. You should consult a legal or tax professional regarding your individual situation.
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The costs of owning a mutual fund

Advertisements by financial firms and the opinions expressed by pundits in the financial press are raising concerns about the fees you pay when investing. The conversation should not stop at how much you are paying your advisor or a fees to discount brokerage firm.  As a sophisticated investor, you know there are many important factors that should be considered when selecting any investment. That said, I will be focusing on the real costs of owning mutual funds, costs that that may not be readily apparent. These costs can be significant and could seriously impact your results.   

Mutual funds can be purchased by paying a commission to your broker or by paying an ongoing fee to your advisor. The amount of commission you pay is based upon the total value of the purchase within the same fund family. There are different breakpoints for paying a reduced commission and no load mutual funds which you may purchase without a commission, however additional deferred sales charges may apply. A fee-based financial advisor does not charge a commission, but you will pay an annual fee that can typically range between .5% and 2%. There are firms that specialize in managing portfolios of mutual funds as sub advisors and these sub advisors typically charge between .5% and 1%. If your advisor hires a sub advisor to actually manage your mutual fund portfolio, the overall combined fee could be 1% to 3% per year. 


Once you have a portfolio of mutual funds, you need to understand the cost of continuing to own them.  Most people are aware of mutual fund operating expenses, which include management fees, marketing costs and distribution costs. According to MorningStar, the average mutual fund charges 1.25% for operating expenses. What is not included in that number is the transaction costs that occur within a mutual fund.  According to a study by Roger Edelen, a finance professor at the University of California, Davis, the average fund has trading costs of 1.44% per year. Mutual fund companies have objected to separately reporting transaction costs due to the complexity and financial burden of calculating these costs. Since the costs are not reported, it makes comparison of transaction costs impossible when comparing funds.


Income taxes can also add to the unexpected costs of owning mutual funds. Over the last 18 months the stock market has had significant gains and for the owners of mutual funds held outside of retirement accounts the sale of appreciated stocks by the fund manager can create taxable income. If the manager sells previously appreciated stock, you can be taxed on the gain even though you did not own the mutual fund during the period that the stock appreciated. For Hamilton County, Indiana residents the maximum tax rate on capital gains is 28.2% and the maximum tax rate on short-term capital gains is 47.8%. You or your advisor can usually find out the amount of embedded gains by contacting the mutual fund company. It can be a very unpleasant surprise to have to pay income tax when the value of your mutual funds may not have changed since the date of your purchase.


Mutual funds do have a definite place for investors. They can allow investors with smaller amounts of capital to gain proper diversification and exposure to professional management. They have also been greatly utilized by investors who do not want or have the skillset to pick individual securities in their portfolio. Every investor deserves to have full transparency that allows them to make the best informed decisions for their future and goals. The fee structure associated with cost of owning investments and receiving professional advice should be no different.


Investments involve risk including possible risk of principal invested.  There is no guarantee that a diversified portfolio will enhance overall returns or outperform a no-diversified portfolio.  Diversification does not ensure against market risk. Neither Commonwealth nor Midwest Wealth Management offer tax or legal advice. 

Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.

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