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Joe Lucey

Innovations in the Baby Boomer Tech Market

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Today, technology companies boast a rapid-fire pipeline of new innovations designed to help consumers in the home environment. While many are designed to help elderly people around the house, in some cases, it’s boomers who buy, install and help monitor those devices for their retired parents.

The baby boomer generation is the fastest-growing segment of technology consumers. Various technology applications have made it easier for them to juggle family and career responsibilities while also keeping track of elderly parents. It’s a good thing, then, that boomers control 70 percent of disposable income spending decisions and, collectively, are expected to inherit more than $15 trillion over the next 20 years.

Boomers also will be the first generation to fully benefit from high-tech age-at-home innovations. These range from home stair lifts to wearable fitness devices that transmit data directly to their electronic health records to GPS-based devices to track when the dog escapes the backyard. While the downsides of aging are often emphasized, technological advances have the potential to provide more conveniences for boomers going forward.

What Is Evidence-Based Investing?

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The evidence-based approach originated in the medical field to promote the use of clinical experience and the best available research to make decisions about individual patient care.

In the investing world, this translates to a goal of using current evidence to help maximize an individual’s investment returns while minimizing risk from market downturns. In more simplistic terms, evidence-based investing (EBI) means that whatever you decide to do, make sure you have an evidence-based reason for doing it, and always be prepared to amend your plan when the evidence necessitates a change.

While we’re happy to explain to our clients various investing and wealth management approaches, including EBI, please keep in mind that our advice is tailored to each person’s needs. What works for one client may not work as well for another. We’d love to talk with you about our individual approach to investing – give us a call, and we’ll be happy to set up an appointment.

Financial professionals who use evidence-based investing typically take a four-step decision-making process:

  1. Eliminate meaningless questions.
  2. Ask meaningful questions.
  3. Apply the evidence.
  4. Monitor for effectiveness.

Another significant distinction about EBI is that it is commonly misinterpreted as passive investing. However, EBI is not so much about active versus passive management but rather is about keeping an eye on how much you pay for each investment and determining if what you’ve gotten in return is worth the price.

Please remember that investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Keeping Connected With the Ever-Changing Internet

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If you’ve watched national news in the past year or two, you’ve likely heard debates about net neutrality, which is the principle that internet providers should allow access to content regardless of the source and without blocking certain sites.

In the waning days of the Obama administration, the Federal Communications Commission passed a rule preventing providers such as Comcast and AT&T to monitor each person’s internet browsing history and sell that information to other marketers without their expressed permission. Under the Trump administration, Congress has since reversed that ruling.

This debate is important for both internet users and companies for vastly different reasons. Regardless of the direction this issue takes moving forward, the internet will continue to be an influence in the way we obtain and share information in the future.

As a result, privacy and security concerns are critical, especially with regard to our financial accounts and transactions. The ransomware attack “WannaCryptor,” which affected Great Britain and other countries in May, was an unpleasant reminder of how important it is to keep software programs current by installing updates as they are made available.

As financial professionals, our priority is keeping a close eye on your finances to help ensure you’re utilizing the optimal products and strategies to work toward your goals. Now more than ever, this requires monitoring the latest technology, because as the world changes, your needs may change with it.

One shift in the tech world is the continued emergence of the Internet of Things (IoT). Companies are projected to spend upward of $5 trillion on the IoT during the next five years. These “things” include a wide range of products and services, from “dashboards” – which are information displays that enable users to conduct a multitude of internet transactions via one control center – to “remotes” such as smartphones and connected TVs.

An interesting component of the IoT is that the more applications are developed, the more vulnerability users are exposed to for security risks. From the perspective of a user, whether that’s an individual or a company deploying an enterprise-wide software program, this may pose a financial threat.

However, from an investor’s perspective, the IoT offers a wide variety of opportunities, such as companies that develop sophisticated internet software and others that specialize in IoT safeguard technology.

Savings and Investment Updates

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The American College of Financial Services recently posted some surprising results from its Retirement Income Literacy Quiz. Nearly three-quarters of respondents ages 60 to 75 failed the test with a score of 60 percent or less.

The quiz included topics such as which expenses are covered by Medicare and long-term care insurance and what age people should start drawing benefits from Social Security. If you’re not familiar with the answers to questions such as these, we invite you to schedule a consultation so we can help you delve into retirement planning. There are many factors to consider beyond where to invest and how much you’ve saved. Retirement is about preserving and distributing assets, as well as understanding the impact of longevity.

Let’s take a look at some other retirement-oriented questions that are important to answer. For example, do you know how long you have to work for your company before you can keep matched contributions to your 401(k) plan? Some companies that sponsor a 401(k) require employees to work around two to three years before employer-matching contributions are vested. If you leave the company before then, those matches won’t be added to your account balance — even if you maintain the plan with that employer after you go to work for another one.

It’s worth noting that 401(k) and other employer-sponsored retirement plans may be considered for tax reform. Recent discussions have included eliminating the tax-deferred status of retirement plan contributions, which represent a four-year tab of $583.6 billion that Congress could spend elsewhere. The discussions are in the very early stages, but things can happen quickly in Washington these days, so it’s an issue worth watching.

For those in the military, on Jan. 1, 2018, the military’s new Blended Retirement System goes into effect. Starting that day, all military personnel whose length of service spans one to 12 years will have one year to make an irrevocable choice between the old and new retirement plans. Service members who started before 2006 will automatically remain in the old plan, which offers a generous pension complete with inflation adjustments. However, anyone joining the military starting next year gets enrolled automatically in the new program, which combines reduced pension benefits with up to a 5 percent match of personal contributions to the government’s Thrift Savings Plan (TSP).

If you haven’t saved enough money to retire yet, you may be thinking you’ll just keep working until you have enough. However, according to a recent survey of 1,002 retirees, 60 percent said the timing of their retirement was unexpected, citing reasons such as health issues, job loss or the need to care for a loved one. While working longer is a worthy goal, it’s good to develop a financial plan that helps provide for possible contingencies just in case you have to pivot to “Plan B.”

Taxes and Retirement Planning

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The White House recently introduced what it billed the “biggest tax cut” in U.S. history. While a presidential tax proposal is not likely to get passed without significant changes, the fact that Republicans dominate both chambers of Congress suggests 2017 may well be a year in which significant tax reform is engineered.

One thing should be perfectly clear: The U.S. tax code is highly complicated. There may not be anyone who understands it all off the top of their head. CPAs and tax professionals must conduct thorough due diligence to tailor strategies and complete returns for taxpayers with complex situations.

Because of this, we recommend our clients who require tax advice work directly with an experienced and qualified tax professional. However, we also believe financial and tax professionals should not work in a vacuum, and therefore are more than happy to work in concert with our clients’ tax advisors to help align their financial strategy with their tax situation.

This is particularly important when it comes to retirement planning, because you want to save as much as possible before you retire, which may include tax-deferred financial vehicles such as a 401(k) or IRA, but you don’t want to get hit with a big tax bill on untaxed earnings once you’re in retirement. This is a delicate balance that requires experience and collaboration from both a financial professional and a tax professional.

One tax issue each of us deals with is the federal income tax rate. Our annual earnings determine which federal tax bracket we land in, but that tax bracket isn’t the tax rate applied to our entire income. Instead, we pay every tax rate on income blocks up to our individual bracket. Like many things about filing taxes, this can be highly confusing for many people.

It may be easier to understand this through a hypothetical example. Let’s say Joe, who is single, had $92,000 of taxable income in 2016, which landed him in the 28 percent tax bracket. This is how his total tax is calculated:

  • He pays 10% on the first $9,275 (tax of $927.50)
  • He pays 15% on the next $28,375 (tax of $4,256.25)
  • He pays 25% on the next $53,500 (tax of $13,375)
  • He pays 28% on the final $850 (tax of $238)
    • Total tax bill of $18,796.75

As you can see, Joe doesn’t pay 28 percent on the full amount of his taxable income; his taxable amount progresses through each income bracket and their respective tax rates until it reaches his total taxable income for the year. Therefore, a person who falls in the highest tax bracket is only paying that higher tax rate on a portion of his or her income.

This is an important distinction to remember as the U.S. works toward tax reform. On one hand, reducing the number of tax rates from seven to three (Trump’s proposal: 10 percent, 25 percent, 35 percent) looks to simplify tax filings, but for many people, this could mean paying a higher tax rate on larger blocks of income. Let’s take the hypothetical example of Joe again, using the same income brackets (to date, no tax rate income brackets have been proposed). Here’s how Joe’s scenario might break down:

  • He pays 10% on the first $9,275 (tax of $927.50)
  • He pays 25% on the next $81,875 (tax of $20,468.75)
  • He pays 35% on the final $850 (tax of $297.50)
    • Total tax bill of $21,693.75

This example simply illustrates how a progressive income tax works. Obviously, it doesn’t take into consideration credits and deductions, which vary substantially among taxpayers. Nor does it include payroll taxes.

Federal income brackets and their respective tax rates are the most fundamental issues Americans are subject to when filing taxes. But as you can see, there’s nothing straightforward about them. This is worth remembering as tax reforms continue to be proposed and debated moving forward: Nothing concerning taxes is simple, and there are usually layers that impact us that the average layperson isn’t likely to see.

 

The content provided here is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice.  Contact us at info@securedretirements.com or call us at (952) 460­-3260 to schedule a time to discuss your financial situation and the potential role of investments in your financial strategy.

Navigating the Guidelines of Gifting

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Many people who have met with a financial professional and estate planning attorney have a well-thought-out plan in place to transfer assets to their beneficiaries upon their death. That’s a critical part of long-term planning, but what if you’d like to give your loved ones money now, while you’re still here to see them use and enjoy it? Or what if your children need financial help in some way and you’re in a position to help them out? Can you gift them the money they need without creating a tax liability for them?

The answer is yes, you can – but you need to pay attention to certain guidelines. You should also speak with a qualified tax professional about your unique situation. The IRS considers a “gift” to be any money freely given to an individual, without something given in return. This can be in the form of cash, stocks or other assets you may transfer to someone else.

For tax year 2017, the IRS allows you to gift $14,000 each year to a designated individual without triggering a taxable event. However, that $14,000 amount applies to each spouse, which means couples can gift $28,000 total to the same individual during the year.

Something else to keep in mind: This $14,000 limit applies to an individual recipient, not a couple. For example, John wants to give money to his son, who is married. John and his spouse can gift a total of $28,000 to their son. They can also gift an additional $28,000 to his son’s spouse, making their total gift to the couple $56,000 without having to pay taxes. It’s important to note that a Form 709 may be required to be filed when money is gifted, even if the donation isn’t a taxable event.

There are a few exceptions to the $14,000 gift limit. Gifts to your spouse are not included in this rule. Additionally, there are specific exclusions where you may be able to go over the $14,000 threshold. For example, if the money is used to pay for someone’s qualifying educational or medical expenses. Donations to a political organization are also excluded for those who want to support a favorite candidate.

How Gifts May Affect an Estate

Another factor to consider before gifting money to a loved one is how it could affect taxes on your estate upon your death.

Most Americans will not be subject to federal estate taxes. For tax year 2017, individuals can leave $5.49 million to beneficiaries without incurring the estate tax. Combined, the threshold for a couple is $10.98 million.

Donors are taxed on any money gifted above $14,000, and the overage is deducted from the donor’s $5.49 million exclusion limit. For example, John gifts his daughter, Pam, $25,000. John pays taxes on $11,000, the difference between the total and the limit of $14,000. Additionally, John now has a $5.38 million exclusion limit.

While these limits are consistent on the federal level, individual states may impose different estate tax limits. A financial professional alongside a qualified attorney and tax professional can help navigate the ins and outs of estate taxes in order to devise a strategy that helps maximize the amount of money that can be passed on to beneficiaries.

Options for Gifting to Minors

Here are three possible ways to make a one-time or recurring gift to individuals who are under the age of 18:

  1. Open a custodial account. The Uniform Transfer to Minors Act (UTMA) or the Uniform Gifts to Minors Act (UGMA) allow for an account to be opened on behalf of a minor. An adult “custodian” must be appointed for this account – someone to act on behalf of the minor until he or she is of age. The custodian can be you, your spouse, the minor’s parent or guardian, or someone you trust.
  1. Fund their education. A 529 plan is a great tool for helping out for college or other post-secondary training. One feature of the 529 plan: while the $14,000 gift limit still applies, five years of contributions can be made at one time with no taxable event. That means you could write a check for $70,000 to a 529 plan at one time – and your spouse could do the same. Distributions are made tax-free, as long as the funds are used for qualified educational purposes.
  1. Consider a Roth IRA. If the minor is working a part-time job, he or she can qualify for a Roth IRA. Keep in mind, however, that you’re limited to contributing only as much as the minor makes in income (up to $5,500). So if your grandchild makes $3,000 during the year, you can contribute $3,000 to the Roth IRA. One added benefit: your grandchild will enjoy tax-free withdrawals later.

If you’re considering making a gift to someone, you should consult with a qualified tax professional who can help you navigate the pros and cons of gifting.

 

The content provided here is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice.  Contact us at info@securedretirements.com or call us at (952) 460­-3260 to schedule a time to discuss your financial situation and the potential role of investments in your financial strategy.