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Have you thought about selling your home recently? Or perhaps selling your vacation home or rental home to capitalize on this buying frenzy?

Real estate, specifically the purchase and sale of homes, has been a hot topic in recent years. Home prices have increased exponentially creating huge opportunities for sellers. But have you thought about the tax consequences of that sale? Or what options you may have to defer taxes or possibly avoid taxes altogether? 

Your tax liability depends on the purpose of the home and how long you have held the property. When you sell a home or property for more than you paid for it, you may owe capital gains tax. If you held the home for more than a year, you could owe long-term capital gains tax on the difference between the purchase price and selling price. Long-term capital gains tax rates are either 0%, 15% or 20%, depending upon your income. If you sold the home less than a year after purchasing, you could be subject to short-term capital gains tax. Short term capital gains are taxed at ordinary income tax rates, which could be much more than long-term cap gains rates depending on your income and profit from the sale.

However, there are some exceptions and exclusions to consider before you prepare to pay your dreaded tax bill…

  • Primary Residence Exclusion

If you are selling your primary residence, the IRS allows you an exclusion for capital gains tax called the “Primary Residence Exclusion.” You may exclude up to $250k of profits if single, or $500k if married filing jointly. To qualify, you must have lived in the home for at least two out of the previous five years.

Note: The IRS says you’re not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale. There are some exceptions to this rule, and you may still qualify or partially qualify if you had a change in employment, change in your health, or experienced other unforeseen circumstances.

*A common strategy for rental home owners is to use the property as their primary residence for at least 2 years so they can qualify for this exclusion.

  • 1031 Exchange

A 1031 exchange, also known as “like kind exchange,” allows you to defer taxes by selling your property and then buying a similar property. To do this correctly, the properties must be “like-kind” and you should use a qualified intermediary (in other words, do not take control of the cash before the exchange is complete or the entire transaction could be disqualified.) You must report this to the IRS on Form 8824.

  • Opportunity Zone Funds

Opportunity zones were created under the Tax Cuts and Jobs Act of 2017. The idea was to spur economic growth in low income communities and offer a tax benefit to those investing in these areas. Within 180 days of the sale, an individual may roll their gains into an opportunity zone fund, and defer the taxes until 12/31/2026. If you hold the investment for more than 10 years, any appreciation earned on the opportunity zone fund will be tax free. For investments made before 12/31/2021, an investor can get a 10% step up in basis for holding the fund at least five years.

  • Donor Advised Funds

If you are making substantial donations to charity, it could make sense to donate the property to a Donor Advised Fund and receive a deduction up to its fair market value. The limit for non-cash assets held more than a year is 30% of your AGI, but there is a carryover for five years if the deduction exceeds these limits.

All of that being said, please remember to not let the tax tail wag the dog. Taxes should be considered, but not at the expense of all else. Speak with both your financial advisor and accountant to weigh your options and determine the best strategy for your personal situation.

 

Sources and Articles:

All of us, no matter what our income or financial status, are subject to being a victim of financial fraud and other scams.  Both the number of these scams and their sophistication means that we should all be vigilant and protective of our personal information.  According to the credit card bureau Experian, 1 in 20 Americans are the victim of identity theft or related financial fraud every year, with a cost of approximately $17 billion. But the good news is that we can all take some steps to protect ourselves from these frauds and scams.

The most common type of fraud is the unauthorized use of credit or debit cards, where your card or account number is used to make unauthorized purchases.  This is followed by account takeovers, where someone attempts to take over your investment account, bank account, or credit card account, preventing you from accessing it and taking money or making unauthorized purchases from it.  The opening of new accounts or loans is yet another type of fraud.  This is where a new account or loan in your name is opened, and when spent or drained of funds, the resulting default gets charged to you.  Types of accounts opened often include credit cards, bank loans, car loans or leases, or utility or phone accounts.  Finally, governmental, tax, or employment fraud is used to generate identification in your name, apply for tax refunds in your name, or receive other government benefits in your name.  This type of fraud exploded during the Covid pandemic, when many people found that their identity had been used to apply for unemployment benefits or other covid related benefits.

The most important thing that you can do is to put a ‘lock’ or ‘freeze’ on your credit.  This will prevent unauthorized individuals from opening an account in your name, or using your credit or information to open an account in their name. While it is a bit time consuming to do, this is one of the best things that you can do to protect yourself from fraud, so the small investment in time is really worth it.  You can fill out a freeze online with the three major credit bureaus, by phone, or by mail.  The easiest way is online, where you can go to the websites of all three bureaus, answer a number of questions to verify your identity, and where you will be given passwords and pins.  KEEP THOSE PASSWORDS AND PINS in a safe place, for if you ever need to temporarily unfreeze your accounts (for example, to apply for a loan, open a new credit card or bank account, or the like) having ready access to those passwords and pins will make the unfreezing process a lot swifter.  You can also call each of the credit bureaus and do a phone version of the online forms.  Finally, you can do the request by mail, but this is by far the most cumbersome method, as the amount of documents that need to be mailed in, and the time to review them, makes this a last resort choice for most people.  You can usually request a free copy of your credit report at the same time, which is another great way to monitor open accounts and check for discrepancies.

The next best thing that you can do to protect yourself is to carefully monitor your account activity.  Most credit and debit cards have an option where you can be texted or emailed any time your account is used to make a purchase.  Be sure to enable this feature for all of your credit and bank/financial accounts.  By noticing any unauthorized transactions early, you can prevent further fraud, as well quickly notify your financial institution for reimbursement.

You should also pick unique, complex passwords, and regularly change passwords for important services, such as email, bank and financial accounts, and credit card accounts.  And be sure to choose different passwords for your email accounts and financial accounts!  If your email password is hacked and it’s the same password that you use for your bank or financial accounts, you’re putting yourself at needless risk.  Many people find it best to use a Password Manager.  This is a program that will generate and maintain unique, complex passwords for most of your online accounts.  While some charge a small annual or monthly fee, there are a number of free program that you can use as well.  PCMag has listed some of the better ones here https://www.pcmag.com/picks/the-best-password-managers.

Also, always authorize two-factor authentication (sometimes known as multi-factor authentication) when available.  Most all email services, financial companies, and bank offer this (in fact, many require use of two-factor authentication).  This is where you are only permitted access after entering your correct username and password, as well as entering a unique, ever changing password or pin that is sent to a phone or email account.  This way, even if someone does gain access to your username and password, without access to the device or account to which that second password or pin is sent, they would not be able to access that account information.

Lastly, always be mindful of where and how you are accessing your personal information.  Utilize secure online connections every time you check private accounts, and use a Virtual Private Network (VPN) when you can.  Never check your private accounts or financial accounts from an unsecure network connection – hotels, airports, and other ‘open’ networks are not the time and place to be accessing such sensitive information.  Wait until you are back at your home or office or elsewhere where you can be assured of a secure connection.

And one more thing – don’t forget paper documents!  Credit card offers, mailed statements, mailed bills that include account numbers, tax returns, and the like should always be disposed of properly.  If you have not done so already, purchase a cheap paper shredder and use it to securely shred all such paper documents.

By following the above advice, you can dramatically increase the chances that your private, personal financial information will remain secure from criminal activity.  And while some of the above steps do require a bit of a learning curve or time commitment to set up, it is time well invested – for your peace of mind and for the safety and security of you and your family!

 

Source: https://www.experian.com/blogs/ask-experian/how-common-is-identity-theft/

Are you wondering if you are on track for a solid financial future? A financial plan will answer that question and more. After all, wouldn’t you want to secure your tomorrow while living well today?

Who is a candidate for a financial plan?

Success is getting what you want by having a clearly defined path to get there or lowering your expectations. In my experience, highly successful people have different needs for financial planning. Though they have the resources, they are often time-constrained and neglect the upfront commitment planning required to fix financial disorganization and properly identify goals (not to mention go through the process of finding a trusted professional to work with). However, the need for a trusted financial professional should be a top priority for highly successful individuals.

To be more specific, if you have a goal that sounds like some of the examples below, then you are a candidate for a financial plan.

  • I want to maintain (or improve) my current lifestyle in retirement
  • I want to retire early so I can travel
  • I want to sell my primary home and move to a home (or condo) in a different state
  • I want to fund my grandkids’ college education
  • I want to donate significant assets each year to a specific charity
  • I want to take my family on a week-long vacation every other year for the next ten years
  • I want to make sure each of my kids ends up with no debt and $1mm in assets
  • I want to protect against health care costs consuming my wealth

What is in a financial plan?

A basic financial plan consists of an inventory of assets and liabilities (net worth), clearly defined (short-term and long-term) goals, and the ability to track progress towards reaching those goals. 

With my clients, I use a financial plan to assist in making the best possible decisions with them (and their other trusted advisors) – on taxes, saving, spending, health care, debts, philanthropy, insurance, gifting, and inheritance. By addressing all aspects of your financial lifestyle, you’ll be better equipped to determine what needs to change and how to improve your financial situation.

Why have a financial plan?

In the simplest form, you need a financial plan to check your progress in reaching goals and objectives. Notice I didn’t say “financial goals.” Everyone wants to make and have more money, and while it certainly helps provide more options, it is not the goal. You need a financial plan to reach your life goals; money is just the tool, and your plan will connect the two. In addition, working with a financial planning professional will give you the ability to see how minor changes you make to your life can drastically influence your future. 

A plan can answer what happens if you retire earlier (or later), spend more (or less), and how different market/economic environments would impact your situation. It’s there to keep you focused on the important things when the road gets bumpy, which it most certainly will.

Living life without a plan is like trying to get to a destination without a map. For those of you who haven’t, I recommend making the commitment and seeking out a professional to get your financial plan started today. 

Many successful people share a few common interests, a couple of which are community and giving back to causes and/or organizations they are passionate about. In many cases, successful people are giving back, participating in, and contributing financially to multiple charities. Contrary to popular media, most successful higher income people are paying their fair share in income taxes, often much more with the limited tax deductions many individuals have today.

Donor Advised Funds, or DAF’s for short, are a simple but powerful tool that can enhance the charitable giving you may already be doing or are considering doing. The primary purpose of a DAF is to allow someone to donate assets to a charity today, receive a tax deduction NOW, even though the actual funds may not be granted to the actual charities until some point in the future. Put another way, the donor advised fund essentially functions as a conduit, where the donor receives a tax deduction when the money or asset goes into the DAF, but has discretion about when the assets will finally leave the DAF and actually go to the charity. In the meantime, the assets in the fund can be invested, managed, and grow tax free.

Given the separation of the timing of the contribution and tax deduction from the actual donation to the charity, an often used strategy is to make a contribution to the Donor Advised Fund in a high-income year and then use the DAF to make subsequent distributions to the charities themselves. Also consider tax law changes in 2018 limiting a $10,000 limit on state, local, and property tax deduction, along with a much higher standard deduction for federal income tax purposes. As a result, many people are now stuck with taking the standard deduction rather than itemizing and, therefore, have lost their ability to take a tax deduction for annual charitable contributions. A Donor Advised Fund may allow lumping together a few years of normal annual charitable contributions and that much higher single-year contribution can bring back the ability to itemize in the year the contribution is actually made. 

It’s also important to recognize another key benefit of a DAF is the ability to donate appreciated investments of many types (e.g., stocks, mutual funds, ETF’s, real estate or even company stock) that are eligible for a charitable deduction at fair market value. By doing so, the donor avoids paying any capital gain tax on the appreciation. With the potential for growth within the DAF, the donor not only avoids any capital gain tax on the appreciation of the asset contributed, but also on any future growth prior to distribution to the actual charities. It’s also important to note that contributions to a DAF are irrevocable. The important thing to remember in all donor advised fund strategies is that once funds go to the donor advised fund, they must go to a charity, and cannot be retracted for the donor!

There are certain limits to amounts that may be contributed. Depending on the circumstances, an individual donor’s charitable contributions may be deducted up to an aggregate cap of 60% of the donor’s adjusted gross income computed without any net operating loss carryback. Lower caps apply to certain non-cash assets and certain types of charitable recipients. For example, when appreciated securities are held for more than a year are donated, the donor avoids the capital gain tax but the contribution is then limited to 30% of the donor’s AGI. One way to avoid the lower contribution level is to deduct the appreciated asset at its cost basis rather than fair market value.

IRA Assets are treated differently where individual retirement account (IRA) allows individuals age 70-½ or older to transfer up to $100,000 annually from an IRA to eligible charities on a tax-free basis. The distribution is excluded from income, but it counts toward the account owner’s required minimum distribution. Because an IRA charitable rollover is not included in income, there is no charitable deduction, making this treatment especially appealing to the non-itemizer. Unfortunately, this treatment is not available if the IRA distribution is contributed to a donor-advised fund or a private non-operating foundation; instead, the donor will recognize the distribution in income and have to take a charitable deduction, assuming he or she itemizes.

Another benefit of a DAF is that you don’t have to keep track of every charitable contribution for every charity you support, which can be an issue at tax time each year. With a DAF, you only need the receipt from your initial donor advised fund contribution. When you’re ready to give money to the actual charitable organization(s), you can simply log into your account and make grants to any 501(c)(3) organization. In addition to making one time grants, you can also set up up recurring grants to any of your favorite causes or organizations

There are many other strategies that may be employed and each is really up to the personal objectives of our individual clients. It’s also important to remember that both during life and after a DAF, can be a powerful way to engage the next generation in charitable giving as a core value. Clients have used their DAF to create a teaching moment that reiterates wealth accumulation is not only about personal and family well-being, but in giving back to make a difference in our communities and the lives of others.

 

Please reach out to us with any questions about Donor Advised Funds.

For more information on charitable giving, check out our post about how to make charitable giving and required minimum distributions work for you.

SBC does not provide tax advice, so please be sure to consult with your CPA or tax professional.

If you are over the age of 70 ½ and give to charitable organizations, get the most out of your charitable giving at tax time.

A Brief History Charitable Giving and Tax Laws

In 2018, the Tax Cuts and Jobs Act of 2018 made it less advantageous for taxpayers to itemize deductions. Although deductions on top of standard deductions were allowed, the amount was limited. Many people deprioritized charitable giving as a tax strategy. However, recent changes to the tax law may have you rethinking your approach.

For the 2021 tax year, if you take the standard deduction, you can deduct an additional $300 as a single filer and $600 for married filing jointly filers for contributions to a qualifying charity. The most recent tax law changes for 2022 have eliminated this additional deduction in its entirety.

Current Charitable Giving Tax Opportunities

If you are at least age 70 ½, you can give through a Qualified Charitable Distribution*or a QCD. A QCD is a withdrawal from an individual retirement account (or IRA) made to a qualifying charity. Because IRA dollars have not been taxed yet, the amount taken out will be taxable as income when you make a withdrawal. However, if you take a withdrawal as a QCD, it is excludable from income.

Here’s what that means as a simplified example. If you pay 30% to federal taxes, it will cost you $100 to give directly from your IRA. If you give that $100 in cash, it will cost you $142.85 ($100 in taxes + $42.85 in taxes).

Required Minimum Distributions and Taxes

Required minimum distributions, or RMD, also play a role in determining your tax strategy. When you reach age 72, you are required by the IRS to take RMDs from your IRA. Remember that dollars in your IRA haven’t been taxed. Once you start taking RMDs, you will be required to pay taxes as ordinary income, even if you don’t need the money.

Charitable Giving + Required Minimum Distributions

It’s essential to start with an understanding of the tax implications of QCDs and RMDs, so you can plan your tax strategy. If you already make charitable contributions, consider giving with IRA dollars. Dollars taken from your IRA as a QCD will apply toward your RMD amount for the year, reducing your taxable income.

A Few Scenarios

To better understand how QCDs can reduce your taxable RMD amount, let’s look at a few hypothetical scenarios.

  • Scenario 1: Sally takes a portion of her annual RMD as a QCD. Sally’s total RMD amount for the year is $40,000. Sally makes a $20,000 QCD for her annual giving to her alma mater. This is excludable as income. Sally has a remaining RMD of $20,000 that will be taxable as income.
  • Scenario 2: Terry takes his entire annual RMD as a QCD. Terry’s total RMD amount for the year is $50,000. Terry makes a $25,000 QCD to his church for missions fund and a $25,000  QCD to local food bank. Terry has satisfied his full RMD amount by making a QCD. His taxable income is $0 rather than $50,000.
  • Scenario 3: Becky takes her entire annual RMD as a QCD and donates an additional amount. Becky’s total RMD for the year is $25,000. Becky makes a $25,000 QCD to the local animal shelter and makes an additional QCD of $5,000 to her local art museum. Becky’s RMD taxable income is $0 rather than $25,000 , and she further reduces her IRA balance with the additional QCD of $5,000, which could potentially reduce future RMD amounts.

With ever-changing tax laws, it’s important to review your tax strategy for the year ahead every January with a trusted advisor. In Scenario 2 above, if Terry had taken his full RMD of $50,000  in January and made a QCD of $14,000 later in the year, the $14,000 wouldn’t apply to his RMD. However, it would be excludable as income. If Terry had worked with an advisor, he would have planned his giving through QCDs earlier in the year and reduced his taxable income.

Ready to start planning your tax strategy? Contact us to learn more about how we can help you make the most of tax-efficient strategies.

*For more information on Qualified Charitable Distributions, please see our FAQ’s under Financial Tools.

Are you a good steward of your finances? As a financial advisor with over three decades of experience, I’ve seen many differing views on the topic of money. But in all my years, one thing I’ve never heard is that it’s possible to save too much money for unexpected life events. 

I always say, “Money itself can’t make you happy, but it sure can go a long way toward helping.” My friend and colleague, Carson Shadowen, elaborates on this point, stating money itself can’t make you happy, yes. However, saving enough of it creates flexibility and freedom to help you feel more secure about your financial future (a feeling very reminiscent of happiness!).

Life is full of uncertainties. It’s essential to control what you can control. The better prepared you are for life’s hurdles, the better able you’re able to navigate them.

Here are a few ways to be a better steward of your money in 2022:

  1. Pay yourself first. Start saving early for the future by putting money into:
    1. An emergency fund for a rainy day, because it will rain.
    2. Your employer 401(k). At a minimum, contribute at the rate of the company match to take full advantage of “free” money. When you receive that next significant pay increase, increase your contributions.
  2. Start a save to spend account. The premise is simple—save for what you want to spend. That next big vacation? Start saving for it now instead of paying for it on credit cards with interest later.
  3. Be frugal, not cheap. Focus on the value of things, not just the cost. Especially with technology, remember that early adopters often pay the price for innovation. Consider whether or not it’s genuinely worth the cost to have all of the bells and whistles.
  4. Live within your means. Align your lifestyle with your income, so you aren’t living in the red. Your happiness shouldn’t be defined by keeping up with anyone else–your family, your friends, or the Joneses. 
  5. Find a balance between what you NEED and what you WANT. Wanting things is perfectly normal, but make sure you aren’t compromising your financial integrity to acquire all of life’s wants. 
  6. Set a budget. A budget is a great way to help you manage your money. Think of a budget as a financial blueprint. Just like you wouldn’t build a house without a blueprint, don’t leave your financial future to fate. Check out our financial organizer here.
  7. Choose charitable contributions carefully. It’s gratifying to help those who need it most, but don’t give away everything today that you may need later.
  8. Invest wisely. Low interest, low-risk accounts may not grow at the rate needed to accomplish your financial goals. Without a reasonable return on invested assets, you will need more money to achieve your goals. You work hard for your money; your money should be able to work just as hard for you.
  9. Seek the advice of a professional you trust. We always tell our clients that we want to be in the top five people they call when they experience a life event. That’s a level of trust we don’t take lightly. By staying connected to our clients, we can help them navigate life’s changes, challenges, and hurdles to keep on the path to financial success. 
  10. Define your legacy. Determine what you want your legacy to be to start preparing for it. Do you want to leave your assets to your loved ones? Do you want to help an organization or a cause that could benefit from your success? By defining your goals for tomorrow now, you can start preparing today.

Most simply put, money is a means to an end in this life. With proper management, guidance, and prudence, you can achieve a great deal of success.

Here’s wishing you a safe, healthy and happy 2022 and beyond!

Rising inflation seems to be the hot topic garnering more attention in recent months. If you turn on the news or go to any financial media source, you will see inflation headlines splashed across the front page. The media talks like it’s a brand-new phenomenon, but it is far from new.

Why does inflation exist? We use a fiat currency in our modern economy. This means our money is issued by the government and not backed by any type of physical asset or commodity, such as gold. Inflation occurs when there are more dollars chasing the same amount of goods and services. Those goods must become nominally more expensive in order to trade at the same value. We are now seeing higher inflation due to massive stimulus, or money, being injected into the economy by the Federal Reserve’s monetary policy. In our current environment, there is also a shortage of product available created by supply chain disruptions for goods in high demand. We now have more dollars in circulation due to monetary policy, chasing fewer goods and services due to supply chain issues.

People experience inflation and the cost of living differently. A young family with multiple kids will sharply notice the rise in childcare costs. A couple in their mid-70s may feel prescription drugs and other areas of healthcare are on the rise. Consumer price index, or CPI, is one measure of inflation. CPI uses the cost of a basket of goods to calculate the cost of living. The actual basket of goods needed for living can look very different depending on a person’s stage of life.

Why does this matter, especially in retirement? We have found that inflation for those in the midst of their careers can feel significantly different than those in retirement. When I ask clients near retirement if they recall their annual salary when they first joined the workforce, it often results in a chuckle. Personal progress can mask the impact of inflation during a career. People earn promotions, move up the food chain, receive cost of living raises, and ultimately have an earnings rate that outpaces inflation.

Retirement is when a person can be caught in an inflation trap. Fixed income refers to a nominal payment that does not change over time. Fixed annuities and pensions, without cost-of-living adjustments, will lose value each year inflation is positive. A retiree also needs to be confident that any pay raises taken through asset distributions are sustainable and do not jeopardize longevity.

As you near retirement, consider how your costs may change in the next several decades. Will your income and pay increases cover your costs and future goals? A robust plan and a diverse income approach can help lower the risk of losing income value during retirement. The rising inflation headlines may change, but that doesn’t mean the conversation should stop. We want our clients to be prepared for inflation regardless of the headlines.

At SBC, when we say our clients are our primary focus and the foundation for everything we do, we mean it. In my job, I get to live out delivering delightful client interactions every day. As the Director of First Impressions, I am the first point of contact our clients have with our team. It is my job to set the tone for their experience in our offices, at events, or through personalized interactions with our team. I pride myself on knowing our clients individually to make them feel special and important in every opportunity we have to connect with them. 

The client experience at SBC is unlike other firm experiences because clients are more than just people or portfolios we service—they are family. We have a saying that we want to be in your top five names of people you call when you experience life events—big or small. And we mean it. We want to celebrate, mourn, and walk through each stage of life with you. We truly care about your well-being—beyond just the financial aspect of our jobs.

What is it like being a client of SBC?

Upon stepping through the doors of SBC, you are greeted with a friendly smile and warm, family-like atmosphere to welcome you. We offer you your favorite beverage, talk about your family, pets, and/or hobbies and settle you into a conference room with fresh cookies and treats. You will get to know each of the advisors on our team to feel comfortable with everyone on staff. During a meeting with your advisor, you will be treated with respect. Our job is to create financial strategies that work for you—and we treat your financial situation as individually as we treat you as a person. The meeting is finished when you feel comfortable with everything that has been reviewed and discussed—and not a minute before. When you finish with your meeting, you will once again have the chance to interact with other members of the team and get to know the office staff. We want you to leave feeling comfortable and confident in the SBC team and the road ahead to achieve your lifestyle goals. 

Creating personalized and memorable client experiences is more than just delivering great customer service. It is about going above and beyond to not only fulfill all our clients’ needs but to also anticipate their unexpressed wishes as well. 

Having the opportunity to interact with our clients and deliver delightful experiences is a dream job for me. I love being the first point of contact and setting the stage for their experience with our team. I take very seriously my job to go above and beyond to make clients feel valued and special. I am grateful for the opportunity to be able to use my signature skills of creativity and enthusiasm to provide memorable and delightful experiences through every client interaction, and I look forward to showing you what it means to be a client of SBC.

Roughly 10 million (or 65% to 75%) of all small companies in the US will be up for sale in the next 10 years.

Whether you are selling a business or intending to sell a business because of want (wanting to retire, achieve financial independence, pass ownership to the next generation) or need (financial, physical, mental), you are going through a process, not a singular event. In my experience, people tend to focus more on the present and have a hard time planning for the future, which is only human nature, but we need to remember the advice of famous author and educator Stephen Covey, “We need to begin with the end in mind.” 

By asking yourself some very important questions, you can make this process a little less daunting and better align your emotions and finances with the end goal in mind

Emotional Aspect of Succession Planning

The word “result” is often associated with a financial transaction, but I’m here to remind you about the other important transaction that’s involved with selling a business, which is the emotional aspect of planning for life after your business. 

You need to be mentally and emotionally prepared for what that next phase in life would be like. Beyond relocating to a warmer climate and laying on the beach or by a pool all day, it’s important to imagine what actual retirement would mean for you and what would continue making you truly happy. That could be spending more time with kids and grandkids, becoming an expert on a new subject, joining a peer group, taking up a new hobby, or enjoying extended vacations. No matter what that “it” is, it needs to be thought about at length before you make the transition. You don’t want to wake up the first day after you sell your business and think to yourself, “OK, now what?”

Ask Yourself:

  • What am I trying to accomplish and what are my main objectives? 
  • Am I prepared for my weekdays to become my weekends?
  • How will my lifestyle be affected by this change? 
  • What will continue to challenge me to stay mentally acute? 
  • Will I miss the feeling of importance when I don’t have employees relying on me or interacting with them on a regular basis? 
  • Do I have an interest in staying involved in the company or industry and, if so, what does that look like? 
  • What needs to be done to ensure there is not a strain on family or close personal relationships during this process?

Financial Aspect of Succession Planning

Having the right team of trusted advisors (financial advisor, attorney, accountant, etc.) that can help you develop an exit plan is crucial. They will give you confidence in your financial future and help maximize the sale of your business and allow you to focus on what retirement means for you. This starts with a financial advisor who takes a holistic view of your situation and has the ability to connect you with trusted attorneys and accountants or and advisor who is willing to work with the ones you already have relationships with.

They will have the ability to help you answer these questions:

  • What are the appropriate steps to take to get the most money out of the sale of the business and when should I start preparing?
  • Do I know exactly the amount of money I can live off comfortably in retirement?
  • What is the most productive way to generate income from my assets now that I won’t be working? 
  • What would be considered a “safe” withdrawal percentage from my funds when I retire and how is that created?
  • Will my plan still work if we have a major pullback or recession? 
  • Have I updated all my beneficiaries and picked the right people to take over my finances to make the best decisions regarding my health if I cannot?
  • Can I afford to give cash to family members or charitable causes; and if I can, how much?
  • If I want to pass the business along to a child, how is the best way to do that without them taking on large amounts of debt?
  • How do we make our gifting/estate equal amongst children who are not involved in the business? 
  • Will I be disappointed if my business sells for less than what I think it’s worth or I miss out on future growth?

While some of these questions are just the tip of the iceberg, they will help you prepare for what’s next and by getting in contact with professionals you will save yourself stress, time, and money. 

 

Sources: 

https://investmentbank.com/baby-boomers/

https://cabb.org/news/baby-boomers-incredible-numbers-are-buying-and-selling-businesses-part-1-2

We can probably all agree that men and women are different, but some of those dissimilarities pose large financial risks to women specifically. Women are set to control $30 trillion in assets by 2030, so I think it is important to understand the risks we face and create strategies to prepare for them accordingly.

Here are a few things women should consider as they prepare for their financial future:

  • Women Tend To Be More Conservative With Their Money

Research shows women are more likely to be conservative in their approach to retirement planning than men—meaning that women often start investing later and allocate more to lower risk assets (such as cash or bonds). One study shows that while women, on average, save 9% more of their salary than men, they invest 40% less of it, creating a financial gap between women and men. Being conservative is not necessarily a bad thing, but being too conservative has a cost—lower growth on assets which can result in less retirement savings.

Albert Einstein once said, “Compound interest is the eighth wonder of the world.” Why? Compounding can have an exponential impact on your money. For example, if you earn on average 7% each year, your money doubles every 10 years – compare that to 2% which takes almost 36 years to double! 

If you wait too long to start saving or are too cautious with your investments, you could be giving up hundreds of thousands of dollars or more over your lifetime.

  • Women Live Longer Than Men

Many of us know that women outlive men, but how does that impact your financial plan? Simply put, longevity comes with a hefty price tag.

Living longer requires more savings, especially considering income tends to decrease for women after a spouse’s death while healthcare costs tend to increase. Here are some facts to consider:

    • Life expectancy is currently 81 for women, 5 years longer than men. For women who live beyond 65, their life expectancy increases to 85. The average retirement age for females is 62, which means you need to be prepared to cover at least 19-23 years of expenses (with inflation) after you are done working.
    • When a spouse passes away, expenses tend to go down, but typically not enough to cover the loss of income.Total social security benefits decline, and if your late spouse had a pension, it is possible you would receive half or nothing at all after his death.
    • Healthcare costs continue to rise, which is especially concerning as women already spend more, on average, on healthcare than men. Although Medicare covers a portion of expenses, there are still large gaps. Even with supplemental insurance, most long-term care costs are not covered. The average cost in Indiana for a nursing home is $7-$8k per month, which comes out to $84-$96k per year. And 70% of nursing home residents are women.
  • Women Tend to Experience Decline in Lifestyle Post Divorce

The divorce rate has doubled over the years for those 50+. More than 40% of the boomer generation is divorced. Research suggests women get the short end of the stick, seeing a 27% decline in their standard of living post-divorce, while men enjoy a 10% increase.

Although we cannot always avoid divorce, we can be knowledgeable on how it affects us financially. Women need to think about taxes and post-divorce lifestyle when dividing assets and income sources.

  • Women Tend to Defer Finances to Partner

A UBS study revealed that nearly 7 in 10 married men take the lead on household finances. The study also found that even in same sex couples, one spouse defers the financial responsibilities to the other 40% of the time.

There is a steep price of not being involved in your finances, and for married couples that price is paid after a spouse’s passing. Patrick Morrow from our SBC team discusses why both parties should be involved in household finances in a recent blog post here.

Not all risks can be avoided, but it is important to understand them and develop a plan early to combat them.

As an advisor, I prepare my clients for the years ahead by creating a financial plan they are confident in today. I consider their goals and lifestyle objectives, weigh the potential risks ahead, and implement strategies to get them to the finish line.

It is never too early to start planning or too late to seek help. I recommend taking control of your financial future TODAY. Ask questions, and make a game plan – you will thank yourself later.

All information is from sources deemed reliable, but no warranty is made to its accuracy or completeness.  All investments involve risk, including loss of principal.  Past performance is not a guarantee of future results.  This material is being provided for informational or educational purposes only, and does not take into account the investment objectives or financial situation of any client or prospective client.  The information is not intended as investment advice, and is not a recommendation to buy, sell, or invest in any particular investment or market segment.  Those seeking information regarding their particular investment needs should contact a financial professional.  SBC, our employees, or our clients, may or may not be invested in any individual securities or market segments discussed in this material.  The opinions expressed were current as of the date of posting, but are subject to change without notice due to market, political, or economic conditions. 

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