Tax-Advantaged or Tax-Deferred? Do you know the difference?- copy

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Jim Lorenzen, CFP®, AIF®

Tax-deferred and tax-advantaged are two terms often used interchangeably and, as a result, often lead to a lot of confusion; but, the difference can be significant in planning how you will be drawing income from your nest-egg during your retirement years.  The key, of course, is to discover your options and do advance planning.

Tax-deferred investing is familiar to us.  Many employers match employee contributions up to a certain dollar amount to a company-sponsored retirement account, which usually offers tax-deferred growth.  Contributing to your account up to the employer match is a significant first step to retirement success.

However, many have found that their company-sponsored plan has proven inadequate due to contribution limits and other factors.  Most investors would likely be well served seeking out other sources of tax-advantaged retirement funds.  When used properly, tax-advantaged money is taxed up-front when earned, but not when withdrawn.  This approach may seem costly; but, that view may very well be short-sighted and far more costly.

Let’s take a look at a hypothetical example of tax-deferred and tax-advantaged money at work.  Our fictitious couple, Mitch and Laura, are starting retirement this year and will need $50,000 in addition to their Social Security benefits.  Assuming a 28% state and federal tax rate, they’ll actually need to draw $69,444 from their retirement account to meet their needs.*

Tax Deferred

Need = $50,000

Taxes = $19.444

Total Withdrawal required to meet spending need: $69,444

What if Mitch and Laura had balanced their portfolio with a tax-advantaged funding source?  What if they could pull the first $30,000 from the tax-advantaged source and the rest ($27,777) from the tax-deferred source?  What would that look like?

its-about-timeTax Deferred Combined with Tax Advantaged

Tax-Advantaged money = $30,000

Tax-Deferred money = $20,000

Taxes = $7,777

Total Withdrawal to meet needs and taxes = $57,777

Because Mitch and Laura balanced their portfolio, they saved $11,667 each year during retirement – almost 24% of their year’s living expenses each year!   Simple math reveals a savings of over $116,000 during ten years of retirement; and it they’re retired for 30 years, as many are, the savings is over $350,000, not counting what they could have made by leaving the money invested – which could be rather substantial:  At just 3.5% annualized, the total would come to over $600,000!

A Plan that Self-Completes

Most savings plans, including employer-sponsored retirement plans, are dependent upon someone actually continuing to work and actively contributing to the plan.   If work and contributions stop, the plan does not complete itself.    

It’s been my experience that relatively few individual investors have self-completing retirement plans, while a rather large percentage of high net-worth investors do.

What financial tool can accomplish the goal of being self-completing?  Not stocks, bonds, mutual funds, or even government-backed securities of any type.   There’s only ONE I know of – and, it’s tax-advantaged, too.   Believe it or not, it’s a “Swiss Army Knife” financial tool called life insurance.    It’s not your father’s life insurance; it’s specially designed

It can ‘self-complete’ a retirement plan – and it doesn’t matter if the individual dies early or lives a long life.  Few people realize they can win either way.    As I said, stocks, bonds, real estate, commodities, and company retirement accounts simply can’t match it; but, the design must be customized.

If you’d like to learn more about this and other smart retirement strategies, feel free to contact me.

————–

 

*This has always been a source of misunderstanding for many individual investors:  The fact is not all the money in Mitch and Laura’s retirement account belongs to them.  Their retirement account might show a $500,000 balance, for example, leading them to believe they have $500,000.  The truth is less comforting.  The truth is, given a 28% tax-bracket, that $140,000 of that money belongs to the government, not Mitch and Laura.  They’ll likely never see it.  Their real balance – the one the statement doesn’t show them – is $360,000; and, as we’ve seen, they’ll need to draw-down $69,444 each year to meet their needs.  How long do you think that money will last?

 

 

Disclosures

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Your Cash Value Life Insurance Has Value!

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Jim Lorenzen, CFP®, AIF®

People often purchase cash value permanent insurance, throw the policy in a drawer or filing cabinet, and forget about it.   This could be a big mistake.

Most all permanent insurance has a cash value and that cash value has real value you shouldn’t ignore!  First a quick word about  what permanent insurance is.

Term vs Permanent

The terms themselves should tell you something.   Term insurance is simple:  You’re renting death benefit protection from an insurance company.  It’s like a lease, in a way.  You’re premiums stay level until the end of the lease.  You can renew your lease, but the rent will be higher.  How high depends on the length of the initial lease.   If you’re 40 years of age, and in good health, the purchase of a 20-year term policy means the ‘lease’ will be up when you’re age 60.  If you no longer need the death benefit, you simply let the policy expire.  If you do, you’ll either have to renew at what will likely be a much higher rate or buy a new policy, which means re-qualifying health-wise.  You might be able to convert to a permanent policy with the same company if your term policy offers that feature, but you’d still be paying the higher premiums.

Permanent insurance isn’t a rental.  This is a purchase on a sort-of installment plan.   Examples are whole life, universal life, and many other iterations that are now available.   In most policies, premiums do not increase and your protection doesn’t go away unless you fail to maintain the policy.  These policies have cash value and that brings us back to our topic.

Cash Value has Value!

Someone will end-up with the policy holder’s cash value:

A)The policy holder

B)The policy holder’s beneficiaries

C)The insurance company

If the policy holder dies before accessing cash value, the answer is C!  The insurance company pays out the death benefit but will keep the cash value.

What can you do to make sure you make the most of your cash value?  Here are some simple strategies you might consider:

  1. Use your cash value to make premium payments

    Why not use your cash value for premium payments to keep ‘paid-up’? You’ll not only save money each year, but maintains your death benefit protection.
  2. Increase your death benefitUse your cash value to purchase a larger death benefit! Life insurance death benefits generally go to beneficiaries income tax-free!   If you have a $500,000 insurance policy with $250,000 in cash value, you might want to take your cash value to zero and increase your heirs death benefit  to $750,000.   Better that than your heirs getting $500,000 and the insurance company taking $250,000 (which means they had only $250,000 ‘at risk’).
  3. Take a loanYou can borrow against your policy’s cash value at rates lower than your typical bank loan. In some cases, the net loan interest rate might be close to zero (the cost of the loan could be close or equal to the policy’s interest crediting rate).   Here’s the good part:  You’re not obligated to pay back the loan since, in effect, you’re borrowing your own money (you should know that any amount you borrow, plus interest, will be deducted from the death benefit when you die).   Here’s a smart strategy many people use:   They borrow money from policy cash values to pay cash for their new car, the make ‘car payments’ back to the policy.  The money they borrow is tax free.  And, in many policies, the money they took out to buy the car is still ‘on the books’ in their policy for interest crediting.  Every five years or so, they buy a new car almost interest free.
  4. Withdraw the moneyYou can withdraw your cash value—which could reduce or eliminate your death benefit. Don’t do this without checking with your agent.  Calculations may not be dollar-for-dollar.
  5. Surrender the policyNo more death protection, however.
  6. Supplement retirement incomeThis is a 10-15 year strategy that can provide excellent benefits and protections. Talk to your advisor—preferably someone who is independent of the companies and a CFP® professional.  Now, if we only knew where we could find one…..

 

Jim


Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and an ACCREDITED INVESTMENT FIDUCIARY® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

How to Turn a $350,000 IRA into $600,000 for Your Heirs!

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Jim Lorenzen, CFP®, AIF®

IRS mandated withdrawals from retirement accounts – required minimum distributions (RMDs) – must begin by April following the year people turn 70-1/2.   

But, if you wait until the year following that birthday, you will be required to take a double-distribution that year – two RMDs (be sure to talk to your tax-advisor).  Here’s an RMD strategy you might like!

Many people, however don’t need their RMDs and don’t want them – they have to pay taxes on the distributions.  They simply plan to pass the money on to their kids or grand kids.

Fred and Wilma have been retired in Bedrock for some time now.  He’s 69 years old and has $350,000 in an IRA he plans to leave to his children, Pebbles and Bam-Bam.

The problem, of course – as usual, is Uncle Sam.   Uncle Sam will force Fred to begin taking money from his IRA in the form of Required Minimum Distributions (RMDs).

Because they both have pensions and other sources of income, this is money they never intended to spend or use.  What’s more, because the IRS uses a ‘withdrawal factor’ that changes as they age,  the RMDs are calculated to deplete his IRA, thus guaranteeing the government they’ll get their cut, by the end of his life expectancy.

To summarize:  Fred gets older, the IRA money is distributed by force, and the longer he lives, the greater the chances there will be little, if any, IRA left for the kids or grand kids.

The government is going to get their money – I guess we can all let that go – the only question is when, but that’s another story.  The fact is, if Fred’s in the 28% tax bracket, only 72% of the money he sees on his statement is actually his.  Uncle Sam is a 28% partner for the rest, unless he decides to change his percentage.

Fred could invest the after-tax withdrawal money and the kids could take advantage of the “stretch” option for the IRA, which requires non-spouse beneficiaries to take distributions over the course of the person’s life expectancy, keeping the money for the kids working for a longer period of time.   Of course, as noted, there may not be much left if he’s in good health and lives a long life.

The RMD

The IRS withdrawal factor for Fred at his age is 27.4 (you can find yours on the IRS website).

This means his first year RMD will be $12,773 and, of course, he’ll have to pay income taxes.  At his 28% tax bracket, that would leave him with $9,196 after taxes on his first RMD.

If he invested that $9,196 every year and earned 5%, he’d have $217,554 for his children and grandchildren if he passed away at age 85.  If he passed away at age 90, he’d leave $328,474 to his heirs, plus whatever pretax dollars might be left in the IRA – a balance that will likely be declining each year because the IRS withdrawal factor is based on life expectancy and computed on the balance of all IRAs a the end of the previous year.

There might be a better option[1].

Fred’s in good health.  Since he doesn’t need the money, he decides to pursue a little more sophisticated strategy.

He decides to leave the IRA where it is and use the required minimum distributions to purchase a permanent life insurance policy (since Fred can’t predict his date of death, his outliving a term policy would mean all the premiums he had paid would be lost forever with nothing to show for them).

For our example, we’ll use a no-lapse guaranteed individual universal life policy.  We’ll also assume the same numbers cited above and a 28% tax bracket.

Since Fred’s a non-smoker and in good health,  his $12,773 RMD, after his 28% income tax payment, means he might leverage his  $9,196 after-tax withdrawal into an immediate $334,936 death benefit, which generally would pass tax-free to his heirs.[2]  

The IRA money will still have embedded taxes, of course, and the amount of death benefit this annual premium might buy will vary by company, policy, and design.  For illustration, though, this is close enough to make the point.

As you can see from our table[3], when added to the remaining after-tax IRA assets, the net total to the beneficiaries can be substantial, regardless of when it happens.  I’ve highlighted two ages (85 and 95) to show what that $350.000 IRA could really mean if the RMDs are used for this strategy and Fred’s death should occur at those ages.

End of   Tax-Free End of Year Less Tax on Net IRA Value Total Value
Year Age Life Ins. Benefit IRA Value4 Beneficiaries (30%) to Beneficiaries To Beneficiaries
5 74 $334,936 $387,852 $116,356 $271,496 $606,432
10 79 $334,936 $392,978 $117,893 $275,085 $610,021
16 85 $334,936 $369,468 $110,840 $258,628 $593,564
21 90 $334,936 $318,786 $95,636 $223,150 $558,086
26 95 $334,936 $241,227 $72,368 $168,859 $503,795

 

All of this, of course, depends on Fred’s qualifying for a permanent policy.  Since Fred isn’t dealing with any ‘high risk’ conditions, he should have no issues getting approved.

Not a bad strategy for the use of $9,196 he otherwise didn’t need during a time he’d be drawing down on his $350,000 IRA.

This was a generic hypothetical.  In reality, RMDs do not remain constant; so, having a strategy properly designed can make a significant difference in outcomes.

Jim


Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and an ACCREDITED INVESTMENT FIDUCIARY® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Interested in Charitable Giving? You May Want a Wealth Replacement Trust!

Jim Lorenzen, CFP®, AIF®

Charitable giving is a way you can truly leave a legacy beyond our own family; However, believe it or not, few among what many would call the ‘mass affluent’ ever give much thought to charitable giving.  Often, they simply feel they don’t have enough money; however, many of these same people are often sitting on highly appreciated assets such as real estate.

What many fail to realize is there can be significant tax advantages in charitable giving.  When money is tied up in real estate and securities, having a tax-advantaged exit strategy can be helpful.

If you were to sell an appreciated asset, the gain would be subject to capital gains tax. By donating the appreciated asset to a charity, however, you can receive an income tax deduction equal to the fair market value of the asset and pay no capital gains tax on the increased value.

Example:   Alfred purchased $25,000 of publicly-traded stock several years ago. That stock is now worth $100,000. If he sells the stock, he must pay capital gains tax on the $75,000 gain.   But, Alfred can donate the stock to a qualified charity and, in turn, receive a $100,000 charitable income tax deduction.  When the charity then sells the stock, no capital gains tax is due on the appreciation.  How good is that?

But what happens to Alfred’s family who will be deprived of those assets that they might otherwise have received.

A popular solution:  Life Insurance.  Why is this popular?  How do you do it?  Read on…

In order to replace the value of the assets transferred to a charity, the donor establishes a second trust – an irrevocable life insurance trust (ILIT) – and the trustee acquires life insurance on the donor’s life in an amount equal to the value of the charitable gift.

Premium payments can come from the charitable deduction income tax savings and any annual cash flow from a charitable trust or charitable gift annuity.  Alfred simply makes gifts to the irrevocable life insurance trust that are then used to pay the life insurance policy premiums.   At Alfred’s death, the life insurance proceeds generally pass to the donor’s heirs free of income tax and estate tax, replacing the value of the assets that were given to the charity.

Not a bad deal!

Life Insurance has a number of uses; but, before shopping, it pays to know what you’re actually shopping for!  To help understand life insurance design, you need to understand your priorities.  You might find this simple tool helpful.

What’s Your Focus Life Insurance Priorities Tool

If you would like help, of course, we can always visit by phone.

Jim


Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

How Will Rising Interest Rates Affect Stocks?

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Jim Lorenzen, CFP®, AIF®

… and what do rising interest rates (and inflation) mean to your long-term success?

Maybe less than you think… or is it maybe more than you think.

We don’t really know, do we?   Planning isn’t about what we know; if it were, we’d all just go with our guts and get rich!  Planning is about what we don’t know.

But we do have indicators.   Past performance is no guarantee the future will repeat – we know that; but, maybe – just maybe – it can provide a little idea of how markets have reacted to rising interest rates in the past.  Here’s a chart from Bloomberg; I apologize for the fuzziness.

As you can see (I hope) since March of 1971, there have been 21 periods of rising interest rates.  Of those 21 periods, the S&P declined only 5 times and the largest decline was around 5.5%.   Comforting?  Well, good reading  anyway.

The problem, of course, is we’re dealing with real money and real people’s lives.

It pays to have a ‘back-up’ in your financial plan that can help ensure there’s a ‘late life income’ even if everything else falls victim to the incompetency of elected officials who’ve become self-anointed economic experts.

For that reason, I thought you might enjoy a report I’ve put together about how to create a ‘late life income’ by adding another component to your investment diversification strategy.

I think you might enjoy it -it’s based on an actual case study.  You can access your Late Life Income report here.

Enjoy!

If you would like help, of course, we can always visit by phone.

Jim


Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Should You Buy TERM Insurance and INVEST the Difference?

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Jim Lorenzen, CFP®, AIF®

BUY TERM INSURANCE!  INVEST THE DIFFERENCE!   That’s the mantra that’s been preached (mostly by tv gurus selling their DVDs) since the 1970 (they were selling tape cassettes back then) and even before.

It seems logical:  You buy term insurance and get pure protection with insurance dollars while you invest remaining dollars for retirement or other needs.

It even sounds catchy:  Buy term insurance and invest the difference.  That’s what your dad did, and grandpa before him.   Of course, they may not have majored in economics or finance.

Does the old “buy term” maxim they’ve been preaching really hold up under real number-crunching analysis?

Well, here’s an analysis using numbers you might find interesting.  While not exhaustive, it certainly will shed some worthwhile light worthy of discussion.   You can access it here.

Hope you find this helpful.

If you would like help, of course, we can always visit by phone.


Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Here’s Your Important Document Checklist!

Jim Lorenzen, CFP®, AIF®

 

A fiduciary advisor is good to have; but, YOU are a kind of fiduciary, too!

Your family depends on you, which means you have the responsibilities a fiduciary would have.   Step one, of course,  is knowing where your important documents are.

Here’s a checklist to help you get your ducks lined up.

Hope you find this helpful.

If you would like help, of course, we can always visit by phone.


Jim Lorenzen, CFP®, AIF®

Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Managing Retirement Income Decisions During Retirement

Jim Lorenzen, CFP®, AIF®

Managing retirement income has never been easy.  Those who retired in the early 1970s saw interest rates rise dramatically, then fall the same way – all within about a 15-year period.   When interest rates were going up, it made them feel good; but, few paid attention to inflation or tax implications.   During one period, interest rates were in the double-digits, but so was inflation, which meant their “increased” income wasn’t really increasing at all.    Money is worth only what it buys at the checkout counter.

So, the retiree who felt great about a 15% interest rate during 15% inflation (yes, it really happened and could happen again, blindsiding people who didn’t live through it before), weren’t really getting a raise at all – and that was before taxes!

The real problem, of course, came when interest rates began to fall.  During the period that interest rates (and inflation) dropped to 12% from 15%, retirees were seeing their incomes drop by 20% (a 3% drop in rates from 15%) while still seeing prices rise by 12%.

How do you manage income in retirement?  It ain’t easy.

Naturally, you could consider a basic withdrawal sequence using a straightforward strategy to take money in the following order:

  1. Required minimum distributions (RMDs) from IRAs, 401(k), or other qualified retirement accounts.
  2. Taxable accounts, such as brokerage and bank accounts.
  3. Tax-deferred traditional IRAs, 401(k), and other similar accounts
  4. Tax-free money – from Roth IRAs for example

This sequence can provide an order of withdrawals; but, other than the RMDs, it doesn’t tell you how much!

But wait! (as they say on tv).

How much?  And, how can you be sure you won’t run out of money?

RMD can provide a clue!

The RMD calculations can provide sound guidance for your entire portfolio!  Using the IRS formulas, Craig Iraelson, executive-in-residence in the financial planning program at Utah Valley University, did some back-testing with hypothetical portfolios invested in different investment allocations with RMD withdrawals starting in 1970 (the beginning of a relatively flat ten-year stock market).   Using beginning values, and even with a portfolio invested in 100% cash, there was still $850,000 left after 25 years!   And, a portfolio that was 25% stocks had $2 million left.

RMDs appear to address longevity risk pretty well; but, there’s another question.   Is the income level provided by the RMDs enough to preserve the pre-retirement lifestyle – or anything close?

There’s the rub.  In the back-tested portfolios, the initial RMD was 3.65% of assets… and that falls within the widely-accepted 4% rule…  but, that’s only $36,500 of pre-tax income.  Even if the retiree family has an additional $30,000 from Social Security, that’s still just $66,500 before taxes; and, for many successful individuals, that isn’t enough.

So, there’s the trade-off:  Sacrifice income for longevity, or accept longevity risk in order to take increased income.

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Maybe there’s another way.    How can a couple have more freedom to take greater income early while still addressing the risk of running out of “late-life income”?

My “Late Life Income” report shows how many couples have addressed this issue.   You can access it here!

By the way, when you get my report, you’ll also receive a subscription to my ezine.    If you decide you don’t want the ezine when you receive it, you’ll be able to unsubscribe immediately with a single click and, of course, your email is never shared with anyone.

Enjoy the report!  Hope you find it helpful.

 

Enjoy!

Jim


Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

What To Do With Business Sale Proceeds

Jim Lorenzen, CFP®, AIF®

 

When you receive business sale proceeds, you’ll likely pay a capital gains tax; but, that may not be the end of the story.

Suppose you have $1 million or more after the sale – money you’d like to put somewhere for future use – but you also want growth with safety and tax-deferral, too!

You could use our 401(k); however, there are funding limits in any given year and those limits don’t carry over.  Besides, the safety issue could be problematic.

Bank certificates of deposit can provide safety, but not growth or tax-deferral.

If you’re selling your business next year, you’ve waited too long to plan.  However, if your sale is scheduled for ten, fifteen, or twenty years from now, this IS the time to get your ducks lined-up – and this report might help.
Click Here!
By the way, when you get the report, you’ll also be subscribed to our free ezine.  If you decide you don’t want it, simply unsubscribe at any time – your name will be removed immediately.  IFG will never share your email address with anyone for any reason.

If you would like help, of course, we can always visit by phone.

Enjoy!

Jim


Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Old-Age Financial Security: Silence is NOT Golden, yet Some aren’t talking!

Jim Lorenzen, CFP®, AIF®

Generational planning didn’t seem important  for old age financial security in my grandparent’s day.   They were living at  a time when Social Security was passed and designed to last for a lifetime beginning at age 65.  Of course, life expectancy back then was around age 68!  Who needed to worry about generational issues?  Longevity wasn’t a risk.

My generation—the baby boomerss—became the first  to experience the ‘sandwich’ effect:  Taking care of aging parents and children at the same time.   And, as that was unfolding, people were beginning to realize they were living longer, too!

The cultural quicksand began to materialize, but few have recognized it.  It’s like glaucoma:  You don’t see it coming; but, all of a sudden, it’s there.   It’s silence.  In a recent online survey (cited below), over half of GenX respondents and 60% of baby boomers indicated they’ve never had a conversation about planning for retirement or financial security in their old age, yet their fears were the same.

The reasons tend to tell is why.  They’re repeating the same mistakes their parents made.

Why do we study history?  Because we know human nature doesn’t change—it hasn’t changed for thousands of years.  Studying history allows us to learn the mistakes human nature, unencumbered by knowledge, tends to make.  But, knowledge helps us prevent a repetition!

When parents and children don’t talk about finances, guess what…

Why do they feel they’re not making enough money?  Why do they have too many other expenses and are paying off debt?  The answer is simple.

They’re  repeating mistakes.  But, the GenX group seems to be making more of them.  Are the boomers not talking to their kids?   Are their kids not involved in their parent’s own planning?   Maybe they should be.

As parents are living longer—longevity risk– they run a very real risk of needing long-term care.  If ever there was a threat to old age financial security, this may be it; yet,  relatively few address that issue usually because of cost or for fear of losing all that money paid in premiums if they don’t use it.   However if they do need it, and the kids end up having to pay some or all of the ultimate cost for that and their parents’ support, it also could eat-up their inheritance!

What we don’t know can cause financial hurt.  Perhaps they don’t know  that a professionally-designed life insurance policy might provide tax-free money that could be used to cover long-term care if needed and yet preserves cash if it isn’t—and still maintain the children’s inheritance!   It’s a financial ‘Swiss Army Knife”  type tool that can solve a lot of issues at once.

Unfortunately, few people take the time to have a generational financial planning session either on their own or  – maybe better—facilitated with a  family financial advisor acting as a guide and facilitator.   Some advance planning can make a big difference.  Here’s an example:

Real Life Case History (Names changed)

Fred and Wilma never discussed their finances with Pebbles or Bam Bam.  As Fred and Wilma grew into their 90s, it became evident they could no longer live on their own.  Fred was diagnosed with a terminal disease and Wilma, at  90, was diagnosed with Alzheimer’s.  They could no longer function and it was now Pebbles’ and Bam Bam’s turn to take care of their parents.  Fred lived for eight more months, but Wilma continued living for nine more years.  Despite the fact they did have some retirement savings, it was no where near enough to cover the more than $600,000 in costs that were incurred  by Pebbles and Bam Bam during that 9-year period. 

Had Fred and Wilma taken the right steps sooner, those costs threatening the old age financial security of Pebbles and Bam Bam might have been covered, or—at the very least—Pebbles and Bam Bam would have been reimbursed, protecting their inheritance … and all of the money might have been provided tax-free!   Unfortunately, their attitudes about various financial solutions available to them were colored by what they’ve heard from parents, friends, and even entertainment media, including television gurus selling DVDs.   Not surprising.  Some people even get their medical advice that way.

Old strategies simply don’t address today’s longevity and ageing issues.  Different strategies are required.   How can it be possible to make sure the parents have a lifetime of inflation-adjusted income and still provide an inheritance for the kids?

Rising Inflation ScreenYou might enjoy viewing this educational 20-minute video that shows one strategy that likely makes sense for many people.  While the tools used to implement it might vary, it’s still worth a view.  So, grab some coffee and see for yourself.

If you haven’t had a generational meeting with your family financial advisor, maybe it’s time you did.  Like Mark Cuban’s dad once told him:  This is as young as you’re ever going to be.

If you would like help, of course, we can always visit by phone.

Enjoy!

Jim


Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.