Top 10 Tax Planning Opportunities for 2019, Part 1

No one likes to hear the heavy tread of the tax man, so it’s incumbent on you, your financial planner and your tax specialist to take advantage of the many available tools that keep predatory taxes from cutting into your wealth. The following presentation offers you 10 Top Tax Planning Opportunities you may be able to use to your benefit.

Top Tax Tip #1: Bracket Management

Everyone fits into a tax bracket so Uncle Sam can assess the percentage of taxes you have to pay on your income. However, it is very likely you can manage your taxable placement and reduce your taxes.

Brief Review:

The 2017 Tax Cuts and Jobs Act created seven ordinary income tax brackets as follows: 10%, 12%, 22%, 24%, 32%, 35%, and 37%, in addition, the Act established three capital gains tax brackets: 0%, 15%, and 20%. (There are also two additional tax brackets for special income.)

To add to the mix, even more tax brackets are possible with the new 3.8% net investment income tax (NIIT) that creates a 40.8% tax rate on ordinary income for high income taxpayers and a 23.8% tax rate applied to long-term capital gains.

Because of the variety of tax brackets that could apply to your particular financial situation and because you might be in a position to save tax expenses by careful planning, the strategies of tax deferral and “income smoothing” could give you a strong tax advantage.

The First Step

A properly considered tax strategy begins with estimating how much taxable income you’re expecting to receive over the next 5 to 15 years. Once this amount is estimated as accurately as possible, discovering ways to avoid the higher tax brackets and the NIIT can be initiated.

Multiple Potential Choices

Your tax strategy might include one or more of the following:

1. Harvest losses in high income years

2. Harvest gains in low income years

3. Contribute to traditional IRAs in high income years

4. Contribute to Roth IRAs in low income years

5. Invest in tax-deferred annuities

6. Create charitable remainder or lead trusts

7. Engage in life insurance strategies

8. Implement Roth IRA conversions

9. Create family trusts

Whichever of these possibilities are most profitable for you and your tax circumstances, the concept is basic: use income smoothing to achieve the best tax-advantage benefit for you.

Income Smoothing

Income smoothing typically means one of these two choices:

1. Reducing your taxable income during high income years by increasing your deductions and shifting your income to years with lower income, and/or

2. Increasing your taxable income during low income years by deferring your deductions and decreasing your taxable income to fit into the lower tax brackets.

Another key strategy is to keep your taxable income under the 3.8% NIIT threshold level so you don’t bear the burden of additional higher income tax. Should this strategy not apply, the focus then becomes keeping taxable income under the 37% tax bracket.

Remember, poor bracket management is likely to result in your being responsible for paying taxes you might otherwise not have to pay. A little planning now can go a long way to helping you retain more of your wealth.

As with the other strategies mentioned in this report, this is only the tip of the iceberg of the many permutations available to you with bracket management. Other issues include whether or not you are single or married, and whether you are currently in your early accumulation years, core accumulation years, or enjoying retirement.

Tax deferral can be a very powerful tool, and when used expertly, it can result in significant wealth protection.

Top Tax Tip #2: Roth IRA Conversions

Roth IRAs differentiate from traditional IRAs in several important ways:

  1. Over the long-term, they can lower your overall taxable income

  2. They offer tax-free growth, not tax-deferred growth.

  3. Required minimum distributions (RMDs) are not required at age 70½

  4. Your beneficiaries can withdraw the funds tax-free.

  5. Roth IRAs provide more effective funding of your bypass trust

  6. They are a good instrument for working with the NIIT, and facilitate in come smoothing

Of course, whether or not a Roth conversion is particularly favorable depends upon the taxpayer’s larger financial situation. Only a careful analysis can determine the value of conducting a Roth IRA conversion.

If the taxpayer’s tax rate is low at the time of conversion, the taxpayer will obviously enjoy a positive financial result by converting. The reverse is true if the taxpayer’s tax rate is too high. However, if the tax rate is slightly to moderately high, there are factors that may make a Roth IRA conversion advantageous.

Here are some factors of particular interest:

  • If the taxpayer is able to pay the Roth conversion tax with funds other than the Roth IRA, more financial value will be retained by the IRA, favoring continued growth of the asset.
  • If a taxpayer has such favorable tax capabilities as investment tax credits, net operating losses, charitable deductions, etc., these may diminish the taxable conversion amount.
  • If the taxpayer does not need to receive the minimum distribution at age 70½, the Roth IRA fund can continue to grow for the benefit of the taxpayer’s heirs.
  • When a taxpayer makes a Roth IRA election during their lifetime, they reduce the overall value of the estate and thus potentially decrease the cost of higher estate tax rates.
  • When making a Ross IRA election, taxpayers benefit by paying income tax before paying estate tax…compared with the income tax deduction of a traditional IRA that is subject to estate tax.
  • If a taxpayer is married, there is the possibility that the conversion tax of a married couple filing joint returns could be less.
  • Distributions to the surviving spouse are tax-free.
  • Distributions to surviving beneficiaries are tax-free.
  • Roth IRA distributions are not calculated in the 3.8% NIIT net investment income or MAGI (Modified Adjusted Growth Income).
  • Roth IRA distributions also will not increase 199A taxable income, but might increase the deduction under certain conditions.

When it comes to preserving wealth, Roth IRA conversions fall into one of four factors:

1. Strategic conversions: Conversions in this category seek to take advantage of a client’s long-term wealth transfer goals.

2. Tactical conversions: These provide short-term income tax relief for attributes that will soon expire such as tax rates, tax credits, current year ordinary losses, etc.

3. Opportunistic conversions: This allows taxpayers to take advantage of short-term volatility in the stock market and such things as sector rotation and asset class rotation.

4. Hedging conversions: These conversions allow the taxpayer to be in position to take advantage of potential future events that could cause the taxpayer to be in higher tax rates in the future.

Avoiding the 3.8% NIIT is desirable. A Roth IRA conversion assists with income smoothing so more wealth could potentially be retained. A traditional IRA’s distributions are not NII but they do contribute to MAGI, and that could result in an increase in the taxpayer’s NIIT. For this reason, a taxpayer could choose to use a Roth IRA conversion as a way to keep future income out of the higher tax bracket categories and eliminate NIIT taxation on IRA distributions.

If it’s your goal to pay less taxes in your later years, a Roth IRA conversion could be a very useful tool for retaining your estate’s wealth. Depending on your particular financial circumstances, employing a Roth IRA to limit the tax-man’s bite could be a good solution for you.

We hope this first article about two strategies you can use to save money n your taxes in FY 2019 was insightful. We welcome a discussion with you on how Synergy Financial Management can facilitate your tax savings this year. Thank you!

Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM

Synergy Financial Management, LLC

13231 SE 36th Street, Suite 215

Bellevue, WA 98006

ph: 206.386.5455

fx: 206.386-5452

www.sfmadvisors.com

8 Ways Your Portfolio Could Be Handcuffed

It’s a distressing thought that your portfolio can be subject to limitations, but once you consider the various ways in which your portfolio might be constrained, you have the opportunity for making changes that enhance your ability to increase your wealth while protecting your gains.

Let’s take a look at how your portfolio’s performance could be restricted.

1. Time Horizon: This is a factor you probably don’t have much control over. We all know there is a strong likelihood your portfolio will eventually need to shift into more conservative holdings. Hopefully you began setting aside funds and made good investments at a very young age, and you’ve enjoyed the benefit of a long time horizon. As we know, time is an investment ally when you have a lot of it. If you began investing late in life, the limitation of years you’ve had to build your wealth might be a limiting factor when you reach retirement.

2. Taxes: Taxes can have a potent influence on your investment results, which is why taxes should be carefully analyzed for their influence on your wealth-building efforts. Even though your portfolio might be creating impressive gains annually, what really matters is how much money you retain after taxes have been paid, or will be paid as capital gains in the future. This is why investment advisors recommend you consider investment choices such as tax-deferred or tax-free investments compared with the apparent value of investing in income producing or capital growth investments. One person’s champagne is another person’s soda water, and every situation is unique to that particular investor’s circumstances. Even so, a conversation with your financial planner about the value of tax-deferred and tax-free investments in your portfolio should be considered.

Taxes are the #1 predator eroding your wealth, so considering the issues of whether to have an active or passive investment strategy for particular asset classes, noting that portfolio turnover accelerates taxes in taxable accounts, evaluating the impact of ordinary income tax rates and capital gains tax rates on your portfolio and estate, and contemplating ways to transfer your wealth and limit gift and estate taxes is worthy of considerable reflection.

3. Liquidity: There are times when you may have the need to convert assets into cash, but the cost of converting your assets’ value is too high to consider because of the penalty, which could come from volatile markets, fees, and/or taxes. Therefore, a certain amount of your portfolio may need to be held in cash or cash equivalents in order to provide required liquidity. While this might be a good tactic, your security with having cash available will also restrict your rate of return.

4. Legal: Oh, just think about all the limitations legally placed upon your portfolio! All the regulations and requirements and rules… As you know, there is a mountain of traffic lights that are green, amber, and red. Always seek the advice of an attorney for any concerns you have regarding your investment accounts’ legal and regulatory constraints.

5. Marketability of Assets: Some assets have surrender charges, and may also contain management or participation fees. Some of these features may be inappropriate or prohibitive as a good choice for your portfolio. When making a decision to purchase an asset, you have to be aware of limitations placed on your investment by fund managers and always consider the eventual cost of your exit.

6. Diversification: Perhaps your investments are limited to certain asset classes, which therefore control your portfolio’s exposure to market influences that may be more or less beneficial than the selections you’ve included. By carefully positioning your investments in asset classes designed to either increase and/or safeguard your wealth based on your personal financial need, you can use diversification to your advantage rather than being victimized by it.

7. Social: Social constraints on funds are also popular, since some investors choose to buy only ‘green’ or do not invest in companies that make armaments or pollute the planet. An investor who makes a conscious decision to invest with a social constraint understands that returns might not be as grand as investments in other companies, but is willing to accept a lower return in exchange for moral peace of mind.

8. Fees: Hopefully, this is not an alien topic and you’ve reviewed the variety and cost of fees you’re paying to invest in a fund. Many of these fees are disguised, so it would be a great help to have a discussion with your financial planner about the kinds of fees your portfolio is paying and how you might save some of your wealth by transferring to less costly management. Of course, it could be worth your while to work with a financial advisor who receives compensation as a fee-based advisor.

We hope this article about understanding the ways in which your portfolio may be constrained will lead you to a discussion with your financial advisor that opens the door to a more appropriate and better crafted portfolio designed around your specific financial requirements. If you’d like to discuss the possibilities of re-creating a more customized portfolio, we would love to meet with you and discuss your interests. Please give us a call. Thank you!

Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM

Synergy Financial Management, LLC

13231 SE 36th Street, Suite 215

Bellevue, WA 98006

ph: 206.386.5455

fx: 206.386-5452

www.sfmadvisors.com

Model T, SUV, or Lamborghini?

If your portfolio was one of these cars, which one would it be? Are you driving a conservative Model T portfolio, a suitably moderate family SUV, or an aggressive Lamborghini Urus portfolio at 124 mph?

Each of these vehicles have their own benefits and detriments and you may find that you are driving a combination of these three cars, with the chassis of an SUV, the engine of a Lamborghini, and the suspension system of a Model T. Yes, that’s laughable, but you’d be surprised what people are driving out there!

Let’s take a quick look under the hood of your portfolio, pull out the dipstick to check your oil level and make an initial determination of your portfolio’s road worthiness.

The Conservative Model: The conservative model is designed for the cautious investor, one with a low risk tolerance and/or a short time horizon. This model is targeted toward the investor seeking investment stability and liquidity from investable assets. The main objective of the individual in the conservative risk range is to preserve capital while providing income. Fluctuations in the values of portfolios within this range are minor.

Moderately Conservative Model: The moderately conservative risk range is appropriate for the investor who seeks both modest capital appreciation and income from his or her portfolio. This investor will have either a moderate time horizon or slightly higher risk tolerance than the most conservative investor in the previous risk range. While this range is still designed to preserve the investor’s capital, fluctuations in the values of portfolios may occur from year-to-year.

Moderate Model: This range will best suit the investor who seeks relatively stable growth from investable assets offset by a low level of income. An investor in the moderate risk range will have a higher tolerance for risk and/or a longer time horizon than either of the previous investors. The main objective of an individual within this range is to achieve steady portfolio growth while limiting fluctuations to less than those of the overall stock markets.

Moderately Aggressive Model: The moderately aggressive risk range is designed for investors with a relatively high tolerance for risk and a longer time horizon. These investors have little need for current income and seek above-average growth from investable assets. The main objective of this risk range is capital appreciation, and its investors should be able to tolerate moderate fluctuations in their portfolio values.

Aggressive Model: This range is appropriate for investors who have both a high tolerance for risk and a long investment time horizon. The main objective of the aggressive risk range is to provide high growth for the investor’s assets without providing current income. Portfolios in this range may have substantial fluctuations in value from year-to-year, making this category unsuitable for those who do not have an extended investment horizon.

Clearly, the portfolio vehicle you choose to drive could be a purebred, or a hybrid of these different investment models. It all depends on what is most suitable for your unique financial circumstances as well as your personal tolerance for investment risk. There is danger in being too conservative just as there is danger in being too aggressive.

Your investment goals should be constructed in such a way that you hit all the green lights and reach your destination on time. Reckless driving could result in a portfolio crash, putting your portfolio in the hospital. Of course, it’s important to periodically have your portfolio examined by a professional mechanic. The last thing you need is a blown engine!

That’s why, even though you have a detailed road map, no matter which vehicle you’re driving, a lot of the momentum depends on who’s behind the wheel. We suggest you hire the services of a professional financial advisor to be your copilot or navigator so that as the miles tick along, you stay on the road and achieve your financial goals without too much wear and tear on the engine!

We hope this article about different portfolio categories has motivated you to have your portfolio reviewed by a professional so you don’t miss any turns, keep a full tank of gas, and know your brakes are working well. We’d love to take a spin with you, so if you think it’s time for a professional review of your investments, please give us a call so we can make sure you’re on the right track for the retirement lifestyle you desire. Thank you!

Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM

Synergy Financial Management, LLC

13231 SE 36th Street, Suite 215

Bellevue, WA 98006

ph: 206.386.5455

fx: 206.386-5452

www.sfmadvisors.com

How Much Risk Can You Tolerate?

Are you the kind of person who enjoys a night at the casino, who knows better than betting too much but gets caught up in the excitement? Or are you someone who decides beforehand what your maximum losses should be before you even bet your first dollar?

It probably comes as no surprise that many people are wary of losing their cash at card games and the roulette wheel but don’t have the same understanding or limits when risking their wealth in the markets.

As we’re sure you know, there are no guarantees when investing your money because every investment, no matter how conservative, still has some degree of risk.

For example, if you’re investing your money in the stock of only one company, you are not diversified and your risk is very high. If this company goes through a difficult patch, the value of your stock is likely to decrease. If the company goes out of business, you could lose the entire investment. Even if you invested in a United States government bond, your investment is likely to be more secure, but even with this apparent safety, the value of that bond could still decrease.

The good news is that risk can be controlled, and a financial advisor can show you how to invest wisely, and potentially increase your wealth from an investment position that is prepared for reversals with a plan for both safeguarding and expanding your capital.

So, how much risk tolerance do you have?

Risk tolerance is a term that is defined as the amount of risk that’s acceptable for your investments given your unique financial situation. The two parts to this term are (1) your ABILITY to suffer investment losses from the risks you’re taking, as well as (2) your WILLINGNESS to suffer losses. Financially, you might be quite capable of absorbing decreases to your wealth. For example, a -20% loss might be uncomfortable but acceptable for one person, yet completely catastrophic for another.

Willingness to take a risk is often more acceptable for young people who have more time to rebuild their wealth in the event of losses, while a retiree might be completely unwilling to sustain any losses because every dollar is dear. Risk tolerance is different for everyone, and is based on their unique individual circumstances.

Of course, no one likes to see the value of their portfolio decrease, and yet it happens every day. Knowing your appetite for risk is essential before building your portfolio, and when adding or eliminating investments. Your financial advisor will be extremely helpful with analyzing risk before you add assets to your portfolio, and can help you diversify your vulnerability to risk among the assets you select while working with you to maximize your portfolio’s rate of return and minimize your exposure to risk.

When you meet with your financial advisor, your conversation may determine whether you can accept minimal, moderate, or aggressive risk selections. Many investors prefer a combination of these three levels of risk, and depending on their tolerance for risk, they may have a more conservative portfolio with a few moderate and aggressive investments, or they may choose a more aggressively focused portfolio because other factors in their estate, or overall wealth, are secure.

Most people do not want to throw the dice when it comes to their financial well-being and the effect an aggressive approach may bear on their retirement years. I am reminded of the two sides to the risk tolerance coin in these quotations:

“Risk is like fire: If controlled, it will help you; if uncontrolled, it will rise up and destroy you.” ~ Theodore Roosevelt

“If you risk nothing, then you risk everything.” ~ Geena Davis 

We hope this article about understanding your personal risk tolerance was informative, and gave you some ideas about how to approach risk when you make investments. We welcome your getting in touch with us so we can review your portfolio and help you determine if the risk you are carrying fits your investment profile and financial requirements. We would also welcome helping you determine if you’re on the right track for the retirement lifestyle you desire. Thank you!

Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM

Synergy Financial Management, LLC

13231 SE 36th Street, Suite 215

Bellevue, WA 98006

ph: 206.386.5455

fx: 206.386-5452

www.sfmadvisors.com

3 Ways to Preserve Your Wealth at Tax Time

As the third quarter comes to an end with the arrival of cool autumn weather, this is one of the best times to get serious about planning how to minimize the inevitable. Over 65% of the year has transpired so by now a more factual attack strategy can be implemented because much of what has occurred during the year is known or can be anticipated.

At this point, your financial planner may now be more precise with recommendations to delay income for subsequent years as a tax strategy, and can be more specific about deductions you should take or delay to limit your estate’s tax exposure. Here’s a little primer on what to consider.

1. Defer Your Income: The first strategy to consider when planning ways to reduce your annual income tax is to discuss with your financial planner if it’s possible to defer your current tax year income until a future year. This could reduce your immediate tax liabilities and may also place you in a lower tax bracket as well, saving tax costs in two important ways. The strategy as possible with certain retirement plans, or if you own a business there may be ways to shift income to another year.

2. Shift Income to Family Members: It may also be possible for you to reduce your federal income tax liabilities by shifting income to other members of your family who are in lower tax brackets. For example, you may own a stock that generates a lot of dividend income; when you gift the stock, the tax responsibility is also shifted, and assuming you don’t exceed the $13,000 ceiling on tax-free gifts, you can reduce your tax burden. A family limited partnership might also be an appropriate way to shift income so tax liabilities can be reduced.

Of course, there are a number of factors involved with shifting income to family members so you’ll need a tax advisor to guide you on the feasibility and the consequences of moving income to family members, including children, and whether or not your income is from a C corporation, an S corporation, or a Family Limited Partnership.

3. Deduction Planning: By knowing all the deductions for which you are entitled, you may be able to significantly reduce your income tax liabilities. Part of the discussion between yourself and your tax advisor should include the value of placing a deduction in one year or another, which could increase your tax liability reduction.

It’s important you plan as well as you can to legally limit your taxation. When means are provided so you can save more of your hard-earned money, it is in your own best interests to accept the opportunity! Remember, your retirement may last three decades or longer, and you may need every penny that’s available, especially in the final years of your life you may not be able to work at a job anymore.

Unless you have an MBA in finance, it’s quite likely you don’t know the many choices available that could allow you to conserve your wealth and legally pay less in taxes. This is why it’s so important you receive advice from a competent financial professional. With the recent tax law changes and your own unique personal circumstances, it will probably be worth your while to consult with an expert in the field.

Of course, there are other strategies as well such as investing in tax-exempt income or tax-deferred income, but these will be a topic for another time.

I know it may seem strange to actually look forward to paying your taxes, but when you’ve done your homework and receive the professional advice of a credentialed tax advisor, the process of paying what you owe for the privilege of being a US citizen might not be as painful as you once imagined, and though you won’t be eager to write your check to the IRS, you’ll know that your annual legal contribution is based on indisputable facts used to your advantage which help preserve your wealth so you can provide for your family as well as secure your financial freedom during your anticipated lengthy retirement days.

Please contact us if you would like to have your tax planning reviewed now, while there is still time to make the necessary adjustments that will augment your holiday season with relief from anxiety and the security of knowing you have preserved the harvest of your year’s work. Thank you!

Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM

Synergy Financial Management, LLC

13231 SE 36th Street, Suite 215

Bellevue, WA 98006

ph: 206.386.5455

fx: 206.386-5452

www.sfmadvisors.com

Secure Success with Your Personal Financial Pyramid

Using a Personal Financial Pyramid is a great way to understand how to plan for your financial future because it structures your financial health and financial growth in a way that helps you take care of the basics while also helping you achieve your midterm and long-term goals.

The pyramid’s base is composed of four elements you need for daily life:
Cash Flow: The money you need for your daily living expenses includes funds to pay your rent or mortgage, purchase food and supplies, and pay for your utilities.
Insurance: The base of your pyramid also covers all your insurance expenses such as the premiums on your home insurance, car insurance, medical/dental, long-term care, and life insurance. You should also consider having disability insurance as part of your shield. Though most people are eligible for Worker’s Compensation, the amount you’ll receive in case of a physical disaster won’t be a lot and will probably be insufficient to handle your monthly costs when you’re not able to work. If something happens that prevents you from working and you wind up in rehab for six months or a year, your family will need sufficient revenue until you can return to work. The price of this insurance is less costly than suffering without income for a lengthy period of time.
Discretionary Funding: In the base, such items as household supplies, clothing, cell phones and entertainment can be included as extras if they are reasonable and not too much of a splurge.
Your Emergency Fund: This segment of the pyramid also includes your emergency fund so you have money you can use when the disaster arises and won’t have to dip into your investments to rescue yourself. Protecting your wealth is as important as creating it because the future, by definition, is unknown.
Remember it’s important to retain your money for more important purposes than squandering cash on your daily $5 cup of coffee. Every dollar invested at 10% becomes $8 in 21 years and because of inflation, every dollar today may only buy a third of what you’ll need in the future.
The Pyramids Core:
The middle section of the pyramid focuses on helping you build your wealth and includes three types of investment portfolios:
Short-term Investment Portfolios: Your short-term portfolio is where you save money for short-term needs such as your annual vacation, to replace an aging appliance, or to buy an extra car for your high school aged child. Otherwise, short-term investing is generally considered risky or a misuse of your investment potential.
Midterm Investment Portfolios: These portfolios are for expenditures that are about 3-5 years away. This category includes such things as your child’s college fund, your daughter’s wedding, and maybe installing a new bathroom in your home or repairing the roof. Investments for this mid-time range should be in conservative funds so you’re generally assured the funds will be there when you need them.
Long-term Investment Portfolios: These portfolios are intended to secure your financial future. The more time you have, the more risk you can reasonably absorb. We’ll discuss the topic of risk in a future article, but for now, understand that the funds in this category should remain there so you can benefit from the anticipated increase of your funds over time. Time is an ally, and it truly can make your Golden Years golden.
The Top Of Your Pyramid:
At the tippy-top of your pyramid are funds reserved only for discretionary investments, specifically those investments that have a magnified element of risk. This means these funds may or may not provide the investment returns you seek, and because of their insubstantial nature they are at the top of the pyramid and only come into play when your basic and core investment needs are thoroughly satisfied.
Discretionary investments can focus on a certain global region that’s politically unstable but has growth potential, or an industry sector such as technology which has accelerated advances and declines; or futures and commodity funds where value changes rapidly and is extremely sensitive. These examples of discretionary investments all have high volatility with high risk and they should only be funded when your financial strength is secured by the lower two sections of your pyramid. Of course, if you don’t have the stomach for a discretionary investment account, that’s okay, too.
Your Personal Financial Pyramid is a great way to target your financial goals at different levels of needs and time frames. If you’d like to establish a Personal Financial Pyramid, or if you’d like us to review your retirement plan and your financial investment strategy, please give us a call. We believe we can help you achieve the financial future you have in mind.

Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM

Synergy Financial Management, LLC

13231 SE 36th Street, Suite 215

Bellevue, WA 98006

ph: 206.386.5455

fx: 206.386-5452

www.sfmadvisors.com

Hot Tips for Shaping Your Long-Term Goals

The future is not so far away as you may think, and to quote a favorite line from W.H. Auden, “The years shall run like rabbits”. You may have noticed that as you get older, time goes by faster and the months begin to blur into years. Planning for the future you want to enjoy when you’re older, and taking action to secure that future, is paramount!

We’ve previously discussed the nature of short-term goals, which are for saving money for emergencies, and six months of income in case you lose your job. Midterm goals, as you know, are for funds you’ll need in the next 3-5 years. Long-term financial goals are goals that may take more than five years to achieve, and consist of substantial outcomes such as saving and investing for a comfortable retirement, paying off all your debts including your mortgage, and perhaps building a legacy to pass on to your children and grandchildren.

Achieving your vision depends on several factors, such as how much money you save and invest each month, how many years you save and invest, the amount of time remaining before you’ll need your funds for retirement, and reflecting carefully on the kind of lifestyle you want to enjoy when you are in retirement.

We’re fortunate that in the United States there are a number of opportunities for accelerating your savings. One of the best ways to meet your long-term goals is by partly funding your retirement account with your employer’s 401(k) plan. Among employers who offer a 401(k) plan, the plan often includes annual contributions paid by the company into your retirement account, capped at a set dollar amount. This means your money will grow faster and your goals will draw nearer to achievement because of employer contributions. Whenever you can, take advantage of the opportunity to grow your retirement account, especially with “free” money that could be available to you as an employee benefit.

If your employer does not have a 401(k) plan, consider asking your employer to establish a company 401(k) plan. The company could save money by diverting funds that would otherwise be spent on taxes, and the owner and top executives can also increase their retirement savings with pretax dollars, benefiting everyone in the company.

With a 401(k) plan, not only would a financial program be available that builds everyone’s retirement account, but also, because taxable income is reduced, there is likely to be an additional tax savings benefit as well.

If you are self-employed, you can establish your own individual 401(k) plan if you are a sole proprietor with no employees other than your spouse. Just like IRAs, the individual 401(k) has a traditional and Roth version.

When saving for your long-term goals, a general rule of thumb for families is saving at least 10% of the family’s monthly gross income for retirement. Single people should allocate an even larger percentage of their monthly gross income because even though there are many exciting things on which to spend your money, it’s inevitable that the day will come when your priorities will change and you’ll want to have a home, maybe raise a family, and certainly prepare now for the funds you’ll need in the last third of your life.

Most people don’t really know how much money to set aside every month for their retirement, so saving and investing becomes a frightening prospect because of the unknown. Many people become paralyzed with the prospect of saving vast amounts of money over a long period of time, so they hesitate to look at and face the challenge. The longer they wait, the less time they have to invest properly. and yet, the solution is not as complicated as it may appear.

A wise solution is to consult with a financial advisor who can discuss your long-term goals with you, consider the amount of time you have left to set aside these funds, analyze your risk tolerance, and devise an investment plan along with a rate of return your investments should achieve annually to keep you on track with having the money you’ll need 20, 30, or 40 years in the future. An experienced financial advisor is a great resource for determining the precise amount of money you’ll need for your unique financial situation, and creating a tailored plan to help you acquire your funded future during the intervening years between today and the age when you want to step through the Golden Door.

If you don’t yet have a coordinated retirement plan that you review annually with your financial advisor, or you’d like to review the one you have for a second opinion, or perhaps you need to make changes to the plan you now have because your financial circumstances have changed since the plan was first created, consider contacting a fee-based financial advisor as soon as possible. Just think how relaxed and confident you’ll become when you know that every day your future is growing brighter!

We hope this article about 401(k) plans and the importance of setting long-term goals was informative, and if you’d like to establish a 401(k) plan in your company, or if you’d like us to review your retirement plan and your financial investment strategy, we’d be delighted. We believe we can secure and increase your personal wealth while enhancing your retirement. Thank you!

Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM

Synergy Financial Management, LLC

13231 SE 36th Street, Suite 215

Bellevue, WA 98006

ph: 206.386.5455

fx: 206.386-5452

www.sfmadvisors.com

Thinking Ahead with Midterm Financial Goals

The purpose of your short-term goals is to set the foundation that prepares you for the sudden immediate financial needs of daily life, like having enough funds to cover a medical or dental emergency, unexpected car repairs, and stockpiling the equivalent of six months’ income in case your job situation is disrupted. Funding your short-term goals eliminates anxiety and helps you move forward so you can secure your midterm goals without the financial chaos that surprise expenses create.

Midterm financial goals are different, and these are the funds you’ll need in the next 3-5 years. Some examples of midterm goals are such things as saving enough money to replace your car, pay off your debts, or finish coursework for a degree or certificate that advances your future financial situation.

Because you’re planning 3-5 years out, it’s best to keep your goals realistic but also flexible. If you set your goals too high, frustration can prevent you from reaching them. While we’ve all mastered the ability to save money for an annual vacation or new bedroom set, when it comes to more ambitious goals, sometimes the price tag and the amount of time it takes to achieve goals with a longer timeline can require real personal effort and dedication to your purpose in order to stay disciplined for the length of your savings path.

If one of your midterm goals is to save enough money for a down payment on a home, or you want to set aside the funds you’ll need for your daughter’s wedding, or create a savings fund for your child’s college education, you have to have the discipline to save a specific amount of money every month.

The importance of establishing a monthly budget cannot be overstated, and one of the ways to have an effective monthly budget is to identify how you might be spending excessively. When you keep a log of all the expenditures you make during the month, you may be surprised to see how much you spend on coffee, cell phone service, birthday gifts and fast food lunches. Once you see how your funds are being spent, you’ll see the value of taming or eliminating some of your spending habits so you can have enough money to achieve your more important financial goals.

A wise suggestion to follow is that every time you receive your paycheck or monthly income, the first person to pay is yourself. The first check you write is to pay a deposit into your savings plan just as if your savings plan was a monthly bill. Most people save money as though it were an option, not a requirement, and typically money is spent on a variety of nonessential miscellaneous temptations and purchases. This is why it’s important to change your thinking and recognize the importance of establishing a budget and making a monthly deposit that meets your intended midterm goals.

Your Lifestyle Protection Plan will help you organize your thoughts and provide the structure you need to plan for your financial future. With midterm goals, the funds are not needed immediately like they are for short-term goals, so these funds can be invested, allowing the value to appreciate over time and speed up the accumulation of your goal funding. Your midterm savings could be placed in a growth mutual fund where your funds are relatively safe and yet still have a good opportunity for growth until you need them. Of course, you should always check with your financial advisor to make the best choice for your unique financial situation.

We hope this article about the importance of establishing midterm goals was informative. Please contact us so we can review your Lifestyle Protection Plan and help you achieve the goals that set you on the path to financial independence. Thank you! 

Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM

Synergy Financial Management, LLC

13231 SE 36th Street, Suite 215

Bellevue, WA 98006

ph: 206.386.5455

fx: 206.386-5452

www.sfmadvisors.com

Have You Met These Short-Term Goals?

Very rarely can significant gains be realized without first setting goals, and the first set of financial goals that serve as the base for your financial independence are your short-term goals. Short-term goals are for saving money for emergencies, and six months of income in case you lose your job.

While most people focus on their midterm and long-term goals, they may be doing themselves a disservice by not taking care of the basics. Short-term financial goals are important because life sometimes presents unexpected surprises. Having a few thousand dollars set aside and easily available for an emergency is a smart thing to do. Having some handy cash will limit the anxiety and stress many people suffer during periods of uncertainty.

Your Lifestyle Protection Plan is designed to help you preserve your current lifestyle until you reach retirement, and being prepared for setbacks like a medical emergency, the sudden need to see a dentist, or perhaps something that happens in your home like the refrigerator giving out, or flooding in the basement, or an unexpected visit to your automobile mechanic are all circumstances that are difficult to handle if you don’t have a set aside fund designed for unexpected emergencies. One of the features of your Lifestyle Protection Plan is being prepared by achieving solid short-term goals.

When a difficult situation appears, you can’t keep it on the back burner; the situation needs to be resolved right away, and having some money set aside protects you from having to use a credit card and incurring outrageous interest rates, or having to ask a friend to bail you out. You need an emergency fund for life’s stressful moments because they do happen!

The first thing to do is to figure out how much money to set aside in your emergency fund. Start by making a list of the potential costs that might suddenly appear. You probably have insurance for your car, but you might have to have money set aside to cover your deductible, so find out what that dollar amount is and calculate it into the total. You also probably have medical insurance, but there might be an annual deductible that first has to be paid; determine what that amount is and add that into the total, too. What does it cost when your child needs to see the dentist? Make a guesstimate and add that to the total. If you own your own home, think about which appliances might suddenly need to be repaired or replaced; maybe it’s the lawnmower, or an aging tree might need to be taken down; consider the cost and add that into your total as well.

You should also think about setting aside six months of income so just in case you or your spouse/partner should lose their job, or your work hours are cut back, you have the resources to get through the hard times until a new source of income can be established. If you haven’t done so already, you should create a monthly budget and write down all the expenses you typically have every month such as mortgage or rent, utilities, food, and transportation. Take a close look at what your monthly expenses are, and then consider which of them are essential and which you could cut-back if your income was reduced. Multiply this dollar amount by the six months of cushion you should build, and add it to the total.

Now that you know what your short-term savings goal should be, you should set aside money each month until your short-term goal is reached. These contingency funds should be kept in a safe and stable investment that provides you with immediate access. You can park this money in a savings account at your local bank, but you might also consider saving the money in a money market fund offered by your bank because you may earn a little higher interest than you would in just a savings account.

You can also include such things as paying off a specific debt, or saving to replace an appliance you know will soon require your attention as an emergency expense.

Short-term goals could also include something fun, like maybe a nice vacation, or a new wardrobe. Once your emergency fund is established, you can then consider other expenditures that allow you to enjoy the spice of life.

If you plan your short-term savings goals wisely and execute your plan, you will be more capable of overcoming the financial hurdles or emergencies that present themselves, and you may also be able to sleep better at night knowing you have all the immediate bases covered.

We hope this article about the short-term financial goals in your Lifestyle Protection Plan was informative. Please contact us so we can review your Lifestyle Protection Plan and help you secure and increase your personal wealth while enhancing your retirement. Thank you! 

Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM

Synergy Financial Management, LLC

13231 SE 36th Street, Suite 215

Bellevue, WA 98006

ph: 206.386.5455

fx: 206.386-5452

www.sfmadvisors.com

How Well Are You Protecting Your Future Lifestyle?

Thoughtful people think about the lifestyle they want when they retire, and make plans to accomplish their goal. They think about where they plan to live when they reach retirement age, how much annual and monthly income they want to have, if their retirement includes travel for fun and to visit their children, how they choose to spend their time, and the activities they value.

Usually people wonder if they’ll have enough money when they retire, a question that can be answered through the calculations of an experienced financial advisor. All the details of a retirement lifestyle can be monetized and a very accurate financial picture can be established that clearly articulates the amount of money that must be set aside annually in the time remaining before retirement to reasonably assure the desired lifestyle can be achieved.

The key to attaining the lifestyle of your choice depends on the amount of time available before your retirement age is reached, of course. Another key factor is the amount of savings and investments that can be developed in the time remaining so there are sufficient resources steadily building wealth toward the total amount of money needed for the desired lifestyle.

As you know, not everyone can achieve the retirement lifestyle of their dreams because of the interference of various factors that erode wealth. Divorce, illness, and poor choices are some of the detrimental factors that become obstacles to people’s hopes for their confident and comfortable financial future.

Having a retirement plan may not be essential to retiring, but it does provide the best chance for having a decent retirement. Think about the last vacation you took. One of the things you probably did on your trip was pull out a map, and maybe you consulted the Internet about some of the important details to include on your trip. Just as you would not get into your car and take a 3,000 mile road trip without a map and some idea of where you were going, neither should you assume that the money you’ll need in retirement will be available in 10, 20, or 30 years without making some plans now on how you expect to have enough.

Money is quite a magical thing. If you’re careful with your money, and save a reasonable amount of it, the time value of steadily adding to your savings and carefully investing these funds will multiply what you have many times over. Even if you won the lottery, you would still need to know how to prepare for your financial security. The news regularly relates stories of people who had fortunes and squandered them.

There are three steps that can provide you with the security of a Lifestyle Protection Plan. Your Lifestyle Protection Plan is designed to serve your current lifestyle, and help you preserve this lifestyle when you reach retirement. The three steps are:

  • Setting short-term, midterm, and long-term financial goals;

  • Understanding your financial pyramid and developing it;

  • Setting a pattern of allocating resources toward your goals that result in your financial success.

Your Lifestyle Protection Plan will be more thoroughly explained in the next several articles, and is a tool that should become an essential feature of regular interest to you throughout the year. No one but you and your family will have more than a passing interest in your retirement preparations, so it’s incredibly important that you establish your retirement plan as soon as you can, begin making allocations right away, and seek professional advice at least annually about the progress you’re making toward achieving your goals. With some forethought and determination, you can build your retirement account and live comfortably and securely during the last third of your life.

We hope this article about protecting your future financial lifestyle was informative, and if you are interested in consulting with us about your own Lifestyle Protection Plan, please contact us so we can begin a discussion about achieving your retirement goals. Thank you!

Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM

Synergy Financial Management, LLC

13231 SE 36th Street, Suite 215

Bellevue, WA 98006

ph: 206.386.5455

fx: 206.386-5452

www.sfmadvisors.com

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