Here at The Musuneggi Financial Group, we made 2014 the Year of the Family Meeting. We focused on educating you about the importance of sitting down with your loved ones to have those sometimes difficult-but necessary-talks about Estate Planning, Long-Term Care Planning, and your Family Letter.
Many of you asked us to help by facilitating your Family Meeting here at the office, and we were honored to be able to guide you through the process. Some of the meetings were eye-opening and heartwarming.
At one of our meetings, the parents came with the desire to start gifting their assets to their children and grandchildren. With an Elder Care Attorney in attendance, we were able to spell out the pros and cons of various planning options. Because the children were in attendance they were able to share their ideas, too. As the meeting progressed, one of the sons spoke up and said,
“Mom and Dad, we are so grateful that you would want to share your assets with us and our children. Wanting to help us to pay to educate our children is a wonderful idea. But what we would rather you do is keep your money, see that it is set up to provide you with all you will need during retirement, in your later years, and help to provide you with the best medical care and best long term care that you can afford. Because, you see, as much as we love you and would do anything for you, I have a stressful job, two teenagers and two dogs. I just can’t have you moving in with me, and I can’t take care of my home and yours. The best gift you can give us is to keep your money, plan well, and have all the things you need to take good care of yourself. Besides, you worked hard to pay for our education; we need to do the same for our children.”
His words brought tears to the eyes of everyone in the room. The parents were grateful for his appreciation and honesty, and we were glad to have an understanding of the children’s expectations.
Family Meetings are your opportunity to have an open conversation–with your family members and trusted advisors–about your later-life planning. But this is not just a financial affair; rather, Family Meetings account for family members’ emotions and lifestyle concerns.
If you haven’t done your Family Meeting, Estate Planning, Long-Term Care Planning, or Family Letter, call us at 412-341-2888 ext. 301. We will be happy to help you map out these important conversations and decisions in 2015.
What Goes Up Must Come Down…Or Not
By Mary Grace Musuneggi
I am thinking this is a good time to revisit our October newsletter. Volatile markets should remind us to stop and remember.” –Mary Grace Musuneggi
Back in June 2008, I remember fielding calls from clients who were pretty sure they would spend their retirement years living under the Smithfield Street Bridge. As 2008 and early 2009 brought financial markets to their knees, we felt their pain. In lighthearted moments we would laughingly say maybe we needed to change the name on the door of the office from The Musuneggi Financial Group to The Musuneggi Dog Walking Gang. But the fact is it was more important for us to hold on to the belief that “this too shall pass”–and it did.
We are currently at the historic highs of the stock market…and we have bond rates that are at historic lows. Double Whammy! And although there is no crystal ball, and past history cannot predict future history, I do believe that history can lend some perspective.
In a recent article by Brenden Gebben, Portfolio Manager for Absolute Capital, he refers to the Ned Davis Research that says that during Bull Markets, on average, the stock market has historically sustained upward trends for 331 market days before a 10% correction occurs and upward for 1105 market days before 20% correction occurs. So from this view we are certainly due for a correction.
And what if we are? What are some things we need to do? What are some things we need to remember?
1. Avoid trading too frequently.
2. Stop. Don’t panic. Trust your strategies. Trust your money managers’ strategies; after all, that’s what you’re paying for.
3. Don’t get out of the market at the worst times.
4. Be sure you are diversified. There are other market segments beyond just domestic stocks and government bonds. Be sure you understand them all.
5. Rebalance sometimes. Often. Frequently. Or whenever it is appropriate for your risk tolerance and for your objectives.
6. Don’t ignore tax ramifications. Return on investment is not the same as after-tax return on investment.
7. Consider taking profits. When markets go down the most common theme we hear from our clients is that they have “lost” what they had previously earned. If you transfer profits to cash along the way, you keep those earnings to either spend or to reinvest in the markets when they go down. Buying opportunities.
8. And remember, in 1921 the Dow Jones was at 60 and recently it was at 17000. Obviously it has gone up. But to get there it has gone up and down and up and down and up and down along the way. Time can certainly be more important than timing.
No matter what the markets are doing, your investment decisions need to be those that are right for you. At the right time. In the right allocation. To review your current strategy give us a call.
A goal without a plan is just a wish.”
~ Antoine de Saint-Exupery
By: Mary Grace Musuneggi
Since I am the parent of one child, it sounds like my Estate Planning should be quite simple. But being the majority shareholder of a closely held family business means it just got more complicated.
If you are a business owner with no children, this should also sound like an easy Estate Planning arrangement; but if you would like to sell that business to add to your Retirement Income, the plan just got more complicated.
And if you have a child who wants to take over ownership of your business, planning could be easy…or seriously complicated if they have no funds, you have other children who want “their share,” or if you are the parent of the “wild child.”
Now the “wild child,” whether you have one child or five children, is not necessarily the one who is irresponsible. It could be that child whose ideas on running your business or handling your finances or using your estate assets are totally counter to yours. It can be that child who went through a divorce, lost a job, or somehow fell on hard times. It can be the child who has health or mental issues. But the fact is, unless you have one child who gets everything and he is as responsible as you, all Estate Planning can be complicated.
I have often seen responsible children feel very disappointed when parents use assets to support the child who is not. Or when I have heard parents say, “Well, Joe and Susan have lots of money and good jobs and a nice life, so we are leaving everything to Karen.” Karen failed out of college, never has been able to keep a good job, and is in debt up to her ears. But as parents, the concern is “if we don’t take care of Karen, who will?” This is understandable. But if Karen has never done well with her own planning, how will she survive on your assets?
All of these questions can be answered with some wise Estate Planning. Business owners can create Buy-Sell agreements; parents can establish trusts; life insurance can be used as a tool to compensate the “other children”; the “wild child” can receive restricted Required Minimum Distributions from IRA’s to limit their ability to spend; or assets can be allocated over a period of time or to provide income only. Parents can bypass the child and provide for education for grandchildren. In any case, these issues can-and should-be planned for.
Estate Planning is not the fun thing we do. Fun is planning for retirement, buying the summer home, paying for the great education, setting aside funds for travel. But Estate Planning is a necessity. When done correctly it provides peace of mind and the freedom to concentrate on the “fun” stuff.
Start 2015 off on the right financial road. Contact us to help guide you to the appropriate programs for you, your family, your business and your future.
Are you a business owner? Contact us for a Valuation of your business for Estate Planning or business planning purposes.
Do you know a business owner? Please pass this newsletter along to them. Thank you!
This information should not be considered as tax and legal advice. You should consult your tax and legal advisor regarding your own tax/legal situation.
If you’re 40 or 50 and haven’t begun, you must make the effort.
Some people start saving for retirement at 20, 25, or 30. Others start later, and while their accumulated assets will have fewer years of compounding to benefit from, that shouldn’t discourage them to the point of doing nothing.
If you need to play catch-up, here are some retirement savings principles to keep in mind. First of all, keep a positive outlook. Believe in the validity of your effort. Know that you are doing something good for yourself and your future, and keep at it.
Starting later means saving more – much more. That’s reality; that’s math. When you have 15 or 20 years until your envisioned retirement instead of 30 or 40, you’ve got to sock away money for retirement in comparatively greater proportions. The good news is that you won’t be retiring strictly on those contributions; in large part, you will be retiring on the earnings generated by that pool of invested assets.
How much more do you need to save? A ballpark example: Marisa, a pre-retiree, has zero retirement savings at age 45 and dedicates herself to doing something about it. She decides to save $500 each month for retirement. After 20 years of doing that month after month, and with her retirement account yielding 6% a year, Marisa winds up with about $225,000 at age 65.1
After 65, Marisa would probably realize about $10,000 a year in inflation-adjusted retirement income from that $225,000 in invested retirement savings. Would that and Social Security be enough? Probably not. Admittedly, this is better than nothing. Moreover, her retirement account(s) might average better than a 6% return across 20 years.1
The math doesn’t lie, and the message is clear: Marisa needs to save more than $6,000 a year for retirement. Practically speaking, that means she should also exploit vehicles which allow her to do that. In 2014, you can put up to $5,500 in an IRA, $6,500 if you are 50 or older – but you can sock away up to $17,500 next year in a 401(k), 403(b), Thrift Savings Plan and most 457 plans, which all have a maximum contribution limit of $23,000 for those 50 and older.2
If Marisa is self-employed (and a sole proprietor), she can establish a solo 401(k) or a SEP-IRA. The yearly contribution limits are much higher for these plans. If Marisa’s 2013 net earnings from self-employment (after earnings are reduced by one-half of self-employment tax) work out to $50,000, she can put an employer contribution of up to $10,000 in a SEP-IRA. (She must also make similar percentage contributions for all “covered” employees, excepting her spouse, under the SEP IRA plan.) As a sole proprietor, Marisa may also make a combined employer-employee contribution of up to $33,000 to a solo 401(k) this year, and if she combines a defined benefit plan with a solo 401(k), the limit rises to $47,400. If her 2013 net earnings from self-employment come out to $150,000, she can make an employer contribution of as much as $30,000 to a SEP-IRA, a combined employee salary deferral contribution and employer profit sharing contribution of up to $53,000 to a solo 401(k), and contribute up to $96,300 toward her retirement through via the combination of the solo 401(k) and defined benefit plan.3
How do you save more? As you are likely nearing your peak earnings years, it may be easier than you initially assume. One helpful step is to reduce some of the lifestyle costs you incur: cable TV, lease payments, and so forth. Reducing debt helps: every reduced credit card balance or paid-off loan frees up more cash. Selling things helps – a car, a boat, a house, collectibles. Whatever money they generate for you can be assigned to your retirement savings effort.
Consistency is more important than yield. When you get a late start on retirement saving, you naturally want solid returns on your investments every year – yet you shouldn’t become fixated on the return alone. A dogged pursuit of double-digit returns may expose you to considerable market risk (and the potential for big losses in a downturn). Diversification is always important, increasingly so when you can’t afford to lose a big portion of what you have saved. So is tax efficiency. You will also want to watch account fees.
If you start saving for retirement at 50, your retirement savings will likely double (at least) by age 65 thanks to consistent inflows of new money, decent yields and compounding.4
What if you amass a big nest egg & still face a shortfall? Maybe you can reduce expenses in retirement by moving to another city or state (or even another country). Maybe you can broaden your skill set and make yourself employable in another way (which also might help you before you reach traditional retirement age if you find yourself in a declining industry).
If you haven’t begun to save for retirement by your mid-40s, you have probably heard a few warnings and wake-up calls. Unless you are independently wealthy or anticipate being so someday, the truth of the matter is…
If you haven’t started saving for retirement, you need to do something to save your retirement.
That may sound harsh or scary, but without a nest egg, your vision of a comfortable future is in jeopardy. You can’t retire on hope and you don’t want to rely on Social Security, relatives or social services agencies for your well-being when you are elderly.