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“Our bedroom wall tore away!” described Richard Goodis, a victim of California’s Northridge earthquake. “It felt like a jackhammer was going at it. I was looking at the ceiling one moment, then I was looking at the sky. I thought we were dead.” Most of us have not lived through an earthquake, but we empathize with the horror and utter vulnerability that seismic shifts bring. The earthquake Richard experienced was one of history’s most publicized natural disasters. TV screens across the world showed flattened apartment complexes, collapsed freeways, grotesquely twisted parking structures, and crumbling buildings.
Those of us who do not live in an area prone to earthquakes might think “why don’t they do something to mitigate their risk? Why don’t they ‘shore up’ their buildings and infrastructure? Isn’t there something they can do?”
I’m glad you asked! There are huge parallels between seismic shifts and economic ones and the California earthquakes can help shed light on the potential economic upheaval we might one day face. Here are a few of the parallels:
Communities have a choice to “retrofit” buildings to protect from collapse…or not
Families have a choice to “retrofit” their budgets and assets to protect from stress…or not.
Earthquake damage not only affects individual businesses and homes, but closes streets, creates tax burden, leaves utility service disrupted, etc.
Economic change and upheaval not only affect individual families, but puts strain on whole economy, national debt, tax structures, etc.
Getting ready for something that might or might not happen is hard to swallow. Deciding to do nothing is the easier path.
There are indicators – seismic activity, shifts in tectonic plates, etc.
There are indicators – huge stimulus bill creating more national spending and debt, political shift that seems to be increasing public spending, increased tax liability for high wage earners, slowing economy if/when higher regulations come into play, job closures, etc.
When a quake comes, those businesses that aren’t directly impacted are able to expand their customer base and their influence. The businesses that stay open provide much needed goods and services to those who are impacted.
The expression “cash is king” is most true when you are in a personal time of transition OR a societal one. Reducing debt, lowering payments, and having an emergency fund all contribute to your preparation. When change comes, there is often opportunity that can only be taken advantage of when you have liquidity (access to money.)
A report entitled “Economic Benefits of Earthquake-Resistant Buildings” by Evan Reis and Ali Sahabi (2019) points out the inevitability of more earthquakes. The Northridge earthquakes mentioned above are only about one-fourth as devastating as the “big one” to come. “California has more than a 99% chance of having a magnitude 6.7 or larger earthquake within the next 30 years.” One with magnitude greater than 7.5 is 46% likely. Knowing the risk, however, hasn’t necessarily resulted in action or change.
It doesn’t have to be that way. Let me focus attention on the economic side of this parallel. Could your personal ‘economy’ survive long if you lost your job today? Do you have an adequate emergency fund and a good grasp on your total financial picture? Are your investment accounts working for you in a way that prepares you for the future? Do you have an estate plan? Even if the ‘earthquake’ doesn’t hit your home, you can still be impacted by quakes in your community. When several people lose their jobs or lose their financial margin, this creates stress in the broader economy that affects everyone in some way.
We are not ‘sounding the alarm’ for a major apocalypse or desiring to create a fear-based reaction to your finances. We are, however, suggesting that you “retrofit” your personal economy to “shore up” your personal situation. If the quake never comes, you are no worse off! If tremors or full-blown quakes come, you will be very thankful that you were proactively pre-paring. One of the best ways to begin preparing for change or tumult in your finances is to have a conversation with a trusted adviser. We regularly see situations and scenarios that most people do not normally see and can make either general or specific recommendations to you. Newsletters and other communication like this are general in nature and help with broad preparation. When we actually meet with folks who are prepared to have a conversation, we can make more specific observations and recommendations – after carefully listening to you and your needs.
The cost to sit down with us is a little bit of time in advance preparation, so that the conversation is more productive. Call today at 419-358-4207 or email Kathi at firstname.lastname@example.org
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In the same way you might downsize your home to reduce ’clutter’, it can also be wise to consolidate and simplify your finances. This makes details easier to keep track of and helps your spouse and/or heirs upon death. Ask us how to get started.
“Afterwork: An honest discussion about the retirement lie and how to live a future worthy of dreams” by Joel Malick & Alex Lippert
“Afterwork” is an easy-to-read book that demystifies the retirement illusion. Most people perceive retirement as a vacation but—if you are not engaged in meaningful activities on a regular basis—what are you vacationing from?
The premise of this book is that, after the typical ‘honeymoon’ of retirement is over, it is easy to lack purpose and meaning. The remainder of the book highlights 10 keys to pursue meaning in your retirement years. Come borrow this book from our office!
BUILDING YOUR FINANCIAL DREAM TEAM
You’ve heard us say that we hire a car mechanic because we are not expert at repairing cars. We do this for tech support, lawn care, travel plans and more. Sometimes this happens because we don’t “understand” the issues at hand, but equally as often, it happens because we know we don’t have the time to stay up-to-date and relevant in that area.
The same principle applies with our finances, but sometimes we are reluctant to build a team (and rely on that team) for help. Your financial “dream” team might include:
Getting counsel from people and firms who work full-time in their area of expertise does not mean you lack intelligence to do it yourself. It means you have other priorities and interests—and understand that utilizing their experience can be to your benefit. We are here for you long-term and would like to be part of your dream team. Give us a call today! 419-358-4207
How much income do you need in retirement? Will you outlive your money? Will regular withdrawals put strain on your investment account at times when the market is low? How much can you take each month to keep your account sustainable long into the future?
We regularly help clients address these questions. Several factors come into play and there are no cookie cutter answers. We would be happy to have a conversation with you about how best to take a sustainable income from your investments.
Changes are on the horizon for the tax code. Read “State of Affairs” (below) for a snapshot of ‘why’ tax laws might change.
What could be changing?
1) Long-term capital gains may soon be taxed as ordinary income. When that happens, the gains you experience in your non-retirement accounts will be taxed in the year the gain is realized at the same rate as your other income. There are strategies to have tax-deferred growth (besides regular non-qualified accounts) that might be appropriate for some people. Ask us about this if you have large sums sitting in bank accounts, CDs, or non-qualified investment accounts.
2) Because tax rates will likely rise over time, you may want to re-think postponing your tax bill. This is not a solution for everyone but may be appropriate for some. How can you know whether you should pay taxes now or defer until later (through means such as making tax-deductible IRA contributions, etc.)?
3) We’ve already seen changes to the inherited or beneficiary IRA. Children who inherited tax-qualified money used to have a long schedule of years to withdraw the funds, paying tax little by little. Recently the timeframe was changed to a 10 year period. Planning how and when to pay taxes on inherited IRAs can be very beneficial for you. Unfortunately, most people don’t have a lot of experience in this area and they don’t know what they don’t know! We encourage you to ask questions and learn what your options are.
STATE OF AFFAIRS
Our country is in a time of transition as well—and it can feel more like a rollercoaster than a road construction project.
When you begin to see signs on the road, you slow down and become more alert. We see some advantage to approaching 2021 with the same caution.
1) Our nation is facing extraordinary debt. At the time of writing this newsletter, the debt was over $27 trillion, which equates to $83,906 per citizen or $222,190 per taxpayer.1 Comparing that to a mortgage, we are essentially living in a lavish “2nd home” of debt. The bill collector will eventually come for this debt, in one form or another.
2) COVID-19 has placed demands on the economy and personal finance. The price tag for this (in lost work, additional debt, strain on savings and contingency funds, etc.) remains to be seen.
3) Changes to the tax code and higher regulations are anticipated. These factors typically serve to slow the economy.
We are not permitted to make sweeping general recommendations, nor do we want to do that. We are committed to treating folks as individuals and know that every situation is different. However, it is important to watch for trends and see how your situation might be impacted by economic changes.
For some who are approaching retirement, it might be worth considering a pull back into a more conservative position. For others who are younger or who plan to continue working for a number of years, it might be time to review your investment allocations and prepare for change. We can help you with your personal IRAs or non-qualified accounts and even with your 401k in most cases.
This should not be a time for fear. For the believer, we know that our entire future is held in the hands of a loving God. If you do not know and experience the hope that is found in Christ, seek Him and know true freedom from fear. “The thief comes only in order to steal and kill and destroy. I came that they may have and enjoy life, and have it in abundance (to the full, till it overflows).” John 10:10 Amplified Bible