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We're Invested

Retirement, investments, financial planning for every stage of life—learn about it all here at Invested,
a blog from your Wealth Management Advisors at Kirtland Financial Services.


Taxes

 

What are appropriate checklists for year-end tax planning?

Tax planners often develop checklists to guide taxpayers toward year-end strategies that might help reduce taxes. Typically, suggestions are grouped into several different categories, such as "Filing Status" or "Employee Matters," for ease of reading.

When year-end approaches, it might be wise to review each suggestion under the categories that may apply to you.

Filing status and dependents

  • If you're married (or will be married by the end of the year), you should compare the tax liability for yourself and your spouse based on all filing statuses that you might select. Compare the results when you file jointly and when you file married separately. Determine which results in lower overall taxation.
  • If you and several other people financially support someone but none of you individually qualifies to claim the individual as a dependent, you should consider making an agreement with all of the other parties to ensure that at least one of you can claim the individual as a dependent. Certain tax benefits may be available if you can claim an individual as a dependent.

Family tax planning

  • Determine whether you can shift income to family members who are in lower tax brackets in order to minimize overall taxes.
    • Tip: The kiddie tax rules apply to: (1) those under age 18, (2) those age 18 whose earned income doesn't exceed one-half of their support, and (3) those age 19 to 23 who are full-time students and whose earned income doesn't exceed one-half of their support.
  • Consider making gifts of up to $15,000 per person federal gift tax free under the annual gift tax exclusion. Use assets that are likely to appreciate significantly for optimum income tax savings.
  • Take advantage of tax credits for higher education costs if you're eligible to do so. These may include the American Opportunity (Hope) credit and the Lifetime Learning credit. Note that these credits are based on the tax year rather than the academic year. Therefore, you should try to bunch expenses to maximize the education credits.
    • Tip: If you have qualified student loans (and meet all necessary requirements), you may be entitled to take a deduction for the interest you paid during the year. The maximum amount you can deduct is $2,500.

Employee matters

  • Self-employed individuals (who generally use the cash method of accounting) can defer income by delaying the billing of clients until next year. You may also be able to defer a bonus until the following year.
  • Use installment sale agreements to spread out any potential capital gains among future taxable periods.

Business income and expenses

  • Accelerate expenses (such as repair work and the purchase of supplies and equipment) in the current year to lower your tax bill.
  • Increase your employer's withholding of state and federal taxes to help you avoid exposure to estimated tax underpayment penalties.
  • Pay last-quarter taxes before December 31 rather than waiting until January 15.
  • If you have significant business losses this year, it may be possible for you to apply them to the prior year's returns to receive a net operating loss carryback refund. If you had significant income in prior years, you should maximize the current year's losses by deferring income if possible.
  • In certain circumstances, it may be possible for the full cost of last-minute purchases of equipment to be deducted currently by taking advantage of Section 179 deductions.
  • Generally, you are able to make a contribution to your retirement plan at any time up to the due date (plus extensions) for filing a given year's tax return.

Financial investments

  • Pay attention to the changes in the capital gains tax rates for individuals and try to sell only assets held for more than 12 months.
  • Consider selling stock if you have capital losses this year that you need to offset with capital gain income.
  • If you plan to sell some of your investments this year, consider selling the investments that produce the smallest gain.
  • Personal residence and other real estate
  • Make your early January mortgage payment (i.e., payment due no later than January 15 of next year) in December so that you can deduct the accrued interest for the current year that is paid in the current year.
  • If you want to sell your principal residence, make sure you qualify to exclude all or part of the capital gain from the sale from federal income tax. If you meet the requirements, you can exclude up to $250,000 ($500,000 for married couples filing jointly). Generally, you can exclude the gain only if you used the home as your principal residence for at least two out of the five years preceding the sale. In addition, you can generally use this exemption only once every two years. However, even if you don't meet these tests, you may still be able to qualify for a reduced exclusion if you meet the relevant conditions.
  • Consider structuring the sale of investment property as an installment sale in order to defer gains to later years.
  • Maximize the tax benefits you derive from your second home by modifying your personal use of the property in accordance with applicable tax guidelines.

Retirement contributions

  • Make the maximum deductible contribution to your IRA. Try to avoid premature IRA payouts to avoid the 10 percent early withdrawal penalty (unless you meet an exception). Contribute the full amount to a spousal IRA, if possible. If you meet all of the requirements, you may be able to deduct annual contributions of $6,000 to your traditional IRA and $6,000 to your spouse's IRA. You may be able to contribute and deduct more if you're at least age 50.
  • Set up a retirement plan for yourself, if you are a self-employed taxpayer.Set up an IRA for each of your children who have earned income.
  • Minimize the income tax on Social Security benefits by lowering your income below the applicable threshold.

Charitable donations
  • Make a charitable donation (cash or even old clothes) before the end of the year. Remember to keep all of your receipts from the recipient charity.
  • Use appreciated stock rather than cash when contributing to charities. This may help you avoid income tax on the built-in gain in the stock, while at the same time maximizing your charitable deduction.
  • Use a credit card to make contributions in order to ensure that they can be deducted in the current year.

Adoption and medical expenses

  • Take advantage of the adoption tax credit for any qualified adoption expenses you paid. In 2020, you may be able to claim up to $14,300 (up from $14,080 in 2019) per eligible child (including children with special needs) as a tax credit. The credit begins to phase out once your modified AGI exceeds $214,520 (up from $211,160 in 2019), and it's completely eliminated when your modified AGI reaches $254,520 (up from $251,160 in 2019).
  • Maximize the use of itemized medical expenses by bunching such expenses in the same year, to the extent possible, in order to meet the threshold percentage of your AGI.

No two tax situations are the same. For a look at your individual tax liability and how it fits into your financial plans, Kirtland Financial Services is standing by.

MAKE YOUR APPOINTMENT NOW!

 
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal professional. LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

Retirement


Myth: Social Security will provide most of the income you need in retirement.

Fact: It's likely that Social Security will provide a smaller portion of retirement income than you expect.


There's no doubt about it — Social Security is an important source of retirement income for most Americans. According to the Social Security Administration, nearly nine out of ten individuals age 65 and older receive Social Security benefits.*

But it may be unwise to rely too heavily on Social Security, because to keep the system solvent, some changes will have to be made to it. The younger and wealthier you are, the more likely these changes will affect you. But whether retirement is years away or just around the corner, keep in mind that Social Security was never meant to be the sole source of income for retirees. As President Dwight D. Eisenhower said, "The system is not intended as a substitute for private savings, pension plans, and insurance protection. It is, rather, intended as the foundation upon which these other forms of protection can be soundly built."

No matter what the future holds for Social Security, focus on saving as much for retirement as possible. When combined with your future Social Security benefits, your retirement savings and pension benefits can help ensure that you'll have enough income to see you through retirement.
 

Myth: If you earn money after you retire, you'll lose your Social Security benefit.

Fact: Money you earn after you retire will only affect your Social Security benefit if you're under full retirement age.


Once you reach full retirement age, you can earn as much as you want without affecting your Social Security retirement benefit. But if you're under full retirement age, any income that you earn may affect the amount of benefit you receive:
  • If you're under full retirement age, $1 in benefits will be withheld for every $2 you earn above a certain annual limit. For 2020, that limit is $18,240.
  • In the year you reach full retirement age, $1 in benefits will be withheld for every $3 you earn above a certain annual limit until the month you reach full retirement age. If you reach full retirement age in 2020, that limit is $48,600.
Even if your monthly benefit is reduced in the short term due to your earnings, you'll receive a higher monthly benefit later. That's because the SSA recalculates your benefit when you reach full retirement age and omits the months in which your benefit was reduced.

Click here to find your full retirement age.

 

Myth: Social Security is only a retirement program.

Fact: Social Security also offer disability and survivor benefits.


With all the focus on retirement benefits, it's easy to overlook the fact that Social Security also offers protection against long-term disability. And when you receive retirement or disability benefits, your family members may be eligible to receive benefits, too.

Another valuable source of support for your family is Social Security survivor insurance. If you were to die, certain members of your family, including your spouse, children, and dependent parents, may be eligible for monthly survivor benefits that can help replace lost income.

For specific information about the benefits you and your family members may receive, visit the Social Security Administration (SSA) website at ssa.gov, or call 800-772-1213 if you have questions.


Myth: Social Security benefits are not taxable.

Fact: You may have to pay taxes on your Social Security benefits if you have other income.


If the only income you had during the year was Social Security income, then your benefit generally isn't taxable. But if you earned income during the year (either from a job or from self-employment) or had substantial investment income, then you might have to pay federal income tax on a portion of your benefit. Up to 85% of your benefit may be taxable, depending on your tax filing status (e.g., single, married filing jointly) and the total amount of income you have.

For more information on this subject, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits.


Myth: Social Security is going bankrupt soon.

Fact: Social Security is facing significant financial challenges but is not going bankrupt.


Social Security is largely a "pay-as-you-go" system with today's workers (and employers) paying for today's retirees through the collection of payroll (FICA) taxes. These taxes and other income are deposited in Social Security trust funds and benefits are paid from them.

According to the SSA, due to demographic factors, Social Security is already paying out more money than it takes in. However, by drawing on the Old-Age and Survivors Insurance (OASI) Trust Fund, the SSA estimates that Social Security should be able to pay 100% of scheduled benefits until fund reserves are depleted in 2034. Once the trust fund reserves are depleted, payroll tax revenue alone should still be sufficient to pay about 77% of scheduled benefits. This means that in 2034, if no changes are made, beneficiaries may receive a benefit that is about 23% less than expected. (Source: 2019 OASDI Trustees Report)

That's not good news, but Congress still has time to make changes to strengthen the program and address projected shortfalls. Until then, consider various income scenarios when planning for retirement.

Social Security may be only one part of a retiree’s income plan. For a full look at your retirement goals and to see how your Social Security may fit into that plan, make an appointment with Kirtland Financial Services today!

MAKE YOUR APPOINTMENT NOW!

 
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal professional.

Retirement

Social Security benefits are a major source of retirement income for most people. Your Social Security retirement benefit is based on the number of years you've been working and the amount you've earned. When you begin taking Social Security benefits also greatly affects the size of your benefit.
 

How do you qualify for retirement benefits? 

When you work and pay Social Security taxes (FICA on some pay stubs), you earn Social Security credits. You can earn up to 4 credits each year. If you were born after 1928, you need 40 credits (10 years of work) to be eligible for retirement benefits. 
 

How much will your retirement benefit be? 

The Social Security Administration (SSA) calculates your primary insurance amount (PIA), upon which your retirement benefit will be based, using a formula that takes into account your 35 highest earnings years. At your full retirement age, you'll be entitled to receive that amount. This is known as your full retirement benefit. Because your retirement benefit is based on your average earnings over your working career, if you have some years of no earnings or low earnings, your benefit amount may be lower than if you had worked steadily. 

Your age at the time you start receiving benefits also affects your benefit amount. Although you can retire early at age 62, the longer you wait to begin receiving your benefit (up to age 70), the more you'll receive each month. 

You can estimate your retirement benefit under current law by using the benefit calculators available on the SSA's website, ssa.gov. You can also sign up for a my Social Security account so that you can view your online Social Security Statement. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor, and disability benefits. If you're not registered for an online account and are not yet receiving benefits, you'll receive a statement in the mail every year, starting at age 60.
 

Retiring at full retirement age

Your full retirement age depends on the year in which you were born. If you retire at full retirement age, you'll receive an unreduced retirement benefit.
 
If you were born in: Your full retirement age is:
1943-1954 66
1955 66 + 2months
1956 66 + 4 months
1957 66 + 6 months
1958 66 + 8 months
1959 66 +10 months
1960 or later 67

Note: If you were born on January 1 of any year, refer to the previous year to determine your full retirement age. 
 

Retiring early will reduce your benefit

You can begin receiving Social Security benefits before your full retirement age, as early as age 62. However, if you begin receiving benefits early, your Social Security benefit will be less than if you wait until your full retirement age to begin receiving benefits. Your retirement benefit will be reduced by 5/9ths of 1 percent for every month between your retirement date and your full retirement age, up to 36 months, then by 5/12ths of 1% thereafter. This reduction is permanent — you won't be eligible for a benefit increase once you reach full retirement age. However, even though your monthly benefit will be less, you might receive the same or more total lifetime benefits as you would have had you waited until full retirement age to start collecting benefits. That's because even though you'll receive less per month, you might receive benefits over a longer period of time.
 

Delaying retirement will increase your benefit

For each month that you delay receiving Social Security retirement benefits past your full retirement age, your benefit will permanently increase by a certain percentage, up to the maximum age of 70. For anyone born in 1943 or later, the monthly percentage is 2/3 of 1%, so the annual percentage is 8%. So, for example, if your full retirement age is 67 and you delay receiving benefits for 3 years, your benefit at age 70 will be 24% higher than at age 67.
 

Monthly benefit example





The following chart illustrates how much a monthly benefit of $2,000 taken at a full retirement age of 67 would be worth if taken earlier or later than full retirement age. For example, as this chart shows, this $2,000 benefit would be worth $1,400 if taken at age 62, and $2,480 if taken at age 70.

This hypothetical illustration is based on Social Security Administration rules. Actual results may vary.




 

Working may affect your retirement benefit

You can work and still receive Social Security retirement benefits, but the income that you earn before you reach full retirement age may temporarily affect your benefit. Here's how:
  • If you're under full retirement age for the entire year, $1 of your benefit will be withheld for every $2 you earn over the annual earnings limit ($18,240 in 2020)
  • A higher earnings limit applies in the year you reach full retirement age, and the calculation is different, too — $1 of your benefit will be withheld for every $3 you earn over $48,600 (in 2020)
Once you reach full retirement age, you can work and earn as much income as you want without reducing your Social Security retirement benefit. And keep in mind that if some of your benefits are withheld prior to your full retirement age, you'll generally receive a higher monthly benefit at full retirement age, because after retirement age the SSA recalculates your benefit every year and gives you credit for those withheld earnings.


Retirement benefits for qualified family members

Even if your spouse has never worked outside your home or in a job covered by Social Security, he or she may be eligible for spousal benefits based on your Social Security earnings record. Other members of your family may also be eligible. Retirement benefits are generally paid to family members who relied on your income for financial support. If you're receiving retirement benefits, the members of your family who may be eligible for family benefits include:
  • Your spouse age 62 or older, if married at least 1 year
  • Your former spouse age 62 or older, if you were married at least 10 years
  • Your spouse or former spouse at any age, if caring for your child who is under age 16 or disabled
  • Your children under age 18, if unmarried
  • Your children under age 19, if full-time students (through grade 12) or disabled
  • Your children older than 18, if severely disabled
Your eligible family members will receive a monthly benefit that is as much as 50% of your benefit. However, the amount that can be paid each month to a family is limited. The total benefit that your family can receive based on your earnings record is about 150% to 180% of your full retirement benefit amount. If the total family benefit exceeds this limit, each family member's benefit will be reduced proportionately. Your benefit won't be affected. 

For more information on retirement benefits, contact the Social Security Administration at (800) 772-1213 or visit ssa.gov.


 

Retirement

Approximately 68 million people today receive some form of Social Security benefits, including retirement, disability, survivor, and family benefits. (Source: Fast Facts & Figures About Social Security, 2019) Although most people receiving Social Security are retired, you and your family members may be eligible for benefits at any age, depending on your circumstances.

How does Social Security work?
The Social Security system is based on a simple premise: Throughout your career, you pay a portion of your earnings into a trust fund by paying Social Security or self-employment taxes. Your employer, if any, contributes an equal amount. In return, you receive certain benefits that can provide income to you when you need it most--at retirement or when you become disabled, for instance. Your family members can receive benefits based on your earnings record, too. The amount of benefits that you and your family members receive depends on several factors, including your average lifetime earnings, your date of birth, and the type of benefit that you're applying for.

Your earnings and the taxes you pay are reported to the Social Security Administration (SSA) by your employer, or if you are self-employed, by the Internal Revenue Service. The SSA uses your Social Security number to track your earnings and your benefits.

You can find out more about future Social Security benefits by signing up for a my Social Security account, so that you can view your online Social Security Statement. Your statement contains a detailed record of your earnings, as well as estimates of retirement, survivor, and disability benefits. If you're not registered for an online account and are not yet receiving benefits, you'll receive a statement in the mail every year, starting at age 60. You can also use the Retirement Estimator calculator on the Social Security website, as well as other benefit calculators that can help you estimate disability and survivor benefits.

Social Security eligibility
When you work and pay Social Security taxes, you earn credits that enable you to qualify for Social Security benefits. You can earn up to 4 credits per year, depending on the amount of income that you have. Most people must build up 40 credits (10 years of work) to be eligible for Social Security retirement benefits but need fewer credits to be eligible for disability benefits or for their family members to be eligible for survivor benefits.

Your retirement benefits
Your Social Security retirement benefit is based on your average earnings over your working career. Your age at the time you start receiving Social Security retirement benefits also affects your benefit amount. If you were born between 1943 and 1954, your full retirement age is 66. Full retirement age increases in two-month increments thereafter, until it reaches age 67 for anyone born in 1960 or later.

But you don't have to wait until full retirement age to begin receiving benefits. No matter what your full retirement age, you can begin receiving early retirement benefits at age 62. Doing so is sometimes advantageous: Although you'll receive a reduced benefit if you retire early, you'll receive benefits for a longer period than someone who retires at full retirement age.

You can also choose to delay receiving retirement benefits past full retirement age. If you delay retirement, the Social Security benefit that you eventually receive will be as much as 8 percent higher. That's because you'll receive a delayed retirement credit for each month that you delay receiving retirement benefits, up to age 70. The amount of this credit varies, depending on your year of birth.

Disability benefits
If you become disabled, you may be eligible for Social Security disability benefits. The SSA defines disability as a physical or mental condition severe enough to prevent a person from performing substantial work of any kind for at least a year. This is a strict definition of disability, so if you're only temporarily disabled, don't expect to receive Social Security disability benefits—benefits won't begin until the sixth full month after the onset of your disability. And because processing your claim may take some time, apply for disability benefits as soon as you realize that your disability will be long term.

Family benefits
If you begin receiving retirement or disability benefits, your family members might also be eligible to receive benefits based on your earnings record.

Eligible family members may include:
  • Your spouse age 62 or older, if married at least 1 year
  • Your former spouse age 62 or older, if you were married at least 10 years
  • Your spouse or former spouse at any age, if caring for your child who is under age 16 or disabled
  • Your children under age 18, if unmarried
  • Your children under age 19, if full-time students (through grade 12) or disabled
  • Your children older than 18, if severely disabled
Each family member may receive a benefit that is as much as 50 percent of your benefit. However, the amount that can be paid each month to a family is limited. The total benefit that your family can receive based on your earnings record is about 150 to 180 percent of your full retirement benefit amount. If the total family benefit exceeds this limit, each family member's benefit will be reduced proportionately. Your benefit won't be affected.

Survivor benefits
When you die, your family members may qualify for survivor benefits based on your earnings record. These family members include:
  • Your widow(er) or ex-spouse age 60 or older (or age 50 or older if disabled)
  • Your widow(er) or ex-spouse at any age, if caring for your child who is under 16 or disabled
  • Your children under 18, if unmarried
  • Your children under age 19, if full-time students (through grade 12) or disabled
  • Your children older than 18, if severely disabled
  • Your parents, if they depended on you for at least half of their support
  • Your widow(er) or children may also receive a one-time $255 death benefit immediately after you die.
Applying for Social Security benefits
The SSA recommends apply for benefits online at the SSA website, but you can also apply by calling (800) 772-1213 or by making an appointment at your local SSA office. The SSA suggests that you apply for benefits three months before you want your benefits to start. If you're applying for disability or survivor benefits, apply as soon as you are eligible.

Depending on the type of Social Security benefits that you are applying for, you will be asked to furnish certain records, such as a birth certificate, W-2 forms, and verification of your Social Security number and citizenship. The documents must be original or certified copies. If any of your family members are applying for benefits, they will be expected to submit similar documentation. The SSA representative will let you know which documents you need and help you get any documents you don't already have.

Your Social Security benefits are just one part of your retirement income. For a full analysis of your retirement plans and benefits, make an appointment with a Wealth Management Advisor from Kirtland Financial Services. Your initial consultation is free!

Make Your Appointment Now

 
This information was prepared by Broadridge Financial for Kirtland Financial Services.
 

Estate Planning

When you hear the word “estate”, does it conjure up images of Downton Abbey, Wayne Manor or one of J. Paul Getty’s many residences? At first glance, it may seem like estate planning is something quite grand and only for the super-rich. However, it’s really just common terminology encompassing smart financial planning strategies that everyone should consider.
 
Most people don’t spend too much time thinking about end-of-life planning on a daily basis. But you may have loved ones who will soon face these issues. While it’s not pleasant to think about, you may be the one who ends up having to sort out their affairs. And, the reality is, there will come a time when you need to think about yourself and your own family. Knowing the basics can help you feel more prepared when that time comes.
 
Estate planning is the process of designating who will receive your assets and handle your responsibilities after your death or incapacitation. One of the goals is to make sure your beneficiaries receive these things in the most cost-effective way possible.
 
Estate planning can help establish a platform you can fine-tune as your personal and financial situations change. The key question to ask yourself is: how do you want your assets distributed if you die or are incapacitated?
 

Six Things To Know About Estate Planning

When it comes to estate planning, the whole process can seem quite overwhelming and complex. To help keep it simple, here are six essential things you need to know (or consider doing) to help jumpstart your estate planning.
 
1. Be Aware of Probate  
The first step in implementing an estate planning strategy is to understand the role courts play in the process, and how probate impacts even the smallest of estates. Probate is a term used to describe the process the court uses in settling the deceased’s estate. The time it takes to complete the estate distribution and the associated fees will vary by state, but probate expenses may add up, depending on your unique situation and which state you live in. The costs, along with the time and headache associated with settling an estate, means any step that will help navigate the probate process — or better still avoid it altogether — is worth exploring.

2. Create a Will  
A valid will does not avoid the probate process, but it will make things much easier. A will serves as a guide to your final wishes for the courts and the executor (the person chosen to act on your behalf). When it comes to the courts, anything that speeds up the process of physical asset distribution will minimize fees and make things easier for everyone involved. It can also eliminate any potential family disputes over who gets which assets. But a will is only a roadmap. It’s best to make sure that all of your financial assets and valuable possessions (like a home or a car) have beneficiaries named in other documents besides the will.

3. Decide on the Beneficiaries of Your Financial Assets 
Financial assets can have beneficiaries named so that the institution holding them knows who to turn the funds over to in the case of an account holder’s death. If an asset has a named beneficiary, it avoids probate (if probate is applicable in your situation). A retirement plan or life insurance policy are the most common instances, since these all ask the owners to name a beneficiary. To make things even simpler, you should know that in addition to an insurance policy and retirement plan, a lot of everyday assets allow for beneficiaries. Checking, savings and brokerage accounts are a few of the more common examples that are often neglected. 

4. Consider Creating a Revocable Trust 
For assets that don’t typically allow for a named beneficiary – often larger physical assets like a home or car – a revocable trust may be a solution to consider. Most anything placed in a revocable trust (also called a living trust) will avoid the probate process. The set of people involved in a trust — that is, the person or people who set up the trust, and the beneficiaries named in the trust — are called trustees. Revocable trusts allow the trustee(s) to retain control and will help transfer ownership of the asset in question to the living trustees upon the trust owner’s death. The trust itself (think of it as a separate entity) technically owns the assets, so transition of ownership can go more smoothly. 

5. Consider Having a Power of Attorney Drawn Up 
There are two Powers of Attorney (POA) worth exploring to accomplish some basic estate planning objectives. 
 
  • Durable Power Of Attorney 
It’s important to draft a durable power of attorney (POA) so an agent or a person you assign will act on your behalf when you are unable to do so yourself. Absent a power of attorney, a court may be left to decide what happens to your assets if you are found to be mentally incompetent, and the court’s decision may not be what you wanted. This document can give your agent the power to transact real estate, enter into financial transactions, and make other legal decisions as if he or she were you. This type of POA is revocable by the principal at a time of their choosing, typically a time when the principal is deemed to be physically able, or mentally competent, or upon death. In many families, it makes sense for spouses to set up reciprocal powers of attorney. However, in some cases, it might make more sense to have another family member, friend, or a trusted advisor act as the agent. 
 
  • Healthcare Power of Attorney 
A healthcare power of attorney (HCPA) designates another individual (typically a spouse or family member) to make important healthcare decisions on your behalf in the event of incapacity. If you are considering executing such a document, you should pick someone you trust, who shares your views, and who would likely recommend a course of action you would agree with. After all, this person could literally have your life in his or her hands. Finally, a backup agent should also be identified, in case your initial pick is unavailable or unable to act at the time needed.
 

6. Have the Talk 
Obviously, death is a really tough topic. And if you are younger, it may seem like something that can be dealt with much later. However, no one ever knows just when you will need to deal with it and the potential obstacles that may result.
 
Perhaps the most important part of the estate planning process requires no paperwork or expense: discussing your relatives’ wishes (such as aging parents). Nothing will make that conversation easy, but a clear understanding of your family’s wishes can help avoid tough conversations at a time when loved ones need to rely on each other to get through a difficult time.
 
The team at Kirtland Financial Services helps people—in every stage of life—begin to think about and plan for their end-of-life financial matters. Make an appointment today to begin this important planning for your family. To assist, Kirtland Financial Services offers a complimentary Life Notes estate planner to qualifying members! Life Notes is a convenient, comprehensive guide to gathering all the information a family will need to take care of end-of-life matters for a loved one. No matter how young or old you are, getting your business affairs and records organized is an essential part of financial planning. However, there can be many accounts, policies, documents, and other information to organize. Just thinking about what you need to put together can quickly become overwhelming. Use Life Notes to start organizing your personal information and important documents into a master file. You’ll feel good about completing the task — and your family will thank you for it! It’s all in the Life Notes estate planning guide.

Come meet the Kirtland Financial Services team and get started today.


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This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

Insurance

Do you carry a life insurance policy? What type is it? Do you have enough insurance for your situation? The insurance you choose can have a big impact on your financial planning. Here are some factors to consider when evaluating different life insurance options.

There are two basic types of life insurance: term life and permanent (cash value) life. For a rundown of these two types and their key differences, click here. 

Do you need life insurance?
At some point in your life, you'll probably be faced with the question of whether you need life insurance. Life insurance is a way to protect your loved ones financially after you die and your income stops. The answer to whether you need life insurance depends on your personal and financial circumstances.

You should probably consider buying life insurance if any one of the following is true:
  • You are married and your spouse depends on your income
  • You have children
  • You have an aging parent or disabled relative who depends on you for support
  • Your retirement savings and pension won't be enough for your spouse to live on
  • You have a large estate and expect to owe estate taxes
  • You own a business, especially if you have a partner
  • You have a substantial joint financial obligation such as a personal loan for which another person would be legally responsible after your death
In all of these cases, the proceeds from a life insurance policy can help your loved ones continue to manage financially during the difficult weeks, months, and years after your death. The proceeds can also be used to meet funeral and other final expenses, which can run into thousands of dollars.

If you're still unsure about whether you should buy life insurance, a good question to ask yourself is:

If I died today with no life insurance, would my family need to make substantial financial sacrifices and give up the lifestyle to which they've become accustomed in order to meet their financial obligations (e.g., car payments, mortgage, college tuition)?

If the answer is yes, insurance is something to seriously consider. And once you decide you need life insurance, don't put off buying it. Although no one wants to think about and plan for his or her own death, you don't want to make the mistake of waiting until it's too late.

How much life insurance do you need?
Your life insurance needs will depend on a number of factors, including the size of your family, the nature of your financial obligations, your career stage, and your goals. For example, when you're young, you may not have a great need for life insurance. However, as you take on more responsibilities and your family grows, your need for life insurance increases.

Here are some questions that can help you start thinking about the amount of life insurance you need:
  • What immediate financial expenses (e.g., debt repayment, funeral expenses) would your family face upon your death?
  • How much of your salary is devoted to current expenses and future needs?
  • How long would your dependents need support if you were to die tomorrow?
  • How much money would you want to leave for special situations upon your death, such as funding your children's education, gifts to charities, or an inheritance for your children?
  • What other assets or insurance policies do you have?
Estimating your life insurance need
There are a couple of simple methods that you can use to estimate your life insurance need. These calculations are sometimes referred to as rules of thumb and can be used as a basis for your discussions with your insurance professional.

Income rule
The most basic rule of thumb is the income rule, which states that your insurance need would be equal to six or eight times your gross annual income. For example, a person earning a gross annual income of $60,000 should have between $360,000 (6 x $60,000) and $480,000 (8 x $60,000) in life insurance coverage.

Income plus expenses
This rule considers your insurance need to be equal to five times your gross annual income plus the total of any mortgage, personal debt, final expenses, and special funding needs (e.g., college). For example, assume that you earn a gross annual income of $60,000 and have expenses that total $160,000. Your insurance need would be equal to $460,000 ($60,000 x 5 +$160,000).

Several more comprehensive methods are used to calculate life insurance need. Overall, these methods are more detailed than the rules of thumb and provide a more complete view of your insurance needs.

Family needs approach
The family needs approach requires you to purchase enough life insurance to allow your family to meet its various expenses in the event of your death. Under the family needs approach, you divide your family's needs into three main categories:
  • Immediate needs at death (cash needed for funeral and other expenses)
  • Ongoing needs (income needed to maintain your family's lifestyle)
  • Special funding needs (college funding, bequests to charity and children, etc.)
Once you determine the total amount of your family's needs, you purchase enough life insurance, taking into consideration the interest that the life insurance proceeds will earn over time, to cover that amount.

Income replacement calculation
The income replacement calculation is based on the theory that the family income earners should buy enough life insurance to replace the loss of income due to an untimely death. Under this approach, the amount of life insurance you should purchase is based on the value of the income that you can expect to earn during your lifetime, taking into account such factors as inflation and anticipated salary increases, as well as the interest that the lump-sum life insurance proceeds will generate.

Estate preservation and liquidity needs approach
The estate preservation and liquidity needs approach attempts to calculate the amount of life insurance needed upon your death to settle your estate. This includes estate taxes, and funeral, legal, and accounting expenses. The purpose is to preserve the value of your estate at the level prior to your death and to prevent an unwanted sale of assets to pay estate taxes. This method takes into consideration the amount of life insurance needed to maintain the current value of your estate for your family, while providing the cash needed to cover death expenses and taxes.

Periodically review your coverage
Once you purchase a life insurance policy, make sure to periodically review your coverage—especially when you have a significant life event (e.g., birth of a child, death of a family member)—and make sure that it adequately meets your insurance needs. The most common mistake that people make is to be underinsured. For example, if a portion of your life insurance proceeds are to be earmarked for your child's college education, the more children you have, the more life insurance you'll need. But it's also possible to be overinsured, and that's a mistake, too—the extra money you spend on premiums could be used for other things.

The team at Kirtland Financial Services does not sell insurance but can help you evaluate your options and see where and how a life insurance plan fits into your overall financial planning picture. Talk to a Wealth Management Advisor for free!

MAKE YOUR APPOINTMENT NOW
 
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal professional. Material prepared by Broadridge Investor Solutions, Inc. for Kirtland Financial Services.

Insurance

Life insurance can be a critical part of any long-term financial plan. There’s more to life insurance than the standard work-issued policies many people carry. Let’s get to know the basic types of life insurance and how they could fit into your financial plan.

Types of life insurance policies
The two basic types of life insurance are term life and permanent (cash value) life. Term policies provide life insurance protection for a specific period of time. If you die during the coverage period, your beneficiary receives the policy's death benefit. If you live to the end of the term, the policy simply terminates, unless it automatically renews for a new period. Term policies are typically available for periods of 1 to 30 years and may, in some cases, be renewed until you reach age 95. With guaranteed level term insurance, a popular type, both the premium and the amount of coverage remain level for a specific period of time.

Permanent insurance policies offer protection for your entire life, regardless of your health, provided you pay the premium to keep the policy in force. As you pay your premiums, a portion of each payment is placed in the cash-value account. During the early years of the policy, the cash-value contribution is a large portion of each premium payment. As you get older, and the true cost of your insurance increases, the portion of your premium payment devoted to the cash value decreases. The cash value continues to grow—tax deferred—as long as the policy is in force. You can borrow against the cash value, but unpaid policy loans will reduce the death benefit that your beneficiary will receive. If you surrender the policy before you die (i.e., cancel your coverage), you'll be entitled to receive the cash value, minus any loans and surrender charges.

Many different types of cash-value life insurance are available, including:
  • Whole life: You generally make level (equal) premium payments for life. The death benefit and cash value are predetermined and guaranteed (subject to the claims-paying ability and financial strength of the issuing insurance company). Your only action after purchase of the policy is to pay the fixed premium.
  • Universal life: You may pay premiums at any time, in any amount (subject to certain limits), as long as the policy expenses and the cost of insurance coverage are met. The amount of insurance coverage can be changed, and the cash value will grow at a declared interest rate, which may vary over time.
  • Indexed universal life: This is a form of universal life insurance with excess interest credited to cash values. But unlike universal life insurance, the amount of interest credited is tied to the performance of an equity index, such as the S&P 500.
  • Variable life: As with whole life, you pay a level premium for life. However, the death benefit and cash value fluctuate depending on the performance of investments in what are known as subaccounts. A subaccount is a pool of investor funds professionally managed to pursue a stated investment objective. You select the subaccounts in which the cash value should be invested.
  • Variable universal life: A combination of universal and variable life. You may pay premiums at any time, in any amount (subject to limits), as long as policy expenses and the cost of insurance coverage are met. The amount of insurance coverage can be changed, and the cash value and death benefit goes up or down based on the performance of investments in the subaccounts.
With so many types of life insurance available, you're sure to find a policy that meets your needs and your budget.

Choosing and changing your beneficiaries
When you purchase life insurance, you must name a primary beneficiary to receive the proceeds of your insurance policy. Your beneficiary may be a person, corporation, or other legal entity. You may name multiple beneficiaries and specify what percentage of the net death benefit each is to receive. If you name your minor child as a beneficiary, you should also designate an adult as the child's guardian in your will.

What type of insurance is right for you?
Before deciding whether to buy term or permanent life insurance, consider the policy cost and potential savings that may be available. Also keep in mind that your insurance needs will likely change as your family, job, health, and financial picture change, so you'll want to build some flexibility into the decision-making process. In any case, here are some common reasons for buying life insurance and which type of insurance may best fit the need.
  • Mortgage or long-term debt: For most people, the home is one of the most valuable assets and also the source of the largest debt. An untimely death may remove a primary source of income used to pay the mortgage. Term insurance can replace the lost income by providing life insurance for the length of the mortgage. If you die before the mortgage is paid off, the term life insurance pays your beneficiary an amount sufficient to pay the outstanding mortgage balance owed.
  • Family protection: Your income not only pays for day-to-day expenses, but also provides a source for future costs such as college education expenses and retirement income. Term life insurance of 20 years or longer can take care of immediate cash needs as well as provide income for your survivor's future needs. Another alternative is cash value life insurance, such as universal life or variable life insurance. The cash value accumulation of these policies can be used to fund future income needs for college or retirement, even if you don't die.
  • Small business needs: Small business owners need life insurance to protect their business interest. As a business owner, you need to consider what happens to your business should you die unexpectedly. Life insurance can provide cash needed to buy a deceased partner's or shareholder's interest from his or her estate. Life insurance can also be used to compensate for the unexpected death of a key employee.
For more information about how much life insurance you could need, click here. 

Review your coverage
Whether you’re 25, 52, or well into retirement, make sure to periodically review your coverage; over time your needs will change.

The team at Kirtland Financial Services does not sell insurance but can help you evaluate your options and see where and how a life insurance plan fits into your overall financial planning picture. Talk to a Wealth Management Advisor for free!

MAKE YOUR APPOINTMENT NOW
 
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal professional. Material prepared by Broadridge Investor Solutions, Inc. for Kirtland Financial Services.

Investments Retirement

Only about 23% of American workers say they are "very confident" they will have enough money to live comfortably throughout retirement.¹ To help reduce such uncertainty in your life, consider these five common investment pitfalls—and how you might avoid them.

Mistake #1: Waiting to Maximize Your Contributions
The sooner you start contributing the maximum amount allowed by your employer-sponsored retirement plan, the better your chances for building a significant savings cushion. By starting early, you allow more time for your contributions -- and potential earnings -- to compound, or build upon themselves, on a tax-deferred basis.

Mistake #2: Ignoring Specific Financial Goals
It is difficult to create an effective investment plan without first targeting a specific dollar amount and recognizing how much time you have to pursue that goal. To enjoy the same quality of life in retirement that you have become accustomed to during your prime earning years, you may need the equivalent of 80% or more of your final working year's salary for each year of retirement.

Mistake #3: Fearing Stock Volatility
It is true that stock investments face a greater risk of short-term price swings than fixed-income investments. However, stocks have historically produced stronger earnings over the long term.² In general, the longer your investment time horizon, the more you might consider adding stock funds to your portfolio.

Mistake #4: Timing the Market
Some investors try to base investment decisions on daily price swings. But unless you have a crystal ball, "timing the market" could be very risky. A better idea might be to buy and hold investments for several years.

Mistake #5: Failing to Diversify
Investing in just one fund or asset class could subject your investment portfolio to unnecessary risk. Spreading your money over a well-chosen mix of investments may help reduce the potential for loss during periods of market volatility. Diversification may offset losses in any one investment or asset category by taking advantage of possible gains elsewhere.³

Now that you are aware of these five common investment errors, consider yourself lucky: You are ready to potentially benefit from other people's experiences—without making the same mistakes.

Adding the guidance of a Wealth Management Advisor can help you navigate your investment decisions as part of a larger financial plan for retirement. Make an appointment online today or call 505-254-4363. We’re here to help!

 
1. Source: Employee Benefit Research Institute, "The 2019 Retirement Confidence Survey," 2019.
2. Source: SS&C Technologies, Inc. Stocks are represented by total returns from Standard & Poor's Composite Index of 500 Stocks, an unmanaged index generally considered representative of the U.S. stock market. Fixed-income investments are represented by annual total returns of long-term (10+ years) Treasury bonds. Indexes do not take into account the fees and expenses associated with investing, and individuals cannot invest in any index. Past performance is no guarantee of future results. With any investment, it is possible to lose money.
3. Diversification does not ensure a profit or protect against a loss in any market.

Because of the possibility of human or mechanical error by DST Systems, Inc. or its sources, neither DST Systems, Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems, Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2020 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

 

Investments
The markets are offering a wild ride for investors recently. But that doesn’t necessarily mean it’s time to duck and cover.
  
Be Willing To Take Advantage of Market Downturns
Anyone can look good during a bull market. Smart investors are prepared to weather the inevitable rough patches, and even the best aren't successful all the time. When the market goes off the tracks, knowing why you originally made a specific investment can help you evaluate whether those reasons still hold, regardless of what the overall market is doing.

If you no longer want to hold an investment, you could take a tax loss, if that's a possibility. Selling locks in any losses on an investment, but it also generates cash that can be used to purchase other investments that may be available at an appealing discount. Sound research might turn up buying opportunities on stocks that have dropped for reasons that have nothing to do with the company's fundamentals. In a down market, most stocks are available at lower prices, but some are better bargains than others.

There also are other ways to reap some benefit from a down market. If the value of your IRA or 401(k) has dropped dramatically, you likely won't be able to harvest a tax benefit from those losses, because taxes generally aren't owed on those accounts until the money is withdrawn. However, if you've considered converting a tax-deferred plan to a Roth IRA, a lower account balance might make a conversion more attractive. Though the conversion would trigger income taxes in the year of the conversion, the tax would be calculated on the reduced value of your account. With some expert help, you can determine whether and when such a conversion might be advantageous.

Continuing To Invest May Help You Stay On Course
In the current market environment, the value of your holdings may be fluctuating widely — and it's natural to feel tentative about further investment. But regularly adding to an account that's designed for a long-term goal may cushion the emotional impact of market swings. If losses are offset even in part by new savings, the bottom-line number on your statement might not be quite so discouraging. And a basic principle of investing is that buying during a down market may help your portfolio grow when the market turns upward again.

If you are investing a specific amount regularly regardless of fluctuating price levels (as in a typical workplace retirement plan), you are practicing dollar-cost averaging. Using this approach, you may be getting a bargain by continuing to buy when prices are down. However, you should consider your financial psychological ability to continue purchases through periods of fluctuating price levels or economic distress; dollar-cost averaging loses much of its benefit if you stop just when prices are reduced. And it can't guarantee a profit or protect against a loss.

If you can't bring yourself to invest during this period of uncertainty, try not to let the volatility derail your savings program completely. If necessary to help address your concerns, you could continue to save, but direct new savings into a cash-alternative investment until your comfort level rises. Though you might not be buying at a discount, you could be accumulating cash reserves that could be invested when you're ready. The key is not to let short-term anxiety make you forget your long-term plan.
 
A volatile market is never easy to endure, but learning from it can better prepare you and your portfolio to weather and take advantage of the market's ups and downs. For more information on these strategies, contact us. We're here to help.

Book your appointment with a Wealth Management Advisor today by calling 505-254-4363 or online at KirtlandFCU.org/Schedule.

 
All investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful. Although there is no assurance that working with a financial professional will improve investment results, a professional can evaluate your objectives and available resources and help you consider appropriate long-term financial strategies. To qualify for the tax-free and penalty-free withdrawal of earnings (and assets converted to a Roth), Roth IRA distributions must meet a five-year holding requirement, and the distribution must take place after age 59½ (with some exceptions). Under current tax law, if all conditions are met, the account will incur no further income tax liability for the rest of the owner's lifetime or for the lifetime of the owner's heirs, regardless of how much growth the account experiences.

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