Cassidy Kusenberger '22
Financial Planning Intern
I was born and raised in Del Rio, Texas. I am a senior Economics major with a minor in Financial Planning. In my free time, I love getting to ride my horses and compete in rodeos, specifically barrel racing and pole bending. I also am very active at St. Mary’s Catholic Center, where I am currently serving as director for St. Mary’s Youth Retreat Team, where I lead other college students as we prepare retreats for middle/high schoolers. I am also a member of the Financial Planning Students Association, and I am a Financial Planning Ambassador.
At TWA, I serve as the Financial Planning Intern. I work closely with Sarah and Brien to conduct research, analysis, and review of client’s financial plans in order to assist them in achieving their life goals and dreams. I support the development of key systems and processes that TWA uses to operate efficiently and provide the optimal client experience. I have already learned so much through collaboration with TWA’s CFPs and look forward to learning even more about the ins and outs of financial planning throughout the rest of my time here. I will be graduating in May of 2022. Afterwards, I plan on studying in preparation to take the CFP exam and finding a reputable employer to launch my career with.
Adam Cuba '22
As the Accounting Intern, Adam serves as Traditions Wealth Advisors’ Chief Financial Officer (CFO). He assists Brien Smith (CEO) in managing the book keeping, cash flow, and tax related facets of the Traditions Wealth Advisors business.
Adam is dependable, organized, and hardworking at all that he does. He is a senior business honors and accounting major at Texas A&M University. Adam was recently accepted into Group 30 of the Professional Program in Accounting (PPA) at Mays Business School with a track in financial management. He is passionate about serving others and is eager to receive his CPA and work at a Big 4 Accounting Firm in the future.
Outside of work and his studies, Adam enjoys being in the great outdoors with family and friends. On the weekends his hobbies include playing disc golf or trying out a new recipe on his Traeger grill. In addition, Adam loves going to Aggie sporting events and can’t wait to get back to Kyle Field this fall!
Inflation has been of little concern to investors for over a decade. As the pandemic seems to be ending, the global economy will open up in the near future. Consider protecting your investment portfolio from inflation.
1. Why does inflation matter to your financial plan?
Prices go up over time. Invest in assets that have the potential to counteract the effects of inflation. For example, if the annual inflation rate is supposed to be 2% then build a portfolio that has the potential to return at least 2%.
2. What can you do?
Evaluate your portfolio to make sure you have a combination of investments to provide a return to keep up with inflation. Investments will vary based on your age and employment status. A younger investor may not need to add additional inflation risk in their portfolio with 40+ years until retirement. However, a retiree with a conservative investment mix may be susceptible to a higher inflation risk.
3. Look out for inflation surprises
Some inflation is normal and means the economy is growing. Be aware though that inflation doesn’t always behave as expected. Having a plan in case things don’t go as expected is key.
4. Inflation periods can be challenging
A challenging aspect of inflation is that funds that do well during high inflation do not typically do well most of the time. One example is gold. While gold has historically kept up with inflation, it doesn't offer compounding returns and the price can be relatively flat for long stretches of time. "One of the lessons here may be that, during normal times, investors may want to limit that portion of their portfolios dedicated to inflation hedges (like gold), given the high opportunity cost of reduced investment in assets that compound over time. But when conditions go extreme—meaning high inflation or hyperinflation—no matter how big one's hedge is, it will seem not nearly enough, at least in my experience," says Jurrien Timmer, director of global macro at Fidelity.
5. Be proactive!
Just like other economic risks, investors need to plan for inflation. Making sure your portfolio is an investment mix considering your age until retirement and financial situation is important. While you can’t avoid inflation, taking these steps will help you keep to your financial goals. For more details, visit Full Fidelity Article or contact Brien at Brien@traditionswealthadvisors.com or 979-694-9100.
If you have fought with your spouse over money, then you probably know that money is one of the top stress factors in a relationship. In fact, disagreements over money are the second leading cause of divorce. Unlike other aspects of a relationship, however, money provides a very real, tangible, and all too limited resource over which problems with communication can erupt into full-blown disasters. But when you and your spouse are on the same page about money, amazing things can happen!
Talk It Out (and Be Honest)
Many feel this financial infidelity is as bad or worse than physical infidelity! Financial secrets are like ticking time bombs waiting to destroy your relationship. But it isn’t always as sinister as a hidden credit card. Sometimes it’s simply a willful ignorance on the part of you or your spouse, unwilling to ask questions about the other person’s financial accounts or spending habits for fear of conflict. Take the time to sit down with your spouse and lay all your cards on the table. What's your salary? What benefits do you get? What investments have you made? Don’t forget to share those bad things too…like the balance on your credit card! While you probably know some of these things about one another, without complete and utter transparency, the ‘money issue’ will always be lurking in the background.
Establish Your Roles
People can get sticky about finances, especially when it comes time to decide who pays for what. Long story short, there’s no right answer here. Roughly a third of Americans split their bills evenly amongst partner’s salaries, while around fifty percent of households, one spouse or the others pays the household bills exclusively. The most important thing to do is, again, talk about it. Do you split the bills proportionately based on how much money you each make, or does one income go to bills and the other towards savings? Will one of you be the person who acts as the household ‘banker’ (paying the bills, monitoring savings and investments, etc.), or will you sit down once a month to review your finances as a couple? Do you split the bills proportionately based on how much money you each make, or does one income go to bills and the other towards savings? Will one of you be the person who acts as the household ‘banker’ (paying the bills, monitoring savings and investments, etc.), or will you sit down once a month to review your finances as a couple? How much money will you budget for your bills, your savings, entertainment, new clothes, etc.? How much wiggle room will you have every month in your budget, in case expenses you didn't expect come up? How much money will you budget for your bills, your savings, entertainment, new clothes, etc.? How much wiggle room will you have every month in your budget, in case expenses you didn't expect come up? In order to merge your financial lives, it's important for you to realize that you have to work as a team. Even if you ‘get’ finances and your spouse doesn’t, that doesn’t give you all the power. It means you have the responsibility to communicate what’s going on!
Create Joint Accounts
Do you trust your spouse? Hopefully, ‘yes’! While there’s nothing wrong with keeping separate accounts, merging your money is an important part of establishing trust, especially if you’re married. Extending that trust to your spouse can go a long way toward merging your financial lives. Why do you fight with your spouse about money? The answer probably lies in how you communicate. Luckily, it doesn’t have to be that way. Sit down together, decide on roles together, and come to an agreement. Together. No matter how uncomfortable it might feel at the time, it will be worth it!
Would you like to talk to someone about your money disagreements? Reach out to Traditions Wealth Advisors for guidance at Brien@traditionswealthadvisors.com or 979-694-9100.
1. Literally Clean Out Your Old Stuff: Stop shuffling, and start decluttering. Go through every room, closet, and storage space with a fine-toothed comb. When in doubt, throw it out, sell it, or give it to someone who could use it. Separate your outgoing items into three piles: sell, donate, and trash. You’d be surprised what people will buy. There’s a market for your old cell phones, computers and other electronics, clothes, furniture, and children’s belongings. Sell these on Craigslist, eBay, or Etsy to recover some of your initial cost.
What you can’t sell, donate to a charitable organization. Make sure you keep your donation receipts in case you decide to claim a tax deduction for charitable giving. You’ll need to itemize each of these deductions come tax time.
2. Clean Up Your Paperwork: Keep all of my important documents digitally. Back them up through two systems: an automated cloud backup service that constantly uploads your files for secure off-site storage, and an external hard drive that you can keep at home. If your laptop stops working, critical documents won't be lost.
Make your file storage digital to be more organized and cut down on clutter. Borrow or rent a scanner if you don’t have access to one already to make the transition painless. For any original documents you simply can’t bear to part with, put them in a portable, fireproof safe. If something isn’t valuable enough to justify space in your fireproof safe, then it isn’t valuable enough to keep as a hard copy.
3. Set (or Check Progress on) Financial Goals for the Year: When you’re clear on your long-term financial goals, you can then work backward to set mid-term financial goals over the next two to five years and short-term financial goals for this year. For example, a long-term goal to reach financial independence within the next five years sets a target accordingly for net worth and passive income by the end of this year.
Your financial spring cleaning offers a perfect opportunity to check in on your progress. You can tweak and adjust your spending, savings, and investments as needed to put yourself on track for hitting your short-term targets for the end of this year.
4. Review Your Monthly Budget: Reframe how you look at budgeting. Instead of thinking in terms of sacrifice, think in terms of prioritization and intentionally designing your perfect life based on what’s important to you. Instead of taking two years to save a down payment to buy a home, for example, you could probably do it in one if you cut $500 or $1,000 in monthly expenses. Would you rather spend $100 per month on cable TV or save your home down payment faster? The same goes for spending money on new clothes, gadgets, eating out, and any other discretionary expense. Put even “necessary” expenses under the microscope.
5. Cancel unused or unnecessary subscriptions: List every single subscription you pay for, whether monthly or annually - video and music streaming, gym memberships, box subscriptions, landlines, antivirus software, hard drive backup services, etc. After you have a list of your subscriptions, apply a simple litmus test: Do you use this subscription multiple times a week, and does it make your life noticeably better? For instance, if you’ve been to the gym 10 times in the last month, that likely justifies keeping your membership. But if you’ve been once or twice, cancel your membership and switch to home workout routines instead.
6. Plan & Budget for Remaining Irregular Expenses This Year: Irregular expenses are the fly in the ointment of most people’s budgets. No one forgets to budget for their rent or mortgage payment. But most people forget to budget for wedding, birthday, shower, and holiday gifts, for example. Just because these expenses don’t pop up every month, that doesn’t mean they don’t cost you money and eat into your budget. So set aside money and earmark this account for irregular expenses. You should also budget for travel expenses. You will probably go on at least one vacation this year. Plan what you want to spend on these and other irregular expenses for the rest of the year, and set aside money accordingly.
7. Plan Your Retirement Contributions: Whether you want to max out your IRA or 401(k) or just take advantage of matching contributions, now is a good time to plan out how you’ll achieve your target retirement savings this year. Again, these contributions don’t just happen — you need to budget for them carefully.
8. Adjust Your Tax Withholding (if needed): Withhold too much, and you give Uncle Sam an interest-free loan. Withhold too little, and you get hit with IRS penalties. Aim for a $0 tax bill come April 15th (or May 17th this year) and adjust your income tax withholding with your employer as necessary. A consultation with a tax professional would likely be helpful.
9. Review Your Health & Life Insurance Policies: Your health insurance and life insurance requirements evolve as you get older. Someone with a spouse and children likely needs more life insurance than an unmarried person living alone. Research how much life insurance you need, if any, before talking to a sales rep.
Also, consider opening a health savings account (HSA) in combination with a high-deductible insurance plan. In addition to the low premiums, you can benefit from the unique triple tax benefits of an HSA.
10. Automate Your Savings: One way to automate your savings is splitting your direct deposit to go into not just your checking account, but also a savings or investment account.
You can also set up automated recurring transfers to take place every payday. For example, you could set your mortgage payment to go out automatically each month and pay more than the minimum payment if you want to pay off your mortgage early.
By automating good behaviors like saving money, you ensure they actually happen. Plus, automating your savings offers a great way to trick yourself into saving more because it takes the temptation out of spending. With less money calling to you from your checking account like a siren, you simply adapt to spending less.
11. Review Your Asset Allocation: Your ideal asset allocation changes over time. As you get closer to retirement, you should start easing away from stocks to avoid sequence of returns risk. In their place, you should gradually opt for more stable, income-oriented investments, like bonds and lower-risk real estate assets.
Your asset allocation also drifts on its own over time as certain investments in your portfolio outperform others. You need to periodically review your portfolio, even when you don’t plan to change your target asset allocation, so you can rebalance your portfolio to return to your target.
12. Create a Simple Monthly System for Tracking Key Numbers: There’s a saying in the business world: “That which gets measured gets done.” In practice, it means you should determine the most important tasks and indicators of progress, and track them regularly.
Create an extremely simple spreadsheet to track your own financial progress each month. If it takes you more than five minutes to do, you will end up blowing it off. Start by picking just three numbers: savings rate, investable net worth, and FI ratio (financial independence ratio or FIRE ratio).
Your savings rate is the percentage of your net income that you save each month.
Your net worth is the sum total of all your assets, minus your debts and other liabilities. You don’t have to manually calculate this yourself each month. Use a free tool like Mint.com or Personal Capital to track it for you automatically.
Finally, your FI ratio is simply the percentage of your monthly living expenses that you can cover with passive income from investments. If you live on $4,000 per month and you have $1,000 in monthly passive income, you have a FI ratio of 25%. The higher your FI ratio, the faster you can reach financial independence.
Create your own system for tracking your key financial numbers, and make sure it takes no more than five minutes of work each month.
13. Review Your Credit Report for Errors: The credit bureaus make mistakes all the time. According to the Consumer Financial Protection Bureau, one in five Americans has an error on their credit report. Luckily, you can check your credit report for free once a year from each of the three main credit bureaus. Your financial spring cleaning makes a great time to pick through your report and look for errors. If you find any, you can follow the simple process of disputing credit report errors. It’s free and requires little effort on your part.
A clean home and clean finances don’t happen by mistake. They only happen when you go out of your way to make them happen. Set aside some time this spring to review your finances and tweak them where necessary.
If you need help with your financial spring cleaning, contact Brien at Brien@TraditionsWealthAdvisors.com or Sarah@TraditionsWealthAdvisors.com
Whether you are in a financial position to give a little or a lot, there are ways you can maximize your donation with certain tax implications in mind. Below are some basic tips, but it is always good to verify your specific situation with your financial or tax advisor. Information on charitable contributions can also be found at IRS Publication 526.
Source: Turner, Trudy. Goldman Sachs. 15 January 2021. https://www.goldmanpfm.com/personal-investor-blog/to-whom-much-is-given-financially-smart-ways-to-give-back
Did you know that having a strong financial plan can also be beneficial to your health? When you’re in control of your finances, you tend to experience less stress, feel more confident and sleep better. Let’s take a closer look at some potential benefits.
Source: How a financial plan can benefit your health. 22 January 2021. Goldman Sachs. https://www.ayco.com/insights/articles/how-a-financial-plan-can-benefit-your-health2.html
“Everyone wants to know if they should be doing something, because there is just so much uncertainty about what might happen and when,” says David Peterson, head of wealth planning at Fidelity. “But making kneejerk moves is never wise, especially since many of these proposals may never get enacted. You need to think about them in terms of your long-range plan. Being prepared mostly means being educated about your options.”
Basing tax planning on what might come could be premature, because campaign proposals are rarely adopted in their exact form and often lack the specifics to perform pinpoint planning.
One possibility is that Congress simply allows the provisions of the Tax Cuts & Jobs Act to expire at the end of 2025. Or Congress could make major changes to tax laws that could impact financial planning for upper-income earners, investors, and anyone who is leaving assets to heirs. Those earning more than $400,000, especially those earning more than $1 million, and those with estates over $3.5 million, are perhaps more likely to be affected. But tax proposals could impact anyone—from a young executive to a retired couple living mostly off their retirement savings, to anyone leaving their home to their kids.
State taxes play into this too, given mounting pressure on state budgets in the wake of the COVID-19 pandemic. Some states, including California and New Jersey, are already moving to raise state taxes. Others may follow, and many are seeking federal aid to fill budget deficits.
The best kind of long-range financial planning helps you today, possibly helps you out much more in the future, and leaves you in a better position than if you hadn't planned at all.
To that end, here are some ways to look at the possibilities—no matter what Congress does.
Possible changes: During the campaign, Joe Biden proposed increasing the top federal marginal income tax rate from 37% back to what it was before 2018, 39.6%. Also, the income thresholds for the top brackets could get adjusted downward. While certain deductions may be reinstated, deductions in general could also end up limited at high income levels, potentially reducing the benefit of very large charitable deductions. Bottom line: There could be significant impacts for those currently in the upper tax brackets, if not by earlier legislative action, then when the 2018 changes expire at the end of 2025.
Actions to consider: Until rates for future years actually do change, there’s likely no need to do anything differently other than investigate your future options. If you’re concerned that rates could rise in future years, you may want to think about strategies to reduce taxable income in the future in order to stay below the upper threshold, or consider moves that accelerate taxable income from the future into this year. Converting from a traditional IRA to a Roth IRA, assuming that fits in with your overall plan, may be an option, since that both accelerates future income into this year and reduces future taxable income.* On the other hand, it’s possible (albeit unlikely given historical patterns) that a change in tax rates could be retroactive to the beginning of 2021, in which case part of the benefit of such a conversion would be lost. So again, it may make sense to just weigh your options for now.
In addition, remember that the tax code is progressive, and any tax increases for those earning more than $400,000 might only apply to the portion of your income that is over the cap. You might want to run the numbers with a tax professional to see the impact on you personally.
If you are over the age of 72, your options for reducing income will not include skipping your required minimum distributions (RMDs) in 2021, unless Congress authorizes another pause like it did in 2020. But it’s important to note that you have until the end of 2021 to decide how to take them—taking a single distribution at some point in the year or spacing out your distributions. Don't forget, though, because if RMDs are not waived again for 2021 and you do not take the right amount, you can be hit with big penalties and fees.
“The timing of your RMD from a traditional IRA doesn’t matter from a tax perspective, as long as it happens before the end of the year, with one exception—for your first RMD, in the year you turn 72, you have until April 1 of the following year. Just be aware that if you wait, you’ll end up with no RMDs in your first year and 2 in your second. That could have knock-on effects (e.g., getting pushed into a higher tax bracket), so give it some thought and consult with your tax advisor,” says Matthew Kenigsberg, vice president of investment and tax solutions at Fidelity.
Another move to consider this year involves charitable giving. One way of making the most of the tax deduction for charitable contributions is to “bunch” several years of planned contributions into a single year to take fuller advantage of itemizing. That tends to be an advantageous strategy for many people whose itemized deductions are below or only slightly higher than the standard deduction, but given the possibility of tax changes, the timing can be tricky.
“You might assume that if tax rates go up next year, you would benefit more from a large charitable donation then, but that does not necessarily hold if at the same time deductions are capped and phaseouts are reintroduced. Actually, you could do much worse,” says Kenigsberg. But again, at this point it’s hard to know whether any changes would go into effect in 2022 or be retroactive to the beginning of this year, so it could be smart to watch and wait.
The caveats: Your retirement income strategy and your charitable giving are highly personal decisions that depend on a lot of different factors. You do not want to make financial moves just because you think a tax change is coming, but instead you should do so because it helps you toward your overall goals. Before making a decision, always consult with a tax advisor.
Capital gains taxes:
Possible changes: Capital gains rates could go up in the future—Biden has proposed raising the top tax rate on long-term capital gains and qualified dividends from the current top rate of 20% to higher ordinary income tax rates for those earning more than $1 million a year. The top ordinary income rate is 37% currently and could increase to 39.6% (exclusive of the Medicare surcharge) under Biden.
Possible actions: If you are considering realizing some gains held in taxable accounts and you are concerned by the potential for higher rates in the future, you may want to think about doing it this year to capture today’s long-term capital gains rates. That's particularly true if you are considering or in the process of diversifying out of a concentrated investment position, and think your income will be over $1 million in the future, perhaps due to the sale of stock, a business, or other earnings. Once again though, there’s no guarantee the new rates would not include capital gains realized this year, so it may be sensible to watch and wait for now.
For both taxable investments and stock options, you want to think about your overall timetable, understand your tax rates, know where your taxable income falls in the tax bracket, and how the increased income fits into your overall tax picture now and if rates rise.
For the sale of a business that can’t be completed this year, you may want to consider the value of an installment sale versus an outright sale to spread out the gain and mitigate the potential tax impact of rising rates.
You may also want to look at charitable options, because donating appreciated stock now could provide a useful tax deduction if laws change. When you gift appreciated stock to a qualified charity or donor-advised fund, you pay no capital gains taxes and can deduct the contribution if you itemize, with some limits.
The caveats: You may be tempted to realize gains on highly appreciated stock you want to hold for the long term, and then buy it back later at a higher cost basis. This strategy could work for some. But for others, paying taxes early on some gains could end up reducing after-tax returns over the long term.
“Don’t let the tax tail wag the investment dog,” says David Peterson. “You should be buying and selling based on your view of the long-term value of the assets, not based on the tax consequences.”
Possible changes: The changes proposed in the estate area could be huge and could have more of an impact than all the other areas on some families. At the top of the list is the current federal estate tax exemption amount of $11.7 million for an individual (double for a married couple), which under current law is set to revert in 2026 back to prior amounts, adjusted for inflation. Congress could further reduce this for individuals. This would change the planning calculus for many families.
Further, Biden has proposed repealing the step-up in basis at death, which could mean that these assets would be subject to capital gains taxes based on their original purchase price, not the price at death. It’s also possible that changes could require those taxes to be paid at death versus when your heirs sell the property, but it is unclear whether a tax credit against any estate tax due would be allowed. That would affect anyone who plans to pass on appreciated assets, from a family home to a stock portfolio.
Actions to consider: Review your needs and goals. Estate planning for years has leaned toward setting up a plan for your assets to pass to heirs after your death, but if the taxation changes, the focus could shift to spreading out gifting of an estate over a longer span of time while you are still alive, either outright or with the help of a variety of trusts. “Market conditions could also affect your strategic plans,” says Peterson.
For 2021, you can give up to $15,000 ($30,000 for married couples) a year to anyone without affecting your lifetime gifting limit of $11.7 million for individuals ($23.4 million for a married couples), which can add up. You can also pay for a loved one’s tuition or health care costs directly, without impacting your lifetime gifting limit. And there are different trust options to consider. Many, however, will be irrevocable, meaning they are difficult or impossible to change once established. You may want to set up the trust structure you desire now and then take the step to fund the trust later.
The urgency here is that estate planning takes time—you must think through what you want, which is difficult for many people. You then need to engage financial and legal professionals, who get very busy at times of uncertainty. No matter what happens with potential tax law changes, reviewing your estate planning needs is one of those tasks that’s best to do sooner rather than later.
The caveats: Once you give money away or fund an irrevocable trust, you can’t control it, so be sure that it’s what you desire. You want to stress test your plan to make sure you have the assets and income you need for your own retirement. You also may want to talk with your heirs about your intentions and consider approaching this as an opportunity to share your goals and wishes.
With all financial planning, it’s important to make sure to think and plan for the long term. It can help to consult with a financial planner and a tax professional for support in assessing your own future needs and setting the right course, even if taxes do rise.
Article above from: Fidelity's What To Do About Tax Uncertainty
If you are approaching retirement or already there, here are 5 rules of thumb to help manage your income.
1. Plan for health care costs
With longer life spans and fast rising medical costs it is important to manage your health care costs during retirement. An average retired 65 year old couple may need approximately $295,000 to cover health care expenses in retirement. About 70% of those aged 65 and older will need long term care services either at home or in assisted living. Consider purchasing long-term-care (LTC) insurance and the earlier you purchase a policy the lower the annual premium. It is important to research the company you select and the potential LTC options and costs.
2. Expect to live longer
It is quite likely that today’s healthy 65-year-olds will live into their 80s and 90s. This means you may need 30 or more years of retirement income. It is important to plan ahead so that you do not outlive your savings and depend on social security. On average, social security income is only $1500 a month which may not cover all of your needs.
3. Be prepared for inflation
Inflation affects your retirement income by increasing the costs of goods and services. Choose investments that have the potential to keep up with inflations. An age-appropriate, diversified portfolio that reflects your risk tolerance and financial circumstance is important and can be discussed further with your financial planner.
4. Position investments for growth
Being too conservative or too aggressive in your investments can affect how long your money may last. An investment strategy that is balanced in growth potential and risk may be the answer. Build a mix of stocks, bonds, and short-term investments. Diversification and asset allocation is ideal but does not ensure a profit or guarantee against loss.
5. Don’t withdrawal too much from savings
Consider conservative withdrawal rates so you don’t spend your savings too rapidly. To make sure your savings will last for 20-30 years, consider withdrawing no more than 4%-5% from saving in the first year of retirement, then adjust that percentage for inflation in future years.
After many hardworking years spent saving and planning for retirement, it can be stressful to change from saving to spending that money. It doesn’t have to be that way when you take these steps leading up to and during retirement.
Contact Traditions Wealth Advisors at Brien@traditionswealthadvisors.com or 979-694-9100 for questions or comments about your retirement portfolio.
Source: 29 September 2020. Fidelity Viewpoints. https://www.fidelity.com/viewpoints/retirement/protect-your-retirement-income?ccsource=Twitter_Retirement&sf241687220=1
The year is flying by and you might have forgotten half of your resolutions. If you are thinking it is time to get back on track with your financial goals, use these important dates to help you. Get out your electronic or paper 2021 calendar, and click the button below to mark down these dates.