Top 5 Estate Planning Mistakes
Posted on 20. Jul, 2010 by Casey Smith
Top 5 estate planning mistakes
I recently read a report that suggested that only about 20 percent of the population has a formal estate plan. After reviewing the points below, please take a minute to consider whether it’s time for you to create or update your estate plan.
Here are a few of the top 5 estate planning mistakes that people make that can be avoided.
1. Dying without a will or trust – If you die without a will or trust, the state in which you reside and the IRS will simply make one for you. Of course, they have no interest in avoiding or reducing estate taxes, minimizing estate administration costs or protecting your family and legacy. The distribution of your assets will just be turned over to the Probate Court. The probate process is needlessly time consuming, frustrating and expensive. It is also open to the public, meaning creditors, predators or anyone else will have complete access to all information about your estate. For the vast majority of people, the benefits far outweigh any initial costs.
2. Having an “I love you” will – An I love you will is one in which all the decedent’s assets have been left to the spouse. On paper, it might seem to be a caring, thoughtful gesture, but the reality is quite different, because such a will simply passes the complex issues and problems associated with transferring and protecting wealth onto the spouse or other loved ones. It creates more problems than it solves, particularly for future generations.
3. Giving property outright to your children – Here is another solution that might sound good at first, but ignores several important realities. For instance, what if the child in question is too immature to handle the responsibility of a large sum of money on his or her own? What if the child suffers a severe financial setback that puts the inheritance at risk to creditors? What if the child marries a fortune-hunter, is addicted to drugs or alcohol, gets divorced or remarried? You may need to protect your children and heirs from their own poor decisions. These assets are also gifted assets which carry potentially large IRS penalties if not handled properly.
4. Owning property jointly – There are two types of joint ownership, Joint Tenancy with Right of Survivorship (JTWROS) and Tenants in Common (TIC). Problems with JTWROS include postponement of probate only until last tenancy, the loss of the double step-up in tax basis creating more to pay in capital gains taxes, and outright distribution. With TIC, you also lose the double step-up in tax basis where it’s available, and your property is subject to the estate plan of each tenant as well as probate for each tenant.
5. Not having a trust – A trust is the single most effective estate planning tool available. There are many different types of trusts. Among the better known and more commonly used are revocable trusts, irrevocable trusts and testamentary trusts. A Trust protects your privacy, and will help you leave what you want, to whom you want, in the way you want at the lowest possible cost overall.
Atlantic Southeast – Measuring Portfolio Risk
Posted on 20. Jul, 2010 by Casey Smith
When building a 401k portfolio, many people simply look at a fund’s performance without considering the risk of the investment. Fund performance should not be the only tool used in selecting mutual funds for your 401k. Another analytical tool that should be used is standard deviation.
Atlantic Southeast – Think Small
Posted on 20. Jul, 2010 by Casey Smith
Think Small
By Kyle Waller, Research Analyst Wiser Wealth Management, Inc & Casey T Smith, ASA ALPA 401k Specialist
In 401K investing, there is a major asset class that does not get the respect it deserves. In fact, it is largely ignored both by investors and plan sponsors. This asset class, small cap stock funds, is a very important element in a 401K plan.
Atlantic Southeast – The Cost of Not Saving
Posted on 20. Jul, 2010 by Casey Smith
The Cost of Not Saving
By Casey Smith, ASA ALPA R&I Committee 401k Specialist and
Kyle Waller, Research Analyst, Wiser Wealth Management, Inc
The saving rate among Americans is decreasing, yet the need for income in retirement is as crucial as ever with pensions and social security becoming scarce and not as guaranteed as they once were.
There is a real cost to not saving, and that cost increases as retirement approaches. This is a particular concern for us as pilots with forced retirement ages, since we will not be able to choose to continue working into our 70s. That being said, there is still hope at any age and it is never too late to start getting out of debt and saving for future needs. No matter the state of the nation’s economy, focusing on your personal economy should come first.
As we can see above, the saving rate among Americans has been on a sharp downtrend since the late 1980s, dropping to record lows during 2008. Recently, it has risen to just under 4% on average in 2009 and this year.
Saving has risen again recently due to the lower availability of credit. Since credit is never a guarantee, Americans need to adjust their dependency on easy access to credit and put away a higher percentage of what they earn. In general, the upcoming generation of retirees is more accustomed to widely available credit and is more optimistic than previous ‘thriftier’ generations.
Financial Knowledge vs. Time
Financial wisdom is an important key to having a successful portfolio. However, the more valuable factor that is often overlooked is time. Time gives the investor the ability to make it through both economic downturns and market booms. Historically, the market has behaved with large gains or losses over short periods of time. The secret to financial success is having a good strategy and the time to see those investments through the long run. You can see the value of time and saving sooner rather than later in the scenario below.
How Much To Save
A good rule of thumb is for an individual to be able to withdraw 3-4% in retirement without touching principle. This would generate $40,000 annually from a $1,000,000 portfolio.
Source: Morningstar, Inc using a 7% interest rate
Life isn’t as simple as the illustrated example since a professional pilot will most likely receive significant pay increases throughout his or her career. Another thing to consider is that as retirement approaches, it makes more sense to alter the investment portfolio to become more conservative, taking less risk and avoiding major market swings. This is another reason a younger person saving for retirement is at an advantage; they can take an aggressive investing approach and see that strategy through bad market cycles to success.
The ASA matching schedule is given below: A healthy amount to save each month is 15-20% of your income. The sooner retirement is for you, the higher this percentage should be. At the very least, an ASA employee should be putting 6% into his or her 401K account out of every paycheck. Not doing so is taking a voluntary pay decrease. If you’re not saving this much, stop reading, log onto your account and change the percentage to at least 6%.
| Completed Years of Service | Matching Percent |
| 1 | 20% |
| 2 | 30% |
| 3 | 40% |
| 4 to less than 7 | 50% |
| 7 to less than 10 | 75% |
| 10+ | 75% of the first 8% |
The ASA matching program matches a portion of the first 6% of your contribution based on completed years as an employee. Therefore, a second year employee (one year completed) will be matched 1.2% if they put at least 6% away in their 401K account (20% of 6%), this is in contrast to a 5% contribution rate which would be matched 1% (20% of 5%). Therefore, the real cost of not saving at least 6% is 1.2% for a second year employee. The incentive is increased as the employee completes more years. The program is designed to make a monetary incentive for saving through the program.
Behavior and Success
When making a plan for saving, it is important to note that good saving and investment behavior is as important as anything else. Saving should become systematic and so should the way you invest. This means no matter what the stock market is doing, you should be putting the same amount into your 401K and investment accounts every month. You should begin to think the same way about investing as you think of your monthly mortgage, a required bill.
Long term investing success really depends on playing great defense, which is sticking to the plan. This involves patience and endurance through market crisis, which will always come and go. An investor with a great strategy and the time to see it through will be successful and profitable in the end.
Why is behavior important? There is a gap in the stock market return and the average investor return, coined the behavior gap (see www.behaviorgap.com).
This behavior gap is caused by investors reacting to the ups and downs of the stock market, and can be very significant. When an investor reacts to the stocks market, i.e. buying stocks when they are rising, that investor is buying high. In the same way, selling stocks when they are falling is selling low. A profitable strategy is obviously just the opposite, selling high and buying low. To pull off this strategy successfully, a great amount market insight and forecasting is required. Even with good information, it is difficult do profitably over the long run. The better strategy is choosing funds to create a diversified portfolio and sticking to that plan no matter what happens in the market. This is a simplified version of a buy-and-hold strategy, but the “behavior gap” will be completely erased when an investor properly employs a no-nonsense buy and hold strategy.
In Conclusion
Investment and retirement savings success does not depend on financial knowledge or complex strategies. When you are saving for retirement, create a hands off plan for saving, get on board with that plan and see it through to retirement.
You can view more 401k articles, the pilot retirement calculator, 401k model portfolios and research at www.wiserinvestor.com/resources/asa
Atlantic Southeast – Asset Allocation
Posted on 20. Jul, 2010 by Casey Smith
The stock market has experienced a 5% pull back over the last few weeks and we have seen daily trading volatility similar to that of 2008. This has been caused by Europe’s own financial crisis. In 2008, American taxpayers bailed out their large banks. The European Union is currently bailing out Greece and possibly three more countries.
What does that have to do with you, a US investor? Over 50 percent of the the revenues of the S&P 500, the 500 largest companies in the US, come from overseas. Declining foreign sales and a declining euro hurt our mega corporations. You might be wondering what you should do with your 401k. If you are properly allocated according to your age and risk tolerance, the answer is nothing right now except possibly increasing your contribution to take advantage of the sale. You should also make sure that your portfolio is properly diversified. Is your 401k in all cash? Do you have more than 30% in any one fund?
The biggest risk to your retirement is not saving. The second biggest risk is how you invest. Print off a copy of this connection email as a reminder to look at your 401k allocation. You can also visit www.wiserinvestor.com/resources/asa for tips on allocating your portfolio. Of course, you may also call me anytime to discuss your individual situation.
Casey Smith ASA ALPA 401k Specialist
Letter to Clients – Crisis in Europe
Posted on 10. May, 2010 by Casey Smith
Dear Wiser Investor,
I am sure that the recent fallout in the market has many of you wondering what Greece has to do with US investors and how we can see a such a large decline in the stock market, even with job creation in the US. We will address that below. (more…)
Goldman Sachs – Not the Real Problem
Posted on 28. Apr, 2010 by Casey Smith
The current accusations and the resulting investigation into Goldman Sachs are very disturbing. (more…)
ETFs in Europe – Amsterdam ETF Conference
Posted on 23. Apr, 2010 by Casey Smith
I feel like I have completed a whirlwind review of Exchange Traded Funds worldwide here at the Inside ETFs Conference Europe. (more…)
Wiser Helps Those Out of Work – Free Tax Prep
Posted on 21. Mar, 2010 by Casey Smith
“If anyone has material possessions and sees his brother in need but has no pity on him, how can the love of God be in him? Dear children, let us not love with words or tongue but with actions and in truth.” 1 John 3:17-18 NIV (more…)
Active vs. Passive – Morningstar’s Second Half 2009 Report
Posted on 23. Feb, 2010 by Casey Smith
Morningstar has released their Box Score Report looking at active vs. passive investing strategies over the second half of 2009. (more…)