Planning for Alzheimer's

Have you misplaced your eye glasses recently? Or, have you recognized a face at the grocery store but been unable to recall the person's name?

Forgetting a name or where we put our keys are typical realities for many of us as we get older. For the 5 million Americans currently living with Alzheimer’s Disease, however, routine activities such as driving, cooking, taking medicine, or managing finances can have disastrous consequences if the disease isn’t noticed or addressed in a timely fashion.

A 2016 study published by Dr. Halima Amjad and colleagues, of the Division of Geriatric Medicine and Gerontology at John Hopkins, showed that patients with unrecognized dementia were nearly twice as likely to engage in unsafe activities than those that had been diagnosed. In fact, nearly a third of those studied with undiagnosed dementia were still handling their own finances, compared with only 12% of those that had been diagnosed.

According to the Alzheimer’s Association 2017 Alzheimer’s Disease Facts and Figures, the number of Alzheimer’s cases are projected to as much as triple over the next 30 years. Considering that 1 in 3 seniors die with dementia, it would be bordering on insane to not incorporate planning for cognitive decline in all our financial plans.

Perhaps the most at risk are those that are the most self-sufficient and independent individuals. In other words, those that most doggedly manage their own affairs may ultimately be the most prone to harming themselves. Add in other dynamics such as strong personalities and high levels of intellect that may make a child or spouse reluctant to address concerns, and you may have a recipe for disaster.

Take, for example, the Central Texas rancher client we had at my previous employer. He historically had been a bond and Bank CD buyer and had accumulated a nice nest egg over his 70 or so years. Even though he was assigned to an advisor in our local office, he typically conducted most of his business online or through our central call centers.

Then, one day, he showed up at our office with his wife. They were both confused and had questions about why their account had dropped in value. Upon reviewing the account, we immediately noticed that he had been trading stock options and had lost a significant amount of money.

Through the discussion with both the husband and the wife, it was apparent that they were both impaired in some way and probably not capable of acting in their own best interest. They had a son listed as the beneficiary on their account and when we reached out to him, he was very reluctant to challenge his father’s judgement. We were compelled to close the client’s account and get him out of those high-risk investments he had made, but the damage had been done.

This situation demonstrates one of the most apparent benefits of having a personal relationship with a financial advisor, accountant, or some other professional that knows you and that you interact with periodically. You don’t have to be a CFP®, CPA, JD, or MD to know the warning signs, though. According to alz.org®, the top 10 are:

1. Memory loss that disrupts daily life
2. Challenges in planning or solving problems
3. Difficulty completing familiar tasks at home, at work, or at leisure
4. Confusion with time or place
5. Trouble understanding visual images and spatial relationships
6. New problems with words in speaking or writing
7. Misplacing things and losing the ability to retrace steps
8. Decreased or poor judgement
9. Withdrawal from work or social activities
10. Changes in mood and personality

Have a Conversation Today

Discussing aging and its consequences can be difficult, especially if dementia symptoms have already set in. In a worst case scenario, you may have to go to court to have your loved one declared incompetent. While the conversations are never easy, they are better had sooner than later. Some of the tools and best practices to consider and discuss are:

• Power of Attorney
• Trusts
• Update beneficiaries
• Current will
• Living will
• Health care proxy
• Long-term care insurance
• Secure storage of legal documents, passwords, and trusted advisors

If you would like to discuss your plan, get in touch.

Two HUUUGE Questions About The Biggest Tax Cut In American History

Stock markets rallied this week in anticipation of, and in reaction to, the President’s tax plan. Probably the biggest concern on most people's’ minds has been, "What do I stand to lose?" Meanwhile, policy makers must wrestle with who will  “pay” for tax cut proposals (as much as $7 trillion by some estimates) by closing loopholes. Of course, what may be a loophole to some is considered sacrosanct to others. Even though many important details are still lacking, there do seem to be some answers to the two most common questions I’ve fielded in conversations over the past few weeks.

Will I still get a deduction for making retirement contributions?

Initially, the president’s press secretary, Sean Spicer, was quoted as saying the proposal only included tax deductions for charitable giving and mortgage interest, “that’s it.” Afterwards, he clarified that the plan did NOT include doing away with the deduction for making retirement account contributions. It does make you wonder how close of a decision it was, given the recent report from the Congressional Joint Committee on Taxation showing that about $1.5 trillion in taxes could be raised in the next decade by changing how the upfront tax benefits of those accounts are currently treated.

For now, most retirement account contributions such as your salary deferrals, company matching, profit sharing, etc, are made pre-tax. The growth of the account is then tax deferred until retirement, where the proceeds are taxed upon withdrawal.

One proposal being examined is treating all retirement account contributions in the same manner as Roth IRAs, that is, you would receive no tax break on the front end but you wouldn't pay taxes upon withdrawal either. Believe it or not, arithmetic doesn’t favor paying a certain percentage in taxes sooner versus later.

Consider this simple example. You are in a 25% tax bracket and invest $1,000 for 10 years at 7.2%.

1. Pre-Tax, Tax Deferred:  You put in $1,000, it grew to $2,000, and you owed $500 (25%) in taxes upon withdrawal, leaving you with $1,500.
2. Post-Tax, Tax Free: You put in $750 ($1,000 minus 25% tax), it grew to $1,500, and you owed nothing in taxes, leaving you with $1,500.

Conventional wisdom is that you will be in a lower tax bracket in your golden years, but the more complicated reality is that your tax situation may change by circumstances that can be challenging to control, such as exceeding Social Security taxation levels, having Required Minimum Distributions push you into a higher tax brackets, and/or the potential for higher tax rates in the future driven by the voracious government appetite for spending.

So, yes, your deduction for this year’s retirement contribution appears safe. Even if the upfront tax benefits were to go away, however, it is likely that you would still see significant benefits to continuing your contributions.

Should I wait for capital gains taxes to go down to take a profit?

Depending on your current income tax bracket, long-term capital gains (LTCG) are currently taxed as low as 0% and as high as 23.8%. The White House proposes dropping LTCG rates to a high of 20% by eliminating the 3.8% Medicare surtax that is currently added on to LTCG rates for single taxpayers with adjusted gross income over $200,000 or $250,000 for joint. The House GOP’s, “A Better Way” has proposed reducing the top rate on LTCG even further, to 16.5%.

If you made a $1,000 investment over a year ago that is now worth $2,000, the most you potentially owe in Long Term Capital Gains + Medicare surtax is $238, or about 12% of the overall value of your holding. Even if the GOP’s 16.5% proposed LTCG rate were to become law, your tax burden would only shrink to $165, or to about 8.25% of your holding. Considering that 10%+ stock market corrections occur about once per year, it wouldn’t be surprising (and it may even be likely) that the next dip will cost you more than you would have saved by waiting.

I typically recommend not waiting to liquidate any amount you foresee spending in the next couple of years, regardless of pending tax laws. History suggests that it is likely we will see a swoon or two in that timeframe that could easily exceed any potential tax savings.

Everyone's situation is different, which is why you shouldn’t wait on having a plan in place. Get in touch if yours needs review.

Want More Interest On Your Cash?

Check Your Pockets

Do you know that feeling when you find money in your pocket when doing laundry? So how often do you put the bill back in the wash?

Last year, a GOBankingRates survey showed that an alarmingly high number of Americans have less than $1,000 in savings. While the media rightfully highlighted the savings shortfall in its coverage of the survey, as a financial planner, I wondered how the 30% of us that have more than $1,000 in savings are doing.  

As it turns out, while we may be hard pressed to find someone that would admit to passing on picking up a found $20 bill, it may be far easier to find folks leaving a lot more than loose change at their chosen savings institution.

To confirm my hunch, I started by visiting BestCashCow.com, a site that tracks interest rates at a variety of depository institutions across the country. There I learned that the average interest rate on savings accounts on their site is a whopping 0.13%. This is a cross section of institutions that may be local, on the other side of the country, or online only. What the best paying options on their site have in common is that they offer competitive interest rates significantly higher than the national average while still being insured up to $250,000 per depositor by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA).

Today, there are several banks offering annual percentage yields 8 – 9 times the national average. If you have $100,000 in savings being paid 0.13% APY, you’re earning about $130 per year. Opt instead for one paying 1.15% and see your earnings increase to $1,150 with virtually no risks.

These accounts also fare well against some of the largest mutual fund money markets. A couple of the largest examples are the Fidelity® Money Market Fund (SPRXX) with a current 7 day yield of .76% and the Vanguard Prime Money Market Fund (VMMXX) is at .92%. These are certainly better paying options than the average savings account, but would fall short of the federally insured saving accounts noted in the previous example. Using the 1.15% as a comparison, you would earn $390 or $230 more, respectively, on a $100,000 balance over the course of a year if all the rates stayed the same over that period. 

Just to be clear, I’m not advocating investors rush to pull cash out of their long-term investment portfolios to cash in on interest rates hovering around 1%. However, for those emergency accounts or cash that is earmarked for a specific purpose in the next year or two, it makes little sense to allow your bank or fund company to use the money for less than the market will bear.

What financial institutions count on is you staying with them once you have your assets on deposit. Some may encourage you to put money in by offering you more favorable terms on credit or other offerings if you maintain a deposit account above certain thresholds. Others may entice you with a freebie, like an upfront cash bonus. All of them know that you aren’t likely to want to go through the hassle of opening multiple bank accounts to move funds around as rates rise and fall.

There are even businesses that will shop and move your funds around for you, if you don’t mind paying them some of your pocket change. One that recently sent me a solicitation charges $80 per $100,000 that it "manages" for clients each year. But for ATX Portfolio Advisors' clients, I have a better solution.

1. Open an account wherever you can get the best rate on your cash, give me a call if you would like some help finding the best deal.
2. Link the account through my reporting and communications partner, Blueleaf.
3. I’ll help you manage it by periodically letting you know if there is a better deal elsewhere and facilitating the transfer if you determine it’s worthwhile.

It’s that simple, and there is no extra charge for the service. That’s Fee Only (When You’re Up) Accountable Wealth Management. If you aren’t currently a customer and would like to “test drive” ATX Portfolio Advisors, get in touch and I’ll set you up in Blueleaf for free. It may even be better than finding Alexander Hamilton in your laundry basket.