Winter 2014

How is the budget deficit? How do you talk about your legacy wishes? How do you say no gracefully? It’s all here in the latest issue of “Financially Speaking”! Enjoy and as always, we welcome your comments and questions.

Good News For A Change

One leading candidate for the “most under-reported story” of 2014 is the remarkable drop in the U.S. government’s budget shortfall. The final numbers announced by the U.S. Treasury for fiscal 2014 (ending September 30) shows a $483 billion deficit. That’s about $1 trillion lower than the record $1.4 trillion deficit recorded in 2009. As a percentage of the U.S. Gross Domestic Product, the deficit came in at 2.8%–below the average of the last 40 years.
Digging into the numbers a bit, the government collected just over $3 trillion in the past 12 months, which comes to 17.5% of America’s total GDP. That’s up from $2.8 trillion last year, largely the result of a stronger economy, but also reflecting higher tax rates on higher-income Americans. Meanwhile, spending was essentially flat, rising from $3.45 trillion to $3.50 trillion, reflecting decreased defense spending and cuts in the unemployment insurance program, flood insurance and disaster relief, crop insurance, the Supplemental Nutrition Assistance Program and a variety of housing programs.

If there is bad news in this picture, it’s that Social Security, Medicare and Medicaid are taking over an ever-larger share of the budget and these costs have been rising much faster than inflation. “Entitlement” expenses are not discretionary; they are basically written contracts with the American people. Medicaid in particular is worrisome. While discretionary expenditures are down almost totally across the board, Medicaid spending growth was 10.2% in 2014 and is projected to rise 14.3% next fiscal year.

How does all this affect you? Notice that the partisan budget bickering has quietly faded away. Congress has extended government funding several times without fanfare and is expected to do so again during the lame duck session. This might induce the rating agencies to give American bonds back their A+ credit rating.

We may see a tax reform bill sometime next year, which will certainly lower the U.S. corporate tax rate and may address America’s tangled individual tax code. Earlier this year, a House bill proposed to repeal dozens of tax credits, deductions, and tax preferences including the mortgage interest exemption and deductions for charitable contributions. This legislation would create two individual income tax brackets at 10% and 25%. Another proposal would replace most current federal taxes with a 23% national retail sales tax.

You may hear more about reforming Social Security, Medicare and Medicaid. The Social Security fix is relatively straightforward. For persons under the age of 50 today, full benefits would be deferred a year or so to reflect the fact that people are living (and capable of working) longer. Medicare proposals have ranged from giving total discretionary control to states, to creating a voucher system that would cap benefits for each participant.

Finally, all of us who are recommending Roth conversions have to pause when we see proposals that would replace income taxes with a sales tax. The premise of a Roth conversion is that you are paying, today, equal or lower taxes on the converted retirement dollars than you would be paying in the future. If future marginal tax rates go down to zero, and all government revenues are shifted to a sales tax, that dramatically changes the Roth equation. Yes, this is unlikely, but even the unlikely contingencies have to be factored into today’s financial decisions. After all, who thought the budget deficits would fall below 3% of GDP so quickly? We’ll be watching this closely for its impact on your situation.

“Give me books, French wine, fruit, fine weather and a little music played out of doors by somebody I don’t know.”

–John Keats,
English Romantic Poet

Client Adopts A Park

Mary and Vern Miller, right, have been park hosts at the Headwaters State Park, Montana for the past five years.
A short time after leaving the workforce, some retirees start looking for new ways to fill their time. Out of the myriad opportunities, some choose to be foster parents… of campgrounds. Click here to read the full story.

Let Heirs Know Your Legacy Plans

Estate planning can be one of the most emotionally difficult aspects of financial planning. One often-overlooked aspect of estate planning is talking with your heirs about your legacy plans. While most of us probably accept in theory that these conversations are important, actually carrying them out can be terribly difficult. Here are a few suggestions that may help:

1. Communicate your values about money in a larger context with both words and behavior. Our estate plans often reflect lifelong values such as a commitment to charitable giving or a wish to provide first for our families. If children are familiar with your values, chances are they will have a good idea of what to expect from your estate.

2. Evaluate your children’s money skills. Just because kids grow up in the same family doesn’t mean they will have the same knowledge and attitudes about money. Especially if children will inherit significant amounts, conversations about estate planning can become part of larger conversations designed to help teach them how to manage and become comfortable with their legacies.

3. If your estate plan does not treat children “equally,” for whatever reasons, it’s best to share that information well in advance and to communicate it privately to each child. There are many reasons why treating children differently in an estate plan can be the fairest thing to do, but that doesn’t mean it’s wise to let them learn the specifics when a will is read. If parents and individual children can discuss these provisions and the reasons for them ahead of time, there is less likelihood of conflict between siblings after the parents are gone.

4. Don’t allow children to assume they are inheriting more than is the case. If most of your estate will go to charity, don’t keep it a secret. Not telling the kids may avoid conflict now, but it will sow seeds for deeper conflict and resentment after your death.

5. Prepare children for large or unexpected inheritances. I’ve worked with heirs who were stunned to receive legacies much larger than their parents’ lifestyles had led them to expect. If you have a substantial net worth that’s “below the radar,” perhaps in the form of land or business ownership, your children may be totally unprepared for what they will inherit. Find ways to help them learn more about both the financial and the emotional aspects of managing inherited wealth. You might also consider options, such as giving more to the children during their lifetime, to help reduce the impact of a sudden inheritance.

6. Acknowledge your own fears. Although it is seldom expressed, perhaps the strongest reason for not discussing estate plans with family members is fear. It’s natural for parents to be afraid that children will be angry or disappointed, will build too much on their expectations for an inheritance, or will be resentful of other heirs.

Talking to family members about estate planning and legacies can be difficult. Those discussions, however, will almost certainly be less painful in the long run than the stories children may make up about your decisions after you are gone.

Financial planners and financial coaches can play an important role that goes beyond providing financial advice by facilitating the family conversations. In especially difficult circumstances, the help of a financial therapist can also be invaluable.

Using the available resources to help you discuss your wishes with family members can be an important aspect of estate planning. Having those difficult conversations is one way to enhance the legacy you want to pass on to your family.

Special thanks to Rick Kahler for sharing this.

From The Data Bank

40 is the percentage of U.S. consumers surveyed who said their most important financial goal is building an emergency fund. (CFP Board)

66 is the percentage of couples in which the men have a higher risk tolerance than their female partner. (FinaMetrica)

69 is the percentage of U.S. parents surveyed who cannot save for their children’s higher education because everyday living expenses have left no additional funds. (CFP Board)

80 is the percentage of Americans who say the first thing they do after waking is check their smartphone. (Time)

$94.3 million is the amount of money raised by the ALS Association since the end of July, thanks to the ice bucket challenge. (Time)

How To Say No80 is not the new 65

Saying no is hard. We don’t want to disappoint or let people down. And yet, you can’t say yes to everything. You can say no and still sound like a responsible, easy-to-work-with, accommodating person.

Here are four techniques for how to say no:

1. Thank the person for asking. “Thank you for asking me.” Saying “thank you” acknowledges the other person and buys you time to think about his request.

2. Tell the person you need some time to think about his request. Ask, “Can I have a few days to think about it? I’ll get back to you by Friday.”
You don’t need to reply in the moment. I often regret things I agree to without thinking through the request thoroughly.

3. Consider what you really want and are willing to do. It’s much worse to over commit and under deliver than to simply say no or renegotiate requests.

4. Get back to the person in a timely way (when you said you would) and tell him what you’re willing to do.

5. Keep your commitments.

How to Say No Option One: Simply say no.
Example: “I really appreciate you asking me to the fundraising event. I’m not able to do that. Can I recommend someone else who has the expertise and will do a great job?” Don’t give a bunch of reasons for saying no. People aren’t interested in why we can or can’t do something. They just want to know if we will do it.

How to Say No Option Two: Agree and negotiate the time frame. Example: “I’d be happy to do that. I can’t do it before the last week of the month. Would that work for you?” If the answer is no, negotiate further. Ask, “When do you really need it? I can certainly do pieces by then, but not the whole thing. Given that I can’t meet your timeline, who else can work on this in tandem or instead of me?”

How to Say No Option Three: Say no to the request but say what you can do. Example: “I can’t do _______. But I can do ________. How would that work?”
Saying no is always hard. But it’s always better to say no than to ignore requests, or to say yes and do nothing.

Special thanks to Shari Harley for sharing this.

Office Notes

We have several new developments at Inspired Financial this winter. We are working on a new website and logo design that should be ready early next year and a new, more user-friendly interface for the client portal. Stay tuned for more details on both over the next couple of months.

In December, Laurie completes her last class in the Personal Financial Planning curriculum. Next stop? Taking the CFP® exam in March. She also accomplished her goal of 10,000 daily steps since October 1st.Minnie Mouse

If you had visited our office on Halloween, you would have been greeted by a lovely Minnie Mouse. Isn’t Beth cute?

In November, Kevin attended a technology conference in Omaha that provided training on how to implement a new interface for the client portal as well as ways to improve our portfolio management system.

Evelyn and Mark completed the exterior renovations on their home and just started the final phase of renovations. The new landscaping and hardscaping should be done by January!

Thank you for your ongoing trust and we wish you peace and joy during this happy holiday season!

Your team at Inspired Financial

Note: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) or strategy may be appropriate for you, consult with your attorney, accountant, financial advisor, or tax advisor prior to investing or taking action.