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More Than Money Newsletter - June 2015

Dear Friends, 

“Is Ric Edelman right?  Don’t you talk so foolish, now!”

Ric Edelman is an interesting guy.  You may have heard his radio show, seen him or tv, or glanced at one of his books.  His advisory firm assists clients manage billions of dollars in assets.  Clearly he is doing a fair number of things correctly.  But . . .

Edelman has been making the claim for years – and very vocally of late - that everyone should carry the largest, longest term mortgage the bank will permit.  If you’re eighty-five (85) and the bank will lend you three hundred thousand dollars ($300,000.00) for thirty (30) years against you home – Edelman says ‘Fantastic!’  What does Gene say?

Gene says ‘PooPoo, CahCah!’  Many (mostly financial salesman) will argue that borrowing all this money creates a great tax deduction and frees up money to be invested at (hopefully – certainly not guaranteed) higher rates of return.  To these I say – so what?

While I could take everyone through the (mostly tedious) numbers and debate Edelman on his (purely) financial premise, I will take a much shorter route to the correct conclusion.

In some financial decisions, non-financial factors outweigh the ‘numbers’.  Strictly referencing my own experience with hundreds of my own clients and thousands more in our More than Money Family – I’ve yet to meet my first person who regretted paying off the mortgage on their home.  In addition to the financial benefits, the psychic benefits of a mortgage free home are tremendous – the satisfaction of accomplishment achieved through years of discipline.  That monthly bill that no longer leaves the checkbook is quite lovely.  Reducing financial risk in retirement certainly adds to peace of mind.  I could go on, but you get the picture.  Sadly, Ric Edelman does not. 

“When is the earliest you can start a 529 plan for a child you love and wish to help educate?”

Educational costs have skyrocketed – simple fact.  529 plans offer parents, grandparents, and many others an effective, tax advantaged way to accumulate funds to help a child they love acquire a solid education.  The pros and cons of 529 plans are the subject for another discussion at another time.  The question here is – what is the earliest you can start a 529 plan?

Many would say you can start one right after the baby is born.  This answer is understandable, but (for IRS purposes) incomplete.  In order for a child to be named the beneficiary of a 529 plan the child must have a social security number.  So, on its face, it appears the earliest one can start a plan for this child is when the parents have secured a social security number for the baby.  As you’ve already guessed – this is quite wrong.

A 529 plan can be established long before the child it is intended to help is born.  A little know characteristic of 529 plans is the ability to change the beneficiary of the plan.  A second little know characteristic is the ability to have a 529 plan that names yourself as the beneficiary.

Using these two facts, a mother whose daughter has just announced her engagement to a wonderful young man could (in anticipation of a far future joyous event) establish a 529 plan naming herself as the beneficiary.  At the appropriate time – perhaps years later – when a grandbaby arrives the beneficiary is changed to the child.  This produces the opportunity to gain years of additional tax deferred (hopefully tax free) compounding within the account to benefit grandma’s real joy.

There are other creative ways to use this important tool to assist Americans in reducing the pain of paying for higher education.  Be sure to include these considerations in your financial plan.

“What should a widow think about (financially) before she remarries?” 

She should think pre-nuptial.

Decades ago the only people thinking prenup were Hollywood stars and the Prince of Monaco.  Today in America, more and more women and men considering marriages in their senior years are using this important legal tool to protect themselves, their families, and their legacies.

Love is a wonderful thing.  Certainly young love is grand.  Love in our senior years can be even grander.  With age comes (hopefully) wisdom.  Unfortunately, love can cause a perfectly wise and level headed person to make very foolish mistakes.  The stories of senior marriages ending up in absolute disasters are – sadly – piling up everywhere.  In virtually every disaster families who are devastated could have been protected – quite simply – with a prenuptial agreement.

Prenuptial agreements can and should cover a wide range of issues:

  • What happens financially in the event of a divorce?
  • What happens if one of the spouses loses their health and needs extensive care?
  • How should respective financial assets be titled – separately, jointly, or a combination?
  • How should debt incurred before – and after – the marriage be handled?
  • What should be done if there are multiple residences?
  • How will tax returns be filed?
  • How will estate documents be constructed?

Of course, many other topics may be included in an effective prenuptial agreement. 

There are several tips that will help insure the agreement is as effective as possible:

  • Take the time necessary to fully discuss all the issues necessary. 
  • Don’t be in a hurry.
  • Each spouse should have legal representation.
  • Take the time to review your plans with your financial advisor(s) and tax accountants.
  • Talk to your children to insure they understand your wishes.

What if your intended resists or refuses to cooperate with the construction of a prenuptial agreement.  See yah!  Consider yourself lucky that this huge red flag presented itself before real damage can be done.  Remember there’s more than one opportunity for love at the church covered dish social!

“Is it ok for your company 401(k) to offer you really stinky investment options? According to a Supreme Court ruling this week – heck no!

Based on a suit brought by the employees of a firm that offered them a 401(k) with what they believed to be sub-par and overpriced investment options, the Supreme Court ruled that 401(k) plans have a duty to monitor the investments options they offer.

For millions of Americans, 401(k) plans are the most significant component of their retirement plans.  In recent years, many plans have come under fire for failing to replace funds that underperformed and/or for retaining funds when lower cost funds where available.  Both of these issues come under the heading of plan ‘monitoring’.  This ruling makes more clear the plan responsibility to the employees to provide quality investment options.


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Words are Powerful Tools for American Freedom

Benjamin Franklin was one of the first home-grown American success stories.  Beginning with (less than) nothing he became one of the wealthiest men in the new world.  He shared many words of wisdom on many, many topics during his long – and exciting – life.  Here he tells us how to become wealthy:

“In short, the way to wealth, if you desire it, is as plain as the way to market.  It depends chiefly on two words, industry and frugality; this is, waste neither time nor money, but make the best use of both.”

Is America still the land of opportunity?  Undoubtedly so.  We don’t hear stories of millions of immigrants sneaking into France.  Or China.  Or Venezuela.   Or Iceland.

One may actually find more opportunity in America today than ever in our history.  Why? 

Because both industry – the willingness to work hard and persist over time – and frugality – the willingness to deny one’s desire for instant gratification and be disciplined in spending – are in remarkably short supply.  The reasons are many (and tempting to detail), but the reasons are not as important as the opportunity.  For Americans willing to work hard and be frugal – their future is very bright indeed! 

Where do you see opportunity in America today?  What product or service could you develop that with hard work and frugality could serve many and make you wealthy?  These are exciting questions.  Pass them on.

Please allow us to serve you and those you love.

Thank you,

Gene

P.S.  What will you do to help return America to its rightful claim as the ‘Land of Opportunity’?

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