The difference between a gift and a loan

Like many of you, I’m looking forward to spending time and catching up with family members I haven’t seen very often during the year. With all the disastrous world events and the never-dull political season heating up, I’m certain there will be some interesting conversations, not just at my house, but also across the nation.
It seems like every January I receive a phone call from a client who learned over the holidays that their son or daughter was having some sort of financial issue. They want to discuss dipping into their nest egg to help out their loved ones.
For the most part, I have no problem with this. After all, family is family. And if you’ve been fortunate enough and are financially comfortable in retirement, I certainly understand why you would want to help family members.
However, I think it’s important to put defined parameters on the financial assistance. If you don’t, experience leads me to believe that misunderstandings over money can result in fractured family relations.

I miss my late father a great deal, but he imparted to me a piece of advice I will always treasure. He was adamant that he never wanted our family to have disagreements over money.
As a financial adviser I’ve witnessed many financial arguments among family members. I’ve seen long-time family businesses break up because the kids running the inherited company disagreed over money issues. Often to the point that the children totally disassembled the family business their parents had built.
You might not own a business, but when a family member corners you during the holiday and asks for financial help, you probably will if you’re able. That being said, if you do help a son, daughter or other family member, it’s important to have your money, your heart and your documents in order.
For example, I’ve had some clients complain to me months later that their loan wasn’t being repaid. When I ask if the recipient knew it was a loan and not a gift, the typical response is, “I thought they did.”
The lesson is clear. When money is involved, make certain both parties understand exactly what’s expected. If it’s a gift, make clear it’s a gift. If it’s a loan, I suggest an amortization table, and a signature acknowledging the loan.
I know. You might think giving a loved one a loan table and asking for a signature is cold and unnecessary. As a seasoned financial adviser, however, I’ve witnessed more than one family splintering over money issues. Defining the financial assistance will minimize potential issues.
My hope is that you will enjoy the warmth and beauty of the season free of financial concerns. But if they do arise, don’t just pull out your checkbook. Find out what created the problem. After all, if someone asks you for money, you should be allowed to ask questions.
A little due diligence might enable you to get to the cause of the financial problem and maybe even find a way to solve it. As a concerned parent, you don’t want to throw money at a reoccurring issue. You want the issue resolved for the long term.
In the meantime, I want to wish all my clients, readers and their families a Merry Christmas.

A healthy dose of technology provides peace of mind

By no means am I a technology expert. In fact, I’m often kiddingly ridiculed at the office for my lack of expertise. Recently, when I had an issue with an Excel spreadsheet, I contacted one of my sons to guide me through the problem.

I remember spending a fortune for an IBM computer several years ago. It came with two floppy discs and I proudly upgraded to an Amber monitor. It was the beginning of a trend.
Every time I have upgraded hardware or installed new software, no matter how easy the experts claimed it was to install, I’ve had issues. That being said, I still learned to embrace technology early in my career.

New technology is expensive, but as it rapidly evolves the price goes down. A few decades ago you could pay upwards of $100 for a desktop calculator. Today, they fit in your shirt pocket, and if you don’t want to pay a few dollars, your local insurance guy probably gives them away.

Just last week I wrote about cell phones and the add-on taxes that seem to keep creeping up. Today, I want to make my clients and readers aware of a relatively new technology that could be of great benefit.

As a financial advisor, many of my clients are in or near retirement. Not surprisingly, with today’s healthcare advances, quite a few of them are caring for an elderly parent. And believe me, shouldering both the financial and health care responsibilities of an elderly loved one is no easy task.
Fortunately, recent technological advances have made it much easier to keep track of your elderly loved ones. I’m not talking about something as “outdated” as putting an online camera on grandma’s fireplace mantel. It’s far more sophisticated than that.

You may or may not have heard of the Internet of Things (IoT), but you probably have noticed that a large segment of our population is wearing rubber wristbands to keep track of their steps every day.
In fact, many people compete against one another and actually have the daily results posted online for all the competitors to review. Some of these wristbands not only count steps, but also have emergency features that are activated in the event of a fall and are programmed to contact loved ones or even call for an ambulance.

In the not too distant future, I believe there will be a lot of wearable technology that will help you care for and monitor your loved ones without invading their personal space. Technology already exists to monitor pulse rate and blood pressure. GPS tracking systems are available to help in case a loved one becomes disoriented. And experts estimate that the IoT will consist of almost 50 billion interconnected objects by 2020.

I think it’s reasonable to assume that, as the technology improves, prices will ultimately decrease. Initial prices, that is. As with home alarms and cell phones you’ll need to factor in monthly fees to determine the actual overall cost.

Healthcare planning is an integral part of financial planning. Helping aging loved ones with their healthcare issues is a huge responsibility, but new — and affordable — technology coming onto the market can help provide peace of mind; For your elderly loved ones and for you

Holiday shopping can be very taxing

This is the time of year when people shop for gifts in the malls, downtown shopping districts and on the Internet.  They’re in spending mode, searching for the perfect gift for everyone on their list. 

Many economists are forecasting deep discounts for a variety of reasons, but the bottom line is that it there will be a lot of bargains out there.  I’m going to go out on a limb and predict that a good many gift packages are going to contain cell phones.  Or as I like to call them, outboard brains. 

As with everything else in our great nation, there are taxes on cell phones.  Lots of them.  Taxes that I guess most people are unaware of, and if they even were, would likely not understand them without doing some research. 

Frequent travelers have become accustomed to unanticipated taxes.  The kind you see at airports and hotels, for example.  You aren’t aware of them until you get to the airport or check out of the hotel. 

In the financial services industry, I have to pay a licensing fee to each state where I’m licensed.  The licensing fees in most states are generally around $50 to $100.  And for the most part I have no objection to such fees.  I consider them to be reasonable.  

The state of Tennessee, however, is an exception.  For the privilege of buying a $50 state license, you have to pay a Tennessee privilege tax.  That means ponying up $500.  Every year.

The good news for Michigan residents is that, although we pay plenty of taxes on cell phones, thirty-six other states pay more.  We rank thirty-seventh nationally, one of those rare circumstances where being near the bottom of the list is a good thing.

In total, the combined tax rate comes to 14.74 percent.  The breakdown is as follows: six percent sales tax; state wireless 911 comes in at .41 percent; county wireless is 1.45 percent; the Intrastate switched toll restructuring statement -- whatever that is -- is a mere .43 percent; and the Federal Universal Service Fund comes to a whopping 6.46 percent.  Check my math, but I’ve got the grand total at 14.74 percent. 

If fifteen percent appears to be somewhat excessive, be thankful you don’t live in the state of Washington.  The tax there is more than 25 percent.

I don’t want to put a damper on giving cell phones as a gift, but they do cost more to own than just the advertised price.  And while I don’t want to be a Scrooge either, I do want to point out that there’s a fine line between being generous and putting your finances at risk.  Not to mention the gift recipient’s finances.

Cell phones and tablets are certainly a part of our nation’s landscape.  But, they’re not inexpensive.  And with all the taxes factored in, they just might be more than you initially realize. 

According to Investor’s Business Daily, consumers with cell phones are paying $5.8 billion in excessive state and local taxes, and another $5 billion goes to Uncle Sam.  That’s a lot of money for those “little” items that many don’t even notice on their bill. 

If you do look, don’t be surprised to see even more taxes added in the very near future.

The financial ramifications of Paris and keeping your loved ones in the loop

In mid-November I felt the pendulum swing of emotion. Like so many people I was saddened and angered over the horrific attacks on innocent people in Paris. A few days later I was thrilled when our unpredictable Detroit Lions finally won a game in Green Bay.

By no means am I implying that the thrill cancelled out the sadness and anger. As we’re all aware, sports results are not matters of life and death.

To put the events into proper perspective, sports are really nothing more than a sort of escape from the realities of life, a vicarious diversion.

The events in Paris were beyond horrific and caused unimaginable grief for so many families. Grief that will never go away and will forever haunt those who lost loved ones.

It just goes to show you that in this crazy world anything can happen to anyone at anytime, regardless of age and circumstances.

As an adviser, though, I was pleased to see the world’s markets open and functioning normally after the Paris attacks. Not because I’m callous or insensitive to the victims of terrorism.

From my viewpoint, the markets — on Wall Street and throughout the world — represent order and civilization. By order, I mean that, even though prices fluctuate, at the end of the day they’re determined by the free markets. Not by having someone’s or some entity’s will forced upon the people.

I’ve often written that investors need an iron stomach and that they need to keep their emotions out of their investment choices. The events in Paris are the most recent example of why both attributes are necessary.

Again, I don’t want to sound callous, but in today’s world anticipating the unexpected and unimaginable is an integral part of financial planning. I don’t pretend to have an answer to all of the world’s issues and problems. But I believe the recent events in Europe should serve as a reminder why it’s so important to not only have your own financial house in order, but also to be involved in the financial order of your extended family.

I mention this because I’m an adviser to clients of various ages. And it’s fascinating to see how different age groups handle their financial transactions differently.

For example, I have many seasoned clients that continue to receive hard copies for all of their investment and bank statements. That means loved ones can easily access their pertinent data.
On the other hand, many of my younger clients opt out of paper statements and essentially do their banking from a smart phone. Which means all their financial data is digital.

Naturally, you want all of your online activities to be secure, but you also want your loves ones to know how to access your data in the event of illness or tragedy.

Financial technology may be convenient and secure, but if that’s how you handle your finances, it’s important to make certain that trusted family members know how to access this information if you’re no longer able to do so.

Unfortunately, the unexpected can happen at any time. Recent events should serve as a reminder to keep your financial house in order. And if you’re a “high tech” household, be sure to keep your loved ones in the loop.

Technology only takes you so far in investing

When my sons were young, our family went on a number of long road trips. Back then, my wife and I were big fans of the road atlas. Now that we’re empty nesters, we fly more often than drive.

After years of frustration with the airlines, however, we decided to drive on our most recent trip. With our trusty GPS, we just had to key the address into the touchscreen and follow the instructions.

The friendly voice would always tell us what to do. If we had an upcoming turn, a pleasant woman’s voice would instruct us to turn left in one-half mile. Even with the instructions I would occasionally make a mistake; but when I did, there was no criticism. The nice woman’s voice would say, “recalculate” and get us back on track without a trace of judgment.

I’m definitely impressed with the technology of the GPS. But on the return home, if I had followed its instructions, we would have gone through downtown Chicago at the peak of rush hour. Following the instructions would have been a mistake.

While the GPS could calculate the quickest route, it didn’t take into calculation the time of day I would pass through the Windy City. Nor did it know anything about me. For example, the GPS didn’t know if I had vision issues at night.

At that point it occurred to me that, as wonderful as the GPS technology may be, we should never ignore the human element and depend totally on technology.

I bring this up in a financial column because I fear that far too many investors are doing themselves a disservice by being overly dependent on technology when they plan the course of their investments. They’re overlooking the human element.

For example, there are a number of software programs that, if you input your birthdate and risk tolerance, answer a few questions and provide a financial goal, the program will lay out an entire financial strategy.

In other words, financial planning and investing is becoming eerily similar to my car’s GPS. Plug in what you want and technology will instruct you how to get to your destination.

Yes, much of the technology is extremely helpful, but as with a car’s GPS, computers lack the very important human element that advisers can bring to the table. By that, I mean the professional relationship between you and your financial adviser.

A good adviser will be aware of the human side of the planning process. For example, is there a child or grandchild with special needs? Are you worried about one of your children blowing through their inheritance? Are you or your spouse facing a large medical bill or is senior housing on the horizon?
Whenever the situation dictates, I believe a human can relate to your loved ones much better than a computer program. And from a purely investment standpoint, study after study shows that investors who work with an adviser tend to have better investment performance. Probably because advisers help investors keep their emotions out of their investments and keep them calm in difficult times.
Technology is great, but it shouldn’t replace the human element. Otherwise you might find your investments stuck in the Chicago rush hour traffic with your GPS muttering an apology.

Why long-term financial planning is out of control

We’re in a day and age where long-term financial planning is more important than ever in order to achieve your financial goals. My experience tells me that financial independence is rarely just a matter of luck.

I’ve observed that, in most instances, it’s a result of a lifetime of disciplined investing and simply living within your means. Among the major hurdles that make long-term planning so difficult are the circumstances over which we have no control. We can only react to them.

A few years ago, I had a retired client who decided to re-enter the workforce. He wanted to discuss all of his new retirement plan options and how they could fit into his existing investments.

He mentioned that he wouldn’t be eligible for any of his new company’s benefits until he was employed for six months. Rather than discussing his options immediately, I suggested we wait until it was closer to his six-month anniversary.

When we ultimately sat down, the entire investment platform offered by his new employer had changed completely from when he was hired six months prior. This is not an uncommon occurrence.
It’s also quite difficult to make long-term plans regarding income taxes. Last year was a good example. There was a new income tax rate for higher wage earners and numerous new taxes instituted in order to help fund the Affordable Care Act.

Another hot topic for many of my clients is Social Security planning. It seems to me that I get a solicitation in the mail almost weekly to attend a lunch or dinner seminar that explains the various strategies available for collecting benefits.

More than likely, such seminars are educational and informative, but as is so often the case in our nation, Uncle Sam just changed the rules. In the recent budget agreement, it was decided that the very popular Social Security strategy of file and suspend would soon be eliminated. So if you were a few years away from retirement, you’d be wasting time to learn about something that’s not going to be available.

You also have no control over the benefit package your employer provides. Other than by voting, you can’t control the tax codes and we certainly have no control or input over government-sponsored programs such as Social Security.

The point is that the items over which you have no input or control make long-term financial planning very difficult. During the planning process, I generally like to look deep into the future with a very cautious and conservative eye. Using Social Security as an example, I never like to project the maximum income a couple might possibly receive. I think it’s far more prudent to project less than anticipated, especially since the new Social Security statements say that Congress can make changes at any time and that there will eventually only be enough to pay 77 percent of projected benefits.

You can only control so much in life. I applaud those that take the time to learn in detail what they should do in the future. Unfortunately, the details that you can’t control keep changing.

That’s why long-term planning in today’s world requires frequent review. As you plan for the long term, make sure you keep an eye out for short-term glitches along the way.

New healthcare plan? Make sure your family plans with care

It’s that time of year again. Families across Michigan and throughout the entire country have to re-evaluate and select their healthcare insurance program for 2016. Like so much else in our society these days, healthcare plan options are far more complex than in years past.
Most employer-sponsored plans offer a number of choices, running the gamut from low deductibles with high premiums to high deductibles with low premiums. Additionally, many employers also offer payroll deductible Flexible Savings Accounts.
With an FSA, the dollars deposited can be used for various healthcare-related items such as insurance deductibles and other medically related expenses not covered by health insurance.
In other words, selecting the proper healthcare package for your family requires a fair amount of research. And that includes a projection of how your family’s health will fare in the year ahead.
For those not covered by insurance, it’s back to selecting their favorite color. Bronze, silver, gold and platinum will again be the available choices. And, of course, the higher the deductible, the lower the premium.
People who have Individual plans can also open a Health Savings Account (HSA), similar to the FSA, to cover deductibles and other non-covered medical expenses. If you’re on Medicare, the big decision is selecting the Medicare supplement that best fits your needs and budget.
Regardless of age, whether you have an individual plan, group plan or a Medicare supplement plan, it looks like a lot of households are staring at significant increases in their healthcare premiums.
I’ve already received several snide comments stating the Affordable Care Act is not very affordable. And I have to admit, I’m not aware of anybody’s premium decreasing as healthcare advocates projected while the law was being debated.
But, politics aside, healthcare premiums are taking a significantly larger bite out of the family budget, so households need to adjust their annual budgets accordingly.
On numerous occasions, I’ve had clients comment that their adult children are facing a more difficult journey than they did. When I ask why they feel that way, the inevitable response is the lack of pensions and the high cost of health insurance.

For many current retirees, their employer paid virtually all their monthly premiums during their working careers. Today, the employee’s portion of the monthly premium takes a big bite out of the paycheck.
I don’t pretend to have a quick fix for the high cost of healthcare, but I do know that, at every stage of the financial planning process, I project that the cost of healthcare will increase at a rate steeper than other areas of the economy.
I suggest you do the same. During your working career, expect that healthcare premiums will increase every year. When you retire, plan on allocating $250,000 of your nest egg for healthcare related costs, keeping in mind that Medicare supplement plans are part of the equation.
Selecting the appropriate health care program every year is a complex but necessary endeavor. A young family needs not only to select the best healthcare option, but also to save for their kids’ education and set money aside for retirement. Not to mention the mortgage and other monthly bills.
Life not only is complex, it can also be stressful. Good financial planning can mitigate that stress.