Your Unbiased Advisor: Don't miss these changes

Changes to retirement plan law require some re-thinking

The Secure Act raises the age for required minimum distributions to 72 beginning in 2020. It also removes the age limit for contributions to traditional IRAs beginning in 2020. This 2019 legislation does not affect the rules for 2019. If you’re at least 70½ in 2019, you must take a required minimum distribution. And you’re not allowed to make contributions to your traditional IRA for 2019 after age 70½. Put them into 2020 and beyond. You can add to IRA all your home health payments, grants, fellowship, stipends and awards. For those who don’t save: “IRA holders can use money in their account for child birth and adoption cost without penalty,” The bad news is that insurers can now sell annuities to employers so they won’t have any responsibility when your retirement income loses buying power.

Annuity alternatives: https://www.amazon.com/Not-Buy-That-Annuity-Guaranteed/dp/1466494573

How did your advisor do this year?

Over the years my clients have been serious long-term investors. They have taught me how they have become wealthy. Many are now in retirement and have picked funds that have ended up with fine returns. Most have been rewarded by using the buy and hold strategy over 10, 20 and 30 years. I have shared their experience and my own with others who consider me their ‘money coach.’ Most are DIY investors—they have jettisoned their advisors since learning the John Bogle and Warren Buffett investment lessons: costs detract from market index. Here are the results for 2019. They are total return investors—selling shares equally across all 10 funds for their monthly RMD income. Some want protection from a down market and so they overweight Wellesley Income instead of buying an annuity: Wellesley’s 9.7% a year not too bad to live on.

2019 Total Return Fund Long-term Return Longevity

31.0% 500 Index 10.7% since 1976

11.9% Energy 9.7% since 1984

28.0% Extended Market 10.7% since 1987

23.0% Health 16.1% since 1984

30.4% International Growth 10.5% since 1981

27.9% PRIMECAP 13.4% since 1984

27.5% Small Cap Index 10.7% since 1960

16.2% Wellesley Income 9.7% since 1970

30.0% Windsor 11.3% since 1958

28.6% Windsor II 10.7% since 1985

25.5% Average 11.3% *

*Average Annual Returns as of 12/31/9.

10 Funds for all seasons: https://www.amazon.com/Vanguards-Top-Ten-mutual-funds/dp/150073909X

Govt will take your legacy if your heirs don’t withdraw and pay taxes in 10 years.

Under new law, Further Consolidated Appropriations Act, 2020, leaving our IRA to children or grandchildren will require your heirs or beneficiary to withdraw and pay taxes (perhaps higher rate) within 10 years not their lifetimes. Even the tax-FREE Roth account would be required to be eliminated as an estate planning tool since it must be cleaned out in 10 years. Thus, if you were planning to leave a lifelong legacy to your family members or others, you must rethink it. We all may be changing our IRA beneficiary designation to a trust which may require an attorney fee ‘legacy.’ Some of us must change our plan now while others may want to wait to see if another solution comes in 2021. We had planned to use the IRA and Roth IRA for the ‘stretch’ strategy: our beneficiary would be allowed to take annual income but allow the stocks/bonds to grow during the rest of our child’s lifetime—perhaps 40 years. Now it appears that the wealthy who already have a family trust will keep avoiding their fair share and we will have to subsidize the tax-avoiders. For example, the beneficiary of $1 million accounts could withdraw roughly $33,000 a year over 30 years under current rules; however, that changes to $100,000 a year under new rules. Clearly the middle class would be hit with higher taxes on the compressed withdrawal period. Trusts set up like Romney’s can help avoid taxes.

We subsidize their tax-advantages: https://www.amazon.com/Americas-Socialism-Rich-little-people/dp/1535218584

Save on taxes BEFORE Dec 31

1. Reduce reportable income by contributing $19,000 in a 401(k) plan this year or, if you’re age 50 or older, $25,000. Check with your HR. Traditional IRA deductions are still useful up to $6,000 ($7,000 for over 50) by April 15 2020. Double Deductions for Married Filing Jointly. 2. Pay forward charity or medical expenses to take the itemized over the standard ($12,000 $24,000 married). 3. Sell that dog of a stock you own. Admit you made a mistake and use the loss up to $3,000 against income. 4. If you had a bad year in business, pay forward any new expenses/supplies and take a bigger loss against other income. Verify with your accountant.

Use the Trump tax shelter: https://www.amazon.com/Trump-Tax-Shelter-Avoid-taxes/dp/1985448300/

Is the new rage ‘direct-indexing’ right for you?

Wall Street has tired of ETF and wants to market stocks with the ‘index’ label. What is it? It is a ‘buy and hold’ strategy of stocks they pick for you. Sounds like the old strategy because it is: an investor can own a personal index that owns however many stocks they want, optimized to track that index within a certain band of tolerance. “An investor can customize a portfolio to fit their beliefs, customize it to their personal employment situation (to avoid concentration) and tax loss harvest.” You can do this yourself but who has the time to research and track ‘many’ stocks. As one blogger said: “I see the next $1 billion, $10 billion, $100 billion financial advisor opportunity.” They can’t make any money on low-cost ETFs or mutual funds, so advisors are going back to ‘personal’ portfolio selection. But can an advisor really beat the IVV or 500 Index? Which advisor can produce over 30% this year and 11% a year over time? By the time you find out (trial and error) your earnings will be the average managed-account return of 3.79%.

Take Buffett’s advice: https://www.amazon.com/You-Beat-Wall-Street-professionals/dp/1986031373

Why does the stock market return 11% so consistently?

This year your portfolio cemented a love of indexing at over 30%. You did not have to buy and sell the stocks others recommended. You could just sit back and feel good. Turns out the market total return has provided 11% a year over a long time: Check the returns over time (1971-2018: 11.83%). http://www.moneychimp.com/features/market_cagr.htm

DALBAR’s Quantitative Analysis of Investor Behavior (QAIB) shows those who try to beat the index earn just 3.79% over 30 years. In fact, during every period, advisor-managed accounts ALWAYS provided LESS than the index. For every period, 1900, 1910, 1920, 1930, 1940, 1950, 1960, 1970, 1980, 1990, 2000, 2010 till today, we could have earned over 11%. Of course these returns do not subtract inflation but when we accumulate wealth, we don’t spend our portfolio so inflation is not taken into account.

$250/month compounded in the market (11%) over our working lives of 35 years equals $1.2 million. Advisor-managed compounding (3.79%) provides $220,000.

Cut advisor trading: https://www.amazon.com/DIY-Financial-Independence-Freedom-Workbook/dp/1088908500

New Year financial resolutions

Start a 529 college plan with tax savings and growth. Four state plans anyone can use have the highest ratings from funds analyst Morningstar. The top four plans, which earned gold ratings, were direct-to-investor plans issued by Illinois, Virginia, Utah and California. California’s plan was upgraded to gold from a silver rating by the analysts because it plans to adopt progressive glide paths in its age-based portfolios starting in 2020.

End paying for loans from your ‘cash value’ life insurance. If you have a policy with loans, you may be paying for something that is no longer providing a benefit to you or heirs. People are living longer and have other assets for a legacy. When you can’t keep up the loan payments (loan repayments compound) and annual premiums, it is time to ‘cut bait.’ You could reduce the death benefit or cash out (with huge tax bill: loan interest is NOT deductible). You may not need coverage anymore. Usually that need ends with grown children and working spouse. Former premiums can buy an emergency fund or pay all debts. Cash out in the year your income drops.

Alternatives: https://www.amazon.com/Longevity-Insurance-right-better-alternatives/dp/1482031434

How to block the MS new browser from your computer

Since many of us do not use the Microsoft browser—the one that comes with Win 10—we might not want MS to push another version of their ‘chromium’ Edge on us. It will come with a new update and you can follow these instructions to keep it out of your hair. https://lifehacker.com/how-to-keep-microsoft-from-installing-edge-chromium-o-1840481536

**********ACCOUNTABILITY**************

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