Dan Pink, in his book, To Sell is Human, defined clarity as “the capacity to help others see their situations in fresh and more revealing ways and to identify problems they didn’t know they had.” We view ourselves not only as problem-solvers but problem-finders. P&A has always encouraged our clients to involve us in any financial decision they face, and more importantly, to get as much work out of us as they can. Here are five ways we provide clarity and ultimately add value to our clients’ financial lives.
1) Social Security – Clients nearing retirement and those in their 60s often ask us when they should begin taking Social Security? A surprisingly high number of people take SS as soon as they can, at age 62. The problem with this claiming strategy is your benefits are reduced by 25% from your full retirement age amount. Unless you need the income to live on or longevity isn’t in your family, it’s typically our advice to wait until age 70 before claiming benefits. The reason being your benefit amount increases by 8% per year from 66 to 70. In other words, you’re giving up a 32% increase in your benefit by claiming at full retirement age versus waiting until age 70. There are plenty of more complex strategies, including file and suspend, we can explore for you if you’re approaching retirement or have yet to begin taking Social Security.
2) Charitable giving – You’ve probably heard us talk about the donor-advised fund (also known as a charitable gift trust account) before. You don’t need an estate planning attorney to draft one of these; they’re simply an account you control that allows you to make charitable contributions of appreciated securities while getting a current year tax deduction for their fair market value. Now in English…if you have an investment account with at least one stock or mutual fund that has a big unrealized gain, and you’re the charitable sort, then you might be a candidate for what we’re talking about here.
Let’s say you own 1,000 shares of XYZ Corp stock with a cost basis of $20,000 and a current market value of $60,000. That means you have an unrealized gain of $40,000. Let’s also say that you donate to your church and several charitable organizations in a given year. By contributing some or all of the XYZ stock to a gift trust account, you will get a current year charitable deduction on your income taxes for the fair market value of the stock donated. In addition, you would forgo having to pay capital gains taxes on the amount of the gain in the stock donated. This can save you big money and beats the pants off checkbook giving to charitable organizations.
So how does P&A benefit from you opening a charitable gift trust account? We don’t. In fact, you likely would be taking appreciated securities away from us and donating them to your gift trust. If this scenario holds true, then we’re actually losing assets, which impacts our revenue in a negative way. So why do we encourage clients to open one of these? Because it’s in your best interests to do so. You’ll stretch your charitable dollars farther than by donating cash and you’ll save money on taxes. That’s a win-win.
3) Taxes – Along with the example you just read about, there are plenty of other ways we can help you control your tax picture. During the last quarter of the year, we pay close attention to the capital gains and losses situation in your investment account and will do what we can to mitigate the taxes you’ll face on any gains. Taking (or as the industry calls it, “harvesting”) losses from a taxable investment account will reduce gains subject to taxes. In addition, we’re accustomed to working with our clients’ tax accountants and estate planning attorneys to find other ways to minimize the tax bite in a given year.
4) Estate planning – We just mentioned working with your estate planning attorney. Often times, we will meet with clients before they meet with their attorney to get all their ducks in a row. As defined above, clarity involves finding problems a client doesn’t know they have. We often find such problems in their estate plan. If you don’t yet have a will, you have a problem. If you own a business and haven’t done any estate planning, you have a problem. It’s our job to discover the holes in your estate plan, connect the dots for you, effectively take the pain out of the process, and encourage you to take action by visiting your estate planning attorney.
5) College savings – We’ve written about 529 plans before and we continue to think they are the best deal out there when saving for a child’s or grandchild’s college expenses. There are some pitfalls to be aware of with 529s though, especially when it’s a grandparent contributing to the 529. We can go through some strategies with you in order to stretch your college savings dollars farther, while addressing your goals of funding future college costs.
These are only five of the many ways we can help add clarity to your financial picture. If you think of P&A as someone who just manages your investments, then you’re not getting all the work out of us you could be. Let us know how we can help.