Maria Alcoke
About Maria Alcoke
Posts by Maria Alcoke:
Focus on Total Return
Below is a synopsis of this investment report:
- Total return for a stock consists of two components: income paid (dividends) and capital appreciation (stock price increase).
- Studies show that dividends have comprised over 50% of the total return of the stock market over the past 70+ years.
- High dividend yielding stocks have experienced strong price appreciation over the last four years but recently they have lagged.
- We expect the weakness in dividend paying stocks to be short lived with the dividend contribution to total return resuming its level of benefit to the long term investor.
For full access to the investment report titled “Focus on Total Return”, please contact us.
A Simple IRA Planning Idea To Benefit Your Spouse
We recently worked with a client that had the following challenge: while they were both alive, their annual income tax liability was pretty low, less than $1,500. But upon either one of them dying, the annual income tax liability for the surviving spouse was projected to skyrocket to over $7,500, more than a $6,000 increase!
Why is this the case?
It is because a decent portion of their income comes from their IRAs. While they are both alive, they file tax returns as “married, filing jointly”. These tax brackets are some of the most lenient in the entire tax code.
But, when one of the dies, the surviving spouse files taxes as a “single” taxpayer. These are some of the harshest brackets in the tax code.
And like a lot of people, the clients we are talking about had a large percentage of their assets in retirement plans. IRAs and other retirement plans like 401ks, 403bs, etc. can cause significant tax challenges for surviving spouses, as we see in our little example.
Now you need to brace yourself. The story above is not uncommon. In fact, it is actually a very common issue, and it may very well apply to you.
So what should you do about it? That is the $64,000 question.
First, you need to find out what your tax return would look like for your surviving spouse (or you, if you are the survivor). This analysis will tell you if you have a potential problem.
If you do, then here is a really simple idea that you may want to consider. WARNING: it is an idea that would normally not be on your list of options.
Are you ready?
Why not distribute some extra income out of your IRA (or other retirement plan) today, and each year thereafter, while you and your spouse are both alive and enjoying those lenient tax brackets? Yes, you will owe additional tax on those distributions, but here is the important part – that additional tax does NOT affect your current lifestyle.
Then, what if you took that after-tax amount of the distribution each year and used it to fund a life insurance policy on both your life and the life of your spouse?
I bet you weren’t expecting that one!
Life insurance? At your age? Wouldn’t that be expensive?
Surprisingly, due to increasing life expectancies, life insurance pricing has dropped considerably. As a result, planning like this becomes very effective.
The nice thing is that when the first spouse passes away, the surviving spouse receives a nice big tax-free check from the life insurance company. They can use that check to do a number of things:
- They might convert the IRAs to Roth and pay the tax from the life insurance proceeds. Then all income from the IRAs would be 100% tax-free.
- They might pull some additional income from the life insurance proceeds, again positively managing their tax return.
- If the life insurance policy is large enough, they might go ahead and give the tax toxic IRA money to the kids, and live off of the life insurance proceeds.
As you can see, adding a large tax-free check to the list of assets that a surviving spouse has to work with can make a huge difference for them. And remember, for the surviving spouse, any additional income tax DOES affect their lifestyle.
So why not consider paying some extra tax today when it does NOT affect you so that your surviving spouse (or you!) can avoid taxes later when they DO affect you?
If you would like to discuss IRA planning in more detail, please give me a call at 215-968-1755 or contact me by filling out the contact form on this site and I will get back to you.
Can Current Market Valuations Be Justified – Mergers & Acquisitions
Below is a synopsis of this investment report:
- Merger & Acquisition (M&A) activity affects stock market prices; the more the merrier.
- Our investment process includes an element of “think like a Private Equity (PE) firm” in that we look for companies possessing the qualities which suggest M&A potential.
- We look for “yet-to-be recognized” value within market sectors that possess expansion potential.
- We focus on companies which generate attractive cash flows and are currently being offered at discount prices. Those with the capability to expand margins and distribute their unneeded cash.
- Recent DIAS successes with this approach include Copano Energy.
For full access to the investment report titled “Can Current Market Valuations Be Justified – Mergers & Acquisitions”, please contact us.
5 Retirement Income Issues
Planning your retirement income is a very difficult and challenging task. You can’t afford to mess it up. You need to do it right the first time.
Here are five factors to keep in mind when creating your retirement income plan. Each can endanger your finances during your retirement.
1. You might live a long time
We all know that people are living longer, but what does that mean to you?
If you are 65 years old and single, you can expect to live to 86, according to the Internal Revenue Service. You have a fairly good chance of living even longer. This means that you need to anticipate making your money last a long time. Small mistakes early on can compound into large mistakes over many years.
2. Expect to spend a lot of money on healthcare
Every year, Fidelity Investments projects how much a 65-year-old married couple should expect to spend on their healthcare during their retirement years. They assume that each person is on Medicare, but they also assume that no long-term care is needed.
Even though Medicare covers a ton of medical bills, the average couple spends $240,000 on healthcare during retirement. That’s right, a cool quarter of a million dollars. Over 25 years of retirement, that’s about $10,000 per year. If you need long-term care, it’s a lot worse than that. So make sure that you overestimate how much money you need for healthcare.
3. Watch out for inflation
For the past several years, inflation is almost nonexistent, but don’t expect that to last much longer. Just one trip to the gas station tells us that inflation is back. Remember the late 1970s and early 1980s, when a fixed-income was so disastrous? With prices going up every year, a fixed income buys less and less.
At just 6% inflation, prices double every 12 years. If you spend close to 25 years in retirement you can expect to see prices double twice. That means you need four times the income to buy the same stuff at the end of your retirement compared to the beginning of your retirement. Of course, a 6% annualized rate of inflation is very high. It isn’t likely that such alarming price appreciation continues for decades. But make sure that you factor inflation into your plan.
4. Taxes follow you into retirement, too
While you worked, you probably heard the wisdom about saving money today while you are in a higher tax bracket. The reason: When you take it out later during retirement, you are in a lower tax bracket. That isn’t always the case nowadays.
Many retirees find themselves paying more tax today than they did when they were working because they actually did a good job saving for their retirement.
Imagine you are getting ready to retire. As you shift from working to retirement, do you want to move into a lower standard of living or the same? If you want the same standard of living, your income needs to be about the same (or greater to account for health costs and inflation).
Also, with no kids in the house and the house paid for, your deductions are all gone. So you have about the same income, with no deductions. That’s not good for your tax bill.
Compound that with required minimum distributions from fully taxable retirement accounts – at age 70½ you must start withdrawing money. Then you have an equation that works really well for the Internal Revenue Service and not so well for you. Taxes are a real threat to a retiree’s standard of living.
5. Changing with the times
When you were working, you probably had a retirement plan that provided a menu of mutual funds to invest in. It was easy. You just picked the best performers and didn’t worry about it. Retirement plans are designed for growth and accumulation. You use them to build up your nest egg so you can comfortably retire someday.
The problem is that when you retire, your financial tools are no longer appropriate for the most of your portfolio. Those same mutual funds might be too risky to hold during retirement, for example. You need to learn about different financial tools such as Roth individual retirement accounts, rollovers, conversions, dividend stocks, exchange-traded funds and money market funds that focus on both wealth preservation and income.
Dealing with a long retirement, healthcare costs, taxes, inflation and learning how to invest all over again is a daunting task. TFG Wealth Management provides our clients with the strategies they need to realize their financial goals in challenging times.
If you would like to discuss issues affecting your retirement, please give me a call at 215-968-1755 or contact me by filling out the contact form on this site and I will get back to you.
Tilt to Asia
Below is a synopsis of this investment report:
- The future direction of global equity markets will depend on the prospects for global economic growth.
- China, the world’s second largest economy, was recently thought to be experiencing a “hard landing” – a dramatic drop from fast growth to slow growth.
- Recent economic data indicates China may be heading for a soft landing – a smooth, manageable reduction in growth to acceptable levels.
- The expansion of the Chinese and other Asian economies should be a welcome boost to global macroeconomic prospects and DIAS portfolios which are positioned with a “Tilt to Asia”.
For full access to the investment report titled “Tilt to Asia”, please contact us.
