Dear Clients and Friends,
During our discovery phase of financial planning, I ask clients about their current income, expenses, assets, and liabilities. Together, the math helps me answer one singular question – how much does a client need to save to retire and not run out of money during their lifetime. For me it’s partly math and strategy, for example, income minus expenses contributing to wealth being invested wisely. The other part is something more important – YOU! You are your biggest asset and wealth is only one part of your life. What good is wealth without life balance and having your health, family, friends, faith, or fun? So with that, not only do I help some clients with their financial strategy (financial planning, investments, tax, estate, risk, and charitable planning), but I help clients think about their life strategy. I use a planning process that focuses on five areas of life where we should have goals – SHAPE. SHAPE stands for Spiritual Capital, Human Capital, Affluential Capital, Physical Capital, and Emotional Capital. The objective of my SHAPE strategy is to help clients achieve a balanced life of both success and significance. I think it’s not just about creating wealth, but it’s about being a good steward of the blessings God has given us across our time, talents, treasures, faith, relationships, community, mind, and body – our unique purpose and SHAPE.
The purpose of The Financierge is to discuss some of the latest topics that reflect the diversity of the planning and thought leadership we provide clients. In this month’s issue of The Financierge, we start by covering some topics on real estate, tax planning, and risk management. Then we conclude with some topics on family, health, and fun. So, off we go …
U.S. Home Sales Jumped 6.7% in January
According to the National Association of Realtors, existing-home sales rose 6.7% in January from the prior month to a seasonally adjusted annual rate of 6.5 million. January sales fell 2.3% from January 2021. The housing market remains competitive with rising mortgage-interest rates causing buyers to move quickly. According to our luxury real estate network, homes are selling within days for more than their list prices with all-cash purchases.
According to the US Census Bureau, the average homeownership duration has risen to roughly 10.5 years with 37 percent of Americans living in their homes for more than 10 years. I imagine the pandemic has caused people to both stay in their homes longer and move sooner. Ideally, pure math suggests that you should stay in a home for at least three to five years to break even on your mortgage. At some point, you may want to consider remodeling your home to adjust to your needs. If you decide to move, it might be worthwhile to still consider remodeling. There are a lot of qualitative and quantitative considerations that a good realtor can help you determine. According to our U.S. luxury realtor network, most buyers want a move-in-ready home, so that may mean remodeling. In addition, they say that staging your home is important to help buyers visualize their home. Again, their perspective is that remodeled and staged homes overwhelmingly sell for more money and in a shorter time. Working with a professional realtor is key. Reach out to us to talk to one of the luxury real estate professionals we have in our network in your area.
Moving in Retirement? Consider Taxes!
Many of our clients found this topic interesting so I am repeating a blended version of it. According to U.S. Census Bureau’s Current Population Survey, 226,000 people moved for retirement in 2021, down 43% from 2020. This is surprising given that Covid forced an estimated three million Americans to retire earlier than planned. Some believe this is likely caused by Covid, increased housing prices in retirement destinations, and lack of retirement savings. The states that attracted the most out-of-state moves were Tennessee (13.1%), Florida (11.3%), Pennsylvania (10.7%), North Carolina (10.3%), South Carolina (9.4%), Kansas (7%), Arkansas (6.5%), Georgia (6.3%), Maine (5.4%) and Louisiana (4.1%). The states where retirees were most likely to leave were Delaware (22.5%), Maryland (21.7%), Utah (19%), Virginia (16%), Maine (15.6%), West Virginia (15.3%), New Jersey (15%), Iowa (14.7%), Nevada (14.2%) and Massachusetts (12.7%). If you are considering moving in retirement because of taxes, it’s important to understand state tax rates and the rules for income, sales, property, estate, and other taxes that may impact you in retirement. California is a good example. California has a high 13.3% income tax rate, but that rate is for married joint filers making more than $1,250,738. For middle- and lower-income earners, the rates are much lower. California does not tax Social Security income. Sales taxes are relatively high, but the state’s median property tax rate is not. In the end, California is a good state for most retirees when it comes to taxes, thanks mainly to the reasonable income tax rates for ordinary seniors. According to Kiplinger, the most tax-friendly states to retirees include HI, NV, AZ, WY, AZ, CO, AR, TN, DE, DC, and SC. Next, tax-friendly states include CA, ID, MT, LA, MS, AL, GA, FL, KY, VA, GA, and FL. The least tax-friendly states include NE, KS, TX, IA, WI, IL, NY, VT, CT, and NJ. Also, I have found that moving isn’t only a qualitative decision, but it is also a qualitative decision. In other words, not only should you consider financial factors such as taxes, but you should also consider the important quality of life factors such as family, friends, community, weather, etc.
**April 18, 2022 – Tax Filing or Extension Date for 2021 Taxes
2022 Tax Planning Strategies
Most tax strategies should be executed before year-end (for example, managing tax brackets and making charitable contributions) and some strategies can be done before your tax filing date (for example, tax year IRA contributions) and some can even be done afterward if you file IRS Form 4868 to extend taxes (for example, like SEP-IRA contributions). Here are some tax planning strategies to keep in mind for 2022:
Required Minimum Distributions (RMDs) – I love our Service & Operations team! One of the services they provide clients is making sure clients know what their annual RMD is and making sure they take it by December 31. Remember, when you put money into a tax-deferred retirement account (like a 401(k) or an IRA), you generally must begin taking a minimum distribution/withdrawal at age 72. The calculation is made by taking your prior year’s December 31 retirement account balance and dividing it by your life expectancy. For example, if you are age 72, your life expectancy for 2022 is 27.4 years. If your December 31, 2021 IRA balance is $1,000,000, your 2022 RMD would be $36,496.35 ($1,000,000/27.4). You can take your RMD throughout the year in any amount as long as you take all of it by December 31. If you don’t take your RMD on time and in the right amount, the IRS will charge you a 50% penalty tax! Keep in mind there are special rules for inherited traditional and Roth IRAs and 401(k) if you are still working. See your CPA for guidance.
Build Back Better (or Never) – We are still tracking some of the issues here such as the elimination of grantor trusts, a reduction in the estate tax exemption (for 2022, $12,060,000 per individual), and an increase in the 40% estate tax rate. Keep in mind that the exemption is set to sunset on December 31, 2025, and revert back to $6,030,000 (adjusted for inflation) per person. Other items include the ability to make Roth conversions, higher tax rates, and the elimination of section 1031 exchanges.
Some Beneficial 2022 Tax Changes – Looking at the 2022 tax tables below some noteworthy tax law changes include an increase in 401(k) contributions to $20,500 ($27,000 if you are over age 50), tax-free gifts to unlimited individuals increased to $16,000, tax-free 529s can be super funded with $80,000 per person (a couple could fund a child’s 529 with $160,000), capital gains and qualified tax brackets stayed the same at 0%, 15%, and 20% but income brackets increased, and Health Saving Account contributions increased to $7,300 for families ($8,300 if you are over age 55).
2022 Tax Rates, Schedules, and Contribution Limits
*IRS and Social Security Administration 2022
Never Surrender Your Life Insurance
As risk management practice helps clients identify and mitigate risks in client financial plans. Oftentimes, this is accomplished with property & casualty, business, health, life, long-term care, and cybersecurity/theft insurance. There is often one area overlooked by clients when considering options. Most clients know that they can renew a policy, surrender a policy, or get paid a death benefit. But there is another option with term insurance where you can convert your policy to a permanent policy. The importance of this is that your policy may be sold to an investor in what is called a life settlement. Here is how it works. First, we evaluate the policy and conduct a series of calculations to assess its potential value to buyers. Next, the settlement broker will identify and connect with the most qualified and applicable buyers interested in purchasing the policy. Then, a client receives an offer. If the offer is accepted, the buyer who purchases the policy will facilitate the conversion from term to permanent life insurance, assume payment responsibility of future premiums on the new policy, and issue a lump-sum payment to the client.
Get Free COVID-19 Tests and Be Careful of Scams
Every U.S. household can get four free COVID-19 at-home tests shipped directly to their home at no cost. Visit COVIDtests.gov to order tests or learn more about testing. Also, if you get a robocall, text message, or email offering COVID-19 tests in exchange for your Medicare Number, block it. There are plenty of over-the-counter or at-home tests available for sale around the U.S. at trustworthy retailers and pharmacies.
Eldercare, Medicare, and Considering Long-term Care Insurance
Whether you do it yourself or use an eldercare professional to determine the right nursing home for you or your loved one, this site at Medicare.gov helps to find and compare nursing homes in your area. You can personalize your search by filtering the options that matter most to you such as inspection results, location, number of beds, etc. It is important to check out nursing home overall star ratings for health inspections, staffing, and quality of resident care including staffing hours, types of staff, turnover rates. One area of importance is understanding what Medicare does and does not cover. For example, Medicare doesn’t cover custodial care, like long-term care insurance. Most nursing home care is custodial care. Custodial care helps you with activities of daily living (like bathing, moving around, dressing, using the bathroom, and eating) or personal needs that could be done safely without professional skills. Medicare Part A (Hospital Insurance) may cover care in a certified skilled nursing facility, but only if it is medically necessary for you to have skilled nursing care. Reach out to us if you would like to discuss long-term care insurance or talk to our eldercare consultant. The one aspect of long-term care insurance is that it helps you save for long-term care and most long-term care providers have a concierge service to help you with custodial care options.
Health & Wellness
The Importance of Healthy Nutrition
One of the components of SHAPE is Physical Capital. It’s all about your body and goals such as preventative healthcare, physical fitness, sleep, stress management, and nutrition. While all these areas are important, nutrition is foundational. You are what you eat. You eat unhealthily and you feel unhealthy. You take in more calories than you burn – you gain weight and vice versa. If you don’t care visit www.tasteofchicago.com (I love their deep-dish pizza and cinnamon apple pie), and if you do care, read on. Here is a brief overview of healthy nutrition:
A Healthy Diet – A healthy diet provides energy (calories) and essential nutrients to maintain optimal health. Diets are composed of two components that provide calories known as macronutrients (carbohydrates, fat, and protein) and micronutrients (vitamins, minerals, and phytonutrients (health-promoting plant chemicals). Daily requirements for macro and micronutrients depend on several factors such as age, gender, and activity level. Modern diets are typically calorie-dense but lack adequate micronutrients, contributing to suboptimal nutritional status and poor health outcomes. Nutrient density, the number of micronutrients relative to calories in a food or specific diet, is a term often associated with healthy diets. No matter how or what you eat, finding a balance between energy density and nutrient density can help promote long-term health. This can be achieved by replacing “empty calories” found in highly processed foods with nutrient-dense whole foods. Whole foods are central components of healthy diets and include fruits, vegetables, whole grains, nuts, seeds, beans, legumes, and lean protein.
Benefits of Good Nutrition – Adequate nutrition is necessary for various bodily functions, including cognitive function, energy production, immune function, and tissue formation. A healthy diet may reduce the risk of certain chronic conditions and promote good general health. Examples of some of the many benefits of a healthy diet include aiding digestion, helping healthy growth and development, improving immune health, prolonging lifespan, promoting healthy pregnancies, reducing the risk of heart disease, diabetes, and cancer.
Diet Types – Depending on your health goals and dietary preferences, the following are different diet types:
- Anti-inflammatory: A primarily plant-based diet used to address chronic inflammation and associated health conditions such as type 2 diabetes and cardiovascular disease.
- Gluten-free: A therapeutic diet adopted by individuals with celiac disease or gluten intolerance that excludes all gluten-containing grains such as wheat, barley, and rye.
- Mediterranean: A traditional diet common among individuals living in the Mediterranean region that consists of fruits, vegetables, nuts, seeds, olive oil, and whole grains.
- Ketogenic (keto): A high-fat, very low-carbohydrate diet used to promote weight loss and address neurological conditions such as pediatric epilepsy.
- Paleolithic (paleo): A dietary pattern inspired by the diets of hunter-gatherers of the paleolithic era that consists of lean meats, fish, healthy fats, vegetables, and certain fruits.
- Pescatarian: A primarily plant-based diet that eliminates most animal sources of protein except for fish and shellfish.
- Vegan: A strictly plant-based diet that restricts all animal-sourced foods and products.
- Vegetarian: A dietary plan that restricts meat, poultry, and fish but allows other animal products such as dairy, eggs, and honey.
Whether you choose to follow a special diet or not it’s important to balance your meals, reduce processed foods, minimize sugar, eat less fast food or rich restaurant foods, and eat enough fiber. Please work with a nutritionist and your doctor to determine what is best for you. We have a wonderful nutritionist in our professional network.
Just for Fun
“Find the good. It’s all around you. Find it, showcase it and you’ll start believing in it.” – Jesse Owens, track and field athlete, four-time Olympic gold medalist
February is Black History Month!
Here are some fun days to celebrate in February:
- February 4 – 2022 Winter Olympics Opening Ceremony
- February 13 – Superbowl Sunday! (Go Rams!)
- February 14 – Valentine’s Day (Uber Eats has flower delivery)
- February 15 – Susan B. Anthony Day (Women’s advocates unite!)
- February 18 – National Almond Day (think fiber, protein, magnesium, and vitamin E)
- February 19 – National Chocolate Mint Day (Uber Eats has ice cream delivery)
- February 20 – 2022 Winter Olympics Closing Ceremony (Go Monoboggers!)
- February 21 – President’s Day
- February 23 – National Banana Bread Day (A Minion Favorite)
- February 26 – National Pistachio Day (Try a Starbucks Pistachio Latte)
- February 28 – National Science Day (Take a Scientist to lunch)
Motivating Quotes from NFL Legends
“Self-praise is for losers. Be a winner. Stand for something. Always have class and be humble.” – John Madden
“Look up, get up, and don’t ever give up.” – Michael Irvin
“Do you know what my favorite part of the game is? The opportunity to play.” – Mike Singletary
“For every pass I caught in a game, I caught a thousand in practice.” – Don Hutson
“If you’ll not settle for anything less than your best, you will be amazed at what you can accomplish in your lives.” – Vince Lombardi
“I may win, and I may lose, but I will never be defeated.” – Emmitt Smith
“Success isn’t permanent, and failure isn’t fatal.” – Mike Ditka
“Nobody who ever gave his best regretted it.” – George Halas
“A champion is simply someone who did not give up when they wanted to.” – Tom Landry
“Everyone has their own greatness. Whether you reach your own greatness depends on your environment, your structure, the company you keep, and your attitude.” – Ed Reed
“You know what a winner is? A winner is somebody who has given his best effort, who has tried the hardest they possibly can, who has utilized every ounce of energy and strength within them to accomplish something. It doesn’t mean that they accomplished it or failed, it means that they’ve given it their best.” – Walter Payton
“Today I will do what others won’t, so tomorrow I can accomplish what others can’t.” – Jerry Rice
“Think about winning the day. Don’t worry about a week from now or a month from now, just think about one day at a time. If you are worried about the mountain in the distance, you might trip over the molehill right in front of you. Win the day!” – Drew Brees
“The most valuable player is the one that makes the most players valuable.” – Peyton Manning
“I think sometimes in life the biggest challenges end up being the best things that happen in your life.” – Tom Brady
At The Bahnsen Group, our objective is to provide you with comprehensive and holistic services to help you grow, protect, and be a good steward of your wealth and your life. Helping you achieve a multigenerational family legacy of both success and significance. We are grateful for the privilege of being trusted to create value.
Please reach out to me if you have any questions or if there is anything we can do for you.
We wish you and your family a blessed year ahead!
Warm and best regards,
Don B. Saulic, CFP® CPA
Managing Director, Partner