Carolyn Stewart

The Abacus investment team has a conversation on markets, expectations for inflation, investing in a low yield interest rate environment, and an update on congressional tax proposals.

At the end of every month, quarter, and year, the investment world tallies returns and produces reports. Frequently the results are delivered in chart-filled reports with percentages and cryptic words used to explain what is happening in the financial world as well as in your portfolio. Navigating performance reporting data from your financial advisor is an important skill for every investor to learn. You should understand the language in reports, how to evaluate the performance of your portfolio, and how fees affect your return.

The following three questions can go a long way towards comprehending these items.

1. Terminology: please define?

All professions develop their own special language that allows them to communicate efficiently. The financial world is no exception. The problem is many times financial meetings can be filled with financial jargon that impedes a clear understanding of what is really being discussed. As your financial advisor explains an investment strategy or performance numbers and you hear jargon or words that are unfamiliar, ask for explanations of any financial term, chart, or number that you do not understand. After you have received a suitable explanation, follow up by asking: Why is this important, and how does it apply to me? These questions will give you a better, stronger comprehension of the financial world and how it is impacting your performance or goals.

2. What is the stated (or unstated) benchmark that you use to judge performance?

Benchmarks serve an important role because they help frame results. Without a frame, it is hard to know whether or not a 7% return is terrible, average, or outstanding. Investment managers are motivated to have returns in line with benchmarks or other groups of advisors. Knowing which benchmark the manager is using to evaluate results will help you to understand the motivation behind the advisors’ investment philosophy and implementation.

On the other side of the coin, if you want your advisor to beat the benchmark, you must allow the advisor to be different from the benchmark. Being different means that at times the advisor will underperform the benchmark. Placing a higher weight on long-term performance and having the advisor talk you about why they are underperforming will help you develop a better picture of the advisor’s skill and tolerance for making active investment decisions.

3. How did I do after paying everyone who is involved with my investments?

Fees are important, popular topic. As you inquire about the financial advisor’s fees, the most important factors to know are:

• How much is the fee?
• How is the fee calculated?
• What services are being provided?

Do not assume that low fees guarantee high returns. We all like lower prices, but fees are just one part of returns.

For the financial services profession, the two main categories of fee structures are assets under management and commissions. There has also been a growing trend of combining a flat fee along with one of the major categories.

In the assets under management fee structure, financial service providers charge a small percent on every dollar that they manage on your behalf. In this fee structure, the advisor makes more money by increasing the amount of dollars under management.

Under the sales commission fee structure, financial service providers make money by selling you something. In this fee structure, the advisor makes more money by increasing the number of sales and/or selling investments with a higher commission.

Both fee systems have the potential to generate good returns. The key is to know what fee system the service provider uses, what your total fee is expressed in dollars, and what the potential conflicts are.

To make sure that your service providers are working for you and your goals, an investor needs to understand how advisors are paid, how they view and can explain their view of the world, and how they benchmark themselves. Addressing these three topics during your meetings will help ensure that you are receiving the information you need to move your investment goals forward.

Charles B. Flowers

Mom left the stove on again. I’m not sure it’s safe for Dad to be driving any longer. What’s the next best step for care after Mom’s fall? How do we communicate with Dad with his failing memory?

These worrisome questions may be your first time to experience this challenge, and, even if it’s not, this time could be different. How do you find the right answers? How do you help your loved ones live with dignity in the coming years? If you have siblings, how do you navigate these challenges together?

You need a care plan for the whole person and the family. Of course, the plan must be dynamic since we live in a world with ever-changing circumstances.

Have a Family Conversation

The first step is having a proactive, planned family conversation. The goal is to discuss the care needs and wishes with your parents while they can still guide you on future decision-making for their care.

Arrange a time when all family members can join the discussion. Chat with parents and siblings in advance so everyone is prepared for the conversation. If you are anxious about high emotions, consider inviting a trusted family friend or advisor to facilitate the conversation.

• Where would you like to live if you can no longer live at home alone?
• If you plan to live at home, do we need to make any physical changes to your home to make that possible?
• How will we manage your financial needs?
• Who would you like to be responsible for day to day management of your needs?
• Do you have a health care power of attorney and may we have a copy?

Bring in the Experts

The next step is an assessment. While this may be your first time, there are others who have made a business out of being your guide in this situation. These life-care professionals have experience and credentials to work with all ages. The Aging Life Care Professional conducts a comprehensive assessment and helps the family plan for the current and future needs of your family member.

The family conversation may highlight the need to gather all of your parents’ important documents in one place to include everything from marriage certificates, financial data, military records, life insurance policies, burial arrangements and estate planning documents. Now may also be the time to consult with an attorney to review or update wills, health care power of attorneys, and durable power of attorneys. The National Academy of Elder Law Attorneys is an organization of lawyers with unique expertise in assisting with these challenges.

Supporting your Parent’s Needs

A strong care plan will include an assessment of senior housing options from in-home care to assisted living to memory care. Focus on your parent’s needs across their lifespan including their cultural and community connections, financial resources, and personal preferences. Working together as a team to proactively create a plan helps parents retain a sense of independence, identity and belonging all of which correlate with longer life-spans.

Caring for the Caregiver

Do not underestimate the toll caretaking can take on a family member. The physical and mental decline of caretakers is well-documented. Talk with your caretaking parent or sibling. Ask whether or not the time devoted to caregiving is becoming overwhelming with increasing needs of the parent. Or, it could be that the caregiver feels conflicted making complex decisions. Maybe it has become too time consuming, too exhausting. If any of these are true, now may be time to bring in a professional caregiver. Look for the following signs that a caregiver needs extra help:

• is either “burned out” or confused about care solutions
• has limited time and/or expertise in dealing with the individual’s chronic care needs
• is at odds regarding care decisions
• needs education, support, or direction in dealing with behaviors associated with dementia

Change is Hard

This new phase of life is often scary—feelings of loss, uncertainty, grief, guilt, and anxiety are common. Parents may express these feelings through anger, stubbornness or even depression. A core value at Abacus is to listen, to be fully present, and to actively seek to understand. To be able to listen, with patience and care, may be the best way to share our lifelong gratitude for our parents.

Resources

• Aging and Life Care Professionals
• National Elder Law Foundation
• Aging with Dignity
• Caregiver’s Path to Compassionate Decision Making by Viki Kind
• Family Caregiver Alliance
• Navigating Your Later Years for Dummies by Carol Levine
• Edge of Aging podcast
• Better Health While Aging podcast

Anne Marie E. Ashworth

Many people dream of a second home—a place to go for some rest and relaxation, a place to call your own, a place for family and friends—or an investment property for you and renters. Once that dream comes true, and you have found your new home, how to best insure your property will be of utmost importance. Knowing the ins and outs of insuring a second home can help as you make your dreams a reality.

How is a second home’s insurance different?

There is no such thing as one-size-fits all homeowners insurance. You may find that insurance for your second home is a little more difficult to acquire. This insurance policy, like your primary homeowners policy, will offer coverage for the home known as dwelling coverage for the physical structure of your home, personal property coverage for your personal belongings, liability protection coverage to protect you in case of an injured party, and other necessary coverage exposures. The type of insurance policy should reflect the type of structure you purchase: Do you need a policy that covers a condo/townhouse, or do you want a guaranteed replacement dwelling homeowners policy?

Insurance carriers view second homes as riskier to insure than primary homes. The risks that determine your insurance rates are slightly different for second homes. Second homes are often vacant, making them more susceptible to break-ins and increased damages from leaks and fires. Moreover, second homes are often located in an area where the home may be more prone to risks such as floods, named storms, wind and hail, earthquakes, mudslides, fires, and the like. Location also increases insurance risks, which increase premiums.

Beside the homeowners policy, you may need to purchase additional coverage in the form of riders or additional policies for flood risk, wind and hail, named storm risk, or earthquake. These risks are not typically covered under a homeowners policy and will require a separate policy, which carries its own limits and a separate deductible for each policy.

Rental: What are the risks?

Renting your second home can bring additional income as an investment property. Renting can help offset costs of maintaining a second home, but know that renting your home makes the property subject to more “wear and tear” and increased liability exposure. If you are going to rent out the home, you may need a more comprehensive insurance policy that will cover the full cost of replacing the home, and the insurance carrier will likely increase your rates. You will most likely need additional coverage, like landlord insurance and increased liability protection. We have all heard horror stories about how abusive renters can be of other’s property, or the tragic story of a renter falling off a balcony when sitting on a weakened balcony railing or falling down the stairs! A higher liability limit will protect you and your assets if you are found responsible for an injury to someone on your property who doesn’t live in either of your homes. This coverage will also cover medical costs and court costs.

If you decide to rent your second home, talk with your insurance agent to be sure that you are fully protected. Many policies offer $500,000 liability protection limits, and some go as high as $1,000,000. If you need higher limits than offered by the homeowners policy, ask whether you can add your second home to your existing personal umbrella policy, add a personal umbrella policy, or an excess liability policy. If your second home is owned within an LLC (Limited Liability Corporation), a commercial excess liability policy may be required. When a property is personally owned, a personal liability umbrella will offer this additional coverage.

To make the most of insuring a second home:

• Insure your home with a trusted and knowledgeable insurance agent.
• Insure your home with a financially strong insurance carrier.
• Insure your second home with your current homeowners insurance carrier. Bundling your policies under one agency offers discounts and ease at claim time.
• Do not make numerous or small claims. Your insurance premiums will increase, and your insurance carrier may cancel your policies.
• If you can afford it, go with the higher deductibles.
• Install an alarm system to detect both fire and break-ins to lower insurance costs.
• Place the second home in an LLC. This will add a layer of liability protection. (The LLC will be the named insured on the homeowners policy and may require a commercial rather than a personal policy.)
• Have high enough liability protection limits to cover your exposed risk or net worth.

Owning a second home has been a lifetime goal and can be a dream come true. Proper insurance and management of a second home is paramount to having your dream come true and not turn into a financial nightmare! The Benjamin Franklin axiom that “an ounce of prevention is worth a pound of cure” is as true today as it was in Franklin’s time.

Karlyn M. Jones

Protect yourself from phishing attacks and other efforts to wreak digital or financial havoc by implementing these recommendations on Abacus’s Identity and Digital Protection Checklist.

Download the Identity and Digital Protection Checklist (96 KB)

Stephen “Scotty” J. Scott

Abacus’s client, Eloisa, was celebrating her 50th birthday on a long-planned trip to New Zealand. Out of the blue, Eloisa’s sister called with vacation-busting news. The police had found copies of Eloisa’s identity information in the hotel room of an identity theft ring. Over the following months (and now years), Eloisa fought a rear-guard action to prevent abuse of her identity: a false tax return filed for an early refund, multiple fraudulent credit cards opened in her name, and even pizzas ordered on a fraudulent credit card for delivery to a prison. Each of us falls into two categories now, those who have had an experience of identity the or those who have and just don’t know it yet.

How can I protect me and my family from a cyber attack or identify theft?

The first step is to freeze your credit.

Freezing your credit is the strongest method to protect your identity. Contact these three credit bureaus to freeze your credit: Equifax.com, Experian.com, and Transunion.com. No one can get credit in your name (including you) when you freeze your credit. You receive a four-digit PIN to unlock your credit for any necessary credit needs such as purchasing a car. Be sure to freeze your elderly parents’ and children’s credit, too.

Select a password manager.

LastPass, 1Password, Dashlane, or Roboform all store and create strong, unique passwords. These programs sync across all your technology devices: phone, computer, iPad, etc.

Enroll in two-factor authentication for accessing your on-line banking, credit card and brokerage accounts.

This process, which requires both a user ID/password and a code sent to a device such as your phone to access your information, safeguards your accounts by adding a layer of security. https://twofactorauth.org

Sign up for www.haveibeenpwned.com.

This website highlights whether your email address or passwords have been part of a data breach or hacking event. You can sign up to receive alerts of any new breaches.

Delete old or unused online accounts.

Do some spring cleaning of your unused or unwanted online accounts. https://backgroundchecks.org/justdeleteme

Keep up to date.

Enough is Enough, is a non-profit dedicated to making the internet safer for children and families. The website has excellent, timely resources for internet safety.

I am concerned about keeping my personal information private. What are some best practices to safeguard my privacy?

Periodically review your personal and your children’s social media settings.

Although tempting, resist sharing background information that might allow another individual to piece together a virtual identity with your information.

Shred documents.

You should shred any documents that contain your personal information. You might prefer using a security stamp or roller to redact private information on these documents instead of shredding.

Remove your personal information from the web.

Complete a Google search on you and your family members. If you are uncomfortable with the amount information listed about yourself or your family, you can enroll in a service, like Reputation Defender, to remove this data from the web. The cost ranges from $10 per month up to $10,000 per year if you are an individual with a strong public presence. These services cannot eliminate information but can help manage the challenge.

Never use public WiFi.

Countless individuals have had their emails and other private information hacked simply by using public WiFi. Abacus recommends a virtual private network service (VPN) such as Private Internet Access or Nord VPN.

A week does not go by that Abacus doesn’t receive a call from a client seeking advice on identity the or other internet scams. Many of our recommendations have a “hassle” factor that keeps clients from implementing the strategy until it’s too late. Just as you would secure your home, take steps today to lock the door to your financial life.

Stephen “Scotty” J. Scott

With the passage of the Tax Cuts and Jobs Act of 2017, the use of Qualified Charitable Distributions (QCD) from your Individual Retirement Account (IRA) remains a tax-savvy option for making charitable gifts and, for many people, is now an even more appealing choice. Making QCDs can lower your taxable income and reduce the tax due on withdrawals from your IRA, all while benefiting your favorite charity.

A QCD is a direct gift from your IRA to a qualified charity. Once you reach the age of 70.5, you can use QCDs for your charitable planning. A gift made through a QCD counts toward your annual Required Minimum Distribution (RMD). (Your RMD is taxed as ordinary income.) Reducing your RMD total by the QCD amount lowers your adjusted gross income and taxable income and, therefore, your income tax due. A QCD also provides an opportunity to leverage your charitable gift: you deposited the money into the IRA without paying taxes, the money grew tax-deferred for the time it was in the account, and the money is received by the charity as a tax-free gift.

Qualified charitable distribution rules include:

• You must be 70.5 years old or older to be eligible to make a QCD. (Note: Under the new SECURE Act, you are not required to take your RMDs until age 72. Thus, a QCD before age 72 would only reduce the tax due on elective withdrawals from your IRA.)
• You are limited to $100,000 of QCDs each year.
  Your spouse can also make a $100,000 QCD, but the funds must come from his/her IRA.
• You can make a QCD from many types of IRAs: Traditional, Rollover, Inherited, SEP (inactive plans), and SIMPLE (inactive plans). You cannot make a QCD from your 401[k], SEP (active plans), SIMPLE (active plans).
• To be eligible for QCD benefits, the funds must go to a 501(c)(3) organization. (Private foundation and donor advised funds are not eligible.)
• You cannot receive any benefit from your QCD, e.g., playing a golf tournament, seating at a table. The distribution check from the IRA must be payable to the charity in order to qualify as a QCD.
• If you make tax-deductible contribution to an IRA after age 70.5, then any QCD you make is reduced by that amount until the amount of your QCDs given equals the amount of your IRA contributions post 70.5. Then going forward, you are allowed to count the full QCD amount against your RMD. Non-deductible IRA contributions after age 70.5 do not impact QCDs.

Since a QCD from your retirement account is not included in your taxable income, you are not able to deduct the gift as a charitable contribution in your itemized deductions. Under new tax laws, the standard deduction for singles increased to $12,400 and for those married filing jointly to $24,800. Given this change, itemizing deductions will no longer be the optimal tax solution for many filers, and in turn, those who elect the standard deduction will not receive a tax benefit from charitable contributions. Individuals in this scenario will receive the maximum benefit from QCDs.

Depending upon your level of income, using a QCD to lower your taxable income can have far-reaching effects by reducing the amount of your Social Security payments subject to taxation, increasing your eligible medical expense deduction on Schedule A, or lowering your Medicare premiums.

Does a qualified charitable distribution make sense for me?

• If you claim the standard deduction, you can still fully benefit from the charitable gift, even though you do not itemize deductions.
• If your charitable contributions exceed the 60% of adjusted gross income (AGI) limitations on charitable contributions, you can still fully benefit from the charitable gift.
• If you don’t have appreciated securities in a taxable account to give, using a QCD will offer the most “bang for your tax buck.”

Mapping out your goals for charitable giving and creating a plan for making those donations creates the opportunity to maximize the impact of your charitable gifts for the charity and for yourself!

Stephen E. Maggard

1. Contributions are tax free

Contributions to your account may be made with pre-tax dollars. An HSA can fund medical expenses tax free at any age, unlike a 401(k) or IRA which could incur income taxes and a penalty. Paying your medical expenses and deductibles from your HSA with pre-tax dollars which acts as a 10-40% discount depending upon your tax bracket.

2. Withdrawals for healthcare expenses are tax free

Medical expenses may be paid for with tax-free distributions from your HSA. Remember to keep your receipts for medical expenses if paid out of pocket, and use these receipts to reimburse yourself from your HSA without tax penalties.

3. Earnings are tax free

Any earnings on the funds within your HSA are tax-free, compared to other savings accounts that result in taxes on earnings.

4. You own the account

Your HSA account belongs to you, rather than to your employer or your insurance company. The funds do not “vest” in the way other retirement accounts do—the HSA immediately belongs to you and remains with you even if you lose your health insurance or change employers.

5. Benefits cannot be lost

There is no “use it or lose it” clause associated with your HSA account. Unlike a Flexible Spending Account, the funds within your HSA account do not have to be spent within the same year they are contributed. Dollars remain in the HSA until you are ready to withdraw them.

6. Your HSA can be a tool for retirement planning

The funds within an HSA accumulate over time and can even be factored into your retirement planning. After the age of 65, you can withdraw funds from your HSA account penalty-free for any purpose. You will owe income taxes on these withdrawals if you use the dollars for non-medical expenses. Funds within an HSA used for medical expenses (such as long-term care costs) will continue to be distributed tax-free.

7. Higher contribution limits

An HSA has a higher contribution limit than a traditional IRA. The maximum contribution for an HSA is $7,200 for a family ($3,600 for an individual), compared to an IRA which is capped at $6,000. HSA owners age 55 and older are entitled to contribute an extra $1,000 per year.

8. HSAs may help save on health insurance premiums

HSA plans typically have a higher deductible than other health insurance plans and charge lower premiums, which can be significant to individuals with low medical costs. Based on premium savings alone, HSA owners can save up to 40% on the cost of maintaining health insurance coverage each year.

9. Broad range of medical expenses covered

Certain “medical expenses” are not covered by health insurance carriers but can be paid for from an HSA, such as dental, vision, and prescription drugs. Better yet, your HSA uses pre-tax dollars to pay for these expenses!

Note: As of January 1, 2011, over-the-counter drugs are no longer considered eligible medical expenses for an HSA. However, a prescription from your doctor for these over-the-counter drugs will allow you to fund these expenses from your HSA without taxes or penalties.

10. Use as an emergency fund or for future expenses—plan accordingly!

The funds within your HSA account do not have to be used for medical expenses after retirement. If you choose to pay your medical expenses out of pocket and allow your HSA account to grow tax-deferred until retirement, this account could potentially grow to $360,000 over 40 years (assuming a 2.5% rate of return) or to a whopping $1.1 million (assuming a 7.5% rate of return) according to a study by the Employee Benefit Research Institute (EBRI).

An HSA can be designated as an emergency fund or to supply future expenses such as an extravagant vacation. The benefits of an HSA can be both immediate and long term. Like a traditional IRA, your HSA account can be distributed to your beneficiaries if not used during your lifetime.

As you sort through your mail, you may notice that some mail has arrived that is addressed to your child. For example, your ten-year-old child may have received a couple of pre-approved credit offers. This may seem a bit odd, but you shrug it off and think it must be due to the over-zealous efforts of credit card companies.

Unfortunately, this type of mail can be red flag, indicating that your child could be a potential victim of fraud. As a parent, you have the ability to protect your children against fraudsters who are seeking to use your child’s information to obtain credit for themselves. It may be time to request a credit freeze to ensure your child’s financial security. Knowing what to do will make it easier to protect your child’s future financial security.

As a parent or legal guardian, you can protect your child’s credit by placing a credit freeze. A credit freeze allows you to restrict access to your child’s credit report, which makes it more difficult for thieves to open new accounts in your child’s name.

Why should I request a credit freeze for my child?

Most children under the age of eighteen do not have credit reports. This blank slate presents an enticing opportunity for those hoping to commit fraud. Once a fraudster obtains a child’s identifying information, the thief can then use the information to apply for credit and take out loans in the child’s name. Unfortunately, the identity theft often goes unnoticed for years.

How do I request a credit freeze for my child?

Abacus frequently assists clients with requesting their own credit freeze and their children’s credit freeze. An overview of the process is included below:

1. Gather information to prove your identity and your child’s identity.

To request a credit freeze on your child’s credit, you’ll need to contact each of the three major credit bureaus: Experian, Equifax, and TransUnion. Each credit bureau will require that you send documentation verifying your identity, your child’s identity, and your relationship to your child. You will need to make three copies of each of the following documents:

• Your government-issued ID, such as a driver’s license
• Your birth certificate
• Your child’s birth certificate
• Your Social Security card
• Your child’s Social Security card
• A utility bill, bank statement, or insurance statement with your name and address on it

2. Complete the credit freeze request forms.

In addition to the documents listed above, each credit bureau requires a form (or signed statement) requesting a freeze. Both Equifax and Experian have forms available on their websites. TransUnion does not have a form; they require a signed letter requesting a freeze.

3. Mail the documents to each credit bureau.

Once you’ve gathered all the required documents, you will send a set of documents to each of the credit bureaus. Although sending by regular mail is acceptable, it is recommended that you use certified mail because of the sensitive nature of the documents.

4. Wait for confirmation and PIN.

After receiving the credit freeze requests, each of the credit bureaus will mail confirmation of the freeze and will include a PIN. The PIN will be necessary for unfreezing your child’s credit, so you will need to keep it in a safe place. The freeze will remain in place until you take action to lift the freeze (or when the child is over age sixteen and takes action to lift the freeze).

Most parents will do everything within their means to protect their children. By staying vigilant and requesting a credit freeze for your child, you are working to protect your child’s financial health.

Brittany M. Midgette