There’s a common thought in investing – put your money to work in companies that produce the products you use or in management that you believe in. Well, why not align your investments with your principles? Recently, we’ve seen massive inflows to a theme known as Socially Responsible Investing (SRI). There are two ways to utilize SRI principles – either by screening for or avoiding certain industries (ex: tobacco, firearms, oil, chemicals) or by selecting companies through specific criteria known as “ESG” factors, which broken down are:

Environmental Effect – How does a company impact the environment through direct or indirect externalities and how will the company fare as the effects of climate change take hold? Often clean-energy industries get an A grade in this factor, while polluting sectors often score poorly.

Social Stances – How does the organization treat the impact of its operations on all stakeholders? This includes gender equality, benefits to workers, and charitable activity in the community. We’ve seen numerous companies like Target, Wal-Mart, and Amazon raise wages for workers above the federal or state minimums.

Good Governance – How does the company operate through its board and management decisions? Independent directors and auditors that monitor managers are key to the longevity of the organization, just ask shareholders in Enron and Lehman Brothers.

Demand for funds that satisfy ESG metrics is rising, mostly in part to a growing millennial investor base, many of whom demand social responsibility when making investments. The chart below from MorningStar highlights the estimated $8.9b in net inflows into sustainable funds held in the United States in the first six months of 2019.

Socially responsible investing in International markets is not far behind as sovereign wealth funds must look to make “financial flows consistent” with lower-carbon emissions and sustainability in accordance with the 2015 Paris Climate Agreement. Expectations for more growth in the ESG space can be attributed to new offerings for this option in employer-sponsored 401k plans, as only 5% of 401(k)s offered a dedicated ESG fund for employees in 2018.

Although performance considerations may have kept some investors from utilizing socially responsible investing funds in the past, they’ve outperformed their non-SRI peers over a few different timelines as shown in the chart below.

When looking at the broader market, Vanguard’s Social Index has returned 4.3% vs. the S&P 500 return of 5.5% since the social index’s inception in 2000.

SRI funds may also have expense ratios (fees) that are higher than their counterparts given the specific criteria that a fund manager must follow. Interestingly, 53% of the available mutual funds that Morningstar highlights as socially responsible had lower expense ratios than the non-SRI funds in the same category.

Weatherly works closely with clients to attain their investing goals through the screening of unwanted holdings and creation of customized portfolios. Our team has restricted industries or companies at the requests of clients through our portfolio management system to notify our investment team of any specific sectors to avoid for each client or account. Alternatively, advisors will note when a client wishes to only invest in companies that promote ESG traits and ethics. When investments are made, a detailed background review is completed for each equity or fixed income position to ensure that the investment is made within SRI guidelines and principles as outlined per client.

We’d suggest speaking to an advisor to see if utilizing ESG metrics in your investments is appropriate. Additionally, Fidelity and Schwab both offer exchange-traded fund screeners to narrow the scope of available funds to fit ESG characteristics.

In addition to socially responsible investing, Weatherly prides itself on implementing sustainable practices throughout all areas of our business. Whether it be hosting a local beach clean-up , providing re-usable cutlery and dishes for employee lunches, or implementing electronic signature software to cut down on paper, Weatherly is passionate and dedicated towards doing what we can to create a leaner, greener future – and we want to help you do the same!

When exploring options of moving towards a sustainable lifestyle, it can sometimes be overwhelming. With so many options in just about every aspect of life, it is often hard to know where to begin. Below are some small and easy changes that can have big impact on reducing our environmental footprint.

On the go:

– Eliminate plastic bottles – Carry a re-fillable water bottle for any hydration needs. We proudly welcome all new clients with a reusable Weatherly water bottle. Please don’t hesitate to contact us if you would like one, as we would be happy to send!

– Avoid plastic bags – Keep cloth/canvas tote bags in the trunk of your car so you never forget them when going to the store to buy groceries or other goods.

– Consolidate errands – Plan/map out errand runs to save money on gas and reduce carbon emissions. Or even better, walk, bike, and/or carpool if possible.

At home:

– Know the rules of recycling in your area – Check out “What Goes Where” for San Diego county residents.

– Stop junk mail – Unsubscribe from those pesky marketers and save paper while doing it. View the New York Times article with helpful tips here.

– Compost – It is estimated that food scraps and yard waste together currently make up to 30% of what we throw away and should be composted instead. DIY compost bins can be made for as little as $10, and many communities host free workshops to help get you started.

At work:

– Eliminate take out containers – Bring your lunch from home in a re-usable lunch box. Even better, bring your own re-usable cutlery and napkin too!

– Reduce paper – Make conscious choices around the office to use less paper. Re-purpose no longer needed one-sided sheets into scratch paper before recycling or shredding.

– Unplug Electronics – Even while turned off, electronics still use energy as long as they are plugged in. Save energy by unplugging applicable electronics before leaving the office for the evening.

It is important to remember patience when transitioning towards greater sustainability. Even the smallest changes, whether in an investment portfolio or in a daily routine, can go a long way to make our world a better place.

We continue to educate ourselves on how to better our community and plan for a future in a world limited by finite resources and talent. Our team persistently researches and uncovers new trends to capture cultural and social movements in thematic investments for clients. Please free to reach out to Weatherly with any questions or suggestions to assist with your journey towards a sustainable future, we are all in this together.

** The information provided should not be interpreted as a recommendation, no aspects of your individual financial situation were considered. Always consult a financial professional before implementing any strategies derived from the information above.

Modern medicine and healthier lifestyles have extended the life expectancy curve over the past 50 years, with the current life expectancy rates in the US just shy of 80 years old.  Life expectancy has increased about 3 months per year for some time, with women outliving men and at the upper end of the curve.  The 1950s planning model suggested individuals retire at or around age 65, with about 10 years in retirement until their plan ended at age 75.  Now, we plan to age 95 for our clients, stretching retirement about 30 years.

Thirty years in retirement can feel like a long time!  We often see clients asking themselves “what do I want to explore?” and “what do I have to offer?” during this phase of life.  Advisors and Financial institutions like Fidelity strategize about how to plan for a long and impactful retirement.

We start with the financial plan.  Like we’ve talked about many times before, a solid financial plan allows us to forecast spending and income in future years, accounting for market volatility and unplanned expenses.  We look 5 to 10 years to the future, and if retirement is on the horizon we make a plan to transition our clients from their “working” years, which may have been a 9-to-5 career, to focus on goals and interests that create impact.

This transition looks different for everyone.  A recent MarketWatch article highlighted the psychological effects that come with retirement – when your job is a large part of your identity, there might be anxiety about next steps.  We have some options for those that aren’t quite ready to plan for transitions from full-time work.

Consulting – Many of our clients achieve a great amount of fulfillment with their current careers and prefer to transition out of retirement at a slower pace.  Many times, this results in a consulting opportunity, shifting from W-2 wages to 1099 income.  Individuals are contracted as sole proprietors and often have more flexibility in the hours, projects and people with which they work.  They may lose the benefits they received as a full-time employee, like medical benefits and 401k contributions.  Advisors like Weatherly can add value by suggesting alternative retirement strategies such as Self-Employed 401ks to bridge the gap and squirrel away more money into tax-deferred vehicles when starting to live off of investment assets, Social Security, rental income or Required Minimum Distributions.

Volunteer Work – There are a multitude of causes to volunteer time and expertise in retirement years.  Sometimes this can lead to part-time paid work with a charitable entity or development of a curriculum that is used in after-school programs.  If you develop a program or curriculum for an organization that may be used by others, it’s important to look at the appropriate patents or licensing – like a Creative Commons license.

Mentorship or Boards – Not all folks have the benefit of positive mentors to help them make critical life decisions; advice on college, first apartment, first car and job changes are paramount to young individuals.  A recent NY Times article highlighted generational benefits in learning life balance.  There are organizations that combine the positive impact of both volunteerism and mentorship – for example, Just in Time helps foster youth transition out of care and into the “real world.”  The relationships work both ways – sometimes with millennials mentoring an older generation as witnessed here.

Board memberships are also a great way to offer expertise in an impactful way.   Corporate boards may offer a pay incentive, while non-profit boards are typically on a volunteer basis.  Corporate board guidelines are also undergoing change, requiring more diversity and providing expanded opportunities.

Education – Just because you are retired, doesn’t mean you stop learning.  Time off of work can allow you to hone in on new skill sets or subject matters that have always been of interest to you.  We continue to educate ourselves at Weatherly, and encourage clients to do the same.  There are several ways to audit classes, even including those taught at Ivy League Universities.  This article provides links to 107 free classes available to anyone.  We have seen many clients return to part-time or full-time schooling, offering a new expertise to create impact in different areas.

Art – Retirement often brings out the creative side in people and sometimes that can turn from a hobby into a business.  We see a variety of skills with our client base, from sculptors, to jewelry making, to photography and pottery, our artist clients run the gamut.  Many create holiday gifts for family and friends, and others sell their art for profit.  We can suggest the appropriate bookkeeping and accounts to segregate expenses and income for clear tracking.  Using a separate accounts for business expenses, and software like Quickbooks allow artists to focus on their craft instead of financials.

We are personally fulfilled when we see our clients succeed – whether that is in their current career, through a smooth transition or the impact they make on their families and communities.  As recently as this week, we had a conversation with a client who reminded us that “the only constant in life is change!”

** The information provided should not be interpreted as a recommendation, no aspects of your individual financial situation were considered. Always consult a financial professional before implementing any strategies derived from the information above.

In the world of Wealth Managers, Stock Brokers, Robo-Advisors and Financial Planners, investors are often left wondering which one is right for them, and why?  Each individual, family or business’ situation is different and the goals unique.  So where does Weatherly fit in?  Weatherly would fall into the category of ‘Wealth Manager’ and our goal is to positively influence your financial life through dialog and collaboration.  The more we learn about you, the more we adapt and customize our advice for impact.

The two main pillars of our mutual success are Financial Planning and Investment Management.  Financial Planning is the foundation of our relationship where we learn what makes you tick both personally and professionally.  Those fascinations and desires shape your goals and how you would like your money to work for you.  Armed with this information we can strategize prudent asset allocation, timing of retirement, make estate planning decisions, provide for beneficiaries or charities to name a few.

Click here for more information on our services

Investment Management is the implementation of what we learn through the Financial Planning process.  There is no point trying to fit a square peg through a circular hole, or utilize a ‘cookie cutter’ approach.  We want to make sure your portfolio aligns with your long-term plan with tax and fee efficiency.  This is the stuff that we wake up in the morning for.

In this blog, we explore the diverse personalities and expertise on our team, and how we most enjoy working with clients. While everyone has their core day to day functions in how they help the team, and ultimately you, we will also shed some light on how they contribute in a more non-conventional fashion as well.  Feel free to click on any team member’s name to check out their biography. Welcome to behind the scenes at Weatherly!

Yoshi

The first smiling face you see when walking into the office or joyful voice that greets you over the phone is none other than Yoshi Brownlee. Yoshi plays an integral role at the firm facilitating organizational efficiencies and administrative support for both clients and advisors. She also helps the firm with its philanthropic initiatives by identifying where a need in the community is and organizing the logistics to get the team together to help out.  This can be seen on our Culture and Community page of the website that she helps maintain for us.  One item you can’t quantify is her positive attitude and overall demeanor that keeps the office morale high, even during tax season…

Chrissy

Chrissy is a little more behind the scenes, but her work is definitely felt throughout the entire ecosystem.  Her primary roles include working on client onboarding systems, internal reporting, and automation of workflow.  As you know, we are always trying to make sure we have your most recent tax documents and Chrissy is the one who makes sure that they accurately stored and that we capture any important data such as loss carryforwards so they are utilized for tax efficient investing.  She makes sure to be a team player and will actively look to anticipate needs not just for the office as a whole but her fellow team members.

Sally

Sally has been instrumental in leading the push toward creating a more efficient workflow process including the firm-wide adoption of DocuSign and draws upon her educational background to help teach the team and clients new efficiencies in the technology we utilize.  DocuSign has greatly increased execution time on client accounts, led to a more secure form of communication, and is more easily tracked.  She was probably more excited with the amount of paper that we are savings rather than the efficiency created.  Sally is very passionate about sustainability and never misses an opportunity to remind us about the silverware in the cupboard or compliment us when using it.

Ryan

Ryan’s time and experience here with the firm has allowed him to gain exposure to just about all aspects of the business.  He has fulfilled many roles within the company over the years and is very flexible in his capabilities. You may have had the pleasure of speaking with him if you were moving some accounts over as he has taken on the Transfer of Assets process.  He obtained his CFP® designation last year so make sure to congratulate him on this amazing accomplishment as he sacrificed many weekends to achieve this.

Brooke

One of Brooke’s many duties is helping clients accomplish their charitable goals, which includes analyzing and helping clients understand which account and position is best suited for gifting along with the taxable implications coming from such gifts.  As some of you may have had the privilege to work with Brooke you will notice she is an incredible teacher and has a way of breaking down material into simplified pieces that are easy to understand.  Her charitable work is a perfect role for her as she also assists with the firm’s initiative to be more involved in the community though philanthropic events such as beach cleanups, Feeding San Diego, and the Susan G. Komen breast cancer walk, which she has personally participated in.  Another congratulations is due for Brooke as she too recently obtained her CFP® designation.

Cole

You may know or think of Cole as the money man and is often times the one you speak to when you request some cash as he handles a majority of the firms cashiering requests.  He also ensures that you get your money even when you don’t ask for it by running Required Minimum Distributions or Qualified Charitable Distributions analysis so that you can maximize tax efficiency.  As for professional milestones, he recently  passed Level III of the CFA Program in 2018B03.  Outside of work he has been steadily training for the Orange County Marathon that he completed last week.  This was a huge personal accomplishment for him and now he sets his sights on competing in a triathlon.

Chase

Chase is the newbie to the Weatherly team and comes from a nationwide financial planning software company.  He was there for about 5 years and primary dealt with helping advisors model out their strategies and plans for their clients.  He will draw largely on this background as he helps with building and presenting the financial plans here at the firm.  This will be an exciting new perspective to work first hand with both the advisors and clients alike.  He looks forward to officially introducing himself to you all and working side by side in the coming future.

Lindsey

The team here would certainly not be able to run as smoothly as it does if it wasn’t for the resourcefulness of Lindsey.  She wears many hats here including HR, IT, and security, to name a few, all while having a very calm and laid-back attitude, which is hard to fathom with all those responsibilities.  On top of all of these items here in the office she is also a mother of two young beautiful children.  We are certainly thankful for all her efforts here and being able to wear so many different hats. Her capabilities allow us each to focus on our unique expertise with clients and keep client data safe.

Kelli

Kelli recently passed an amazing milestone and is the newest partner here at the firm.  Outside of meeting with clients, she also helps assist in the marketing effort of the firm.  This consists of helping create our own story here at Weatherly along with listening to you, the client, for new ideas as to what type of educational blog posts we should explore.  She also assists with the firm in staying compliant by updating any related documents or disclosures we have and working with the other partners to develop company strategy.

Brent

Brent’s role as partner includes oversight of investment implementation and he prides himself on being able to simplify and synthesize complicated matters into digestible pieces for clients and fellow team members to understand.  He plays an integral role on the investment committee and handles a majority of the firms trading and analysis.   His laid back attitude and sense of humor makes him a joy to work with and somehow he maintains this even when taking care of the newest addition to his family throughout the night.

Candise

Candise has been with Weatherly for over 19 years and we’re sure you either know her well or have spoken with her in the past.  She continues to bring a tremendous amount of value through her past experience in the industry and particularly in cases involving estate matters and guiding clients through what can be a difficult process.  Through open dialogue, it sets the stage for all parties involved to feel included and heard regardless off the outcome.  As partner, she is an amazing educator and when answering questions she certainly makes sure you get all the information you were looking for… and even some you didn’t even know you needed!

Carolyn

Where do we begin.  All of the different responsibilities that you have read prior to this are somehow touched and filtered through Carolyn.  Her genuine and empathetic personality allows for her to connect to whoever she is speaking to and regardless of the situation.  She spends most of her time meeting with clients and building relationships but coincides that with developing firm direction and strategy.  It’s remarkable how much she can remember and is always able to ask specific details about how the family is doing or any exciting developments that have occurred.  She continues to lead by example and make sure all clients and team members are looked after and treated with care.

We hope this sheds some light on our team and provides context on what goes on behind the walls at Weatherly.

** The information provided should not be interpreted as a recommendation, no aspects of your individual financial situation were considered. Always consult a financial professional before implementing any strategies derived from the information above.

The TCJA that was signed into law on December 22, 2017 made significant changes to the tax code. The changes were broad and sweeping which leads to questions about what changed and what we can do to mitigate taxes under a new code.  While the increase in the Standard Deduction has some individuals moving away from itemizing, there are still ways to decrease tax liability with “above-the-line” deductions, business and charitable planning and investment strategies.  Our Key Data Chart outlines the main figures to focus on for tax planning.  Read on to see our Top 5 strategies that might make a positive impact on your tax situation.
 

The What: Retirement plan contributions, an above-the-line deduction

The How: The most common way to reduce taxable income is a contribution to an eligible retirement account. This strategy is beneficial for two reasons – you can lower your tax bill now and access tax-deferred growth for the future.

This chart highlights the allowable deferrable amounts for various types of retirement plans, depending on your business structure and compensation.  These contributions are “above-the-line” and directly reduce your Adjusted Gross Income (AGI), even if you are not itemizing deductions on Schedule A.

The What: Business structure, how the change in tax rates can impact your deductions

The How: C corps and qualified pass-through entities, including sole proprietorships, partnerships, S corps and LLCs benefit from the TCJA.  C corps saw a reduction in tax rates from 35% to a flat 21%; pass-through entities with qualified business income are able to take a 20% tax deduction.

We’ve been encouraging our clients with business income of any sort to consult with their CPA on what business structure is appropriate for them and eligibility for the deduction.  Similar to above-the-line contributions, you can take the 20% tax deduction, even if you aren’t itemizing under the new tax law.

The What: Charitable deductions, QCDs and bunching donations

The How: If you are over age 70.5, own a retirement account and are taking a Required Minimum Distribution, consider a Qualified Charitable Distribution.  You are able to donate directly from an IRA up to $100,000/year.  These donations are not included in taxable income on your 1040 and offer a tax benefit, even if you aren’t itemizing.

If you have a larger than usual tax year, consider “bunching” charitable donations to maximize your Schedule A deductions.  With the TCJA reform, we’re seeing more individuals utilizing the standard deduction over itemizing.  We’ve reviewed frontloading charitable funds on our blog, along with the advantages of donating stock and QCDs.

The What: Taking advantage of “gap years” with low income

The How:  Financial planning is a tool most often used to visualize a path to retirement, but these plans are also helpful in identifying when you might have “gap years” of income in retirement.  If you have a couple of years between retirement and collecting Social Security or RMDs, you might be able to take advantage of strategies like Roth IRA Conversions or even an IRA withdrawal to a taxable account.  You might benefit your future self by removing assets from a Traditional or Rollover IRA in years when the tax rates are lower due to the TCJA versus having a higher RMD in later years when tax rates are less certain.

The What: Investing, utilizing tax-efficient stocks and bonds to maximize returns

The How: Although tax rates are lower, the limitation of itemized deductions, particularly in high tax states, makes tax-efficient investing even more attractive.  Weatherly primarily utilizes individual stocks and bonds in our investment portfolios.  Municipal bonds remain attractive, paying tax-free income at the federal level, and depending on the state of issuance and where you live, the income may be tax-free on your state return too.  Qualified dividends and capital gains are taxed at a more favorable rate, and even in some of the “gap years” identified above we’ve seen individuals fall into the 0% bracket – you can offload low basis stock without the tax burden if planned appropriately.
 
Investment Management Fees and Tax Deduction

Prior to the TCJA, investment management and professional fees were tax deductible if they exceeded 2% of AGI.  You can still pay investment management fees, as applicable, from a Traditional or Rollover IRA.  This is a tax-free “withdrawal” which can help lower RMD impact in the future.

Some states conform to the TCJA at the federal level, mirroring the itemized deduction schedule.  Others, like California, do not adhere to conformity and may still allow for deduction of investment management fees on your state return.  You can check here or ask your CPA what you are eligible for at the state level.

Resources:

https://www.fidelity.com/viewpoints/personal-finance/taking-tax-deductions

https://www.nerdwallet.com/blog/taxes/pass-through-income-tax-deduction/

https://www.taxdebthelp.com/blog/pass-through-tax-deduction

** The information provided should not be interpreted as a recommendation, no aspects of your individual financial situation were considered. Always consult a financial professional before implementing any strategies derived from the information above.

Over the course of working with clients for many years, we often get the question, “What are the most important financial elements you think we should know?” Although no two client situations are the same, clients often need a fundamental starting point to build their financial future upon. In the interest of starting the year off right, we want to highlight what we call “The Four Financial Basics” and important action items you can’t afford NOT to know for a healthy financial future.

“The Four Financial Basics” and considerations as you establish your financial base:

1. Most importantly, know where your money is and roughly what you have.

Ask yourself the following questions:

• What are your sources of income and savings? What amount do you have of each?
  • Income sources may include: pensions, social security, investment income, rental income, business income, salaries and wages, IRA distributions
• Where are your investment and retirement accounts held? How much do you have of each?
• Do you give to charity? Do you have a Donor Advised Fund (DAF) or another source you use?
• After considering these questions, Weatherly is able to provide guidance and strategies specific to your financial situation and to help maximize your after-tax income, savings, and investment.

2. Know where your money goes and what you spend monthly.
   • According to a recent Gallop study, approximately 67% of Americans do not keep a formal budget for their household spending (1). We recommend that clients track what they spend in various categories to avoid overspending. First add up the necessities, include housing costs, debt, other items such as car, insurance, utilities, savings. Then compare that to your income number to see what you have remaining. We have included a worksheet to help you track here.
   • By gathering this information, we can better develop your financial plan and evaluate the amount of income you have left for discretionary spending on items such as: travel, entertainment, and hobbies to name a few- as well as better estimate what you will need throughout your life.

3. Know Your Assets. How are they titled, where are they held?
   • The title and type of asset determines how it is treated. A common example is your home- if you have a living trust, but your home is not in trust title, then your home will not be treated as being held in trust. This oversight may lead to a probate issue at death. Have you refinanced recently? Check your title is correct.
   • Consider: Where is the title document for the asset? What does it say? Who has a copy of it? Have you developed a list so an executor would know where everything is?
   • This exercise is akin to a good financial health checkup. Weatherly encourages clients to “Know Your Assets” to avoid unnecessary pitfalls, such as the probate example outlined above.

4. Know where important documents are and who has a copy.
   • Important documents typically include your durable power of attorney, durable power of attorney for health care, trusts, wills, list of assets, insurance policies, benefit information, and tax returns.
   • Use a simple checklist to track the documents you have and who has access to them. Review this list: 1) at least annually, 2) when you acquire new assets, or 3) if there are changes in family status due to birth, marriage, death, and divorce to name a few. Weatherly is available to help complete your checklist and collaborate with your team of professionals- CPAs, estate planning attorneys, a trusted family member- to implement or obtain copies of these documents on your behalf.
   • Provide the important documents and completed checklist to your executor, trusted professional, or keep a copy in a known place “in case of emergency”.
   • Completing our Family Conversation Card with a family member or significant other, can serve as an evaluation and accountability tool that helps track your documents and progress. You can also utilize the card as way to educate and start the family conversation about wealth, family values, philanthropy, and financial goals and wishes.
   • For more detailed, complex lists we recommend storing on a secure thumb drive that is password protected, or a cloud-based storage system- such as Dropbox, Keeper, or Amazon Drive-which is accessible from anywhere. Some if these data storage systems also have legacy options for data recovery.

So, how did you do? Do you generally know the Four Financial Basics? Excellent! Does your spouse… your executor or trusted family member?

Similar to the start of a new year, establishing your financial base can present a plethora of emotions, challenges, unknowns, some anxiety, and excitement.  The Weatherly crew is here to assist you with the Four Financial Basics and provide guidance as you seek to put your financial house in order and plan for the future.

Resources:

1. https://www.debt.com/statistics/

** The information provided should not be interpreted as a recommendation, no aspects of your individual financial situation were considered. Always consult a financial professional before implementing any strategies derived from the information above.

As our client’s approach retirement, one of the most common questions that’s asked is “How will I replace my income?” While the question is common, the answer is a nuanced one that spurs a further dialogue surrounding many of the more important questions which ultimately dictate its answer:
When will you retire? Will your lifestyle in retirement differ from lifestyle while employed? What sort of longevity, or lack thereof, is in your family? What sources of retirement income are available to you? What type of assets do you have? Will your risk profile change when you are retired and begin distributing, as opposed to accumulating, assets?
By working through these questions, our team at Weatherly can help to provide context around the retirement income equation, implement appropriate strategies and best position our clients for a positive outcome.

Defined Benefits
Pension plans are becoming less and less common, but nearly all retirees have at least one source of defined benefits. Whether you are only eligible for Social Security or have various defined benefit sources, a critical decision point is when and which benefit to claim. The norms of old were to claim defined benefits as soon as eligible or upon retirement to maintain a wage-like stream of income that becomes familiar over decades of employment. However, as the existence of these types of plans have lessened and life expectancies have increased drastically, delaying benefits has become that much more attractive to maximize the dwindling sources of, in theory, guaranteed income.
While factors that are not within your control weigh heavily on what the “correct” strategy is, such as the solvency of the funding source or how long you live, Weatherly can help provide context around these types of decisions through our benefit analysis process. By incorporating the control variables of the defined benefit amounts, with reasoned assumptions such as life expectancies and cost-of-living adjustments, all while accounting for the quantitative and qualitative investment factors such as a client’s asset level and risk profiles, educated decisions can be made to provide the most appropriate defined benefit decision for your specific situation, needs and goals. These benefit decisions that our team helps to solve include, but are not limited to:
• Monthly pension vs. lump sum payout
• Single-life vs. Life Certain vs. Survivor benefit options
• Break-even analysis of cumulative benefits
• Break-even annual rate of return for benefit options
• Social Security break-even analysis

Investment Assets
As it becomes clear when and how much retirement income will be generated from defined sources, the decision turns to how to fund the gap between the need. This may seem like a straightforward decision, especially if you only have one type of account, but the sustainability of those existing assets can be greatly influenced by the cohesiveness of the withdrawal strategy.

Tax Flexibility
For most retirees, the majority of their investment assets are held in tax-deferred accounts like Traditional IRAs or employer sponsored plans such as a 401(k). While these accounts are certainly attractive during the accumulation stage, there is a lack of flexibility during the distribution stage when withdrawals are fully taxable and become required once you turn 70½. To help combat this lack of tax flexibility and when excess income exists, it can be quite impactful to supplement your retirement contributions with contributions to non-qualified, taxable accounts as well.
Conversely, if you have a low-income year either prior to or in retirement, completing a Roth Conversion can create additional tax and withdrawal flexibility down the road by establishing a bucket of tax-free money that you are not required to withdraw at any point in your lifetime.

Asset Location
Much like how the asset allocation between stocks, bonds and cash is dictated by the time horizon and extent of the need from the account, the asset location within accounts is dictated by these same factors. Once tax flexibility is increased with multiple types of accounts, the placement of where certain types of assets are held can be an important next step in creating further sustainability and efficiency of assets.
Stocks and Bonds that produce higher income are better suited in tax-deferred accounts whereas securities like Municipal Bonds or qualified dividend-paying stocks are better suited in non-qualified accounts like joint and trust accounts, where tax rates are more favorable.
Balancing the asset allocation and location of various investment accounts helps to increase the sustainability of those assets and the income they seek to provide.

Behavioral Assets
Perhaps one of the most impactful yet underappreciated aspects of the retirement income equation are the behaviors involved in accumulating, distributing and maintaining the assets that produce the output of the equation. These behaviors can range from the risk tolerance of investor, to their discipline in deferring gratification of their earnings, to the mental accounting of their retirement income streams.
Each behavior that makes a person unique does the same to their respective retirement income strategy. Regardless of how well thought out or reasoned a retirement income strategy is, the ability to adjust to the unpredictable nature of the markets, the uncertainty of life or even potential changes in the tax laws can have just as much of an impact on the long-term success of that strategy as the underlying levers of the equation.

What is Your Retirement Income Equation?
For some, a successful retirement means covering all basic living expenses without running out of money. For others, it can be checking off the retirement bucket list, traveling the world or leaving behind a financial legacy for loved ones or philanthropic causes. And some simply want to squeeze all they can out of the prime retirement years until their money’s gone and then make due from there.
By defining what the destination in retirement is, the best vehicle(s) to arrive there become more apparent. Our crew at Weatherly is here to help with your retirement income decisions and to guide you the most appropriate strategies to best solve your retirement income equation.

More Resources:
A Golden Opportunity 
Strategies for uncovering hidden value in retirement income planning
Potential 2019 Tax Changes Your Wealthy Client Need to Know About

One of the most exciting events in human life is the birth of a child or grandchild. While we can’t prepare you for the challenges of parenting, we can help with ways to get a head start on the financial and legal considerations that come with being a parent, grandparent or significant contributor to the family unit. In this month’s blog, we’ll outline some of the important steps that can be taken to promote a healthy financial future for young families.

1) Obtain Birth Certificate and Social Security Number (SSN): These documents are important and are required for some of the activities outlined below. They are typically received within a few weeks of birth and are important for enrolling in health insurance. For world travelers, getting a jump start on a US Passport or Global Entry identification as early as possible helps save stress and time before your next vacation. More information on obtaining a SSN can be found here.

2) Add your child to your health insurance: Most insurance companies will automatically cover your child for the first 30 days, but beyond that, you typically must add them to your plan. If you are a resident of California, you can find additional information here. If you are a resident of another state, take a look here. 

3) Set up a will or trust: Wills and Trusts are already great tools to avoid probate and taxes, but they play an increasingly important role as the family grows. If something happens to you and your partner, the Trust will define both financial and legal guardianship for your child, and they don’t need to be the same person. For example, one party could become custodians and daily caretakers for the child, while another party could manage the finances for the child’s benefit. Trusts (such as a sprinkling trust) can also set parameters on what assets the child can access while a minor, or even as an adult as necessary. We have discussed wills and trusts in our previous blog post and the importance of each.

4) Review and change beneficiaries on your financial accounts: This is particularly important for retirement accounts where you typically name people, rather than a trust, as beneficiaries. A typical scenario would be to name your spouse/partner as the primary beneficiary, with your trust as the contingent to care for young children. We recommend checking with your advisor or estate planning attorney to see if you need to make changes to your current beneficiaries.

5) Adjust your W-4 form with your employer: The W-4 form lets you take allowances which adjust the tax withholding from your paycheck. The more allowances you take, the more take home pay you will receive. Often, children open up new tax breaks and you may not need to have as much money withheld from your paycheck as prior years. We suggest using budgeting tools like www.mint.com as a way to understand your current finances and where you might need to make changes.

6) Budget: While you may get some new tax breaks, one thing we can guarantee is that raising a child will cost money. The government recently released a report that estimates it costs $233,610 to raise a child born in 2015 to age 18 without taking into account tuition or inflation. Cost of living varies around the country and some regions may carry higher costs than others. Make sure you plan for these costs and increase your emergency fund to have at least 3-6 months’ worth of liquid living expenses.

7) Start saving for the future: 529 plan college savings accounts are one of the most popular ways to save for your child’s future. Money is gifted to the account where it grows tax-free for the purposes of education. These accounts can also be transferred to other family members. There is the option to ‘supercharge’ your 529 contribution by placing 5 years’ worth of gifts into the account. We often see grandparents looking to reduce the size of their estate utilize a supercharged 529 account for gifting. UTMA accounts are also great ways to save for a child, but keep in mind, these accounts will be considered assets of your child for college financial aid purposes. With the recent tax changes, an additional benefit is that 529 funds can be used for high school tuition. We’ve included some useful tools below to help you decide which savings account is right for you and your family.

Fidelity 529 Calculator

529 vs UTMA – Comparison 

Consider a Term Life Insurance Plan: Term life plans for younger parents can be relatively cost-effective ways to ensure that your child or partner have sufficient assets to sustain their quality of life should something happen to you. Many young families use these tools to bridge the gap from their asset accumulation years to when they have built up sufficient net worth later in life.

Considerations for grandparents: Beyond utilizing a supercharged 529 account for gifting, grandparents can utilize annual gifting to each beneficiary. For 2018, gifts of up to $15,000 can be given to each beneficiary without chipping away at lifetime gifting amounts or filing a gift tax return. In addition, gifts above the exclusion amount can also be made for tuition as long as they are made directly to the institution.

How WAM can help: We work with both parents and grandparents of young children who may be considering the planning strategies we outlined above. We welcome a time to have a dialogue about your family’s unique needs and how we can help to plan for a successful financial future.

The Bull Market Turns Nine, What’s Next?

The media and investment community have recently focused attention on the length of the current U.S. bull market with great speculation on sustainability of positive returns. The Post Crisis Bull Run is now the longest bull market in history as of August 22, 2018. However, in our view market outlook should not be based solely on length but rather formed through a well-researched understanding of fundamental macroeconomic indicators, US consumer health, corporate valuations, and the geopolitical landscape.

Context

The Great Expansion, now the second longest bull market, lasted approximately 114 months, from October 1990 to March 2000. During the 114 months period, the S&P returned 418%.

The Post Crisis Bull Run, from March 2009 to present, returned 302% on the S&P 500. In both 2011 and 2015 the market corrected due to concerns regarding the European debt crisis and global debt levels.  In both cases, the market rallied and continued its upward trend.

*All figures are as of June 30, 2018¹

What is best? A long term view

Portfolio management and appropriate overall strategy is an ongoing and iterative process. We strive to collaborate with our clients to ensure changes to your individual situation are incorporated with our outlook to best address opportunities and risks. A steady hand and focus on the long term are key to our client’s success. JP Morgan completed a study that illustrates the importance of a consistent investment approach through volatility and the precarious challenge timing the markets. For further information, reference this link.

Weatherly takes a long term fundamental view to best position client portfolios in all market environments.  Many market participants don’t know that strategic asset allocation is the primary driver of portfolio returns. A Financial Analysts Journal study found that active asset allocation accounts for approximately 93% of investment performance². Our team analyzes markets with a top down and bottom up approach within a macroeconomic framework. We deploy tactical asset allocation decisions to make incremental changes that are consistent with each client’s unique goals, risk/return profile, and our economic outlook.

Where We’ve Been and Where We Are Now

In 2018, we have seen a disparity in investment performance across sectors. The technology sector has led the way returning approximately 21% year to date vs the S&P 500 returning 10.4% YTD. There has specifically been a tilt towards Facebook, Apple, Amazon, Netflix, and Google, commonly referred to as FAANG in 2018.

It is also important to highlight a few economic indicators to fully understand the current business cycle and 2018 market.

• U.S. Employment Rate: In May of 2018, we saw the unemployment rate reach an 18 year low of 3.8% (and 3.9% in July 2018), which suggests that we are at full employment levels. Wage growth, however, has remained low at a 2.7% rate year over year.

• Inflation Target: the early stages of inflation rising is a bullish or positive indicator for the economy as demand for products has grown and prices are increasing. The Federal Open Market Committee’s (FOMC) target inflation rate is 2% and the current annualized U.S. inflation rate is 2.9% as of July 2018.

• Interest Rates: Given the uptick in inflation, we’ve seen the Federal Reserve methodically raise short-term rates with plans to continue at the next FOMC meetings in a response to rising inflation.

• Gross Domestic Product (GDP): known as the output of a country’s economy. We have continued to see steady GDP growth with an annualized growth rate of 4.1% as of June 30, 2018. Approximately 70% of the GDP growth is due to consumer discretionary spending, which suggests that consumers are spending money, a positive economic indicator.

• Corporate Earnings: In Q1 2018, we saw corporate profits increase by 8.7% (or $153 billion) to an all-time high mainly due to the decrease in corporate tax rates to 21% from 35% under the Tax Cut and Jobs Act. The increase in corporate earnings has enabled corporations to invest funds in stock buyback programs and implementation of or increasing their dividend payouts.³

These indicators suggest that the economy is healthy, consumer spending remains steady, and we are in the late expansionary period of the business cycle. Weatherly has implemented specific strategies to position client portfolios for the current market environment, but recognize how far certain asset classes have appreciated, and are working to position clients for additional volatility in the coming years.

Strategies Implemented in 2018

• Tactical Asset Allocation and Options Strategy- Based on each client’s unique goals and risk/ return profile, Weatherly has begun to proactively shift client portfolios to asset allocation neutral in response to the rise in equities as we potentially near the end of the bull market. Our tactical asset allocation approach is two- fold. First, we have shaved down stocks that have appreciated significantly. Second, we have rotated out of specific sectors that may be negatively impacted by the current economic environment. For clients with concentrated positions, we have also utilized our covered call options strategy to reduce single stock exposure and opportunistically increase income in portfolios. Reference our covered call write-up here for further details.

• Fixed Income Strategy- The current flattening of the yield curve makes short term debt instruments attractive as investors can capture a reasonable rate of return, while reducing exposure to interest rate risk, credit risk, and inflation rate risk. Given these factors, we have proactively put funds to work in short to intermediate-term corporate and municipal bonds with maturities of 1-7 years.

• Collaborate with Your Designated Professional Advisors- We also work directly with clients’ designated professional advisors- CPAs, attorneys, other financial advisors – on tax loss harvesting strategies and giving strategies via Donor Advised Funds (DAFs) and/or Qualified Charitable Distributions (QCDs) via client’s IRA Minimum Required Distribution (MRD). These strategies can also reduce equity exposure in portfolios.

• Tax Loss Harvesting- At the end of the third and fourth quarters, we work directly with clients and their CPAs on tax loss harvesting for clients that may have a large tax bill following a high-income tax year or realizing large capital gain. This strategy involves selling securities at a loss, which allows the client to reduce capital gains tax and offset up to $3,000 of ordinary income.

• Giving Strategies- With large unrealized capital gains in client accounts, Weatherly has incorporated Donor Advised Funds (DAFS) and Qualified Charitable Distributions (QCDs) to strategically shave down these positions in client accounts. Given the unique tax implications of contributing via a DAF vs a QCD, Weatherly consults your CPAs and team of professionals to determine the appropriate giving strategies and vehicles for 2018. Please reference of Charitable Giving blog post and this link for further information on DAFs and QCDs.

Weatherly has proactively put these strategies into action based on each client’s risk-return profile and unique financial goals. Please feel free to contact us to discuss our strategy, market outlook, and your specific situation in more detail.

References

1. https://www.businessinsider.com/heres-what-the-longest-bull-runs-of-the-modern-era-have-looked-like-2018-6
2. http://www.grbestpractices.org/sites/grbestpractices.org/files/Determinants%20of%20Portfolio%20Performance%20II%20An%20Update.pdf
3. https://tradingeconomics.com/united-states/corporate-profits

** The information provided should not be interpreted as a recommendation, no aspects of your individual financial situation were considered. Always consult a financial professional before implementing any strategies derived from the information above.

Checklist for Career Transitions

Whether it be retirement, starting a business, being recruited to a new job or changing industries, nearly all working individuals experience a transition at some point in their careers. While new roles, responsibilities and workplace dynamics are major adjustments, career transitions also bring upon many financial considerations that deserve attention.

To help ensure that you stay on track with your long-term plan, we’ve created a checklist for career transitions to help you navigate through these times:

• Insurance

  • Health Insurance
    According the United States Census, over half (55.7%) of the total population of United States have employer-based health insurance coverage. While you always have the option to get a private policy, the Consolidated Budget Reconciliation Act (COBRA) allows those in transition, as well as their spouses and beneficiaries, the provisional continuation of current health insurance if they meet qualifying events. These qualifying events each include their own maximum period of continuation that ranges from 18 to 36 months.
    It should be noted that in most all cases, the insured pays for the full COBRA health insurance premiums and the (former) employer does not split any of the cost.
  • Life/Disability Insurance
    Employers may also offer term life and/or disability policies that can help to supplement a major portion of your family’s coverage needs. Although employers will not continue to share the costs upon leaving employment, former employees may be able to maintain their current policies directly with the insurer of the policies.
    Changing jobs is a great time to not only assess the potential gap that has been created in your coverage but also reassess your total insurance needs as you explore new policies.

• Retirement Plans (401k, 403b, 457, etc.)

  • Contributions
    Depending on the type of plan, the IRS specifies the maximum that can be contributed to your retirement plans every calendar year. If you will be retiring, moving to an employer without a retirement plan or expect no/lower income for the remainder of the year, maxing out your retirement plan contributions prior to leaving your current company takes advantage of the waning opportunity for a tax deduction and tax-deferred growth. Even if portfolio funds or savings are needed to meet expenses, deferring all, or at least enough of your paycheck to get the employer match, can be an effective strategy as you approach the end of your tenure with your current employer.
    It is important to note that the IRS contribution limit applies to aggregate calendar year contributions, not contributions per plan. If you do max out contributions before leaving an employer, be sure to not overcontribute if you participate in another plan in the same calendar year.
  • Rollovers
    In general, employer-sponsored retirement plans have been trending in the right direction in terms of fees, services and investment options but still commonly lack transparency and overall scope that can prevent participants from maximizing the growth of their retirement savings.
    Weatherly uses the service FeeX to review our client’s retirement plans to help illuminate the key factors in the plan centering around total fees, services and investment options. Completing this analysis not only provides greater transparency of those factors but to also help with the decision of whether to rollover old employer-sponsored retirement plans out of the plan and into an IRA.
  • Required Minimum Distributions (RMDs)
    If you continue to work past the age of 70 ½ and your plan allows for it, the assets in your retirement plan are most likely excluded in the calculation of your required minimum distribution under the working exception. Should you leave your employer, this exception goes away and these assets will now be included in that RMD calculation.
    This inclusion will increase the amount that the IRS requires you to withdraw from your IRA the next year which can lead to additional tax consequences. If you are working past 70 ½, it is important to understand this change so that proper tax planning can be considered.

• Stock Plans/Deferred Compensation

  • Stock Plans
    Various types of stock plans such as Stock Options to Restricted Stock and Employee Stock Purchase Plans are common benefits that allow employees to purchase their company’s stock at a discounted rate. While this is an attractive benefit for current employees, it can create a difficult decision for those in transition.
    Traditionally, former employees have up to 90 days from termination to exercise any vested incentive or stock purchase While the specific number of days may vary, this time limit puts former employees in the situation where they are forced to decide whether to let vested shares expire worthless or realize potentially significant tax consequences. This decision will be unique to each individual’s situation but if your departure can be expected or planned, strategically exercising vested shares opportunistically in advance of this forced decision may allow you to mitigate your tax consequences without leaving money on the table.
  • Deferred Compensation
    Much of the same considerations relate to Deferred Compensation but the flexibility for these plans is commonly far less. Because Deferred Compensation Plans are essentially an agreement between you and your employer to pay income that you have earned at a later date, you are not able to disclaim these payments. This earned income must be paid out to you even if you prefer to rather not have to realize those as tax income.
    Depending on the specific plan, you may still have the flexibility to spread out these deferred compensation payments or in less common situations, be forced to take your full balance as a lump sum payment in a single tax year. Weatherly can strategically plan for these various scenarios to be most useful for our client’s respective situations.

• Severance

  • Severances packages are commonly associated as an incentive for wrongfully dismissed employees to not bring suit against their former employer. However, those nearing voluntary transition may be able to leverage their situation into severance pay that can help to bridge the gap months during that transition.
    Employers may provide severance packages to long-time employees who are retiring as benefit to “reward” and recognize their loyalty and hard work. Alternatively, if you are aware that your company may be restructuring, your voluntary departure may be able to be arranged as a layoff that could command a severance package.

Career Transitions, regardless of their impetus, can bring challenges and complications. With this checklist and by leveraging Weatherly’s expertise, we seek to steady the waters and continue to create a Ripple Effect that can absorb your times of transition and maximize your specific situation.

** The information provided should not be interpreted as a recommendation, no aspects of your individual financial situation were considered. Always consult a financial professional before implementing any strategies derived from the information above.

Smooth Transitions and Aging with Safeguards

Weatherly is committed to working with clients on a multi-generational basis and we continually review industry and demographic trends that impact our clients. In recent years, both the US Department of Labor (DOL) and the Financial Industry Regulation Authority (FINRA) have pushed forward with new regulations intended to promote financial education, transparency, and protect all generations of investors from financial abuse. Specific focus has been dedicated to the fiduciary standard. and retired investors who have diligently saved over their lives to achieve financial security. The who, what, where, and why of your and your family’s financial lives have never been more important – engagement with key professionals, prudent investment of your assets, and protection of personal data are top priorities.

Statistics – Recent data from the U.S. Census Bureau suggests that:

• The Baby Boomer generation will include 78 million individuals over the age of 65 compared to 76.4 million people under age 18 (Generation Z) by 2030.
  This will mark the first time in U.S. history that older adults outnumber teens and youth.¹
• 71% of Baby Boomers still have one living parent due to increased life expectancies.²
• These statistics illustrate the need for clients to be aware of vital areas of best practices for all generations of your family. Whether you are evaluating your own individual situation or working with an aging parent or friend we recommend focusing on the infrastructure and safe guards in place outlined in this blog to maintain and promote financial security over time.

How is Weatherly designing the infrastructure for our clients?

Collaboration with Your Advisory Team: We work with key professionals to generate the most impactful analysis and recommendations for our clients. This team includes Weatherly, CPA, estate planning attorneys and may be expanded to a trusted family member, business manager, bill pay service professional, real estate agent etc. Teamwork is implemented with conference calls or meetings as appropriate for the unique needs of each client. Please reference our 4Ws Score Card to evaluate best practices in critical areas including estate planning, healthcare, financial, and data security.

Client Information Release Authorization Letter (CIRAL): We created CIRAL to document each client’s emergency contacts and key professionals. In the occurrence of an unexpected life event, this document allows Weatherly to assist and support your designated representatives and family.

*If you have not completed CIRAL for your family please do so via the CIRAL document link above.

Internal Procedures and Systems: To create infrastructure, safeguards, and oversight we have implemented the following policies and procedures:

• We maintain oversight for any unusual activity and client cash flow requests are confirmed verbally.
• Communication involving client sensitive information adheres to our strict Privacy, Email, Cybersecurity, utilization of a secure portal, Wireless Internet Service Provider, and File Sharing Policies.
• We provide ongoing training for our team members covering red flags, swift and appropriate responses if a concern arises, and the best tools available to support clients through transitions.

Investment Assets – A good health check

Investment accounts should reflect the appropriate risk and return strategy to fulfill long term goals. Ask your financial professional the following questions:

• Where are your accounts held? Can they be consolidated?
• Is your investment professional a fiduciary? Do they communicate clearly and provide education?
• Is the overall asset allocation appropriate for long-term needs and risk tolerance?
• Is there any unnecessary single stock risk due to a concentrated investment position?
• Have you completed a long term financial plan? Is it reviewed at least annually?
• Is your investment professional overseeing cash flows and requiring confirmation for any unusual activity?
• What are the total fees? Are they transparent?
• Are you provided clear and easy to read reporting of assets and performance with comparison to appropriate benchmarks?

We encourage clients of all ages to have a dialogue with key individuals and ask questions to gain clarity. The greatest value is driven by dynamic and collaborative relationships with transparency and education to empower independence.

Cybersecurity and Data Protection

Our world is becoming more intertwined with technology; from implantable medical devices to smart homes and everything in between, we are enhancing our efficiency. However, with this evolution comes an elevated potential for cybersecurity threats and need to protect yourself. According to a 2018 Cybersecurity study:

• 33% of Americans fall victim to a cyber hack (i.e. phishing scheme, ransomware, etc.) annually.
• Every 39 seconds, there is a cyber hack.
• By 2020 the average cost of a cyber data breach is projected to be greater than $150 million³.

Even further, a 2016 study by Home Instead Senior Care found that of U.S. seniors who use the internet, approximately 66.67% have fallen victim or been a target of online financial schemes, making them the largest victim group to lose money online⁴.
It is vital that you educate yourself and your family members on the schemes that cyber predators are utilizing. Please reference our cybersecurity blog and the link below for more information on the most prevalent cyber scams used today and prevention methods:

https://www.protectseniorsonline.com/resources/hottest-cyber-scams/

Most importantly, the safeguards and infrastructure must develop over time as you or your family members situation inevitably changes. Regular check-ins and follow up are key to smooth transitions. Refer to our4Ws Score Card for a review. As we all grow and develop we hope our family, friends, and professionals remain engaged to create an environment of mutual success.

Resources:

1. https://www.shrm.org/resourcesandtools/hr-topics/behavioral-competencies/global-and-cultural-effectiveness/pages/new-census-data-reveals-aging-population.aspx
2. https://tullyelderlaw.com/baby-boomers-caring-aging-parents-children/
3. https://www.cybintsolutions.com/cyber-security-facts-stats/
4. https://cybersecurity.wa.gov/seniors-a-growing-target-for-hackers-44ccb66e47e4

** The information provided should not be interpreted as a recommendation, no aspects of your individual financial situation were considered. Always consult a financial professional before implementing any strategies derived from the information above.