Archive for Financial Planning

Qualified Charitable Distributions – A Powerful Way to Give

Financial Planning, Yusuf Abugideirion September 21st, 2017No Comments

Written By: Yusuf Abugideiri, CFP®

Each year, many of our Clients share their charitable intentions with us and we work to ensure they’re able to express those intentions in such a way that they and the charity receive the maximum benefit. Examples of strategies we regularly employ include using Donor Advised Funds, donating appreciated shares of stock, and listing charities as beneficiaries in a Client’s estate plan. We’ll explore yet another strategy in this piece: Qualified Charitable Distributions (QCD) from a Traditional IRA.

First, it is important to note that there are several requirements that need to be met before one can take advantage of this strategy:

  • The account holder must be over age 70 ½
  • In virtually all cases, the distribution must come from a tax-deferred IRA – for simplicity, we’ll focus on Traditional IRAs
  • QCDs are limited to $100,000/year per person and must be transferred directly from the IRA to a qualifying charity

Once it has been determined that a Client meets these requirements, the next step is to determine the amount of the charitable distribution. Although each Client’s situation is unique, there are a few items we review in every case:

  1. Will the QCD be used to satisfy some or all of the Client’s Required Minimum Distribution (RMD)? As noted above, the account holder must be over age 70 ½ to qualify for this strategy, which is the age at which RMDs begin. Using a QCD to satisfy one’s annual RMD can have significant tax benefits (see below). Furthermore, it means that the charity is receiving “super-charged” dollars – the money in the IRA was deposited before being taxed, grew tax-deferred for the time it was in the account, and is received by the charity as a tax-free gift.
  2. How will the QCD affect the Client’s tax situation? When an account holder makes a QCD, the amount of the distribution is excluded from their Adjusted Gross Income (AGI). This can be a powerful strategy to employ for Clients with large IRA balances, as their RMDs will be commensurately large; excluding this income from their tax calculation can lead to significant tax savings. Furthermore, reducing a Client’s AGI could mean that they’re able to take larger deductions against their income for medical and miscellaneous expenses on Schedule A of their tax return.
  3. What other parts of the Client’s financial plan will be affected? The following is just one example of the “fringe benefits” of a QCD: by definition, if an account holder qualifies for a QCD then they also qualify for Medicare (eligibility begins at age 65). Medicare premiums are based on AGI; the lower the figure, the lower the premium due. If a Client’s AGI just above a given threshold, reducing their AGI by that amount can lead to savings of $1,000/year.

As mentioned above, there are a number of ways to build charitable giving into one’s financial plan. If the information above has piqued your interest in taking advantage of QCDs, please don’t hesitate to reach out to us to continue the conversation!

Monitoring, Alerting, Locking, or Freezing: what to do after the Equifax breach

Cybersecurity, Financial Planningon September 14th, 20171 Comment


We’re writing once again with one more round of information on securing your identity online, this time we’d like to talk about “freezing” or “locking” your credit reports. This is different from filing a Fraud Alert, which is added to your record for 90 days and signals to lenders that they should obtain additional proof of your identity before extending credit. If you file a Fraud Alert with one of the three credit bureaus, they are required to share that with the other two. The process is free but, again, you have to renew it every 90 days (IdentityForce has a reminder function if you go this route).

If you instead freeze or lock your credit record, it cannot be viewed except by companies that have already extended credit to you and it remains frozen/locked until you unfreeze/unlock it. You must do this individually with each of the three credit bureaus. The credit bureaus are allowed to charge you each time you freeze or unfreeze your record, typically $10.  We have just finished locking or freezing my record with each of the three bureaus and wanted to share the experience in case you choose to take this extra step.

If you signed up for the free TrustedID service from Equifax, you have the ability to lock your credit report from the online dashboard. Here is the link to enroll in TrustedID if you haven’t already done so: https://trustedidpremier.com/consumer-registration/html/personal-info.html   If you do not wish to sign up for TrustedID, here is the link to put a security freeze on your credit record (we did not choose this option, but believe they will charge you $10 to do this): https://www.freeze.equifax.com/Freeze/jsp/SFF_PersonalIDInfo.jsp

Transunion will allow you to freeze your record but also offers a free service, TrueIdentity, which gives you the ability to lock and unlock your record whenever you like. The process was easy to complete, though it did involve several steps to confirm my identity. Here is the link: https://www.transunion.com/product/trueidentity-free-identity-protection

Experian does not offer a free service, but will allow you to put a security freeze on your credit report online for $10. Again, this was easy but required several steps to confirm my identity. As part of the process, you will choose or be given a PIN that you will use to unfreeze your record any time you’re applying for new credit. Here is the link to establish a freeze at Experian: https://www.experian.com/ncaconline/freeze#registration

We continue to believe that monitoring services like IdentityForce are valuable, not least because they monitor your personal information across a wide array of databases beyond the credit bureaus (including the so-called “dark web”), but a credit lock or freeze, while requiring a little extra work, is considered the gold standard in identity protection.

Financial Planning’s Mission During Life Transitions

Financial Planningon September 5th, 2017No Comments

Written By: Daniel Tripp

As summer slides into fall, signs of the changing seasons can be seen across the country and remind us of the rhythm of life’s changes. As financial planners, we are in a unique and privileged position to share in the rhythmic changes of our Clients’ lives. In fact, it is during periods of transition that financial planning takes on new meaning. When a Client experiences life changes, connecting with their financial planner proactively ensures they are aware of the opportunities and risks associated with the transition.

Over the course of a lifetime, everyone will experience life-changing events. In 1967, the psychiatrists Thomas Holmes and Richard Rahe found there are 43 life events which could be considered a “major” life transition. Their research determined that each of these life changes contributes in varying degrees to how people experience stress in their lives1.

At Yeske Buie, one of our favorite phrases is “We’re Good People to Think With®.” This phrase has no greater significance than when Clients find themselves experiencing one of life’s many transitions. Some examples of life changes include becoming a parent, losing a job, purchasing a home, graduating from college, experiencing the death of a spouse, getting married, retirement, divorce, moving, managing a health crisis, and caring for aging parents. One of the ways we view our role during these life transitions is to act as a sounding board and guide for our Clients as they seek to navigate the impact the transition is having on them and their families. During periods of change, there is often a great need for mental clarity, hence the reason we believe it can be helpful to “walk an idea around the block” with Clients to determine what planning items need to be addressed so they can focus on navigating the transition.

One of our favorite tools to get someone thinking about current and upcoming life transitions comes from our strategic partner, Money Quotient®, and is called the Life Transitions Survey. We use this survey as a starting point to begin a discussion of what’s been happening in our Clients’ lives since we last met. A few other helpful Money Quotient tools we may share include:

Another way we aim to help our Clients through transitory stages is by applying policy-based financial planning®. We believe in providing Clients with sound financial planning policies that are broad enough to encompass any event that might arise, but specific enough so there is never a doubt as to what actions to take in the face of changing circumstances. It is through the development and application of grounded financial planning policies that we facilitate sound decision making in the face of a complex external world.

The goal of our resources and practices, of course, is to help one plan for change. This is not the same as predicting change; we know the future is fundamentally unpredictable because we live in a dynamic and ever-changing world. The role of a financial planner, then, is to help Clients think through the opportunities and challenges that may lie ahead and to empower Clients to navigate life transitions confidently. We look forward to sharing in our Clients’ life journeys and we are always available to embrace the role of coach, active listener, or sounding board during life’s most turbulent events. If you find yourself experiencing one of life’s many significant changes, please do not hesitate to contact us.

RELATED:

  1. Holmes-Rahe – The Social Readjustment Rating Scale

Is a Mortgage Refinance Smart for You?

Financial Planningon August 24th, 2017No Comments

Written By: Ryan Rasmussen
Could you be making your mortgage payments more efficiently? Refinancing may offer you the opportunity to align your mortgage more closely with your broader financial goals. That said, refinancing is a complex decision, and many factors will affect your interest rates and optimal payoff timing. In this piece, we explore some of the considerations you may think about when it comes to refinancing your mortgage.

As is the case with any financial decision, it’s important to consider your personal financial goals before coming to a final decision. When it comes to refinancing your mortgage, one of the best reasons to do so is to lower your interest rate on your existing loan. This can decrease the amount of interest paid and lower your monthly payments, all while increasing the rate at which equity is built. Also with refinancing, homeowners have the option to shorten the term of their mortgage. This strategy will help pay off the home quicker and reduce the amount of interest paid. By doing this, you might expect to make similar or greater monthly payments compared to your current rate. Individuals may find it advantageous to refinance into a fixed rate mortgage if they have adjustable rate mortgages and are expecting a higher rate upon their next rate adjustment.

With interest rates evidently being an important factor, examining the interest rate variables is often a smart place to start for homeowners exploring refinancing. These variables include:

  • Credit Score: The better your credit score, the more likely you are to receive lower interest rates. According to Experian, a credit score above 700 is considered good. To better your credit score, be sure to make payments on time and lower your debt to credit ratio.
  • Federal Reserve Rates: If the Federal Reserve decides to decrease rates, generally market rates are reduced as well. The Federal Reserve has currently adopted an interest rate range that is advantageous for consumers wanting to refinance.
  • Shopping Around: Try comparing rates among mortgage brokers, credit unions, or individual banks. Keep in mind that some lenders offer promotional rates at varying times throughout the year.
  • Terms: The longer the term of the mortgage, the more likely you are to find higher interest rates. Shorter term mortgages come with larger monthly payments.

Low rates alone do not necessarily indicate whether a refinance is advantageous, however. The amount of time you plan on living in your current home and the closing costs are also important factors. If projected time in your house is short, the closing costs may consume any savings from a refinance.

The choice between longer-term mortgages (typically 30 years) and shorter-term mortgages (typically 15 years) involves a number of tradeoffs and some strategic possibilities. While longer-term mortgages will have a slightly higher rate of interest than their shorter-term cousins, they also have smaller payments because they’re amortized over a longer period of time. Those smaller payments free up additional cash flow that can be used to pay down higher cost debt or increase retirement savings. This can also be done in sequence, using the extra cash flow to first pay down credit card balances and then later increase retirement plan contributions, perhaps taking fuller advantage of employer provided matching funds. While it’s true that more interest will ultimately be paid over the longer borrowing period, this is offset by the fact that the after-tax cost of mortgage interest is typically much lower than the expected return on investments. That difference can add up to big bucks by the time retirement arrives due to the effect of compounding returns.

Refinancing is not the optimal strategy for all consumers and, in many cases, homeowners may be better off sticking with their existing loan. However, there are many circumstances where one could benefit from using this financial tool. Whether you want to lower interest rates, shorten your loan term, transition from a variable rate to a fixed rate, or lower your monthly mortgage payments, do not do it alone. We at Yeske Buie want to partner with you to navigate you through this process. Through conversation and planning, we can work together to ensure your financial goals align with the refinancing strategy that will best serve you. Please reach out to any member of the Financial Planning Team for assistance assessing your current mortgage.

Back to Basics: Trusts, Trustees and Beneficiaries

Financial Planningon August 9th, 2017No Comments

Written By: Hannah Quakenbush

While anything from planning your next vacation to planning your next trip to the dentist can seem more fun than reviewing your estate plan, taking time to think about how your assets will flow after you are gone is extremely important. Aside from ensuring that your desires are met, thoughtful estate planning will also be immeasurably valuable to your loved ones.

You might be surprised how important an understanding of your estate plan is to your adult children, other important members of your family, and friends who you have elected to play a role in your estate plan. This understanding of roles and responsibilities is especially critical if your estate plan includes a trust. In this space, we’ll discuss a few things of which the beneficiaries (or any interested party) of your trust should be aware.

Trusts may name a variety of individuals to specific roles, each with its own responsibility for the trust to be successful. A trust typically has one or more:

  • Grantors
  • Trustees
  • Beneficiaries

Grantors
A trust begins when the owner of property creates a trust for the benefit of himself, herself, or others. This person is known as the Grantor. The Grantor also has the responsibility of creating the terms or rules of the trust and determining who will benefit from the assets.

Trusts typically fall into two core categories — living trusts (also referred to as inter-vivos trusts) and testamentary trusts. Living trusts are created while the individual is still alive; testamentary trusts are established through a last will and testament and do not come into existence until you die. A living trust is a document that creates a process to manage and distribute an individual’s assets during their lifetime. Living trusts exist in two forms: revocable and irrevocable.

  1. Revocable Trust – a trust in which the provisions may be altered or revoked at will. The grantor, or creator, of the trust maintains complete control over it. Assets titled in the name of the trust can be reclaimed at any time.
  2. Irrevocable Trust – a trust in which the person who created the trust cannot terminate or change the terms of the trust. A trust also becomes irrevocable when the person who created the trust dies.

Trustees
The trustee is the person in charge of administering the trust. The trustee has a fiduciary duty to all beneficiaries of the trust, meaning they are expected to act in the best interest of the beneficiaries. The trustee must follow all of the terms of the trust document and is responsible for: the investment and protection of the assets in the trust, tax return filings, reporting to the beneficiaries and making distributions as permitted by the trust.

Beneficiaries
A beneficiary is an individual or entity (a charity, for example) who is identified to receive the funds from a trust. There are two broad categories of trust beneficiaries – current and remainder. Current beneficiaries are those who are presently receiving benefits; remainder beneficiaries (often the grantor’s children) begin to benefit only after the current beneficiaries have died. Conflicts can arise when the remainder beneficiaries feel that the current beneficiaries’ needs and/or wants are draining “their” inheritance; this can be addressed proactively by having an open discussion explaining the grantor’s desires to the beneficiaries.

The rights of a trust beneficiary depend on the type of trust and the type of beneficiary.

  • If the trust is a revocable trust, the grantors have full control. Beneficiaries other than the grantor have very few rights. The grantor can change the trust at any time, and he or she can also change the beneficiaries at any time.
  • Irrevocable and testamentary trusts cannot be changed except in rare cases by court order. Beneficiaries of an irrevocable or testamentary trust have rights to information about the trust and to make sure the trustee is acting properly. The limit to these rights depends on the type of beneficiary.

The following are five common rights given to beneficiaries of irrevocable and testamentary trusts:

  1. Payment. Current beneficiaries have the right to distributions as set outlined in the trust document.
  2. Right to information. Both current and remainder beneficiaries have the right to be provided with enough information about the trust and its administration to have the knowledge to enforce their rights.
  3. Right to an accounting. Current beneficiaries are entitled to an accounting- an annual detailed report of all income, expenses, and distributions from the trust.
  4. Remove the trustee. Current and remainder beneficiaries have the right to petition the court for the removal of the trustee if they believe the trustee isn’t acting in their best interest.
  5. Terminate the trust. In some circumstances, if all the current and remainder beneficiaries are in agreement, they can petition the court to terminate the trust.

Yeske Buie is always here to support you in having these conversations with the members of your estate plan. We also offer family meetings to facilitate the conversation and answer any questions you might have. If you have any questions about any aspect of estate planning or would like to schedule a family meeting don’t hesitate to reach out to a member of our financial planning team!

What is Wealth: The Size of Your Life or the Size of Your Wallet?

Articles of Interest, Financial Planningon July 27th, 2017No Comments

Written By: Cole DeLucas

What is wealth? At Yeske Buie, we make our stance on this question very clear. For us, it’s about the size of your life, not the size of your wallet®. The difficulty of this, for some, is that while the size of your “wallet” is quantifiable, the size of your life is more ambiguous. One data-driven measure of the quality of life that is being referenced more often is the Social Progress Index. Here, we explore how this index is trying to redefine traditional measures for quality of life.

In 2016, UK Business Insider released an article describing the Social Progress Index (SPI). The goal of this index is to measure the capacity of a society to meet the basic human needs of its citizens and establish the building blocks that allow citizens to improve their lives and meet their full potential. The index aims to challenge the way society defines quality of life and illustrates how GDP may not be the only way, after all, to calculate the quality of life of a country’s citizens. The SPI is broken down into three categories: basic human needs, foundations of well-being, and opportunity. In these categories, the Index measures social progress strictly by looking at the outcomes of a country’s initiatives. For example, rather than calculating how much a country spends on healthcare, the Index focuses on the health and wellness actually achieved by that country. The Index has evaluated and ranked 128 countries based on these categories and the rankings can be explored using the map below:

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Like Yeske Buie’s focus on the size of one’s life, the Social Progress Index shows how wealth is not the defining factor in measuring one’s quality of life. Rather, living in a place that can provide more to life than just money, such as social freedoms, accessible healthcare, education and personal safety can make you feel wealthier than the richest person alive. Using resources like the ones available through the SPI website, you can explore how you define a high-quality life. We also have resources on our website including our Live Big list and our post titled “Attitude of Gratitude” that share different perspectives on finding meaning in life.

For more information on the Social Progress Index, please visit the following links:

Social Wellness Support

Financial Planningon July 11th, 2017No Comments

Written By: Camille Bouvet, CFP®

The word “wellness” is often prefaced with an adjective: for example, physical wellness, financial wellness, or social wellness. If you are unfamiliar with the term, social wellness involves having meaningful relationships and creating a support system that includes family members and friends. This kind of care may include fostering your own social wellness or helping a loved one you support in your social network. No matter the reason for the care, being in such a role may sometimes feel intimidating or overwhelming and discovering resources can be one of the most powerful ways to ease these feelings. In this piece, we share resources that may help you feel more comfortable in a caregiving role.

Your Employee Assistance Program
Your workplace may offer assistance as a benefit and can guide you in determining next steps. You may have access to counseling to help sort through your feelings, put things in perspective, and identify the next best step. They can also point you to other resources in your area such as referrals for eldercare and dependent care. Seek out your human resources department for more information.

Community Assistance
The purpose of most community agencies is to provide services to individuals who need help. Remember that you are entitled to these public services – you’ve earned it by way of your tax dollars and you deserve it!

Not sure what’s the best way to find support in your local community? Start by visiting the AARP’s Home & Family Caregiving-at-Home section and enter your city and state to learn about events, news and resources near you.

You can also visit The Family Caregiver Alliance which aims to support families nationwide caring for adult loved ones with chronic, disabling health conditions. Visit www.caregiver.org to learn about their educational materials such as videos, online classes, and an online dashboard to track your information and locate support.

Eldercare Resources
We have featured several pieces written by eldercare expert, Dr. Jim McCabe on the topics of authentic conversations, housing for aging parents, and how to age well. If you find yourself in a position of providing eldercare, we encourage you to read these articles and other available resources on Dr. McCabe’s Eldercare Resources website.

And of course, don’t forget about the rest of your social wellness support team when in a time of need. We would love to be one of your first calls when you aren’t sure where to start with your social wellness, financial wellness, or anywhere in between! Don’t hesitate to call us and let us know how we can help in planning to care for your loved one.

Finding Financial Independence

Financial Planning, Yeske Buie Millennialon June 29th, 2017No Comments

Written By: Lauren Mireles, RP®

There is no one-size-fits-all definition for the term “financial independence”. In fact, you won’t even find the term in the Merriam-Webster Dictionary. This ambiguity allows for individuals to define the term for themselves. Some may associate financial independence with goals like being on track for retirement or having a sufficient emergency fund while others may see independence as being debt-free, earning enough money to pay your bills and support a loved one, or leaving a financial legacy that is reflective of your values.
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As is the case for independence from government or other entities, achieving financial independence requires commitment and sacrifice and each individual’s journey to financial freedom will be different. So where do you start? Exploring how you define financial independence and reflecting on personal goals is a productive first step as this process may help you identify a destination for your journey. At Yeske Buie, we have a variety of tools* and resources that you may find useful in your exploration and reflection. If any of the following titles interest you, we encourage you to review the tool and consider how the questions may help you define financial independence:
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  • Defining True Wealth: Helps you clarify what is most important to you to provide an effective framework for creating plans and making important life decisions.
  • Designing Your Financial Legacy: Helps you consider what is most important to you and how these values can be reflected in your financial legacy.
  • Financial Satisfaction Survey: Helps you think about and assess how satisfied you are with many aspects of your financial life.
  • My Ideal Week in Retirement: Helps you visualize how you will invest your time in retirement in a way that is meaningful and purposeful to you.
  • Visualize Your Future: Helps you clarify your values and priorities and begin to identify your life goals.
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If you’d like to discuss your answers to these questions or your thoughts on your journey to financial independence, please don’t hesitate to contact us. We’re happy to help you talk through this reflective step, how to convert your thoughts to actions, how to implement the actions, and anywhere in between.
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*courtesy of Money Quotient

Have You Reviewed Your Earnings Record?

Financial Planningon June 29th, 2017No Comments

Written By: Lauren Stansell, CFP®

There are many facets of exploration into the Social Security System and the focus is often on when to collect benefits and how much the benefits will be. There are, however, other pieces of Social Security to be reviewed and discussed prior to that time period. In this piece, we’ll focus on one of those: your earnings record.

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What is your earnings record?
Your earnings record is where the Social Security Administration (SSA) tracks your annual earnings (for Social Security and Medicare purposes) and is used to determine your eligibility for Social Security benefits and the level at which they will be paid to you in retirement.
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What is included on the record?
After each year you work and pay taxes into the Social Security System, you will receive a Form W-2 detailing wages for the prior year. The W-2 includes many boxes with information, one of them being a ‘Social Security Wages’ figure that reflects the income subject to Social Security taxes. The Social Security program, officially titled “Old-Age, Survivors, and Disability Insurance (OASDI)”, puts limits on the amount of your earnings that are subject to taxation in a given year. This limit changes each year with changes in the national average wage index and is called the ‘contribution and benefit base’. For 2017 it’s $127,200. A historical list of the contribution and benefit base can be found here.
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So, each year, your earnings are reported to the SSA and added to your earnings record. If your earnings are above the base, only the base amount will show on your earnings record (and you only would have paid Social Security taxes on that base amount). These figures continue to be reported and collected on your earnings record each year.
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How is the record used?
After working and paying Social Security taxes for ten years (or 40 quarters of Social Security ‘credits’), you become eligible for benefits.
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The amount of the benefit you receive at retirement is based on your highest 35 years of income. Per the Social Security Administration’s process, the SSA will look at your earnings figures on your record and index the amounts to reflect changes in wage levels during your working years and ensure your future benefits reflect the changes in standard of living during that timeframe. This indexed amount is known as your Average Indexed Monthly Earnings (AIME).
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The AIME is then used in a formula that determines your Primary Insurance Amount (PIA), or the amount you can expect to receive at Full Retirement Age. This figure is shown on your Social Security Statement and adjusted if you decide to take benefits at different ages (reduced if earlier than Full Retirement Age (FRA), increased if you wait until after FRA). If you’re looking for your Social Security statements, we’ll note that these are rarely mailed anymore, and are easily accessible on your mySocialSecurity account.
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Why does the record matter?
As you can see, the earnings record is the base used to determine future benefits and thus it’s imperative the record is correct to ensure you get all the benefits you’ve worked hard to earn!
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How do I review my record?
The first step to reviewing your record is to create your online account. To do so you’ll need a valid email address, a Social Security number, and a U.S. mailing address. Once you have that information, visit this link and follow the steps to create your account.
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When you’ve created and accessed the account, you will see a link to your Earnings Record. Click that link and review the record. If you see $0 earnings years when you know you had earnings, or figures that don’t quite match what you would expect to see, we recommend you do a deeper review.
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What if I find an error?
First, you’ll need to find proof of the correct earnings figure. This information can be found on a W-2, earnings statement or tax return. Even if you don’t have proof in one of these forms, write down everything you can remember about the earnings – where you worked, when, how much you earned, name and social security number used, etc. Then call the Social Security Administration at 1-800-772-1213 and work with them to get your record corrected.
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It’s very important to contact the SSA as soon as you notice an error as it can take time to correct your record depending on the information you have proving the difference.
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Then what?
Let us know if you have questions or find an error. We will help you in any way we can.
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Once you’ve confirmed your earnings record is accurate (or fixed any existing errors), we suggest the following next steps:
  1. Review your earnings record each year to ensure your earnings continue to be reported accurately (or so you can correct them in a timely manner).
  2. Send us a copy of your most recent Social Security statement via one of these secure methods (as it includes sensitive personal information).
  3. We’ll save the statement for our records and prepare a Social Security Analysis to review your filing options and we’ll discuss with you our recommendation as you near retirement age.
In summary, your earnings record is only one aspect of Social Security, and it’s a big one. It is used to determine a potentially important aspect of your retirement plan and it’s important that the record is accurate and reviewed frequently. In this piece, we shared how and why to do this review. And what to do if you find an error.
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As always, we’re happy to answer additional questions and discuss any and all aspects of Social Security with you at any time.

Vacation Temptation

Financial Planningon June 15th, 2017No Comments

Written By: Ryan Klemm

With the first day of summer less than a week away, it’s likely that you have some kind of vacation or relaxation days on your calendar in the next few months. Depending on how you choose to Live Big®, the vacation may involve a beach rental, a cabin in the woods, or maybe a cottage in your favorite town. If the place is really special, you may find yourself thinking “I wish I lived here!” and daydream about what it would be like to own the property as a vacation home. As always, before making such a big decision, we encourage you to keep a few things in mind to ensure the purchase aligns with your Live Big goals.
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While enjoying the luxury and relaxation of a vacation home sounds enticing, it is important not to overlook the maintenance, use, and financial aspects of owning a vacation home. With proper planning and consideration for the following items, you can feel confident that purchasing a vacation home will add value to your personal and financial life instead of becoming a vacation nightmare!
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  1. Location, Location, Location
    • Because vacation homes are commonly used as places to get away from one’s daily routine, it is important that a person is familiar with a location before making the decision to purchase a residence. Turning on the TV and hearing that West Palm Beach is the place to be doesn’t necessarily mean that it’s the place for YOU to be. When purchasing a vacation home, you will have “locked in” a specific location that you will frequently visit and it is important that you are comfortable and happy while you are there.
  2.  Consider Your “Whys”
    • The first step in getting value from your vacation home is to understand how you would like to use the second home. Is your purchase decision based around using the property as a getaway, having a location for the family to get together or owning an asset that can be shared by your family after your passing? No matter the reason, it is important that your “why” aligns with your financial goals.
      •  For those who desire to transition to their vacation home as their retirement home, it is important to know that if you use the vacation home as a personal residence for two years out of a five year period you will be able to receive the federal exemption on the gains from your home sale up to $500,000 ($250,000 for individuals).
      • If you are purchasing a vacation home solely as a real estate investment, it is important to remember that home values and the value of desired vacation spots fluctuate. There may be a better location to consider purchasing real estate if your purpose in purchasing the home is to maximize the return on your investment.
  3. Tax Implications
    • Like everything else in your financial life, owning a vacation home has tax implications. For example, you can rent out your vacation home for up to fourteen days without reporting the rent received as taxable income. If you rent the property out for more than fourteen days, however, then it will be classified as an investment property and the rent you receive must be reported. Additionally, you can retain the deductions and exemptions for owning the vacation home as long as your occupancy of the property is limited to the greater of fourteen days or 10% of the total days it is rented. If you exceed this limitation the home is classified as your personal residence and you lose the ability to deduct rental expenses and depreciation expenses. A major benefit to owning a second home is your ability to deduct the mortgage interest (in addition to that of your personal residence) up to $100,000.
  4. Cost of Living
    • Because vacation homes are in desirable locations, it is likely that the average home price, maintenance costs, security costs, and insurance will be higher than in a “regular” location.

Making an educated decision that doesn’t cause financial stress can be the start of your path to relaxation and make owning a vacation home a very rewarding life decision. At Yeske Buie, we will help you determine if the purchase fits within the scope of your financial plan, and we also collaborate with your tax planner and estate attorney to ensure that your vacation home does not become a burden to you or your family.

Whether or not you find yourself interested in purchasing the home you stay in while on your next vacation, we hope that you have a safe and enjoyable time that makes you think “I hope this never ends!”.

“Our deepest fear is not that we are inadequate. Our deepest fear is that we are powerful beyond measure. It is our light, not our darkness that most frightens us. We ask ourselves, Who am I to be brilliant, gorgeous, talented, fabulous? Actually, who are you not to be? Your playing small does not serve the world. There is nothing enlightened about shrinking so that others won't feel insecure around you. We are all meant to shine. And as we let our own light shine, we unconsciously give others permission to do the same. As we are liberated from our own fear, our presence automatically liberates others.” ~Marianne Williamson