Archive for Yusuf Abugideiri

The Age-30 Crisis: What About My Money?

Financial Planning, Yusuf Abugideirion October 3rd, 2018No Comments

Written By: Yusuf Abugideiri, CFP®

Daniel Levinson, a psychologist and one of the founders of the positive adult development field, suggests that “at about 28 the provisional character of the twenties is ending and life is becoming more serious…[during] the Age-Thirty Crisis, between age 28 and 32…it is not uncommon to tear up the life structure one put together to support the original dream of the twenties…and to create the basis for the next life structure.” In the subsequent years, as individuals enter the Establishment Phase, they begin to focus on what he describes as “major life investments” – work, family, friends, community activities, and values1.

As such, it’s easy to see why many young people start to “get serious” about their finances as they approach their 30th birthday; aside from the fact that Levinson refers to these transitions as “investments,” there are significant financial factors associated with each of those items. Let’s focus on the career aspect first. Individuals approaching their 30s can take themselves through an exercise in which they answer the following questions2:

  • What is my dream job?
  • What needs and values do I want to express in this job?
  • What skills do I want to use?
  • What job tasks do I want to perform?
  • How much responsibility do I want? (senior management, good team contributor)
  • What is my ideal salary?
  • Where would I like to work? (downtown in a large city, rural community, in my home)
  • Where can I get additional information about my career and lifestyle options?

The answers to these questions can affirm that an individual is in the right field (or suggest they may need to explore a new one!) and will help them calibrate their expectations about current and future earnings. Having this frame of reference in place is critical as one builds their vision for their future; going through an exercise like this after having worked for a few years can uncover new perspectives about the value one derives from their work. Once an individual is confident their career choice is a fit for their present and future needs, they can begin building a budget that meets their current lifestyle and formulating a savings plan that will fund their retirement.

As to family planning, anyone with a family knows that it requires different things from different people based on their circumstances, priorities, and values. One of the things that can be taken as a given, however, is that a growing family will cost more to support. As such, there is no better asset to accumulate than cash. Having cash on hand (above and beyond what is needed to meet monthly expenses) enables one to (1) be prepared to deal with unexpected expenses without tapping into savings or accruing debt and (2) to set funds aside to accomplish major goals (e.g. paying for a wedding, funding education expenses, or putting a down payment on a house). Building up cash reserves creates feelings of stability, security, and confidence, which are important ingredients in maintaining an optimistic outlook in the face of transition.

At Yeske Buie, we recommend connecting with a financial planner to act as a partner and walk through life’s journey with you no matter how old you are. We can help sort through the trade-offs associated with various choices and create policies to guide your actions such that they’re in alignment with your values and in service of your goals. Navigating the Age-Thirty Crisis (and the subsequent years and decades) does not have to be a task one takes on in solitude, and, with the right support system, can be the beginning of the pursuit of your Life Big® life.

 SOURCES:

  1. Young Adult Psychology
  2. Millennials and the Age 30 Transition

Defining the “Perfect” Investment

Economy and Investing, Yusuf Abugideirion September 6th, 2018No Comments

Written By: Yusuf Abugideiri, CFP®

If you asked a room of 100 people to define the “perfect” investment, you may not get 100 answers, but you’d certainly get more than one. And more than one answer may be correct! The criteria for judging the merits of an investment include the investor’s risk profile, time horizon, and goals. This sheds some light on the fault of the original prompt for this post, an article about “stomaching” the perfect investment – while there is almost certainly no one “perfect” investment, it is possible to develop an approach to investing that can build a portfolio that fits an individual’s needs perfectly. For the purposes of this piece, we’ll limit the possible ingredients of said portfolio to stocks, bonds and cash.

Risk Profile

Before an individual begins to invest, it is critical that they develop an understanding of their unique risk profile. Let’s start unpacking the term “risk profile” by looking at the three parts that comprise an individual’s risk profile:

  • Risk Tolerance: Refers to the trade-offs that an individual is willing to make when faced with uncertain outcomes. This tends to be a stable characteristic that shifts only slightly over long periods of time.
  • Risk Perception: Represents an individual’s perception of what the trade-offs actually look like in the current environment. This characteristic is very unstable and can vary widely as a consequence of changing external circumstances. Risk perception can stabilized through the accumulation of experience and/or education.
  • Risk Capacity: Refers to the availability of resources that can mitigate financial risks. For example, an individual can increase their risk capacity by receiving multiple stable sources of income or by building significant cash reserves. This is something that can be improved through financial planning.

While an investor may think they know their risk profile, using outside resources can help ensure this is true. For example, one can learn more about their risk tolerance by taking an assessment and reviewing their scores. From there, engaging a financial planner can help them manage their risk perception, develop a strategy to increase their risk capacity, and build a plan that will help them meet their goals.

Time Horizon and Goals

When developing that plan, the individual’s time horizon for meeting each of their goals will also need to be defined. The time horizon of the goal, within the context of an individual’s risk profile, is the key driver in determining the investment plan for achieving it. Some goals, like funding retirement or education expenses, take years or even decades to achieve. Others, like saving for a down payment on a car or building an emergency fund, can be accomplished more quickly.

For big goals with long time horizons, investing in a mix of stocks and bonds makes sense because doing so enables the investor to capitalize on the magic of compound interest over time. The longer the time horizon, the greater the capacity for risk; as such, a greater proportion should be allocated to stocks to capitalize on their higher upside potential (especially for big goals that can only be achieved via a combination of savings and investment returns). As the investor gets closer to the end of a given goal’s time horizon, the mix should shift more towards bonds and cash to secure the value of the portfolio while still maintaining the ability to grow. In contrast, if a goal is small enough that it can be achieved by setting aside cash for a few months, investing in stocks or bonds may be inappropriate – the potential for significant positive investment returns is mitigated by the short time horizon, as fewer compounding periods lessens the potential upside.

For more on Yeske Buie’s investment philosophy and approach to developing the “perfect” portfolio, check out the links below.

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!

National 529 College Savings Plan Day

Financial Planning, Yusuf Abugideirion May 18th, 2017No Comments

Written By: Yusuf Abugideiri, CFP®

Planning for higher education costs is frequently a topic we discuss with our Clients. It can be tricky to decide when and how to start saving  because of the unknown factors that make estimating college costs challenging. We have used this space before to discuss the pros and cons of using a 529 plan as part of one’s approach to saving for college. Today, in honor of National 529 College Savings Plan Day on the 29th of May, we thought it would be worthwhile to revisit the topic to share more on the two forms of plans and our thoughts on the best available plans.

Let’s start by briefly explaining what a 529 plan is. 529s are tax advantage plans that come in two forms – pre-paid tuition plans and savings plans.

  • Pre-paid tuition plans enable the account owner to pay for the beneficiary’s tuition and fees in advance. The benefit of doing so is “locking in” the beneficiary’s education costs at current rates instead of paying them at higher rates in the future. According to CollegeBoard, in-state tuition and fees at public four-year institutions have increased by about 4% per year over the past 30 years; FinAid.org reviewed every 17-year period from 1958 to 2001 and determined tuition inflation rates were between 6 and 9% per year. Looking forward, Savingforcollege.com projects tuition and fees will increase by 5% per year in the coming decades. Yeske Buie takes a more conservative approach and projects that tuition inflation rates will be 7% in the projections we prepare for our Clients.
  • Savings plans, on the other hand, allow for tax-advantage savings for qualified education expenses. Contributions to a 529 grow on a tax-deferred basis and distributions for tuition, fees, books, and other qualified expenses are tax-free.

For our Clients, we generally recommend Utah’s Educational Savings Plan (UESP) because the investment options available through their program enable us to create robust, diverse, low-cost portfolios that are almost a perfect match to what we can construct in our existing Client accounts. Through UESP, we’re able to select Dimensional Fund Advisors (DFA) mutual funds without paying an additional fee (unlike other states’ plans) and we supplement those investments with a few mutual funds from Vanguard, just as we do in our standard portfolio model. While there are other 529 plans that offer DFA mutual funds, none allow as much flexibility in constructing portfolio models as UESP. We also use customized age-based portfolio models to invest the contributions to the accounts – as the child approaches their college years, we notch the stock allocation down and increase the bond allocation to help ensure the funds are available for their expenses when the time comes, not unlike the approach we take with our Clients as they approach retirement.

If you have more questions about how 529s can be used effectively as a college planning tool, please don’t hesitate to reach out to member of our financial planning team. And if you’d like to take an active role in celebrating National 529 Day, Savingforcollege.com is hosting a webinar on Wednesday, May 24th at 1:00pm ET during which industry experts will offer comments and answer questions. The webinar is free; click here for more information.

Millennials and Money: Starting the Conversation is What Matters Most

Financial Planning, Yeske Buie Millennial, Yusuf Abugideirion December 14th, 2016No Comments

Written By: Yusuf Abugideiri, CFP®

At an estimated population of 82 million, millennials make up the largest generation in America. Born between 1980 and 1995, members of this cohort have often found themselves to be the subject of everything from think-pieces to scholarly articles in recent years. While many labels have been attached to millennials by the media, we’ll use this space to focus on how they can use their greatest asset – time – to set themselves up for success as their financial plan unfolds.

The first thing we recommend is to start the process and engage a financial planner – it’s never too early! We’ve talked about how powerful extra time in a Client’s financial plan can be in this space before, and we recommend that millennials start their financial planning journey as soon as possible. When establishing a relationship with a Client, no matter the individual’s generation, we always conduct a Discovery Meeting; during that conversation we learn what is most important to the Client by exploring what shaped their value-system and what they want their future to look like. It is in this meeting that we seek to learn the “why” behind our Client’s goals, which becomes critical as we help them navigate the trade-offs related to decisions they will face or strategies we propose.

Connecting with a planner and establishing goals is a critical first step, but that’s just the beginning of the process. The next step is creating a financial plan that speaks to the goals uncovered during the Discovery Meeting. We’ve found that using financial planning policies is a great way to meet the financial planning needs of young Clients. In Dave and Elissa’s 2014 article in the Journal of Financial Planning (“Policy-Based Financial Planning as Decision Architecture”), they note that young people are a great fit for the use of policies because they “experience many significant changes in a relatively short period of time” as they establish the trajectory of their lives, and that “policies can help them deal with multiple life changes without requiring them to reinvent the wheel” with each change in their circumstances.  We’ve previously reviewed how developing cash flow policies can clarify the best decision to make when life gets in the way of the best laid plans; this type of policy-based financial planning is critical for millennials to help ensure their financial plan has a strong base.

Building the framework for a millennial Client’s financial plan starts with cash flow planning, but certainly doesn’t end there. It is then up to the financial planner to help the Client begin addressing the rest of their financial planning needs. Some of the items we’ve helped our younger Clients tackle include:

We hope this has been a helpful introduction to ways a young person can start their financial planning journey. If you have any questions about our process, please feel free to contact us for more information or check out some of our other pieces written on topics for millennials.

Investing Lessons from Fantasy Football

Economy and Investing, Yeske Buie Millennial, Yusuf Abugideirion August 25th, 2016No Comments

Written By: Yusuf Abugideiri, CFP®

Game Day PlanIt is estimated that nearly 75 million Americans will play fantasy football this season. If you aren’t planning to play in a fantasy football league this year (and the odds are if you play in one, you will probably play in multiple leagues), then you almost certainly know someone who is playing. Fantasy football has been around since 1963 when Wilfred Winkenbach, a limited partner in the Oakland Raiders, founded the Greater Oakland Professional Pigskin Prognosticators League. The game really took off, however, in the late 1990s; all major sports media websites began offering competing versions of the game by the start of the 21st century.

A typical fantasy football roster has 16 slots, and leagues range in size from 8 to 12 teams. Each team’s manager names 9 players as starters each week and competes against their opponent’s starting lineup; each team’s respective players’ statistics are compiled to determine the team’s aggregate weekly score. The remaining 7 players on each roster sit on the bench, and their stats do not count toward the team’s score. It is the manager’s job to determine who should start or sit each week. Standard fantasy league rules stipulate that starting lineups are configured as follows:

  • 1 Quarterback
  • 2 Running Backs
  • 2 Wide Receivers
  • 1 Tight End
  • 1 Defense/Special Teams
  • 1 Kicker
  • 1 Flex Player (can be a Running Back, Wide Receiver, or Tight End, depending on league rules)

Yeske Buie has had a fantasy football league for the past four years. The league has become increasingly competitive over the last few seasons, especially with the addition of a trophy for the winner and a different kind of “prize” for the loser. Past winners include current team members Cristin Etheredge, Dorothy Navales, and Yusuf Abugideiri (Yeske Buie’s most ardent sports fan). In light of the upcoming season, Yusuf put together his thoughts about investing lessons that can be learned by playing fantasy football:

  • Don’t Overvalue Glamour: Just as a diversified portfolio may include some glamour stocks (i.e. stocks trading at valuations higher than the average) as a part of a broad market index, a functional fantasy football team must have a quarterback. Quarterback is the most highly paid position in the NFL, but that doesn’t directly correspond to their priority regarding fantasy draft status; just because something is expensive doesn’t mean it’s commensurately valuable.
  • Don’t Undervalue Low-Cost Investments: Research shows that, over the long run, value stocks (i.e. stocks trading at valuations lower than average) tend to outperform glamour stocks, and Yeske Buie’s portfolios are designed to capitalize on that. Similarly, a good fantasy football manager looks to add undervalued players (rookies or players new to their roles) to his/her roster with the aim of “buying low and selling high”.
  • External Factors Matter: Just as the markets can be influenced by geo-political considerations, non-football factors must be taken into account when configuring one’s starting lineup. A good manager must consider the weather in which the player will be competing, as well as nuances like distance traveled (ex. players from West Coast teams are notorious for performing poorly in early afternoon games on the East Coast, as their body clocks are still adjusting to the time difference). Of course, in the end, no matter how much one may try to manage these external factors, the results are driven more by random chance than anything else.

Yusuf’s approach to managing his fantasy football team is similar to that of an active investment manager trying to pick “hot stocks” (an approach that has consistently failed to beat the market over time) constantly churning his roster and looking to capitalize on a hot tip. While Yusuf believes that doing so in a fantasy environment can be justified because, as he puts it, “the potential benefits outweigh the costs because there are no costs,” we must nonetheless observe that, while he finished first in 2014, Yusuf came in dead last in 2013. An example, we think, of the relative importance of skill versus random chance. And, of course, when it comes to real-life investing, costs matter and trying to beat the market is an expensive enterprise. The best approach to investing accounts for the aforementioned “lessons,” and is one with which Yeske Buie’s Clients have grown familiar: diversify amongst and across asset classes, control costs, and rebalance in a disciplined fashion.

Random chance or skill? You be the judge!

Chicken

Yusuf’s prize in 2013.

Fantasy Football Trophy

Yusuf’s prize in 2014.

Saving for Retirement – It’s Never Too Early (or Too Late!)

Financial Planning, Yusuf Abugideirion July 14th, 2016No Comments

Written By: Yusuf Abugideiri, CFP®

Business GrowthAs we’ve said in this space before, time is the most important ingredient in the financial plan Clients use to guide them to retirement. The power of compound interest is the reason this is true – each additional compounding period available to a Client’s savings increases the growth prospects of those funds exponentially (literally). This piece will explore some of the policies Yeske Buie uses to support Clients in this pursuit, and will also review two examples to illustrate how this concept works in practice.

The first place to which our cash flow policies direct Clients’ savings (after establishing an Emergency Fund) is to their Employer Retirement Plan, as oftentimes an employer matching contribution allows the Client to take advantage of “free money” added to their account. We recommend contributing the larger of 10% of one’s salary or the annual limit (ex. for 401(k)s, the limit is $18,000 with a catch-up provision allowing an additional contribution of $6,000 for individuals who have reached age 50); doing so will help to ensure retirement savings replace income once a Client stops working.

We also recommend diversifying the types of accounts a Client funds while preparing for retirement. Because many employer retirement plans are funded on a tax-deferred basis, limiting retirement assets to these types of accounts ensures that all distributions made to fund retirement spending will be taxed as ordinary income. To add flexibility to a Client’s retirement plan, we recommend directing savings that exceed the amounts listed above to ROTH accounts (which grow tax-free indefinitely) and/or brokerage accounts (preferred investment income tax rates are applied only to growth above a Client’s basis).

Let’s look at two examples to illustrate the virtues of beginning to save earlier in one’s career:

  1. Lump Sum

Assume you have a lump sum of $100,000 that is growing at a rate of 8% per year. Given 40 years, with no additional savings, this sum will grow to almost $2.2M. If the growth period is reduced to 30 years, the sum grows to just over $1M. This clearly illustrates what Warren Buffett meant when he said “wealth grows exponentially – a little at first, then slightly more, and then in a hurry for those who stick around the longest” – the last 10 years in the example provide the opportunity for a million dollars to double (and then some!).

  1. Ongoing Savings

Now assume that you are just beginning your retirement savings. In your first year (and every year thereafter), you save $10,000. Assuming the rest of the facts from the first example are the same (regarding growth rates and time horizons), saving at this rate for 40 years yields a retirement nest egg of almost $2.6M. If the investment horizon is trimmed to 30 years, the sum shrinks to just over $1.1M.

As you can see, it doesn’t matter if you save in chunks or receive a windfall – the longer the funds are invested, the greater their earning power. Although the two examples above are oversimplified, they prove just how valuable each year leading up to retirement can be if utilized to add to a Client’s savings. And although we often say that young people have an implicit superpower (their age) with respect to planning for retirement, it’s never too late to start saving for tomorrow!

Yusuf Abugideiri Named One of InvestmentNews’ 40 Under 40

Firm News & Events, Yeske Buie in the Media, Yusuf Abugideirion June 27th, 2016No Comments

VIENNA, Va., June 27, 2016/PRNewswire/ — Yeske Buie is pleased to announce that Abugideiri_5999Yusuf Abugideiri has been named to InvestmentNews’ 40 Under 40 list for 2016. The goal of this list is to recognize members of the financial advisory industry who are under 40 years of age and have changed the industry for the better. InvestmentNews reviewed over 800 nominations from industry peers and selected finalists based on personal accomplishment, contribution to the industry, leadership and future promise. Yusuf was also selected as one of five nominees to be featured on the cover of this week’s issue of InvestmentNews.

This year, the tagline for the listing is “The Power of Personality.” With this theme, all 40 nominees were asked to take a personality test to identify what it is about the nominee that makes them stand out. Based on the nominee’s answers, each earned an archetype such as The Maestro, The Guardian, The Editor-in-Chief, or The Victor. Yusuf received the archetype, The Talent. When asked if he agreed with this assessment, Yusuf said, “Yes, I believe I do my best work when I’m able to use my passion to empower and encourage others to achieve.” Yusuf’s archetype is displayed playfully in this week’s issue of InvestmentNews as he poses with a microphone in his photo.

40-under-40-for-winners'-use[1]InvestmentNews also asked each nominee to express what they feel makes them stand out from their peers to be recognized as one of the 40 Under 40. Yusuf shared, “I have a passion for development. I feel most fulfilled when I am able to use my experiences to relate to others, connect with them, and then help them make progress on their journey towards wherever they’re headed.” In addition, Yusuf acknowledged his appreciation for those in the industry who help encourage younger professionals like him and his peers who made the list. “I am inspired by how willing the more experienced generation of advisers has been to share their experiences in building this profession. This reminds me to never forget that all of the good things in my life can be traced back to decisions I made in service of others and motivates me to always put forth my best effort.”

You can find Yusuf’s profile, photos, and video interviews on InvestmentNews’ webpage dedicated to the 40 Under 40 project.

Yusuf has been a Financial Planner at Yeske Buie for six years and is a member of the Financial Planning Association® (FPA®). He is a member of FPA’s NexGen community and is a graduate of FPA’s Residency Program. Yusuf has served on the Financial Planning Day and Career Day committees through FPA’s National Capital Area chapter and is currently serving on the chapter’s board as the Director of PR, Media Relations and Communications. He is co-chair of the Recent Alumni Board of the Pamplin College of Business at Virginia Tech and visits campus frequently to speak in financial planning classes.

Learn more about Yusuf and Yeske Buie at www.YeBu.com.

A Practical Approach to Cash Flow Complexities

Financial Planning, Yusuf Abugideirion April 7th, 2016No Comments

Written By: Yusuf Abugideiri, CFP®

When life happens, the financial aspects of figuring out what to do next can make taking that next step an overwhelming task. Using policies to manage cash flow on an ongoing basis removes the budgetary uncertainties and clarifies the financial ripple effects of a given alternative, helping our Clients make decisions using the constraint that matters most: their values.

At Yeske Buie, we work on hundreds of financial plans each year. Although our Clients’ needs, goals, and circumstances vary, at the heart of every financial plan is the answer to a Client asking:

“What do I do if _____?”

The answer we’re able to give depends on the answer to two follow-up questions:

  • “Is an adequate Emergency Fund available to be utilized?”
  • “Does the recommended plan of action affect cash flow in a way that compromises other goals/needs?”

Let’s start with the first follow-up question by defining an “adequate” Emergency Fund – we recommend that our Clients set aside three to six months’ worth of take-home pay in cash before funding any other goals. There are a number of reasons why building an Emergency Fund takes precedence as the first step in building a healthy, robust financial plan:

  • It’s the bridge to fill an income gap when waiting for a disability insurance claim if one is unable to work. Typical disability insurance policies require that a claimant wait 90 to 180 days (three to six months) before being eligible to receive benefits.
  • It’s the first source of cash to cover deductibles related to auto, homeowners and health insurance claims. Having the funds available to cover a higher deductible allows one to pay a lower premium, which is a more efficient use of one’s resources.
  • It allows one to meet unexpected out-of-pocket expenses without building up personal debt or disrupting the flow of cash used to fund other needs and goals.

Having an Emergency Fund in place allows our Clients to evaluate trade-offs using their values as the constraint instead of their account balances, but that’s only half of the equation. We also have to assess the effect on ongoing cash flow, which is done best via policies. The following is an illustration of a basic set of Cash Flow Policies:

Cash Flow Policies

Let’s start with the right side (Earned Income). As you can see, the first “bucket” that must be filled is that of the Emergency Fund, which is funded after a Client’s monthly expenses have been paid. No dollars are directed towards any of the other buckets until that bucket is full; upon filling it, the flow of dollars is “tipped” into the next bucket – funding an Employer Retirement Plan account to take advantage of the tax benefits while saving for the primary goal of most Clients’ financial plans. This cascading structure continues from bucket to bucket as each one is filled subject to its unique constraints. Using policies in this way provides structure by having a plan in place for every dollar while allowing for flexibility via the dynamism embedded in the policies. For example, if a distribution had to be made from the Emergency Fund to cover an unexpected medical expense, deposits to the retirement accounts would stop and those funds would be directed to the Emergency Fund until the balance was back to target, at which point the retirement account contributions would resume.

The left side (Windfalls) deals with unexpected income. As hard as it can be to figure out what to do with one’s normal income in the absence of policies, it can be just as difficult to determine how to use windfalls in a way that is congruent with the rest of one’s financial plan. We recommend carving off 10% to be used right away so our Clients can get some immediate enjoyment from their newfound money, and then direct the rest in the same manner as they would their normal income. Doing so ensures that the goals that mean the most to them are funded first.

Using policies in this way to manage cash flow makes it easy to “stress-test” a plan when evaluating a trade-off – we can easily illustrate the effects of directing resources in a new direction and determine if that alternative fits with the Client’s current desires and long-term goals. Having that information allows our Clients to evaluate their options with full information and make their next step one that best fits their financial planning needs.

The Transfer of Trillions: Why Intergenerational Wealth Planning Matters

Financial Planning, Yusuf Abugideirion December 17th, 2015No Comments

Written By: Yusuf Abugideiri, CFP®

Grandmother and grandaughter holding a plant togetherIn 1999, John J. Havens and Paul G. Schervish of Boston College’s Social Welfare Institute published a report in which they estimated that at least $41 trillion would pass from older to younger generations in the US between the years 1998 and 2052. This estimate far exceeded the figure previously cited most frequently ($10 trillion, as estimated by Avery and Rendall) and sparked a conversation that has been ongoing ever since.

To be clear, Havens and Schervish’s $41 trillion figure is not completely comprised of inheritance – they estimate over $16 trillion of that number will be paid out in estate taxes and charitable giving. And while some of the remaining $25 trillion is currently being inherited by the baby-boomer generation, much of that figure will be passed to the children and grandchildren of the largest generation in US history. On the strength of these figures alone, it is clear that planning for this transfer on a national level is of the utmost importance.

But what do these figures mean to you?

The first thing to determine is on which side of this transfer you currently stand; the second is to determine your plans for the transfer. Whether you will be passing assets along to your heirs or if you are set to receive an inheritance, clear communication is the key to ensuring the transfer is successful. How that success is defined is specific to the individuals involved, but there are techniques that can be applied across the board to facilitate the process.

Engaging a financial planner to facilitate the conversation can help to ensure that the transfer is reflective of the participants’ values. Several areas can be explored:

  • The benefactor’s/beneficiary’s worldview and values;
  • Lessons learned about money and how they’ve shaped one’s views about money;
  • The source of the assets and the definition of their purpose;
  • How the benefactor/beneficiary defines success;
  • Whether leaving behind a legacy is important and how that legacy is defined;
  • How to address the unique challenges and/or special needs of everyone involved.

One of the ways we start this conversation with our Clients is by creating a flowchart of their estate plan to illustrate how their assets are scheduled to be distributed; creating a visual representation of the plan can be a powerful tool to jump-start the thought process of whether it truly reflects their desires. As our Clients’ plans evolve, we continually review their estate plan to see whether changes need to made. The iterative nature of revisiting this portion of their financial plan prepares our Clients for their role in the process and ensures the inevitable transfer of their assets reflects what is most important to them.

Estate Flow Chart

Sample of Yeske Buie’s Estate Flowchart. Click to Enlarge.


“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