This season, we watch in awe as leaves on the trees burst with color and then begin to fall away. It is a perfect time to reflect on all we have to be grateful for and to look ahead enthusiastically toward the future. At Merriman, we feel an immense gratitude for your trust and engagement with us, especially during these last two years. We’ve learned so much from navigating these challenging times with you, and we are honored that you have stayed the course and continue to trust us with such an important aspect of your life. Your trust propels us forward and inspires us to be better each day.
In March of last year, I sent an email to our clients explaining how we would approach this new virus, COVID-19. While we didn’t then know the severity or length of time COVID-19 would affect us, we believed that by continuing our relentless focus on investment and financial planning expertise and seeking to understand the shifting needs of our clients, we would see our fellow teammates and clients through this successfully.
I expressed at the time, “While not perfect, we’ve been able to execute all our core functions—most importantly, listening empathetically to our clients and providing guidance based on our decades of experience. While we can’t predict how this will play out or when things might return to normal, we’re committed to seeing you through to the other side.”
I am pleased to say that with your patience and understanding, I feel we accomplished this mission. We listened as many of you shared your fears about health and family, the global economy, the time missed with grandkids or friends, or newfound uncertainty about retirement or job security. In each conversation, we strove to discuss what our most impactful support could look like. We used our expertise to rebalance portfolios during critical moments, took advantage of tax-loss harvesting and Roth conversion opportunities, and made some of the biggest enhancements to our portfolios in Merriman’s history. We are grateful for the trust you put in us, and we hope to serve you and your family for decades to come.
As a company, we have leaned into our core values to emerge stronger than ever. This year, we’ve added seven new positions (more than 15% of our workforce), and we are looking to add multiple additional teammates over the next six months to help us serve the many new families joining Merriman. Most of these new families have come directly from introductions you’ve made, so thank you. It thrills us that you would refer a friend, co-worker, or family member to Merriman. We consider an introduction to someone you care about to be the highest compliment, and we are energized to offer our services to benefit their futures.
As with so many things these last two years, we’ve learned to flex to meet new demands. We’ve had to reimagine how our employees work, balancing in-person contributions to our office community and working remotely to prioritize health and safety. We have gathered feedback from our employees throughout this period, and the overwhelming message we received from our team was that they wanted to maintain the flexibility to both work from home and have a designated office that supported employee development, collaboration, and community. Regardless of team member location, maintaining an excellent client experience has been paramount in this decision-making process.
After much input and reflection, we’re incredibly excited to tell you that as of January 1, 2022, we will have new office locations in Seattle and Bellevue, in addition to our offices in Eugene and Spokane. Your needs, along with the desires of our employees and our growth, were key factors in the vision of our new offices. Both spaces will provide beautiful client meeting spaces when we desire gathering in person. We are also committed to continue enhancing our virtual meeting experience for those of you who enjoy connecting with us from the convenience of your own home. We look forward to sharing more details soon.
Thank you for your continued trust and belief in the Merriman team. We wish you a wonderful and meaningful holiday season and look forward to connecting soon.
With the recent tornado in Oklahoma we are reminded of the importance of charitable giving. In fact, since the tornado, over $15 million has been donated to the American Red Cross. According to the Giving USA Foundation, individuals gave over $217 billion dollars to charitable causes in 2011, a 3.9% increase over 2010. As charitable giving increases, I want to make sure you know not only how to maximize your charitable contributions from a tax standpoint (see my post about using the donor advised fund), but also that you are informed about the effectiveness of the charities you choose.
There are a couple resources available now to help understand how effective a charity is with the money you donate. Charity Navigator has been around since 2001 and now assesses over 6,000 charities. Its goal is to provide one overall rating based on two areas of effectiveness: 1) their financial health and 2) their transparency and accountability. For example, the American Red Cross, a popular one at this moment, shows a total score at 59.64 out of 70 as of fiscal year end in June of 2011.
Another website, CharityWatch.org, also rates different charities’ effectiveness. While they rate only 600 or so of the largest charities, they tend to dig much deeper into the inner workings of the organization than Charity Navigator. They study the individual finances of every charity to give a clear picture on what the money is actually being used for. Instead of taking the information at given at face value, they try to determine if the donors’ objectives are actually being met. Because their analysis is more in-depth, Charity Watch charges $50/year for access to their Charity Rating Guide, which provides financial data and a rating from “A+” to “F” for each charity.
We all want to make sure the money we give generously is used effectively. Whether you’re giving funds to aid with large natural disasters or donating to your local food bank, donations are needed and greatly appreciated. Now, in addition to maximizing the tax effectiveness of your charitable donations through donor advised funds, these tools can help you choose organizations that will help your dollar have maximum impact.
While corporate pensions are on the decline for many younger workers, many clients nearing retirement still have pensions through their employers. One topic that often comes up with married clients is the question of a survivor option: Should you take a single life option and collect the highest monthly payout, or take a lesser amount and ensure that some percentage would go to your spouse if something were to happen to you?
One solution you might consider is something called pension maximization. The question that we are trying to address then is: Can you buy life insurance to replace the pension for less than the monthly “cost” of taking the survivor option?
We don’t sell insurance, but work with highly qualified professionals that do this full time. We don’t receive any compensation for any insurance our clients buy, but looking at coverage is part of our comprehensive approach to addressing all of our clients’ financial needs.
How does pension maximization work?
Here is a recent example where one client could take a single life pension of $6,041/month or a 100% survivor option for $5,401/month, a “cost” of $640/month ($6,041 – $5,401). When considering the insurance option, we would need to recreate this income stream based on him passing away in year one with the following policies:
A 10yr term policy for $225,000 ($44/month)
A 15yr term policy for $125,000 ($32/month)
A 20yr term policy for $100,000 ($31/month)
A 25yr term policy for $105,000 ($54/month)
A 30yr term policy for $110,000 ($103/month)
A no-lapse guarantee universal life policy for $275,000 ($274/month)
The reason you would layer policies in the above example is because you need less insurance as you get older since the time you need the insurance to last is shorter. When you add up the above policies, you get a monthly expense of $538/month, which is $102/month less than the “cost” of the 100% joint survivor option. After 10yrs, the $44/month policy will drop so you will get a raise of $44/month. By the time the 20yr policy has lapsed, you’d be receiving almost $1,300 more per year than when you started. Also, if the spouse passes away first, then this client could cancel the insurance and keep the premiums or keep some of the insurance to pass on to their heirs.
Who does this work well for?
People who are in good health and can qualify for lower insurance premiums.
People who have kids or family they want to leave money to. If both spouses passed way together early on, their heirs would receive no additional money under the pension and survivor options. However, by using the pension maximization strategy above, this couple’s heirs could receive $940,000 income tax free.
People who are comfortable with a little added complexity. It is much easier to just take the survivor benefit from the company. Dealing with insurance policies and then having to either invest the money or buy immediate annuities (this is what the example above solved for using current annuity rates) with any proceeds takes additional time and effort. The example above had six different policies, but I’ve often seen it work with only three or four.
People who have some time before a decision needs to be made. The underwriting process can take a few months and you don’t want to make this type of decision before life insurance is fully in place.
I’ve looked into this strategy for many clients, and it doesn’t always work out. Sometimes, the company pension option is the best choice and you don’t have to go through any underwriting like you would in the example above. It is important to work with professionals who have the resources and expertise to help you solve these complex financial issues. Here are Merriman, we work with a number of professionals who are experts in their field to help solve problems like this, and other complex issues, for our clients. Please reach out to your advisor if you would like to discuss this option for yourself.
As we near the end of 2012, it’s time to start thinking about your finances for 2013. While some year-end planning might still be needed, it’s not too early to start thinking about next year. Many employers will start having their open enrollment periods over the next few weeks, and this is a great time to review your retirement plan contributions.
The new 2013 retirement contribution limits are as follows:
The elective deferral contribution limit for 401(k), 403(b) and most 457 plans increased to $17,500 from $17,000 in 2012.
The catch-up contribution limit for employees aged 50 and older into those same plans remains unchanged at $5,500 for 2013.
The maximum total contributions into a defined contribution plan rise to $51,000 for 2013 compared to $50,000 for 2012. For those aged 50 and older, the limit is $56,500.
If you participate in a Simple IRA plan, the salary reduction contribution limit increases to $12,000 in 2013, up from $11,500 in 2012. The catch-up contribution remains at $2,500.
The limit for IRA and Roth contributions increased to $5,500 from $5,000 in 2012. The catch-up contribution remains at $1,000 for 2013.
For traditional IRAs, there are a few different scenarios where different income limitations apply. These income limits increased from years prior and need to be looked at in more detail for each specific situation.
For Roth IRAs, the AGI phase out range is $178k-$188k for married couples filing jointly. For single and heads of households, the phase-out range is $112,000-$127,000.
If you’d like to learn more, you can read the IRS press release here.
If you are self-employed or have any self-employment income, you’ve probably wondered about the different types of retirement accounts available to you. Three of the most common types of accounts are SEP IRAs, Simple IRAs, and the Solo or Individual 401(k) plan. This recent post I wrote gives more information on these three account types. Here, I’ll focus on the Individual 401(k) and why it might be right for you.
The Individual 401(k) plan is, in many cases, the better choice for self-employed people because of several key benefits that aren’t available with the SEP or Simple options. (more…)