Downsizing? Tips for Getting the Best Property Size

Downsizing? Tips for Getting the Best Property Size

 

Downsizing has been a rising trend among retired and almost retired Americans. But the drama last year due to the pandemic has caused younger Americans to rethink their priorities.

Decade-high unemployment figures, soaring healthcare and health insurance costs, and loneliness have forced a fifth of adults to move homes. Many have made significant decisions about their careers, lifestyles, and relationships.

Americans are rethinking what they value and how they want to spend their precious moments.

Is your monthly mortgage tab far too high? Do you think your family could be just as comfortable in a smaller place (no matter your age)?

You are not alone. Millennials prefer better lifestyles to humongous homes. If you are about to retire and want to make the most of your golden years (paying fewer bills and being around people, not empty hallways or dusty furniture), read on. These tips will help you make the most from downsizing.

 

What is downsizing anyway?

When you move to a smaller home to cut down on the upkeep and mortgage costs, you are downsizing. This change is often associated with retirees or those who are approaching retirement age. But a growing number of younger professionals are opting for a more fulfilled life—as opposed to more square feet.

Candidates for downsizing often do not have a large retirement nest egg and have smaller families.

Although downsizing should help you cut down your costs, that’s not always the case. Soaring demand for homes due to dwindling mortgage rates has triggered a 9.5% increase in prices. Downsizing the square footage of your home may not always result in lower bills. Therefore, you should think and research before executing such a plan. These tips will help you make a more fulfilling choice.

 

Be smart when downsizing

Smart downsizing means ensuring the move results in maximum rewards for your goals. Accordingly, you need to figure out your goals first. Consider how downsizing will affect your cost of living and healthcare. After you take in the considerations and make the calculations, consult the experts and make your move.

 

Figuring out your goals

Oftentimes the goals for downsizing focus on improving your financial state and maintaining or enhancing your lifestyle.

Transamerica did a survey and found that more than 50% of retirees consider cost of living and proximity to family and friends as the most critical factors when choosing where to live. Nearly 40% considered healthcare as the most important.

Concerning financial goals, the objective is to access as much equity as possible or maximize savings on monthly mortgage payments.

As for lifestyle goals, the objective is to minimize any adverse impacts on family and ensure access to services, amenities, and quality healthcare.

What impact will downsizing have on your finances and your lifestyle?

 

Think about how downsizing will affect your expenditure

Reach out to a financial advisor for an objective review of how the move will affect your financial status. Darren Robertson, a real estate agent at Northern Virginia Homes, explains, “A cost reduction of $500 per month in a 15-year, $200,000 mortgage at 4.5% could slash four years from the term and save you $25,000 in payments.”

Downsizing can also help you cut down on living expenses. How much do you spend on groceries, travel, and other services? If changing towns is not out of the question, use this calculator by CNN to estimate how your cost of living would shift.

 

What about healthcare?

If you are about to retire or are retired, consider health costs separately.

Although most Americans 65 years and above are enrolled in Medicare, you should brace yourself for a “health cost gut punch.” Retirees in America incur healthcare costs averaging $122,000 between the age of 70 and death.

Worse still, the inequalities of healthcare services in the US are no longer a myth—the pandemic just made them more apparent.

Look for ways to boost your Health Savings Account and make the most of it. Also, consider where you can access high-quality, affordable healthcare.

 

Consult the experts

Perhaps you are not so proud of some of the moves you made when acquiring your current home. This could be your chance at redemption.

Remember, this is for the long haul. You want to clinch a great deal that is not too far away from family, friends, and opportunities.

Scope the real estate market and reach out to a couple of agents. Find out what they think about the market and about selling your home and downsizing. Also, enquire about smaller homes in the market. If you find some that you like, ask the right questions about them, keeping in mind how much you want to save.

Experienced professionals will help you identify the best options for low-priced homes in your preferred locations. They can even recommend excellent new spots based on real estate projections and trends. They will help you to:

  • Evaluate your financing options.
  • Negotiate great deals amidst stiff competition.
  • Save on taxes and offer practical ways you can cut down your costs.

 

Commit to substantial downsizing

Don’t wait until after the move to start downsizing your belongings. Start to declutter as soon as you make the decision, beginning with smaller items.

Take photos of those kindergarten crafts by the kids (who are all grown up now) and keep the memories in the Cloud. Donate or have a garage sale for old furniture and any other antiques you’ve not touched in ages.

The more you visualize yourself in a smaller space, the more likely you will make it happen.

 

In conclusion, when downsizing, the best property sizes are not always the least in square feet. They are the properties that offer an opportunity to maximize your financial and lifestyle goals. These tips will help you to make smart decisions in this area.

 

 

 Written Exclusively for Merriman.com by Madison Smith

Madison Smith is a personal and home finance expert at BestCompany.com. She works to help others make positive financial stride in their lives by providing expert insight on anything from credit card debt to home-buying tips.

 

 

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.

 

 

 

 

 

The 5 Biggest Financial Planning Mistakes Made by Tech Professionals | Mistake #1

The 5 Biggest Financial Planning Mistakes Made by Tech Professionals | Mistake #1

 

I love working with the tech community. I started my career at Microsoft and have since been inspired by the creative and innovative minds of folks working at tech companies large and small. I also enjoy working with tech employees, because as a personal finance nerd, I get to help people navigate the plethora of benefits available that are often only available at tech companies. Between RSUs, ESPP, Non-Qualified or Incentive Stock Options, Mega Backdoor Roth 401(k)s, Deferred Compensation, Legal Services, and even Pet Insurance, it is the benefits equivalent of picking from a menu of a Michelin three-star-rated restaurant.

 

Through my own experience as a tech employee and my experiences now as an advisor working with tech professionals, I’ve identified some of the biggest financial planning mistakes that can hold the tech community back from achieving financial independence and success.

 

Mistake #1 – Not Optimizing Benefits

 

We all are familiar with the paradox of choice. Most people, when faced with a long list of complicated benefits that even some financial professionals struggle to understand, will focus on the areas that are familiar and disregard the rest. Who wants to spend their free time reading about ESPP taxation or the mechanics of Roth Conversions on after-tax 401(k) contributions? Chances are that if you work for a growing tech company, you have very little free time to begin with.

 

While it may not be the most enjoyable use of your evenings or weekends, I can’t emphasize enough how valuable it is to invest the time to learn how to optimize your benefits now. Choosing to invest additional savings in your Mega Backdoor Roth 401(k) over a taxable brokerage account may shave a couple of years off your retirement date. Maximizing HSA contributions and investing the growing account balance can provide for a substantial amount of money to pay for high healthcare costs if you retire before you are Medicare eligible (age 65). Making strategic Roth Conversions during lower income years, such as in early retirement or during breaks from paid employment, can save hundreds of thousands of dollars in future taxes over the course of your lifetime. The list goes on, trust me.

 

If I don’t exercise for a week, or even a month, I probably won’t notice a significant difference in my overall health. If I keep telling myself that I’ll start a workout routine, but years go by without investing my time and energy into making the plan a reality, my physical fitness will take a toll, and I will also lose out on all the amazing benefits that exercising regularly provides. I may look back with regret at some point later in life that maybe certain health issues could have been minimized or prevented if I had spent the time to prioritize what is truly important. It is critical to think beyond how something may impact us in the short term and recognize the long-term impacts of choosing to continue to put something on the back burner. Ask yourself, what impact will this have on my life if I wait a year to prioritize my personal finances? What effect will it have on my life if I wait ten years to prioritize my personal finances? Chances are that impact is even greater than you think. If you want help assessing and optimizing your benefits, don’t hesitate to reach out to me.

Be sure to read our upcoming blog posts for additional mistakes to avoid as a tech professional.

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.

 

Is It Time to Hire a Financial Advisor? | 5 situations when the answer could be yes

Is It Time to Hire a Financial Advisor? | 5 situations when the answer could be yes

 

 

A financial advisor is a professional who is in charge of guiding an individual or entity towards their financial goals in the most efficient way. At Merriman, we love taking on the burden of financial planning so our clients can get back to spending their time and energy doing the things they love.

 

Thrive Global describes the financial sector as complex and dynamic, with assets and trends changing and interdependent with other factors, and a financial advisor has the skills required to study these processes and trends. However, only 17% of Americans hire a financial advisor, with the rest either managing their own finances or simply winging it. But in a time where debt and living expenses are increasing, having and following a financial plan is more important than ever. If you find yourself in any of the following situations, you should consider hiring a financial advisor:

 

You’re starting a new business

Starting a new business can be a costly endeavor, as it involves expenses and procedures you wouldn’t immediately be aware of, such as filing for a certificate of formation and providing initial reports and paying their respective filing fees. A financial planner can advise you on the best structure to form your business in, taking into account startup costs, annual taxes, and filing fees. LLCs in Washington need to be aware of the taxes they need to pay at the federal, state, and local levels, as well as a sales tax and state employment tax. All of these can become overwhelming to keep track of, especially if you’re a budding business, and a financial planner can help you get it all sorted out.

 

You’re a DIY investor

A simpler investment plan is usually better; however, this isn’t true with financial planning. An overall financial plan should also consider factors such as retirement planning, tax planning, and insurance planning. Market Watch explains that DIY investors would still need a financial advisor in order to be sure that nothing is being missed out. Clients don’t realize that an advisor will do more than just manage their portfolio and help with investment plans. Financial advisors can take charge of a range of money-related management tasks, such as making a comprehensive saving and spending plan and guiding the client towards making sensible financial decisions.

 

You’re starting a family

Raising a child is not cheap: It costs an average of $233,610* to raise a child for the first 17 years of their life. Having a financial advisor can help you review your finances to see if you can actually afford being a parent. An advisor can also help you plan when to start saving for your child’s college expenses, while also keeping your retirement plan on track and leaving space for a growing family. They can help settle any future inheritance as well as ensure that your children will be taken care of.

 

You’re close to retirement age

Though you may have a retirement plan, the financial decisions you make in retirement might be more complex than the decisions you’ve had to make in the years leading up to it. A financial advisor can help you consider what you should do so you don’t end up outliving your money. Even when you’re already in retirement, a financial advisor can help you manage a spending plan. You might even consider an investment plan as well, and an advisor will help you make decisions that won’t sacrifice what you already have.

  

You’re financially illiterate

There is a financial literacy crisis in America, but financial advisors can help solve this problem. Americans would rather talk about anything else, such as religion, politics, even death, rather than personal finances. Aside from the embarrassment, another major factor that makes money talk taboo is that it is considered rude to talk about it with other people. However, talking about money is the first step to being a financially literate person. Advisors let their clients ask anything without judgment, creating a learning environment that empowers people to expand their knowledge about their own financial situation.

 

The circumstances requiring a financial planner aren’t just limited to the points discussed above. Overall, it’s important to plan for your financial future. Read our “Why Do I Need a Financial Plan?” for a deeper understanding of why a financial advisor is the right person to develop a financial plan for you. And to learn more about the value that a financial advisor can provide, check out the “10 Reasons Why Clients Hire Us.” If you would like to start looking for an advisor to help you with your plans, get in touch with us to discuss the necessary steps.

Article written by Ellie Hartwood
Exclusively for Merriman

 

Source: *https://www.usda.gov/media/blog/2017/01/13/cost-raising-child#:~:text=Middle-income, married-couple,Where does the money go?

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.

Stimulus 2.0: What Is (and Isn’t) Included in Consolidated Appropriations Act (CAA) of 2021

Stimulus 2.0: What Is (and Isn’t) Included in Consolidated Appropriations Act (CAA) of 2021

 

On December 21, 2020, Congress passed the second round of major stimulus as a follow-up to the CARES Act passed earlier in March 2020. President Trump initially balked at signing the new legislation, citing that he wished to see a higher Recovery Rebate payment for families, but ultimately he signed the legislation as presented on December 27, 2020. While the CAA expanded on some of the relief provided in the earlier CARES Act, it was also notable for a few specific provisions it didn’t include.

Here are some highlights included in the bill:

Recovery Rebate: Qualified families are eligible for an additional advanced rebate of $600 per taxpayer and $600 for each qualified child (compared to $1,200 per taxpayer and $500 per child under the CARES Act). The income thresholds remain the same as under the CARES Act, with phaseouts beginning at $75,000 for Single or $150,000 for Married Filing Joint.

Extended Federal Unemployment Benefits: The earlier CARES Act authorized additional federal unemployment benefits to be paid on top of state unemployment benefits to help individuals affected by the pandemic. However, those federal benefits were set to expire in December 2020, but the CAA extended the benefit for another 11 weeks at a reduced rate of $300 per week (down from the original $600 per week). Employees as well as self-employed individuals remain eligible for the extended federal unemployment benefits.

Enhancements to Paycheck Protection Program (PPP) Loans: The CAA provides significant relief to businesses impacted by the pandemic. In addition to expanding the list of qualified expenses eligible for loan use, the CAA opened the doors for businesses to obtain a second PPP loan. These loans may be forgiven if used to pay for qualified expenses such as wages, rents, utilities, and now certain operational expenditures, property damage due to vandalism, and worker protection expenditures. Also of note, the act specifically allows businesses to deduct expenses paid with PPP loan proceeds, even if the loan is later forgiven.

 

Equally notable are the provisions NOT addressed in this bill:

No Extension of the 2020 RMD Waiver: Taxpayers will need to resume their Required Minimum Distributions in 2021.

No Extension of Coronavirus-Related Distributions (CRD) into 2021: Last year, individuals affected by the coronavirus could access retirement accounts (IRAs, 401(k)s, etc.) for up to $100,000 without being subject to the 10% early distribution penalty if they were under age 59 ½. Furthermore, these distributions could be paid back within 3 years to “undo” the income. Unfortunately, the CAA did not extend this withdrawal provision into 2021, so be careful when accessing retirement accounts before age 59 ½.

No Further Student Loan Relief: Federally backed student loan payments had been suspended under the CARES Act and through executive order through January 31st, 2021, but the CAA did not further extend this relief.

 

President Biden has already indicated that a third round of stimulus will be needed, so we are likely to see more legislative changes this year. We will continue to stay on top of the changes impacting our clients, but please reach out to your advisor at any time if you would like to understand how these changes may impact you.

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.

Getting the Most From Your Health Savings Account (HSA)

Getting the Most From Your Health Savings Account (HSA)

 

Are you aware of the many planning aspects of HSAs? We’d like to share some of the more in-depth aspects with you here so you can get the most from your HSA. However, if you’re unfamiliar with HSAs or need a quick reminder about them and high-deductible health plans (HDHP), then we encourage you first to read our blog article: A New Perspective on Health Savings Accounts.

HSAs are more tax efficient than other retirement accounts.

HSA accounts are often referred to as “triple tax-exempt” because your contributions, earnings, and qualified withdrawals are not taxed. This triple tax-exempt nature of HSAs makes them more attractive than other retirement accounts that are only double tax-exempt, including 401(k)s, IRAs, and Roth IRAs.

 

Employee HSAs could be considered quadruple tax-exempt.

Additionally, if you’re an employee and make HSA contributions via payroll deduction, then you have an added benefit of avoiding FICA (Social Security and Medicare) and FUTA (unemployment) taxes on those contributions. Contributions to your 401(k) via payroll deductions don’t avoid these taxes.

 

Don’t use your HSA for current medical expenses and invest the funds.

In order to fully benefit from the triple or quadruple tax-exempt nature of an HSA, you’ll need to let the account grow. It’s important to leave your contributions in your HSA and to invest them for the most potential growth.

Note: This means you’ll need to pay for medical expenses out of pocket, which can get expensive when you have a high-deductible health plan (HDHP).

 

Save receipts for current medical expenses to reimburse yourself in the future.

There is no time limit for reimbursing yourself for qualified medical expenses, so you can reimburse yourself in the future—even 30 years from now—for expenses incurred today. You must keep records of these expenses, so it’s important to keep your receipts. You’ll have plenty of medical expenses in retirement, so saving receipts for small expenses may not be worth the effort. Consider saving receipts for larger current expenses.

Note: You can’t reimburse yourself for medical expenses incurred before the HSA account was established or for medical expenses deducted on Schedule A of your tax return as itemized deductions.

 

Maximize your catch-up contributions in a family HDHP.

You can make an annual $1,000 catch-up contribution to your HSA beginning at age 55. If you have a family HDHP or two separate HDHPs, then you can potentially make two catch-up contributions—one for each spouse who’s 55 or older if the catch-up contributions are made to each of their separate HSA accounts.

Note: Most family HDHPs are set up with one HSA account in the employee’s name. If the spouse doesn’t have their own HSA account, then they will need to open one in order to make their own catch-up contribution.

 

Contribute after you stop working and before you enroll in Medicare

Unlike an IRA or Roth IRA, you don’t need to have earned income to be able to contribute to your HSA. You can contribute to your HSA if you have an HDHP and haven’t yet enrolled in Medicare. If you retire before Medicare age, then you’ll need to either continue your coverage through your employer with COBRA or get individual coverage. If either of these coverages is an HDHP, then you can contribute to an HSA.

Note: You can’t contribute to an HSA once you enroll in Medicare because Medicare is not an HDHP. Enrollment in Medicare includes enrollment in any Medicare coverage—Parts A, B, C, D, or a Medigap plan.

 

Contribute tax-free funds from your IRA in a one-time rollover.

You can make a one-time rollover from your IRA to your HSA up to your contribution limit for the year. If you wait to perform this rollover until you’re age 55, you can rollover both the maximum annual contribution and your catch-up contribution. This rollover must be transferred directly from your IRA into your HSA in order to be tax-free.

Note: A good candidate for this rollover would be someone who has a large IRA and might already be looking for openings to convert some of their IRA to after-tax accounts, such as a Roth IRA.

 

Use your HSA to pay for certain insurance premiums.

You can use your HSA to pay for certain health insurance premiums that are considered qualified expenses, including long-term care insurance (subject to limits and restrictions), healthcare continuation such as COBRA, healthcare coverage while receiving unemployment benefits, and Medicare or other healthcare coverage at age 65. Premiums for a Medicare supplemental policy are not considered a qualified expense.

Note: The annual amount of qualified long-term care premiums is limited and based on your age, which ranges from $420 for those age 40 and younger to $5,270 for those age 71 and older. The long-term care policy must also meet certain requirements itself to be qualified.

 

Non-qualified withdrawals after age 65 aren’t penalized.

Withdrawals for qualified expenses for yourself, your spouse, and your dependents are not taxable and not subject to a penalty. Non-qualified withdrawals are subject to a 20% penalty and tax, but the 20% penalty no longer applies once you reach age 65. Non-qualified withdrawals after age 65 are taxable, making them comparable to IRA withdrawals. While you’ll lose the triple-tax exempt nature of an HSA, your contributions and growth were tax-free.

Note: If you must take taxable distributions and you aren’t yet 65, then consider distributing funds from an IRA before distributing funds from your HSA to avoid the 20% penalty. Keep in mind that there is a 10% penalty for IRA withdrawals prior to age 59 ½.

 

Qualified distributions for a deceased owner are non-taxable within one year of death.

If you pass away and your beneficiary is your spouse, then they can continue the HSA as their own. If the beneficiary is not your spouse, then the value of your HSA at the time of your death is distributed and deemed taxable income for them. However, your beneficiary can use the HSA to pay for your outstanding qualified expenses within one year of your death. Funds used for this purpose by a non-spouse beneficiary are excluded from the value of the account, thus lowering their taxable income.

Note: Discuss your outstanding qualified expenses with your beneficiary. They can only use the account to pay for your expenses after your death if they have the necessary information and records.

 

Getting the most out of your HSA can be difficult, especially while trying to do so over a long period of time. It’s important to integrate HSA planning into your overall financial goals and retirement plan. As financial advisors, we love to help our clients accomplish these things, so please reach out to us if you have any questions. We’re here to help!

 

 

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.

What Women Need to Know About Working with Financial Advisors | Tip #5

What Women Need to Know About Working with Financial Advisors | Tip #5

 

I want to acknowledge that all women are wonderfully unique individuals and therefore these tips will not be applicable to all of us equally and may be very helpful to some men and nonbinary individuals. This is written in an effort to support women, not to exclude, generalize, or stereotype any group.

 

I was recently reminded of a troubling statistic: Two-thirds of women do not trust their advisors. Having worked in the financial services industry for nearly two decades, this is unfortunately not surprising to me. But it is troubling, largely because it’s so preventable.

Whether you have a long-standing relationship with an advisor, are just starting to consider working with a financial planner, or are considering making a change, there are some simple tips all women should be aware of to improve this relationship and strengthen their financial futures.

 

Tip #5 – Go to the Meetings

 

I haven’t seen any studies on whether or not women attend fewer meetings. However, if two-thirds of women don’t trust their advisors, I have to believe they aren’t eager to sit in a room with someone they don’t trust for an hour. I sometimes hear that one spouse “just isn’t interested in finances” so they don’t attend meetings. It’s perfectly fine to not be interested. My spouse isn’t! One thing I always find fascinating about working with couples is seeing all the different ways we decide to divide and conquer household tasks. Those lines are often logically drawn based on who has the most interest or the most time. However, even if you completely trust your spouse to handle the finances and you don’t have any interest, it’s important that you are part of the big picture conversations. You may not have any opinion on whether you invest in mutual fund XYZ, but you may have goals that aren’t even on your spouse’s radar or strong opinions about whether your entire portfolio is invested conservatively or aggressively. I find that when one spouse “just isn’t interested in finances,” it means that they attended meetings with other advisors in the past where the conversation wasn’t properly framed to address their goals, or they felt uncomfortable asking questions.

In addition to making sure your financial plan properly addresses your goals and takes your comfort level into account, it’s also important to build a relationship with your advisor so that if you do have questions, if you separate from your spouse, or if they pass away, you have someone you trust to turn to for help.

Be sure to read our previous blog posts for additional tips to help women get the most out of working with a financial advisor. You may notice that all five of these tips are easier to follow when you follow tip #1—work with an advisor you like. There are many different considerations when hiring an advisor: Are they a fiduciary? Do they practice comprehensive planning? How are they compensated? What is their investment philosophy? They may check off all your other boxes, but if you don’t like them, you are unlikely to get all you need out of the relationship. If you’re looking for an advisor you’re compatible with, consider perusing our advisor bios.

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.