Permanent Value Inc. - Registered Investment Advisor

Published in the Union Tribune

Our Nathaniel Ritchison, Certified Financial Planner™, recently authored an article in the San Diego Union Tribune!

The Financial Planning Association of San Diego is answering financial questions for the readers of the UT.  Nate was choosen to write an article about helping a family take control of their finances after the loss of a loved one.

If you missed this article published Sunday, November 21st, you can read it at the link below:

http://www.signonsandiego.com/news/2010/nov/21/how-help-surviving-spouse-regoup-financially/

2010 Year-End Financial Planning

Over the last few years, doing a year-end plan review may have been akin to hopping on the creaky old Belmont Park roller coaster- the unsettling ups and downs yield to a sense of relief the moment you glimpse that the end is near.  No matter how scary or exciting a year-end review might be, it remains one of the most powerful tools to assess your current financial position.  It will also give you ample time to make changes and plan for future years.  This end of year review is especially important because of expiring tax laws and the introduction of new policies and laws in the areas of taxes, estate planning and health insurance.  Below are a few points to consider while reviewing this year and planning for changes in the New Year.

2010, “The Year of the Roth IRA”

While the cap on who is permitted to convert a traditional IRA to a Roth IRA has been permanently repealed, a special provision that allows conversions to be split into each of the next two tax years will expire on December 31st.  Among other benefits, Roth IRA conversions can be an especially powerful retirement and tax planning tool for those that feel they may end up in a higher tax bracket in retirement and have extra liquid funds to “prepay” their taxes on retirement accounts.

Don’t Forget those RMDs

In 2009, those age 70 ½ or older who were subject to an RMD (Required Minimum Distribution) were given a year’s holiday from taking a distribution from their IRA and qualified retirement plans.  That holiday has come and gone and it’s important to resume those RMDs in 2010.

Reviewing Your Investment Plan

Each year your investments should be reviewed to ensure your holdings are appropriate for your risk tolerance and return expectations so that you have the highest likelihood of accomplishing your financial goals.  Within your overall investment plan, an end-of-year investment review should allow you to position your holdings so that you can benefit from the current economic cycle.

Allocating Income and Investments to Minimize Taxes

Many of the Bush Era tax cuts are set to expire or sunset at the end of 2010 and tax rates across most fronts will be changing.  It’s important to review which changes will most affect your financial situation and develop a tax strategy for your current and future income and investments before the year is over.

Avoiding Capital Gains Tax Increase

One area in particular that is changing for 2011 will be how capital gains are taxed.  In all tax brackets, except the lowest, capital gains taxes will be increasing for the first time in 17 years, rising from 15% to 20%.  This means that if you’re planning on selling property with a gain, it might make sense to do so this year instead of waiting.  If however, you have net losses this year (after netting your short-term and long-term gains and losses) you still have a deductable limit of $3,000 from your ordinary income.

Charitable Giving

There are no changes this year or next on types of charitable deductions or deduction limits, but it’s important to note that charitable deductions must be made before the end of the year in order to realize them in 2010.  However, with top tax rates increasing by almost 5% next year, the traditional tax strategy of accelerating deductions and deferring income into the next year may not apply to regular deductions, like charitable contributions, for top income tax filers this year.

Green Home Improvement Credit

Over the last few years, the government has encouraged the public to make investments and improvements in green energy efficiency by handing out tax credits of upwards of $1,500.  These credits are set to expire at year end.

Retirement Savings

Unlike IRAs where you have until April 15th of the following year to make contributions, qualified retirement plans like 401(k)s and 403(b)s require that you make your final contributions before the end of the year.  Once December 31st comes and goes, you won’t be able to bring your contribution up to the maximum of $16,500 for 2010.

We look forward to reviewing these points for each one of our clients as this year winds down and the New Year begins.  If you know of anyone that might benefit from having a year-end review, we’d be happy to meet with them before the end of the year.

Developing a Living Plan for Late Retirement

A difficult but necessary subject for retirees to discuss is their living plan late into retirement.  With the fastest growing age group in the U.S. being those age 85 or older, most adults have or will have some experience developing a late retirement living plan, either for themselves or a loved one.  Some factors to take into account when planning for living late into retirement are financial, emotional, relational, and logistical considerations.  Most retirement living plans include one of the following options: living in your home, living with family, or moving into a retirement community.

Staying at Home

As the old saying goes, Home is Where the Heart Is.  One of the most preferred places for retirees to live is in their comfortable and familiar home, which is usually paid for.  However, factoring in the cost of vital services like health care and transportation, and more emotional factors like having a spouse or family member serve as a primary caregiver can make this one of the most challenging options.  In recent years products, such as reverse mortgages, have made living at home a little more affordable for retirees on a fixed income sources like pensions, social security and personal savings.

All in the Family

According to recent statistics, the typical caregiver is a 46 year old Baby Boomer woman with a college education who works and spends more than 20 hours per week caring for her aging mother.  The average length of caregiving last 4.3 years and typically lowers the caregiver’s life expectancy by 3 to 10 years.  There are many emotional and relational considerations when discussing this option, most likely resulting in compromises and coordination by both the elder and the caregiver.  Adult daycare and other community services can help ease these pressures.  One idea that can provide support to both the elder and the caregiver would be to rent out the elder’s home.  This strategy can provide tax benefits while preserving the value of the home for future needs or planned giving.

Retirement Communities

An increasingly popular option, retirement communities can provide independence, a sense of community with other seniors, and in some cases a total solution for future assisted and nursing care needs.  Costs for retirement communities can vary from a few hundred dollars to a few thousand per month depending on the type of community (non-profit, board and care, assisted-living, continuing-care, etc.), amenities, and experience of the staff.  In the case of continuing-care retirement communities (CCRCs), everything a senior could need is located under one roof, including a private room, various amenities and specialized health care.  CCRC’s operate more as a private senior club with entry fees ranging from $20,000 to $500,000 and caring monthly fees averaging $1,600 per month.

There are many different solutions to having the most fulfilling retirement imaginable.  The key, like any financial decision, is to have your goal clear in your mind and do the proper planning.  Let us help you develop your living plan that will endure throughout your retirement.

Key Findings from Caregiving in the U.S.  National Alliance for Caregiving and AARP, April 2004.