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Jumping Off the Love Boat and into the Lifeboat

August 10, 2017 by Michele Suriano

Seven Financial Tips for the Newly Single

Does the Love Boat have a lifeboat? I wish I knew. I once had a young friend who was doing housework one weekday afternoon. She was humming along to the radio when she received a strange text message from her husband.

“I’m sorry.”
She texted back promptly, “Huh? Sorry for what?” There was no reply.

About fifteen minutes later, her doorbell rang. She opened the door and, to her complete shock, she was served with divorce papers. She was blindsided and totally devastated. Failed marriages, alas, are all too common in our day. Divorce is a difficult subject and there are no easy answers.

First, I will say, I encourage people to stay together whenever possible, but what if that ship has sailed? What does a person do when a marriage, through no fault of their own, ends abruptly? I am neither an attorney nor a marriage counselor. However, as a financial advisor, I do caution people to avoid the most common financial mistakes made in the aftermath of a failed marriage. Here are seven survival tips for the newly single:

1. Alimony is both taxable and tax deductible, depending on who you are.

In brief, if you are the payor, alimony is tax deductible. If you are the payee, alimony is taxable. As a rule of thumb, alimony recipients should set aside 20% for taxes. Likewise, do not confuse alimony with property settlements or child support. Only alimony is taxable (or tax deductible as the case may be). Property settlements and child support are not.

2. Avoid cashing in your qualified retirement plan.

When bills pile up, it is tempting to dip into a 401(k) to stay afloat. Try to avoid this. It hampers long term growth and often creates sizable tax consequences. Again, if you must, be sure to instruct your custodian withhold 10-20% for federal taxes to avoid taking a nasty tax hit in April.

3. Update your beneficiary designations as soon as possible.

If you named your former spouse as an IRA or life insurance beneficiary, chances are you want to change that as soon as possible. Likewise, if there are any Powers of Attorney floating around, such as a medical POA, it would be a good idea to revoke those from any adverse party(s).

4. Avoid foreclosure and protect your credit score.

A home is the largest investment many of us will ever make. If you own your home but cannot make the payments by yourself, prepare to sell your home as quickly as possible for fair market value.

If for some reason selling the home is genuinely not an option (for example your mortgage is “under water”) and you are facing foreclosure, you have options. Your lender may be willing to accept a quit claim deed in lieu of foreclosure. By surrendering the home voluntarily, you can protect your credit score, thus making it easier to purchase a replacement home in the near future.

5. What is a QDRO and why should you care?

A Qualified Domestic Relations Order, simply put, is a judgment or court order that awards an alternate payee (usually the former spouse) all or a portion of a retirement account. These are usual sizable distributions. Does the payor get stung with the usual 10% early distribution penalty if he/she is under age 59 1/2? Fortunately, no. Be aware however, if you receive a QDRO settlement, you should consider rolling these funds into an IRA within 60 days, to avoid unpleasant tax consequences.

6. Are former spouses still entitled to Social Security benefits?

Social Security is a complex topic, but the short answer is yes. If you were married to your spouse for ten years or more, as of 2017, you are still entitled to Survivor Social Security Benefits.

7. Meet with a financial professional to protect and rebuild your portfolio.

Meeting with a financial professional can help restore objectivity and keep emotions in check. Draft a new household budget. Update your asset allocations. Set new investment goals. Review your portfolio to make sure you are on track to meet those goals

Keep a level head. Some separations are amicable. Others are not. The important point to remember is think about tomorrow. Separation can be hurtful and it is human nature to want to hurt the people that hurt us emotionally. Unchecked, these emotions can be very counter-productive financially.

In property settlements for example, it is not uncommon for former spouses to adopt a “scorched earth” policy. For instance in one case, a judge ordered the husband to sell their home and give his wife half the proceeds. He complied. He sold the home, with a fair market value of about $300,000, for one-dollar and promptly delivered fifty cents to her. In another instance, a judge ordered a wife to sell the Porsche and surrender half the proceeds to her husband. She complied. She sold the car to the first teenager she could find. The Porsche had a fair market value of about $80,000. She sold it for $100 and delivered $50 to her husband. Believe me, I understand but I do not agree. The decisions described above were clearly driven by emotion, not mathematics. Not to mention, selling assets below fair market value often generates gift tax consequences. No financial advisor in their right mind would say these two individuals acted in their own best interest.

The point is stay level headed. Put aside vengeful thoughts and focus on your future financial welfare. You will be much better off down the road. The sun will come up tomorrow. Life happens. When it happens to you, leave yourself in a good financial position and make a fresh, clean start.

 

-Michael Angell, CFP®, EA
Michael@CastleRockInvesting.com
303.719.7523

Filed Under: Advice, Castle Rock Investment Company Tagged With: advisor, divorce, financial planner

Do I Need a Personal Financial Strategy to Manage Long Term Risk?

May 31, 2017 by Michele Suriano

Managing a household be challenging even for the best of us. No matter what your status in life, chances are you worked very hard to earn the money you have. What if something unexpected were to happen? Two proven ways to prepare for change are 1) to educate yourself and 2) to plan ahead with a professional.

Walking the Tightrope of Risk

One sunny afternoon, a daring street performer crossed Niagara Falls. To make the stunt interesting, he decided to push a wheelbarrow across a tightrope. “Ladies and Gentleman! Children of all ages! I am now going to push this wheelbarrow on this tightrope across this waterfall. Who thinks I can succeed?”

A crowd cheered him on. Slowly, steadily and ever so carefully, he crossed the falls. Stunned observers watched aghast. Eventually he reached the other side. The crowd cheered wildly!

“Was that amazing?!”
“Yes! Yes!” the crowd shouted back.
“Do you think I can do it again?”
“Yes! Yes! Do it again! Do it again!”
“OK! Who wants to get into the wheelbarrow?”  The thunderous applause instantly became complete silence.

This humorous parable is one of my favorites because it starkly illustrates risk tolerance. Sure, it is easy to watch others take exciting risks, but we feel differently about our own risk, do we not?

My friends, allow me to explain the metaphor. The performer crossing the tightrope represents you as an investor! The slow journey across the tightrope represents the decades of your lifetime. The wheelbarrow represents your financial dreams. The waterfall represents the never ending changes in global markets, law and the cyclical economy. What about the crowd, you ask? They represent all the onlookers willing to give free advice. They are all “experts” that surround us at the water cooler at work, or in the pub or in the mainstream media. What is the solution?

Why Choose a CERTIFIED FINANCIAL PLANNER™ Practitioner?

Simply stated, you deserve a professional who understands you. Everyone wants to be financially successful but in my experience success means different things to different people.  Personal financial advisors are willing to discuss your life with you individually. They help clients articulate, define and plan their long term financial success.

CERTIFIED FINANCIAL PLANNER™ Practitioners are unique because they are trained in multiple disciplines. They are also required to adhere to the highest ethical standards. They are able to provide detached objective advice and insight when a client may need it most.

It Pays to Plan Ahead

This is a true story. In the 1940s a farmer was accidentally pinned under his tractor, which had rolled. Fearing the worst, he whipped out his pocket knife and scratched the following into the fender: “I leave everything to my wife.” A few hours later, he died. Luckily for his wife, the court upheld his last minute will and testament. This is a touching story, but hopefully there is a lesson here for all of us. Plan ahead! For example, I hope you never find yourself saying:

  • “Darn it! The doctor says I have cancer. I guess it is time to get serious about my life insurance.”
  • “Shoot, is that ambulance here already? Hold on a minute while a do a health insurance review.”
  • “The Stock Market is down drastically today? Wow, I hope I was positioned defensively.”
  • “What do you mean I owed $30,000 to the IRS this year?”
  • “I’m 64 today. Happy birthday to me! I guess it is time to start saving for my retirement.”

These lighthearted examples are intended to be entertaining. I wish I could say I have never met people who have been in similar situations, but honestly in my years of practice I actually have. The reality is the majority of us simply do not plan ahead financially.

Can I really afford a Financial Advisor?

Financial missteps can be costly. Procrastinating can also be extremely expensive. A more appropriate question may be, what is the cost of not having a financial advisor?

At Castle Rock Investment Company we offer different options to accommodate clients at different phases in their lives. Whether you are newlyweds or great-grandparents, Castle Rock Investment Company has a flexible fee structure to help accommodate most budgets. Call for a free consultation.

What if you met with a professional for an annual financial review? What if you had a devoted guide to help you make educated financial decisions? What if you had access to objective advice that coincided with your long term goals and dreams? What if someone got into the wheelbarrow with you?

Written by Michael Angell, CFP®, EA
Castle Rock Investment Company
303.719.7523
Michael@CastleRockInvesting.com
Copyright 2017

Filed Under: Advice, Castle Rock Investment Company, Education, Personal Finance, Retirement Plans Tagged With: financial planner, financial strategy

Saving for the Scary Times – Emergency Savings Accounts

October 29, 2015 by Michele Suriano

ghostAs we approach the scariest day of the year, our thoughts naturally drift towards ghosts and other spooky things. What else is really scary that should be keeping you up at night? If you haven’t started an emergency savings account, or you don’t have enough saved in it. Life’s unexpected events will be much less scary, and leave you much less vulnerable, if you have the funds set aside to cover them.

What will an emergency savings account cover?
Your emergency savings account will cover healthcare expenses, food, housing (rent, mortgage, home repairs, etc.), transportation, personal expenses, etc. It is important not to underestimate your expenses when planning how much to save.

How much should you have saved in your emergency savings account?
Experts’ opinions vary on this but generally, emergency savings accounts should cover six months to nine months of expenses. Families with a single income should be on the higher end of this range, while retirees with regular pensions can be on the lower end.

Where should you store your emergency savings account?
Conservative options to house your emergency savings account include opening a regular savings account, a certificate of deposit, or a money market account.  Consider making it somewhat inconvenient to access the funds, including housing the account at a different bank, so you will not be tempted to use the funds for anything other than an emergency.

How should you save for your emergency savings account?
It is best to set a small goal for your emergency savings account and then work your way up to a larger amount.  Consider making donations to the account as part of your regular budget, even having them automatically deducted from your paycheck.

If you have any questions regarding saving for your emergency savings account, please consult with your financial planner. Don’t let an unexpected event “boo” you!

 

Filed Under: Advice, Blog, Castle Rock Investment Company, Uncategorized Tagged With: Emergency Savings Account, financial planner

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Castle Rock Investment Company, formed in 2006, is an independent woman-owned SEC-registered investment adviser located in Castle Rock, Colorado. We specialize in individual financial plans and qualified service plans.

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Water Cooler Wisdom: The Day Finally Arrived

Water Cooler Wisdom The Day Finally Arrived On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act of 2017 into law. The long-awaited tax legislation includes a wide array of changes, but a few interesting highlights are listed below. Reduces the top corporate tax rate from 35% to 21%. Changes the taxation […]

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