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C.H. Robinson

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Grandparent Gifting

Written by Summit Wealth on .

Labor Day is behind us, and the kids are off to school. And, many parents, including three of us at SWA, have children in college. Years of planning and saving don't always get you to a lofty goal of paying for that college education. Let's face it, saving for retirement, let alone college, can be difficult. In some cases, we see grandparents step in to help cover the gap when the parent and student finances just don't meet the mark.

If not done carefully, the grandparents intended "help" can actually hinder. We see grandparents saving to 529 plans (for the benefit of the college student) or planning gifts of appreciated assets. Both are quite generous and well-intended, but both have a hidden "gotcha."

For example, using a grandparent 529 plan can negatively impact the amount of financial aid available to the student. Many grandparents save to the 529 plan as their 529 plans don't show up on the student's financial aid form (i.e. FAFSA). But, when the funds are disbursed from a 529 plan, those funds show up on the form, limiting available aid for the student.

The same is true In the case of gifted assets. Retired grandparents may be able to sell their appreciated asset at attractive capital gains rates (as low as 0% federal tax), but these assets too will show up on the financial aid form, again, limiting aid for the student.

This doesn't mean that grandparents can't utilize these tools, but to avoid the "gotcha" they need proper planning. With proper multi-generational planning, the grandparent's 529 plan and gifted assets can avoid the negative impact on the student's financial aid form. Let us know if you would like assistance in this area, and we can develop a strategy to optimize those gifted assets.


Social Security Benefits May Not Go Up in 2017

Written by Summit Wealth on .

I recently read a great article by Mary Beth Franklin entitled, "Don't Count on Social Security Benefits Rising in 2017." Please allow me to share some key information from that article:

  • There appears to be a high risk of either an extremely low annual cost-of-living adjustment next year, or worse – none at all. The Social Security Administration will make an official announcement about the 2017 COLA in October.
  • Although inflation has been low over the past several years, Social Security beneficiaries have lost 23% of their purchasing power since 2000, according to The Senior Citizens League (TCSL).
  • Over the past 16 years, COLAs have increased benefit payments by only 36% while typical senior expenses, influenced by higher medical and prescription drug costs, increased by about 75% during the same time period, according to TCSL.
  • To put these percentages into dollars, for every $100 worth of expenses seniors could afford in 2000, they can afford just $77 today. Unfortunately, this problem appears to be getting worse each year.

Regrettably, there doesn't appear to be a good solution for this issue coming from our government anytime soon. Therefore, it is even more important that we look to your portfolio to produce the cash flow you need to comfortably support yourself in retirement.

If you have any questions about your Social Security benefits or how the impact of what we have outlined above may affect your retirement, please contact us today.


The Brexit Impact on Investors

Written by Summit Wealth on .

Five years from now, what we will all be saying regarding June 24, 2016? As many of you have heard, the Global markets are down at the beginning of the trading day today due to the "Brexit." "Brexit" is the term for a referendum for Great Britain to leave the European Union. (If you remember your high school government courses, referenda are non-binding. Of course, many governments will abide by the majority decision, though in a tightly contested vote you may see additional referenda.) Scotland largely voted to remain in the European Union.

Markets were down big overnight, when it became clear the vote was to leave the European Union. We are very early in suggesting what the markets will do in the long term, but we do have some thoughts to share.

Try to keep in mind that one day (or year, for that matter) does not predict how you will do in the market. Much the same way that one note does not make a symphony. Markets tend to overreact on most news. At the beginning of trading Friday, the markets were down 500 points on the S&P 500, but in context this is not that significant of a move. For those that follow stock markets, 500 points is a pretty big swing, compared to what we are used to seeing on a typical day. But, for those that truly follow the markets on a daily basis, this move only takes us back to where we were at the end of the last quarter. If memory serves me correctly, we certainly didn't hear from anyone about the poor shape of his or her portfolio.

Some of what you will see on Friday is the impact of an annual event, the reconstitution of the Russell Indices (primarilly the Russell 1000 and 2000 – large and small cap US stocks). A reconstitution is the realignment of the holdings in a benchmark due to certain stocks coming in or leaving the benchmark due to not meeting the criteria to remain. This well publicized event (in the investment community), in and of itself will add volatility to the market. We usually don't blog this type of event as it typically does not account for a jaw-dropping move in the market, but in combination with the "Brexit" vote, we should expect more volatility.

For those that hold some gold, now may be the time to sell. Though the day is not over, we are seeing gold prices up a greater percentage than the stock markets are down. And, we would not be complete if we didn't mention that most portfolios hold bonds, which are offering your portfolio some downside protection, the reason we hold them in the first place.

Most major global events will invoke some reaction from the markets. Which market, and by how much is anyone's guess. Mark our words, you will hear from all of those that predicted this. Our recommendation is to ignore those voices, as one correct prediction means absolutely nothing. We should be interested in the long-term impact, not the knee-jerk reaction that we typically see within minutes of an announcement. In this case, the markets priced in a substantial increase early in the week – in many cases we are seeing an erosion of those increases.


BEWARE: Another Tax Scam on the Loose

Written by Summit Wealth on .

It appears that students are the latest target of callers claiming to be employed by the Internal Revenue Service. The scammers are telling their victims that they owe a "student tax" and must pay that tax quickly or they will be reported to the local police. Unfortunately, this scam comes on the heels of another telephone scam whereby IRS impersonators demand payment of overdue taxes in the form of iTunes gift cards.

Please be sure to warn those you care about not to fall for these high-pressure scammers. They should know that the IRS will not make unsolicited calls regarding a tax debt or demand immediate payment of any tax owed. The IRS also does not threaten to report you to law enforcement or have you arrested for not paying your tax debts.

If you or someone you know receives one of these calls, please contact the Treasury inspectors at (800) 366-4484 and report it to the Federal Trade Commission by filing a consumer complaint at www.ftc.gov.


Annuities Are Not Likely the Answer

Written by Summit Wealth on .

I was reading an article this morning about how the Financial Industry Regulatory Authority (FINRA) has levied a $25 million fine (the largest ever) against MetLife for misleading investors and steering them into high-fee annuities that don't deliver the benefits they promised. It is the largest fine charged against a firm for misconduct involving variable annuities, and the second largest fine FINRA has imposed against a company in any matter.

"Variable annuities are complex and expensive products that are routinely pitched to vulnerable investors as a key component of their retirement planning," Brad Bennett, FINRA's chief of enforcement said in a statement. "Firms engaging in this business must ensure that the information on the costs and benefits of these products provided to customers is accurate and that their registered representatives are sufficiently trained to understand and explain the risks and complex features of what they are selling."

Of course, MetLife settled the case without admitting or denying any wrongdoing.
What I have outlined above is pretty compelling evidence that annuities are not likely the answer to most retirement planning conundrums.

  • They typically carry high annual expenses;
  • Many have long-term surrender charges;
  • They turn capital gain income into higher-taxed, ordinary income; and
  • Those that sell them often times do not represent the best interests of those they are selling them to (i.e. not a Fiduciary)

If you have questions about annuities and the potential role they may play in your retirement planning, please contact us. We are glad to help.

North Metro: 763.355.5873
227 East River Parkway
Champlin, MN 55316-5873

South Metro: 612.987.9112
5871 Crossandra Street SE
Prior Lake, MN 55372-3337

West Metro: 763.639.3425
322 Greenhill Lane
Long Lake, MN 55356

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