Some Financial Thoughts

Post incident reflections

Age adds a certain perspective to such issues as financial recommendations. It’s interesting to reflect on what I though I knew having been a CPA and CFP with graduate degrees, but nothing is quite like going through the experience and looking back to see what worked and what didn’t work.

The ideas below are top of mind and maybe not comprehensive but are none the less hopefully instructive. I sometimes wish I could do everything over again but you deal with what you have and trust in God to move on.

In any event, here are some financial and other ideas from someone who has learned from successes and failures:

Careers

Few know what they really want to do in life. Yet God has gifted each of us with a special combination of abilities that fit just as well in the secular world and in our church life. If you want a career that is interesting and comes easy to you, it may be good to understand your spiritual gifts and pursue matching careers.

Truly part of what you do in life is determined through your willingness to pursue God’s will. There are simply not enough career and life counselors, with the right insights and with your interests at heart to guide you otherwise. God’s will is not only the best recommendation, it is sometimes your only guide.

Where you live is often dependent on your career. For example, some careers, such as fashion, advertising and investment management, dictate a large metro setting. Most others allow for much more flexibility. Just something to consider.

With respect to post education, I might have gone to more of a liberal arts institution (like Hillsdale) and then gone on for a masters or phd. Some would be better off with alternative training particularly with the state of college currently.

Lending and Borrowing

As a practical rule, never lend. If someone is in need and you feel moved by the Lord, then give rather than lend. Proverbs 19:17 states “Kindness to the poor is a loan to the Lord, and He will repay the lender.” Nothing destroys relationships more than an unpaid loan.

In retrospect I would have matched my savings with my giving. I didn’t, so I can’t testify to the validity of this, but it’s a worthy theory.

There is little choice to borrowing for some things we need, such as homes and cars. With the availability of the Internet, used cars are a more viable option. As much as I would like a smaller home, along the lines of “the not so big house,” builders sell on bigger is better and smaller homes are often in less desirable areas. Again, God’s will trumps this.

If I could do everything over, I would survive only on debit cards. Credit cards have a tendency of getting away especially with their purchase motivations. For credit purposes (FICO) and emergencies you probably need a credit card, but I would still depend on the debit card where at all possible.

Taxes

Nothing benefits tax planning like correctly running a Sub Chapter S tax corporation – usually through an LLC.

401(k)’s and IRA’s are all the rage because of the tax deduction for the contribution. Often overlooked, and often a better option, or at least a good option to add are the ROTH plans. Roth plans don’t allow for a tax deduction, but if you have a plan for 5 years and once you turn 59 1/2, all withdrawals and holdings are tax free. This is a big deal and should be considered by everyone. Additionally, if you start a one person LLC with a S election, you can set up a 401(k) Roth and be allowed much higher deductions.

 

Investing

After many years in the investment business I can honestly say that the best investments are insider’s information. That, however, unless you’re in Congress, is illegal. Short of that, the Nobel awards in Economics always go to those who proposed a passive, market weighted, investment strategy. Most of the investment world, however, proposes and sells an active approach. Although it’s been proven, over and over again, that a passive strategy beats an active investments, (some of which is due to lower fees) active strategies pays more and is more aggrandizing to those who are “investment professionals.”

Two of the best investment managers on the Internet which practice this passive approach are Betterment and Wealthfront. Still most flock to the major brokerages with their higher fees and lower returns – oh well.

 

Retirement – Medicare and Social Security

No one, under 65, knows anything about Medicare and Social Security because we just ignore it. It doesn’t apply to us and it’s easy to claim that it won’t be there when we retire. Going beyond that, it is important and you can understand it very quickly.

You generally qualify for these benefits by paying into the system – FICA and Medicare for 40 calendar quarters. Notice: even if your spouse is not qualified, they will qualify under your benefits. If at all possible, make sure both spouses qualify for 40 quarters.

Social Security is relatively easy. You and your spouse will get paid a monthly benefit based on how much your earned and when you retire. Getting, for example $3,200 a month is like having $768,000 in an account paying 5% per month – so Social Security is a big deal.

  • 62 is the early retirement age – to which you will receive 25-30% less than your full retirement amount
  • 65-67 (depending on birth date) is full retirement
  • 70 Delayed retirement – to which you will receive 20-30% more (however, you need to weight the increase against the loss of benefits for 3 to 5 years.)

Medicare is a bit more complex but really not bad. Medicare is well received by most doctors and hospitals. It is not an inferior insurance, it fact, it is often preferred. Don’t underestimate it. You qualify for Medicare when you turn 65 and when your spouse turns 65 – this is unlike Social Security in which when the first person turns 65, both quality. Medicare is broken into parts.

  • Part A is hospital, nursing facilities, home health and hospice and is provided by the government.
  • Part B pays 80%, less a small deductible for outpatient care. Your fee, which is based on AGI 2 years ago, is deducted from your Social Security.
  • Part D is a separate policy that covers drugs and is also deducted directly from your social security.
  • Medical Health plans essentially cover the deductible from Part A and B and range from HMO to PPO type plans.

More to come…