Retiring Abroad, Not as Simple as Waving Goodbye

As a frequent watcher of House Hunters International, I ponder what retirement would be like in a foreign exotic/low-cost destination. As is usually the case there are many items to consider before taking such a bold step. Here are some items to consider. 

Satisfying Uncle Sam 

As a U.S. citizen or permanent resident, you are required to continue to file a U.S. tax return. Certain income may be excluded if you are a “Bona Fide Resident” or meet the “physical presence test” of a foreign country. BUT you are still required to file a tax return and report foreign bank accounts.

Managing Medicare

Medicare typically does not cover medical care you receive outside of the U.S. You will need to determine what is available in your new country of residence. In addition, a Medevac policy may be advisable. Not only is this an additional cost to consider, but don’t give up on paying for monthly Medicare Part B, because paying the premium to keep Part B when abroad will ensure that Medicare will cover your care whenever you travel to the U.S. Additionally you will not face premium penalties or gaps in coverage. If you fail to pay for Part B while abroad, when you move back to the U.S. you may go months without health coverage. This is because you may have to wait until the General Enrollment Period (GEP), which runs January 1st through March 31st each year, with coverage starting July 1st.

Securing Social Security Benefits

Benefits can be transferred to retiree’s bank account thanks to advances in technology. This is available in most countries, but there are some exceptions. Make sure your new country of residence is not a restricted jurisdiction.

Housing Hurdles

Before buying real estate make sure you work with honest, knowledgeable professional as there are sometimes restrictions on what foreigners can buy and what if any financing is available.

Keep Your Investments Here

The U.S. financial and banking system is regarded as the safest and most reliable in the world. We would strongly advise keeping your assets invested in the U.S.A., avoiding major currency fluctuations and arranging for funds to be electronically transferred to your new domicile. This will ensure your funds are not subject to exchange rate fluctuations and political upheaval.

Bon Voyage!

A Note to Our Clients About Trading Activity

I wanted to bring your attention to the most recent activity in your investment accounts. We are generating trades in the fixed-income portion to move money from a strategy that is not doing as well as we expect.

As you know, the economy has been sluggish for years and the Federal Reserve had a policy of low-interest rates to encourage growth. The economy is now growing at a faster rate than before and the Fed has decided to raise interest rates to moderate growth. Whenever things change there is a period of friction and dislocation as market participants try to adjust to the new paradigm. We are finding that our active U.S. fixed managers are doing better and they see more opportunity ahead as we go through the new interest rate cycle.

The Move to U.S. Fixed Income

For several years we used Global fixed income as a key component of our strategy but the performance of that strategy has lagged for the last six to 18 months. Conversely, the performance of our U.S. fixed income has performed up to and above our expectations, therefore we are closing out the Global fixed income and repositioning that money to the performing funds.

Fixed income is an important piece of the investment portfolio because it can preserve principal, generate income and provide stability. We want to encourage our investors to stay invested in stocks for the long term because you can make more money in stocks while you have the relative safety of the fixed income.

We encourage you to review your accounts through the Snow Creek Web portal and call us with any questions or concerns.

Once again, thank you for your trust and confidence.

Is Pessimism Good for Investors?

The emotions of investors are subject to change and at times those sentiment changes can be contrary to market signals. For example, investors may be optimistic about the market or a stock and may continue to buy, thinking that prices will continue to push higher. But, often stock prices pull back leaving the overly optimistic investor with a loss.

Or, an investor may be overly pessimistic and think stocks are perpetually going down and keep her money under the mattress waiting for the perfect investment opportunity. Often, though, when pessimism is at its most extreme stocks lift off their lows and the pessimistic investor misses out.

When market strategists put both sentiment extremes into statistical perspective, we can see that there is a positive correlation between extreme pessimism and potential future gains. There is also a positive correlation between excessive optimism and future declines. Sentiment is not a perfect indicator, it is just one of many variables to consider when you are choosing your portfolio.

Unwarranted Pessimism?

In today’s market environment, renewed volatility, Trump tirades, inflation, a focus on the Fed interest rate hikes, and trade war talk have shifted the focus away from the ongoing global economic expansion and the favorable earnings outlook. Pessimism is at an extreme and the appetite for risk seems low. However, extreme pessimism is not supported by deteriorating fundamentals (job losses, consumer spending down, or a decline in corporate earnings).

The outlook will be clearer as the corporate reporting season is about to begin, and earnings expectations are optimistic. It would not be surprising to get an upward move in the markets when the attention shifts back to earnings and global growth.

Patience, Please

Stock market volatility had been missing for all of 2017, and since it returned in February and March it has been rough on the nerves.  It takes time to make money in the market and one must try and not get too concerned with market volatility or a move of more than 1% a day. Over time these daily moves are inconsequential to our long-term goals. In my opinion, the current volatility is more consistent with a market correction in a bull market, and while the fundamentals stay intact it supports our overweight allocation to equities.

We monitor each portfolio daily, and our goal is to statistically minimize the downside risk by staying globally diversified and to be tax efficient by harvesting tax losses. We build fences around long-term cash withdrawal needs, and we plant seeds into growth as opportunity presents.  Financial planning is the base of our practice, and the real way to make money in stocks is not to get scared out of them when sentiment is at an extreme.

Do you have a financial plan that reflects your sentiment or your goals? Give us a call to schedule an appointment and we’ll keep you on the road.

Choosing a Financial Advisor That Works for You

How’s your relationship (with your advisor)?

In many households, spouses divide and conquer responsibilities in an effort to be efficient and fair to each other. For example, one spouse may cook dinner and the other may clean up afterward. However, there’s one task you should be united on: choosing your financial planner.

Sometimes it’s easier to assign this responsibility to one spouse because they have a natural interest or aptitude for personal finance. However, at Snow Creek Wealth Management, we would argue how important it is for both spouses to have a solid relationship with their advisor.

So, how do you choose a financial advisor?

It’s Personal

Find a planner who wants to get to know you. Does the future worry you? What are your shared and individual goals? What’s your history with investments, taxes and financial planning? Are you apprehensive about making decisions because of past mistakes? Look for someone you feel a genuine connection to and you are comfortable speaking openly with.

Find a planner who can adjust to your communication style. Are you a visual learner? Do you like having regular in-person meetings or is the occasional phone call sufficient? Do you feel comfortable asking “dumb questions?” Well, you should. As a professional, it’s easy to forget everyone doesn’t understand terms like “standard deviation,” but an advisor should understand how to break down these concepts and ensure everyone is on the same page.

Agree on Risk

Find a planner who understands your definition of risk, which means something different for everyone. Experiences, salary, and general outlook can affect your perception of risk. While it’s the advisor’s role to make informed recommendations on the allocation of your portfolio, it’s also their responsibility to understand what helps you sleep at night.

Find a planner you’d want to stay with should something happen to your spouse. Studies show over 70% of women leave their financial planner within a year of their spouse passing. This is an amazing number and generally comes from the spouse not feeling welcomed into the conversation by the advisor. It may seem easier to build a relationship with a new financial advisor rather than fix a broken one. The loss of a spouse is a stressful event, to say the least. During difficult times, your financial advisor can be a trusted part of your support system, not an additional stressor.

At the end of the day, it’s your life and your money. We want to encourage each of you to get involved in the management of your money at some level. Having a longstanding relationship with your financial advisor can help you reach your goals better in the long run and help smooth out times of trouble.

Nothing Goes Up Forever

As you have probably noticed, the stock market has been on a wild ride since Friday, with the Dow dropping 1,175 points on Monday. While this can certainly be anxiety-inducing, you should always remember investments are for the long term.

Up until Friday, we had been enjoying record highs in the stock market, so it was only a matter of time before we saw a correction. Nothing goes up forever. We all love to see the market when it’s booming, but we don’t experience the same feelings when it’s down.

Stay the Course

Corrections can’t be avoided and it is likely the lows in the market will be tested again. However, we certainly recommend you stay the course and do not make rash decisions. While we can’t avoid the losses incurred, by working with us as advisors and having a personalized financial plan, portfolios can be structured to minimize the volatility.

Our responsibility as wealth managers is to react accordingly should an event take place to help protect our clients’ investments. As always, we are monitoring the market closely and have tools at hand should we need to take action quickly. If you have any questions in the meantime, please do not hesitate to give us a call.

Saving for College – New Tax Law Benefits to 529 Plans

Prior to the newly enacted tax bill 529, savings plans offered tax-free earnings growth and tax-free withdrawals when the funds were used to pay for college. Under the new law families will be able to withdraw up to $10,000 per year tax-free for “public, private or religious elementary or secondary school” expenses.

The biggest advantage to saving money in a 529 plan is that you won’t have to pay tax on the investment gains if the funds are used for appropriate educational expenses. To get the maximum tax-free benefit the question becomes How to fund the 529 Plan? Gifts to a 529 plan are restricted to $14,000 per year per donor. So, for example, two grandparents could each contribute $14,000 to the plan for a total of $28,000.

It Gets Even Better

In any year during which your 529 contributions for a particular beneficiary exceed $14,000, you may make an election on Form 709 to prorate the contributions over five years (20% per year) for gift-tax purposes. This permits frontloading of up to $70,000 per beneficiary (or $140,000 for a married couple) into a 529 plan without generating a taxable gift, assuming no other gifts to that beneficiary are made during the five calendar-year period. Frontloading gives the 529 plan the opportunity to get the maximum tax-free growth for educational needs.

There is a maximum that can be contributed into a 529 account for each child. The amount differs from state to state, ranging from approximately $300,000 to $500,000. In order to find the maximum allowed amount in any state, get a current copy of that state’s disclosure booklet. Remember, you do NOT have to fund the plan for the state you live in. You can fund in any state, but this may have implications for those who have state income tax.

If you are interested in forming a 529 savings plan, please call us to schedule an appointment.

The Thimble

For our investors, the 2017 stock market and account performance is a one-sided affair. The advance was global in scope with every U.S. index rising in all four quarters. Stocks outperformed bonds for the third year in a row, growth beat value with technology the top-performing sector, and the emerging markets were the top asset class in 2017.  Forty-two of 44 countries posted gains.

The U.S. economy is strong and the momentum in the global economy is picking up. The idea that global growth is being synchronized raises the possibility that the investment cycle can be stronger for longer.

Two Changes Benefit Investors

There are two major changes that help our cause as investors. First, since the bull market started in March of 2009, stocks have appreciated largely due to low-interest rates from the accommodative Federal Reserve policy. The goal of the Fed’s policy was to get the economy going and inflate the value of assets — homes, real estate, stocks, and businesses — to increase the financial well-being of all who save and make investments in their homes or retirement accounts.

Second, at the end of 2017 U.S. business earnings get a boost from the change in the corporate tax rate from 35% to 21%. That means that many of the companies we own stock in have become 14% more valuable because now the U.S. Government owns less of the earnings than before.  Companies can take that 14% and either pay employees more income, or they can pay out more in dividends to shareholders, or they can buy back company stock which makes the remaining shares more valuable.  The tax cut is incredibly good news for owners of U.S. stocks or in shares in foreign companies.

Previewing 2018

Our outlook for 2018 is for the bull market to stay intact, but we’re likely to encounter increased volatility with corrections exceeding 5%.  We’ll be active in market dips, and we’ll rebalance portfolios to take advantage of price changes.

We’re tweaking our portfolios to get in front of the boost from tax reform in that we are taking money from the growth stocks and applying it to the more cyclical, value, domestic and small-cap stocks. We expect our global growth theme to continue and we’ll continue to add to international stocks.

Although we are positive for 2018, there are risks in any outlook that can alter the landscape — congressional failure to fund the government and increase the debt ceiling, trade protectionism, disruptive geopolitical events, a stronger U.S. dollar and an abrupt rise in interest rates can derail an outlook. If global growth slows, an earnings deceleration is likely as we move into 2019. We’ll be on the watch for these macroeconomic trends and react accordingly.

A New Year, A New Tax Bill

The overall theme of the tax bill is to lower taxes for all, but as always, the devil is in the details. There are numerous provisions to the proposed sweeping changes, so I will highlight a few from the House version that I believe will be most pertinent to our clients.

The Good

  • Simplifies the number of tax brackets from seven into four.
  • Doubles the standard deduction. This will have a benefit to a significant number of taxpayers as approximately 75% of taxpayers claim the standard deduction.
  • Increases the child tax credit.
  • Estate Tax: Increases the exemption before tax is due to $10 million per person, with repeal after six years.
  • Retains the 1031 exchanges for real estate. This could be extremely beneficial if the estate tax is eliminated.
  • Eliminates the Alternative Minimum Tax.
  • Favorable treatment for income from pass-through entities, S corps and partnerships.

The Bad

  • Limits the mortgage interest deduction. This would reduce the tax benefit on mortgages over $500,000 and indirectly make the benefits of home ownership less attractive.
  • Restricts the amount of state and property tax. Amount to be determined.

The Ugly

  • Repeals the deduction for medical expenses.
  • Treats graduate student tuition waivers as taxable income
  • Eliminates the tax deduction that divorcees receive on their payments to ex-spouses. This would be effective for divorces after December 31, 2017. This provision would dramatically affect alimony computations.

What to Do?

These are some of the more pertinent proposals. So what steps should you take?

  • Delay recognition of income and capital gains until next year and accelerate payment of expenses that qualify as itemized deductions. Realize capital losses to set off any capital gains.
  • Consider setting up a donor-advised charitable fund to get the tax benefits now and flexibility to distribute to the charities at a future date. (Call us to assist you with this.)
  • Make sure you take required minimum distributions from retirement accounts if you are over 70.5.
  • As always take cyber security seriously and change your passwords.
  • Consider adding to or funding a 529 Plan for your children or grandchildren.

To learn more about how these changes may affect you please give our office a call to schedule an appointment.  And as always, consult your CPA to determine how these changes may impact your decisions.


A Note About Planning

The definition of investing is to commit money to a financial scheme with the expectation of achieving a profit. Financial expectations are beliefs that something will happen or be achieved in the future.

The core question in a financial plan is something like “Do you, or will you, have enough money?” When we meet and talk about your situation we spend most of the time validating allocations, investments, and returns, and we create a never-ending mix of assumptions. Our financial principles rest on the wisdom of financial behaviors and principles that need to be applied to better a client’s situation.

We want to keep risk in perspective as your wealth situation changes, and you may discover that your personal risk profile has changed because of investment growth. There is a “payoff” between risk and return, and it is important to understand where you are. This gives us an opportunity to meet with you to have a conversation about protecting as well as building your net worth.