Dying with “Unrealized” Losses

From time to time investors accumulate “unrealized losses” in an investment.  These are losses that an investor could incur if they sold the investment.  And by doing so, they may be able to claim the loss on their tax return up to annual limits allowed by the IRS.

This is the big issue most people hear little about.  If the investor dies before realizing the loss, those losses will go away and cannot be claimed on the tax return.  The losses therefore could be lost forever.

Let’s look at why this may be important.  For an example, let’s say Mr. Jones is 85 years old and some time ago he bought an investment from his broker that today is valued at $20,000 less than his original investment, or cost basis.  If he sold the investment today he could realize the loss of $20,000.  Mr. Jones can use that loss by offsetting future taxable investment gains, plus up to an additional $3,000 per year of loss deductions.

While a somewhat complicated subject to discuss, be sure to talk this over with your investment advisor and/or tax professional.  If it makes sense to continue to hold the investment, your investment advisor should be able to explain how you can repurchase the investment after 31 days to avoid “wash sale rules”.  Don’t leave deductible losses on the table if your situation warrants taking advantage of some otherwise commonly overlooked tax benefits.

 

Small Business Owners Building Wealth

We have all heard the typical strategies to building wealth… IRA accounts, investing in mutual funds, stocks and bonds, 401(k) plans, paying down debt, etc.  These are all good strategies.  However, another excellent strategy for many business owners is through the use of real estate.  For this strategy, the business owner needs to own the real estate they use to “house” the business.  Depending on the nature of the business it could be an office, multi-tenant building, warehouse or storage facility, shop, etc.  The benefits can be numerous from enhancing business/employee productivity, to numerous tax benefits and incentives (depreciation, tax write-offs, etc.).  The owner can also possibly experience an increasing real estate value over time to help build wealth for later use in retirement.  As far as the monetary benefits, we have seen some business owners (over the years) add a considerable amount to their personal net worth (in addition to their other assets and retirement plans) by the time they retire.  This strategy may seem huge and overwhelming, but with some good planning and timely advice upfront this dream may become a reality.

 

Getting Financially Ready for Retirement

How long has it been since you took a good look at your financial situation?  I have found a good exercise each year is to take out your “yellow pad” and make a list of all your assets and liabilities.  Although this may not tell you how close you are to being ready to retire, it provides a good snapshot of your overall situation.

When doing this you may notice accounts that need attention, investments that may be suffering, or debt that may need the “aggressive touch” to pay off.  Peek into each of your investment statements and see if you notice too much money sitting in a money market or cash position earning nothing.  While interest rates are still very low ask yourself if your mortgage needs refinancing.

As you plot out necessary changes to make, remember the old adage, “You can’t eat an elephant in one bite!”  So make some gradual changes like increasing your monthly 401(k) or IRA contribution, increasing your monthly payment on a debt you owe, reallocating your investment portfolio to be more effective, or simply realizing that you need “help” and make an appointment with a Certified Financial Planner™.

Your Spouse’s Retirement & Social Security

Let’s assume for a moment that you are now gone and your surviving spouse must account for all the income she will receive.  A common mistake today is if you just assume that your surviving spouse will continue to receive “both” Social Security checks just like during your retirement.  However, this is not correct.  Your spouse will only receive “one” check from Social Security.  In other words, the total Social Security income will be reduced and a good rule of thumb is that your spouse can receive the larger check the two of you had been receiving.

Saving early enough?

I attended a brief seminar last week that featured a former Department of Labor investigator.  As current trends in the qualified retirement plan area were discussed, the following statistic came up among pre-retirees: “the largest regret about my retirement is that I didn’t save enough (or at all) during the first five years I worked” – Did you know that by beginning to save when you get your first job, especially during the first 5 years, you can dramatically increase your retirement success rate?  Two key factors come into play: 1) your investments have longer to compound and grow, and 2) most who do so develop a positive habit of disciplined saving.  If this window has passed by, do you have loved ones you need to encourage to start investing now?  And if you are late, why not start now anyway?  Call us and we can help.

Well-equipped for retirement?

According to the Population Reference Bureau, 76.4 million Americans were born in the period 1946–1966.  For retirement, a majority of these Baby Boomers must rely on the 401(k) system or equivalent defined-contribution plans (where the worker does a majority of the savings and, in many cases, may receive matching contributions from their employer).  This is because the key retirement predecessors, “defined-benefit” plans (such as pensions), have increasingly become a thing of the past.

What’s troubling is the Quantitative Analysis of Investor Behavior 2014 DALBAR survey results indicate that investors are not very effective in managing their own investment portfolios.  And among other things, the survey shows that workers aren’t saving enough for retirement.  To quote Dr. Olivia Mitchell, Executive Director of Wharton’s Pension Research Council “more than half of U.S. retirees will rely on Social Security for more than 50% of their total income.”  This will sadly leave them with the painful choice of a significant drop in their standard of living, or even more concerning, the risk of outliving their retirement savings.  One simple conclusion, workers should seek help to review and plan for their retirement – a second set of eyes to help them get, or even stay, on track.

Improving your Retirement Picture

In a recent national retirement plan survey conducted by Matthey Greenwald & Associates of Washington, D.C., employer retirement plan participants shared some interesting facts. Here is a clip of some of the key findings provided by American Century Investment Services: 

  • A majority of participants, particularly older participants, have at least some regret about not doing a better job saving for retirement. In fact, participants gave themselves roughly a C+ on putting money away for retirement and on investing. 
  • The large majority of participants across all age groups wish they had saved more in the first five years of their working lives. 
  • Only one in ten strongly agrees that they knew what they were doing with their investments. 
  • Seven in ten are at least fairly interested in having a program that would increase their savings by 1%. 
  • Roughly two-thirds in each age group expect the financial advisor to play a major role going forward when it comes to preparing for retirement. 

Does all this make sense to you?  If we can help you or someone you know have enough for retirement please give us a call now.  We are ready to help.