In the consumer economy, credit is pretty easy to obtain. That often leads to problems for those who don’t know how to use it wisely. At the other end of the spectrum, some people avoid using credit altogether. Smart people use smart credit strategies to maximize their financial position.

Credit provides leverage to help consumers build assets and wealth. In honor of March being National Credit Month, here’s the lowdown.

Why do most Americans need credit?

Now that credit scores are national, standardized, and organized by the three credit-reporting bureaus, it’s become a popular measuring tool. Before 1989, credit scores were localized affairs and used mainly for just obtaining loans or credit cards. 

Today that’s no longer the case because credit scores aren’t just for lenders anymore. It’s essential to monitor your score since there can be a lot riding on it. In today’s world, it’s necessary to have one in the first place. 

Americans who don’t have at least one credit card will likely find themselves disadvantaged in various financial situations. Not only when it comes to arranging for a mortgage to buy their house but also in finding a job and renting an apartment. 

Landlords and employers often request a check on the applicant’s credit history. Some consider the lack of a credit score even worse than a bad one. Good landlords may not rent to someone with no credit at all.

Most Americans must build a retirement nest egg through contributions to a retirement plan. Still, a significant source of household wealth remains the family home. Buying a house for cash is beyond most people’s means, so financing through a mortgage is critical. A history of good credit means a much lower interest rate added to the principal cost than a higher rate for someone with poor or no credit at all.

That’s why young adults need a credit card and learn to use it responsibly by paying off the balance every month to avoid interest charges. That’s the best way to start a history of good credit, as well as avoiding the pitfalls of having too much revolving debt.

Maximizing the use of credit cards

As long as you pay off the card balance each month, the amount due doesn’t continuously increase with interest payments. Using credit cards can help consumers build wealth. 

In addition to making money, wealth depends on not losing money or giving up too many gains. If someone gains unauthorized access to your card, it’s easier to dispute a transaction compared to a debit card.

Make money with your credit by finding cards that provide rewards that match your lifestyle. If you do a lot of traveling (and will resume after the coronavirus pandemic), then a card that offers travel rewards makes a lot of sense as long as the annual fee doesn’t wipe out the reward. 

When you have good credit, it’s easy to find a credit card with low or no fees that give you rewards on your purchases. Cashback is a great reward, but many cards these days offer points instead. You can still benefit from the points rewards because you can exchange points for various merchandise and gift cards. Now you’ve got presents for birthdays and holidays covered.

Smart credit as leverage

While credit cards are one example of credit, they don’t provide you with any leverage because you pay the balance every month. Using different credit types to buy assets gives you the ability to invest more without paying the entire amount upfront.

What kinds of assets does credit help you leverage? Technically vehicles are listed as assets on the balance sheet, but they depreciate quickly. Taking out a loan to buy a car doesn’t provide you with an asset. 

However, taking out a loan (mortgage) to buy a property or taking out a loan (student loans) to increase your human capital will help you accumulate wealth when used correctly. 

Being smart about leverage allows you to invest in something that you can’t afford to pay for entirely right now but will be able to in the future (given some reasonable assumptions). Using leverage to buy an asset (or capital) that you won’t be able to maintain in the future sets you up for potential disaster. Keeping it reasonable helps ensure the loan amount won’t wreck your finances down the line.

Using credit for smart timing

For example, initially, interest-only (IO) mortgages were used for people who logically expected enough income in the near future that would then allow them to pay down the principal. A typical example (at least here in California) is a Hollywood director who could expect millions from one film released after nine months. The IO loan helped them buy a decent house now rather than wait a year for the money to come in. 

These loans weren’t intended to finance too much house for people who didn’t expect they’d be able to afford the payments. Of course, IO loans aren’t the only ones that can be misused. You’ve probably heard of the phenomenon known as being “house-poor,” where the housing and associated payments eat up most of the homeowner’s income. 

Sometimes that’s due to something unexpected like job loss. But sometimes, it’s due to a mortgage that’s larger than the homeowner can reasonably expect to carry for 15 or 30 years. While layoffs and recessions aren’t predictable, the amount of income you need to sustain a mortgage and associated housing payments is. 

Using smart credit for better returns

Home equity loans make sense when you’re making improvements to the home that will increase its value. They make less sense when you’re taking the money out to buy something. 

Similarly, refinancing a mortgage is a great idea when either rates have dropped or your credit has improved to the point where you can substantially save on payments. It’s a bad one when you’re trying to take money out for a purchase because you don’t have any other cash available. Especially an investment that doesn’t result in ownership of an asset.

If you’re building a business that’s likely to grow and prosper, taking out a business loan to get through those first lean years is an excellent use of leverage. It works with investment real estate, too. Many lenders will allow you to use the property’s expected rental income to increase the loan principal. 

Making sure that the amount is within reason applies to student loans as well. Taking out a 6-figure loan to pay for school may make sense when you’re entering a field, like medicine, where you’ll be richly rewarded with hundreds of thousands of dollars a year. But it’s way too much for a job where the average income is only in the five figures annually.

Using credit wisely and as leverage to accumulate capital and build assets is an integral part of a smart financial plan. Debt isn’t necessarily a bad thing, as long as you manage your credit exposure and avoid incurring unnecessary interest charges.

Good credit is necessary for the modern world, so having at least one credit card paid off monthly is helpful for many financial decisions.

Are you thinking about refinancing a mortgage or investing in property? Feel free to give us a call at 619.255.9554 or send us an email to set up an appointment.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

There are many misconceptions and misunderstandings about long-term care (LTC), including who needs it and how to pay for it. It’s essential to break down the main components of long-term care insurance to find what is right for you.

What does long-term care mean?

If you’re already on Medicare or researching it, you know that Part A covers in-patient hospitalizations and skilled nursing. You might be wondering why people buy policies to cover LTC if Medicare already pays for it.

But Medicare does not pay for LTC, which is not skilled nursing. It’s home help for someone who can’t perform several of the Activities of Daily Living (ADLs) for themselves: toileting, transferring (for example, from bed to chair), dressing, bathing, feeding, and walking or ambulating. You might also see these referred to as the Basic Activities of Daily Living or BADLs.

Patients can receive LTC in a facility such as a nursing home or their own homes.

Why should I consider setting aside funds to cover long-term care?

According to the US Department of Health and Human Services, if you’re approximately retirement age now, you have a 70% chance of needing some LTC. About 1 in 5 of those who will end up receiving long-term care will need it for more than five years.

Depending on how long you need it, the expenses quickly add up. LTC’s costs range from $3,600 per month for someone who is mostly independent in a facility to about $7,700 in a nursing home. 

Home health care aides cost approximately $21 per hour on average. The average American who needs this help during the day would spend roughly $5,000 a month. Whether in a facility or at home, typically, women need care for a more extended period than men do.

It costs a little bit more than average here in California to receive LTC in a facility. The median cost for help with assisted living is about $4,500 and goes up to over $10,600 in a nursing home.

Some families are willing to self-insure or pay out of pocket should they ever need this kind of assistance. Family members can also provide care, which reduces the cost as well.

However, some people would prefer to be independent for as long as possible. They’d rather hire someone outside the family to help them go to the bathroom or get dressed.

Those who choose to hire for this type of care often want to set aside funds for this purpose. They don’t want to be a burden on their loved ones. 

Long-term care insurance (LTCI)

These policies pay a certain amount for a specified period if a doctor diagnoses the insured as unable to perform two or three ADLs, depending on the policy. 

Unlike life insurance, there is no medical exam for LTCI. However, the companies use questionnaires, and you may respond with answers that disqualify you. For example, they will typically reject people who are already showing symptoms of cognitive issues such as Alzheimer’s and dementia.

Although LTCI has been around here in the US since the 1970s, Americans started to purchase them in the 1980s. The insurers at that time made two significant errors in their pricing.

They didn’t know how fast the cost of health care would accelerate (faster than CPI inflation) and didn’t realize how much longer people would live. These factors led to substantial underpricing on the policies, and in some cases, the insurers even refused to pay for legitimate claims.

As a result, fewer insurance companies are in the market for LTCI today. However, policies still are being sold.

The contracts usually stipulate limits on lifetime benefits paid out, the monthly maximum, and potentially a deductible. They also offer inflation riders for additional fees. Most policies today don’t discriminate between facility or in-home care. 

Ways to purchase LTCI

The original policies were usually use-it-or-lose-it. If you paid for the policy and never required the care, you couldn’t get a refund. Though so much of the population is likely to need it these days, it might not be such an issue for potential buyers. 

Anecdotally the “sweet spot” for purchasing such a policy was around 55 years old. You wouldn’t have too many years of payments if it turned out you didn’t need it, and you were still young enough that some of the disqualifying medical conditions probably hadn’t appeared.

These contracts are still available, though their popularity has dropped sharply. Premiums can undergo rate hikes at any time in the future. 

The insurance company can’t increase the amount you pay just on your policy, but it can raise the premiums on the entire class of people who purchased the same insurance as you. They now have other premium payment options, so you don’t continue to pay for life. 

Rather than take a use-it-or-lose-it policy with the potential for future premium hikes, some LTCI users purchase a hybrid product. These can be life insurance or annuity products that also allow you to use the money for long-term care.

In the hybrid with life insurance contracts, typically, the cost of whatever care you use is deducted from the face amount that’s payable at death. Different companies offer different ways to structure the policy.

When you combine LTCI with an annuity, you usually need to purchase the annuity with a lump sum. There are no premiums for the LTCI, and what you’ll receive is based on how your insurer sets up your contract.

Although the hybrid products are often more expensive than a plain-vanilla life insurance or annuity policy, they can be a good alternative. Especially for someone who suspects they may need the care but is not interested in a stand-alone policy they might not use.

No matter what type of long-term care insurance you buy, make sure that you understand what triggers a claim and what the policy promises to pay. 

If you’re considering LTCI, make sure you check with your company, associations, and groups. Some offer group LTCI plans with relatively attractive premiums.

If you want help determining whether you need to buy some LTCI, give us a call at 619.255.9554 or email us to set up an appointment.

You might recall that the Tax Cuts and Jobs Act made it much harder for Americans to get tax breaks on their charitable giving by raising the standard deduction so that fewer people have the opportunity to itemize. Of course, you want to do some good for the community with your charity dollars! But receiving the tax break is nice too.

For National Philanthropy Day, we wanted to give you some ideas for making the most of your charitable gifting this year.

Choosing a charity

More significant dollars make a bigger impact. In other words, if you select just five charities and give them $1,000 each, you’ll make more of an effect than if you sent $100 to 50 charities.

That may mean that you take more time to figure out where you truly want your charitable funds to go and to ensure that the organization is one that you are willing to support. Although many of our clients have a wide variety of philanthropic interests, we encourage you to choose your top two or three and plan to make a difference through them.

Many of the charity rating websites can provide you with a list of the top charities according to the issues that are most important to you.

For tax deduction purposes, your dollars need to go to an organization recognized as a charity. A 501c3 entity can show you their IRS letter granting them charitable tax exemption. You can also find them on the IRS’s lookup tool.

Research the charity to make sure it’s worthwhile

Verify your choices with online sites that provide ratings and information about them. Make sure that your money is going to an entity that values the same things you do.

You can ask the organizations some questions directly as well. What is their mission, and how have they made progress toward it and their goals? Do they have transparency about financials and IRS forms that are readily available on the website?

Watch for costs, primarily operating or administrative. Although not the number one consideration for choosing a charity, costs can help guide your decision. Some charities require a lot more internal support than others, and the organization must staff up to carry out the mission. 

Although the vast majority of charities that you’ll come across are healthy and dedicated to their vision, some scam artists operate in this space. 

If you get an email from an organization you’ve never heard of before, be skeptical. Most of the time, a true charity only emails you when you provided your address to them. And if they’re asking you to send money to a foreign bank or institution – forget it!

Legitimate charities usually don’t send attachments with their emails. They may have pictures that link back to the site, but clicking on an attachment can unleash a virus or other cyber issue into your computer. Delete them. If you’re concerned, you can always look up the phone number on their website and double-check.

You’ll probably see a lot of information come through your social media feeds, too. Remember those scam artists and others, including Russian intelligence, plant bots, and fake profiles. Do your homework first if you see something through social media you want to investigate.

If someone claims to be a victim through email or social media, that’s also likely a scam. You can always search for the charity’s website, look it up on an online rating site, and determine if it’s legitimate.

Don’t forget QCDs

The TCJA also increased the age required to take minimum distributions (sometimes called RMDs or MDRs) from your Traditional or pre-tax retirement accounts. If you’re 72, you need to begin these withdrawals.

However, you can deposit up to $100,000 of the funds at the (legitimate) charity of your choice. This option is known as the Qualified Charitable Distribution or QCD. The distribution must go directly to the charity without making a pit stop at your bank account along the way to avoid disqualification.

As you know, typically, you have to pay taxes on your RMDs. That’s the whole point of having mandated withdrawal requirements. But if you do a QCD directly to the charity instead, you won’t pay taxes on the withdrawal.

Bundle potential deductions

The standard deduction for married couples for the 2020 tax year is $24,800 ($12,400 for singles and married filing separately.) Since the TCJA limited the deductions you can take on items such as mortgage interest and state and local taxes, many taxpayers no longer itemize. Which means they can’t take the itemized deduction for charitable gifts.

However, if you have some unusual deductions this year that could push you over the standard deduction, you might want to accelerate them into 2020 and do some charitable giving while you’re at it. 

For example, the floor to deduct medical costs is 7.5% of your adjusted gross income. If you happen to reach it this year because you’ve had some medical issues, you might exceed the standard deduction. 

Another avenue to consider is bundling your charitable donations into one tax year to help you exceed the deduction threshold, rather than giving smaller amounts annually. If you decide to use a donor-advised fund, you could bundle several years’ worth of giving into one tax year and then portion out the money to your charities over time.

This strategy provides an excellent opportunity to make some substantial gifts and receive your tax break.

Contribution limits

Ordinarily, you would only be able to deduct up to 60% of your adjusted gross income for a cash donation to a qualified organization. However, those limits have been suspended for 2020. The ceiling is still in place for non-cash donations, such as stocks.

Thinking about how best to make your charitable gifts this year? We can help. Just give us a call at 619.255.9554 or email us to set up an appointment.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

It’s common for the surviving spouse to feel a bit lost upon the death of their partner. You may not have immediate access to all the household assets or know what information you need to put together for the estate.

This time can be very confusing, so it’s essential to feel that you can enlist your financial team. Your financial advisor, CPA, and attorney should work together to help you manage the transition.

Here are the steps you should take to make the process easier for you as you navigate your new phase of life. You can delegate some of these to a trusted relative or friend to give yourself more time to grieve.

1. Death Certificate: Request multiple copies

For many of these steps, you’ll need a death certificate. Make sure you request multiple copies. Some companies may require an actual certificate and not a copy, so ask what they want when contacting them.

These are not necessarily in the exact order you’ll end up taking them, but the more urgent suggestions are listed first.  

3. Talk to your estate planning attorney

Every state has different probate requirements, so your lawyer can guide you through the process. “Proving” the will is often the first step taken by the probate court. They’ll also be able to help you with reading the will and settling the estate.

It may take some time for the estate to finally be distributed, depending on how the attorney has set up the estate planning documents. At some point, you may want to revisit your own will, but that doesn’t need to be taken care of right away unless you have an urgent reason for doing so.

If you don’t already have an estate planning attorney, consider asking your financial advisor for a recommendation.

4. Talk to your financial advisor

It would be best if you alerted your advisor about the death as soon as possible. They’ll be able to get the paperwork ready to make the necessary changes. You can discuss with them if they have any recommendations for you regarding your budget, financial plan, or investments. 

They most likely have experience in dealing with widows and widowers, so they can help guide you through some of your decisions.

5. Call the Social Security Administration

You will need to call or visit your local office in person. You may qualify for survivor’s benefits, whether or not your spouse had already begun collecting Social Security retirement payments.

Most likely, you’ll need your spouse’s Social Security number for this, so have it handy when you call or visit.

6. Call the Veterans Administration if your spouse served in the US armed forces

Similarly, you may be able to claim benefits from the VA, depending on the length of service. There may be some funding that you were not previously aware of, so it’s always a good idea to check with them when you have a military spouse.

7. Collect documents

You’ll find it’s much easier to gather all the necessary items before you begin contacting people. In addition to the will and Social Security information, you’ll want birth, marriage, divorce (if applicable), and death certificates. In addition, find tax returns, banking, credit card, investment account, retirement account, pension plan, and loan statements (including mortgage) as applicable.

It will also help have your house deed, car titles, insurance statements, and bills in one spot.

8. Let employers know

There may be benefits that you can receive as the spouse of a deceased employee. Often you can start your search with the Human Resources department. They’ll be able to advise you if there’s a different number you should call. 

There are several employers you should call, not just the current or most recent company.

Your spouse’s current/most recent employer if retired

Find out what benefits may be available to beneficiaries, as well as the details of the retirement plan or pension. If your family is covered through your spouse’s health insurance, contact them as well to make sure you can continue coverage.

Your employer

Frequently, a spouse’s death is considered a “life event” that may allow you to claim some benefits. Check with your HR to determine whether you are eligible for any additional aid.

Your spouse’s previous employers

You may have access to a pension, retirement account, insurance payout, or other benefit you or your spouse may not have been aware of.

For your property and casualty insurance, you’ll need to remove your spouse’s name to put everything in your name. Check policies for auto, homeowners, umbrella, etc.

11. Change titles and beneficiaries on jointly-held property

You’ll need to change everything into your name only, whether it’s the house, banking accounts, credit card accounts, or investment accounts. Your financial advisor can prepare and expedite the paperwork for the accounts that they manage for you.

For accounts in your name, such as pensions and retirement accounts, you may want to change beneficiaries if your spouse is the sole beneficiary with no contingent beneficiaries listed. If you already have contingent beneficiaries designated, this is not an immediate need.

12. Send a letter to the three credit bureaus

You’ll want to get the credit reports for your spouse so that you’re aware of all the credit liabilities. You should advise the bureaus to add the notification that your spouse is deceased so no one can attempt to take credit out in their name. This helps protect you from fraud.

13. Let your tax advisor know

They’ll need to file taxes for your spouse for the year in which s/he died and have the taxes paid. Depending on your situation, this can get tricky, so let them advise you. Because the taxes aren’t due right away, this isn’t an immediate need, but it still should be done in a timely fashion, so they’re not late in filing.

14. Call the financial aid office if you have a student in college

Your child may be eligible for more financial aid or other assistance, so let them know.

15. Cancel your spouse’s subscriptions and memberships

Any gym or club memberships in your spouse’s name should be canceled, so you don’t continue to pay those bills. If you have a joint membership, at some point, you’ll want to investigate what other options are available to you.

16. If your spouse had business interests, let their business attorney know

The lawyer can take charge of any processes that your spouse put in place for this contingency.

Do you need help dealing with the financial issues surrounding the death of your spouse? Please give us a call at 619.255.9554 or email us to set up an appointment.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.