October 2018 Newsletter

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Year End Planning - Bunching

Standard deductions for 2018 will be $12,000 for individuals and $24,000 for married couples. To save on taxes, year-end planning might involve “bunching” deductible expenses and charitable contributions.

An example of this might be to make your 2018 and 2019 charitable contributions before the first of the year. Donate that large bag of clothes for Goodwill the same year. Maybe this “bunching” would give you enough deductions in one year to itemize.

Bunching with a Donor Advised Fund

Conceptual hand writing showing Donate. Business photo showcasing give money or goods for good cause for example to charity or people

A donor advised fund is a method of bunching charitable contributions into a particular tax year. The main effect is that you make your charitable contribution in one year and then distribute the funds to qualified charities in the next several years. In the year you make your “bunched” contribution, you may be able to get a tax deduction.

For example, if you deposit $50,000 into a donor advised fund in one tax year and then distribute your charitable contributions from that fund over 10 years, you could deduct the charitable contribution in the year of your contribution. But if you donate $5,000 a year for 10 years, you might not be able to deduct any of your $50,000 in charitable contributions.

While donor advised funds are not for everyone, sometimes the situation is perfect for this strategy. We can help you understand whether this would benefit you.

Beneficiary Designations: Important to Review

We encourage you to review your beneficiaries, especially if life events have occurred. With each client meeting we have been checking beneficiaries and making sure things look OK. Over the years, we have seen situations where beneficiaries should be (or should have been) reviewed:

Ex-spouse received life insurance of $160,000 intended for the current spouse
Contingent beneficiary not listed
One or more adult children provide the lion’s share of support (financial and/or assistance)
The reason a child was disinherited has been resolved
An adult child becomes special needs
One child borrows and does not repay a loan

happy family at sunset with tree and grass

The time to think about your beneficiaries is now – not at a time of crisis. We would be glad to review beneficiaries, wills, trusts and other documents so that you know your plans reflect your intentions.

Market Comments

The third quarter was positive for stocks and alternative investments and neutral for bonds, leaving most portfolios near their highest point of the year at the end of Q3. The start of the fourth quarter has trimmed these gains, however.

Of the major sectors, US growth stocks performed best. By contrast, international stocks were largely negative for the quarter and the YTD period. After two negative quarters, US bonds were flat in Q3 and were down for the YTD period. International bonds performed better than US bonds, managing small gains for the quarter and the YTD period.

Alternative investments expand the opportunity set of our portfolios. On average, the alternative funds in our model portfolios were up about 2.6% for the YTD period – with most of these gains attributable to the third quarter. The first six months were relatively unchanged for this segment.

Looking ahead, markets will need to factor in higher interest rates and strong corporate earnings. The stock market pullback of early October seems to have been caused by short-term jitters and increased interest rates, rather than any deeper fundamental issues.

International Risks

Two potential risks for the international economy are the tensions and tariffs with China and Great Britain’s exit from the European Union.

The tariff situation with China has affected the costs/profits and employment for both individual businesses and entire sectors, including technology and manufacturing. How this ultimately plays out could help or hinder both the US and the global economy.

The so-called Brexit, or exit of Great Britain from the European Union, is still being negotiated. While London stands to decline as a financial hub, other financial centers, such as New York, Frankfurt and Paris should increase their roles. Otherwise, Brexit should not have much impact on US or international markets.

Planning for Expenses in Retirement

While everyone approaches retirement differently, it is important to estimate retirement expenses as accurately as possible. Some costs typically go up and others go down. Some examples:

active senior couple riding bikes in nature_ active retirement

Costs that Typically Go Up:

Travel
Health Care
Utilities
Fitness

Text sign showing Cost Cutting. Conceptual photo Measures implemented to reduced expenses and improved profit Man holding marker notebook clothespin hold reminder cup markers wood table.

Costs that Typically Go Down:

Income Taxes
Transportation
Clothing
Housing/Mortgage

As CERTIFIED FINANCIAL PLANNER™ professionals (Mike Sedlak, CFP® and Lynn Ackerman, CFP®) , we can develop financial projections for retirement or other financial goals. We include everything we can identify, including health care, and allow for contingencies. The result is a game plan to help define and reach financial milestones.

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