Banking & Finance 2020 by Bangor Daily News

Banking and Finance • Bangor Daily News Special Advertising Section • October 16, 2020

Finances in the time of Covid BY JOSH DEAKIN

Over the last six months, the growing pandemic has given rise to many financial-related stressors that we haven’t had to think about before. Financial burdens during this time can be quite taxing and can give way to panic quickly. It’s invaluable in recent times to take a step back and evaluate problems as they arise instead of letting your imagination run wild.

Do: Consider Refinancing

Refinancing a home may seem like a risky task but during a time of nationwide economic hardship, interest rates decrease. By refinancing your home with a lower interest rate, you could save a substantial amount of money month to month to help with other household necessities. If you do decide to go this route, think carefully and be sure to do the math. Refinancing does come with a cost but it could be worth it. Consider consulting with a financial advisor before making any permanent decisions.

Don’t: Drop Insurance

You see this phrase everywhere and its meaning is perhaps more important now than ever: “Don’t put money over health.” In times of financial hardship, some people think dropping their insurance could be a quick way to save money. But safety and security should be a top priority. If you did drop your health insurance to save a little money during the pandemic, the cost of an ordinary doctor’s visit could break the bank. And if you’re worried about the cost of a doctor’s visit, you’re more likely not to go which may put you

Dos a nd D o come s to c n’ts when finan hanges in it cial s your ituat ion

and your family at greater risk for COVID19 and other illnesses and health problems. In the grand scheme of things, your monthly insurance premium may not only save you thousands of dollars in medical-related bills, but will also help keep you safe and healthy during this time. A co-pay will always be a smaller financial burden than a full-price visit.

Do: Create a Budget

A budget can be your best friend in times like this. It’s very important to sit down and figure out what you can afford to allocate money towards. But the real test isn’t making a budget, rather, it’s sticking to it. With a budget comes sacrifices and curbing your spending on unnecessary items. This could be something small like making coffee at home instead of going to Starbucks. Or it could be much larger like putting off a family vacation that had been planned. A budget is a necessary guide to assist you with spending and saving. Many people find comfort in knowing what they will be spending their next paycheck on and how much of it will be retained in a savings account. There are many apps for your phone that are easy to use and can assist you with your budget creation. If you are having trouble on where to start, consider one of these options. It’ll make the process much easier and perhaps even a little fun.

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Banking and Finance • Bangor Daily News Special Advertising Section • October 16, 2020

continued from page 2 Utilize the budget to build your savings. “Set up automatic deposit to your savings when you get paid. Your goal is to put aside six months of expenses into a savings account,” said Mike Grow, Marketing Director for Maine Savings Federal Credit Union. “Keeping your debt-to-income low will open up more options when you look to buy a house, car or other financial purchases.”

Don’t: Fall For a Scam

Scams are abundant in today’s age. From phishing emails to phone calls seeking to “assist you with your finances,” scammers are on the hunt to prey on people’s anxiety over the uncertainty that COVID-19 brings. Be on the lookout for fake versions of websites hosting “incredible deals.” These deals are designed to look unbelievable to get you to put your credit card information into their website. When shopping online, try to utilize pay services that help assist you in providing more security during transactions. PayPal is a wonderful tool for this. Using a third party to hold your banking information provides a security screen to the actual website. The government is also warning people to be wary of any unapproved “miracle drug” that is being branded as a potential treatment to COVID-19. This scam is the oldest trick in the book, dating back to early traveling salesmen selling the miracle elixir for hair loss. Don’t be fooled by purchasing unapproved products that may be more harmful than helpful. Always consult your doctor before trying a new medication.

Do: Call Lenders

If you are concerned about being able to make a payment to a lender, don’t be afraid to call them and see what they’re offering for assistance. “Only defer payments if it is

necessary,” said Grow. “If you have to defer payments, make sure you are aware of the costs over the long term.” Speak with your lender and make sure you have all of the information needed to make your educated decision when it comes to payment assistance. Take note of if the lender will require an extra fee or if there will be any penalties for deferment.

Don’t: Panic

It’s easy to panic during a pandemic. The anxiety surrounding potential job loss and financial hardship may be looming over your head like a storm cloud, but a pandemic doesn’t guarantee either. Be sure to remain as calm as possible and refrain from selling off assets to acquire extra cash just in case. Investments can take time to fully mature and selling them before the full maturity could result in an ultimate loss. This also speaks for stock market investments. The market ebbs and flows on a regular basis and just because a stock drops today does not mean it will stay that way for long. The economy will recover in time and when it does your investments will return their value. While there’s lots of talk of a second stimulus check and various government-related tax breaks to help out the population, it’s important to remember these aids will not be available forever. “Do not rely on the financial assistance the government has offered during these times,” said Grow. “These programs are a short-term solution, so plan ahead. Some unemployment income has been higher than working income but make sure you look at your long-term needs and take steps to ensure you have a reliable source of income in the future.” There are many options available to maintain a healthy financial portfolio. If you are concerned about your finances, it is highly recommended to seek out an advisor to guide you on your journey.

Banking and Finance • Bangor Daily News Special Advertising Section • October 16, 2020

Intro to

Investing Get schooled in investing in your future

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BY KATIE BINGHAM-SMITH

Understanding money, and ways to make it grow, is essential if we want to take charge of our ﬁnances and have security down the road. If you are feeling overwhelmed when it comes to investing your money, you aren’t alone. Getting started can make you feel confused, especially if you have zero experience when it comes to investing. Liz Winfeld, an Independent Financial Adviser at LPL Financial, LLC, says to think of investing your money as paying yourself. “Investing is about time, not money,” she says. “So pay yourself first by establishing either a brokerage account or some sort of retirement accounts. If you can, do both though. Make investing your money (and paying yourself) your first monthly action, not your last.” It doesn’t have to be a ton of cash, either. Winfeld says something as little as $25 a month (you can skip one meal out or cut back on your latte budget) to start out with is going to make a huge difference to your future – every little bit counts and will add up. The old saying “A penny saved is a penny earned” holds true for investing. It’s not solely about saving, but also about not overspending. Staying out of consumer debt can help our financial future in big ways. Winfeld explains some debt like school loans, mortgages, car loans are unavoidable and fine as long as “you don’t

bite off more than you can chew,” but she advises to steer clear of credit card debt at all costs. “Credit card debt is the worst thing you can ever do to your present as well as your future self,” she says. If you must use a credit card, Winfeld recommends choosing one that pays you cash back, unless you really will use those miles or hotel rooms that some credit cards offer. Her rule of thumb is to “never put more on it per cycle than you can pay off, in full, every month. If I could only give one piece of advice to young investors, this would be it,” she says. Something else to consider is not getting caught up in investment trends. “When starting out, don’t go chasing the ‘next great investment,’” she says. Instead, you should be sticking to “low cost index funds in the form of mutual funds or exchange-traded funds,” says Winfeld. “One of the most important things you can do as a beginner investor is to be patient and realize this isn’t a game – it’s a commitment you are making to yourself,” she says. It’s also important to realize investing your money will take some time, but you and your future are worth that time. It’s important to sit down, make a budget and stick to it. Winfeld advises everyone to understand what’s coming in, what’s going out and why. “It doesn’t have to be strict or absolute,” she says, “but it should be mostly true.” Start by jotting down what you spend money on every day for a month. This will show you your mandatory and discretionary expenditures and, from there, you can decide how much you can/should spend and how much you can save for something you want or need for your future. A bonus tip offered by Winfeld is taking advantage of all the things your employer may offer as far as investing money. “If you work at a place with a 401K, 403B, SEP or Simple IRA and a ‘match’ is offered – work towards maxing

out the match,” she says. “[That] means putting in enough of your money to get the highest percentage of what your employer will match. If not, then understand your own tax situation to know whether or not you best benefit from an IRA (tax deferred growth) or ROTH IRA (tax free growth).” Eric B. Lusk is a Wealth Advisor for Dow Wealth Management, LLC, and says when you first begin to invest, think about when you will want your money back as this will determine what kind of investing you should choose. “The suitability of an investment starts with how soon you need to access that money. If it’s sooner, then go safer; if it’s later, then think bigger,” he says. Lusk advises putting money into a pre-tax retirement plan. This way, the investor will avoid paying state and federal taxes. “For someone making $40,000 that means for each $1 put into a retirement account they don’t pay the Federal Government 10%, nor the State of Maine around 5%,” says Lusk. “So if that person takes 85 cents out of their pocket it magically turns into $1 for a gain of 15 cents. That 15 cents is an automatic 17.6% return just for the heavy lifting of delaying gratification. Over the last 10 years, the S&P 500 Index has averaged around a 15% annual return, but in the first decade of the 2000s the total return annualized right around 0%.” Lusk also advises not to get emotional about your investments saying, “Owning stocks, and sometimes mutual funds and exchange-traded funds, can become buried in emotion. Just because your grandmother made a fortune off a company in the 1950s and 1960s doesn’t mean that company will always do equally well in a new era and under new management. Don’t be afraid to pare back a winner – trends, technology and interests are dynamic and so your investments should be, too.”

Banking and Finance • Bangor Daily News Special Advertising Section • October 16, 2020

Retirement Planning – You CAN get there from here. again I quipped, “You can’t get there from here.” Retirement planning requires an individualized approach for each person’s unique There’s an old story about a Mainer trying to give driving directions to someone from situation. It is not a cookie-cutter product or a one-time event. Few circumstances are the away when the Mainer declares, “You can’t get there from here.” This phrase has come to same, person to person, and they tend to change over time. Appropriate recommendations come as the result of a planning process that includes reviewing and analyzing information. mind recently while discussing retirement planning with two different couples. To prepare for the retirement planning discussion, first consider your retirement goals. On the golf course my teammate who is in his 60s said, “I’ve been invested heavily in stocks for years. Is now the right time to sell and move everything into cash?” I responded, “You’ll have When do you want to retire? What do you envision your retirement lifestyle will look like and cost? Next gather your financial information. Start to do some basic retirement planning to answer that question.” with identifying your retirement income sources. Will you Basic retirement planning is a process. First, you consider Retirement planning requires an receive income from Social Security or a pension, rental your goals and circumstances, then assess where you stand individualized approach for each person’s property or investments? Then take inventory of your right now relative to your goals, and finally implement a plan to achieve your goals. unique situation. It is not a cookie-cutter assets, which may provide financial support during your retirement years. These might consist of IRA or 401(k) He countered, “I don’t have time to mess with all that. I just product or a one-time event. accounts, as well as significant cash events like the future want to know how I should invest my money!” I replied, “You sale of a business or real estate. can’t get there from here.” Because he is a medical doctor, I Only by examining the details of your specific situation can a financial planning used an analogy to drive home my point, “Would you write a prescription for a patient without an examination and diagnosis?” Retirement planning works the same way. First you professional come up with a “diagnosis” and recommend an appropriate investment solution to help reach your goals. Financial planning in general, and retirement planning in particular, have to fully understand the situation before implementing an investment solution. At a recent meeting with a couple, the wife asked, “When can my husband retire and is not difficult. When done well you will most likely learn, “You CAN get when should we start drawing Social Security?” My answer was the same from the golf there from here,” by investing a little time and energy into the process. course, “You’ll have to do some basic retirement planning to answer that question.” They Joseph M. Pratt is SVP, Senior Wealth Manager at Bar Harbor Trust too wanted a quick and easy solution like my golf partner, replying, “We really don’t want to go through all that. We just want to know when and if we can afford to retire!” And Services. He can be reached at jpratt@barharbor.bank.

BY JOSEPH M. PRATT, SVP, SENIOR WEALTH MANAGER AT BAR HARBOR TRUST SERVICES

Banking and Finance • Bangor Daily News Special Advertising Section • October 16, 2020

Should You Save for Retirement or for a Child’s College Education? COURTESY OF BERRYDUNN WEALTH MANAGEMENT

For parents, deciding how much to save for retirement versus what to set aside for a child’s education can be a difficult balancing act. Saving for your future should be a priority, particularly through maximizing the benefits of retirement plans. But, although paying yourself first is essential, that doesn’t mean you can’t set funds aside to further a child’s education. A college savings plan is a taxadvantaged way to achieve this goal. The following information is intended to help you understand how these savings vehicles can help you meet the present and future needs of your family.

Why Prioritize Retirement Savings? To answer this question, two financial planning components should be compared: funding sources and cost variability. Funding sources. Where will you get the money to pay for your retirement? For most retirees, social security and personal savings represent the main sources of income.

The limited number of funding options highlights the importance of personal savings. Without placing a focus on saving throughout your adult life, you may jeopardize the security of your retirement. Students, on the other hand, can obtain college funding from a number of widely available sources. If family resources (such as a college savings account) aren’t available, students can seek financial aid, federally guaranteed student loans, grants, and scholarships. These vehicles have unique benefits and tradeoffs, but they can be expected to provide accessible options for paying for college. Cost variability. Educational expenses are much more variable than retirement costs. Although inflation drives up both types of expenses over the years, students have a wide range of pricing options. They can take advantage of the large cost differences between public versus private universities and in-state versus out-of-state institutions. Online degrees can also be considered. Retirees won’t have the same flexibility without making sacrifices to their desired lifestyle, especially regarding

housing and leisure activities. Health care costs, which typically rise in the retirement years, are difficult to control. All in all, given the unpredictability of retirement expenses, you may face some challenging choices in the future if you don’t have sufficient savings. The reality. Once you leave the workforce, your financial options may be limited. In contrast, your family should be able to combine a variety of funding sources to pay for college. So, while you may relish the idea of fully funding a child’s education, doing so might not be the wise choice.

Balancing Savings Needs Fortunately, the advantages of retirement plans and college savings plans make it possible to balance your financial priorities. Let’s look at some of the unique features of these plans. Retirement plans. Putting the maximum possible into your retirement accounts is ideal, especially if your employer offers a matching contribution. That can add up to a substantial amount of extra income. In addition to the tax-

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continued from page 6 deferral benefits, an IRA or 401(k) account can work well to complement your college savings goals in the following ways: • As related to the Free Application for Federal Student Aid (FAFSA), retirement accounts are considered noncountable assets, so they don’t affect a student’s aid eligibility. • With an IRA, early withdrawals can be made for qualified educational expenses. The standard 10 percent penalty does not apply, although these distributions will be taxed. (This feature does not apply to 401(k)s.) College savings plans. A college savings plan is a great way to save and pay for college. What type is best? That depends on your situation, but 529 plans are popular for many reasons, including the following: • Earnings grow on a tax-deferred basis. Many 529 plans have large contribution limits compared with other college savings plans, so the tax advantages could be significant. • Distributions are not subject to federal taxes when used for qualified education expenses. • Many states offer state income tax deductions for contributions. • Qualified higher education expenses include (but are not limited to) tuition and room and board, books, computers, and supplies. • Since 2018, federal guidelines include up to $10,000 annually in K–12 tuition as a qualified education expense. But the tax rules for K–12 withdrawals vary by state, so be sure to check your state’s rules regarding this benefit. • Since 2019, qualified expenses include certain student loan repayments up to a lifetime limit of $10,000 for the 529 account beneficiary and for each of the beneficiary’s siblings. • A “front-loaded” contribution of up to five years’ worth of the annual exclusion gift of $15,000 (for a total of up to $75,000) can be made. This feature is unique to 529 plans. You’ll also want to consider the impact of 529 plans on student financial aid. Often, it’s minimal. Here are some details to keep in mind: • Plans owned by parents or dependent students, as well as custodial-owned plans, are considered parental assets. On the FAFSA, they are assessed at a rate of 5.64 percent when determining a family’s expected contribution to tuition costs. Plans owned by independent students are considered student assets, which are assessed at the rate of 20 percent. • A grandparent-owned 529 account does not count as an asset on the FAFSA. But distributions are reported as untaxed income to the student. That means a student’s financial aid eligibility could be reduced by up to 50 percent of the distribution amount. This downside can be avoided, however, by waiting to use these funds until the last two school years. Finally, you should be aware that if you withdraw 529 funds for anything other than qualified expenses, the distributions could be subject to tax on the account’s gains, as well as a 10 percent penalty.

Achieving the Right Balance By putting money aside wisely, it’s possible for parents to help provide for their children’s education without compromising a comfortable retirement lifestyle for themselves. For further guidance on this complex topic, I am at your service. The fees, expenses, and features of 529 plans can vary from state to state. 529 plans involve investment risk, including the possible loss of funds. There is no guarantee that a college-funding goal will be met. In order to be federally tax-free, earnings must be used to pay for qualified higher education expenses. The earnings portion of a nonqualified withdrawal will be subject to ordinary income tax at the recipient’s marginal rate and subject to a 10-percent penalty. By investing in a plan outside your state of residence, you may lose any state tax benefits. 529 plans are subject to enrollment, maintenance, and administration/management fees and expenses. This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

Banking and Finance • Bangor Daily News Special Advertising Section • October 16, 2020

Reckoning with Retirement

Ready to retire? Here’s what to know and what to expect BY ANNE GABBIANELLI

Most Americans leave the workforce and embrace retirement around the age of 65 or sooner, according to U.S. Census Bureau data. Yet the fallout from COVID 19 has left some with little choice but to leave the workplace and enter retirement prematurely. The reasons are many – concern over your personal health in returning to the workplace, your job being eliminated, being forced into a caregiver role or staying home with children or grandchildren, or your small business has been economically derailed. Financial Advisor Marion Syverson of Norumbega Financial acknowledges some people’s retirement plans are shifting. “Life is full of surprises, and sometimes they stink. You have to deal with the situation as it is. No, you didn’t get to save until you decided to be done. And no, you don’t have your ducks in a row like you wanted.” Typically, such a drastic lifestyle and income change is something that needs to be planned for. Because retirement is a significant switch, Audrey Klein-Leach, senior trust officer with Camden National Wealth Management, says, “Smart planning, especially in the 5-10 years leading up to retirement, is important. Studies show that 70 percent of

those who work with a financial advisor are on track or ahead in saving for retirement, versus 35 percent of those not working with a financial advisor.” Chief Operating Officer at Deighan Wealth Advisors, Jennifer Eastman reminds us the loss of a paycheck can be daunting so “try living for a year or two before retirement on what you expect your post-retirement income to be. Not only will you be able to save the difference, you’ll have a better sense of what to expect, and hopefully realize that a reduction in income will not be the shock people may anticipate.” Eastman advocates getting your ducks in a row both financially and with estate planning. “Look at your portfolio. Are your investments allocated to properly reflect your willingness to take risk? Explore options for Medicare gap policies and be sure to factor those premiums into your fixed retirement expenses.” She also advises getting your legal documents in order regarding financial and durable powers of attorney and to preserve and protect your assets from the cost of long-term care. Thomas Duff of Duff and Associates agrees. “A competent financial advisor can help configure a retirement income plan that factors in Social Security, pensions, 401ks, IRAs and personal savings,” he says.

Another objective in planning ahead is to enter retirement debt-free or at least mortgage free. Klein-Leach says, “If you don’t have enough funds for retirement, then look into parlaying a hobby into income or doing consulting or other part-time work.” For some, rental properties provide that added income. There is an emotional component to retirement as well. “Those really ready to retire, and are successful in enjoying their retirement, should start building hobbies, interests, and a network of friends – who aren’t related to their professional positions – years ahead of retiring,” Klein-Leach says. “This sets a good emotional foundation for retirement.” For those considering retiring five years out, she advises, “Since 90-year-olds are the fastest growing population segment, postpone actual distribution of your nest egg to the latest time to better ensure that you won’t outlive your money.” Syverson acknowledges, however, because some people’s retirement plans have pivoted, she finds herself these days advising younger retirees who have fallen victim to COVID’s interference. These people need to reckon with retirement sooner than they thought. Despite whatever life alterations you may be experiencing, Syverson holds true to, “It’s never too late to be wise!”