Guided by experience. Invested in you.
2021 — 2022 PERSPECTIVES
Introduction by Paul Means
1
News at Means
2
The Difference a Plan Makes
4
Your Retirement Planning Checklists
6
Socially Responsible Investing
9
Gifting 101
10
Limitations of a Will
11
Long-Term Care
12
Roth Conversions
13
Retirement Contribution Limits
14
RMD Essentials
15
How to Safely Store Documents
16
Ways to Prevent Elder Financial Fraud
17
Protect Your Digital Information
18
Tax-Efficient Investing
20
Municipal Bonds
22
2022 Tax-Exempt Chart
23
Wash Sale Rules
24
The Rule of 72
25
529 Plan Basics
26
Means Team
28
A Look Back at 2021
29
A Look Ahead December, 2021
As we continue our run in the third secular bull market since World War II, we are cognizant of the fact that peak valuations can be followed by a period of poor returns. History has shown that secular bull markets are always followed by corrections. While we don’t know if the next correction will come next year or 5 years from now, it will come. It could be argued that the post-pandemic cycle is likely to be different than the post-financial crisis cycle we experienced in 2008-2009. The tailwinds behind equity returns over the past decade plus are no longer in play and are unlikely to be repeated. The global economy faces new challenges—slower growth, rising prices and supply chain headaches. For these reasons, it is important to compare one asset class to another and determine which would have the best chance for a positive relative return going forward. We believe the answer continues to be the equity market, not the bond market. It is our belief that portfolios should include holdings from industries that thrive on new areas of technological innovation, whether it be artificial intelligence, ed tech, green tech, med tech, gaming, etc. We also believe portfolios should hold quality growth and value names as economic expansion slows. We are taking all of this into account as we monitor the holdings within the portfolios we manage. Investors should not expect double digit returns, but rather mid to upper single digit returns looking ahead. We have experienced a tough year from a Covid standpoint, but there is light at the end of the tunnel. The pandemic is abating, as case counts are dropping and fatalities in most of the world are on the decline. This horrific experience has strengthened the bond we share with our families and friends and that is a positive development. Our exceptional staff consisting of Kris Selleck, Susan Dietz, Dawn Hatch, Karen Nadeau and Wendy Porter join our CEO, Erin Barry, President, Zach Means, advisors, John Dudley, David Cust, Wes Leighton, Alex Means, Jackson Cust, Eric Baker and me in wishing you health, joy, peace and happiness during this holiday season and throughout the New Year. This is my 49th year writing and editing our booklet and I hope you enjoy reading it as much as I enjoy writing it. If you have any feedback, please don’t hesitate to share it with me at paul.means@meanswealth.com. Your comments are most appreciated. Sincerely,
Paul B. Means
News at Means We asked each staff member to share their best 2021 news – here’s what they said:
Alex Means and his family took their first vacation together and visited Watercolor Florida for the Fourth of July. Alex and Katie’s newborn, Miles, started walking and talking, and their 3-year-old, Noah, learned to ride a bike and swim. David Cust and his fiancé, Tamara, completed the construction of their new home and moved in this spring. Unfortunately, with COVID-related delays, their new furniture did not arrive until late summer. This summer they were able to get away and visit one of the great American music cities: Nashville. They thoroughly enjoyed the honky-tonks and spending time with family members from other parts of the country. Throughout the year, Dawn Hatch and her husband enjoyed seeing new places while riding their side-by-side. From rough and muddy terrain to old railroad beds, the trails did not disappoint. As soon as the ATV trails opened, they were off to the northeast’s largest interconnected ATV trail system, Ride the Wilds in New Hampshire. Dawn and Rob ended the season in late October on a ride on the Downeast Sunrise Trail to Machias, Maine. When they weren’t on the trails, they were spending time with their family, including their two grandsons who turned 1 and 2. 2
|
N e w s a t M e an s
In addition to several off-roading adventures through the mountains of North Carolina and Georgia, Eric Baker and his family recently spent a week in one of their favorite beach spots, Isle of Palms, South Carolina. Eric’s daughter, Ellie, is enjoying her final year of elementary school and is finishing strong; she was recently accepted into Challenge classes and has earned A/B Honor Roll! Erin Barry and her family enjoyed a much-needed vacation at the Samoset Resort in July. They were fortunate enough to be able to share the vacation with her parents and her sister’s family. Vacationing with a 2 and 4-year-old can keep things interesting, but the trip was very refreshing and restorative. Although Jackson Cust did not have any major events happen in 2021 (other than his favorite NFL team winning the Super Bowl and favorite NHL team winning the Stanley Cup for the second year in a row), he did start an Instagram page for his pasta making hobby: @pastaboyjc. Patti and John Dudley continued to enjoy spending time on the lake with friends and family, especially their grandsons Nathan, Easton, Eli and Ethan, ages 2-10. Time certainly does fly!
Karen Nadeau sold her home of 19 years and is in the process of building a new home with completion planned for the Summer of 2022. Her son, Connor, graduated Hampden Academy in May and is pursuing a promising career and her daughter Nadia turns 10 this year!
after breast cancer treatments. What a beautiful place to celebrate!
Kris Selleck’s daughters had some big birthdays this year – Sophie turned 21 and Erin turned 13. Erin is keeping Kris and John busy running around between her sports and trips to the barn to love on the horses and do chores.
We were excited to welcome Wendy Porter to the team in May! This fall, Wendy and her husband, David, celebrated the wedding of their son Brian and daughter-in-law Brianna at a lovely outdoor ceremony, joined by family and friends.
Rachel and Paul Means are in the throes of designing and constructing their summer home on Sebec Lake, which they hope will be completed by the spring of 2022. After working remotely from home since early 2020, Susan Dietz returned to working in the office in May 2021. She was very happy to be back with her co-workers and greet clients face-toface! In addition, Susan took her first trip to Hawaii this summer. The trip was a celebration of moving forward
With high school sports in full swing, Wes Leighton and his wife Cindi have enjoyed cheering-on grandsons Max and Landon at Bangor High. It should be an exciting year for football and basketball!
Zach Means and his wife, Bailey, enjoyed time at the lake this summer with their two kids, Evie and Wyatt. Evie spent most of her summer swimming while Wyatt was water skiing and frog chasing. Mazy, their 10-year-old golden retriever, also spent most of her days in the lake wading in the water and “fishing”. She has yet to catch anything.
We are already looking ahead to 2022, which we believe will be extra newsworthy for Means Wealth. We recently purchased a new building in Greenville, South Carolina at 325 Augusta St. Work to renovate the space has already started, and we hope to be able to move in within the next six to eight months. In addition, we are expecting to add a few new employees to the Means Wealth team early in the year. We look forward to what the New Year will bring and, most importantly, look forward to the continued opportunity to work with you, our clients and friends!
N e w s a t M e an s
|
3
“The individual investor should act consistently as an investor and not as a speculator.” –Ben Graham
The Difference a Plan Makes When a significant event is anticipated (e.g., an upcoming election) or occurs (e.g., a pandemic is declared), some clients reach out to us to ask how we predict these events will impact the stock market and if their portfolios should be adjusted in anticipation of or reaction to the event. Here’s how we respond: Making short-term investment decisions based on predictions about what may happen is commonly referred to as “speculation.” Speculation is one strategy that some investors deploy, attempting to generate profit based on short-term price fluctuations. At Means Wealth, we are firm believers in a different approach. We believe in the value of having a financial plan and building a long-term investment strategy based on that plan. While this process can take many forms and encompass several strategies, one sentiment we believe holds true is this: “Speculation is not a plan.” Fidelity Investments looked at the cost of missing the best days in the stock market from January 1, 1980, through December 31, 2018, by analyzing a hypothetical investor who put $10,000 into an S&P 500 Index fund. This investor somehow managed to miss the best days in the market over this period. If this hypothetical investor stayed invested throughout the entire period, their initial $10,000 investment would have grown to $659,515 at the end of the period. 4
|
T h e D i f f e r e n c e a P l an M a k e s
The chart below shows the impact of missing the best days in the market over this stretch:
Missing out on best days can be costly Hypothetical growth of $10,000 invested in S&P 500 Index January 1, 1980 — December 31, 2018
$659,515
-35%
-91%
$426,993 $318,036
$125,080
Invested all days
Missing best 5 days
Missing best 10 days
Missing best 30 days
$57,382 Missing best 50 days
Source: FMRCo, Asset Allocation Research Team, as of January 1, 2019.
Although this is a hypothetical scenario, it gives color to the famous saying by Benjamin Graham: “The investor’s chief problem, even their worst enemy, is likely to be themself.” When an investor panics during a stock market correction and moves some or all of their portfolio out of stocks and into a more conservative investment, the investor often sells at or near the bottom and then misses out on a substantial portion of the market rebound that follows. This is why, at Means Wealth, we work with our clients to ensure their investment strategies fit within the context of their long-term financial plan while ensuring enough funds are appropriately invested to meet their short-term needs. Adjustments to one’s overall portfolio may be necessary over time, but the key is to make them in a planful way, not based on speculation. T h e D i f f e r e n c e a P l an M a k e s
|
5
Your Retirement Planning Checklists Whether you are thinking about retiring next year or many years from now, there are several things you should consider as you plan for your retirement. Please review the checklists below as you plan. As always, we are here to help as you work through each topic.
6-10+ Years from Retirement
6
|
`
Outline your retirement goals (where you want to spend retirement, who you want to spend it with, what you want to do, etc.)
`
Determine if your savings align with your goals and, if not, what you can do now to address any discrepancy
`
Ensure you’re maximizing the opportunities you have to save for your retirement (401ks, IRAs, etc.), taking advantage of catch-up contributions if you are age 50 or older
`
Pay off debt, prioritizing higher-interest rate debt first
`
Ensure you have a will and that the will is up to date
`
Ensure your financial advisor is aware of your goals and that you are invested appropriately based on those goals
Y o u r R e t ir e m e n t P l annin g C h e c k l i s t s
“An investment in knowledge pays the best interest.” –Benjamin Franklin
2-5 Years from Retirement `
Review your retirement income sources (Social Security, pensions, retirement savings) to ensure they will be sufficient to cover your expenses once retired `
Ensure you have a “bridge strategy”, if necessary, which will help you bridge any gaps in income before claiming Social Security
`
Take an inventory of your retirement benefits, such as deferred compensation, stock options, etc. and determine what steps you will need to take to access those benefits once retired
`
Review your health care coverage options to determine what you will use for coverage once retired and how much it will cost `
Again, ensure you have a “bridge strategy”, if necessary, to help you bridge any gaps in health care coverage prior to becoming eligible for Medicare at 65
`
Review your life insurance, disability, and long-term care insurance policies to ensure your coverage is appropriate
`
Consider your long-term real estate strategy (will you want to stay where you are, or downsize/relocate once retired?)
`
Ensure your financial advisor is up to date on your goals and review your investment allocation to ensure it aligns
Y o u r R e t ir e m e n t P l annin g C h e c k l i s t s
|
7
Less than 2 Years from Retirement `
Finalize your plan for paying your living expenses once retired (ensure your retirement savings is on track to meet your needs, determine how much you will receive from all income sources once retired, etc.)
`
Review your Social Security benefits and determine at what age you plan to claim them
`
Create your investment withdrawal strategy with your financial advisor, ensuring you are first withdrawing from the appropriate accounts to minimize your income taxes `
Ensure you also consider your required minimum distribution requirements
`
Review your Medicare options
`
Work with your employer to determine what the retirement process looks like and how long it will take
`
Decide what to do with your 401(k)/403(b) (keep it in the 401(k)/403(b) plan, roll it into an IRA, cash the funds out, etc.)
`
Review your investment allocation with your financial advisor to ensure it aligns with your current situation and your retirement goals
Adapted from Fidelity’s retirement checklists: www.fidelity.com/retirement-planning/six-ten-year-retirement-checklist www.fidelity.com/retirement-planning/two-five-year-retirement-checklist www.fidelity.com/retirement-planning/less-than-two-years-retirement-checklist 8
|
Y o u r R e t ir e m e n t P l annin g C h e c k l i s t s
“Watch your thoughts; they become words. Watch your words; they become actions. Watch your actions; they become habits. Watch your habits; they become character. Watch your character; it becomes your destiny.” –Steve Jobs
Socially Responsible Investing Volunteerism and charitable giving are two practices used by individuals who want to do their part to make the world a better place. In recent years, a new practice has become increasingly popular: socially responsible investing. Socially responsible investing recognizes that an investment’s worth isn’t only in its potential short- and long-term returns; instead, with a socially responsible investing strategy, an investor can create a portfolio that aims to generate appropriate financial returns while also incorporating that investor’s goals for social change. There are a few different terms you may hear when you learn about socially responsible investing, including environmental, social, and governance (ESG) investing, socially responsible investing (SRI), and/or impact investing. •
With ESG investing, investments are selected not only based on traditional fundamental analyses, but also based on the underlying environmental, social, and governance practices of the investment.
•
SRI involves eliminating or selecting investments based on a defined set of values (such as only investing in companies with a focus on environmental sustainability).
•
Impact investing involves investing in companies with specific goals and values believed to make a positive impact on society.
At Means Wealth, we have seen interest in socially responsible investing growing among investors. As a result, in 2021 we implemented Fidelity Investment’s new ESG Pro tool, which allows us to better assess an investor’s ESG preferences and ensure their portfolio is appropriately invested to address the investor’s ESG-related goals. Please be sure to reach out to your advisor if you want to ensure that your socially responsible investing wishes are appropriately incorporated in your portfolio.
S o c ia l l y R e s p o n s i b l e I n v e s t in g
|
9
Gifting 101 Gifting can be an effective component of your estate planning strategy, as it allows you to reduce the value of your overall estate (and your potential estate tax) while giving you the chance to share your wealth with your loved ones during your lifetime. With the lifetime exemption for gifts and estates at the highest amounts they have ever been, perhaps now more than ever it is time to consider gifting.
Here is some key information on gifting: •
Each taxpayer is permitted to give up to $15,000 (in cash or assets) per person to as many recipients as the taxpayer chooses without that gift being reportable in 2021. If you are married, you and your spouse can each gift up to $15,000 to a recipient ($30,000 total per person) in 2021.
•
If you decide to gift more than $15,000 to one or more individuals (other than your spouse) this year, you may have to file a gift tax return. By filing a gift tax return, the IRS will be able to track how much you have accumulated toward your lifetime exclusion (i.e., the amount you can gift without paying gift tax). For 2021, the lifetime exclusion for federal gift and estate taxes is $11.7 million for individuals and $23.4 million for married couples.
•
Keep in mind that you can give an unlimited amount of certain gifts without filing a gift tax return. Some examples include: medical expenses paid directly to a care provider, tuition paid directly to a qualified educational organization, political contributions, and charitable gifts to qualified charities, as defined by the IRS (e.g., religious organizations, nonprofits, etc.).
•
An individual can give a spouse who is a US citizen an unlimited amount and pay no gift tax.
•
The current lifetime exclusion is subject to adjustment for inflation through 2025, but then is set to decrease substantially after 2025 (the exclusion will be adjusted to $5 million, adjusting for inflation). Keep in mind, however, that Congress could change the law. Wealthy individuals may want to consider using their exclusion now to capture the most benefit before a possible change would occur.
As we have advocated many times in the past, please consult both us and your estate planning professional for advice concerning this topic.
“Genuine generosity has no agenda.” –Johnny Remick
10
|
Gi f t in g 1 0 1
Limitations of a Will You may think your last will and testament is the final say on how your assets will be distributed upon your death, but that may not necessarily be the case. That document may be superseded by other paperwork or relevant laws. There are alternative ways to transfer assets that can preempt the language in a will. For example: •
Retirement accounts – The individual who is listed as a beneficiary of your IRA, 401(k), 403(b), pension plan, etc. will likely end up receiving those assets regardless of what is stated in your will. What if no primary beneficiaries are still alive and no contingent beneficiaries were named? Then, the default terms that were established when the account was first opened would determine the recipient(s).
•
Life insurance policies – Very similar to retirement accounts, whoever is listed as a beneficiary most likely will receive the death benefit.
•
Bank accounts – If an account is a TOD (transfer on death), POD (payable on death), or JTWROS (joint tenancy with right of survivorship) account, the balance of the account is automatically transferred to the named beneficiary(ies) or survivor upon your death.
•
Real estate – If the property is held jointly with rights of survivorship, the property will automatically pass to the surviving co-tenant upon your death.
•
Trusts – Any asset contained within a trust is not governed by a will. Once a Trust is set up, however, you would need to retitle the account or asset ownership and establish beneficiaries.
We caution that certain state or federal laws could be in place that would revoke some of these findings, so it would be prudent for your estate attorney to research your various state and federal regulations before completing your will and ensuring beneficiaries are appropriately named on the above-listed assets. In addition, remember that you may need to make updates over time for significant life events (divorce, birth or death of a family member, etc.); therefore, it is important to regularly review your will and named beneficiaries to ensure they accurately reflect your wishes.
“I made my money the old-fashioned way. I was very nice to a wealthy relative right before he died.” –Malcolm Forbes
Limi t a t i o n s o f a Wi l l
|
11
“Twenty years from now you will be more disappointed by the things that you didn’t do than by the ones you did do.” –Mark Twain
Long-Term Care Most people are hesitant to discuss long-term care insurance. It can be difficult to imagine not being capable of living on your own. However difficult it may be to address this topic, the alternative likely is worse. Imagine tapping your hard-earned retirement savings to pay for expenses not covered by traditional medical plans or Medicare. Those costs might include, but are not limited to, personal hygiene, diet, movement assistance, home monitoring and, of course, labor costs. Long-term care insurance is designed to avoid or at least minimize the financial strain that one can incur as you age or become ill or incapacitated. The costs of a policy can vary by age, health and state of residence but, as an example, a 55-yearold man in good health can expect to pay about $1,700 per year. That will cover about $164,000 in benefits when the policyholder takes out the insurance and about $386,500 at age 85, assuming benefits increase 3% a year. This data is according to a 2020 price index survey conducted by the American Association for LongTerm Care Insurance. This premium may sound expensive, but when you consider the average cost of a private room in a nursing facility is roughly $8,800 a month ($105,600 per year), it doesn’t seem too bad. With costs like these, retirement savings can disappear fast. Medicare covers only limited medical costs such as brief nursing home stays and limited skilled nursing and rehabilitation services. Keep in mind that, according to the Urban Institute and the U.S. Department of Health and Human Services, the average 65-year-old has a 70% chance of needing long-term care in their lifetime with the average stay lasting about two years. Roughly 20% of those who need long-term care stay five years or more. Before purchasing a long-term care policy, it is important to understand when the coverage begins and how long will it last. It used to be that policies provided coverage for life, but today most cap benefits at one to five years. Additionally, policies vary on how long before you may access the benefits (known as the elimination period). The premiums you pay may increase over time, so you will want to know whether your cap on benefits will increase as well. Some carriers allow for you to place an inflation rider on your policy, enabling you to raise your daily benefit every year. Some or all the long-term care premiums you pay may be tax deductible at the federal and state level. Check with your personal tax advisor to see if you qualify. Obtaining long-term care insurance is a very important decision to make as your work through your financial plan. Please check with your advisor at Means Wealth to see if a long-term care policy makes sense for you. 12
|
L o n g - T e rm Car e
Roth Conversions A Roth conversion refers to taking some or all of the balance in a traditional IRA and moving it into a Roth IRA. When converting funds from a traditional to a Roth IRA, you must pay taxes on the balance converted in the year of conversion. However, once the balance converts to a Roth IRA, it will grow tax-free. It remains tax-free when withdrawn as long as the Roth IRA has been open for at least five years and you meet one of these conditions: you are at least 59 ½ years old, you pass away, you become disabled, or you make a qualified first-time home purchase. Here are a few items you should think about when considering a Roth conversion: •
What is my current tax rate, and what do I think it will be in the future? If you expect that you will be in a higher tax bracket in the future, it may be a good time to consider taking advantage of your lower tax rate and converting traditional IRA assets to Roth IRA assets. Keep in mind – depending on the amount converted, the Roth conversion may bump you into a higher tax bracket which may dilute the effectiveness of the conversion.
•
Do I have any losses or large tax deductions in the current tax year? If so, it may be a great time for a Roth conversion, as those losses and/or tax deductions can help offset the additional income generated by the conversion.
•
Do I have enough cash to pay the taxes associated with the conversion? Roth conversions will increase your taxable income, which can result in a higher tax bill. Please be sure you have the cash to pay the associated taxes before going through a conversion.
•
What do I wish to do with the IRA when I pass? If you plan to leave your traditional IRA to charity, it is likely that it will not make sense to go through a Roth conversion. Alternatively, if you plan to leave your IRA assets to your heirs, the inheritance of Roth IRA assets generally is more advantageous from a tax perspective.
Remember: You don’t have to convert all of your traditional IRA assets at one time; you can convert a portion of your traditional IRA or even spread the conversion out over a number of years. Of course, there are various other items to consider, which is why we always recommend that you work with your tax and financial advisors before implementing any significant financial decisions, including a Roth conversion.
Roth Conversions
|
13
Retirement Contribution Limits “How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” –Robert G. Allen
Plan Type
2021
2022
Traditional and Roth IRA Contribution
$6,000
$6,000
Catch-up for individuals 50 & over
$1,000
$1,000
Apr 15, 2022
Apr 18, 2023
401(k), 403(b) and 457 Contribution
$19,500
$20,500
Catch-up for individuals 50 & over
$6,500
$6,500
Dec 31, 2021
Dec 31, 2022
SIMPLE IRA Contribution
$13,500
$14,000
Catch-up for individuals 50 & over
$3,000
$3,000
Dec 31, 2021
Dec 31, 2022
25% of pay (20% for Self-employed) up to $58,000
25% of pay (20% for Self-employed) up to $61,000
$290,000
$305,000
Apr 15, 2022
Apr 18, 2023
Deadline
Deadline
Deadline
SEP IRA
Max annual compensation that can be taken into account Deadline
14
|
R e t ir e m e n t C o n t ri b u t i o n Limi t s
RMD Essentials •
If you were born after June 30, 1949, the starting age for your RMD (required minimum distribution) is 72.
•
The deadline to take your RMD is December 31st unless you turned 72 this year. As the account holder, you can elect to receive your first RMD distribution as late as April 1st of the year after you reach age 72.
•
If you do not own 5% or more of the company you work for and you are still working, you may be able to delay the start of your distributions in a non-IRA retirement plan.
•
Roth IRAs do not require an RMD. They are required, however, from Roth 401(k), Roth 403(b), and Roth 457(b) accounts. It may be wise to transfer the savings in those accounts to a Roth IRA at some point to avoid RMDs.
•
You can avoid paying tax on your RMD by making a qualified charitable distribution (QCD). In general, you can distribute up to $100,000 per year tax free from your IRA directly to qualified charities. This action can count toward your RMD for the year. Note: QCDs can be made at age 70 1/2 or later; you don’t need to wait until age 72.
R M D E s s e n t ia l s
|
15
How to Safely Store Documents Ensuring your important documents are stored in a secure and accessible manner can help you avoid additional stress during the difficult days following a death, accident or disaster.
What documents should I be sure to safely store? The Federal Emergency Management Agency (FEMA) has published a checklist entitled “Safeguard Critical Documents and Valuables”. This is a comprehensive list of items you’ll want to be sure to appropriately safeguard. Included on this list are items like: wills, trusts, power of attorney documents, passports, Social Security cards, military service identification, vital records (birth certificates, marriage licenses, child custody papers), house and property deeds, vehicle titles, insurance policies, tax statements, and more. In addition, it is worthwhile to also record and securely store usernames and passwords to all of your online accounts (online banking, social media accounts, etc.).
Where should I store this information? We recommend you store all important documents in both paper and electronic form. Paper copies of important documents should be stored either at home in a fire and waterproof box or safe or at a bank in a safe deposit box. Be sure to store the keys to the safe and/or safe deposit box in a secure location that is known by more than one trusted friend or relative. If you use a safe deposit box, be sure you regularly confirm who can and cannot access the box if you die or become incapacitated. Please also remember that your safe deposit box is sealed upon your death; this means that if the original copy of your will is stored within the safe deposit box, it may take the executor of your estate a long time to access it. For those looking to store important documents electronically, we recommend considering an online solution. There are many solutions available, including a free online tool from Fidelity called FidSafe*. FidSafe enables you to store your important documents electronically, giving you access to your documents even if you aren’t at home, and allows you to share copies of your documents with your trusted contacts. Please visit www.fidsafe.com for more information. * There are other electronic storage solutions available. This article is not intended to be an endorsement of FidSafe, and we are not responsible for any breaches of Fidelity’s FidSafe system. 16
|
H o w t o Sa f e l y S t o r e D o c u m e n t s
“Most people do not listen with the intent to understand; they listen with the intent to reply.” –Stephen R. Covey
Ways to Prevent Elder Financial Fraud Cybercriminal activity has been on the rise and with so many financial accounts now accessible via online tools, we are all more susceptible to financial fraud. One of the populations targeted the most is seniors, which is why helping these individuals monitor their financial accounts is more important than ever before. It is important to remember that the perpetrator may be a professional or an individual who is known and trusted by the victim. Below are some ways to help you protect your loved ones against elder financial fraud. •
Monitor financial accounts. At least one trusted individual should review and monitor their financial activity.
•
Be aware of common scams. Sign up for AARP’s free Fraud Watch Network to receive up-to-date information, alerts and resources to help you spot scams.
•
Utilize account alerts. Use automatic alerts offered by financial institutions to notify you when significant transactions are requested or when a change has been made to their profile.
•
Act quickly. If your loved one has been targeted by scams or fraud, seek assistance immediately by contacting banks, financial institutions and credit bureaus as appropriate.
•
Be compassionate. Many seniors do not want to discuss being scammed as they may feel embarrassed or ashamed. Talk to your loved ones often in order to help them feel more comfortable sharing potential or successful fraud attempts. Let them know they are not alone and how important it is to act quickly if someone has attempted to obtain their personal information. Way s t o P r e v e n t E l d e r Finan c ia l Fra u d
|
17
Protect Your Digital Information With so much of our personal and financial information available online, it is more important than ever to be vigilant in protecting this information. The steps below offer tips on how to reduce the risk of cybercriminals gaining access to that information.
Log-in Credentials and Password Management Best Practices `
If permitted, create unique usernames for each account (avoid your name and email in the username).
`
Use a password manager to keep passwords safe.
`
Do not use the “save password” option in your internet browser.
`
Use passphrases for your passwords (include both upper and lowercase letters, numbers and symbols).
`
Implement two-factor authentication.
`
Have unique passwords for each account.
`
Take advantage of voice biometrics, if available. Voice biometrics will detect and verify your voice on a phone call once you have enrolled.
`
Implement security alerts to warn you of significant transactions or changes to your profile.
`
Install anti-virus software on your device.
`
Enable remote wipe feature on your phone so you can erase any data if lost or stolen.
Protect Your Financial Accounts `
`
Be sure to register for log-in credentials to ensure that no one else can create a login under you. If you don’t intend to use this feature, ask your financial institution if they can block this option for you. Create unique usernames for each financial provider.
Protect Your Mobile Device `
`
18
|
Create a PIN or passphrase to prevent criminals from being able to swap your phone to a new carrier and gain access to your phone data. Activate automatic updates on your device.
NOTE: If you do not know how to implement the above recommendations, contact your mobile device carrier for more information.
P r o t e c t Y o u r D i g i t a l I n f o rma t i o n
Protect Your Computer and Tablet `
Activate automatic updates on each device.
`
Install anti-virus software on each device.
Be Cautious on Social Media Accounts `
Be careful how much personal information you share (those surveys being posted may seem fun, but they provide a lot of similar data used in security questions, etc. for
`
Be particular about who you choose as “friends” and “followers” (never accept a friend request from someone you do not know personally).
financial account logins). `
Manage your privacy settings to control who can see your posts.
If you think you have been compromised, act quickly. 1.
Freeze Your Credit You can request a free security freeze by calling 800-525-6285 or by following the steps located at the following website: www.nerdwallet.com/article/finance/how-to-freeze-credit.
2.
Call the Fidelity Fraud Line If you have accounts with Fidelity, contact them at 800-544-6666 to notify them of the breach. Fidelity also offers a fraud guarantee which can be accessed at: www.fidelity.com/security/customer-protection-guarantee.
3.
Contact Your Bank, Creditors, and Other Key Agencies Contact your bank and creditors to ask them to close your accounts or to change the account numbers. Also, if necessary, contact key agencies that should be notified of the breach, such as the Social Security Office.
4. Change Account Passwords Change passwords on all your financial, social media and email accounts. 5.
Report the Crime Visit www.identitytheft.gov to report the incident.
6. Restore Your Computer If your computer has been compromised, take it to a professional you trust to have the hard drive cleaned and the operating system reinstalled.
P r o t e c t Y o u r D i g i t a l I n f o rma t i o n
|
19
Tax-Efficient Investing Investment strategies should not be based solely on taxes, but investors should consider any opportunities to defer, manage and reduce taxes.
20
1.
Defer Taxes. The largest tax benefits available to most investors is the ability to defer taxes through retirement accounts, such as 401(k)s, 403(b)s, IRAs, and tax-deferred annuities. When using a traditional retirement account, you receive the benefit of reducing your current taxable income while also deferring taxes on any investment growth within the account(s). Investors should consider locating and holding investments that generate certain types of taxable distributions within a tax-deferred account rather than a taxable account. In doing so, you will be maximizing the tax treatment of those accounts.
2.
Manage Taxes. Decisions you make about when to buy and sell investments you own can determine your tax burden. While you should never let the tax tail wag the investment dog, these concepts should be incorporated into your portfolio management style. As an example, a loss on the sale of a security can be used to offset any realized investment gains. In addition, $3,000 in taxable annual income can be used against the loss. If your losses exceed the limits for deductions in the year they occur, the tax losses can be carried forward to offset investment gains in future years. Securities held more than 12 months are taxed as long-term capital gains or losses with a top federal rate of 20% in 2021, which can be more advantageous than recognizing a short-term capital gain which would be taxed as ordinary income. Being aware of holding periods is an intelligent way to avoid paying higher tax rates.
|
Ta x - E f f i c i e n t I n v e s t in g
“The way I see it, if you want the rainbow, you gotta put up with the rain.” –Dolly Parton
3.
Reduce Taxes. There are various charitable giving strategies you can employ to reduce your tax burden while also supporting charities and those in need. These strategies include, but are not limited to: a.
By donating long-term appreciated securities to a charity, you can avoid paying capital gains tax on the appreciation while also claiming the fair market value of the security as an itemized deduction on your federal income tax return.
b. If you are at least 72 and have an IRA, you can satisfy your required minimum distribution requirement while also lowering your taxable income by transferring up to $100,000 annually per taxpayer directly from your IRA to a charity by making a qualified charitable distribution (QCD). c.
You could establish a donor-advised fund; in doing this, you can contribute to the fund and qualify for a charitable deduction without deciding right away on which charity(ies) to support.
“Happiness is a perfume you cannot pour on others without getting a few drops on yourself.” –Ralph Waldo Emerson
Ta x - E f f i c i e n t I n v e s t in g
|
21
Municipal Bonds When a municipality such as a city or state borrows money, it may issue promissory notes, also called debt, for this money. These notes are called Municipal Bonds. The interest, which is usually paid on a semi-annual basis, is exempt from Federal income taxes and from state and local taxes where the issue originates. Municipal bonds issued for public purposes, such as roads and schools, or those issued on behalf of non-profit organizations, such as private hospitals and universities, are not affected by Alternative Minimum Tax (AMT). The Tax-Exempt Chart on the following page illustrates the reason why municipal bonds or municipal bond funds might be appropriate for your portfolio. This table shows the taxable yields which are equivalent to tax-exempt yields under current Federal tax laws at rates in effect at the time of this writing. Tax-exempt bond holders are required to report any tax-exempt interest they receive. Although it must be reported, it will not be federally taxed or taxed by the state of Maine if it is a Maine or Puerto Rico Municipal bond and not subject to AMT.
22
|
M u ni c ipa l B o nd s
$0 — 20,550
20,551 — 83,550
83,551 — 178,150
178,151 — 340,100
340,101 — 431,900
431,901 — 647,850
647,851 or more
$0 — 10,275
10,276 — 41,775
41,776 — 89,075
89,076 — 170,050
170,051 — 215,950
215,951 — 539,900
539,901 or more
37.00%
35.00%
32.00%
24.00%
22.00%
12.00%
10.00%
Tax Bracket
1.59%
1.54%
1.47%
1.32%
1.28%
1.14%
1.11%
1.00%
1.98%
1.92%
1.84%
1.64%
1.60%
1.42%
1.39%
1.25%
1.75%
2.38%
2.31%
2.21%
1.97%
1.92%
1.70%
1.67%
2.78%
2.69%
2.57%
2.30%
2.24%
1.99%
1.94%
Equivalent Taxable Yield
1.50%
Tax Exempt Yield
3.17%
3.07%
2.94%
2.63%
2.56%
2.27%
2.22%
2.00%
3.57%
3.46%
3.33%
2.96%
2.88%
2.56%
2.50%
2.25%
If a couple files a joint return and has to pay taxes on $90,000, they would fall in the 22% marginal Federal tax bracket in 2022. If that couple were to purchase a municipal bond giving them a 2.00% tax-exempt return, they would have to receive a taxable yield of 2.56% to provide them with the equivalent tax-exempt yield.
This example should help you understand this table better.
Joint Return
Single Return
2022 Taxable Income
2022 Tax-Exempt Chart
Wash Sale Rules An investor who has generated capital gains in 2021 may offset these gains by selling other securities that generate a capital loss. If your capital losses exceed your capital gains, you may deduct your net loss dollar-for-dollar against ordinary income up to $3,000 annually. Any excess capital losses may be carried forward indefinitely to future tax years. Remember, however, that the wash sale rule states that you may not take a loss if, within a period beginning 30 days before you sell your security and ending 30 days after that date (a period covering 61 days), you have acquired the same or substantially identical securities. If a wash sale occurs, your basis in the newly acquired position is increased by the amount of any disallowed loss on the original security. The loss would then be deferred until there is a sale or other disposition of the newly acquired position. If you are considering selling an underwater position, but want to continue to hold that specific security in your portfolio throughout the 61-day period, an alternative strategy would be to purchase additional shares of the position at least 31 days prior to your anticipated sale of investment and sell the original shares for a loss 31 days later. An alternative to this strategy might be to purchase an ETF or stock with similar sector exposure to an individual stock position that you sell at a loss. You could then sell that position and buy back the original after 30 days. Keep in mind for 2021, your last day to purchase additional shares of an investment you expect to sell was Tuesday, November 30th. The last day to sell a security for a loss will be Friday, December 31st. The first day you can buy back after a December 31st sale is Tuesday, February 1st, 2022. 24
|
Wa s h Sa l e R u l e s
“Too many people spend money they haven't earned, to buy things they don't want, to impress people that they don't like.” –Will Rogers
The Rule of 72 Thanks to compound interest, money can double in value over a reasonably small period. The “Rule of 72” approximates how many years it will take for your money to double, given a fixed rate of return. To determine how long it will take for your money to double, you simply divide 72 by the anticipated rate of return. For example, if you expect to receive 4% on the money, use the following formula: 72/4 equals 18 years to double. If you expect to receive a 7% rate of return, your money will double in 10.3 years (72/7). Although it offers more risk than owning a money market account or buying a CD, the stock market could give you a much better option in terms of potential return. The average stock market return over the last century is about 10% per year. This same principle can be applied to your credit card debt, car loan, student loan or home mortgage. This will show you how many years it will take your money to double for your creditors. Say, for example, you owe $5,000 on your credit card and are paying 15% interest. If you divide 72 by 15, you arrive at 4.8., which is the number of years it will take the credit card company to double their investment. The higher the rate, the more you will owe the lender. With interest rates near historical lows, it may make sense to refinance at a lower rate. the rule of 72
|
25
529 Plan Basics So what is a 529 plan? It is a tax-advantaged way to save for education expenses. The cost of a college education is a significant expense and, for some families, could end up costing more than a small home. A 529 plan resembles a Roth IRA. You put after-tax money into the 529 account and invest those funds based on time horizon and risk parameters for the future student. As the money grows, it does so tax free. Then, assuming you withdraw the money under the qualifying guidelines, the withdrawals will also be tax free.
Benefits of a 529 Plan 1.
Tax advantages a.
Under a special five-year gift rule, you may be eligible to make a special gift tax election and make larger 529 contributions (up to $75,000 for individuals or $150,000 for married couples) for each beneficiary in a single year without federal gift tax consequences. This makes 529 plans an effective way to reduce your estate taxes while also making a gift to a child or grandchild.
b. Some states also offer tax deductions for 529 contributions. 2.
Flexibility a.
3.
529 plans can be transferred to another family member with no age limit for the beneficiary.
Favorable financial aid treatment.
4. Withdrawals are tax free when you follow certain guidelines. 5. 26
|
No income limitations on contributions. 5 2 9 p l an b a s i c s
529 Plan Withdrawal Tips (to keep withdrawals tax free) •
Make sure your withdrawals do NOT exceed your child’s adjusted qualified expenses.
•
Know what expenses qualify – tuition and fees are considered required expenses. Other expenses that may be eligible for tax free withdrawals include the cost of room and board (for students enrolled at least halftime), books, supplies, computers and internet access. Funds can be withdrawn tax free to cover rent, food and utilities for students living off-campus; the distribution, however, cannot exceed the room and board allowance the college includes in the cost of attendance.
•
Keep detailed records of the child’s qualified expenses.
•
Withdraw funds from your 529 college savings account in the same tax year as you pay the qualified expenses.
“Respect your parents. They passed school without Google.” –Anonymous
NextGen 529 Accounts (Maine Residents) As an incentive to encourage Maine residents to open NextGen 529 accounts, the Finance Authority of Maine (FAME) offers grants regardless of income. To qualify, the account owner or the account beneficiary must be a Maine resident. •
A $100 NextGen Initial Matching Grant is available for Maine Accounts opened with a contribution of only $25. Note: The Initial Matching Grant was expanded in 2020 to also include accounts opened for children who also received or were eligible for the $500 Alfond Grant.
•
A $100 NextGen Automated Funding Grant is available for Maine Accounts that make at least six consecutive contributions in an amount of at least $25 per month (with contributions made at least quarterly) through automated funding from a bank account or payroll direct deposit.
•
The NextStep Matching Grant provides a 30% match on contributions, up to $300 per year, with no lifetime maximum.
•
The $500 Alfond College Challenge Grant continues to be available to open a NextGen account for a Maine resident baby born on or after January 1, 2013.
If you have any questions about the 529 plans, please contact us.
5 2 9 p l an b a s i c s
|
27
Means Team Paul Means
Zachary Means
Chairman
President
Eric Baker
Erin Barry Chief Executive Officer
Financial Advisor
David Cust
Jackson Cust
Vice President
Financial Advisor
Susan Dietz
John Dudley
Relationship Manager
Senior Vice President
Dawn Hatch Operations Manager & Chief Compliance Officer
Wesley Leighton Financial Advisor
Karen Nadeau
Alex Means Vice President
Relationship Manager
Wendy Porter
Kristine Selleck
Operations Engineer
Senior Relationship Manager
We look forward to 2022 and, as always, thank you for your business. — The Means Team “Financial Success in not hard science, unlike engineering or doctorate. It is a soft skill, where how you behave is far more important than what you know.” –Morgan Housel
28
|
M e an s T e am
A Look Back at 2021 As 2021 concludes, same song different verse The pandemic continues, but a little less worse The year began quick, though not very quiet A new President elected, and a Capitol Hill riot. It wasn’t a proud moment, some blame QAnon They stormed through D.C., short of the White House lawn History was made, a female black V.P. Biden the President, now leading the Country. Covid still present, are we doing our part? Are we washing our hands, are we six feet apart? We had to make choices, a mask or visor Will you get Moderna, J&J, or perhaps Pfizer? Bezos steps down, and heads off to space Musk, Branson and Shatner, look to give chase A hope for success, without a bad wreck The advantage to Shatner, with his role in Star Trek. Abroad there was chaos, chips can’t be found Turmoil in Afghanistan, the plan wasn’t sound The Summer Olympics, took place in Tokyo Biles backs out, the U.S. still steals the show. Notable deaths, their accomplishments great Like Prince Phillip and Colin Powell, a Duke and a Secretary of State Some interviewers pass, like that of Limbaugh Larry King said goodbye, his 8th wife the last straw. The markets were bumpy, they fell but came back People got nervous, with a SolarWinds hack Prices increase, inflation in play A dollar yesterday, not as much as today. So our year comes to a close, with a lot in the news As we continue to recover, from these quarantine blues 2022 we look, and we hope for good things Some kind of normalcy, and the cheer that it brings. So from all of us here, Happy Holidays and good health We thank you so much, for being here at Means Wealth.
Since 1935
This information was prepared by Means Wealth Management unless stated otherwise. Means Wealth Management is a registered investment advisor. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. The information in this material is not intended to act as individualized tax, legal, financial or investment advice. Please consult a qualified attorney or tax professional for individualized legal or tax assistance. Please contact us for specific information regarding your individualized financial and investment planning needs. The information in this booklet is accurate as of December 1, 2021
800-696-3267 info@meanswealth.com www.meanswealth.com Registered Investment Advisor
802 Stillwater Avenue Bangor, ME 04401 330 E. Coffee Street Greenville, SC 29601
