No matter what they are, they’re guiding your financial choices. And they’ve already shaped your financial habits.
This month, we’re exploring the importance of your money mindset and sharing some exercises to help you understand more about it. Click here to check it out!
The more you know about your money mindset, the more you’ll know about yourself — and how your mindset affects your financial decisions and your overall financial health.
Risk Disclosures: Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results. This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results. The S&P 500 is an unmanaged composite index considered to be representative of the U.S. stock market in general. All index returns exclude reinvested dividends and interest. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. For illustrative purposes only.
Did you know that humans are twice as concerned about avoiding losses as they are about achieving investing gains?
That means investment losses hurt a lot.
You’ve probably heard that the worst thing you can do during a downturn is sell, but did you know the psychology behind that impulse? It’s called loss aversion.
It’s one of the reasons why people can sabotage their investments by selling when they get scared, missing the recovery, and then buying back in once they feel “safe” again.
Understanding and leveraging human psychology is one of my most important jobs as an adviser.
My approach uses the Risk Number®, based on Nobel Prize-winning research. Together we can quantify how much risk you want, how much risk you currently have, how much risk you need to reach your goals, and how much risk you should take on.
Your Risk Number® is like a speed limit. Some people are comfortable driving fast while others want to go slower.
I’d like to help you determine your comfort zone and use it to manage your investments so you can rest assured that your investment strategy truly reflects your Risk Number®.
Risk Disclosures: Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results. This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results. The S&P 500 is an unmanaged composite index considered to be representative of the U.S. stock market in general. All index returns exclude reinvested dividends and interest. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. For illustrative purposes only.
Women face a very different relationship to finances, money, and investing than men do, because they are simply wired differently.
Women tend to view money not just as a means to an end but as a tool to improve lives, build communities, and create the life they want to live.
Unfortunately, most women (whether single or partnered, divorced or widowed, retired or still working) face internal “money blocks” that make them feel overwhelmed, unsure, and unheard.
I know that these internal “money blocks,” or scripts we tell ourselves, are far more than internal programming.
They are formed as a result of bad experiences with financial professionals, societal pressures, and even family situations.
Many women even report feeling judged or not listened to by their financial professionals (which is downright unfair and disrespectful).
In this issue of the Visual Insights Newsletter, we’re sharing some great conversation starters for talking about money with young people.
Many parents and grandparents find these important conversations hard to start. One survey found that at least 36% of parents struggle to talk about money with kids, and more than 76% admit to only discussing money with their children less than once a month. Yet… 97% agree that teaching kids good financial habits is important. Why the disconnect between knowing and doing? Difficulty knowing how to start the conversation… Fear that they won’t listen…
What’s stopping you? (I’ve got some great conversation starters for you right in this issue of the Visual Insights Newsletter)
Do you worry that your past financial mistakes compromise your authority around money? Not even close. The mistakes you’ve made and the lessons they taught you are powerful. One, because they’ve given you hard-earned wisdom to share. Two, because these mistakes are relatable. If you don’t know how to start these critical financial conversations, start with: The financial mistake I’ve learned the most from was… The thing I regret buying the most was… My proudest financial accomplishment was… When money was tight, I made it work by… I am grateful for… A person whose money wisdom I greatly respect is… I’ve learned the most about money by… The best way I know to build good financial habits is by… To me, money represents… When I’m deciding whether to buy something or save the money, I… My most treasured possession is… Go ahead and click here to check out other great conversations starters that can jump-start the money talk with kids. Are you thinking about more ways to teach the young people in your life good financial habits? Hit reply to ask me a question.
About Richard
Richard Archer is a financial advisor and the President of Archer Investment Management with more than twenty years of industry experience. He specializes in providing comprehensive financial planning and investment guidance and personalized care and attention to professionals with complex compensation and families pursuing financial freedom. Along with holding a Wharton Bachelor of Science in Economics and a Texas MBA, he is a CERTIFIED FINANCIAL PLANNER™ and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn, Facebook, Twitter or visit www.archerim.com.
It’s hard to deny it: Austin is an awesome place to call Home, Sweet Home. 🏠 But if you’re contemplating whether to buy or rent in Austin, is it the smartest move to buy a House, Sweet House?
Maybe you’ve just come from selling a house in Cali. It only makes sense to use that money to buy a new house in Austin, right? After all, costs seem low in comparison. The Austin housing market is booming, and real estate here is looking mighty nice right now.
I’m here to advise you to slow your roll. For many people—tech professionals in particular—renting in Austin may be the way to go.
Buy or rent in Austin? Why? Most of the reasons on this list relate to one simple equation:
More Cash = More Freedom
We’ll dig into that in more detail. First, let’s look at some pitfalls to homeownership that sometimes get neglected…
Surprise! House Costs Will Surprise You
Buying a house saddles you with much more than a monthly mortgage. There’s property taxes and insurance premiums, and either could go up at any time. There’s furnishing, maintenance and upkeep.And then… there’s the unpredictable.
No matter how ready you think you are, when you face something like tree roots bursting into your sewer line… That literally stinks. And it’s a drain—the financial, physical, and mental kind—you don’t need.
Here are some other eye-opening numbers for you: Research by Zillow and Thumbtack found the average U.S. house faced about $9,400 in hidden costs per year.
For houses in Austin, that number is $12,457.
$9,727 in “necessary” costs (taxes, insurance, and utility bills) plus $2,730 in maintenance costs. That’s the 9th highest of all cities in the study. (1)
Buy or rent in Austin? Meanwhile, monthly rents in Austin haven’t risen as sharply as real estate prices have. You can get a lot more house for your money by renting, and you know how much you’ll be paying throughout the year.
Plus, being able to call a landlord to take care of that plumbing disaster? Priceless.
Renting Leaves You More Cash for More Flexibility
Now let’s talk cash. 💸 Namely, how much more of it you’ll have if you don’t throw it into a down payment for real estate. If you’re considering whether to buy or rent in Austin, this could be a key factor.
In the tech world, some of the most exciting jobs are in startups. Maybe that’s what brought you to Austin. A hot new business that’s primed to explode, but you have to take a major salary cut now to get in on it. If you’re counting on that cash for buying a house, you might not be able to afford to take a hit now for the prospect of a big payout down the line.
But if you rent and save that cash, you’ll not only be in a better position to take the equity. You’ll also have the flexibility to be more strategic and profitable with what you do with it.
Here’s one example: If you’ve received stock grants, a Section 83(b) election lets you pay taxes on them now, when the stock is granted to you, rather than years later when the stock is vested—and potentially worth a lot more. Renting can provide you the liquidity needed to take advantage of such opportunities, adding to the reasons to rent rather than buy in Austin.
One thing I’ve learned about tech professionals is they love a challenge. New problems to solve, new mountains to climb. Bring it on.
But that also means you might be drawn to what seems like a dream job at first, only to start feeling bored when things get stale or easy or repetitive. That can mean more job changes—and location changes—than other professions.
And that’s fine! I won’t be offended if you have to leave this great city. I support you in your next challenge. 🙌
But if your new dream job calls out to you from San Fran or Seattle or New York or wherever and you already have a house here in Austin, you may find that house holding you back. It becomes an albatross around your neck, one so big it has its own gravitational pull, keeping you from launching off to the job you really want.
And let’s keep it real: the tech industry can be brutal. Big company-wide layoffs can send you into an escape pod whether you’re ready to leave or not. Having a cash cushion available by not putting it into a house can make a huge difference in easing the stress. This is another reason why many tech professionals consider the buy or rent in Austin question and often lean towards renting.
More Freedom for Journeying and Learning
The sky’s the limit on what you can do with the extra cash and extra freedom that comes with renting. That’s the best part about freedom!
But here are a couple ways that renting may offer an extra-enticing advantage. One is if you want to literally take to the skies! ✈️
Whether it’s to visit family or just explore the wild world out there, many of the tech professionals I work with love to have a large travel budget! Instead of putting a whole bunch of cash into one very stationary house, you can spend it on roaming the world as you wish.
Plus, you won’t have to worry about what might be happening to your house or yard or plumbing while you’re away.
You Don’t Know How Your Kid Will Grow Up Yet
Not being tied down by a house also gives you valuable freedom in terms of education for your kids. If you’re new to Austin, you might not know where you to settle based on your family’s educational priorities. You might not know what schools offer or where their district boundaries are.
And you probably can’t predict what your kids will be like in the future, either. Will they show a knack for certain subjects, interest in certain careers, or talent in certain lucrative sports?
You may end up wanting to move to a different school system that has the programs and opportunities to best help your future superstars thrive. 📚 If your family is renting, both the decision and the move itself will be much easier on you. This flexibility is a major factor when deciding to buy or rent in Austin, especially for families.
So… What’s Your Next Move?
Has this helped open your mind to renting instead of buying a house in Austin? That’s just the start. There are a lot of factors to consider, a lot of specific financial strategies that may help in your situation.
Or maybe you’re a tech professional that these reasons don’t apply to. Or maybe you’re not in the tech industry at all, but still find yourself thinking, “I need to start getting my financial life in order and have a second opinion on important decisions like this!”
That’s what we’re here for. Whether you rent or buy, we’re here to help you make the best call for you and your family in all of your financial choices. Schedule a call.
About Richard
Richard Archer is a financial advisor and the President of Archer Investment Management with more than twenty years of industry experience. He specializes in providing comprehensive financial planning and investment guidance and personalized care and attention to professionals with complex compensation and families pursuing financial freedom. Along with holding a Wharton Bachelor of Science in Economics and a Texas MBA, he is a CERTIFIED FINANCIAL PLANNER™ and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn, Facebook, Twitter or visit www.archerim.com.
Austin is the cool place to be these days, but the housing market in “the music capital of the world” is triple digits H-O-T!
But stay tuned… because we are going to share some smart ways to calculate “‘how much house can I afford in an in-demand city like Austin?” 🤔
BUT FIRST… A FEW FACTS ABOUT OUR IN-DEMAND MARKET 🔥
Home prices in Austin have spiked nearly 10% in the last year. It’s getting expensive for those who want to put down roots and get their own piece of Austin real estate.
The average home value right now in Austin is just over $360,000, and the median listing price is $379,000. (1)
With our market as hot as it is, it is more important than ever to have a solid grasp of how much house you can really afford before you sign on the dotted line.
Ten years ago we saw what happens when too many people get caught up in the rush and end up in over their heads. 👎🏻
WHY ONLINE CALCULATORS DON’T SHOW THE WHOLE PICTURE 🙈
So, how do you know how much you can really afford in our incredible city? Some people think using an online calculator is a great way to crunch the numbers.
However, a calculator in and of itself is not sufficient. A calculator’s purpose is to determine “how much of a mortgage you may be able to obtain.” But just because a lender is willing to give you a mortgage doesn’t necessarily mean you can afford it or you should get it.
There are a few other critical goals and lifestyle items to consider first…
WHAT ELSE DO YOU WANT BESIDES A HOUSE?
Just because you can technically “afford” a mortgage payment doesn’t mean it’s the best choice for you right now. It’s important to take long-term goals into consideration. Taking on too hefty of a mortgage will limit funds for your other goals, making them harder to achieve.
Do you want your children in a private school? That will reduce how much money you have to put toward a house payment on a monthly basis.
Do you want to retire early or travel often? An online calculator doesn’t know that. Using an online calculator to determine the mortgage size to take on could make it challenging for you to fulfill your dream of becoming financially independent or seeing the world.
While the online calculator is a good starting point, it is an oversimplification. It’s important to look at the big picture of your life to see how owning a home fits into your other goals and priorities.
ARE YOU REALLY SURE YOU WANT TO BUY? 🏠
Owning a home is an important milestone in our American culture. How important is it to you personally, though?
Many young people purchase homes because that’s what’s supposed to come next after starting a real job and getting married, and before the kids start coming. Too many people purchase a home on autopilot and don’t take the time to even consider if it’s what they really want in life.
FINANCIAL COSTS
Contrary to popular belief, owning a home isn’t right for everyone. It isn’t always a good financial move. There are so many expenses that come up when owning a home it’s impossible to list them all.
It goes all the way from big-ticket items like HVAC and a new roof to little things like backflow testing, shower curtains, and tree trimming. Do you know how much it costs to replace outdated brass faucets?
If you look at Zillow’s website, it will tell you that the mortgage for a $375,000 house would be about $1,463 a month. (2) You look at that number, see the picture of the pretty house with all of its curb appeal, and think, “That’s cheaper than my rent. I’m in!”
But that number doesn’t include taxes. And it doesn’t include insurance. It doesn’t include the HOA. Or any of the myriad of expenses mentioned above. Once all of the expenses are laid bare, many people decide that it just makes more financial sense to rent rather than buy.
LIFESTYLE COSTS
Even if you have the money, owning a home might not fit your lifestyle. Are you sure you want to stay in Austin long term? If you change your mind, it’s much easier (and cheaper!) to pick up and leave if you rent instead of own a home. Homeownership serves as an anchor that many people appreciate while others loathe.
Even if the nomadic lifestyle holds no appeal for you, you may not want to be anchored quite yet. If you’re still building your career, being anchored to a house could keep you from pursuing a promising job opportunity elsewhere.
What happens when you have kids? Will you want to be closer to the grandparents (and free babysitting)? Are you satisfied with the schools in your neighborhood, or will you want to move to a better district? If that’s too far in the future, you may not be ready to make a commitment yet.
YOU DON’T HAVE TO FIGURE THIS OUT ALONE 🙌🏻
When you own a home or are thinking about purchasing one, it’s challenging to anticipate all of the different expenses that will crop up or the different factors that need to be taken into consideration.
You simply don’t know what you don’t know.
I love to come alongside people who are right in your position and give them a leg up. I understand the stress and anxiety that you are facing as you approach making the biggest purchase of your life. It can be daunting.
But, it doesn’t have to be. Partnering with an experienced financial professional can help lift the burden from your shoulders and help lower your stress knowing you are making the right choices for YOUR life and values.
If you’re considering buying a house in Austin, give me a call first.
We can review your goals and priorities, see how home ownership may fit in, and find a price point that will make ALL your dreams possible, not just home ownership!
Richard Archer is a financial advisor and the President of Archer Investment Management with more than twenty years of industry experience. He specializes in providing comprehensive financial planning and investment guidance and personalized care and attention to executives with complex compensation and families pursuing financial freedom. Along with holding a Wharton Bachelor of Science in Economics and a Texas MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.
In this age of information overload, there’s no lack of answers to our burning financial questions. But finding the answers that will optimize our financial lives isn’t just about muddling through articles and news reports; it’s about asking the right questions of the right person. Knowing which questions to ask your financial planner can make all the difference.
Here are 5 questions you should be asking your financial planner:
How do I plan for my children’s college education without breaking the bank?
Have you looked at college costs lately?
You’re looking at $187,800 for four years at a private college. But with college costs estimated to rise 5% per year, in five years, that amount increases to $239,685—almost $60,000 a year! (1)
You have a better choice if you act now.
Start using the power of compound interest to your advantage… now!
Think of it this way…
You have the choice of saving NOW and earning interest or borrowing LATER and paying interest.
Here’s a sneak peek at the power of compound interest in action:
If you invest $4,000 in a market earning an average return of 7%, it would be worth $7,869 in 10 years.
If you saved $4,000 annually for 10 years at this return, your college fund would have $59,134!
There are multiple ways you can save for this significant investment, with 529 tax-advantaged college plans being the most popular. They offer a unique combination of features that no other college savings vehicle can match.
If your kids are heading to college within the next few years, don’t panic about the amount in your savings accounts. There are tried-and-true ways to maximize your financial aid potential and minimize your child’s student debt load. Check those out here and here!
Bottom line: College planning should be a part of your overall financial plan. Cover your bases by talking to your financial planner and getting advice tailored to your situation. Asking about this is one of the critical questions to ask your financial planner.
I want to buy a house. How much can I afford?
We often rely on our financial planners to help us get to retirement, but they also offer valuable advice and experience that can help us with everyday decisions, like buying a house!
If you are not asking a financial planner about how much house you can afford when buying, YOU SHOULD BE! (We can help!)
You could use an online calculator to get an idea of how much you may be able to spend, however an online calculator does not take into account what your other goals are outside of owning a house!
Goals like:
Do you want to travel?
Retire early?
Be financially independent?
Fully fund your children’s education?
All of these factors impact how much of your monthly income you can spend on housing costs. A financial planner will be able to look at your big picture and goals and give you a realistic number that will make sure you have money left over for the other dreams you want to finance in your life.
Also, here’s something a smart financial planner may help you see…
Maybe buying a home isn’t the best idea for you.
Renting sometimes gets a bad rap, but it helps you avoid a lot of extra expenses that could affect how much money you can put toward achieving other goals. As home prices rise in many U.S. markets, renting gives you predictable expenses and allows more flexibility if you decide to move or if an enticing job offer comes your way.
Should I combine accounts with my spouse?
If you Google this question, you’re going to get a lot of divided answers. There are some people who are happier having separate accounts, and others who prefer the simplicity of joint accounts.
Joint accounts offer convenience and help both parties stay on top of their finances while also preventing legal headaches in the case of a death.
On the other hand, separate accounts give each spouse freedom over how they spend their money. If one or both spouses entered the relationship with debt or unequal accounts, staying separate can avoid resentment in the spouse who has to take on this extra responsibility. And, of course, if the relationship ends, separate accounts are just easier to deal with.
Hiring a quality financial planner can help you answer complicated questions like this.
Your financial planner will know YOU and your life circumstances enough to be able to give you objective guidance that is in your best interest. Unfortunately, most internet searches cannot take your unique circumstances into account.
Financial planners are here to help you with the big and the little, so don’t be afraid to ask any questions to ask your financial planner, even if they seem mundane and simple.
How much do I need to retire?
This is a big one, and probably at the top of your mind.
There’s a lot of conventional wisdom out there, like saving $1 million or building a nest egg that equals 10 times your current income, but the ideal retirement number is going to be different for everyone.
Here are some factors to consider when determining how much savings is right for you.
First, you’ll need to examine your living expenses and think about what you want your retirement lifestyle to look like.
You will also need to consider your longevity risk—how long you will live and how much your health and long-term care expenses may be affected by your life expectancy.
Even though the current life expectancy for men is 84.3 and 86.7 for women, (2) there is a 43% chance that individuals who are 65 today could live till 95. (3) Your savings needs to last as long as you do.
If you ask a financial planner this particular question, they will look into every area of your life, factor in all the details, and project multiple scenarios to prepare you for this milestone.
You don’t need to crunch numbers alone. Having a financial expert by your side can help make the process less stressful and more reassuring.
What could happen to my investments if the market crashes?
Everyone was happy in 2017 when their portfolios were drastically rising and the markets were hitting record highs on the regular.
But when the markets decline… we find out if our investments are allocated properly.
Everyone has their own unique risk number, based on their tolerance for risk and their time horizon. At Archer Investment Management, we walk our clients through an exercise that helps us identify their risk number and create a portfolio that aligns with their risk tolerance.
Based on your risk number, we can project your expected annual return on your investments and explore how much your portfolio might fall in different market scenarios.
You don’t have to wonder or worry about what could happen if the market crashes. We can’t predict perfectly, but we can give you a ballpark idea based on what’s happened in the past.
Setting clear expectations before investing is crucial to staying the course when challenges arise.
Still have questions?
If there’s one thing that’s guaranteed, it’s that you will have plenty of financial questions and concerns as you move through life.
At Archer Investment Management, we want to be an objective resource for you as you seek to make the best financial decisions possible.
Richard Archer is a financial advisor and the President of Archer Investment Management with more than twenty years of industry experience. He specializes in providing comprehensive financial planning and investment guidance and personalized care and attention to executives with complex compensation and families pursuing financial freedom. Along with holding a Wharton Bachelor of Science in Economics and a Texas MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.
If you work for a company that offers Employee Stock Options (ESOs), you may be wondering how you should take advantage of them and whether they can help you reach your financial goals. In a previous article, we walked you through an overview of Employee Stock Options, but even if you understand how they work, you might not know how to maximize their value and how they fit into your financial plan. Here are six financial planning principles that may help you make the best decisions for your financial situation.
RULE #1: SET REALISTIC GOALS
Before you dig into the investments in your portfolio, take the time to set realistic goals for your overall financial plan. If you don’t have goals to aim for, it’s like you’re shooting at a target blindfolded. Without clear and personal goals, you could be easily swayed by unexpected circumstances and the market ups and downs. When it comes to ESOs, they are just one means to achieving your goals.
One ESO detail to keep in mind is that you will eventually want to sell the stock after exercising your options. If you have a clear financial plan and work to minimize taxes, you may be able to move significantly closer to your goals with the proceeds received from the sale of your stock.
RULE #2: CREATE A PLAN
Once you have your goals in place, your next step is to create a strategy for how you will handle your stock options over time. Map out a plan for when to sell your options, making sure you that your actions are not only tax efficient, but they also line up with your goals. For example, selling a significant portion of your stock all at once could dramatically increase your tax burden.
Along those same lines, it’s important that you accurately value your stock options. The last thing you want to do is sell, thinking that you will receive a certain amount, only to learn that your net earnings are much lower. If you were trying to reach a goal with the sale, overvaluing your stock options could hurt your long-term plans.
RULE #3: BUY AND HOLD, BUT CONSIDER DIVERSIFICATION
Because stocks historically increase in value over time, it may be wise to hold your options for a a long time. This is especially the case if you believe that your company is doing well and will continue to do so for a long time. Of course, if part of your financial plan involves selling some of your options for short-term to intermediate-term goals, that is also fine.
However, if a majority of your net worth comes from your ESOs, it may be a better idea to consider diversification. This is akin to putting all your eggs in one basket. Do you really want so much of your financial well-being tied up in one company? The general rule of thumb is to hold
no more than 10% of your portfolio in your company’s stocks and options. Your income is already tied to your company, and now a majority of your net worth could also locked in to your employer. If the company performs poorly, it will depress the stock price and you may be laid off at the same time. There goes your portfolio, your income, and your health insurance all at once. Consider selling some of your ESOs and diversifying the proceeds in something else.
RULE # 4: KNOW THE RULES OF YOUR ESOS
Depending on the type of ESO that your company offers you and the overall company option plan policies, there will be specific rules that you should be aware of. These rules may cover the rights that you have if you are fired, quit, work for a competitor, retire, become disabled, or die. In addition, the rules will explain any vesting policies, which will help you plan ahead and maximize your stock option benefits.
RULE # 5: ALWAYS CONSIDER TAXATION
It is critical that you look at your current income tax bracket and calculate how a sale of stocks will affect your current taxable income. If the sale puts you into a new bracket, you may have to pay more on the proceeds than if you had smoothed your income over time.
In addition, if you have Incentive Stock Options (ISOs), you must familiarize yourself with the Alternative Minimum Tax (AMT). Read more here for a brief description on the different tax treatment of ISOs and Nonqualified Stock Options (NSOs). If you ignore the Alternative Minimum Tax, you may have to pay tax on your gains before you even have the money in hand. (1) This could be an unfortunate situation to find yourself in, so make sure to do your homework on the AMT as it relates to your options.
RULE #6: SEEK SOLID, PROFESSIONAL ADVICE
Stock options are a complicated asset and it can be overwhelming to determine how they fit within your overall financial plan. Because of that, it is important to seek professional advice when making ESO decisions. Make sure the professional you rely on has experience with employee stock options and can help you strategize your best moves.
At Archer Investment Management, we understand employee stock options and have experience helping clients maximize this benefit, minimize taxes, and diversify their portfolios. We’d love to help you with your employee stock options. Book an appointment online today
About Richard
Richard Archer is a financial advisor and the President of Archer Investment Management with more than twenty years of industry experience. He specializes in providing comprehensive Financial planning and investment guidance and personalized care and attention to executives with complex compensation and families pursuing financial freedom. Along with holding a Wharton Bachelor of Science in Economics and a Texas MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.
Whenever a financial change occurs at the government level, there is a domino effect in your personal finances. For example, the recent Tax Cuts and Jobs Act affects more than just your net pay. On the surface, we know that Trump’s tax reform bill lowers tax rates for individuals and corporations, increases the child tax credit, doubles the standard deduction, and caps or eliminates several deductions. But does it have any cascading effects on your estate plan?
As the act and tax bill are still new, it’s difficult to predict with certainty what will happen, but the changes shed light on how estate planning may be affected going forward. Let’s take a look at current law, the notable changes, and what they could mean for you.
ESTATE PLANNING LAW THEN
If you’ve done any amount of estate planning, you know that taxes are an extremely important factor to take into consideration when creating a strategy. Here’s an overview of the estate tax rules prior to the new tax bill:
Estate Tax: The property in your estate is taxed before being passed on to your beneficiaries. There are various tax rates for this, extending up to 40%.
Gift Tax: When you give some of your assets as a gift while you are still alive, that is also subject to tax, up to 40%. However, you don’t have to pay any taxes on the first $15,000 you give each year. That exclusion applies individually to each person you give to.
Generation-Skipping Tax: Property transferred beyond one generation by bequest or gift is also taxed. There is an additional generation-skipping tax with, again, a top rate of 40%.
Basic Exclusion Amount: Any of these three taxes, or any combination of the three, does not apply to the first $5 million of transferred property. This exemption, called the basic exclusion amount, is indexed for inflation, so it is actually $5.6 million for 2018.
These taxes do not apply to transfers between spouses. Also, if you die without using up the entire exclusion amount, your spouse can increase their exclusion amount by whatever you had left of your exclusion. That makes the maximum exclusion possible for 2018 $11.2 million.
Tax Basis: If you give someone an asset while you are still alive, they will take on your tax basis in that property, called a carryover basis. However, if you wait until your death to transfer the asset, their tax basis will be the fair market value of the property at the time of your death, called a step-up in basis.
ESTATE PLANNING LAW NOW
And now for a look at what the tax bill has changed:
Basic Exclusion Amount: The legislation doubles the basic exclusion amount. Depending on how inflation is calculated, this would amount to around $11 million per individual or $22 million per couple. This basic exclusion amount would apply to tax years after 2017.
Estate, Gift, And Generation-Skipping Transfer Taxes: The bill will double the estate and gift tax exemption for estates of decedents dying and gifts made after Dec. 31, 2017. The basic exclusion amount would increase from $5 million to $10 million and would be indexed for inflation. After 2023, both of these taxes would be repealed. Beneficiaries would still enjoy a step-up in basis for their inherited property.
Gift Tax: The gift tax would remain, but with a top rate of 35%. There would still be an overall lifetime basic exclusion amount as mentioned above, twice the current amount. The annual exclusion would remain the same at $15,000, though it would increase with inflation.
ARE THE CHANGES PERMANENT?
Under the current law, only 0.02% of taxpayers pay federal estate taxes, so these changes do not affect a broad section of the population, but rather a few of the wealthiest Americans. (1)
Because of this, there is a chance that a future administration could repeal it or the taxes could be re-adopted at a later date. This is important to keep in mind when making plans based on these changes in the law.
WHAT THIS MEANS FOR YOUR ESTATE PLAN
How will these changes affect you? What does this mean for your estate planning?
First of all, the doubling of the exemption amount means that you can increase your giving. It gives you more freedom to be generous and also the opportunity to remove more from your estate in case the taxes are reenacted later on.
This might also be a good opportunity for you to transfer assets from a non-exempt trust to a generation-skipping trust to take advantage of the increased generation-skipping amount. It may also affect how you handle distributions from qualified domestic trusts, as they wouldn’t be taxable after 2024.
NEXT STEPS TO TAKE
If your head is spinning from the details, remember that the changes to the tax law will likely affect different kinds of trusts and estate plans in different ways. As always, tax law is complicated and you should always work with an experienced financial professional for your estate planning needs.
Since this could only be a temporary reprieve, it is important to take advantage of the benefits quickly. At Archer Investment Management, we act as the quarterback of your financial team and coordinate with estate and tax professionals. If you want to review your current estate plan or would like us to point you to specialists at reputable firms, schedule a phone call online today!
About Richard
Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.
Would you rather plan a vacation or strategize your retirement? A Charles Schwab retirement survey found that Americans spend considerably more time and energy researching vacation possibilities and car purchases than planning for retirement. (1) And even if you are one of the few who has their financial ducks in a row, have you given any thought to the psychological transition that occurs when you reach this milestone? We know that money can only buy happiness if used intentionally, so let’s take a look at the three things women need to experience a fulfilling retirement.
1. THRIVING RELATIONSHIPS
Women tend to struggle with the social changes retirement brings more than men do. In fact, one study shows that 62% of women say they miss the daily social interaction they had at work, and retirement happiness for many women depends on the quality of their social life. (2) You may think that when you retire you will have all the time in the world to spend with family and friends, but the loss of your work community and routine make it difficult to maintain friendships.
To set yourself up for a happy retirement, create goals to get together with friends frequently and find ways to make new friends who are in the same season of life as you. You may meet people through volunteering, taking classes, or joining local retirement groups. It’s never too early to start investing in friendships and social ties that will help you ease into retirement.
2. OPPORTUNITIES TO GIVE
When researching the effects of giving in retirement, Merrill Lynch found that women find great happiness from helping others and giving back to their community and are more likely to define success in retirement by generosity than their financial situation. (3) Approximately 68% of women also feel that retirement is the ideal time to give back. When your working years suddenly end, and you are left wondering what your purpose is, committing yourself to volunteer work gives your days meaning. Any kind of volunteering is beneficial to your psychological wellness, whether it’s shelving books at the library, walking dogs for the local animal shelter, or even giving your time to a cause related to your career.
3. A STRATEGIC PLAN TO PURSUE PASSIONS
While retirement may conjure up images of a slow-paced life with plenty of white space on the calendar, staying busy is the key to a happy retirement. (4) A recent retirement satisfaction survey found that 76% of retirees who were involved in more than ten activities, such as volunteering, creative pursuits, caring for others, socializing, and participating in sports, were more fulfilled in retirement than those who were involved in less than four activities.
In other words, having lots of time on your hands isn’t always a good thing. Enjoy the fact that you aren’t spending the majority of your waking hours at work, but purposefully plan your time so that you aren’t left twiddling your thumbs. Before retiring, make a list of things you want to do and places you want to go. Then, map out a strategy to make them happen. It’s easy to lose your identity when you say goodbye to your career, but setting goals and venturing out into new territory will help you build a new identity and prevent feelings of depression and anxiety.
LET US HELP YOU
At Archer Investment Management, we want to see women feel optimistic about their future. We also believe in taking steps today to plan for a thriving retirement. Let us help empower you by making sure you are on the right track and are considering every aspect of your life in preparation for retirement. Click here to schedule a phone call and take the first step towards a happy retirement.
About Richard
Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.
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I was quite literally afraid of getting help and of all that it involved. It’s been wonderful. No kidding: best decision ever!
I’m not finance-oriented by any measure, but luck came my way for once and I found myself having enough assets to need some help. Only I didn’t know what kind of help I needed and it’s easy to get overwhelmed quickly and I was on like year number whatever of being overwhelmed and I just kicked that can down the road every year. After a short search, I found Archer’s team and quickly just pushed other options off the table and signed on. They’ve actually been able to simplify things in a way that makes me feel like I can manage my life and not worry about it all for the first time in years. I basically had all eggs, but no basket. Now I have a comprehensive plan from some incredible staff and I actually love the process instead of dreading the matter. Simply put, Archer has changed how I view my own finances and what used to be a cause of stress for me is now a giant sigh of relief. I said in the title it was the best decision ever and I mean it: this has 100% seriously no-fingers-crossed changed my life. If you’re like me and you’ve been debating if you even need this kind of help, then yes… yes, you do!
Scott Eaton
Received via WealthTender: July 10, 2024
Comprehensive financial planning
Working with Emily, Richard, and the team has been great! Their insight has been invaluable for me across a variety of domains. Their approach builds from goals backwards — we met together to outline short and long-term goals and then used those goals to create a plan across a variety of decisions, from home ownership to car insurance to investment and much more. Richard and Emily truly do a great job of drawing me into the loop, ensuring that the financial plan we develop reflects my goals and wishes. Before settling with Archer Investments, I talked with a number of other advisors and none of them had the combination of professionalism, attention to detail, and comprehensive services offered by Archer.
Ben
Received via WealthTender: July 1, 2024
Most thorough and personable financial planners and wealth managers
George and I had been with an investment firm that promised many things they never got to deliver. We are so grateful to have found Archer Investments. Emily,Richard and all of the staff are extremely knowledgeable and so personal. We feel like family to them.We also feel so comfortable with our financial planning that has transpired, feeling confident in our long range plans, short term goals, the security of having ample insurance and medical coverage along with complete documents (POA’s, wills, healthcare POA’s, everything to make any transition smooth for our family). It is a tremendous relief to have everything in place. Their wealth of knowledge and attention to detail is impeccable. We feel so blessed to have found them and highly recommend their comprehensive services.
Andrea & George
Received via WealthTender: April 4, 2024
These testimonials were provided by current Archer Investment Management clients and may not be representative of the experiences of other clients. The clients were not compensated, nor are there material conflicts of interest that would affect the given testimonials. You can view a complete list of reviews at Emily Rassam’s and Richard Archer’s Wealthtender profiles.
