OCTOBER 2017

How Flexible Is Your Financial Plan?

W hen it comes to flexibilityin a financial plan, it’s adelicate balancing act: it

is important to maintain enoughflexibility so your financial plan canaccommodate unexpected eventsthat are out of your control (like theloss of a job, unexpected illness,market downturn, or tax rateincrease). On the other hand, asound financial plan needs to befirmly grounded by factors you cancontrol (like how much you saveand spend) so even in the face ofunexpected events, following yourfinancial plan gets you to where youwant to be.

Be FlexibleWhen you develop a financial

plan, you must make certainassumptions, many of which are outof your control:

Taxes — The notoriously com-plicated U.S. tax code will affectyour financial plan in a number of

ways. For one, your effective taxrate will change as your incomechanges. Also, changes to the taxcode itself can affect your financialplan, often dramatically. Fortunate-ly, changes aren’t typically madeevery year. And because Congresssets tax policy, most changes in thetax code are announced in advanceof taking effect — allowing youtime to plan how those changesmight affect your financial plan.

Income — We all hope ourincome will rise as we move for-

Encourage Estate Planning

P arenting is a never-ending job. Even when your children are grown,there will probably be lessons you’ll want to teach them, such as the

need for estate planning. Some items to include in that lesson are:

4Explain why estate planning is important. Your role is not to dic-tate what they should do with their estate, just to emphasize the

need for estate planning. When your children encounter major lifeevents, remind them to review their estate plans.

4Make sure all important estate-planning documents are in place.At a minimum, every adult should have a will, a durable power of

attorney, and a health care proxy. A durable power of attorney designatesan individual to control their financial affairs if they become incapacitat-ed, while a health care proxy delegates health care decisions to a thirdperson when they are unable to make them.

4Coordinate estate planning across generations. If you have a sub-stantial estate, you may want to coordinate your estate planning

efforts with those of your children. A coordinated effort can help mini-mize estate taxes. mmm

FR2017-0315-0098

U C C E S S

ward in our careers. Typically, thosekinds of income changes are pre-dictable — maybe it’s a 3% raiseevery year or a 10% raise everythree years. More dramatic yet stillpredictable income changes canhappen when one spouse voluntari-ly stops or starts working. The lossof a job or dramatic decrease inwork hours can cause unexpectedchanges in income.

Health — Your and yourspouse’s health are significant

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Copyright © 2017. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. Thisnewsletter intends to offer factual and up-to-date information on the subjects discussed but should not be regarded as a complete analysis ofthese subjects. Professional advisers should be consulted before implementing any options presented. No party assumes liability for any lossor damage resulting from errors or omissions or reliance on or use of this material.

Patricia Kummer, CFP®

Certified Financial PlannerTM

8871 Ridgeline Boulevard, Suite 100Highlands Ranch, CO 80129

(303) 470-1209 ♦ (877) 767-0763(303) 470-0621 Fax

www.kummerfinancial.com

factors in your financial plan fortwo reasons: first, because health isa big determinant of one’s ability toearn income; and second, becausehealth care costs are often a largeexpense, especially for the elderly.As you age, it’s important to thinkabout changing your assumptionsregarding your health. Maybe you reduce the income you expectbecause you won’t be able to work long hours anymore. Or youincrease the health-care relatedexpenses you plan for. You can alsotake steps to mitigate the impact ofhealth changes by saving for med-ical expenses in a tax-favored healthplan like a health savings account(HSA) or flexible spending arrange-ment (FSA) and by buying disabilityand long-term-care insurance.

Life — Beyond job losses andhealth events that can impact yourfinancial plan, other major lifeevents may have a big impact aswell. Whether it’s good or bad,expected or unexpected, events likethe birth of a child, marriage ordivorce, a spouse’s death, or a relo-cation will impact your financialplan. Some you can plan for, someyou can’t; the point is to be awarethat a review is necessary.

Economy — For most of us, ourfinancial plans are based on theassumption that our investmentswill earn a certain average return inthe market. Those assumptionsaffect decisions we make about ourplans. For example, the amount youneed to save every month to retireat age 70 is larger or smaller thehigher or lower your assumptionabout investment returns. The bestway to make these assumptions is tobase them on long-term historicalreturns in relevant market indices.

That is not to say, of course, thatthese assumptions will always becorrect. Anyone who had moneyinvested in the stock market in thefall of 2008 understands the stock

How Flexible?Continued from page 1

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market can turn those assumptionson their heads in a single day. But given that we have to makeassumptions, using historicalreturns is the best way to do it.

Be GroundedBecause there are so many fac-

tors affecting your financial planthat you can’t control, it’s critical toknow the factors you can controland stay on track with your plan inthose areas.

Live within your means —When you keep your expenses(including savings and invest-ments) less than your income, yougive yourself more flexibility toaccommodate unexpected changesthat you can’t control. If you havesome breathing space in your bud-get every month, you can more eas-ily accommodate a higher tax rateor economic downturn withouthaving to alter your financial plan.

Have a rainy-day fund — Haveat least 3–6 months worth of livingexpenses in an easily accessible, liq-uid fund you can draw upon in theevent of a rainy day — an emer-gency or unexpected situation. Thissavings should be set aside from allother savings and investments andonly used for true emergencyexpenses — like in case of a job lossor illness. With an adequate rainy-day fund, you can deal with unex-pected events without having todilute or erode your financial plan.

Revisit your plan regularly —The number-one key to achievingyour financial goals is to reviewand, if necessary, revise your finan-cial plan regularly — at least once ayear. That way you can makeadjustments for all factors out ofyour control that have changed, forbetter or worse. If you haven’trevisited your financial plan in thelast year or need to develop one,please call. mmm

4 Reasons to Encourage Part-Time Jobs

D on’t feel guilty about yourchildren working whileattending college or feel

that a part-time job will interferewith their college experience.Working as little as a few hours aweek can be remarkably beneficial.

It boosts accountability —Encouraging your children to workpart-time as soon as possible andsetting a portion of their earningsaway for college can give them amuch better appreciation for theircollege education. Nonworkingstudents can struggle to under-stand just how expensive theirtuition and living expenses are andthe sacrifices involved in payingthose costs.

It can cut down on costs —Even the smallest contributions canquickly accumulate. Whether theycontribute $50 or $500 a month, it’seither money they won’t owe aftergraduation or money saved thatyou can put toward your retire-

ment or investments. It teaches life skills — Part-

time jobs provide teenagers andyoung adults with a different set of skills than they’ll derive in class.Because they’re interacting morewith adults in a real-world setting,they’ll develop the vital communi-cation and problem-solving skillsthat they’ll need in their post-college career. Working even a few hours a week while attendingschool allows them to master awork/life balance.

It encourages networking —There’s a well-known saying thatsuccess is closely linked with whoyou know. Sure, they’ll makefriends in the dorm, but a part-time job encourages them to con-nect with peers on a different levelthat could lead to valuable oppor-tunities in the future. A job allowsthem to further develop their indi-vidual talents and strengths.mmm

of the family members are andresearch all possible options. Next,define the available resources to usefor a possible move. That seniorcommunity that appeared veryexpensive may make more sensewhen you realize what you couldsell the big house for and what themaintenance would cost over time.Maybe the adult children are strug-gling under mortgage paymentsand could use some help and haveroom. Perhaps it is time to cleanout the attic, sell any extra cars andlawn supplies and put everythingon one floor. With the number ofknee and hip replacements, manypeople have the need to have alltheir living space on one floor.

There are many considerationsyou can discuss with your financialplanner, elder law attorney, healthcare provider and family members.Understand how these decisionsaffect the estate, taxes, and assets.Consider selling items the kids arenot interested in, such as antiques,art work, jewelry, and tools. It ishard to imagine being somewhereelse if the past is weighing youdown. Time marches on, so puttingoff decisions to another day maylimit your options.

Time Stands Still for No One: Aging in Place

T his article is for everyone,regardless of age. While noneof us likes to think about get-

ting older, it could be your siblings,parents, or grandparents who needyour help in making good decisions.Staying at home and staying inde-pendent are two different things.Perhaps the best way to be trulyindependent is to be free of thehouse and yardwork. Therefore,choosing where you will live shouldbe determined by what is importantto you. It is never too early to planon how to go about providing foryou or your loved ones.

The term aging or elderly doesnot mean helpless. It does not meanthey can’t think for themselves, andit does not mean they are sick. Insome cases, those other things alsooccur, but not always. Being retireddoes not mean you are old, andbeing over a certain age does notmean you are no longer productiveor able to work, volunteer, and takecare of yourself. Having gray hairor wearing reading glasses does notmean you are elderly. I see peoplein their forties who have both thesedays. The ironic thing is that a typi-cal 40-year-old could live another 60 years. That means they could beconsidering “aging” for the majorityof their lives.

Okay, so point taken; we startaging before we can walk. Now,how to plan for the inevitable startswith understanding the facts. Let’stake a look at housing. This seemsto be the biggest challenge, especial-ly for people who have not movedin a very long time. It is difficult toimagine living anywhere else. Thesticker shock that goes along with“downsizing” or moving to a retire-ment community often deters manyseniors from even looking further.A majority of older adults have notchanged residences in more than 20years (58%), and 75%say they intendto live in their current home for therest of their lives.

If you are unlikely to move, thenext step is getting the home readyto age in place. Many older adultshave been proactive in makinghome improvements, including 34%who have made bathroom upgradesand 28% who have improved light-ing. Other options may be to move in with other family members.While this concept is assumed inmany other cultures, it has not beenpopular in this country for severalgenerations. Housing costs continueto rise, which may force extendedfamily dwellings in due time. This could work well for three or more generations living in the samehousehold as child care, homeupkeep, and working adults all need to be considered. The numberof resources to support in-homehealth care are not sufficient for thecoming needs. This means costs willcontinue to rise, and services maysuffer as resources are stretched thin.

The costs of providing servicesfor those who don’t have the time,expertise, or ability to care for theirown home is also on the rise. There-fore, we see more rentals and multi-family dwellings designed to lowerpurchase and maintenance costs.

First determine what the needs

Higher ExclusionAmounts and Trusts

Rebalancing Your Portfolio

N ow that the federal estate-taxexemption is $5.49 million for

individuals in 2017, it’s estimatedthat 99% of all estates can pass toheirs free of federal estate taxes without the use of trusts. But thevalue of many kinds of trusts lies in sheltering you from other kinds oftaxes and helping you control howyour assets are distributed.

Income and capital gains taxadvantages. While shielding yourheirs from estate taxes is the princi-pal benefit of trusts, charitable trustscan also reduce your income andcapital gains tax liability.

Who gets what and when?Some trusts are designed chiefly to give you control over whoreceives what portion of your assetsafter you die. For example, a Quali-fied Terminable Interest Trust (QTIP) is useful for people who have chil-dren from a first marriage and step-children from a subsequentmarriage.

Spending for specific purposesor at specific ages. Do you wantyour children to only spend themoney for their educations? Do youwant them to have limited access tothe funds until they’re 30 or in five-year intervals? Various trusts canhelp accomplish these objectives.mmm

L et’s start with the basics. First,to rebalance you need to havemore than one investment in

your portfolio (so you can holdinvestments in different asset classes,like stocks, bonds, and cash). Second,you need to determine the right mix of those investments for yourobjectives.

The opportunity for rebalancingarises when the market performanceof your investments changes theirvalue and, as a result, their weightingin your portfolio.

The purpose of rebalancing is torestore an investor’s portfolio to thestructure that fits his/her objectives.Here’s how you do it: you sell off aportion of any asset class that hasincreased beyond its target percent-age and reinvest the sale proceeds inmore asset classes that have shrunkbelow their target percentage. Thecalculation is simple: multiply thenew market value of your portfolioby your target mix percentages andcompare them to the values in youraccount.

Aside from maintaining the levelof investment risk that’s right for you,rebalancing has two additional bene-fits. First, it forces you to lock in yourgains. Second, rebalancing can add asmuch as one-half percent or more toyour long-term investment returns.

A good rule of thumb for rebal-

ancing is once a year. But dependingon market performance, it could bemore or less often than that. The best advice is to check your portfolio several times a year and rebalancewhenever there have been significantchanges in the weighting of its con-stituent parts.

Rebalancing can apply not only to asset classes, but to sub-asset class-es as well. For example, your assetallocation strategy may call for specif-ic exposure to large- and small-capstocks or U.S. and foreign stocks;while your bond portfolio mayinclude Treasuries, investment-gradecorporate, and high-yield bonds, and changes in their weighting may suggest you rebalance among these,too. There’s also the question of whichparticular stocks or bonds you sell or buy.

Finally, there’s always the chancethat changes in your portfolio maycoincide with changes in your objec-tives — you may actually need to betaking more or less risk than in thepast. Whether and when to rebalanceis just one of many considerations that are important to maintainingyour investment portfolio. Please callif you’d like to discuss this in moredetail. mmm

What’s New at Kummer FinancialW e hope everyone is enjoying

a lovely Fall. Thank you foryour continued business and sup-port! We appreciate your referralsand always welcome the opportu-nity to help those you know. Pleaseconsider leaving a review for Kummer Financial on GoogleSearch. Type Kummer Financial inthe Google search bar; and in thebox on the right, select “Write aReview,” or feel free to email us

any comments or suggestions.Thank you to everyone for

your support in our effort to raiseawareness and funds for TheAlzheimer’s Association and ourWalk to End Alzheimer’s team. Seethe Walk photos on our website!

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