Articles for August 2015

Grandparents Raising Grandchildren

How can they cope with the financial demands?

When many people hear the word “parents,” they picture a couple in their forties… not a couple in their seventies. The reality is that 6% of kids today live in households headed up by grandparents – a parenting situation that may lead to significant financial stress.1

How can grandparents protect their retirement savings? This should be a high priority, even if the children are old enough to work and earn some income for the household. Grandfamilies are frequently pressured to take on new and large debts. Dipping into your retirement savings or refinancing to pay for education costs, a new vehicle, chronic health care treatments, simply the cost of living – this should be avoided if at all possible, and with a little exploration, ways to lessen the monetary pinch may be found.

Grandparents should feel no shame about asking for help. If the financial burden is too much, then it is time to explore means of assistance.

The cost of rearing a child can be expensive, especially if one or both grandparents work and daycare is needed. A pre-retiree may end up quitting a job (losing household income and retirement savings potential) to care for children full-time.

Can state or local agencies pick up some of the tab for child care? That may be a possibility. Free or subsidized child care services are available in many metro areas for grandfamilies in need (you may want to check out childcareaware.org for some resource links).

Most states have subsidized guardianship programs offering assistance to grandparents providing a permanent home for grandchildren; the American Bar Association (abanet.org) has information on such resources. Grandfamilies may be eligible for the federal Temporary Assistance for Needy Families (TANF) program, which may provide benefits in cash (typically around $150 per month, but every dollar helps), paid child care, Medicaid, money for clothes, and more depending on the state of residence. Even in higher-earning households, a grandparent can still apply for a child-only TANF grant, which takes just the child’s income into account (some minor children do receive Social Security income).1,2

Is there any way to lessen legal fees? LawHelp.org is a worthwhile national link to low-cost or even free sources of legal aid services. (Some custody situations may require only paperwork that can be reviewed by a lawyer at minor expense.)2

Social Security might be able to help. If a grandchild has at least one parent who has died, become disabled, or retired, then that grandchild may be eligible for Social Security benefits. He or she may also be eligible if a caregiving grandparent retires, dies, or is rendered disabled.2

Medicaid coverage for a grandchild may be possibility. A caregiver (read: grandparent) can apply for it on a child’s behalf if the child resides with a non-parent family member. See cms.gov for more.2

What if you can’t afford private health insurance but make too much for Medicaid? Visit insurekidsnow.org, the website of the federal Children’s Health Insurance Program, or CHIP. CHIP can provide relatively inexpensive coverage for basics like immunizations and scheduled doctor checkups, even X-rays and some forms of hospital care.2

In addition, some states have funds in place to aid grandfamilies. Churches, temples, and local non-profit community groups can also prove good resources.

Ideally, guardians should be named in a will. This basic and very important estate planning matter may be addressed in two ways.

If grandparents have legally adopted a child, then they can name a legal guardian for the child should they die before the child turns 18. What if no legal adoption has occurred and the grandparents are merely legal guardians themselves? In that instance, the grandparents have no ability to name a successive legal guardian. The parents would again assume legal custody of the children in the event of their deaths. Should both parents also be deceased, a guardianship decision will be made in court. Grandparents who are not legal parents can still express their guardianship wishes in a will, and a court should value that opinion if those grandparents pass away.2

While there are certain joys to parenting, there are also undeniable stresses. Grandparents who must now parent minor children should know that they are not alone (in fact, the number of grandfamilies in America has doubled since 1970), and that they can explore resources to find help.1

Mike Moffitt may be reached at ph# 641-782-5577 or mikem@cfgiowa.com

Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 Citations.

1 – cbsnews.com/news/raising-grandkids-and-going-broke/ [10/29/14]

2 – hffo.cuna.org/331/article/3944/html [1/12/15]

Teaching Your Heirs to Value Your Wealth

Values can help determine goals & a clear purpose.

Some millionaires are reluctant to talk to their kids about family wealth. Perhaps they are afraid what their heirs may do with it.

In a 2015 CNBC Millionaire Survey, 44% of families having at least $1 million in investable assets said that they had not yet told their children about their future inheritance. Another 27% said they had refrained from mentioning it until their children were 30 or older.1

It can be awkward to talk about such matters, but these parents likely postponed discussing this topic for another reason: they wanted their kids to grow up with a strong work ethic instead of a “wealth ethic.”

If a child comes from money and grows up knowing he or she can expect a sizable inheritance, that child may look at family wealth like water from a free-flowing spigot with no drought in sight. It may be relied upon if nothing works out; it may be tapped to further whims born of boredom. The perception that family wealth is a fallback rather than a responsibility can contribute to the erosion of family assets. Factor in a parental reluctance to say “no” often enough, throw in an addiction or a penchant for racking up debt, and the stage is set for wealth to dissipate.

How might a family plan to prevent this? It starts with values. From those values, goals, and purpose may be defined.

Create a family mission statement. To truly share in the commitment to sustaining family wealth, you and your heirs can create a family mission statement, preferably with the input or guidance of a financial services professional or estate planning attorney. Introducing the idea of a mission statement to the next generation may seem pretentious, but it is actually a good way to encourage heirs to think about the value of the wealth their family has amassed, and their role in its destiny.

This mission statement can be as brief or as extensive as you wish. It should articulate certain shared viewpoints. What values matter most to your family? What is the purpose of your family’s wealth? How do you and your heirs envision the next decade or the next generation of the family business? What would you and your heirs like to accomplish, either together or individually? How do you want to be remembered? These questions (and others) may seem philosophical rather than financial, but they can actually drive the decisions made to sustain and enhance family wealth.

Feel no shame in exerting some control. A significant percentage of families seek to define a purpose for transferred wealth. In CNBC’s survey, 32% of parents aged 55 or younger said they were going to specify what their heirs could use their inheritances for, and that was also true for 15% of parents aged 55-69 and 9% of parents aged 70 or older.1

You may want to distribute inherited wealth in phases. A trust provides a great mechanism to do so; a certain percentage of trust principal can be conveyed at age X and then the rest of it Y years later, as carefully stated in the trust language.

This is a way to avoid a classic mistake: giving your heirs too much money at once. In fact, a 2015 Merrill Lynch Private Banking & Investment Group report notes that 46% of high net worth parents share that very concern.2

Just how much is too much? Answers vary per family, of course. In the aforementioned Merrill Lynch survey, 46% of families said that they wanted to avoid handing down the kind of money that would dissuade their heirs from realizing their full potential in their lives and careers.2

By involving your kids in the discussion of where the family wealth will go when you are gone, you encourage their intellectual and emotional investment in its future. Pair values, defined goals, and clear purpose with financial literacy and input from a financial or legal professional, and you will take a confident step toward making family wealth last longer. 

Mike Moffitt may be reached at ph# 641-782-5577 or email mikem@cfgiowa.com

Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

    

Citations.

1 – cnbc.com/2015/07/22/wealthy-parents-fret-over-inheritance-talk-with-kids.html [7/22/15]

2 – bankrate.com/finance/estate-planning/critical-questions-before-leaving-an-inheritance-1.aspx [8/6/15]

 

Long-Term Investment Truths

Key lessons for retirement savers.

You learn lessons as you invest in pursuit of long-run goals. Some of these lessons are conveyed and reinforced when you begin saving for retirement, and others you glean along the way.

First & foremost, you learn to shut out much of the “noise.” News outlets take the temperature of global markets five days a week (and even on the weekends), and fundamental indicators serve as barometers of the economy each month. The longer you invest, the more you learn to ride through the turbulence caused by all the breaking news alerts and short-term statistical variations. While the day trader sells or buys in reaction to immediate economic or market news, the buy-and-hold investor waits for selloffs, corrections and bear markets to pass.

You learn how much volatility you can stomach. Volatility (also known as market risk) is measured in shorthand as the standard deviation for the S&P 500. Across 1926-2014, the yearly total return for the S&P averaged 10.2%. If you want to be very casual about it, you could simply say that stocks go up about 10% a year – but that discounts some pronounced volatility. The S&P had a standard deviation of 20.2 from its mean total return in this time frame, which means that if you add or subtract 20.2 from 10.2, you get the range of the index’s yearly total return that could be expected 67% of the time. So in any given year from 1926-2014, there was a 67% chance that the yearly total return of the S&P might vary from +30.4% to -10.0%. Some investors dislike putting up with that kind of volatility, others more or less embrace it.1

You learn why liquidity matters. The older you get, the more you appreciate being able to quickly access your money. A family emergency might require you to tap into your investment accounts. An early retirement might prompt you to withdraw from retirement funds sooner than you anticipate. If you have a fair amount of your savings in illiquid investments, you have a problem – those dollars are “locked up” and you cannot access those assets without paying penalties. In a similar vein, there are some investments that are harder to sell than others.

Should you misgauge your need for liquidity, you can end up selling at the wrong time as a consequence. It hurts to let go of an investment when the expected gain is high and the Price-to-Earnings ratio is low.

You learn the merits of rebalancing your portfolio. To the neophyte investor, rebalancing when the market is hot may seem illogical. If your portfolio is disproportionately weighted in equities, is that a problem? It could be.

Across a sustained bull market, it is common to see your level of risk rise parallel to your return. When equities return more than other asset classes, they end up representing an increasingly large percentage of your portfolio’s total assets. Correspondingly, your cash allocation shrinks as well.

The closer you get to retirement, the less risk you will likely want to assume. Even if you are strongly committed to growth investing, approaching retirement while taking on more risk than you feel comfortable with is problematic, as is approaching retirement with an inadequate cash position. Rebalancing a portfolio restores the original asset allocation, realigning it with your long-term risk tolerance and investment strategy. It may seem counterproductive to sell “winners” and buy “losers” as an effect of rebalancing, but as you do so, remember that you are also saying goodbye to some assets that may have peaked while saying hello to others that you may be buying at the right time.

You learn not to get too attached to certain types of investments. Sometimes an investor will succumb to familiarity bias, which is the rejection of diversification for familiar investments. Why does he or she have 13% of the portfolio invested in just two Dow components? The investor just likes what those firms stand for, or has worked for them. The inherent problem is that the performance of those companies exerts a measurable influence on the overall portfolio performance.

Sometimes you see people invest heavily in sectors that include their own industry or career field. An investor works for an oil company, so he or she gets heavily into the energy sector. When energy companies go through a rough patch, that investor’s portfolio may be in for a rough ride. Correspondingly, that investor has less capacity to tolerate stock market risk than a faculty surgeon at a university hospital, a federal prosecutor, or someone else whose career field or industry will be less buffeted by the winds of economic change.

You learn to be patient. Even if you prefer a tactical asset allocation strategy over the standard buy-and-hold approach, time teaches you how quickly the markets rebound from downturns and why you should stay invested even through systemic shocks. The pursuit of your long-term financial objectives should not falter – your future and your quality of life may depend on realizing them.

Mike Moffitt may be reached at phone# 641-782-5577 or email: rsmlbyer@mchsi.com

Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification and Asset Allocation do not protect against market risk.

Standard deviation is a historical measure of returns relative to the average annual return. A higher number indicates higher overall volatility.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment. 

Citations.

1 – fc.standardandpoors.com/sites/client/generic/axa/axa4/Article.vm?topic=5991&siteContent=8088 [6/4/15]

You Could Retire…But Should You?

It might be better to wait a bit longer.

Some people retire at first opportunity, only to wish they had waited longer. Thanks to Wall Street’s long bull run, many pre-retirees have seen their savings fully recover from the shock of the 2007-09 bear market to the point where they appear to have reached the “magic number.” You may be one of them – but just because you can retire does not necessarily mean that you should.

Retiring earlier may increase longevity risk. In shorthand, this is the chance of “outliving your money.” Bear markets, sudden medical expenses, savings shortfalls, and immoderate withdrawals from retirement accounts can all contribute to it. The downside of retiring at 55 or 60 is that you have that many more years of retirement to fund.

Staying employed longer means fewer years of depending on your assets and greater monthly Social Security income. A retiree who claims Social Security benefits at age 70 will receive monthly payments 76% greater than a retiree who claims them at age 62.1

There are also insurance issues to consider. If you trade the office for the golf course at age 60 or 62, do you really want to pay for a few years of private health insurance? Can you easily find such a policy? Medicare will not cover you until you turn 65; in the event of an illness, how would your finances hold up without its availability? While your employer may give you a year-and-a-half of COBRA coverage upon your exit, that could cost your household more than $1,000 a month.1,2

How is your cash position? If your early retirement happens to coincide with a severe market downturn or a business or health crisis, you will need an emergency fund – or at the very least enough liquidity to quickly address such issues.

Does your spouse want to retire later? If so, your desire to retire early might cause some conflicts and impact any shared retirement dreams you hold. If you have older children or other relatives living with you, how would your decision affect them?

Working a little longer might be good for your mind & body. Some retirees end up missing the intellectual demands of the workplace and the socialization with friends and co-workers. They find no ready equivalent once they end their careers.

Staying employed longer might also help baby boomers ward off some significant health risks. Worldwide, suicide rates are highest for those 70 and older according to the World Health Organization. Additionally, INSERM (France’s national health agency) tracked 429,000 retirees and pre-retirees for several years and concluded that those who left the workforce at age 60 were at 15% greater risk of developing dementia than those who stopped working at 65.3

It seems that the more affluent you are, the more likely you are to keep working. Last year, Bank of America’s Merrill Lynch and Age Wave surveyed wealthy retirees and found that 29% of respondents with more than $5 million in invested assets were still working. That held true for 33% of respondents with invested assets in the $1-5 million range. Most of these millionaires said they were working by choice, and about half were working in new careers.1

Ideally, you retire with adequate savings and a plan to stay physically and mentally active and socially engaged. Waiting a bit longer to retire might be good for your wealth and health.

Mike Moffitt may be reached at ph# 641-782-5577 or email: mikem@cfgiowa.com

Website: www.cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – tinyurl.com/o8lf6z2 [8/1/14]

2 – money.usnews.com/money/blogs/on-retirement/2015/02/05/6-reasons-you-shouldnt-retire-early [2/5/15]

3 – newsweek.com/2015/03/20/retiring-too-early-can-kill-you-312092.html [3/20/15]