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Money Skills: Your Older Clients Crave Protection

A money coach’s ideal day should be built around meaningful conversations with good clients. These conversations are like snowflakes, no two are alike, and are as different as the clients themselves, each with their unique goals, relationship and family situations, level of knowledge, level of wealth, specific goals, and the list goes on.

We work with a more elderly clientele, and have noticed a common theme, regardless of their differences: virtually all of them want protection.

Older clients want to protect their lives, their health, their family and their money.

The days of risk and growth are long gone, having surrendered to the days of safety and income. Cryptocurrency is for the young, risk has become a four letter word, and the paychecks are over, so when it comes to money, you cannot afford to lose it.

Wealth preservation and the need for a solid, tax-friendly income generation plan are the most relevant solutions, and many times a protected growth strategy that eliminates risk of loss while maintaining growth of assets are required solutions. Creating lasting legacies through a formalized insurance and estate plan are necessary to complete the picture.

In working with any financial professional, they must be conversant on the strategies and instruments that will satisfy their elder client’s need to have safe income and capital preservation. 

A money coach’s role, on part, is to help their clients identify and eliminate their destructive money behaviors, elevate their financial literacy and hold them accountable to achieving their greatest goals in life.

Never. Lose. Money.


What is a Money Coach?

Money coaches are not investment brokers, but they could be!

Money coaches are not financial planners, but they could be!

Money coaches are not necessarily already in the financial services business, but they could be!

So what the heck is a money coach?

Before we seek a definition, let’s first contemplate the human condition for a moment, and consider what people really want in terms of a happy life.  

We know that money doesn’t equal happiness, but when we think about money, we generally want to know a few things: how can I make more, how can I keep from losing it, how can I be a better investor, and how can I best manage my life, financial and otherwise, so that my family and I can live a healthy, worry-free life.

Face it, living life means learning how to deal with risk. Catastrophes and mistakes have a price tag. Everybody’s price tag is different. Most of us don’t sit around worrying about things like stock picking and market volatility. We think about what hazards might come our way that could make our lives more volatile. The health and safety of our spouses and children, losing our jobs, getting a serious illness, dying too soon, and yes, even living too long, all of it, costs money.

On top of all those things, add in the need to plan for a secure retirement, a plan to send the kids to college, a plan to insure the risks of getting sick, dying too soon and living too long, bulging credit card debt, not having enough cash to deal with an emergency, living within a budget…whew! Now that’s a pretty full plate.

And if that were not enough to make us cry uncle, we’re often fighting a war. With ourselves. That’s right, we all have the potential to be our own worst enemy. Low financial literacy, bad habits and wonky behavior will kill even the best laid plans. 

So, most people aren’t looking for a better stockbroker; they’re looking for help and guidance to better deal with both the risks and opportunities ahead, which means getting a better handle on their emotions, their behaviors, their money biases, their knowledge and their skill.

A money coach is less a teacher and mentor, and more a guide, helping his or her client find the answers within, and helping them move toward reaching their most significant goals in life, and then holding them accountable to achieving them.

That’s what a money coach is.

Never. Lose. Money.

Money Skills: Tax the Harvest or the Seed? Traditional IRA vs. ROTH

Deciding between a ROTH or a Traditional IRA is one of the most important money decisions you must make.

A key question you have to answer is: “Do you want to be taxed on the harvest or the seed? (Hint: If you want more bread, you’ll want to pay on the seed!)

Traditional IRA

Most investors use traditional IRAs for two key reasons: their contributions are currently tax deductible and the IRA “shelter” offers tax-deferred growth of your investments.

Since you will delay paying taxes until you take distributions sometime in the future, a tax maneuver called tax deferral, a traditional IRA is a good choice if you believe that you will be in a lower tax bracket after you retire. Your tax deductible pre-tax contribution will result in a meaningful reduction to your 2018 tax bill now, and possibly a lower tax bill later, provided you actually will be in a lower tax bracket later.

But the thing you must remember is that while you get a relatively small benefit up front (the deduction), you will pay an exponentially larger tax bill 0n the harvest (future withdrawals).

You are eligible for the contribution if you are under 70 ½ by the end of 2018 and had earnings upon which to base your contribution.

In 2020, the maximum yearly contribution is $6,000, but if you are age 50 or older at year-end your maximum contribution is $7,000, because of the catch-up provisions in the tax code. Also note that these are your combined limits for both Roth and Traditional IRAs.

When deciding between a traditional IRA or a ROTH, keep in mind that traditional IRA accounts require that you take annual Required Minimum Distributions starting by April 1 of the year after you turn age 70½. If you don’t take these mandatory distributions, each missed distribution carries a whopping 50% penalty on top of the regular tax.

Roth IRA

If you expect to be in the same or higher tax bracket when you retire a Roth IRA may be your ticket.

While you will forfeit the tax deduction for your contribution for the current tax year, you will enjoy something far more powerful: tax-free growth. Your annual ROTH contributions are made with after-tax earnings, and because you will not get the current tax break, the tax deduction, you will forever be able to withdraw from your ROTH without owing any income tax on the growth. This means that you may be able to convert what may have been a taxable asset into a tax free asset. This is what makes the ROTH a powerful choice, and most often the right one.

In 2020, as with a traditional IRA, your maximum yearly contribution is $6,000, but if you are age 50 or older at year-end your maximum contribution is $7,000. And remember, these are your combined limits for both Roth and Traditional IRAs.

There is no age eligibility requirement with a ROTH, a super benefit for those who decide to enjoy a working retirement. Regardless of your age, as long as you are earning income you can make a ROTH contribution, but there are earnings restrictions. In 2019, contributions begin phasing out at certain levels of Modified Adjusted Gross Income: $123,000 for single and head of household, or $193,000 if married, filing jointly.

Another thumbs up for the ROTH is there are no RMDs to worry about. Traditional IRA accounts require that you take annual Required Minimum Distributions starting by April 1 of the year after you turn age 70½, but not so with a ROTH, thus completely eliminating the chance of triggering the 50% penalty.

So, which is your best choice?

Hands down, for most investors, never paying taxes on the harvest (future taxable distributions) is the logical choice over paying taxes on the seed, since ROTH accounts grow tax-free.

Converting taxable assets into a tax free income machine for life is a powerful argument, making the ROTH almost irresistible, however, everyone’s situation is different. Goals and circumstances differ from individual to individual, or couple to couple.

Never. Lose. Money.