Category: Financial Planning

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Budget Financial Planning

Paying the “Neglect Tax”

tools to conduct maintenance

We live in an age that glorifies replacement and undervalues maintenance. If something breaks, we don’t fix it, we replace it. A car starts making noise? Trade it in. A house feels tight? Move to a bigger one, even if that means a higher mortgage, bigger property-tax bill, and another 30 years of payments.

But behind all those “upgrades” lies a deeper financial truth: we’ve forgotten the art of maintenance.

The Forgotten Line Item

Most households budget for visible obligations: mortgage or rent, groceries, insurance, and subscriptions.

 

Almost no one budgets for maintenance.

And yet, maintenance is as predictable as the seasons. Roof shingles age. Tires wear down. Gutters clog. But because maintenance doesn’t have a due date, it gets ignored until the problem demands attention. By then, the bill is usually 10× higher.

 

Maintenance Always Wins the Math

The math is brutally simple: small, regular investments prevent massive, unpredictable costs.

  • $75 oil changes every 5,000 miles prevent $7,500 engine replacements. 
  • $200 HVAC tune-ups each spring prevent $10,000 system replacements. 
  • Gutter and roof cleaning prevent $15,000 water leaks and drywall repairs. 
  • Annual water heater flushes can double lifespan and delay $2,000 replacements. 
  • Maintaining proper water runoff: grading soil, cleaning downspouts, and maintaining French drains, can prevent foundation cracks or basement flooding that cost $20,000–$50,000. 
  • Driveway sealing every few years prevents full replacements costing 10x more. 

Multiply those across your entire life – homes, vehicles, equipment, even your health – and the pattern becomes clear: Maintenance builds margin. Replacement drains it.

 

Maintenance as a Habit, Not a Task

Maintenance only works when it’s habitual. It’s not something you do once a year and forget; it’s a rhythm built into your life.

The homeowner who replaces air filters every quarter, checks grading after heavy rains, and budgets 1–2% of the home’s value each year for repairs never gets blindsided. The driver who schedules maintenance instead of waiting for warning lights rarely faces major breakdowns. The family that maintains rather than reacts doesn’t panic when something inevitably wears out.

This is more than discipline; it’s resilience. And resilience compounds just like investment returns.

 

How I Track My Own Maintenance

I practice what I preach. For my own vehicles, I keep a spreadsheet in Google Sheets listing every common maintenance item: oil changes, filters, transmission fluid, brakes, belts, tires, and more.

Each item has columns for:

  • Date completed 
  • Mileage at service 
  • Next service due (by mileage or time) 

Because it’s in Google Sheets, it’s stored in the cloud and synced across all my devices. I’ve bookmarked it in my browser so I can pull it up instantly.

It’s simple, but powerful. That one sheet helps me stay ahead of maintenance rather than react to breakdowns. I can see at a glance what’s coming due in the next month or 1,000 miles. That habit has saved me thousands of dollars and countless headaches by catching issues before they become major repairs.

 

Deferred Maintenance on a National Scale

The neglect of maintenance isn’t just a personal problem. It’s a national one.

For decades, the United States had the world’s finest infrastructure. Our highways, bridges, railways, and power grids were symbols of American reliability and ingenuity. Maintenance wasn’t optional; it was part of national pride.

But over time, priorities shifted. Funds once earmarked for upkeep were diverted to more politically attractive spending, pension obligations, welfare expansions, and short-term projects with visible headlines. The roads still looked fine, the lights still worked, so maintenance was deferred “just one more year.”

Now, the bill has arrived.

We’re facing collapsing bridges, widespread power outages, contaminated water systems, and outdated transmission lines vulnerable to heat and storms. Engineers and economists have been warning about deferred maintenance for decades… that every dollar postponed today becomes five dollars in future repair. But deferred maintenance is invisible until it becomes a crisis.

The same logic that destroys a roof or an engine is now eroding our infrastructure — slow neglect, justified by convenience, paid for later at a budget-busting cost.

 

Personal Finance Lessons from Public Failure

Our national neglect mirrors how most people handle their own finances.

We overextend on what’s new, the bigger home, the nicer vehicle, the upgraded phone, and under-invest in what keeps those things functional. We assume future income will cover future costs. We borrow to replace instead of saving to maintain.

When I build financial plans for veterans, I don’t just ask what they own, I ask what it costs to keep. A $600,000 house isn’t just a mortgage; it’s $6,000–$12,000 a year in expected upkeep.
A $60,000 truck isn’t just a payment; it’s fuel, maintenance, tires, and repairs that might average $1,500–$2,000 annually. Ignoring those costs doesn’t make them disappear. It just ensures they’ll feel like emergencies when they arrive.

Deferred maintenance is a silent form of debt, one that accrues quietly until it collapses all at once.

 

The Virtue of Maintenance

Maintenance is more than upkeep; it’s stewardship. It’s the discipline of caring for what you already have before chasing something new. It’s not glamorous, but it’s one of the most powerful wealth-building habits you can develop.

  • A well-maintained home holds its value.
  • A well-maintained car keeps your cash flow predictable.
  • A well-maintained business runs more smoothly and costs less.
  • A well-maintained community (or country) thrives longer.

Maintenance is the compound interest of responsibility.

 

The Takeaway

In a culture obsessed with upgrades, maintenance is a form of rebellion. It’s a quiet, patient act that says: I’ll take care of what I have before I demand more.

That mindset keeps engines running, roofs solid, bridges standing, and budgets balanced. It’s not glamorous. It’s not fast. But it’s the foundation of lasting prosperity for families and for nations.

Whether it’s your car, your home, or your country’s infrastructure, one truth never changes:

Neglect is expensive. Maintenance pays.

 

Bonus: Top 5 Maintenance Habits That Save Thousands

  1. Schedule Home Tune-Ups
    Have a professional inspect HVAC systems, gutters, roofing, and drainage every spring and fall. Catching small issues early saves major repair costs later.
  2. Maintain Water Runoff Systems
    Ensure soil slopes away from the house, extend downspouts 6–10 feet, and clear French drains regularly. Preventing water intrusion is one of the most cost-effective home defenses there is.
  3. Follow Vehicle Maintenance Intervals
     Oil, brakes, and tires aren’t optional. Set reminders or use a spreadsheet. Maintenance today avoids massive repair or replacement costs tomorrow.
  4. Budget 1–2% of Home Value Annually for Upkeep
     For a $400,000 home, that’s $4,000–$8,000 per year. Treat it as a “maintenance reserve” rather than a surprise expense.
  5. Treat Maintenance Like a Bill, Not a Choice
     Put it on autopilot. Whether it’s a sinking fund in your bank account or a line item in your financial plan, maintenance should be scheduled, not left to chance.

 

Have questions about how to implement maintenance into your routine cash flow?  A MFAA advisor can help!

 

Categories
Financial Planning Insurance Savings

I Have A Military Pension: Do I Still Need An Emergency Fund?

I Have A Military Pension: Do I Still Need An Emergency Fund?

For years, the standard financial advice has been simple: Keep three to six months of expenses in cash for emergencies.

That guidance makes sense for households that rely entirely on earned income. But for many military retirees with a pension and especially those with VA disability, this rule of thumb deserves a second look.  When a significant portion or the entirety of your mandatory expenses is already covered by guaranteed income, your emergency fund doesn’t need to serve the same purpose it does for everyone else.

Why the Traditional Emergency Fund Exists

A traditional emergency fund is insurance; self-insurance to be exact. You are accepting the risk that in the short term, you can fund yourself against two main risks:

  1. Loss of income

  2. Unexpected large expenses

For someone whose paycheck could disappear overnight, cash reserves are critical. The standard advice is 3-6 months’ worth of mandatory living expenses saved into a highly liquid account such as a regular or high yield savings account. If you have stable pay, two incomes, and/or low expenses, you may feel comfortable with a leaner, 3-month fund.    Alternatively, a 6-month fund might be more appropriate for those supporting a family on a single income or with unstable/uneven pay.  Even with the occasional government shutdown, a 3-month fund is often appropriate for those in the military. When you decide your time in the military is over, you may consider an increase to a 6-month fund due to changing incomes and expenses.  In either case, the emergency fund is there to become your income in case your normal income stops unexpectedly or is insufficient to handle large, one-time expenses.

But for retirees with reliable income streams, that first risk looks very different.

Guaranteed Income Changes the Emergency Fund Math

Military pensions and VA disability compensation have unique characteristics:

  • They are reliable and predictable

  • They are not tied to employment

  • They adjust for inflation

  • They continue regardless of market conditions

So, what if those guaranteed income streams already cover your baseline needs such as a mortgage payment, utilities, food, and insurance premiums?  How should you think about the amount you should keep for emergencies then?

From Income Protection to Event Protection: A Different Way to Size the Emergency Fund

Well first, perhaps take a moment to consider how exciting this is!  Think about it:

Your guaranteed income covers your mandatory expenses. 

Maybe I am naïve, but to me, this looks oddly like a definition of financial independence – at least maybe Coast FI.  Sure, you might not be able to accomplish all the goals you set out for your life, but at minimum, you have the income you need to keep a roof over your head, food on the table, and gas in the car.  Any income beyond that is icing on the cake!

With that out of the way, now we can consider our emergency fund amount.  Remember, there were two purposes to an emergency fund, and we’ve just eliminated one of them – income sourcing.  The second, covering the costs of unexpected bills, remains. This is where the shift occurs.  Instead of thinking about this in terms of 3-6 months income, now we can think about this in terms of what’s the worst thing that can happen that I don’t already have insurance for.

A quick trip to ChatGPT generates some of the most common large-ticket expenses to plan for:

  • Home repairs such as HVAC or roof replacement

  • An engine or transmission on your vehicle

  • A significant health event (not covered by Tricare)

  • Unplanned travel

Given these types of expenses, anywhere between $20,000 and $50,000 would almost, if not completely cover the cost.

The Trade-Off: Cash vs. Opportunity

As you consider how much to store away for those potential large expenses, keep in mind that too much cash in savings can be risky.  Even highest of the high-yield savings accounts are generally only staying even with inflation.  That means that if you have a lot of cash in a savings account, you may not be earning enough interest to keep up with the value of the dollar or worse, you may actually be losing value over time.

Peace of Mind Still Matters

There is a comfort factor to an emergency fund.  If you decide that $10,000 would cover the worst thing that could happen to you, but you still can’t sleep at night because the account value is too low, consider the amount that would help you sleep at night.  So your new number doesn’t become arbitrary, try to consider why your new number makes you comfortable. Quite often, we have a tendency to create the worst-case scenario in our mind, when in reality, our worst case scenario may not even happen – ever. Try to find a balance between your worry, anxiety, and the reality that an event may actually happen. If you find yourself getting to a number beyond $50,000 or so, perhaps shifting risk to an insurance company might be a more appropriate solution. Before you head to the nearest insurance agent, perhaps use an outside party as a sounding board for your idea.

Setting Your New Number

The key to establishing your retirement emergency fund is that it is personalized to you. With guaranteed income that covers your mandatory expenses, your emergency fund shifts from income protection to event protection; an added source of comfort and confidence to your guaranteed income. You get to set the amount balanced between what could happen, what helps you sleep at night, and the risk of too much idle cash.  When aligned, your emergency fund does exactly as it is designed; it offers the ability to respond with clarity and control when life inevitably throws a wrench in your plans.

Are you reconsidering your emergency fund or even something more?  A MFAA financial advisor can help.

Categories
Financial Planning Real Estate Taxes

Cost Segregation Studies: A Smart Tax Move… Sometimes

House with a couple thinking about a decision they need to make

Cost Segregation Studies: A Smart Tax Move… Sometimes

If you are a landlord with rental properties, you’ve probably read an article or listened to a podcast where someone recommended, “Do a cost segregation study to reduce your taxes.” This ‘one-size-fits-all’ approach to tax strategy is nearly always flawed, and cost segregation studies are not an exception to the rule. While you might be able to lower your current tax bill by having a cost segregation study done for your property(s), many landlords – especially the families I deal with most often – will not realize a current benefit equal to the time and expense of the study. 

At PIM Tax Services, we work with hundreds of military and veterans families who own rentals. Many became landlords because a PCS move turned their primary residence into a rental. Others are more intentionally building their long-term wealth through real estate. Regardless of how you came to be a landlord, cost segregation can be a powerful tool, but it’s not an automatic win. This article breaks down what a cost segregation study is, why they are suddenly very popular for small-scale rental property owners, and the biggest reason many landlords won’t see an immediate benefit to their income taxes.

What a Cost Segregation Study Actually Is (in Plain English)

A cost segregation (‘seg’) study is a detailed analysis that separates a building into its component parts, grouping those parts according to their depreciation “lives.”

Normally, a residential rental property is placed into service as one entire unit and depreciated over 27.5 years. That’s the default rule for the building (not the land). A cost seg study recognizes that if parts of the building were replaced (like an interior door or the appliances), the replacement parts would be depreciated over shorter periods than 27.5 years.   It separates the building into its component parts and groups them into categories based on their depreciable life:

  • 5-year property (appliances, carpeting, furniture)
  • 7-year property (security system or window treatments)
  • 15-year property (fences, driveways, and certain landscaping features)

Why does that matter? Because once those components are reclassified into shorter lives, they may qualify for accelerated depreciation, including bonus depreciation and sometimes Section 179. The result can be a much larger depreciation deduction early in the service life of the rental property. Instead of spreading it evenly over 27.5 years, you may recover the costs of purchasing the rental property much faster.

That can be fantastic – if you can actually use the deduction on your tax return. (Not everyone can.)

Why Cost Seg Studies Used to Be Only “For the Big Guys”

Ten years ago, cost segregation studies were usually something you saw with:

  • commercial buildings,
  • large apartment complexes,
  • high-dollar multi-unit investments.

That’s because they were expensive. Traditional cost seg studies often cost thousands of dollars. For a single-family home, it was tough to justify that cost unless the numbers were huge. The amount spent on the cost segregation study often exceeded the amount saved in taxes. The value proposition for paying for the cost seg study just wasn’t there for small-scale rental property owners.

Today, the landscape has changed. There are now newer approaches and providers that can produce a cost seg-style breakdown for a fraction of what they used to cost. That shift is exactly why more landlords are asking about it, and why it might be worth considering even for a single-family home. While they are more affordable than they once were, they still do not provide immediate value for everyone.

Most Small-Scale Landlords Already Have Negative Taxable Rental Income

80%+ of the hundreds of landlords we prepare returns for already have negative cash flow on their rental properties. With mortgage interest, property taxes, insurance, repairs, management fees, travel, standard depreciation, etc., many small landlords end up showing losses on their tax return for their rental property(s). Because our tax code characterizes rents as passive income, losses from rental activity are called “passive activity losses” (PAL).

The issue is whether you’re allowed to deduct those passive activity losses on the current year’s tax return.

Passive Activity Losses (PAL) and Suspended PAL (SPAL)

Under the federal tax code, passive losses are subject to limits. In simple terms:

  • If you have passive losses, you can generally only use them to offset passive income. 
  • If you don’t have enough passive income, those losses often get suspended and carried forward.

When that happens, you end up with Suspended Passive Activity Losses (SPAL) that roll forward year after year until you can use them. You can use them when:

  • the rental unit starts producing passive income (rents collected exceed expenses),
  • you have other sources of passive income to absorb them, or
  • you sell/dispose of the property in a fully taxable transaction 

Your ability to use your PAL/SPAL has a significant impact on the current value of a cost segregation study.

If You’re Already in the SPAL Group, Cost Seg Usually Doesn’t Help Today

If you already can’t use your rental losses because they’re suspended, adding a cost segregation study will not create an immediate tax benefit.

Instead, what it usually does is:

  • increase depreciation deductions,
  • which increases passive losses,
  • which increases the amount of SPAL you carry forward.

Meaning – you may pay for a cost seg study, and your “benefit” is not a reduced tax bill. Instead, you paid for a more rapid increase of SPAL.

That’s not always useless. Suspended losses can absolutely be valuable later, especially in a year when you sell the rental at a gain, or when your passive income increases. But it’s very different from the cost segregation pitch many people hear, which is essentially “instant tax savings.” (And remember, if you took accelerated depreciation expenses and then sell the property, you may be looking at “accelerated depreciation recapture”!)

A Cost Seg Study After the Property Is Already in Service

If you do a cost segregation study in the same year you place a property into service as a rental, the implementation can be straightforward (still technical, but simpler and cleaner).

But many landlords don’t discover cost segregation until the property has been a rental for a few years. If you implement a cost seg study to accelerate depreciation on a property that is already in service, you may need to correct your depreciation expenses for prior years.

That’s where Form 3115 (Application for Change in Accounting Method) applies. A Form 3115 can allow you to “catch up” missed depreciation (or correct depreciation expenses that should have been different) through a Section 481(a) adjustment. If you are changing to an accelerated depreciation schedule, then the Section 481(a) adjustment produces a large (“catch-up”) deduction in the year of change without amending multiple prior-year returns.

Sounds great, right? Yes… except:

  • Form 3115 is complex.
  • It’s not something most DIY software handles well.
  • It’s not something every professional tax preparer is comfortable preparing. 
  • The math for correcting the depreciation expense is also complex. Properties placed in service in 2023 were limited to 80% special bonus depreciation. Properties placed in service in 2024 were limited to 60% special bonus depreciation. This further complicates the calculation of the Section 481(a) adjustment.

And the cost to prepare a Form 3115 can vary widely. If a cost seg study triggers the need for Form 3115, you’re not just paying for the cost seg study, you’re often paying for professional preparation of Form 3115 to implement the study’s findings. In the market, the cost for preparing Form 3115 can range roughly from $250 on the low end to $2,000 or more. A landlord might see a “$400 cost seg study” advertised and think, “That’s affordable.” But the real out-of-pocket cost may be significantly higher once filing requirements are factored in.

That doesn’t mean “don’t do it.” It means know the full cost before you start.

When Cost Seg Can Make Sense for a Small-Scale Landlord

Even with all the caveats, cost segregation can be valuable for smaller landlords in the right situation. Here are a few patterns where it’s more likely to matter:

1) You can actually use the losses

If you’re not limited by passive loss rules, accelerated depreciation can reduce current-year tax. Just ensure you have passive income that allows you to use the additional depreciation expenses a cost segregation study should generate.

2) You have a high-income year and a strategy to match

Some clients (including military members transitioning to civilian jobs or veterans with changing compensation) have income swings such as bonuses, separation payouts, relocation reimbursements, or a big change in W-2 income. A strategy that creates a larger deduction in a specific year might be useful. But only if the passive activity loss rules don’t prevent you from realizing the extra depreciation expenses.

3) You’re planning a sale and want to model the whole lifecycle

Sometimes a cost seg study increases depreciation now, which can increase depreciation recapture later. Depending on your top marginal income tax rate, the net result may still be favorable for you, but don’t assume anything. Run a model to project the tax implications for the unique facts and circumstances of your situation.

4) The property has substantial eligible components

Not all single-family homes are created equally. A basic older home with minimal improvements might not yield much reclassification. A home with significant renovations, extensive land improvements, or higher-cost components may yield more.

The Bottom Line: This Is a Math Problem, Not a Vibe

Here’s the point I want every landlord to take away:

Whether a cost segregation study is valuable is a math problem.

Before paying for a study (even a “cheap” one), you want someone to run the numbers and answer questions like:

  • Will the accelerated depreciation create a deduction I can use this year, or will it just increase SPAL?
  • If I need Form 3115, what will it cost to prepare and file?
  • How long do I plan to keep the property?
  • What’s my expected taxable income trajectory over the next few years?
  • What happens on sale, especially with depreciation recapture and suspended losses?

A cost seg study can be an excellent tool, but it’s not an automatic win for landlords with one or two single-family rentals. For many small-scale landlords, especially those already sitting on suspended passive losses, the “benefit” may be delayed, not immediate.

A Practical Rule of Thumb

If you want a simple way to think about it:

  • If you’re consistently in SPAL territory and don’t expect that to change soon, a cost seg study will usually not produce current year tax savings.
  • If you can use the losses now (or will soon), or you’re modeling a strategic multi-year plan, a cost seg study might be worth it but only working through the math problem will let you know for sure.

Final Thought (and a Quick Disclaimer)

I am a big fan of smart tax strategies, especially the kind that help military and veteran families build wealth without getting surprised at tax time. Cost segregation studies can absolutely be part of that plan. But it’s not a magic button, and the passive loss rules are often the deciding factor.

If you’re considering a cost seg study for a single-family rental, don’t start by buying the study. Start by running the numbers.  If you are wondering where to even start, a MFAA financial advisor can help you decide, connect you with a tax professional, and incorporate your rentals into your overall financial plan.  

Disclaimer: This article is for general informational purposes and is not tax advice. Tax outcomes depend on your full (and unique) facts and circumstances. Always consult a qualified tax professional before implementing a strategy.

Categories
Financial Planning

11 Ways to Reset, Refocus, and Win in 2026

New Year Finances - 11 Ways To Reset Refocus and Win title with a clipboard and alarm clock

As we wrap up 2025, now is the perfect time to reflect, reset, and plan for next year.  These smart financial moves will help you start 2026 with confidence and clarity.

Section 1: Review & Reset

  1.  Conduct a Review of 2025 Finances

How you finished 2025 will dictate how you start 2026.  What went well?  Where could you improve.  This review could take many forms, but two things I really like to do is update my financial net worth.  I’ve been doing this every 6 months for over 25 years.  I’ve got a relatively simple spreadsheet with all of my accounts listed that I just keep adding columns to.  It simply reflects the end-of-year totals for any bank, investment, loans, etc.  I also track how much was contributed or disbursed from the account and the overall percentage increase or decrease in value.

The second thing I like to assess where I spent money during the year.  Of those things, what brought me the most joy?  How do I dedicate resources to do more of those things in 2026?

  1. Project 2026 Taxes and withholdings

For some, taxes may be fairly similar year-to-year.  But, if you’re facing a transition, a job change or significant promotion, retirement, marriage, divorce, etc, you tax situation may be changing significantly.  These transitions open the door for more focused tax planning.  Make sure you’re withholding enough through your paycheck or making your estimated payments so you don’t pay additional penalties at tax time.

 Section 2: Strengthen Your Financial Foundation

3.  Increase Saving & Investing Amounts

The beginning of the year is a great time to increase how much you’re saving and investing.  This is especially true if you are getting a cost of living or other salary increase.  You’re haven’t gotten used to that money so why not invest at least a portion of it.

4.  Automate Savings & Investments

Automating your savings and investments is one of the most effective ways to build wealth and ensure you stay on track with your financial goals. By setting up recurring deposits into your savings and investment accounts, you remove the temptation to spend what you intend to save and make the process much less dependent on what you have left  This “pay yourself first” approach means that a portion of your income is automatically directed toward your future as soon as you receive it and less dependent on your willpower. Over time, these automated contributions can add up significantly.  With automation in place, you can focus on other priorities, knowing your financial foundation is growing steadily in the background.

Automating your savings and investments is one of the most effective ways to build wealth and ensure you stay on track with your financial goals. By setting up recurring deposits into your savings and investment accounts, you remove the temptation to spend what you intend to save and make the process much less dependent on what you have left. This “pay yourself first” approach means that a portion of your income is automatically directed toward your future as soon as you receive it and less dependent on your willpower. Over time, these automated contributions can add up significantly. With automation in place, you can focus on other priorities.

5.  Build or Replenish Your Emergency Fund

Is your emergency fund where it needs to be?  2025 was a tough year for many including Federal workers and military who have jobs typically regarded as “stable” because of the government shutdown.  The general rule of thumb is to hold 3-6 months your regular expenses in an easily accessible account.  If you’ve had to use that for emergency situations, it’s important that you start to rebuild that and maybe trend toward the higher side of how much you need to have available.  Make sure you’re holding that in an account that’s actually paying some interest like a high-yield savings account or possibly a money market.  Standard bank savings accounts are typically paying very little interest.

Section 3: Plan for the Future

6.  Plan Charitable Giving

If you’re charitably minded, map out your plan for the year even if you usually give at the end of the year.  The One Big Beautiful Bill Act will allow those who take the standard deduction to deduct up to $1,000 for single filers and $2,000 married filers on their taxes for cash contributions to charities.  For those who itemize, there is now a 0.5% Adjusted Gross Income floor for charitable deduction so bunching donations can potentially make even more sense.

7.  Check College Savings

The beginning of the year can be a good time to review 529 plan contributions.  Are you saving enough for college based on where you think your child might attend.  This is harder to assess when your children are young, but once they’re in high school you probably will have a better idea if they’re looking at Ivy League or very expensive private schools or if they don’t think they will attend college.

 Section 4: Protect What Matters

8.  Review Life & Disability Insurance

It’s important to periodically review your insurance coverage.  Do people depend on your income?  If so, what would happen if you could no longer work?  You want to make sure you’re properly covered.  Many people think about this after major life changes, but checking these things every year or at least every other year can prevent nasty surprises if something unfortunate does happen.

9.  Review Beneficiaries

Things change.  Children are born; marriage and divorce happen; systems and accounts get updated.  It’s important to review your beneficiaries regularly.  I’ve written before how the TSP contractor and system switch caused many people to no longer have beneficiaries reflected in the new system.  Additionally, beneficiaries on bank and investment accounts and insurance policies take priority over estate planning documents so make sure you’re keeping them up to date.   This will help your loved ones avoid any additional surprises should something happen to you.

10.  Update Your Estate Plan

Similar to your beneficiary review make sure you have estate documents and they reflect your current wishes.  This is never a fun task, but you’re not doing it for you.  You’re doing it for those who love you.  You’ll also want to make sure your loved ones know where the documents are.  Make sure you still want those how are identified as having powers of attorney are up to date and have a general sense of your wishes.

Bonus:  Non-Financial Topic

11.  Set One Non-Financial Goal

Doing these 10 financial things should give you more peace of mind and hopefully more time for non-financial things in 2026.  So what does that look like for you?  Set a goal.  Whether that’s health and fitness, learning something new, or being a better friend or parent, it shouldn’t be only about money.  Money is just the tool that can help you live a better life.

If you need help with any of your financial resolutions, the MFAA Advisors can help.  They can help you start 2026 strong.

Categories
Estate Planning Financial Planning Insurance

He Was 96: The Financial Lessons His Life (and Death) Taught Us

Two elderly people looking at each other in a black and white picture drawn in pencil.

He Was 96: The Financial Lessons His Life (and Death) Taught Us

My oldest client died last night. He was 96. 

I received this news from his wife within four hours of his passing. It might seem odd that she got ahold of me so quickly, but I am her trusted financial advisor. I knew what she was thinking about. She was the survivor beneficiary and now, more than half of her monthly income will go away now, and she is 17 years his junior with (hopefully) many years remaining. She offers all of us important lessons in understanding financial planning decision points and taking appropriate actions at the right time.

He was an Air Force pilot and earned a military pension for his 20 years of service. His SBP was assigned to his first wife in their divorce. His 50% of the military pension will no longer be income for his surviving spouse of 50+ years.

He became a schoolteacher, met his new wife, and both earned a lifetime teacher’s pension. However, this retirement was in an era where very little financial education was provided by employers in making survivorship elections. There was no ChatGPT to guide you on your way. So, no survivor election was made, and this inflation-adjusted pension income will also end.

And then there is Social Security. The surviving spouse keeps the higher of the two benefits. Their benefits were fairly equal, but it’s a 50% income reduction in that category as well.

All totaled, her new monthly income will be roughly 35% of what it was before her husband passed. No one wants to find themselves in this situation late in retirement. Let’s look at what may have seemed like small decision points that could have led to improved financial outcomes.

Making Survivor Benefit Plan Decisions Together

When service members retire from the military, one of the most consequential, and often misunderstood,  financial decisions is the Survivor Benefit Plan (SBP) election. The SBP provides up to 55% of the pension payment as ongoing income to a surviving spouse if the retiree passes away first, effectively serving as a lifetime inflation-adjusted annuity for the survivor.  

However, the SBP election must be made at the time of retirement, and it becomes irrevocable in most cases. Too often, the decision is made quickly or without meaningful discussion between spouses. In the case of my clients, the SBP was assigned to a prior spouse as part of a divorce decree, a common but often overlooked detail that can have lifelong consequences.

When a new spouse comes into the picture later in life, that person may be left without access to any survivor benefits. Unless deliberate steps are taken during open enrollment periods or upon remarriage, the coverage cannot be transferred.

Both spouses must be active participants in the SBP decision, and a service member needs to review that decision after major life changes such as divorce or remarriage. A small percentage of income given up during retirement for SBP premiums can provide decades of income security for the surviving spouse.  While “the numbers” might suggest acquiring life insurance as a substitute, there are some spouses who are more comfortable with that “check of the month club”.  This is a tradeoff that deserves detailed analysis and joint agreement.

Optimizing Social Security Claiming Strategies for Couples

Social Security remains one of the most under-optimized components of retirement planning, particularly for married couples. Many retirees view it as a simple “start as soon as you can” benefit. But the timing and coordination between two spouses can significantly impact the lifetime and survivor benefits.

When one spouse passes away, the surviving spouse keeps the higher of the two benefits. That means the larger benefit becomes a “joint and survivor” payment — it continues for as long as either spouse lives. Therefore, it often makes sense for the higher earner to delay claiming benefits until age 70, maximizing the survivor benefit.

In the case of my clients, both had similar benefit amounts and claimed early, a decision that seemed harmless at the time. But now, the surviving spouse faces a permanent 50% reduction in household Social Security income on the already much smaller lifetime benefits.

When one spouse is significantly younger, as in this case by 17 years, the long-term implications of early claiming can be profound. A couple may live comfortably in their 70s, only to have the younger spouse face financial hardship for 20 or more years after the first death.  

The best strategy is often collaborative: delay benefits for the higher earner while allowing the lower earner to claim earlier, creating a balance of near-term income and long-term protection. Your financial planner can model multiple claiming scenarios, not just for the retirees’ lifetimes but also for the survivor’s projected longevity.  Factors such as taxes, Medicare premiums, and portfolio withdrawals also help determine how Social Security fits within the broader income plan.

Using Life Insurance or Annuities to Protect the Surviving Spouse

For many couples, particularly those with single-life pensions, there is a significant risk that income will disappear at the first death. When survivorship options were not elected, or not available, life insurance and annuities can serve as powerful tools to fill that gap.

Life insurance is often overlooked as couples approach retirement, yet it can be one of the most efficient ways to replace lost income. A well-structured insurance plan maintained into retirement, can provide tax-free funds to supplement income or establish a personal “survivor benefit” when pensions cease. Even modest policies can make a meaningful difference in preserving financial independence for the surviving spouse.

For retirees who are beyond the point of insurability or who prefer guaranteed lifetime income, annuities can offer similar protection. These instruments create a contractual income stream that continues for both spouses, or for a predetermined number of years, ensuring that the survivor’s essential needs are met.

The Broader Lesson: Plan Together, Decide Intentionally

The passing of a spouse is an emotional event that becomes exponentially harder when financial uncertainty is added to the grief. What stands out in my client’s story is not just the financial loss but the accumulation of small, missed opportunities, each one seemingly minor at the time, but together resulting in a 65% drop in household income.

Financial planning is, at its core, about anticipating transitions. Life, health, and relationships evolve, and the plans we make in our 40s or 50s must be revisited regularly to ensure they still serve us in our 70s, 80s, and beyond. Whether it’s reviewing pension elections, updating beneficiary designations, or exploring insurance and annuity options, every couple should treat these as shared decisions.

The key takeaway is simple but vital: every financial decision has a survivor dimension. The question to ask at every major juncture is, “If I’m not here, what happens to the person I love?” The answer should guide not only the math of retirement but also the heart of it.

Closing Reflection

My client lived a long, full life; one marked by service, dedication, and love for his wife. But his story reminds us that financial planning is not just about growing wealth; it’s about ensuring stability for those who remain. The surviving spouse now faces the challenge of living on one-third of her prior income, a difficult reality that could have been softened with just a few different decisions decades ago.

This serves as a timeless reminder: the best financial plans are made together, with both lifetimes in mind.

If this article spoke to you, the advisors at MFAA are here to help.  All MFAA advisors are fee-only and will not sell you a product.  Instead, they will help you understand how the decisions you make today can affect your financial future.  They’ll also help you make a financial plan to make more informed decisions.  Find an MFAA advisor here and reach out today!

Categories
Financial Planning

Flip The Value: Facing Decisions

Boy standing at a vending machine trying to decide what to buy
Decisions, Decisions...

Flip The Value: Facing Decisions

Lost golf balls

I have a confession to make. I don’t like looking for golf balls. If you golf, you already know what I’m talking about. If you don’t, let me paint a picture.

During a round of golf, inevitably a golfer in the group will hit a ball out of bounds. Yes, oftentimes this golfer is me. What happens next has always intrigued me. The golfer who hit the errant shot will traipse in the general area their ball landed in hopes of finding it. This triggers a polite social norm from the other golfers in the group. That is, all of the other golfers will join the hopeless search until the ball is found or minutes pass and the golfer concedes their fate. 

I should clarify, I’m talking about a situation where finding the ball is very unlikely and, if we DO find it, there is no hope for a shot. The golfer simply saved their ball and must drop in another area (with a penalty) and play on. We’re just looking for the ball. Four adults scavenging in the woods for 4-5 minutes for a ball that, on the high end, might cost $6.

I usually don’t share this pet peeve with fellow golfers. Ultimately I like to be a good team player and have fun with the group, so I’ll play along. After all, I realize I’m the weird one and it’s not worth me soap-boxing a point of view that I’ve developed over the years. I’ll just help look for the ball. 

Free sandwiches

A handful of years ago I learned that my favorite sandwich shop was giving free sandwiches to active duty military and veterans. Since I had errands to run, I decided to swing by and grab a free sub for lunch. However, as I pulled into the parking lot, I saw the line of likeminded freeloaders extending out the front door and down the block. I estimated the line would take at least 45 minutes. No thank you. I passed on the free sub and went about my day. But why?

The simple take to this story is I was too lazy or impatient to stand in line for 45 minutes for a free sub. Fair enough. However, there is a good lesson to be learned. This is the day I learned to flip the value.

As I drove away from the sandwich shop, I thought more about why I wasn’t as diligent as those standing in line. Why am I too lazy to wait? After some thought, it hit me. I heard a voice in my head ask me the question, “If a stranger asked me to wait in line for 45 minutes for $7, would I do it?” That began to clarify things. Then I got creative. What if I was forced to stand in that line, would I pay $7 to get out of it? Taking it even further, what if I already had the sandwich, but in order to keep it I had to wait in line for 45 minutes? I realized that there were three basic parts to the decision. The sandwich, my time, and $7. I could twist it however I wanted to.

This eureka moment was incredibly satisfying. It helped me realize why I make decisions like this. Since then, these types of questions have helped me make hundreds of spending decisions. Should I spend money, spend time, spend my personal labor, or abandon what I want entirely? The answer lies in these types of questions that twist the pros and cons; what I like to call flipping the value questions. As it turns out, there are three basic ways we can flip these questions.

Mowing the lawn: 3 versions of flipping the value

As seen above, there are many ways to flip the value, but eventually I found that there are three basic types. The easiest and most common way is to exchange the “what am I paying” part for the “what am I getting” in order to arrive at a sensible answer. Here’s an example.

Level 1: flip “what I’m paying” and “what I’m getting”

Do you pay someone to mow the lawn? Professional services can cost hundreds of dollars per visit. Is it worth it? Possibly. Flipping the value can help. Let’s ask the questions. 

  • What am I paying? Let’s say $150
  • What am I getting? A mowed lawn, time saved, wear and tear on my equipment saved, and not thinking about lawn care at all.

When deciding to pay or mow the lawn yourself, this is usually how most people decide. But geez, $150 is a lot of money! Are you sure? Let’s flip the value using the most basic level 1 version. That is, what am I getting vs what am I paying if I decide to mow it myself.

  • What am I paying? Time, labor, wear and tear on my equipment
  • What am I getting? Saving $150

OK, but we didn’t really learn anything here. It’s just the opposite of the questions above. However, it can better quantify your decision. Also, you may feel like saving $150 is as good as getting paid $150. If so, then you’re already on to level 2. 

Level 2: flip positions with the other side of the transaction.

Let’s get creative. Let’s switch positions with the lawn service. Thinking deeper, we can ask ourselves, “would I accept $150 to mow my yard?” Ah, there it is. That is flipping the value! Suddenly the decision becomes crystal clear. 

If you wouldn’t accept $150 to mow your yard, then your answer to hiring professionals is valid. Likewise, if you would gladly accept $150 to mow your yard, then it’s time to lace up and get to it yourself. 

Level 3: you already have what you want, would you pay to keep it?

This involves a little more imagination, but it can galvanize your position even further. In this scenario, you imagine you already have what you want. In this case, that means you already have a clean, manicured lawn. You haven’t paid or done anything to keep it. You just have it.

Now, what would you do or pay to keep it? Would you spend the time and labor equal to mowing your lawn to keep it? Would you pay $150 to keep it? 

These three examples work because they force you to think about each part of the equation differently. It’s like an algebra equation, moving parts back and forth from one side of the equation to the other. The beauty of these thought exercises is that you can confidently go forward with your decision. Each time you pay for lawn care, you know you flipped the value and made the right call for you.

Bigger decisions

Ultimately, flipping the value means exploring the value proposition of any decision from many different viewpoints. From the few examples above, we see how this can help us make small decisions, but how does it help with larger ideas?

  • Buying new vs used: You need to buy a car and have decided on the model you want. The new version costs $30,000, but there is a used option that is 3 years old with 40,000 miles on it that costs $20,000. What you’re paying vs. what you’re getting is obvious, but let’s flip the value. Using the third level of the idea, imagine you already own the new version of the car and someone offers to trade their 3 year old version with 40,000 miles, but they’ll give you $10,000 cash. If your answer to this proposition is yes, then the used car is for you. If not, then enjoy your new car. 
  • Investing for retirement: Imagine you’re already stretching your paycheck and saving as much as you can. However, while working with your financial planner, you learn that hitting your retirement goal will require you to save an additional $80/month. You still have some discretionary spending you enjoy each month. Restaurants, movies, etc., but you still hope to retire at a certain age. This one is less clear, but it’s still possible. Imagine you’re already on track for retirement. You already have enough saved but can’t eat out as often as you like. Again, using level 3, if someone offered you a less secure retirement for an additional 2-3 meals out per month, would you take it? 
  • Buying the dream home: I know you’ve scrolled through Zillow. I’ve done it too. Many of us dream of a home in the future. An upgraded family home, a vacation home, or a smaller luxury home after the nest is empty. Once we achieve the financial means to achieve this goal, it may be beneficial to flip the value. 

Level 3 might help us decide on the home we want. If we already had it, would we pay to keep it? Once we decide on a home to purchase, we might use level 2 to decide if the price is right for us. If we were the sellers, would we accept the price? Finally, we can revert to level 1 to best understand exactly what we’re paying for what we’re getting. 

As it turns out, sometimes there are many times in the decision process we can use these tools, but we can usually use all three each time.

Enjoy the choice

Flipping the value in any decision, regardless of the way you choose to do it, is intended to help you feel satisfied and confident in the decision itself. It can remove doubt and allow you to proceed with confidence. Likewise, it can help prevent buyer’s remorse after you take action on your decision.

Probably most valuable, it can provide peace of mind after the decision is made. I challenge my youngest with this often. When faced with the challenge of choosing between two desired options, he struggles to enjoy his choice and resist FOMO. His challenge is in letting go of the opportunity cost he spent; the alternative that he missed out on. Only when he freely gives up the cost of his decision can he fully enjoy the experience he decided on.

Once you flip the value and understand all angles of a decision, you will likely feel better about the price you have paid. Your money, your time, your labor, or your opportunity cost will suddenly feel well worth the benefit you receive. If not, you will risk wondering if you made the right call.

After all, should someone ask me to find a small white ball in the middle of the forest for $6, now I know my answer. 

An MFAA advisor can help you find the value of the decisions you are making.  In fact, finding an advisor is one of the decisions you can make!  Run your decision through the 3 levels and if you see the value, find an MFAA advisor here.

 

Categories
Financial Planning

Understanding VA Mortgages and IRRRLs

Family standing in front of house the bought with a VA loan

Understanding VA Mortgages and IRRRLs: Save Money with Your VA Benefits

Generally, homeownership is viewed as a cornerstone for building wealth. As World War II was coming to a close, millions of veterans were returning home to begin their civilian lives. The Servicemen’s Readjustment Act of 1944 was passed and included provisions for a loan guaranty to help returning veterans purchase a home. Over the years some details have changed but, fundamentally, the VA home loan program still exists to help veterans achieve home ownership.

What is the VA home loan program?

First, let’s clarify what the VA home loan program is not. It’s actually not a mortgage! Instead, the VA home loan program is backed by the Department of the VA. It’s a loan guaranty. It tells a lender that, in the event that the borrower fails to pay, the program will step in and repay a portion of the loan. 

Since there is less risk that the lender will lose all of its money, borrowing terms are often more favorable, particularly for borrowers who could not otherwise qualify for a mortgage. 

How do you earn eligibility for a VA Loan?

To be eligible for a VA loan you must serve for at least 90 continuous days on active duty. National Guard and Reserve members are eligible if they meet the active duty requirement or can earn eligibility by serving for 6 credible years. Even if you don’t meet the service requirements, there are some situations where you may still be eligible. In short, always ask if you’re eligible.

This is one benefit that most veterans are eligible to use.

How is a VA loan different from a conventional mortgage?

Since the VA backs the loan, interest rates might be lower than otherwise available for a given borrower. There is no requirement for private mortgage insurance (PMI), a downpayment may not be required, and credit standards could be lower. 

VA loans and conventional mortgages both, typically, have closing costs associated with them, but a VA loan may include a VA funding fee in closing costs. The borrower can pay the funding fee out of pocket or roll it into the mortgage.

What is the VA funding fee?

To help fund the cost of the VA home loan program, VA loans have a funding fee. The amount of the fee depends on a few factors such as whether it’s the first use of the program and amount of the down payment. The fee could be as high as 3.3% or as low as 1.25%

An important note is that the funding fee is waived if the veteran has a service-connected disability. This might be a key factor when considering the timing of your home purchase when transitioning from the military. For example, if you’re leaving active duty it might be worth delaying the purchase of your home until just after you separate. Then, if your VA claim results in finding any service-connected disability that’s backdated to your separation you could receive a refund of your funding fee. However, if you purchase the home just before leaving active duty, you would not receive a refund since you closed on your home before the effective date or your disability rating.  

What happens if interest rates fall after I close on my mortgage or if I need to refinance for another reason?

Sometimes it makes sense to refinance your mortgage. One of the most common reasons to refinance is because interest rates are lower than when you closed on your current mortgage. Just like conventional mortgages, borrowers are allowed to refinance their loan. In fact, there is a special process designed to make it easier, and less expensive, to refinance. The process is called the Interest Rate Reduction Refinance Loan (IRRRL) or “streamline refinance”.

As the “streamline refinance” moniker suggests, the process requires less paperwork, typically involves a lower funding fee (if required at all), and can be done without out of pocket costs.

How do I decide if refinancing is the right choice for me?

There are a variety of factors in play when deciding whether to refinance. But, generally, the primary factor is whether you can save money over the life of the loan. Saving money over the life of the loan is different than just reducing your mortgage payment. In some cases, that could be the primary driver for your decision but generally you really want to save money over the long term.  

In order to save money over the life of the loan, the interest rate of the new mortgage needs to be lower than the interest rate on your existing loan. AND, the interest rate of the new loan needs to be low enough that the cost to refinance can be recouped within a reasonable period of time (a good rule of thumb is within 24 months). 

For example, let’s pretend you have a $500,000 balance on your mortgage, that your current rate is 6.5% and that your mortgage payment is about $3,160 per month. Let’s pretend you can refinance your mortgage with a new rate of 6.4% and that it will cost $3,000 to do it. If you pay the $3,000 out of pocket, your new mortgage payment would be about $3128 per month.  That’s a savings of ($3160-$3128) $32 per month.  On a 30 years mortgage you would, technically, save money over the life of the loan because instead of paying a total of ($3160 * 360 months) $1,137,600 you would pay ($3128 * 360 + $3000) $1,129,080.

But how long does it take you to recoup the $3,000 that you paid to refinance? It would take about 93 months ($3000/ $32) or about 7.8 years. Will you still be living in the house in 7.8 years? Maybe. Maybe not.  In this case, it may not make sense to refinance just because the rate is lower.

But, let’s pretend the rate is meaningfully lower and the savings is $300 per month. You can recoup your closing costs within 10 months – it could make sense to refinance.

How often can you refinance?

Technically you can refinance as often as you wish. However, there are some timing rules associated with the streamlined process. You must wait at least 210 days from the date of your first payment on your current loan before you can refinance again.  

Wrapping Up

If you’re contemplating a home purchase or a refinance and aren’t sure how to get the most out of your VA home loan benefit, talk with a fee-only financial advisor.  They (probably) aren’t licensed to sell you a mortgage but they can help you understand the options, run the numbers, and, if desired, can connect you with a reputable mortgage broker.  

 

Categories
Financial Planning

Estate Planning Basics For Military Members

Picture of Estate Plan - Last Will and Testament

Estate Planning Basics for Military Members

One of the most common questions I get from military members related to estate planning is along the lines of “but I already have a will from the JAG – what else is there to do?” Estate Planning isn’t just for the independently wealthy. It’s for anyone who is loved and wishes to make the inevitable path of loss and grief easier for loved ones—including protecting underage children. 

It can also feel daunting, but we’ve broken it down for you into the basics. Because everyone’s circumstances differ, you may want to discuss the best way to apply these steps with the JAG or estate attorney. None of the following is considered legal advice and is for your education only. Consider the steps to put your estate plan in order.  

What is Estate Planning?

Estate planning is the process of establishing and maintaining a plan that outlines who will receive your assets after you pass away. There are many important documents required, some legal and some that are simply for the benefit of your loved ones. It’s a stressful time when a family member dies—having a solid estate plan can go a long way toward easing burdens.

An estate plan also helps when an individual is incapacitated, too. Moreover, estate planning includes not only your financial assets but also other items and general last wishes.

Why Is Estate Planning Important?

Estate planning is important because it puts in writing how your assets will transfer after your death. Common documents and products include a will, trust, insurance policies, and healthcare-related forms. Estate planning is simple for those with relatively few assets, but it quickly turns complex for high-net-worth individuals and families. Creating an estate plan with an experienced financial planner and estate attorney is thus important to avoid headaches after you pass away. New laws, regulations, and financial products make estate planning a complex area of long-term planning.

Assets Considered Part of an Estate

You might wonder what is included under the term “estate.” Just about everything you own. Writing down a list of all your assets is a good first step toward crafting a basic estate plan. Note everything, including retirement and investment accounts like your TSP, properties, cars, jewelry, collectibles, cash, and insurance policies. The list goes on! Knowing what you own along with the total value of your assets helps a financial planner strategize the optimal estate plan for you.

What’s ideal about financial accounts, though, is that you can generally name a beneficiary to whom a specific account will go upon your passing. That makes executing an estate plan simpler. Other non-financial assets pass through to your heirs based on how your will is constructed.

  1. Inventory and estimate the value of your stuff

You may think you don’t have enough to justify estate planning, but once you start looking around, you might be surprised by all the tangible and intangible assets you have.

The tangible assets in an estate may include:

Homes, land or other real estate

Vehicles, including cars, motorcycles or boats

Collectibles such as coins, art, antiques or trading cards

Other personal possessions

The intangible assets in an estate may include:

Checking and savings accounts and certificates of deposit

Stocks, bonds and mutual funds

Life insurance policies

Retirement plans such as workplace 401(k) plans and individual retirement accounts

Health savings accounts

Ownership in a business

Once you’ve listed your tangible and intangible possessions, you need to estimate their total value. Consider the following:

Home values: If you don’t have a recent appraisal, write down a ballpark figure of your home’s value using online tools such as Zillow, Trulia or Realtor.com. 

Bank and investment totals: Statements from your financial accounts

Sentimental possessions and family heirlooms

  1. Account for your family’s future

What future needs will your family members have in your absence? Consider income needs, medical care, and who will raise your kids if you’re not there.

Do you have enough life insurance beyond SGLI? If your assets cannot provide for the care and raising of your children, including future educational needs, consider including term life insurance to bridge the gap for those who depend on you.

Name a guardian for your children — and a backup guardian, just in case. This can help sidestep costly family court fights that could drain your estate’s assets.

Document your wishes for your children’s care. Don’t presume that certain family members will be there or that they share your child-rearing ideas and goals. Don’t assume a judge will abide by your wishes if the issue goes to court.

  1. Establish your directives

A complete estate plan includes necessary legal directives or instructions. If your estate is small and your wishes are simple, the JAG documents may generally suit your needs. These programs typically account for IRS and state-specific requirements. However, with increasingly complex estate needs like blended families, special-needs considerations, multiple properties across various states, or higher net worth estates, there is often a need for an estate planning attorney to go beyond the basics that JAGs usually cover. 

These directives include most or all the following:  

  1. Last Will and Testament: This is the most well-known document in estate planning. Most people know they should have a will, but the majority of Americans do not have one. According to a 2020 Gallup survey, just 45% of U.S. adults reported they had a will. A will is the foundation of an estate plan. The document outlines to whom your assets will go upon your death. Assets mentioned in a will still must go through the probate process, however. A will can be inexpensive and simple to make online, but they are often costly and elaborate for high-net-worth families. Moreover, a will is not a ‘set it and forget it’ estate planning document – it must be maintained just as a financial plan is updated as life events happen. Naming an executor (as well as backup names) of an estate is a critical component of your last will and testament, too. Finally, individuals should be aware that the will is made public through the probate process, so be thoughtful about what is included in the document.
  2. A durable financial Power of Attorney (POA) allows someone else to manage your financial affairs if you’re medically unable to do so as it is “durable” even through your incapacity. This includes paying your bills and taxes and accessing and managing your assets. A limited power of attorney can be helpful if the idea of turning over everything to someone else concerns you. Be careful about who you give power of attorney. They may have your financial well-being — and even your life — in their hands. 
  3. Advanced Healthcare Directive (AHCD), Medical Care Directive, or Living Will: An AHCD outlines what healthcare-related actions should be taken if you are unable to make decisions. You can also give a trusted person medical power of attorney to make medical decisions if you are unable to do so (in a coma for example).
  4. HIPAA Authorization: This document can save a lot of time and anxiety since it gives consent to share your medical records with third parties.
  5. Trust documents: Trusts allow you (the Grantor) to give someone else (a Trustee) control over how assets are controlled and held for the benefit of a third party (a Beneficiary). When constructed properly, assets in a trust avoid both probate and estate tax liability. A living trust, sometimes called a revocable trust, enables you to designate portions of your estate toward certain things while you’re alive. If you become ill or incapacitated, your selected trustee can take over. Upon your death, the trust assets transfer to your designated beneficiaries, bypassing the court process (probate) that may otherwise distribute your property. Those with minor children may especially want to consider a trust to provide financial protection for them so they don’t otherwise inherit large sums of money at age 18.
  6. Beneficiary forms: You might be overwhelmed by all that goes into making and maintaining an estate plan. One thing you can do today that is quick and easy is complete beneficiary designation forms on all your financial accounts. IRAs, 401(k)s like the TSP, and brokerage accounts often offer short forms to accomplish this estate-planning task. Financial accounts with a named beneficiary efficiently transfer upon your passing. Bank accounts have a “transfer on death” option as well. Don’t leave any beneficiary sections blank. In that case, when an account goes through probate, it may be distributed based on the state’s rules for who gets the property. Name contingent beneficiaries. These backup beneficiaries are critical if your primary beneficiary dies before you do and you forget to update the primary beneficiary designation.
  7. Guardianship: More important than money is what happens with your children and other dependents. No estate plan is complete without a directive on who will care for your loved ones when you pass away. Guardianship is commonly outlined in a will.
  8. Letter of Intent. A letter of intent is a document left to your executor or a beneficiary. The purpose is to define what you want to be done with a particular asset after your death or incapacitation. Some letters of intent also provide funeral details or other special requests. While not legally binding, letters of intent can inform a probate judge of your wishes if the will is deemed invalid or more importantly, give guidance to your loved ones with more information about your wishes. 

Estate Taxes

Although this generally doesn’t apply to most military families, avoiding estate tax is among the primary goals of crafting and strategizing an estate plan for wealthy individuals. For these people with a net worth above the federal estate tax exemption, the so-called “death tax” can run into the millions of dollars. Ultimately, you want to ensure your heirs receive as much of your assets as possible. A savvy financial advisor helps individuals and couples create an optimal estate plan—that includes taking tax minimization actions years in advance of retirement.

The top federal estate tax rate is 40% for 2023. The estate tax exemption amount, also called the exclusion, is $12.92 million per individual and $25.84 million per couple. That means if the cumulative value of your assets exceeds those amounts, you could face substantial estate tax liability. The good news is that there are strategies you can act enact to reduce what you might owe. In general, the higher your net worth, the more value a financial advisor knowledgeable in estate planning brings.

Another key amount is the annual gift tax exclusion, which is $17,000 per donor, per donee ($33,000 per couple). For example, I can give anyone $17K and my spouse could give that same person another $17K.  This is commonly misunderstood that if you want to give (or receive) an amount above that annual exclusion amount that you have to pay tax. That is not correct! There is just some paperwork (IRS form 709) that needs to be filled out come tax-time that reports using a portion of your lifetime exclusion (the $12.92M figure earlier) for the gift. Thus, no gift tax is owed unless you use all of that up. 

Get Started Today

Everyone needs an estate plan even if the value of your assets is significantly below the federal estate tax exemption. If so, you can simply visit the JAG to update or create a plan. In addition, any number of online sites like Trust and Will offer ways to draft and formalize your estate plan document. If you get out of active duty and work in a civilian company, many employers offer estate planning services in their benefits packages—check with your Human Resources department at work to see if that’s the case for you.

But here’s the thing: While your net worth might be well under the exclusion amount today, decades from now that might not be the case. Consider that compounding investment returns, business growth, and even tweaks to the federal tax code might change your situation. Getting started today with certain estate minimization techniques can prepare you for an easier tomorrow.

Conclusion

Taking time today to craft an estate plan helps ease your loved ones’ burdens after you pass away. A solid estate plan outlines who will receive what after you die and this important piece of financial planning includes directives on what actions to take if you become unable to act on your own. Whether you should hire an attorney or an estate planning professional to help you create your estate plan depends on your situation. 

If you have doubts about the process, consulting an advisor to help you take the best steps for your situation might be worthwhile. The advisors in MFAA can help you determine whether this is a process you can tackle yourself or one for which you should hire a professional. We’re here to help!

 

Categories
Financial Planning

What Exactly Does A Comprehensive Financial Plan Look Like?

A Sample Financial Plan

The first step toward long-term financial stability and living the life you’ve always wanted to live is to create a thorough financial plan. But what exactly does a comprehensive financial plan look like? 

To answer that question, we developed this article to offer a behind-the-scenes look at a sample financial plan. Using fictional clients (George and Martha Washington), we’ll analyze key components of their current financial landscape, from understanding their background and goals to doing a thorough analysis of their income and expenses to providing recommendations moving forward. 

By looking through George and Martha’s sample plan, you get to take a peek inside the inner workings of a financial analysis followed by a well-planned strategy for moving forward.

Let’s get started!

What’s Included in a Financial Plan?

To start, you might be wondering about the parts that make up a comprehensive plan. Financial plans often cover a wide range of issues and objectives, including retirement income planning and tax planning. 

At Clear Insight Wealth Management, we start by helping our clients define the elements that must be in place for them to live their ideal life. Once we have a clear picture of the life they have always wanted to live, we help them define their financial goals and work with them to build the financial infrastructure to live that life. 

The result is an easy-to-follow but effective road map to guide you toward financial freedom. 

Take a Look at a Sample Financial Plan

Using our fictional clients, we’ve developed a sample financial plan that reflects our planning process. The plan analyzes all aspects of George and Martha’s financial life including their background and goals, their current financial profile, and customized recommendations based on their situation.

1. Client background and goals

George is a Colonel in the army and he plans to transition out of the military in 2027. He is fulfilled by serving others and would like the next career phase to be about his passion for serving others even if that means making less than he earns now. Once their kids got older, Martha co-founded a government contracting firm. She is proud of the business she built but is ready to have more free time to spend with her family, friends, and giving back to the community through volunteer work. Ideally, they would like to be financially independent in six years so that work becomes optional. 

The obstacles they think may prevent them from living this life include: 

  • They pay a lot of income taxes now and worry that when George transitions out of the military, their income taxes will only increase. 
  • They aren’t sure that they can continue to live the life they enjoy while George begins making less pursuing his passion. 
  • In six years when work becomes optional, what is the best way to fund their lifestyle? They will be under 59½ and don’t want to have to pay the withdrawal penalty on retirement withdrawals.
  • They have already accumulated significant assets and are concerned that their assets may exceed the estate tax exclusion by the end of their life. They would like to leave their kids a tax-friendly estate.
  • Charitable giving is an essential element to life satisfaction. Will they be able to give as much as they do now?

You and Your Goals Sample

2. Aligning the investment strategy with the client’s goals

In addition to considering your risk profile, time horizon, your investment experience, and the current market conditions, Clear Insight will help you invest with intention. For George and Martha, that means increasing their contributions to the retirement accounts so that they can make work optional at 52. 

George and Martha were fortunate to buy Nvidia stock several years ago. But now it has a 50% weight in their non-retirement account and a 33% weight in their entire portfolio. Concentrated positions create risk. Through tax-loss harvesting, an options strategy and switching to gifting shares of Nvidia instead of making cash gifts to charities, we not only reduce the risk but we help them avoid capital gains tax as we align their investment strategy with their goals.

Investment Allocation Sample

3. Analysis of your current financial situation

At this point, we take a deeper look at your complete financial profile. We do a thorough analysis of your income, savings, current investment growth rate, your pension, Social Security, assets, and insurance. Tax planning is one of the most impactful parts of every financial strategy. Clear Insight not only works to reduce income taxes now but implements strategies today to avoid a tax burden in retirement. We use all this information to make recommendations based on your individual financial situation moving forward. The sample pages below offer a glimpse into a portion of this analysis:

Tax Planning Analysis Sample

4. Recommendations

Finally, based on the thorough analysis we conducted, we work with you to implement the recommendations so you can live the life you want to live. As regulations change and life happens, Clear Insight will be there to guide you every step of the way.

Recommendations Sample

The Bottom Line

Creating a thorough financial plan is a team effort that requires giving your particular situation and objectives significant thought. Even while this sample plan offers a sound framework, it’s important to keep in mind that each person’s financial journey is unique. 

By comprehending the key elements outlined in this article, you can gain important insights into building your own financial plan. Remember, seeking guidance from a qualified financial advisor can help you customize your plan to your particular needs and goals, essentially improving your pursuit of building the wealth you need to live your best life.