Well, What’s Stopping You?

The economic upheaval we’ve experienced over the past year or two has caused a lot of people, myself included, to think more deeply about our lives and what is really important to us. Last year I ran across a series of questions that I believe can be a powerful tool to help people gain clarity about what they truly value in life. From a “wealth management” standpoint, this exercise can be valuable by providing a context for making decisions and for the deployment of resources (financial and non-financial) in the pursuit of the things that matter most to you.

My wife, Jessica, and I took some time to answer these questions individually and then got together to share our responses. It was a wonderful and eye-opening experience. Here are some of my observations:

• Most of the things that were clearly important to me were non-financial; that is, they had very little to do with money and in many cases, limited funds was not necessarily an obstacle to achieving those desires.
• It was great to write it all down – that made it more real. I still have the pages and intend to review them on a regular basis.
• It was even more powerful to read my answers out loud to someone else. It was a far more emotional experience than I expected, even more so than writing my thoughts down in the first place. Perhaps saying it out loud served as a confession of past failures and also as a commitment to doing better. If you do not have a significant other to do this exercise with, consider sharing your responses with a close friend.
• If nothing else had come of it, this exercise was a great way to get to know my wife better. Life is so busy that it is easy to let time slip by without a lot of deep, meaningful conversations.

So, here are the three questions, followed by one last question of my own:

1. Imagine you are financially secure; that you have enough money to take care of your needs, now and in the future. How would you live your life? Would you change anything? Let yourself go. Don’t hold back on your dreams. Describe a life that is complete and richly yours.
2. Now imagine that you visit your doctor, who tells you that you have only 5-10 years to live. You won’t ever feel sick, but you will have no notice of the moment of your death. What will you do in the time you have remaining? Will you change your life and how will you do it? (Note that this question does not assume unlimited funds.)
3. Finally, imagine that your doctor shocks you with the news that you only have 24 hours to live. Notice what feelings arise as you confront your very real mortality. Ask yourself: What did you miss? Who did you not get to be? What did you not get to do? (Careful: this question is not asking what you’d do with your last 24 hours, but rather asks you to look back over your life.)

Once you have thoughtfully completed this exercise, I challenge you to answer one more question: “Well, what’s stopping you?” If you are like most people, you have just laid out a list of desires and dreams to pursue, and probably many things you’d like to avoid regretting in the future. A lot of those things do not require money; they simply require a change of priority in how you use your time and perhaps an increased willingness to take risks.

This exercise may be way outside a lot of people’s comfort zones. But as the ancient philosopher Socrates said, “An unexamined life is not worth living.” My twist on that would be to say that an examined life is more worth living. We are here to help you with this kind of thinking and then help apply the answers in the context of a financial plan.

Ladies, it’s 10 p.m. - Do you know where your money is?

By Sarah Byrd

In every marriage each spouse takes on different responsibilities. Cooking, yard work, shopping, paying bills - one person doesn’t do it all, and efficient living often necessitates division of labor. You don’t each need to know what brand of fertilizer is making your yard green, or where you buy your tomatoes. However when it comes to planning and understanding your family finances its better if you’re both involved. It can be a great way to keep communication lines open, increase confidence and prevent needless anxiety in the future.

In a majority of American households, finances are managed by the husband. Quite often, wives may be engaged in the monthly budget, but have very little involvement in the bigger picture; when it comes to areas like their investments and taxes, they are in the dark.

Unfortunately, between high divorce rates and the fact that women generally live longer than men, the odds are high that at some point in their lives, most women are going to face the need to handle their entire financial world on their own. For many, they will face this for the first time during a period of transition or grief. A great gift that a husband can give his wife (and a wife can give to herself) is to ensure that both spouses are equipped with at least a fundamental understanding of their finances. (Men, if your wife is the primary manager of your finances, then this applies to you as well.)

Ideally, both spouses have met with their financial advisor to discuss their mutual goals and agree on a financial plan. At the beginning of the process there may have been a surge of interest in your family finances as you discussed certain aspects of your financial future together, possibly for the first time. Unfortunately, over time, many of the women who were originally involved slowly disengage, until at some point they might not even participate in the meetings to review and update the financial plan.

How knowledgeable are you about your family finances? Here is a short checklist that you can use to assess where you are:

• Do I know our financial advisor, attorney, and CPA? Am I comfortable talking with them directly if I needed to?
• Am I engaged in the ongoing maintenance of our financial plan? What are our major goals?
• What is our household income? What are the major expenses?
• Do I know where our money is invested?
• Do I understand our insurance coverage?
• Do I understand the provisions of our wills and estate plan?

In addition, in case of emergency:

•  Do I know the location of key documents, such as insurance policies, medical powers of attorney, and estate documents?
• Do I know the location of our safe deposit box , the key, and a list of the contents?
• Do I know how to access all of our accounts via the internet?
• When do monthly bills come due? Are any paid automatically? 

If you read through these checklists and feel comfortable with your level of knowledge, you are in great shape. If not, you can identify some areas for improvement.

The complexity of any family’s financial world can be intimidating; just knowing the key pieces of information goes a long way toward peace of mind. If you’re not there and you’d like to be, let us help!

Hymns for Haiti - A Benefit Concert

Alpha Advisors is proud be a sponsor of Hymns for Haiti - a benefit concert to raise funds for the relief effort in Haiti. Please come out for a great event and support an important cause!

Date: Saturday, March 20, 2010
Time: Doors open @ 6 PM, show starts @ 7 PM
Featuring: Alex Mejias & High Street Hymns with Special Guests
Location: West End Presbyterian Church 9008 Quioccasin Road, Richmond, VA 23229

Tickets: All ages are welcome. $10 in advance, $15 at the door. Kids 12 and under are FREE! Tickets will be sold online at www.ticketstobuy.com, at WEPC before and after Sunday church services until the show and at C28 in Short Pump Town Center and Lifeway Christian Store on Broad Street in the West End.

100% of proceeds will go to Compassion International and Partners in Health.

Is a Roth IRA Conversion Right for You?

The “Roth Conversion” opportunity has generated a lot of media coverage and advertising dollars from financial institutions. You might be concerned about being left out of this seemingly once in a lifetime opportunity. But the decision to convert is far from a “no-brainer”. This is because the amount that you convert will be subject to income taxes. Though the taxes can be spread over two years, and there is no early withdrawal penalty, this cost must be weighed against the potential benefits. 

A “Roth conversion” is simply transferring money from a tax-deferred account, such as an IRA, to a Roth IRA account. The amount converted is treated as a withdrawal and is taxed as income in the current year. Before 2010, only investors with adjusted gross incomes below $100,000 were eligible for Roth conversion. This year, the income limit is suspended, and any investor with tax-deferred retirement accounts such as traditional IRAs, 401(k)s, 403(b)s, SEP-IRAs, and SIMPLE-IRAs can convert some or all of the balances to a Roth IRA. 

Most traditional retirement accounts allow investors to make tax-deductible contributions that may grow tax-free, but future withdrawals are taxed at ordinary income tax rates. Roth IRAs are unique because they are funded with after-tax dollars, and the growth and future withdrawals are not subject to income taxes. 

The Roth conversion might especially appeal to investors who don’t expect to need all of their retirement account assets and intend to leave some portion to their heirs. Beneficiaries of Roth IRAs will likely benefit from the continued tax-free compounding and tax-free withdrawals over their lifetimes so paying the taxes to convert some portion of a regular IRA may help to maximize the total future benefit to them. 

If your estate plan includes the likelihood that your retirement account will be left to charitable causes then it would not make sense to convert these balances. Since these organizations aren’t subject to income taxes, paying taxes on the conversion today wouldn’t save any taxes in the future. 

If you do expect to need most or all of your retirement account balances to fund your own retirement, then the question comes down to whether shifting the tax liability forward at today’s rates is favorable to continuing to defer taxes until withdrawals are made and paying taxes as you go, at future rates. 

There are many variables, including the timing of withdrawals, future tax rates, projected income, expected returns, etc. that don’t allow a one-size-fits-all decision. For example, if you expect to have significantly below-normal taxable income in 2010, or you expect that your income tax rate will be significantly higher in retirement than they are today, it might make sense to do a full or partial conversion. For many investors, the potential benefit is too small and too uncertain to offset the certain pain of voluntarily paying additional income taxes! 

We’d be happy to perform an analysis based on your specific circumstances and goals.

How to Increase the Impact of Your Giving

Most people want to help make the world a better place, in some way, and are willing to share what they have with others to accomplish that. Here are some thoughts about how to maximize your contribution:

Give within the context of a plan.  All too often in life we tend to take the path of least resistance or are driven by “the tyranny of the urgent”. Charitable giving often suffers the same fate: we don’t carefully consider in advance how much we want to give, or to whom, and our giving becomes more a reflection of the requests that happen to come our way than of what we truly value.

I would suggest that to truly optimize your giving, you actually need two plans: a holistic lifetime financial plan, and an annual giving plan. The overall plan allows you to make informed giving decisions in the context of the rest of your goals. There is a lot of wealth tied up in the hands of people who have no idea how much they need for themselves, and as a result don’t realize how much they can afford to share with others. The annual giving plan provides discipline and ensures that your giving lines up with your own agenda, not someone else’s.

The point is, charitable giving is really an investment and deserves the same thoughtfulness that you’d give when deciding how to handle your portfolio. Be more intentional about your giving and you will have a greater impact.

Maximize the tax benefits.  You have limited resources and there is an endless need out there. By giving in the most tax-efficient way possible, you maximize the amount of money that you are able to share with others. It is costly – and needlessly so - for example, to make charitable gifts with cash and then fund those gifts by selling appreciated assets such as marketable securities, real estate or a privately-held business and paying capital gains taxes. But people do this all the time. By giving appreciated assets instead, you get the same tax deduction now, but also avoid capital gains tax. 

If you find yourself in a higher tax bracket from one year to the next, you should consider matching your charitable deductions with your higher-income year(s) to maximize the tax benefits. Uncle Sam is your partner in charitable giving, as he effectively subsidizes your giving by up to 40%. A donor-advised fund is a great way to accomplish this. Take advantage of every opportunity to reduce taxes and thus increase the money available for you to share with others.

Invest yourself.  No organization could survive without consistent financial support. However, money is not the only resource of which your favorite causes are in short supply. You can increase your impact by sharing some of your time and talents as well. What issue or organization matters most to you? If you are not sure what you have to offer, go and ask, and I am sure they will find a place for you.

We all face increased “busy-ness” in our lives, so it is easier to give a check than give ourselves. As a result we can find ourselves not really connected with the organizations we support. Beyond the benefit to the organization, you will gain something as well - the satisfaction that comes from a more direct impact on the lives of others or helping an organization operate more effectively.