Adaptive Advice – January 2021

As we step into 2021 we wanted to focus on the right kind of advice; we have the opportunity to complete a mental reset and focus our minds and actions on the year ahead. We must focus some of our attention on the things that we did well in 2020 in order to put that year to rest. Many of you did a great job throughout this year by sticking with THE PLAN, you stayed invested through the downturn set off due to the Coronavirus and the corresponding shutdown of many parts of the U.S. economy. Many of you were also able to take advantage of the downturn by using our 10% down & 10% in strategy by having your Extra Spare Tire Fund filled when the market was at all time highs in January and February.

Going into 2021 and having the market again at all time highs it is appropriate to revisit THE PLAN:

  1. UNEMPLOYMENT LINE MONEY – You need to keep the right amount of emergency cash outside of your investments and earmarked to assist with the unexpected. We recommend 6-9 months worth of gross living expenses as a basis for this fund. Many of you have reached out to us worried that with interest rates near all time lows once again, that this money is simply not working for you and is sitting in the unemployment line not making anything. This is a completely normal way for you to feel and we have found that over the years many investors make the mistake of having either not enough, or too much money sitting in the unemployment line.

Question to ask yourself: Do I have the appropriate amount of cash sitting in the unemployment line for my situation?

  1. WEEDS & FLOWERS – With the market again flirting with all time highs, it is a great opportunity to put your investments both here at Adaptive Wealth Partners and your other accounts that are being housed elsewhere through the 2000 ACID TEST in order to see which investments pass the 2000 ACID TEST: the FLOWERS and the investments that do not pass the 2000 ACID TEST: the WEEDS. When the market is at or near all time highs it can be a great time to cut the weeds and make sure that your investments are full of flowers.

Question to ask yourself: What’s my WEED & FLOWER situation at my accounts outside of Adaptive Wealth Partners?

  1. EXTRA SPARE TIRE FUND – This is a dollar amount that is set aside in a separate fund in your investment account and is simply earmarked to take advantage of a downturn using our 10% DOWN & 10% IN strategy. Over the last 71 years we have seen 38 downturns of 10% or more in the market and our research has shown us that those who are prepared to take advantage of them make better financial decisions with their investments.

Question to ask yourself: What is the dollar amount that I should have in my EXTRA SPARE TIRE FUND?

If the answer to any of these questions was “I don’t know” or something similar, let us know and we would be happy to help you by doing the research on your particular situation and further developing your personalized Financial Plan.

We look forward to partnering with you on your financial journey into 2021.

The Adaptive Wealth Partners Team

Identifying and Preventing Elder Financial Abuse in 2021

Family, Financial Roadblocks

Nobody likes to think of their parents getting older and needing assistance, but it’s a reality many of us face. An important part of caring for your parents as they age is identifying and protecting them from elder financial abuse. Baby boomers and the Silent Generation are getting older and with their accumulated assets, they have a higher chance of being defrauded than those who are younger. According to one estimate, seniors collectively lose up to $30 billion a year to elder financial abuse.1 This abuse can come from total strangers, or even friends and family members.

As a concerned child, how can help you combat this? Here are seven ways to spot financial abuse and six ways to protect your parents and their financial futures.

7 Signs of Elder Financial Abuse

Protecting your parents from scammers is crucial, especially as they get older and have a harder time managing their finances.

Warning signs may include:2

  • Unusual activity in their bank accounts, such as large or unexplained withdrawals
  • Withdrawals from an inactive account
  • A newly opened joint account
  • New credit card balances
  • Bank and credit card statements sent somewhere other than your parents’ home
  • Suspicious signatures
  • Closing a Certificate of Deposit or savings accounts without worrying about penalties

Protecting Your Parents From Financial Abuse

Tip #1: Talk to Them About Money

Reach out to your parents and make sure that you are staying in touch with them regularly. Make sure they are paying their bills and, if applicable, find out who is doing it for them. Your parents may not want to share this information or admit that they need help, so you can ease them into it by asking them for advice or speaking about your own money worries. Once this becomes more comfortable, they may let you help with more as it becomes necessary. 

Tip #2: Automate Their Bills or Deposits

One way to go about helping them pay their bills is by automating the process. Automating your parents’ payments with direct debits from their account can help keep things organized while lessening the chance that they will become victim to a scam.

Similarly, you can automate transfers into their checking account, as they may have funds coming from various sources, such as social security, pensions, annuities, etc.

Tip #3: Have the Necessary Documents Ready

Are your parents’ legal documents in an accessible location?

This could include:

  • Wills
  • Healthcare Proxy
  • A HIPAA Release Form
  • Power of Attorney

Make sure your parents are careful when choosing a power of attorney, as this person will be responsible for managing finances once your family member is no longer able to do this. Having more than one is also a good idea, as this is a good way to be able to act together and consult each other.

Tip #4: Condense Your Parent’s Finances

Consolidate your parents’ finances when possible, as many older people have more than one account. Practice caution when consolidating and moving accounts to make sure that you don’t incur any penalties. Additionally, you need to respect beneficiary designations or you could face legal action. 

Tip #5: Encourage Credit Card Use Over Cash

If your parents sent cash to a scammer, then it would be much more difficult to trace than if they paid with a credit card.

If they were to make a purchase with a card, the credit card company can:

  • Protect against identity theft
  • Allow past transactions to be reviewed
  • Reimburse any money that was stolen

Tip #6: Create a Trust

A trust is a great way to manage and protect your parents’ assets, however, they can still withdraw from this account, making it easy for them to fall prey to scammers. If you set up an irrevocable trust, they will not be able to withdraw money from this account without consulting the trustee, making it much more secure.

Many older people do not like giving up this type of control, but if you speak to them about the importance of their safety, they may be more open to it.

If you can establish a system of checks and balances by utilizing the above tips, your parents will be much more protected from fraud. Take a proactive approach so that you can get ahead of them before it becomes an issue rather than waiting until your parents become the victim of financial abuse.

  1. https://dfi.wa.gov/financial-education/information/warning-signs-elder-financial-abuse
  2. https://www.consumerreports.org/elder-fraud/ways-to-prevent-elder-financial-abuse/

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

You’ll Spend Thousands on Healthcare This Year. Can an HSA or HRA Help?

Insurance, Healthcare

The average annual healthcare expense per individual rises from roughly $2,000 for 19-year-olds to about $11,000 for retirees (age 65+).1 As Americans pay more for medical care, they often seek ways to save for emergencies. Health savings accounts (HSAs) and health reimbursement accounts (HRAs) can help. 

What are these accounts and who has access to them? We explore the pros and cons of each option to help you determine which you may have access too and the best one for your individual needs.

What Is a Health Savings Account?

An HSA can be used to save for future medical costs. They tend to have multiple tax benefits including:

  • Pre-tax income is deducted from your paycheck, lowering your total taxable income.
  • Your HSA balance grows tax-free.
  • The IRS won’t tax money you withdraw to pay for medical expenses.2

How Do I Qualify for an HSA?

To open an HSA, you must have a high deductible health plan (HDHP). Due to the high out-of-pocket costs and lower monthly premiums, these plans are typically utilized by young, relatively healthy people. In addition, you can not:

  • Be claimed as a dependent on the previous year’s tax return.
  • Have Medicare.
  • Have any other health coverage, aside from certain exceptions as outlined by the IRS.2

HSA Pros

HSAs include numerous tax benefits. At the end of the year, you can roll any remaining amount over into the next year and continue accumulating until retirement. HSAs cover many medical procedures and are sometimes accessible via debit cards.

HSA Cons

In order to qualify for an HSA, you must have an HDHP (high deductible health plan). This doesn’t work for everyone, particularly those with high healthcare costs.

What Is a Health Reimbursement Account?

Whereas individuals or employees can fund their own HSAs, only an employer can fund an HRA. When employers offer HRAs, most people benefit from taking advantage of them. With an HSA, you can withdraw funds to pay for approved services and procedures. If you have an HRA, you have to pay the expenses upfront and your employer reimburses you for the cost.

Your employer determines how much to contribute on an annual basis, and it’s important to remember that you can’t add your own money to the account.

HRA Pros

Employers fund HRAs, meaning it doesn’t cost you anything to participate. Like HSAs, these plans have expansive coverage for numerous procedures, and there aren’t any prerequisites on what health insurance you can use it with. 

HRA Cons

Unlike HSAs, you are not able to contribute to your own HRA account. Also, your employer sets the contribution amount and eligibility rules. If you lose your job, you can’t transfer the funds in your HRA account, nor can you roll the amount over at the end of the year.

HSA vs. HRA

Your financial advisor can help you determine your eligibility for a non-employer HSA. However, HRAs are only available under a current employer that offers this benefit. Both employees and employers can fund HSAs, and it might help self-employed workers with HDHPs save on taxes. 

You can only withdraw funded amounts in an HSA, but you can withdraw funds from an HRA, even if it’s not funded yet. The funds in your HSA stay with you even if you change jobs. Additionally, they roll over year after year. After age 65, you may use HSA funds for non-medical reasons, but these non-medical withdrawals may be taxed. With an HSA, you do have the option to make an early withdrawal, but you may be subject to a penalty. HRAs, on the other hand, do not allow for early withdrawals or for non-medical withdrawals.

Talk to your financial advisor regarding your options as an employee, self-employed worker or individual. Weigh the pros and cons and determine whether you can save money on your yearly medical expenses by enrolling in either of these plan types. 

  1. https://www.healthsystemtracker.org/chart-collection/health-expenditures-vary-across-population/#item-while-health-spending-increases-throughout-adulthood-for-both-men-and-women-spending-varies-by-age_2016
  2. https://www.irs.gov/publications/p969

Chart of the Month

This month we are sharing a chart put together by JP Morgan showing the results of having $100,000 in a savings account over the last 16 years. As we face lower rates on savings it is important to remember that an emergency fund is needed as well as savings for specific expenses that are to be covered in the next 12-24 months. If you have questions about your rate of return on your bank account or how to generate greater income when you have to much money sitting in the unemployment line give us a call. If you want to see more of our articles visit our website https://www.adaptivewealthpartners.com/blog.