Wealth Management Blog

Posts tagged Retirement Planning

What to Know When You Own Multiple Homes

By Anthony LaGiglia

October 11, 2017

Whether it’s going away for the weekends, for a month, or for an entire season, having a second or third home can be a blessing for families that creates lasting memories. It can also come with some significant financial considerations.

Moreover, if you’ve purchased multiple properties for investment purposes, once you get into your retirement years, you’ll want to figure out how to make the most of your portfolio of property investments to generate a steady stream of income.

Here are some key issues to think about:

Plan and Manage

In this case we mean planning about your properties—not your stock investment portfolio. Who is going to be your partner in managing the properties? If your family is not interested in management, is it worth it to hire a property manager? Secondly, do you want to eventually gift your properties to members of your family? Who can walk you through the process and give you solid tax and financial advice?

We hear about many people who spend hundreds of thousands of dollars a month renting luxurious estates and apartments. That’s certainly wonderful if you are the landlord. However, you may not have the experience or time to manage all the business aspects of such a transaction. Consider hiring a knowledgeable financial advisor who can give you the full perspective of owning and managing multiple homes, and refer you to other qualified professionals to make the most of your real estate investments.

Understand Tax Planning

When you own multiple properties, you can deduct the interest on your mortgage just as you can with your primary home mortgage. According to tax law, you can write off 100% of the interest you pay up to $1 million of total debt, which includes the mortgages on homes, as well as money spent on any improvements.

Deduct Your Property Taxes

In addition to mortgage interest, you can also deduct your homes’ property taxes. The good news is that unlike the mortgage interest tax deduction, there’s no dollar limit on the amount of real estate taxes that can be deducted on the homes that you own.

Rent Out Your Homes

For many people who own multiple properties, it makes sense to rent out your empty home when you’re not there. If you rent out your home for 14 days or less during the year, that rental income is tax-free.

However, if you intend on using Airbnb, other rental sites or a real estate broker for more than 14 days after your private rental, it’s important to know that this income is taxable. You'll want to calculate the number of days you rented your home and divide that by the total number of days you or a renter used your home. This is where an advisor like JJ Burns & Company, who’s coordinating with your accountant, can help you make the most of mortgage interest, depreciation, business expenses and other home ownership issues to stay right with the IRS.

Simplify Your Investments

Rather than own residential real estate that may be inconvenient to manage, many people look to invest in commercial buildings. These properties still generate income and may have similar tax advantages, but if professionally managed, do not require the hands-on responsibilities of home or estate ownership.

Sell It

Depending on your circumstances and the number of properties you have, you may want to consider selling some properties due to taxes, maintenance or the location. You should evaluate which ones generate the most income—especially if you’re retired—and how the sale may impact your taxes.

Something else to think about when selling is how a sale can impact the balance of your portfolio and income-generating investments. At JJ Burns, we can review the full picture of your investment portfolio, pensions, IRA and 401(k)s, rental income, and annuities to give you informed advice about the steps you can take to maximize your current—and future—wealth.

Seek Legal Advice

Retirement planning, real estate, and family law are complex areas that require legal counsel. Unlike working on your homes on the weekends, this is not do-it-yourself territory.

If you decide to keep your properties to generate retirement income—or want to protect your real estate investment portfolio and pass it on to your heirs without going through probate–you can create a Limited Liability Corporation (LLC) or a Family Limited Partnership. Because the laws vary throughout states, counties and cities, it is best to leave the decision to the legal professionals.

We’ve also known about families that have spent fortunes in court, only to be torn apart battling over estates. An LLC gives each family member an equal interest, which avoids future disputes over any properties. There’s also flexibility to transfer shares, consolidate individual properties into a master LLC or into a revocable trust.

Owning a number of homes can definitely enhance your life. And investing in properties is a smart way to bring in income during retirement, as well as diversify your financial portfolio. Whether you intend to manage your properties, sell it, or pass it on to your heirs, JJ Burns can help you collaborate with all aligned professionals to create a tax-efficient plan that works best for you and your family.

5 Common Mistakes Owners Make When Selling Their Business

By JJ Burns

October 27, 2015

You’ve worked hard to build your business to where it is today. Whether you are selling your business to move on to other things, or it’s simply time, it’s important to think ahead.  As with most things in life, a good plan is very important to have in place.

Strategically look at the sale of your business.  Even if you’re not ready to sell just yet, you should be building it with the intention of selling or the possibility of creating a strategic merger.  Whether you sell or merge, you want your organization to look appealing to any potential growth opportunity.  Many owners don’t prepare in advance for their business to be sold so they miss the opportunity to leverage the sale for themselves, their family, and their employees.

As part of your planning process, consider these five common mistakes many business owners make – so you can avoid them.

Mistake #1.  Not planning with the end in mind. It can be hard to think beyond the day-to-day running of your business. Making the decision to sell may happen one day, or over time, but having your plan ready will be important either way. Think about what you can do to fetch the highest value for your business and “who” would likely be a purchaser.  Ask yourself these questions:

  • What is the value of your brand in the market place?
  • What is the tenure of the people on your executive team
  • How vested is your team to stay on after you’ve sold?
  • What are the most important intangibles of your business that are difficult to replace making it appealing for the purchaser?

Remember, your business is, well, business. As hard is it may seem, you need to keep that in mind. It may feel like your child, but there comes a time when you let the child grow up and move on. Selling your business can give you a means to fulfill other goals you may have on your “bucket list”, whether it’s seed money to start something new, the opportunity to concentrate on something else, or living the life you only dreamed of.

Mistake #2.  Not using the right advisors or accessing the right guidance. Selling your business is an important step in your life. Make sure you get good advice as you make your plan.

Get unbiased advice from your financial, accounting and legal advisers. A solid team often yields significant results.  Clients often tell us that they did their due diligence when they started their business, but did not do the same in choosing the wealth planning team to plan and manage the life they want to live.

Try to avoid “emotional” biased  advice.  Because you’ve been strategic, you have the opportunity to weigh opinions and options and can time the sale, prepare your documents, and consider alternatives. 

Your team of advisers can help you prepare a strategic, thoughtful financial plan for your business so it thrives after the sale, just as it has thrived under your leadership. Continued performance may be part of the installment sale plan.

Mistake #3.  Not knowing what happens after the sale. You’ve made it! The sale has gone through. There will be that first day you do not go to the office. What will you do?

You may have reached this point in your life through a variety of paths. You may have more than one business or want to start a new venture. Maybe your health has changed. It might be time to retire. No matter the reason for changing ownership, after you sell, your life will be different. Be prepared for this change.

How you fulfill your dreams may take many different forms. If you plan to volunteer, check out some of the organizations that interest you to see how you can help. Many people travel. Research the destinations you’d like to visit. Maybe you’d like to work part time for a business or cause that is dear to you. Evaluate those opportunities as well.

Practice what an average day will look like in your new life.  Create an agenda and live by it.  Make sure you write it down! Our clients have found the gaps in their lives and filled it with many more things they were never able to complete when they had the responsibility of running their business.  Don’t let the new time on your hands come as a surprise to you or your family.

Mistake #4.  Not thinking about financial implications. Time will be exhausted. Will your finances too?

Just as you have an asset allocation for your investment portfolio, you will also want one for your wealth. All your capital should not be placed in the business.  Create “diversifiers” for your money.  For instance, you can consider placing assets in real estate and your portfolio.

If you plan to retire when you sell your business you will no longer pay for expenses through the business. Expenses that were once part of your business are now your own personal expenses. You will have to think twice before going to the office supply store, buying the extra service package for your cell phone, or getting those box seats to a show/game.  These and other expenses will need to be provided for by your portfolio or other sources of income.

Whether you still own another business or have retired, your taxes will also be impacted. Talk with your financial and tax advisers to discuss the possible tax implications of the sale. This is important when setting up your plan ahead of time.

Another change could be to your income. Hopefully business was good and the sale left you sitting pretty for this next chapter. But you may have less income now. Either way, think about making the most of your sale so it lasts as long as possible to give you the lifestyle you want.

Mistake #5.  Not considering alternative approaches to selling your business.  Just because you want to sell your business doesn’t mean you have to sell it to some stranger. You could make it part of your legacy planning. When creating your succession plan, you could include the business as part of an inheritance. This way, if you were to die before you retire or sell it yourself, you could still keep it in your family or with key owners.

You can also consider an alternative that keeps you working in the business but lets the ownership get divided. In this case, you could implement an employee stock ownership plan (ESOP). ESOPs provide employees with an ownership interest in the company, giving workers stock ownership, often at no up-front cost to the employees.

Evaluate options and start your plan

You may hope to stay in your business for years or you may be looking at potential buyers or a merger soon. Either way, creating a plan ahead of time can help you make your business attractive when the time comes.  By seeking professional guidance and doing some research, you can make these positive changes in your business – and your life – less stressful and more beneficial to all involved.

Aging in America: The Demographic Shift That Will Change the Way We Live

By JJ Burns

April 3, 2015

People are living longer—what does that mean for your financial future?

It’s a fact that people are living longer today. Global aging will have an effect on how investors worldwide—including the younger generation—make decisions regarding political and social policy decisions, as well as their personal financial choices.

Aging in America Special Report

We've put together this informative report, in which you’ll learn:

  • The new face of aging, and the impacts it can have for investors.
  • How your investments will fare in the long term.
  • Why stocks are still one of the best long-term investments that keep pace with inflation.
  • The alternative investment themes that can complement your portfolio.
  • How you can take advantage of investments that are flexible, active and ready—no matter what your age—by crafting a strategy that envisions your future.

Click here to download the Aging in America report.

10 Best Ways For Building Wealth In Today’s Economy

By JJ Burns

July 7, 2014

Building the wealth you need to meet life's challenges requires imagination, focus, discipline and time.  The process is more complex than ever before because the economy has become so volatile.  The task can look daunting, but your odds of success are better if you follow these ten steps:

  1. Develop a plan.  What are the results you want to achieve?  Identify your values, priorities and dreams.  Then work backwards so that you have a plan with the ultimate goal firmly in focus.  Make sure your goals are realistic and attainable, and that you’ve identified the potential challenges, consequences and risks.
  2. Execute YOUR plan. Creating a plan is one thing, executing the plan is something else. Your investments should be customized to your needs, so don’t compare your portfolio to those of your friends.  Wanting what other people have will never get you what you ultimately need.
  3. Pay yourself first.  Yes, it's a cliché, but it is also true.  If you have the opportunity to participate in a workplace savings plan, maximize your contributions before you take any pay for yourself.  There are good reasons for paying yourself:
    • Employers often match a percentage of your contributions. It’s free money, so take advantage of it.
    • By contributing to a savings plan, you get used to not having the money – and not spending it.  It gives your funds the opportunity to reap the benefits of compound interest.
    • Contributing to a workplace savings plan allows you the benefits of dollar-cost averaging.  That means you’re making regular contributions to your plan, regardless of what may be going on in the financial markets, and reducing your exposure to market volatility.
  4. Don’t be too conservative.  With today's low interest rates, it makes no sense to invest all of your money in a bank account or in savings bonds. You simply won't be able to build true wealth.  You have to take some risks and learn to be comfortable with them. Investing in a properly diversified portfolio can help you strive for higher returns while also limiting some of the risk of markets.  When market drawdowns occur, take advantage of rebalancing your portfolio.
  5. Don’t swing for the fences either.  Get-rich-quick schemes are just ways to lose money quickly.  For every great business investment, there are five that fail.  If you hear someone say he has a "can't fail" investment, be skeptical.  Be very skeptical.  Look for experts who can vet the idea and help you decide if it's real or a delusion.
  6. Pay attention to the little things.  Over time they add up.  Make your own coffee instead of stopping at the gourmet coffee shop.  Prepare your lunch at home and bring it to work.  You can have fun and still limit your spending.  Invite your friends over instead of going out.  A special romantic dinner can be more meaningful when you make it together, at home.
  7. Make saving a family affair.  Educate your children and create a legacy by saving for things that are meaningful.  Share the plan with your family and have everyone participate in the success of hitting a financial goal together.
  8. Get professional advice.  A Certified Financial Planner professional can help you clarify your goals and identify any gaps in your financial life.  He or she will help you construct your personalized, comprehensive plan that takes into account your cash flow, assets, savings and insurance needs, while keeping in mind your goals for retirement, your estate and the legacy you hope to pass on.  Expert help can involve costs, but good advice more than pays for itself.
  9. Revisit your plan.  Of course life isn’t static – and neither is your plan.  Your needs and goals may change over time.  There will be inevitable bumps in the road and unexpected developments and detours.  At times you’ll need to reevaluate your financial strategy and make adjustments.
  10. Remember, wealth is not just about money.  Wealth is much more than your net worth.  It’s about family security, meaning and purpose.  It’s about living life on your terms.

The economy may be volatile, just like the ocean.  Your plan will help you navigate safely and allow for course corrections along the way.  The challenges apparent in the global economy may very well end up being opportunities to build your wealth.

Why Puerto Rico and Its Pension Obligations Should Worry You

By JJ Burns

April 24, 2014

If you think about Puerto Rico, maybe you imagine sun, surf and palm trees.  When I think about Puerto Rico, I see an economic mess.

The commonwealth's economy is shrinking. It has an unemployment rate of nearly 15%. It is losing population. It has $70 billion in debt outstanding -- more governmental debt per capita than any of the 50 states. There's a huge worry that the commonwealth ultimately will default. This is a big problem. Some 370 municipal bond funds hold Puerto Rican bonds, which are exempt from federal, state and local taxes. Of these, 28 funds had 10% or more of their assets in Puerto Rican bonds*.  Puerto Rico is emblematic of a larger issue.

Some of the debt has been building up to meet the commonwealth's pension obligations.  Puerto Rico, like Detroit and a host of state and local governments, isn't taking in enough money to make good on its pension plans for much longer.  So, something will have to give. Either benefits will be cut or taxes increased. Either way, the medicine will be painful.  So far, the medicine for many states and municipalities has been to cut benefits, which has devastated pensioners but on a fairly limited basis. It's not clear to me that this can go on forever because if the elderly see drastically reduced incomes, the drag on the economy may be quite large.

Business is coping with the problem as they see it by converting pensions to 401(k) plans, where retirees contribute to a self-managed plan and hope to generate enough income later on. The problem with 401 (k) plans is that investors treat them more like savings accounts and take money out for non-retirement-related purposes. You can buy a house. You can pay for surgery if you don't have health insurance. You can finance your lifestyle if you lose a job. The long-run result, however, is that retirees won't have the assets and income they'd hoped for. So, they must cut personal spending drastically or forego retirement.  The problem isn't limited to government employees. They're just the first to realize there's a big problem. The risk posed by converting corporate defined benefit plans to 401(k) plans is growing.  Just a few weeks ago, the Boeing Co. announced it is freezing benefits for 68,000 workers and converting those workers to 401(k) plans starting in 2016.  I understand that businesses want to limit their risks. That's prudent. I wish governments had had the foresight to see the risks of their decisions on granting pension benefits, and underfunding plans, or had the courage to be honest with their employees.

This issue highlights the quandary facing many older Americans. To have a decent retirement, it's beginning to look like individuals will have to save more, possibly much more. That means they will have less to spend on food, health care, golf, travel. If they can't save, they face real hardship -- unless the rest of us agree to boost their incomes somehow.  It's becoming clear to me that, as a nation, we need to have a frank discussion about how we're going to finance retirement for all Americans so that we don't find ourselves with situations similar to Puerto Rico or Detroit everywhere we look. 

I'll start the conversation with this idea. We need a new retirement scheme that requires individuals to start saving for retirement early with tax-sheltered money and with employers making contributions as well. It would limit the ability to take money out. The plan might replace or supplement Social Security in a more comprehensive way than the 401(k) plan ever was intended.  The money would be invested in funds that are prudently managed and then converted into annuities immediately on retirement. The retiree would know in advance what his income would be and would be able to plan accordingly. Employers would know what their risks are and can use that information for long-term planning.

Yes, the mechanics would be tricky because the new system would need a management structure that's accountable and rigorously efficient. We know that the idea of privatizing Social Security went nowhere. And it may be that we're not talking privatizing. It's a word that generates lots of controversy. Fair enough. But we need to talk about retirement financing seriously. That's one of the things that Puerto Rico is telling us.

*Source data from Morningstar