If even one person is persuaded to call their insurance agent as a result of this column, it’ll be a big success! To help accomplish this, I encourage you to discuss this topic with your loved ones as soon as possible.

Life insurance is designed to fill an economic shortfall. As a young person with financial responsibilities, your untimely exit may leave a very, very large hole. Doing an insurance review is imperative.

The first step in this review is to imagine the unpleasantly unimaginable; your own death. You need to honestly ask yourself a simple question, what am I leaving behind for others to shoulder?

For example, if you have children, the cost of their higher education is substantial. A four-year, in-state college education could run about $100,000. Multiply that by two or three kids and it adds up.

Next, if you have a mortgage, imagine your spouse facing an income cut of 50% or more and struggling to keep the house. Remember, too, beyond the mortgage, utilities, property taxes, hazard insurance and upkeep costs will also continue unabated.

Lastly, don’t forget that your complete 40 to 50 year work life is needed to fund your 20 to 30 years in retirement. If your life is cut short, so too is your surviving spouse’s retirement plan!

My default advice is to buy low-cost, term life insurance. It’s made to last for a set period of time. After the term expires, the insurance coverage and its cost ends. For those in their 20s, 30s and 40s, it’s dirt cheap. In fact, it’s so affordable – and so important – no legitimate excuse holds up under scrutiny.

Let’s say you are a married 37 year old with two kids. Your youngest is 2 years old and your oldest is 6. You own a home with an outstanding mortgage of around $200,000. Finally, you and your husband depend on each other, have similar paying jobs and you hope to save enough to retire together at age 67.

Without getting into the detailed math, let’s just assume you’d have no chance to build your retirement savings in the event of either of your deaths. Let’s further assume no college savings would happen either. And, yes, the weight of the house, with its mortgage payment and more, would feel much heavier too. The three economic holes become pretty obvious.

In this example, I’d want to see two term life policies – one for each spouse – to fund the kids’ college and to eliminate the mortgage. I’d also like to see enough to replace a good amount of the lost income and to ensure the lost retirement savings. While an insurance benefit of $1 million might seem like a large amount, it would roughly cover what’s been lost.

Trust me, when you are healthy and young, the peace of mind you’ll gain by making the call to your insurance agent will feel like a true bargain. So, dump your cable and cook an extra meal at home each month and call an insurance agent today!

Jason P. Tank, CFA is the owner of Front Street Wealth Management, a fee-only wealth advisory firm located in Traverse City. He encourages questions and comments about future columns. Contact him at (231) 947-3775, by email at Jason@FrontStreet.com and at www.FrontStreet.com

Watch Jason P. Tank, CFA, contributing speaker for the Front Street Foundation’s Money Series, to learn about the factors that affect your withdrawal strategy in retirement.

Many readers have spent decades socking away money for retirement. Naturally, the accumulation phase is very familiar ground. However, it is during the second phase, better known as the distribution phase, where the process becomes a bit unfamiliar.

Based on my experience, there are three primary concerns most people have as they near the transition from accumulation to distribution.

First, people want to know how much is safe to spend annually from their nest egg.

The number of rules of thumb promoted out there most certainly outnumber the number of thumbs at my disposal! The most famous guide is known simply as the 4% rule.

Based on the level of today’s stock market – high – and the level of interest rates – low – I tend to err on the side of conservatism. For those who know me best, that’s not a big surprise! Given today’s market setup, my comfort zone is to limit your annual draw to around 3% to 4%.

Yet, we all know life is never as simple as a rule of thumb. Overall objectives and personal circumstances will definitely influence the level of spending in retirement that is both sustainable and safe.

For example, if a retiree is determined to die broke, it leads to advice that differs greatly from the advice given to a retiree who is committed to leaving behind a big inheritance to their children. Another factor that influences the sustainable draw rate is simply time. For those facing the possibility of a 25 to 30 year retirement period, expecting the unexpected is wise.

Once the level of sustainable spending is set, the next concern often centers on taxes.

For many, there are three pots of money with differing levels of tax obligations attached. There are yet-to-be taxed IRAs an 401(k)s. There are never-to-be taxed Roth IRAs. And, finally, there are always-taxed pots of money such as investment and savings accounts.

Tax minimization is a complex and important part of the retirement income game, for sure. Take Social Security, long-term capital gains and dividend income as examples. Depending on the size of your other sources of income, either some or none of this income is taxed.

Related to tax planning, the last concern is deciding which of the above-mentioned pots of money should be tapped and in what order.

For those who have most of their savings in yet-to-be taxed retirement vehicles, like IRAs and 401(k)s, there is not really much choice. But, for those who have spread their retirement resources among the three tax-buckets above, the planning options open up. This is especially the case before you reach the magical age of 70 ½!

We’ll be discussing in more detail the considerations and process of creating your own withdrawal strategy in retirement at the next Money Series on Wed., April 18 in the McGuire Rm. at the Traverse Area District Library. Front Street Foundation is a local non-profit whose mission is to provide open-access to financial education, for all. To register, visit www.FrontStreetFoundation.org or call (231) 714-6459.

Your tax world has officially changed. Here are some of the new things you’ll see – and old things you won’t see – on your 2018 tax return.

First, if your itemized deductions don’t add up to exceed the new, doubled standard deduction, your tax life will get simpler. For single filers, the new standard deduction threshold is $12,000. For married filers, it’s now $24,000.

Notably, investment fees and tax prep fees are no longer deductible. Also, the deductible portion of your combined property taxes and state income taxes is now capped at $10,000. Due to these changes, like 90% of all taxpayers, you’ll probably opt to use the new standard deduction. If so, you’ll have far fewer records to gather next year.

Second, personal exemptions no longer exist on your federal tax return. This is an especially huge loss of deductions for larger families.

However, with simplification as a big goal, what the government “taketh” away in deductions and exemptions, they “giveth” back with the doubling of the standard deduction.

Whether this tradeoff makes you a winner or a loser is an open question. On a national scale, though, it results in what tax geeks call a “broadening” or “widening” of the tax base. The bottom line is more income is now subject to federal tax.

Of course, this was officially named the Tax Cut and Jobs Act for a reason. Some major changes were included to combat this broadening of the tax base.

To start, the new law generally lowers tax rates by about 3% across the board. For example, the old 15% bracket is now 12%. The old 25% bracket is now 22%. The old 28% bracket is now 24%. You get the drift.

For lower income couples with kids, these lower tax rates may not fully offset that broadening of your personal tax base. However, the doubling of your child tax credit to $2,000 may more than make up for it. A tax cut is very likely in the cards for you.

For upper income filers, with or without kids, the lower tax rates are also more than likely to make up for the widening of your tax base. It should be said the Alternative Minimum Tax or AMT is essentially a thing of the past.

No summary of the new tax law would be complete without mentioning the major break given to many small business owners. What resulted was a highly complex business deduction of up to 20% of your business income.

Now, when I say it’s complex, I’m not exaggerating. It’s fair to say that, where the small business tax changes massively whiffed on the goal of simplicity, it doubled down on the goal of cutting taxes for many business owners!

Once again, please join us at the next Money Series on Wed., Feb 7 at 6:30pm in the McGuire Rm at the Traverse Area District Library where attorney Diane Kuhn Huff will discuss estate planning. The Money Series’ non-profit mission is to provide open-access to financial education, for all. Register at FrontStreetFoundation.org or call (231) 714-6459.

In case you haven’t been paying attention, the new tax law has dramatically lowered corporate tax rates. It could be argued that corporations were the primary beneficiaries politicians had in mind.

Wisely, rather than highlighting the billions slashed from their future corporate tax bills, the headline grabbing figure most often cited by companies has been $1,000. That’s the level of bonus that company after company has settled on sharing with their workers. It was clearly viewed by executives and board members as a nice, round figure, full of sound and fury and signifying (nearly) nothing.

The partial list of companies announcing one-time, $1,000 bonuses includes Disney, Home Depot, AT&T, American Airlines, Bank of America, Fifth Third Bank, Comcast, Jet Blue, Southwest Airlines, US Bank and Walmart.

Looking beyond the obvious PR benefits, and without completely discounting the value $1,000 is to many strapped workers, two things about it all strike me as fascinating.

First, it’s nearly impossible not to notice the “follow the leader” mindset at work in today’s executive suite. I suspect many of them went to the same business school or are members of the same social clubs. Certainly, they all watch CNBC and read the Wall Street Journal. To so quickly parrot one another, as if $1,000 was derived with forethought and analysis, is a little comical.

Second, it’s also impossible not to notice the lack of workers’ bargaining power in today’s economy. In the absence of labor unions, most workers are an outgunned and outmanned one man army.

Notably, Larry Fink, CEO of one of the largest investment managers in the world, recently sent an open letter to the leaders of today’s major corporations. Departing from the clubby world in which he no doubt lives, he courageously implored companies to act beyond their profit motives and embrace their greater “social purpose.”

He cited a “paradox” in today’s economy where companies and their investors are enjoying “high returns” and rank-and-file workers are experiencing “high anxiety.”

Regardless of the specifics of Fink’s letter, the lasting impression of his letter for me was just how far the pendulum has swung in the direction of corporate interests when an insider feels the need to send that message at all.

To close with a burning question, when corporations start getting asked to fulfill a greater social purpose, is it appropriate for us to ask if our elected officials have lost
sight of their own?

It all reminds me of my kids’ pre-school days in response to them always wanting a little more; “You get what you get and you don’t get upset!”

Speaking of fulfilling a greater social purpose, you are invited to the upcoming Money Series presentation by local attorney, Diane Kuhn Huff, where she’ll provide an invaluable (and free) lesson on estate planning on Wed.,February 7 at 6:30pm in the McGuire Rm. at the Traverse Area District Library. To register, visit www.FrontStreetFoundation.org or
call (231) 714-6459.