kevincanterburyarizona.com

It’s not uncommon for older generations to be targeted by scammers and con artists. Senior citizens are frequently pursued because they often may be more trusting, have a fixed income, and are less likely to understand or report a scam. They are also generally inexperienced with modern technology and communication methods, putting them at a higher risk of exploitation.

With elderly scams on the rise, Kevin Canterbury of Arizona explains that it’s important to understand the most common tricks these scammers use to deceive the elderly. Below, Kevin Canterbury explores the various common cons, discusses why the elderly are susceptible to such tricks, and how to protect loved ones from being a target.

Why the Elderly are Susceptible

Seniors are often seen as easy targets due to their age, trusting nature, and ignorance of the capabilities of current technologies. According to the FTC, seniors are less likely to report a scam, as they usually feel embarrassed or ashamed of having been hoaxed. Additionally, seniors are more likely to respond to an unsolicited email or phone call, as studies have shown they are more likely to trust the unfamiliar person “in need” on the other line.

Fraudulent Government Representatives

One of the most common scams involves a con artist posing as a government representative. The scammer may call or email the older person, claiming that they owe money to the government or need to pay a fine. The scammer may even threaten the victim with jail time if the payment is not made. Of course, these schemes are without merit, but the unknowing person on the other end is naïve to what is a blatant phishing attempt.

False Lottery and Sweepstake Winnings

Another common fraud attempt targeting seniors is the promise of lottery or sweepstake winnings. The grifter will contact the elderly person to advise of their winning a large sum of money, but in order to collect the reward, fees or taxes are “required” to be paid in order to receive the winnings. The fraudster may also ask for personal information, such as a Social Security number, as “proof” of the winner’s identity.

Phone Phishing Schemes

Phone phishing schemes are another popular ploy to target the elderly population. With phone phishing, a scammer will call the elderly person pretending to be from a legitimate business or charity. The con artist will then try to get the victim to make a donation to the organization, potentially revealing personal information such as credit card numbers or bank account information.

The Grandparent Scam

The “grandparent scam” is one of the most sinister cons targeting the elderly. A swindler will call or email the elderly person and pretend to be their grandchild. The scammer will then claim to be in some sort of urgent trouble, such as needing money for bail or medical bills. They will then ask the victim to send money to help the “grandchild” out of their predicament. Of all the conniving scams, this one is the most ruthless, as it is so morally corrupt, and not only targets the older person, but their family members as well.

How to Protect Elderly Loved Ones

To keep elderly loved ones safe from scams, be sure to explain how they can recognize them. Older family members should be made aware of the importance of never recklessly giving out personal information over the phone or online. Additionally, it’s important to keep an eye on their finances and make sure they aren’t sending money to suspicious people or organizations.

Final Thoughts

Scams targeting the elderly are unfortunately all too common. It’s important to be aware of the most common schemes and how to protect your elderly loved ones from them. By understanding the risks, and how to spot fraudulent activity, family members can help inform and deter scammers and con artists from targeting themselves and their older family members.

Community foundations are tax-exempt Section 501(c)(3) public charities made in certain locations to boost the residents’ quality of life through charitable giving. While private foundations are the typical choice for those with substantial wealth, Kevin Canterbury of Arizona explains that community foundations present the perfect options for smaller donors. 

According to the latest data, the United States of America boasts 833 community foundations that give away billions of dollars to improve neighborhoods’ lives every year. 

Community Foundations: A Low-Cost Charitable Giving Method

Private foundations attract the likes of Bill Gates, Warren Buffet, and anyone with a mind-blowing number of assets. However, community foundations help small donors create a family legacy.

Despite their lesser-known status, they are a viable, low-cost alternative to the private foundations that garner the attention of the press. 

Staff at community foundations have an intimate and thorough understanding of local problems. Thus, by working with donors and their advisors, they can craft an optimal gift plan that meets the needs of the donor, foundation, and region. 

The Types of Community Foundation Funds

When donors are charitably giving through community foundations, they can expect two major types of funds — donor-advised and endowment-type.

·         Donor-Advised Funds

Donor-advised funds are donation vehicles set up by a public charity that deals with charitable giving on donors’ behalf. They are flexible, relatively low-cost, and organized, making them a frequently chosen option for many smaller donors wanting to give to charity. 

Those who choose donor-advised funds when donating to community foundations get the extra benefit of the staff’s local knowledge and their relationships with local beneficiaries. 

With this type of fund, donors recommend which organizations should receive the grants, how much they would receive, and when they would receive it. 

Generally speaking, donor-advised funds have relatively low minimum payments of anywhere from $5,000 to $10,000, depending on the particular fund. And for every year the donation is made, the donor obtains a charitable tax deduction, even if the money won’t be given to that specific charity until later. 

·         Endowment-Type Funds

The other fund type offered by community foundations is endowments. It allows donors to support charities for generations through an ever-lasting and growing pot. In other words, it’s a permanent fund source that is invested for long-term growth.

Every year, a portion of the funds (around 5%, usually) are given to fulfill the donation’s purpose. The rest is left to grow, ensuring more is available for distribution later. 

Normally, endowment-type funds are split up into several sub-groups for different reasons, such as:

• Scholarship funds — Utilized to pay for the education of students who meet specific requirements. 
• Field of interest funds — These can be used for many particular problems, such as healthcare or the environment. 
• Designated funds — They are used to support at least one pre-designated charity in the geographic region. 
• Unrestricted funds — These are used to meet any unforeseen needs of the community, like relief from natural disasters. Donors without a specific area of interest or don’t want a named fund tend to choose this option. 

Financial planning may seem like an entirely individual process but it’s important to consider the whole family when saving for the future. After all, individual members’ interests often overlap so, by planning for multiple generations, families can help to ensure that their wealth grows over a longer period of time, securing financial stability for all.

Of course, multi-generation planning does take more effort but by ditching the purely individualized perspective, anyone can place their family on track to future wealth. Kevin Canterbury of Arizona explores a handful of strategies to make this a reality and discusses how financial fitness for one can benefit all.

Start by Considering Family Members’ Current Situations

It’s important to have a clear understanding of each family member’s current financial situation before planning for the future. This will help to ensure that everyone is on the same page and that everyone’s interests are considered. After all, if one member of the family is struggling with debt, it’s going to be difficult to make headway on long-term savings goals.

There are a few key things to look at when assessing each family member’s financial situation, such as:

• How much debt they’re currently struggling with
• Their current income and job status
• Individual spending habits
• Individual long-term financial goals

With a clearer understanding of where everyone stands, you can then start to develop a plan that works for the entire family.

Consider Personal Financial and Business Goals

While it’s important to take a look at each person’s financial situation, it’s also necessary to consider any personal financial goals that they may have. After all, these goals will likely have an impact on the family’s overall financial picture. For example, if one member of the family is hoping to buy a home in the next few years, this will need to be factored into the financial plan.

The same is true of any business goals that family members may have. If someone is hoping to start their own business, this will also have an impact on the family’s finances. So, before establishing a set financial plan for the entire family, it’s important to consider all of these factors.

Consider Estate Planning Well in Advance

Estate planning is an important part of financial planning for the future, but it’s often something that’s put off until later in life. However, to ensure that the family is taken care of financially, it’s important to start estate planning well in advance.

There are a few key things to consider when estate planning, such as:

• Who will inherit any remaining financial assets?
• Who will manage the finances if you become incapacitated?
• Has anything been planned for long-term care?
• Is it possible to minimize estate taxes?

Answering these questions now can help to make the estate planning process much easier for family members in the future.

The Bottom Line

Financial planning for the future doesn’t have to be a purely individual process. In fact, by considering the whole family, you can help to ensure that everyone’s interests are taken into account and that the family’s wealth grows over time. Of course, this does take more effort but it’s well worth it in the long run.

The switch from working to retiring and living off savings is a major transition. To be successful, individuals and their financial advisors must switch from an accumulation mindset to a distribution-focused way of thinking. After all, retirement planning is much easier during the accumulation stage — they’re just focused on growing the nest egg. The real challenges set in when changing to a distribution strategy.

Upon retirement, it’s time to bust open the nest egg and begin withdrawing. With that comes a goal shift. It isn’t just about establishing a bucketful of cash; it’s about acquiring enough income to survive without letting the nest egg diminish completely.

Economic Attitude Changes: Everything Reverses

Kevin Canterbury of Redstone Capital Management says that to ensure monetary happiness throughout retirement, individuals and their advisors must carefully monitor withdrawal rates and account values to prevent hitting that scary $0. 

But many find the mindset change challenging because everything they were previously doing must be reversed.

For example, dollar-cost averaging is flipped. Generally, investing fixed amounts throughout volatile markets ensures more share allocations when the prices are lowered. While this is great during accumulation, withdrawing fixed amounts from a volatile collection can cause damage, making it tricky in the distribution phase.

Alongside that, compounding is reversed too. Individuals who built up an investment account early benefitted from increased future compounding. However, it must be handled differently once people reach retirement — withdrawing too much too soon diminishes compounding interest on the remaining value.

And, scarily of all, mistakes in the distribution phase can be fatal. The wiggle room for errors is near-non-existent when money is flooding out of retirement accounts, but nothing is coming in. 

Income Planning for Retirement

For a successful transition into retirement, individuals should learn a few core nest egg management concepts. Volatility, excessive withdrawals throughout early retirement, and longer-than-anticipated withdrawal periods are all major considerations.

Finance professionals are well-skilled in deciding which strategy works best for their clients. But the most popular are:

• Living off interest or dividends — Individuals alter their growth-oriented portfolio to one where their investments generate income. It’s perhaps the most loved retirement strategy and typically includes bonds and dividend-receiving stocks.
• Drawing from cash buckets — Here, retirees keep enough dollars in a money-market fund for two to five years of expenses and invest the rest of their portfolio for total return. Through long-term asset liquidation, they replenish the bucket over time. 
• Creating withdrawal plans — With this strategy, individuals invest for total return and create a withdrawal plan at 4% of the balance. Each year, the withdrawal increases according to inflation. 

Selling Assets: A Key Part of Switching from Accumulation to Distribution

Finally, liquidating assets is generally a vital part of the switch from accumulation to distribution. Therefore, considering the tax and investment implications of selling assets is essential. 

Ideally, retirees should meet with their financial planner if an overhaul of their portfolio is needed to guarantee their nest egg will remain full.

Retirement equals drawing cash from taxable accounts first, doesn’t it? Not necessarily. While many finance professionals state that it’s normally a good idea to use these accounts initially, it isn’t always the best course of action. 

There’s no denying that tax deferral is appealing. However, it isn’t the rule of thumb that many retirees believe it to be. Instead, making the right decision about which accounts to tap first necessitates considering specific investments and the characteristics of available accounts.

The Creation of The Cash Bucket

Firstly, individuals should make a cash bucket containing two to five years’ worth of living expenses. Kevin Canterbury, the Managing Director of Redstone Capital Management, advises putting this money in market funds, short-term bonds, CDs, or Treasure bills to ensure safety and liquidity.

A diversified portfolio is volatile. So, individuals who know where their groceries and mortgage payments are coming from for a handful of years are better able to deal with the potential volatility.

This cushion should be the foundation of people’s retirement accounts. However, it required replenishing with every passing year, meaning retirees must consider which assets to liquidate and which to draw from at the time. 

Why Tax Deferral Isn’t All Sunshine and Roses

Unfortunately, IRA tax deferral can’t go on forever. As per federal law, citizens must begin taking minimum distributions when they reach 72 years old. The main downside here is this — the larger a person’s account, the bigger the distributions, and, thus, the more tax they will pay.

Before hitting 72, withdrawals can be calibrated to achieve the perfect balance of having enough money to survive and not paying shed loads of tax. 

But after 72, this control dwindles. Individuals with larger accounts may be thrown into the higher tax bracket, skyrocketing payments to unimaginable levels.

Luckily, with a proper account-tapping strategy, retirees can draw from their accounts earlier, paying taxes sooner but at much lower rates.

The Importance of Investments

Retirees can achieve tax deferrals within taxable accounts.

Many professional financial planners suggest buying and holding growth stocks. Provided an individual’s risk tolerance is suitably high, they can effectively turn taxable accounts into tax-deferral tools and receive monetary returns from the IRA.

People in favorable economic situations won’t need to sell their assets, making their heirs incredibly happy since they won’t suffer capital gains tax on the appreciation experienced by their predecessors. 

However, advisors urge those with high-risk aversions to create an income-oriented portfolio filled with high-dividend stocks or bonds. In these scenarios, retirees can take income from the taxable account, postponing minimum distributions.

Roth Comes Last

Individuals aren’t required to take minimum distributions from Roth accounts at 72 years old. Therefore, they should tap this account last, as per their financial planner’s recommendations.

Keeping an Eye on Legal and Regulatory Changes

Unfortunately, there is no one-size-fits-all formula for financial retirement planning. But those who consider their needs, risk tolerance, and tax environments are better equipped to tap the best accounts first. 

Whether it’s pride or fear, humans are generally averse to penalties. When it comes to our finances, though, it’s sometimes wiser to incur a loss in sight of greater gains than to play it safe and earn nothing at all. In the case of an employer-matched IRA, contributing a portion of your income and then deducting the added benefit can pay off more than leaving the account untouched.

Depending on the terms of the retirement account, it may be better to pay the IRA penalty to lower your financial burden while contributing more to your savings. To better understand when it makes sense to do so, Kevin Canterbury of Arizona looks at the specifics and discusses how smart savings can generate greater financial stability.

Contributing to a Dollar-for-Dollar Employer-Matched 401(K) Pays Off in Times of Financial Hardship

If you’re already contributing to a 401(k) with an employer match, you know that every dollar you contribute is effectively worth two. If you leave your job, you can still keep the money in the 401(k) and let it grow tax-deferred until you retire.

However, if you find yourself in a financial bind and need access to the money, you’ll face a 10% early withdrawal penalty in addition to income taxes on the money you take out. For example, let’s say you have a 401(k) balance of $30,000 but you’re struggling to make ends meet. Rather than contribute more to your IRA, you cease deductions and let it sit dormant.

While this may help to cover expenses, it would be in your best interest to pay into the IRA to benefit from the money your employee matches. If you were to contribute $2,000 and then withdraw the same $2,000 after your employer matches the sum, you would effectively increase your savings by $2,000 while only paying a $200 early withdrawal penalty (10% of $2,000).

Equal-Sum Deposits and Withdrawals Cancel Out the Burden of Added Income Tax

If you’re in a position to contribute a sum of money equal to what you’ll withdraw, you can effectively cancel the burden of the added income tax. For example, if you contribute $5,000 a year for 20 years while withdrawing $5,000 a year, you will have effectively paid the same amount in taxes regardless of whether you paid the penalty or not.

This is because the $5,000 you contribute each year is deducted from your taxable income for that year, and the $5,000 withdrawals are added to your taxable income for the year. So, if you’re in a 25% tax bracket, you would pay $1,250 in taxes on the $5,000 you contribute, and you would save $1,250 in taxes on the $5,000 you withdraw.

In this scenario, it would actually be better to pay the 10% early withdrawal penalty on the $5,000 you withdraw each year because you would save more in taxes than you would pay in penalties.

The Bottom Line

Paying the IRA penalty may not be ideal, but there are situations where it can make sense. If your employer is willing to match your contributions dollar-for-dollar, you can continue adding value to the retirement account without sacrificing financial stability. Although you will pay a small fee, your retirement plan and current account balance will benefit in the long run.

You might think you should draw straight from your taxable accounts as soon as retirement comes around. And while it’s usually a good idea, it isn’t the best strategy for everyone.

Tax deferral is appealing for obvious reasons, causing retirees to draw from taxable accounts first. However, it shouldn’t be considered a rule of thumb. Instead, deciding which accounts to tap first requires thinking about specific investments and the accounts’ characters. 

By considering the above, Kevin Canterbury explains that you can make educated decisions related to risk tolerance, income needs, and timeframe.

#1 The Cash Bucket

First, you should start by creating a cash bucket containing two to five years of living expenses. Put the money in liquid investments like Treasury bills, market funds, CDs, or short-term bonds. 

Diversified portfolios can be volatile. So, ensuring you have a well-filled cash bucket reduces risk by giving you guaranteed mortgage and grocery payments.

Set aside whatever cushion is necessary before building your retirement portfolio. You’ll have to replenish the bucket every year, at which point you must decide which accounts to tap.

#2 Minimum Distributions

At 72 years old, you must begin taking minimum distributions. The problem is that the larger your account, the bigger the distributions and tax. 

Before turning 72, you can optimize withdrawals to achieve the perfect balance between enough income and low tax. After 72, you probably won’t have that control.

If your account is considerable, you might fall into a higher tax bracket, meaning you pay more tax than if you’d drawn down earlier and paid tax sooner at a lower rate.

#3 Growth Stocks

You can achieve tax deferral with a taxable account by purchasing and holding growth stocks. If your risk tolerance is high enough, you could technically turn the taxable account into a tax-deferral machine and receive income from the IRA. 

Depending on your assets, you won’t need to sell your growth stocks, making your heirs ultra-happy as they won’t owe capital gains tax on the appreciation experienced during your life. 

That said, if you’re highly risk-averse, you probably want a mostly income-oriented portfolio (i.e., bonds or high-dividend stocks). In this case, you can take retirement income from the taxable income inside the taxable account. This will postpone taking minimum distributions, provided you’re under 72 years of age.

#4 Roth

You should save your Roth IRA for last. Why? Because there aren’t any minimum distributions at 72. Let it sit for as long as possible for the best results. 

Arguably, deciding whether to convert your Roth IRA is one of the most crucial parts of your retirement plan. Once established, you shouldn’t touch the money unless you have no other resources.

Many people find it helpful to discuss this aspect with a financial professional — and we suggest you do the same.

The Bottom Line: Be Aware of Regulatory Alterations

At the end of the day, you may have to change your course of action as the law and regulations change. But as long as you consider your income needs, risk tolerance, estate planning, and tax environment, you’re bound to tap the right accounts first.