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December 2018 Tax Reform and Year End Planning

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The recent tax reform, officially known as the Tax Cuts and Jobs Act (TCJA) of 2017, was the biggest change in the tax code in over 30 years. The overhaul covered both individual and corporate income taxes. Most will see their tax bill decline when they file, but a few folks may see a sharper bite.

Let’s touch on some of the changes at a high level.

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Why Should You Diversify?

As 2019 approaches, and with US stocks outperforming non-US stocks in recent years, some investors have again turned their attention towards the role that global diversification plays in their portfolios.

For the five-year period ending October 31, 2018, the S&P 500 Index had an annualized return of 11.34% while the MSCI World ex USA Index returned 1.86%, and the MSCI Emerging Markets Index returned 0.78%. As US stocks have outperformed international and emerging markets stocks over the last several years, some investors might be reconsidering the benefits of investing outside the US.

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Creating Your Retirement Paycheck

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Most people don’t plan on working forever, so we all know it is imperative to lay the groundwork for our financial future. Maybe you already have a diversified portfolio that you have been building over the course of your working life. The challenge many retirees face is figuring out how to generate a predictable income from the wealth they have built over the course of their lifetime. No one wants to have to live a lower quality of life—you want to be able to maintain your current lifestyle throughout retirement. This process is known as “building a retirement paycheck.”

Everyone will approach retirement with different goals, needs, resources and risk tolerance levels. It is important to take a detailed and honest inventory of each of these factors to determine how much money you will need to “pay yourself” each month or year of retirement.

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Are you Ready to Retire? What you Need to Know About Your Financial Health

You've conquered your professional goals, and now it's finally time to settle into some well-deserved downtime, dedicated entirely to you. But before you can plan your retirement party and start making travel plans, you have to make sure all your affairs are in order.

In other words: You're ready to start seriously thinking about retiring in the next few years, but you're unsure if you're financially prepared to do so. You're not alone. A recent study conducted by the Boston College Center for Retirement Research found that 40 percent of working-age Americans have an unrealistic understanding of their progress toward secure retirement

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How to Thrive While Life Happens

 

Life happens quickly, bringing a continuous mix of opportunities, uncertainty and even potential peril. The British saying from World War II Keep Calm and Carry On gives us insight into how a population kept themselves together when faced with grave and prolonged uncertainty. Now in the 21st century we need a new version of this motto, Keep Calm and Carry Very Little. We also need a skill set to put the motto into action. At Northstar, we talk about How to Thrive While Life Happens.

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Do You Have Transition Fatigue?

Financial transitions come in many forms: selling a business, death or divorce, inheritance or a windfall. Regardless of the reason, managing a financial transition can be overwhelming, difficult and exciting – all at the same time.

We refer to ‘transitions’ as that period of change in which “what was” no longer exists and “what will be” has not yet taken shape. Transitions are temporary states, but that does not mean they are short-lived. By their very nature, transitions have broad-reaching implications for people’s lives – their finances, important relationships, where to live and how to live.

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Behavioral Biases A-Z Summary

We’ll wrap our series, the ABCs of Behavioral Biases, by repeating our initial premise: Your own behavioral biases are often the greatest threat to your financial well-being.

We hope we’ve demonstrated the many ways this single statement can play out, and how often our survival-mode brains trick us into making financial calls that foil our own best interests.

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ABCs of Behavioral Biases: S-Z

We have come to the end of our alphabetic run-down of behavioral biases. Today, we’ll present the final line-up: sunk cost fallacy and tracking error regret.

SUNK COST FALLACY

What is it? Sunk cost fallacy makes it harder for us to lose something when we also face losing the time, energy or money we’ve already put into it. In “Why Smart People Make Big Money Mistakes,” Gary Belsky and Thomas Gilovich describe: “[Sunk cost fallacy] is the primary reason most people would choose to risk traveling in a dangerous snowstorm if they had paid for a ticket to an important game or concert, while passing on the trip if they had been given the ticket for free.” You’re missing or attending the same event either way. But if a sunk cost is involved, it somehow makes it more difficult to let go, even if you would be better off without it.

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Your Unique Journey to Financial Wellness

In a study done by Merrill Lynch in partnership with Age Wave, it was found that 70 percent of women believe that men and women have a fundamentally different life journey when it comes to career, family expectations, aging, and finances, reinforcing the need to better understand women’s financial concerns and opportunities. In recent decades, there has been a seismic shift in women’s personal and financial representativeness.

Since 2015, women or female run households have had control of more than 50% of our nation’s wealth. With this new wave of women investors and financial heads of household comes the need to identify what can be done to reinforce independence, mitigate longevity risk, encourage financial knowledge and education, and empower women to find their path to financial wellness. Financial independence affords women the confidence in meeting their financial obligations, experience the life that they want, achieve their goals and take care of loved ones.

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Have you been underpaid? What Widows need to know about Social Security

The Social Security Administration recently reported that it had underpaid $224 million to about 25,000 widows and widowers. In a random sample of this group, it found that 82 percent could have gotten a higher monthly benefit if they had claimed survivor benefits first and delayed claiming their own retirement benefits until age 70. The audit also found no evidence that SSA employees informed the people about their option to delay their retirement benefits to age 70, which is required. If you believe that you have been underpaid, we recommend contacting your local social security office to determine if they will give you any retroactive benefits.

Widow’s social security benefits are complex so we recommend that you call or visit your local SSA branch to get an initial determination of your options and then get a second opinion with an expert on social security claiming strategies to help you fully understand your benefit.

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