Category: Financial Planning

Marriage isn’t just about two people who fall in love and choose to spend the rest of their lives together. It is also a contract. And while that contract might not be forever binding, marriage does come with certain financial and familial obligations regardless of whether the couple stays married or not.

That is why it is critical for couples to discuss their finances and goals early in the game. In fact, the best time to begin this conversation is actually before they begin making wedding plans. That’s because weddings can be very expensive. If the couple bears this expense, they will remove funds from their future plans and opportunities, which they should consider carefully before designing a wedding budget.

However, many times the parents of a couple will pay for the wedding. In this scenario, the newlyweds should consider how the cost of an expensive wedding would impact the paying party’s long-term financial situation. This is important because bankrupt parents could lead to a potential live-in caregiving situation once they are too old to take care of themselves. That’s quite a trade-off for a $100,000 wedding.

Takeaway: Regardless of who pays for the wedding, moderation is perhaps both prudent and considerate.

Partners also should share information about their earnings, assets, debts, and credit reports before getting married. They should discuss their career goals, preferences for children, type of housing, living location(s), and any big-ticket dreams, such as an expensive vacation or starting their own business. Together, the couple should consider each other’s goals and develop a plan to achieve those goals given their combined financial situation.

Takeaway: Note that while each spouse retains their own credit score and liability for debts prior to the marriage, joint debts acquired during the marriage are recorded on both credit reports.

Once married, couples often assume respective responsibilities, such as household earner and bill payer, while the other is a homemaker and primary child caregiver. From a financial perspective, this is not wise. It’s better for the marriage when each spouse takes turns managing finances, including paying bills, learning about investing and working with a financial advisor if they have one, being on all the joint accounts (home deed, insurance policies, etc.) and even each having their own retirement account (e.g., IRA, employer-sponsored retirement plan).

Takeaway: A collaborative approach to finances enables transparency so each spouse is aware of the other’s spending habits and bill-paying discipline.

The relationship tends to have more balance if each spouse has their own money, even if they do not work outside the home. If both spouses work, they could each have a checking account for their own personal expenses as well as a joint account used to pay for communal expenses like rent/mortgage, utilities, food, and upkeep.

Takeaway: A higher-earning spouse may contribute to a lower/no-earning spouse’s Roth IRA so that person has income to manage as they see fit.

Shared finances among married couples do offer certain benefits, such as lower costs for housing, health, long-term care, and auto insurance premiums. With particular regard to health insurance, consider if one spouse should join the other’s plan and how that might impact premiums, deductibles, and out-of-pocket expenses.

Takeaway: Find out if either spouses’ employer offers an incentive for declining coverage. This bonus income provides a good reason to join the other spouse’s plan.

Couples also have the option to compare the advantages of filing joint or separate tax returns, which may be impacted by one partner’s medical expenses or student loan debt. Also, be aware that no matter what time of year you have your wedding, as long as you are married as of Dec. 31, the IRS considers you married for the whole year for tax-filing purposes.

Takeaway: If one spouse is on an income-based student loan debt repayment plan, be aware that filing jointly with two incomes may result in higher payments than if they file separately.

Right after the wedding, there are several actions most couples should take. For example, report any name changes to the Social Security Administration; update any address changes with the Postal Service, employers, and the IRS; and supply your employers with a new W-4 withholding form.

Takeaway: If you’re taking an extended honeymoon, you might want to complete some of these tasks before your wedding day.

Municipal bonds (also known as munis) are issued by a state or local government. Interest income is typically paid out twice a year and is not subject to federal taxes. When an investor purchases a bond issued from his own state, the income is generally not subject to state income taxes.

However, there are a few good reasons to consider buying out-of-state municipal bonds. The first reason is to consider bond quality. Each muni bond is given a quality rating based on the municipality’s ability to make the regular interest payments to investors and return their principal when the term matures. To make this determination, agencies like Moody’s and S&P evaluate the issuer’s debt structure, financial stability and long-term economic prospects.

Credit Quality

The highest Moody’s rating is Aaa (the lowest is C); a rating of Baa3 or higher is considered investment grade. The highest S&P rating is AAA (the lowest is D), and a rating of BBB or higher is considered investment grade. While it’s a good idea to invest in highly rated bonds, note that their yields are inversely related to their quality. In other words, the lower the rating, the higher the interest income. Just be sure to consider that with that higher yield comes a higher risk of the bond issuer defaulting. In today’s economic landscape, an average credit rating of AA/Aa is considered a good balance of risk and bond yield.

Diversification

Second, if the investor holds a portfolio of municipal bonds, owning some from other states can help diversify his bond portfolio. If the investor’s home state has lower-rated bonds, investing in higher-rated bonds from other states can lower his bond portfolio’s quality risk. On the other hand, if the investor’s home state has highly rated bonds, purchasing bonds from states with lower-rated bonds can increase the amount of income his portfolio pays out. Remember, too, that it’s important to consider both the bond yield (also known as its coupon rate) and its issuing state’s taxes in order to come out ahead.

More Choices

Note that both California and New York are high-tax states, so it’s particularly important to consider the tax situation before buying there. With that said, there are also good reasons to buy bonds in these two states because they offer a range of quality municipal bonds. On the flip side, some states have fewer bond options to choose from and a lower risk profile, leaving resident investors with few options regardless of the state tax benefit. Be aware that the majority of muni bonds are rated lower than AA in Illinois, Pennsylvania, and New Jersey.

Tax Considerations

There are seven states that do not impose state income taxes: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire recently phased out its tax on investment and interest income. If a muni bond investor lives in a state with no taxes on income, there is no benefit to limiting his purchases to in-state bonds. In this scenario, it’s a good idea to compare muni bonds from states with high-rated and high-yield bonds to build a diversified bond portfolio while also considering the annual tax bill in each of those states.

If a muni bond investor lives in a high-tax state, such as California with a 12.3 percent tax rate for residents with income in the top bracket (effectively 13.3 percent if you include the additional 1 percent surcharge on individuals earning over $1 million), then it makes sense to buy out-of-state munis to help reduce their tax burden.

Despite these general guidelines, investors should check on the muni bond tax status in their home state before making a purchase. Some states, such as Illinois, require residents to pay taxes on in-state muni bond yields. In this situation, the resident may find better deals with out-of-state munis by comparing coupon rates against the income taxes in those states.

Identity theft is when someone steals your personal information and then uses it to commit fraud. They may access your Social Security or Medicare number, employee ID, utility, credit card or bank account numbers. Once the scammer has this information, he can conduct all kinds of crimes, such as withdraw assets from your accounts, open and close accounts in your name, take out loans or new lines of credit in your name, and even impersonate you if they get arrested – leaving you with a criminal record you may not even know about.

How Do Scammers Steal Your Identity?

Whereas scammers used to rummage through trash cans; today they can hack into your emails, social media, and personal accounts. That’s because we conduct so many of our transactions online now, they don’t even need to be physically present to take something from you.

Today, your data – contact information (e.g., phone number, email, address) and account numbers (e.g., financial, Social Security, employment ID) are all commodities that are bought and sold by both legitimate and illicit entities. Even the most harmless retail outlets solicit information, like your email and phone number in exchange for a 15 percent discount or free shipping. They can use this information for their own purposes and/or sell compiled lists to whoever will pay for it. The more you freely put your information out there, the higher your risk of identity theft or other forms of fraud.

Warning Signs

Paid Actors: Scammers may contact you directly via phone, email or text about a security breach or an offer you can’t refuse. They are professionals – they do this all day, every day, and know how to sound convincing. They may even trick you into giving out personal details (e.g., what’s your husband’s name? Are your parents still alive? How old is your daughter?) without you even realizing it.

Check Your Trust Instinct: Most people have an innate instinct to believe in the good of others, particularly those entrusted with our assets. That’s why when your bank calls, you become immediately concerned and receptive to their efforts to protect you. However, do not trust automatically and always verify.

Move Your Money: Let’s say someone from your bank calls and says they detected an unusually large transaction from your account. They may suggest you call your bank directly to stop the transaction and give you the local number to call. When you call, you may simply reach another scammer. They will often recommend you transfer your assets to a new account and close the old one to prevent fraudulent transactions by having a new account number – which the scammer will also have. If you are asked to move your funds to another account, this is a red flag.

SIM Swapping: If your phone stops working for no apparent reason, it’s possible your SIM card (or e-SIM) has been stolen. This is the memory chip found in phones, tablets, and smartwatches that stores your contact information, text messages, and passwords. It is incredibly valuable to scammers because it can enable them to log into your financial accounts. Even if you use two-factor authentication, he can intercept the code sent to your phone to verify your identity. He can then drain your assets, make unauthorized purchases on your debit and credit cards, and even lock you out of your own social media accounts by changing your passwords. Remember, immediately contact your carrier if your phone stops working. This may indicate that your phone number has been reassigned to another SIM.

How To Stop Today’s Scammers

The quicker you detect the problem, the faster you can shut it down and the less damage can be done to your personal and financial circumstances. Consider these tips:

• Put a freeze on your credit report with each of the three (3) credit reporting agencies – Equifax, Experian and TransUnion. You can unfreeze them any time you apply for new credit.
• Request fraud alerts from any of the three credit bureaus.
• Check your three (3) credit reports and your credit score every year for any changes or unfamiliar accounts.
• Never invest based on the advice of someone you’ve only encountered online.
• Add a trusted contact to your financial accounts, whom your financial firm may contact if you appear to be making unusual transactions.
• Passwords are the bane of modern-day technology. One way to minimize how many you have to keep changing is to add multifactor authentication – a two-step process that requires you to enter a unique code sent via email or text message each time you log in to an online account.
• Monitor your account activity. If you still get statements by mail, be sure to read them every month. If you do all your transactions online, review them at least once a month to ensure there are no unexplained charges.

And finally, if you ever have an encounter with a scammer, share your experience with your friends, colleagues, and family members. This is particularly helpful for older folks, who are less familiar with how technology is used these days. We tend to live in a bubble and assume our assets and our identity are safe since no one we know has ever been victimized. But in fact, some people keep quiet because they are embarrassed. Don’t be. Share your story with friends; spread the word so others are more aware and more vigilant. Fraud and identity theft can happen to anyone.