Rick's Bucket Letter
Recently I wrote a letter to my wife, Keirsten. It’s one I hope she does not have to read for many decades. Part of this letter offers personal finance guidance if I kick the bucket.
Keirsten is many wonderful things, including smart, strong, and resilient. In the wake of my passing, I am sure she would already know how to tackle most of what is below. And for any loose ends she could easily consult with Keith, Connor, and the WWM team. But this sort of letter is above all a gesture of kindness for those you love dearly, so I thought I would share some of the contents with you…….
First and foremost, follow our comprehensive written financial plan. Our plan has guidance on most of the items below, as well as important future decisions.
Keep 3 months’ living expenses in an FDIC insured interest-bearing savings account, forever. This is your cash reserve, and should be separate from your checking account.
Contact the social security administration so you continue to receive the highest possible monthly benefit from our combined work records (assuming we have reached social security age).
Access our LastPass account. (Side note for this Marketmail: One of the most difficult things for a surviving spouse to accomplish is getting their arms around all of the various accounts, usernames & passwords, etc. An easy way to solve this problem is to use a password manager. Personally, we use LastPass. Keirsten has access to all of our account numbers, usernames, passwords, etc with a few clicks on LastPass. Of course there are other popular Password Managers, including Keeper and Dashlane.)
Invest the death benefit proceeds from my life insurance into our portfolio, following the specific asset allocation guidance inside our financial plan. Try to resist the urge to use the life insurance $ to pay off the mortgage on our New Jersey home, as the interest rate is below 4.50% and gives you a tax deduction.
Work with Wagner Wealth Management/Raymond James to move my retirement account assets into your name. This includes the 401(k), Profit Sharing Plan, Employee Stock Ownership Plan, and any others. Most of the accounts should go directly into your IRA for tax protection.
Strongly consider executing Roth IRA conversions, up to (but not over) the 24% tax bracket, in almost every calendar year until the Traditional IRA dollars are all converted.
With the help of Keith, Connor and the WWM team, update your financial plan at least every 12 – 18 months.
When taking income withdrawals from your portfolio, try to stick to a yearly withdrawal rate which is likely prudent and sustainable through even the more challenging cycles. These are general guidelines…
- In your 50’s, try to not withdraw more than about 4% of the portfolio value
- In your 60’s, 4.5% - 5%
- Early seventies, about 5% - 5.5%/year
- Late seventies, about 6%/year
- And after that, in the area of 6% - 8%/year
For paying living expenses & making portfolio withdrawals, this will likely be the most tax efficient order…
- First use fixed/reliable income sources such as Social Security & Pension payments
- Then draw from Taxable Accounts
- Next, withdraw from the Traditional IRA dollars (assuming they have not been converted to Roth IRA dollars, and as long as you are over age 59 ½)
- Then Inherited Roth IRA assets
- The regular Roth IRA dollars
- And finally Inherited Traditional IRA assets
Update the beneficiaries listed on your IRA accounts & life insurance, removing my name as primary beneficiary and naming Connor & Keith.
Never sell more than 1/3 of the Bitcoin.
Add Keith & Connor as joint owners on the safe deposit box at the bank. This will save them a ton of hassle some day when they are settling your estate. It is almost impossible for a non-owner to gain access to a safe deposit box after the owner has passed away, even if the non-owner is the official estate executor.
If you decide to relocate (change your official state of residence) to our home in New Jersey, or to any other state, update your will because wills are often state-specific. And if you relocate to what might be your favorite place…..Jackson, Wyoming…..things will be more simple tax-wise: no state income tax, no inheritance tax.
If you decide to rent out our home in New Jersey, first make sure the home is held inside its own Limited Liability Company (LLC) for liability protection. And make sure an umbrella policy is in place for the LLC.
Our tax pro will be able to guide you on any intricate income tax issues. You will be able to file Married-Filing-Jointly on one more tax return, and then you will likely need to change your status to filing Single.
I doubt you will be applying for credit (i.e. car loan, mortgage, etc). But if you do, remember to first unfreeze your credit report with all 4 credit reporting agencies (Experian, Equifax, Innovis, and TransUnion).
Always keep an Umbrella Insurance Policy in place alongside all of your other property & casualty insurance policies. The umbrella offers lots of excess protection for minimal cost each year.
Where possible, try to have assets and accounts held inside our Revocable Living Trust. This will help our heirs avoid the time, expense, hassle, and lack of privacy of probate…….while also enabling you to maintain full control during your lifetime. Our New Jersey home should also remain inside the trust so our heirs can avoid ancillary probate. BUT….do not place IRA assets in the trust, or make the trust or your estate your IRA beneficiary (this is a potential income tax disaster).
When you wish to give money to charity, try to use our Donor Advised Fund (DAF) for simplicity and tracking purposes. Yes, Animals in Distress in Coopersburg PA is on the very lengthy approved charity list for the DAF.
If the federal estate tax exemption gets reduced dramatically by the IRS, the likely best first step to seek estate tax protection is to move your life insurance inside an Irrevocable Life Insurance Trust (ILIT). Keith, Connor, and the WWM team will be able to guide you on additional estate protection steps, if needed.
That’s it! I intentionally omitted a number of sections which are touchy-feely and personal……the stuff you want your loved ones to hear, but don’t relate to finance. Regardless, I am sure you get the picture.
If you decide to write your own bucket letter and questions arise, feel free to contact our team. We will help you.
Author: Rick Wagner
The views expressed herein are those of the author and do not necessarily reflect the views of Raymond James & Associates or its affiliates. All opinions are subject to change without notice.
Prior to making an investment decision, please consult with your financial advisor about your individual situation. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. The forgoing is not a recommendation to buy or sell any individual security or any combination of securities. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
