If you are a homeowner with a mortgage and you haven’t looked at the current rates for new mortgages, now is the time. Due to the panic around COVID-19, mortgage rates have dropped to levels not seen during my time in the financial services industry. We have seen homeowners refinance to rates just above 2% for a 15-year term and just over 2.5% for 30 years. If your rate is one percentage point above these rates and you plan on staying in your home for another 5-7 years, now is the time to consider refinancing. There is a cost to refinancing, so it’s important you stay in your home long enough to realize the savings from the lower interest rates. If you have any questions on this or would like us to help you with an analysis on your current mortgage, please let us know. It appears that interest rates will not go up anytime soon, but as the global economy opens back up after the COVID-19, I would expect to see interest rates begin to rise. This may be a once if a lifetime opportunity for mortgage rates so if you are contemplating a new home purchase, now may be the time.
Today is also the day for quarterly tax payments.
Please let me know if you have any questions or concerns.
Brett S Carleton, CFP®
For the better part of 30 years, I’ve been working with oil & gas professionals through the booms and the busts. It’s amazing to watch how quickly companies start letting people go. So whether you have been laid-off, or are just concerned about your job, my hope is the following information will help you get prepared. If you are still working and you receive a notification of termination, review this with your Certified Financial Planner, CPA or attorney. I cannot emphasize this enough -- if you have any decisions to make, do not make them alone.
Health Insurance Considerations
If you have already received notification of your termination, the first item on your agenda will be to consider your benefits and how to keep your coverage's in place if needed. All companies are required to offer continued health coverage through COBRA, which is an extension of your medical insurance for up to 18 months, but with you responsible for the full cost of this coverage. Some of the larger oil companies also allow you to keep some other coverage's as long as you agree to pay the premiums. You should receive an outline of the options you have regarding all the various coverage's available to you. If you have worked with your company long enough, and are fully vested, you may be offered retiree medical coverage. This is a benefit you will want to consider carefully, because it generally provides more extensive coverage than what is now offered in the individual marketplace.
It’s also important to speak with your wealth advisor about your pension plan if you have one. Some of the larger companies still have pension plans in addition to a 401k plan. Exxon and Chevron both have pension plans that allow you to take a monthly income option or lump-sum rollover to an IRA. This is a decision that will require some calculations to determine your best alternative. This is a crucial step because, once initiated, it cannot be undone. There are some companies like Shell and Schlumberger that also have a pension plan, but they do not give you the lump sum option, you must choose one of the income options. An advisor can help you with the finer points of each plan. For example, if you have worked for Schlumberger long enough to qualify for a pension, you should start taking the income benefit as soon as you turn 50. Why? Because your monthly benefit does not increase if you wait. If you are able to do so, your first consideration is whether or not to roll over your pension plan at all. If you do, then you need to decide the most appropriate investment vehicle. For tax purposes, it is often in your best interest to set up an individual IRA with a wide range of investment choices. Any rollover to an IRA will be tax-free and continue to be tax-deferred until you take distributions.
Retirement Savings / Company Stock
The next decision you will have to make is with your company 401k plan. Some companies call this a Thrift Plan or a Saving Plan. A number of companies will allow you to keep your retirement plan with them if you so choose. However, you can no longer make any contributions to the plan, and your investment options are limited to those available in the plan. Additionally, if you have been given stock grants/options over the years, you will want to make sure you understand the decisions that need to be made. Some companies allow you to hang on to them until they expire, which should be stated in the original grant information. Other companies will vest you immediately with all of your outstanding stock awards and then give you a limited period of time to sell the shares. Again, this should be outlined in your termination paperwork. You want to be sure to understand the tax implications of selling any shares of company stock by discussing it with your tax professional.
There are a few other items you may not think of, such as taking all of your personal information with you. You will want to take: 1) your business contacts, 2) a hard copy of your final paycheck to verify that your salary and any unused vacation and sick time are paid correctly, and 3) a copy of your separation notice and benefits information, including the benefit providers and their contact information.
Here’s a checklist of things to consider:
o Health, Dental and Vision Insurance Options
o Flexible Spending / Health Savings Accounts
o Employee Assistance Program
o Life Insurance
o Retirement Programs
o 401(k), 403(b), 457, Savings Plan, Thrift Plan
o Other deferred income plans (restoration plans)
o Pension Plans
o Tuition Programs
o Employee Education Programs
o Tuition Aid Programs
o Long-Term Disability
o Long Term Care
o Final Pay Check
o Vacation Pay
o Sick time
o Severance Package
o Collect Reference Material
o Employer Separation Publications
o Important phone numbers, web addresses for you benefit providers
I hope this information will help you with your transition. If you have any questions, please feel free to contact me. Thank you.
Brett Carleton, CFP ®
Click the button below to read the article on COVID-19 & The Impact on Our Sports World
Notes from the Berkshire Hathaway annual shareholder meeting
This past Saturday afternoon, Berkshire Hathaway did a live telecast of their annual shareholders meeting in Omaha, Nebraska, since they were unable to host the large crowds expected. The highlight of this weekend, which has become known as “Woodstock for Capitalists”, is the live commentary from Warren Buffett and his business partner Charlie Munger. This year Mr. Munger was absent because they felt it was not wise to have the 95- year-old fly with the risk of the Coronavirus (his partner Warren is a spry 89). It was nice for interested parties like me that do not own any Berkshire Hathaway shares as we were able to listen in live.
Mr. Buffett started his comments with a history of America and shared what we as a country have accomplished in a relatively short time period (244 years). In 1790, the best estimate of the wealth of America is about $1 Billion, the net-worth of the United States today is in excess of $100 Trillion; a 5000 to 1 gain in real terms. He stated that it is miraculous what we as a country have accomplished during this time period, but it hasn’t been without tests along the way. He went into great detail about the Civil War and the number of casualties we had of the working age population. He discussed the Great Depression and the impact that had on our country. He believes that if we had had the FDIC in place before the Great Depression, it never would’ve gotten as bad as it did. There are many thoughts on mistakes we as a country made during the Great Depression, but having 9000 banks fail and $140 billion in deposits disappear, makes a big impression on the psyche of the average American. We continued on: “Nothing can stop America when you get right down to it, we have been tested, but in the end never, never bet against America”.
In 2020, “We are a better country as well as incredibly more wealthy; never, never bet against America”. He emphasized how “stocks are a part ownership of a business, not something to be commented on minute by minute”. Equities are going to perform over the long-term. He used the analogy of a farmer that buys a section of land and sets up a farm. His neighbor who owns the piece of property next door which is the same number of acres and very similar in quality, comes over and offers to buy his farm. The farmer says no our course, but each subsequent day, the neighbor comes back and makes a lower offer to buy his farm. Well after several weeks of this, the farmer starts to panic that his farm is dropping in value and maybe he should sell to his neighbor. This all sounds a bit silly but think about what happens in the equity markets on a daily basis, especially in a panic!
Mr. Buffett summed it all up with this final thought: The American tailwind is going to have interruption’s but make a choice to participate in this miracle and never look back; sustain this position for decades.
It was very interesting to listen to this commentary live and then read the financial media’s comments later and see how they can put a negative spin on everything. Mr. Buffett stated that the Federal Reserve has been so active and ahead of the curve in this “crisis, that they have not had the opportunity to participate in deals like they did back in the Great Recession. The Fed has been the lender of last resort, so Berkshire Hathaway has not been able to name their terms like they did back in 2008. If the right deal comes along, they will invest in it. He is still very bullish on America in spite of the current situation.
Hopefully you found this helpful. Please let us know if you have any comments.
Brett S Carleton, CFP, ChFC
With the global equity markets “selling-off” the past two days I thought I would take a few minutes and try and give you some perspective on what has happened. With Tuesday’s decline, the S&P 500 index is down a little over 7% from its all-time high that was just achieve a little over a week ago. So as dire as the news has been, this has been a very “normal” type of reaction by investors. During a typical year in the equity markets, the S&P 500 will drop by at least 10 % on average. Drops in the index of 5% or more happen on average at least twice a year. So, despite what you may be hearing, this is a typical annual type of pull-back in equity prices. Warren Buffett came out this morning and reiterated that these are great opportunities to either invest new monies or reallocate one’s portfolio to those assets classes that have “sold-off” in price. We will use this opportunity to do as Mr. Buffett suggests!
The apparent reason for the recent reaction by equity investors is due to the belief that the reaction to the Corona Virus in China, as well as other countries around the world, will have a negative impact on the global economy. I believe they are correct in their thinking as China has shut-down large sections of their country to try and prevent the spread of this virus. Having said that, I believe this will have more of a short-term impact on the global economy and in the future, we will talk about the Corona virus just like we talk about SARS, the Ebola scare, and the Avian bird flu. I do not want to minimize any of these events, they are just not a reason to change one’s investment plan.
The best advice I can give at this time is to limit the amount of news you are watching, wash your hands frequently and use hand sanitizer (the flu is really bad this year in the U.S even though no one is talking about this). Please let us know if you have any questions or comments you would like to share.
Brett S Carleton, CFP