What is a Net Zero Economy?

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The initial benchmark is to achieve net zero carbon dioxide emissions by 2050 and net zero emissions of all greenhouse gases by 2070. However, accomplishing these lofty goals will require a remarkable transformation of the global economy and global farming practices.

A way to measure global warming is through “temperature alignment” – a forward-looking benchmark that compares the level of emissions today against the potential for reducing them by a certain date in the future. The measure can be applied to a specific business, government, or investment portfolio.

For investors, global greening provides an opportunity to invest in companies positioning for a future net zero economy. After all, it’s important to recognize that climate risk represents substantial investment risk. Companies that prepare for the transition to sustainable energy sources will be able to deliver long-term returns, while those that do not could become obsolete.

If Net Zero is your path consider the following steps to align your investment allocation with the goals of a net zero economy. For example:

  • Reduce your exposure to high-carbon emitters and companies not making forward-looking commitments to transform to the net zero economy.
  • Prioritize investment decisions based on companies actively reducing reliance on fossil fuels and meeting science-based targets.
  • Target specific sustainable sectors (e.g., clean energy, green bonds) based on your asset allocation strategy – and diversify investments among those holdings.
  • Monitor ongoing research and available data to measure temperature alignment to ensure your issuers and investments are meeting published transition plans. This benchmark should be reviewed with the same rigor as traditional financial data.

The United States and the entire world have a choice to reduce the global. However, the effort also offers an opportunity to invest in climate innovation. The future will bring the survival of the fittest, is your portfolio ready.

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Roth Conversion in 2021?

Roth Conversion in 2021?In 2020, a year when all income brackets benefited from lower tax rates, the stock market took a nosedive at the beginning of the pandemic. For investors sharp enough to see the opportunity, this was an ideal time to convert a traditional IRA into a Roth IRA.

When you conduct a Roth conversion, the assets are taxed at ordinary income tax rates in the year of the conversion. So, the best time to do this is when your current income tax rate is low and when your IRA account balance loses money due to declining market performance. Once you convert the account to a Roth, those assets continue to grow tax free and are no longer subject to taxes when withdrawn later.

If you believe those stocks will rebound, you can direct the traditional and new Roth IRA custodians to move the shares as they are, rather than selling them for cash. Or, if you are converting the entire account and choose to remain with the same brokerage, you can simply instruct the custodian to change the account type. This way you can keep the same investments, pay applicable taxes on the account balance at the time of the conversion, and then never have to pay taxes on future gains.

While the stock market did recover in 2020, many market analysts believe equities are currently overpriced and could experience another correction this year. On top of that, with Democrats now in control of the White House and both houses of Congress, many expect legislation that will increase income taxes, at least among wealthier households.

Therefore, in order to avoid higher taxes on a long-accumulated traditional IRA, 2021 might be a good year to conduct a Roth conversion. The key is to try to time that conversion with a market loss. By conducting a conversion before income taxes increase, you’ll pay a lower rate, and all future earnings can grow tax-free and be distributed tax-free. Bear in mind, too, that a Roth does not mandate required minimum distributions at any age. The full account balance of a Roth has the opportunity to continue growing for the rest of the owner’s life.

A Roth conversion is not the best strategy for everyone. Consider the following scenarios that are not ideal for conversion.

  • An investor under age 59½ will be assessed a penalty on newly converted Roth funds withdrawn in less than five years, so this might not work for an early retiree who needs immediate income.
  • If you expect to be in a lower tax bracket during retirement, you should wait until then to pay taxes on distributions of your traditional IRA. Also, if you think you might relocate to a state with lower or no state income tax during retirement, not converting eliminates state taxes on that money entirely.
  • Watch out for a bump in income taxes on a Roth conversion. You might not want to convert if those assets put you in a higher tax bracket during the year of conversion.
  • Also note that if you convert after age 65, higher income reported that year could increase premiums for Medicare Part B benefits, as well as taxes on Social Security benefits.
  • If the non-spousal IRA beneficiary is likely to remain in a lower tax bracket than the owner, he might as well leave the assets in the traditional IRA. Otherwise, the owner will waste more of his estate’s assets to pay taxes on the conversion.
  • If you don’t have available cash outside the traditional IRA to pay the taxes on the conversion, the money will come out of the account and substantially drop the value. Consider whether or not your investment timeline is long enough to make up for that loss.
  • If your goal is to leave that IRA money to a charity, don’t bother to convert. Qualified charities are exempt from taxes on donations.

If you’re planning to leave a Roth IRA to your heirs, they also enjoy tax-free distributions as long as that Roth was opened and funded for at least five years before you pass away. This is another reason why it might be better to convert to a Roth IRA sooner rather than later.

The Impact of COVID on Life Insurance

If someone you know died from COVID-19 and had an existing life insurance policy, there should be no problem receiving the death benefit. The terms of a life insurance contract cannot be changed after purchase, so anyone with a policy before the pandemic will continue to be covered as long as premiums are paid.

However, the life insurance industry is in a quandary right now when it comes to new applicants applying for policies.

Some insurers have placed an age limit on applicants to whom they will sell policies. Travelers who have recently visited countries with a significant outbreak and people currently infected with the virus are generally asked to wait until after they have quarantined or recovered to apply for life insurance. While the coronavirus has had a high fatality rate among people age 65 and older, the death rate has fluctuated among demographics over the past year as the virus spread from metropolitan areas to more rural parts of the country.

With this in mind, now is probably one of the most challenging times to apply for a life insurance policy. In the past, applicants have had to answer standard questions regarding their medical history. Today, most also will have to disclose if they have been treated for COVID-19. Bear in mind that even people who did not become severely ill could suffer medical conditions in the future resulting from the infection. However, it is best to answer that question honestly, because any future claims could be denied if it is found the applicant lied about his or her COVID experience on the application.

As the data continues to be assessed, it is likely that insurers will adjust their terms and rates in response to the recent pandemic. It is possible, in fact quite probable, that data pointing to enduring effects of COVID-19 will be included in life insurance underwriting standards in the future. This could increase premiums for COVID-19 survivors – or result in denial of coverage altogether.

In the past, there were life insurers that sold low-cost, low-payout policies without a medical exam or extensive health questions. But these days, given how quickly the coronavirus can take a life, applicants age 60 and older would be hard-pressed to qualify for one of those “guaranteed issue” policies.

In fact, pre-existing health conditions such as diabetes and asthma – which are highly susceptible to the ravages of the coronavirus – may undergo more scrutiny in the future. While pre-existing conditions are no longer a qualifying issue for health insurance, they are very much a part of the life insurance underwriting process and do increase individual premiums.

There is one silver lining for life insurance applicants: Some insurers have eliminated the normally required physical exam due to social distancing restrictions. Others have opted to postpone the in-person exam but offer immediate temporary coverage with a limited death benefit. A couple of life insurers in Connecticut and Massachusetts even offer a free, three-year term life policy to frontline workers in appreciation for their work during the pandemic. Eligible applicants include in-hospital personnel and first responders who have the greatest risk of exposure to the coronavirus.

Anyone who has lost their income due to the pandemic and is in danger of not being able to pay life insurance premiums should call their carrier to see if there are options to continue coverage. Some companies have agreed to defer premiums for up to 90 days rather than cancel coverage for people likely to find employment soon. It’s a good idea to call and find out rather than miss payments and hope your insurance company chooses not to notice.

What To Know About Filing For Bankruptcy

About one million Americans file for personal bankruptcy each year, with one in 10 households having filed at some point. Given the loss of jobs, reduced income, and the coronavirus recession in 2020, those numbers could increase this year if the economic recovery is not both swift and omnipresent.

There are two main types of personal bankruptcy: Chapter 7 and Chapter 13. Chapter 7, which is the more common option, will liquidate the filer’s assets in order to discharge all or a portion of the outstanding debt. People generally choose this route because they are in way over their heads and do not earn enough income to pay their debts in any type of normal time frame.

Chapter 13, on the other hand, provides some immediate breathing room while helping the filer develop a payment plan based on a reduced percentage of the debt. This percentage is determined by how much he makes and what he can feasibly pay each month. While a Chapter 7 bankruptcy remains on your credit report for 10 years, while Chapter 13 bankruptcy is a bit less punitive staying on record for only seven years. As the filer works to pay down his debt and sticks to his plan, his credit score will gradually improve over time. In some cases, the debtor may be able to apply for an FHA, VA, or USDA home loan a year after his bankruptcy filing, or two to four years if applying for a conventional mortgage.

Bankruptcy can provide immediate relief from creditors calling and threatening to evict, foreclose, repossess, shut off, or garnish wages. However, be prepared for some level of pain, such as the bankruptcy court seizing property to be sold to pay your creditors, and/or your credit cards being canceled.

You may see television ads to get debt relief without having to file bankruptcy. Be aware that while these programs may negotiate a debt settlement to something you can better afford, they will not skirt the wrath of the dreaded credit rating agencies. Any time an entity negotiates a reduction in your debt, this will show up as a negative factor on your credit score, and will likely remain that way for many years. A more recent issue that not everyone is aware of is that some employers have started checking the credit reports of job applicants. This makes it all the more difficult to pay off your debt if you can’t get a job because of your past payment history. Your best option is to secure a reliable income before you work with a debt relief agency or file for bankruptcy.

Before entering any type of debt relief program, it’s a good idea to consult with a qualified, non-profit credit counseling agency for a free debt analysis. Don’t go to just anyone; make sure it is a legitimate resource which, by law, is required to serve your best interest. Shady debt counseling vendors are inclined to recommend a debt solution that works out better for the agency than their clients.

If you do decide to file for bankruptcy, be aware that court fees cost about $300, plus lawyer fees tend to run between $1,000 and $3,000 for a Chapter 7 filing and approximately $3,000 to $6,000 for a Chapter 13 filing.

A Realistic Picture: Will You Be Able to Afford In-Home Elder Care?

By the end of September, the nation had recorded over a quarter million cases of COVID-19 and nearly 60,000 deaths in nursing homes that were attributed to the disease. The recent pandemic offers yet another reason why more than 90 percent of seniors say they want to grow old in their homes rather than move into a senior housing facility.

But just how feasible is that goal, from a financial perspective? Much depends on how independently you can live for the rest of your life. That is something we cannot plan. Even elderly people with an excellent gene pool and no known health conditions can experience a fall or other accident that could render them helpless. And the older you get, the higher the risk of cognitive decline, which can make it unsafe to live alone.

However, you might still be able to live out your golden years in your own home if you can afford to pay for in-home care. Each year, Genworth Financial publishes a Cost of Care Survey that examines the cost of various types of long-term care. However, when you break down the assumptions, you might find the survey’s cost estimations are lower than what many people actually pay.

For example, the average fee for homemaker services (household chores, prepare meals, run errands, accompany to appointments) is $22.50 an hour. For a home health aide (help with bathing, dressing, toileting and simple first aid) the average hourly wage is $23. Depending on your location, you could pay more for a company that employs home workers or pay less for independent caregivers. Be aware that if you choose the independent route, you’ll have to vet abilities, trustworthiness and schedule your own back-up resources if they don’t show up for some reason.

However, according to the Genworth report, the average daily rate for a homemaker is only $141, or $4,290 a month. That breaks down to about six hours a day. What happens when you reach a point where it’s unsafe for you to mill about the house by yourself because you might leave the stove on, or you might fall and there’s no one to help. If you pay a caregiver to stay with you 16 waking hours a day, that would cost you $360 per diem, or about $11,000 a month.

If you don’t sleep well and tend to have to use the restroom at night, you might need to pay for a night shift caregiver just to make sure you get around OK. That means 24-hour care will run you more than $16,000 a month, or $195,000 a year – and that’s in today’s dollars.

If you’re planning on in-home care 10 to 15 years from now, those rates will probably be higher.

There are a couple of other issues to note. First, you don’t need to be completely incapacitated to require 24-hour care. It could be as simple as mild but gradual progressive dementia; a mobility issue; or fear of living alone after a spouse dies. Also, if a couple is living comfortably at home with 24-hour care, that expense probably won’t go away if one spouse dies – but household income will probably decrease.

There are alternative ways you might consider that would allow you to stay home throughout your elder years, and the earlier you plan for them the better they will work out. First of all, be nice to your grown children. Not only might you prefer to move in with them or they move in with you, but if things don’t work out, they will likely be the ones to determine where you live out your golden years.

Second, consider your housing situation and if you can negotiate room and board to one or more caregivers in exchange for their help. You might also consider cohabitating with an elderly friend or family member to help share caregiver fees, and perhaps eliminate the need for excess hours a day. Better yet, consider moving in together with several friends to help spread out the costs and improve your chances that some seniors will be less infirmed than others.

Since 2010, on average more than 10,000 Baby Boomers turned age 65 per day and by the year 2030, all Baby Boomers will be 65 or older. Among them, 52 percent will require long-term care in their lifetime. If you want to remain at home but worry about the cost of caregiving, you’ll have plenty of housemates from which to choose.

Long-Term Financial Impact of COVID-19

As bad as the economy is right now due to the COVID outbreak in the United States, many economists are predicting that the long-term outlook is much bleaker. Alas, Congress and the Federal Reserve’s efforts at stimulus and interest rate management have done much to keep the economy and stock market afloat. However, small businesses – the backbone of America’s employment growth – are closing every day. As consumer spending reduces further, the impact will likely affect Wall Street. Consequently, share prices may soon begin correcting to reflect the future more so than the present.

It should come as no surprise, then, that 88 percent of respondents admit they are worried about their finances, according to a recent survey conducted by the National Endowment for Financial Education.

This economic decline has presented an interesting mix of demographics who have or will be affected the most over the long term. For instance, many low-income workers have remained employed throughout the pandemic because their jobs are considered “essential services.” This includes check-out clerks at grocery stores; laborers who work outdoor jobs; nurses, orderlies, and nursing home attendants.

By contrast, many white-collar business owners – such as physicians and dentists– closed shop for a few months and/or have reduced the number of patients they see. Alas, 79 percent of those surveyed with a household income of more than $100,000 a year said they were at least somewhat concerned about their financial situation.

Millennials are the generation most likely to change the way they manage their finances in the future. Although many have remained employed in white-collar jobs – primarily due to their technology-enhanced skills and knowledge – they have reason to be concerned. After all, this generation has already lived through the market downturn following 9/11, the Great Recession, and now a historic economic decline caused by the coronavirus. In fact, once they finally got a foothold in their careers, this recent downturn obliterated the last five years’ worth of economic growth. Going forward, finance experts predict that these young adults will be more focused on stock-piling savings, buying modest homes when the real estate market corrects, and generally working on a long-term plan for financial stability.

While those strategies are mostly good, it’s a shame this generation had to learn the hard way – all while encumbered with historically unprecedented student loan debt. However, as these lessons are passed down through generations – much the way the Great Depression had a lasting impact on the Silent Generation – U.S. populations may see higher savings rates at the expense of lower GDP growth.

For households recovering from financial stress or looking to create a plan for stronger financial resiliency no matter what the future holds, consider the following strategies.

  • First priority: Save from three to six months’ worth of liquid, emergency funds should you encounter a large expense, such as an auto repair or a temporary loss of income.
  • Learn how to budget effectively, which includes examining if you overpay for basic household needs or do not know how much of your income is spent superfluously every month.
  • Take stock of the full scope of your financial resources, including:
    • Savings accounts
    • Investment accounts
    • Retirement accounts
    • Health savings accounts
    • College savings accounts
    • Whole life insurance
    • Real property
    • Structured settlements
    • Vehicles (auto, boat, motorcycle, recreational)
    • Art, jewelry, wine, or other high-value collectibles
    • Expensive furnishings and household items
  • Develop a Plan B to help supplement any income loss right now; a Plan C to help bolster your savings rate once you’re back to full income; and a Plan D strategy for income replacement in case you’re ever in a situation like this again.

Financial setbacks will come and go; it’s the lessons we learn from them that should have the most staying power.