fleetwood financial solutions · 2017. 12. 4. · counsel, marketing, fundraising, strategy, and...

Fleetwood Financial SolutionsPatrick Devine, CFP®718 Trademark Pl.Houston, TX 77079Phone: 281-293-7779Fax: 832-379-0645patrick.devine@fleetwoodfs.comwww.fleetwoodfs.com

December 2017Demographic Dilemma: Is America's AgingPopulation Slowing Down the Economy?

It's Time for Baby Boomer RMDs!

I still have money left in my FSA that I have touse by December 31st. How should I spendit?

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Fleetwood Financial Solutions

Nonprofit Board Membership: A Primer

See disclaimer on final page

If you're looking forcreative ways to"give back" to yourcommunity orsociety at large,consider joining anonprofit board ofdirectors. But wheredo you begin?

Assess yourpassions

"Passion for mission" is the most importantcriterion when recruiting board members.1 Areyou an animal lover or concerned aboutchildren's health? Do you currently supportyouth athletics, art, education, music, religion,or eldercare? Would you prefer to work withorganizations whose impacts are felt on a local,regional, national, or international level?

Identify your areas of interest and geographicalscope, then investigate potential opportunities.The resources at BoardSource may help you inyour search.

Evaluate your contribution potentialBoard membership generally requirescommitments of time, effort, and money. Besure you fully understand these commitmentsand are willing to devote what's necessary tofulfill your obligations.

Time: Board members generally agree to servefor multi-year terms, usually with limitations.(The most common term structure is twoconsecutive three-year terms.2 ) Meetingstypically occur several times throughout theyear, in person and/or via conference call.In-between regular meetings, committee workcan consume additional time.

Effort: What professional skills do you bring tothe table? Nonprofits often need assistance inthe areas of financial management, legalcounsel, marketing, fundraising, strategy, andoperations, and often seek board members whocan contribute these and other specific skillsets.

Money: Board members are generallyexpected to contribute their own money and areoften asked to help solicit donations during

fundraising drives. In addition, most boardmembers are not reimbursed for expenses, soif you're required to travel, you will have tocover your own (often tax-deductible) costs.

Review your legal responsibilitiesAll board members carry some level of"fiduciary responsibility," or legal responsibilityfor financial oversight. Although you don't needto be a certified public accountant or investmentmanager (most boards have at least oneexperienced professional to advise on the mostcomplex accounting, tax, and finance issues),you need at least a fundamental ability tointerpret financial statements.

State nonprofit governance laws vary, so besure to inquire about fiduciary responsibility asit relates to your target organization(s). Youmight also ask about directors and officersinsurance, which helps protect board membersin the event of a lawsuit.

Understand the recruitment processGenerally, potential board members are invitedto join. They will typically undergo a series oftwo-way interviews with senior organizationalmanagement and other board members. Theseinterviews are the perfect opportunity not onlyto evaluate the rate of success of theorganization in pursuing its mission but also togauge the culture of the organization and itsboard; to assess the leadership abilities of theexecutive staff members, board, and committeechairs; and to carefully review the board'sby-laws, which govern the responsibilities of theboard members and the frameworks underwhich they operate and make decisions.

Test the watersMany nonprofits allow people to serve oncommittees without the multi-year commitmentof board membership. For this reason,committee work might be an ideal way to gainvaluable insight into the inner workings of anorganization and build relationships amongsenior staff and board members before makingthe commitment to join a board.1-2 Boardsource, Leading With Intent: 2017 NationalIndex of Nonprofit Board Practices

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Demographic Dilemma: Is America's Aging Population SlowingDown the Economy?It's no secret that the demographic profile of theUnited States is growing older at a rapid pace.While the U.S. population is projected to growjust 8% between 2015 and 2025, the number ofolder Americans ages 70 to 84 will skyrocket50%.1

With roughly 75 million members, babyboomers (born between 1946 and 1964) makeup the largest generation in U.S. history. As agroup, boomers have longer life expectanciesand had fewer children than previousgenerations.2

Now, after dominating the workforce for nearly40 years, boomers are retiring at a rate ofaround 1.2 million a year, about three timesmore than a decade ago.3

Though the economy has continued to improvesince the Great Recession, gross domesticproduct (GDP) growth has been weakcompared with past recoveries. A number ofeconomists believe that demographic changesmay be the primary reason.4

Spending shiftsThe lower birth rates in recent decadesgenerally mean that fewer young people arejoining the workforce, so the consumerspending that fuels economic expansion andjob creation could take a hit. When youngpeople earn enough money to strike out ontheir own, marry, and start families, it typicallyspurs additional spending — on places to live,furniture and appliances, vehicles, and otherproducts and services that are needed to set upa new household.

On the other hand, when people retire, theytypically reduce their spending and focus moreon preserving their savings. Moreover, retirees'spending habits are often different from whenthey were working. As a group, retirees tend toavoid taking on debt, have more equity built upin their homes, and may be able to downsize ormove to places with lower living costs. Morespending is devoted to covering health-carecosts as people age.

If a larger, older population is spending lessand the younger population is too small to driveup consumer spending, weaker overall demandfor products and services could restrain GDPgrowth and inflation over the long term. Lessborrowing by consumers and businesses couldalso put downward pressure on interest rates.

A new normal?The onslaught of retiring baby boomers haslong been expected to threaten the viability ofSocial Security and Medicare, mainly becauseboth are funded by payroll taxes on current

workers. But this may not be the onlychallenge.

A 2016 working paper by Federal Reserveeconomists concluded that declining fertility andlabor force participation rates, along withincreases in life expectancies, accounted for a1.25 percentage point decline in the natural rateof real interest and real GDP growth since1980. Furthermore, the same demographictrends are expected to remain a structuralimpediment to economic growth for years tocome.5

Put simply, a nation's potential GDP is aproduct of the number of workers times theproductivity (output) per worker, and the U.S.workforce is shrinking in relation to the totalpopulation.

The labor force participation rate — thepercentage of the civilian labor force age 16and older who are working or actively lookingfor work — peaked at 67.3% in early 2000, notcoincidentally the last time GDP grew by morethan 4%. The participation rate has droppedsteadily since then; in August 2017, it was62.9%. This reflects lower birth rates, increasedcollege enrollment, some men in their primeworking years dropping out of the labor force,and large numbers of retiring baby boomers.6

Many economists acknowledge that U.S.population trends are a force to be reckonedwith, but the potential impact is still up fordebate. Some argue that labor shortages coulddrive up wages and spending relatively soon,followed by higher growth, inflation, and interestrates — until automated technologies startreplacing larger numbers of costly humanworkers.7

Even if demographic forces continue to restraingrowth, it might not spell doom for workforceproductivity and the economy. Another babyboom would likely be a catalyst for consumerspending. Family-friendly policies such as paidmaternity leave and day-care assistance couldprovide incentives for women with children toremain in the workforce. It's also possible that alarger percentage of healthy older workers maydelay retirement — a trend that is alreadydeveloping — and continue to add theirexperience and expertise to the economy.8

1, 3) The Conference Board, February 24, 2017

2) The Wall Street Journal, January 16, 2017

4-5) Federal Reserve, 2016

6, 8) The Financial Times, October 25, 2016

7) U.S. Bureau of Labor Statistics, 2016-2017,Bureau of Economic Analysis 2017

Page 2 of 4, see disclaimer on final page

It's Time for Baby Boomer RMDs!In 2016, the first wave of baby boomers turned70½, and many more reach that milestone in2017 and 2018. What's so special about 70½?That's the age when you must begin takingrequired minimum distributions (RMDs) fromtax-deferred retirement accounts, includingtraditional IRAs, SIMPLE IRAs, SEP IRAs,SARSEPs, and 401(k), 403(b), and 457(b)plans. Original owners of Roth IRAs are notrequired to take RMDs.

If you're still employed (and not a 5% owner),you may be able to delay minimum distributionsfrom your current employer's plan until after youretire, but you still must take RMDs from othertax-deferred accounts (except Roth IRAs). TheRMD is the smallest amount you must withdraweach year, but you can always take more thanthe minimum amount.

Failure to take the appropriate RMD can triggera 50% penalty on the amount that should havebeen withdrawn — one of the most severepenalties in the U.S. tax code.

Distribution deadlinesEven though you must take an RMD for the taxyear in which you turn 70½, you have aone-time opportunity to wait until April 1 (notApril 15) of the following year to take your firstdistribution. For example:

• If your 70th birthday was in May 2017, youturned 70½ in November and must take anRMD for 2017 no later than April 1, 2018.

• You must take your 2018 distribution byDecember 31, 2018, your 2019 distribution byDecember 31, 2019, and so on.

IRS tablesAnnual RMDs are based on the accountbalances of all your traditional IRAs andemployer plans as of December 31 of theprevious year, your current age, and your lifeexpectancy as defined in IRS tables.

Most people use the Uniform Lifetime Table(Table III). If your spouse is more than 10 yearsyounger than you and the sole beneficiary ofyour IRA, you must use the Joint Life and LastSurvivor Expectancy Table (Table II). Table I isfor account beneficiaries, who have differentRMD requirements than original accountowners. To calculate your RMD, divide thevalue of each retirement account balance as ofDecember 31 of the previous year by thedistribution period in the IRS table.

Aggregating accountsIf you own multiple IRAs (traditional, SEP, orSIMPLE), you must calculate your RMDseparately for each IRA, but you can actuallywithdraw the required amount from any of youraccounts. For example, if you own twotraditional IRAs and the RMDs are $5,000 and$10,000, respectively, you can withdraw that$15,000 from either (or both) of your accounts.

Similar rules apply if you participate in multiple403(b) plans. You must calculate your RMDseparately for each 403(b) account, but you cantake the resulting amount (in whole or in part)from any of your 403(b) accounts. But RMDsfrom 401(k) and 457(b) accounts cannot beaggregated. They must be calculated for eachindividual plan and taken only from that plan.

Also keep in mind that RMDs for one type ofaccount can never be taken from a differenttype of account. So, for example, a 401(k)required distribution cannot be taken from anIRA. In addition, RMDs from different accountowners may never be aggregated, so onespouse's RMD cannot be taken from the otherspouse's account, even if they file a joint taxreturn. Similarly, RMDs from an inheritedretirement account may never be taken fromaccounts you personally own.

Birthday Guide: This chart providessample RMD deadlines for older babyboomers.

Month &year ofbirth

Year youturn 70½

First RMDdue

SecondRMD due

Jan. 1946to June1946

2016 April 1,2017

Dec. 31,2017

July 1946to June1947

2017 April 1,2018

Dec. 31,2018

July 1947to June1948

2018 April 1,2019

Dec. 31,2019

July 1948to June1949

2019 April 1,2020

Dec. 31,2020

July 1949to June1950

2020 April 1,2021

Dec. 31,2021

In 2016, the first wave ofbaby boomers turned 70½,and many more reach thatmilestone in 2017 and 2018.What's so special about70½? That's the age whenyou must begin takingrequired minimumdistributions (RMDs) fromtax-deferred retirementaccounts, includingtraditional IRAs, SIMPLEIRAs, SEP IRAs, SARSEPs,and 401(k), 403(b), and457(b) plans.

Page 3 of 4, see disclaimer on final page

Fleetwood FinancialSolutionsPatrick Devine, CFP®718 Trademark Pl.Houston, TX 77079Phone: 281-293-7779Fax: 832-379-0645patrick.devine@fleetwoodfs.comwww.fleetwoodfs.com

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017

Patrick Devine is a RegisteredRepresentative with and Securitiesand Advisory Services offeredthrough LPL Financial, aRegistered Investment Advisor.Member FINRA/SIPC

Cartoon: 21st Century Shopping Strategy

I still have money left in my FSA that I have to use byDecember 31st. How should I spend it?Health flexible spendingaccounts (FSAs) are a greatway for individuals to payqualified medical and dental

expenses using pre-tax dollars. While IRS rulesdo allow employers to offer either a carryover orgrace period option for money left over inflexible spending accounts, many employerFSA plans still have provisions that don't allowfor funds contributed to an FSA to carry overfrom one plan year to the next. In other words,if you don't use it, you lose it. If you find thatyou still have money left over in your FSA asthe end of the year approaches, there are anumber of ways to spend down your accountbalance.

FSA funds can be used to pay for a variety ofout-of-pocket health-care expenses, such asdeductibles and copayments. You can also useyour FSA funds to pay for uncovered dentaland vision care expenses. So now might be agood time to schedule any medical and dentalappointments that you may have been puttingoff, stock up on contact lenses, or even replacean old pair of eyeglasses.

FSA funds can also be used to pay for bothprescription drugs and many over-the-counterproducts, including:

• Athletic braces and supports• Bandages• First-aid kits• Blood-pressure monitors• Shoe insoles and inserts

Keep in mind that certain over-the-countermedicines (e.g., pain relievers and allergymedication) require a doctor's prescription inorder for you to obtain reimbursement fromyour FSA.

If you continue to participate in your employer'sFSA, remember to choose your contributionamount carefully so that you don't risk losingany contributions going forward. Many FSAplan administrators offer user-friendly websitesthat allow you to inquire about eligibleexpenses and keep track of your FSApurchases and account balances throughoutthe plan year.

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