July 2023

Long-term care payroll tax may be on its way to California. Realizing the burden arisen from the aging population and the rising medical expenses, some states are proposing payroll tax to cover the long-term care expenses when needed. Washington state has started the tax on July 1st this year. California may follow suit. The proposed tax rate is from 0.4% to 0.6%. If you have your own individual policy, you will be exempted from the tax. At Vibrance Wealth Management, we are proponents of an individual long-term care policy so that your assets are protected and you will not feel you are a burden to your family when you need help. It is recommended that you explore your options for a long-term care policy that fits your needs before the tax hits.

Full story: The New York Times

Many parents take their children for summer vacations. Travel expenses can be expensive especially with the current inflation rates. Children may not know what it takes to have a fun family vacation which may make them feel entitled to nice things in life. This is a good opportunity to start financial conversations with your children such as how to budget for a family trip.

At Vibrance Wealth Management, we encourage parents to start conversations about finance with their children early. This helps children gradually prepare and learn responsibility for their own financial decisions. Since personal finance classes are not taught in most schools, home education is crucial. Parents are thus responsible for educating their children and inspiring them to be financially and investment savvy. For example, if children want to spend their savings to get the latest iPhone model, encourage them to invest in the Apple stock instead. Some parents wish their parents had taught them personal finance early on so they could build their wealth early. Now is your chance to start teaching your children about personal finance so that your children can stay ahead of the game.

Full story: Investopedia

Trustees and Investment Advisors of 401(k) plans are obligated to diversify investment choices for participants to choose from. When it comes to a capital preservation strategy, oftentimes either a stable value fund or a money market fund will be pre-selected in the plans. If you find a stable value fund, you may want to understand how it works and know the pros and cons before you invest. A stable value fund invests in investment contracts such as guaranteed investment contracts that are designed to provide principal preservation and pay a certain interest rate. The contracts are backed by the issuers such as insurance companies. It may come with high fees so check the fees compared with the interest rate to determine if it is worth it or not. And depending on the contracts and how long the contracts in the plan, the fund may be subject to some restrictions when transferring to other investments or canceling the plan. In general, if you have a longer horizon say more than 10 years with some risk appetite, investing in traditional bond mutual funds may generate a higher return. However, if you are retiring in a few years and cannot risk the principal, then the stable value fund may be a good fit for you.

Read more: Stable Value Investment Association

The ultimate goal for most home owners is to pay off the mortgage. Should you pay off your mortgage before retirement? Assuming you have cash to pay it off, you may still want to hold off on the idea of paying off the mortgage. There are fewer and fewer tax deduction vehicles. Mortgage interest is one of a few available. If you are still in a high tax bracket after you retire and are able to generate investment returns higher than the interest rate after deductions, then keeping the mortgage will be beneficial. Cash flow and liquidity are instrumental for retirees. If you are in a “house rich and cash poor” situation, paying off the mortgage will create liquidity stress for you. And if you need to take cash out from the house later on by doing a reverse mortgage, the interest rate will be higher than normal mortgage interest rates. Therefore, you should not pay off your mortgage just because you retire. Consult your financial and tax advisor for your personal situation.

Full story: Forbes