dsmWealth: December 7, 2023

For the holidays, sometimes bling is the thing
BY STEVE DINNEN

My plan for today was to write something about watches you might buy as a gift this Christmas time. But on the way to the watch counters at Josephs Jewelers in West Des Moines, I got sidetracked by all the sparkle coming off the jewelry cases. So this year, dsmWealth’s holiday gift ideas are all about gold, silver and diamonds.

“Diamonds are always a good thing,” Trisha Joseph, the company’s vice president, said as she offered up a tray of diamond bracelets. I liked a simple little 14-karat white gold diamond station bangle bracelet. A yellow gold version worked well, too. But then my eye wandered to another bracelet with diamonds and a pastel blue sapphire. More bling, to be sure.

In general, Joseph noted, anything with an animal will work. “Bees always will do,” she said, showing off a pendant fashioned by Simon G. that looks like a bejeweled bumble bee (or honeybee; I can’t tell the difference). There are two versions; the larger with emerald eyes and the smaller with ruby eyes.

Moving toward the seven seas, Joseph herself was wearing a silver pendant shaped like an octopus, designed by Monica Rich Kosann, that happened to match the octopus on her sweater. Just as there are designer watches and clothes, there is designer jewelry, too. Designs by Monica Rich Kosann and Simon G. are popular, and Roberto Coin “has a very big line,” Joseph said. These lines run the gamut — pendants, brooches, rings, necklaces and earrings.

Speaking of earrings, Mr. Coin (yes, he’s a real person, the head of an Italian jewelry design house) currently offers some trendy “huggie” earrings. They’re smaller versions of hoop earrings, but they stay closer to and “hug” the ear.

So maybe this is useful advice, especially if you don't buy jewelry very often. Consumer research from GWI indicates that married women between the ages of 25 and 34 buy the most jewelry — for themselves, friends, spouses or other relatives. But Joseph said that when the holidays approach, most of the buyers she sees tend to be men over 50. Year after year, jewelry routinely ranks among the list of gifts women most want to receive during the holidays, and earrings seem to be the favorite option.

As we wrapped things up, I did manage to peek at the watches and saw some beauties from Baume and Mercier, Tag Heuer, Omega, Rolex … Hmm, maybe next year.

How do you support so many worthy causes?
BY STEVE DINNEN

I just got my first Christmas card. And at least my 51st Christmas-tide letter from a charitable organization asking for financial support.

Over the past few weeks, the mail carrier has delivered appeals from: the ACLU, American Indian College Fund, Amnesty International, Audubon Society, the Carter Center, Catholic Extension, Catholic Relief Services, Des Moines Catholic Worker, Disabled American Veterans, Doctors Without Borders, Ducks Unlimited, Environmental Defense Fund, FINCA, Food Bank of Iowa, Heifer International, Lyric Opera of Kansas City, Obama Foundation, Oxfam, Salvation Army, Self Help International, Sisters of St. Benedict, UNICEF and Willa Cather Center.

I could go on, but you get the idea: Everybody wants a piece of my checkbook. Yours, too, most likely.

So what are we to do? All of this correspondence comes from good people doing good deeds. I’ve supported most of them in the past. But sending off a check to absolutely everyone will deplete my treasury more than I can afford. So now comes the juggling act of figuring out who gets what. Locals first, like the Food Bank? Religious organizations? (The Catholics seem to have me dialed in.)

I struggle with this every year, even now that donations for tax write-offs are largely a thing of the past. I have no great solutions or strategies. If you do, let me know. Send a note to editors@bpcdm.com.

How to cushion your business bank account
in an uncertain economy
BY CLAY BETHUNE FOR KIPLINGER

Looking forward to 2024, an uncertain economy has made many business leaders nervous. In the event of a recession, having cash reserves available and clamping down on expenses become top of mind.

Rather than cutting expenses willy-nilly or avoiding all risk, there are basic practices you can put in place now. Doing so can put your business in a good place to weather the storm on the off chance that economic disaster strikes.

1. Look for outsourcing opportunities

The choice of whether to outsource certain business functions is a balancing act. Both outsourcing work and keeping it in-house have pros and cons in terms of cost, control and compliance, depending on the function in question. If you have a default policy in either direction, you run the risk of leaving money on the table. For each vital business function, you should analyze whether outsourcing makes sense on a regular basis.

Even if it’s financially advantageous to keep functions in-house now, that might not always be the case. To pivot quickly in the event of an economic downturn, it’s good to identify options for outsourcing ahead of time. That way, if you have to let employees go or experience a drastic drop in revenue, you’re not frantically hunting for contractors. Also, having conducted the preliminary legwork, you will already have a basic idea of the cost range you might be in for.

2. Maintain an emergency fund

There is always the possibility that your business will go through a slump. Maybe a significant portion of your revenue comes from a single client. If you were to lose that client, it would likely take some time to rebuild your monthly income. Without an adequate emergency fund, you could find yourself having to make some hard choices. That might involve laying off high-quality employees who will be hard to replace when business picks up again.

Now, there are some business owners who are reluctant to maintain large cash reserves. The biggest argument against cash reserves is the idea that money sitting in the bank isn’t forwarding the business. Luckily, cash in your bank account won’t just be doing nothing, thanks mainly to current interest rates. You can find money market accounts with interest rates at 5% or even higher. So even if there are more interesting things you’d like to do with your cash reserve, keeping that responsible sum in the bank can still generate something.

So how much should you have in your emergency fund? That will vary greatly from business to business, but there are some starting points to work with. It’s typically recommended to maintain enough of a cash reserve to pay essential expenses and employee salaries for nine to 12 months. This calculation assumes your monthly revenue goes down to zero. While that scenario seems unlikely, the COVID-19 pandemic proved that it’s not impossible.

3. Regularly check recurring transactions

Sometimes the things that eat into your bank account the most aren’t large purchases. Sure, those are the most dramatic to see come through on the daily transaction reports. However, small amounts that fly under the radar can add up in a big way over time.

While keeping an eye on little transactions can keep expenses low, it’s important to do so before you get into financial trouble. A great way to do that is to have a quarterly or semiannual recurring transaction review.

Recurring payments often come through every month without someone matching the amount to an invoice and manually initiating a payment. Subscription fees are especially important to review. I don’t know how many times I’ve seen companies spend hundreds of dollars each month on subscriptions that aren’t being used. If you have 10 employees but 18 subscriptions to the same SaaS tool coming through every month, something is wrong. What is likely happening is that employees are leaving, but nobody is canceling their subscriptions.

What you do now can save you later

Whether you’re currently seeing a dip in revenue or are fearful of one in the future, a well-cushioned bank account is vital. Without it, you might find it’s too late to make impactful changes if your industry goes sour. So be mindful of cost-effective practices and set yourself up to quickly pivot to cost-saving measures if need be.

Three reasons to take Social Security early
BY DEBBIE CARLSON FOR THE WALL STREET JOURNAL

Conventional wisdom holds that retirees are financially better off delaying their Social Security benefits to get a fatter payout. But for some people, not delaying — or even claiming before full retirement age — makes sense.

You can receive your full benefit once you reach full retirement age—around 66 or 67, depending on what year you were born. People who wait until 70 get an additional 8% annually, says Tim Steffen, director of advanced planning at Baird, a private wealth manager based in Milwaukee. You can also start as early as 62, but that means a much smaller payout. The math is complex on how big the haircut is, but it can be roughly 30% annually for people who start at 62, versus waiting for full retirement age to receive full benefits.

But that math doesn’t tell the whole story.

“One of the things I hate, and I mean, I really hate it, is people having overwhelming guilt from taking it early ... because they feel like they’re not being good with their resources,” says Nicholas Yeomans, a certified financial planner based in Marietta, Georgia. “It’s a guilty feeling that a lot of people wrestle with.”

It is a nuanced decision that should be based on several variables, financial experts say. Here are three of those variables:

1. To pay bills in cases of declining health

Many people who plan to work until full retirement age fail to reach that goal. A 2023 study by the Employee Benefit Research Institute shows 35% of people surveyed said they retired earlier because of a health problem or disability, while 38% said it was to care for a spouse or family member.

Yeomans says he worked with one such couple. The husband had to stop working when he had a stroke at age 62, and his 59-year-old wife quit her job to care for him. After various moves to save money, they took the husband’s Social Security benefit early. “It really was a lifesaver for them,” Yeomans says.

Taking Social Security early can be an option for individuals who have health problems but aren’t sick enough to receive Social Security Disability Insurance, says Nicole Birkett-Brunkhorst, senior wealth planner and registered Social Security analyst at U.S. Bank Private Wealth Management in St. Louis. There can be tax implications if the individual continues to work, and the benefit amount can be reduced, depending on one’s salary. (More on that shortly.)

In addition, if individuals with health problems have employer-sponsored health care and quit working, they will need to find alternative health insurance, Birkett-Brunkhorst says, since Medicare doesn’t kick in until age 65. Options include going on a spouse’s plan, or shopping for coverage on the health care exchanges.

Couples need to look at the whole picture, Birkett-Brunkhorst says, and compare what they are gaining in terms of Social Security benefits with what they are potentially losing in terms of additional income or health-insurance benefits.

The decision to take Social Security early can be more complicated if the higher-earning spouse is ill. When a higher-earning spouse claims benefits early, it will permanently reduce any survivor benefits for the partner. In that case, couples can look at other claiming strategies, she says. One idea: If neither spouse has claimed and both are over 62, have the lower-earning spouse take the benefit to preserve the higher-earning spouse’s benefit.

Family health history is another factor to consider, experts say. There is little sense in delaying if — because of health or genetics — you think there is a good chance that you’ll die relatively young. There also may be little sense to wait past full retirement age if survivor benefits aren’t necessary for a spouse.

The “break-even age,” or how long a person needs to live to have made delaying Social Security payments until age 70 a better financial option than claiming early, is close to 85 for most people, says David Blanchett, managing director and head of retirement research for PGIM, based in Lexington, Kentucky.

Yeomans says he also has had clients claim Social Security early—rather than work or sell assets—to fund long-term-care insurance, while another used it to buy expensive medication that wasn’t covered by his insurance.

2. To fund a cash-flow shortfall

Early payouts can help when there are shortfalls between income and expenses.

When retirees need better cash flow but are trying to delay taking Social Security, they often end up relying heavily on their investment portfolios, says Blanchett. It can be tough to watch that balance drop, he says, when another income option is available.

Indeed, while delaying made more sense a few years ago, when near-zero interest rates meant there was less incentive to hold on to cash, the equation has changed. Now that interest rates are higher, fixed-income allocations may produce more significant returns in a portfolio. So, taking payouts now and using them to help with cash-flow shortfalls means your savings in your portfolio can stay intact, compounding and growing.

“Right now you can earn 5% on cash,” says Blanchett. “The higher the returns you expect to earn in the market or on interest rates for annuities, the more claiming early can make sense.”

3. To fund wants instead of needs

Retirees who are lucky enough to have their expenses covered by other means can take a different view toward claiming Social Security early — focusing on wants over needs.

Single retirees with no dependents, for example, can complete a straightforward analysis balancing the risk/reward of when to claim, Baird’s Steffen says. “If you’re single, it’s a matter of what are your other resources. You’re not harming anyone else by taking it early, unless there’s a chance you might remarry or something like that,” he says.

But even for married couples, claiming Social Security early can be a funding tool for lifestyle goals. Yeomans says a client couple took Social Security early for one spouse at age 62 to fund the purchase of a dream family lake home. Like many people in the upper middle class, most of their retirement savings were tied up in pretax assets such as traditional IRAs.

“We treated their Social Security as an endowment to make the payments on a mortgage to secure the home,” Yeomans says, noting the other spouse is planning to delay claiming Social Security until 70 as that spouse is still enjoying work.

There are a few caveats. Before claiming Social Security early, individuals should be confident they won’t return to full-time work. Once payments start, retirees have only one year to change their minds — and if they do, they must pay back that money. There also can be tax implications. Taking the benefits on top of a salary could push you into a higher tax bracket. If you haven’t reached full retirement age, it could also reduce your benefit, even if you only work part time.

Retirees under full retirement age who opt for part-time employment and take Social Security are subject to earnings limitations, which kick in at $21,400, Birkett-Brunkhorst says. For every $2 a person earns from W2 and self-employment wages over the limit, the Social Security benefits will be reduced by $1 until reaching full retirement age. Income from pensions, investment income or dividends aren’t subject to this limitation.