Fact: When you pass, you will leave behind an estate, and somebody will need to settle it. Your estate may be worth a little or a lot, but there’s no escaping death and taxes.

So why do so many families put off their essential estate planning until push comes to shove?

Estate Planning Is an Act of Love

Since 2015, Caring.com has been conducting a periodic survey of Americans’ estate planning habits. Its most recent results suggest the pandemic has spurred an uptick in estate planning, especially among younger adults. That’s good news. But still, an enormous divide remains:

Some 60% of those surveyed agreed it’s important to have a will.
But, as of December 2020, only about a third of them actually had one.

Among those without a will, the top reason cited across multiple years remained the same:

“I haven’t gotten around to it.”

This isn’t surprising, given the logistical and emotional stumbling blocks involved. Plus, most families are plenty busy with interests that seem more immediate … right up until they’re not.

The Upsides of Estate Planning

In short, if you’ve been procrastinating on your estate planning, you’re not alone. But regardless of your age or net worth, let’s correct that oversight today, because …

By reducing their stress load during an already stressful time,

a well-structured estate plan is the greatest gift you can bequeath to your loved ones.

According to a 2018 EstateExec survey, it typically takes just under 700 hours to settle an estate valued between $1–$5 million. Every painful task and each extra hour you can take care of in advance will be one more way you can give back to the loved ones you leave behind, granting them the space they’ll need to grieve and process the emotional toll of their loss.

Estate planning also brings important practical advantages to nearly every family:

Clarity: Your actual wishes are far more likely to be realized if you’ve written them down and made them legally binding.

Speed: Your estate is likely to settle far more quickly, with less red tape and fewer frustrating delays before your beneficiaries receive their inheritance as hoped for.

Cost Savings: Faster settlements usually translate to fewer costs. 

Tax Benefits: Estate planning can include basic and advanced strategies for facilitating a more tax-efficient wealth transfer.

Protection: By addressing potential problems in advance, distributions are less likely to end up in the wrong hands, such as estranged family members or debt collectors.

Step-by-Step Planning

So, what’s stopping you from getting a grip on your estate planning? In our next post, we’ll take you through the three common hurdles that stand between you and your effective estate planning. These include: (1) deciding who gets what, (2) making it legal, and (3) getting (and remaining) organized.

For self-employed business owners, you’re responsible for saving for your own retirement.   It’s likely that you got a late start at saving and maybe even had to leverage yourself to get your business up and running. 

SEP IRA? SIMPLE? 401k? Solo 401k…I get it, you are busy running your business and the last thing you want to think about is  choosing how to  save for retirement.   

Let’s discuss the advantages of a Solo 401k and why it might be exactly what you need!

1. High Contribution Limits: With a Solo 401k the contribution limit for 2021 is $58,000 ($64,500 for owners over age 50).  This includes an employee contribution of $19,500 ($26,000 for those over 50), plus the ability to make a profit sharing contribution up to the limits described above (the profit sharing piece is limited to 20-25% of your business income). 

So why a Solo 401k over a SEP? Check out the example below to see the advantage. 

John, who is 56 years old, runs a consulting business and earns $100,000/year. He would like to defer as much income as possible for retirement. So let’s see how a SEP and Solo 401k line up: 

2. Low Cost to Start: Opening a Solo 401k is easy and can be done at all the major custodians. Feel free to do it yourself or contact a local Fee-only advisor to help you get started. 

The nice part about this type of retirement plan is that you get to pick how it’s invested. Once you choose the right mix of low cost ETF’s or index funds to meet your needs, you can leave it alone and get back to running your business. 

3. Pre-Tax or Roth: Unlike with the SEP IRA, you have the option to choose to invest your employee contribution ($19,500 or $26,000 if over 50) after-tax (Roth). This is a great option for individuals whose income is too high for contributions to a regular Roth IRA or just want’s to save in a vehicle where distributions will be tax free in retirement! 

If a Solo 401k is something you are interested in and have more questions, reach out to a Rockbridge advisor to discuss in more detail. 

Year to date returns for Value stocks have exceeded that from Growth stocks across all market caps, both domestically and abroad.

There are several reasons for this. US Vaccination rates have been greater than expected, which has helped traditional companies (value) at the expense of technology companies (growth). Company specific earnings have likely made a difference, especially in financials which tend to be “value stocks”. However, the largest cause for the difference has probably been the rise in inflation expectations and interest rates.

At the start of the year, the U.S. 30-year Treasury Bond was yielding 1.65% and the market-implied 30-year inflation number was 2.02%. As of April 23rd, the 30-year Treasury Bond is yielding 2.25% and the market implied inflation is 2.25%. Rising inflation and interest rates help value stocks because the profit from value stocks comes sooner whereas growth stocks are more profitable further into the future. As inflation picks up, profits in the future are discounted more making them worth relatively less today.

In an effort to put numbers on it, let’s discount future profits of Large-Cap U.S. Stocks. The following is based off current forward p/e ratios, a 2% long-term earnings growth rate, and a discount rate of 7.3%.

Assuming the discount rate has risen with the 30-year bond, the following table shows the present value with a 7.9% discount rate.

Here, the rise in rates has decreased the price of value stocks by 8%.

The following table shows the same exercise applied to growth stocks. Again, we use a 7.3% and 7.9% discount rate and an implied earnings growth rate of 5.2%. Notice the higher growth rate as these are growth stocks and a higher rate is needed to justify the current price/earnings ratio.

If we do the same exercise with growth stocks, we see a price decrease of 10.8%. This 2.8% difference explains more than half of the Value stock outperformance in 2021.

With small cap stocks it’s even more pronounced as the implied earnings growth rate of small-cap growth stocks is even higher. Right now, small-cap growth stocks are trading with a forward p/e ratio of 84.7. In order to justify this price, there have to be substantial profits in the distant future which is more susceptible to the increase in interest rates. When we did the same exercise with small-cap stocks, value had a 6.6% relative outperformance.

Again, stocks are up on the year, but not because of interest rates. Rather the increase in interest rates has been more than offset by better-than-expected earnings and higher perceived certainty of future earnings.

Our Lockheed Martin clients in the Syracuse and Owego plants often ask for our recommendation on how to elect their pension payment.  

Take the hypothetical example: John works at Lockheed Martin in Syracuse and his life only pension benefit is $5,000/month, or $60,000/year.  At the other extreme, his 100% survivorship benefit is $4,000/month, or $48,000/year; a $12,000/year difference between the benefits.  

When trying to determine the most appropriate pension benefit, keep in mind that they all yield a similar end result because they are based on actuarial tables for life expectancy.  We have explained the pros and cons of a few options below:

Option 1: Take Life Only Benefit

This is a relatively risky option as it leaves John’s spouse vulnerable to John passing away early on in retirement.  This option is typically not recommended unless clients have significant assets and/or other sources of retirement income.

Option 2: Take 100% Survivorship Benefit

This option is more common than life-only as it provides protection for John’s spouse in the event he predeceases her, especially early in retirement.  However, this option has little value if John and his spouse pass away around the same time or John’s spouse predeceases him (assuming no pop-up provision).  

Option 3: “Pension Maximization” Strategy

A less common, but interesting strategy, is using life insurance coupled with the life only benefit to provide protection for John’s spouse.  Here’s some background to set the stage followed by an explanation of the strategy:

We like to think of the 100% survivorship option as an insurance policy.  If John elects the 100% survivorship option, he is essentially purchasing a $12,000/year  insurance policy (difference between life only and 100% survivorship option) with an unknown, declining death benefit for his spouse. 

For example, the 100% survivorship option would provide a large death benefit if John were to pass away early (say, 5 years into retirement) and his spouse lived a long life.  He would have “paid” $60,000 of insurance premiums ($12,000/year x 5 years) and his spouse would receive $960,000 of pension payments if she lived for 20 years after John’s early death.  Not a bad return on investment!

Alternatively, if John elects the 100% survivorship option there are two scenarios to be aware of.  First, if John’s spouse predeceases him early in retirement, the $12,000/year “premium” is lost entirely for the remainder of his life.  Second, let’s assume they both live long lives and die together at age 90; John would have paid 30-years of survivorship “premiums” ($360,000) in “premiums” and received no death benefit for those payments.   In both scenarios John would have been much better off if he elected the life only option.

The obvious problem is that death ages are unknown and benefit elections can only be made once.  The best we can do is develop a strategy to protect the surviving spouse in the event of an untimely death.  This would favor electing some sort of survivorship option; acknowledging the “worst-case” scenario of John predeceasing his spouse early in retirement is possible, although unlikely.

The “Pension Maximization” strategy using life insurance works as follows:

Instead of choosing a survivorship option, John elects the “life only” option and purchases life insurance to protect his spouse if he were to predecease her.  Example:  As previously stated, the difference between life-only and 100% survivorship option is $12,000/year.  John would choose the “life only” option and then purchase a life insurance policy with the $12,000/year difference between the benefits.  This provides the same pension payment as the 100% survivorship option after the insurance premiums are paid.  This strategy has a few advantages:

  1. Flexibility – If John predeceases his spouse at any time in retirement, he can simply cancel the insurance policy and his realized benefit will “pop-up” to the full life only amount.  Additionally, if his spouse predeceases him late in retirement, he might choose to keep the policy and leave the death benefit to his heirs.  These options are not available with the traditional 100% survivorship election.
  1. Statistical significance – There is a higher probability that John and his spouse will pass away within ~5 years of each other.  Recognizing this probability, the life insurance strategy would be ideal.  If John were to pass away at age 90 and his spouse at age 91, she would receive the entire insurance policy death benefit (say $1,000,000) and could live on the funds for 1 year, then leave the remainder to heirs.  Alternatively, if John had chosen the 100% survivorship option, his spouse would only receive one year of survivor pension payments and would have nothing to leave to their heirs after all the years of “paying” survivorship premiums.  

As financial planning nerds, we enjoy exploring all these unique strategies to determine what’s best for each client.  As a fee-only advisor, we don’t sell insurance (or anything for that matter), but we can help clients price insurance policies and help them make the best decision for their personal situation.  Feel free to reach out if you have questions about your pension from Lockheed Martin or any other employer!

Stock Markets

Stocks continued to climb in the first quarter and these results are signaling a robust economy ahead.  Markets have made a dramatic rebound since the sharp fall in the first quarter last year.  Look at the returns over the past twelve months in the chart to the right.  Also note that stocks traded in domestic markets have outperformed in all periods.  However, avoid extrapolating past results over long periods into the future.

Recent periods demonstrate the importance of diversification, which is the only “free lunch” in investing; it can increase expected returns without increased risk.  To realize these benefits it is necessary to buy low and sell high; and while this sounds easy, it is not.

Monitoring a diversified portfolio must also be done with care. The usual process is to compare results against popular indices.  Yet, a diversified portfolio will always behave differently from these benchmarks.  Making good long-term decisions means understanding variances, not just measuring them. The slight variations among the portfolio’s allocations versus that of a benchmark is apt to have a profound impact – comparisons must be done with care.

Bond yields at the longer end were up in the first quarter – the bellwether 10-year Treasury yield was up 0.8% this period.  Short-term yields stayed at zero reflecting the Fed commitment to keep interest rates low.  Bond returns are inversely related to changes in yield, which meant returns of about zero on short-term bonds – an index of long-term Treasury bonds was down almost 6% this quarter.

Bond Markets

The Yield Curve shows the pattern of yields to maturity of U.S. Treasury securities over several maturities can be thought of as a series of expected future short-term interest rates through time.  The difference between the one-year yield and 10-year yield on Treasury securities is about 1.75% today.  While the absolute levels of bond yields are low, this difference is large by historical standards and may be signaling higher rates ahead.

The Fed has been fighting the pandemic-induced recession by doing the best it can to keep interest rates low.  Even though the Fed has announced it will maintain this strategy over the next few years, a more robust economy will provide cover for a rise in interest rates.

Based on the steepness of today’s Yield Curve, a robust recovery and extraordinary government spending, “up” is the most likely answer to the question:  Where are interest rates going?  We will see.


Inflation is beginning to be a concern. The $1.9 Trillion stimulus package plus talk of a $2 Trillion Infrastructure package all on top of a $3.1 Trillion deficit is unprecedented and brings uncertainty.  The inflationary impact of spending to lessen the pain of a 100-year pandemic if managed well can be temporary.  However, stimulus spending in a sharply growing economy, which many expect, can produce a sustained upward pressure on prices.  Although there is no sign of anything that looks like inflation yet, from a historical perspective the ingredients are there.

The American Rescue Plan Act of 2021 is now a done deal. Among the items of greatest interest to most Americans is a third round of stimulus checks – or IRS “recovery rebates” – of up to $1,400 for every “eligible individual.”  That’s the quick take. But what’s the fine print?

How Much Will You Receive?

Each eligible individual in your household should receive $1,400. Eligible individuals include:

  1. You, as an individual taxpayer
  2. Your spouse (if you are filing a joint tax return)
  3. Any dependents you are claiming on your tax return, regardless of their age

For example:  A married couple filing jointly and claiming three dependents on their tax return would be eligible for $1,400 x 5 = $7,000. This is the case even if the dependent is, say, an adult child in college, or a parent in assisted living.

The catch? Whether you receive a full, a partial, or no rebate depends on your Adjusted Gross Income (AGI) on your tax return:

All this begs the question:  Which AGI are we talking about? Technically, the stimulus payment is a 2021 Recovery Rebate. But like our Great American Pastime (baseball), you actually get up to three “at bats,” or years in which to qualify for a full or partial rebate.

Pitch #1:  Your 2019 or 2020 Tax Return, Already Filed

Initially, the IRS will look at the AGI reported on the most recent tax return you’ve already filed, whether that’s your 2019 or 2020 return. If your AGI falls within the “full rebate” parameters above, you can expect to receive your full 2021 Recovery Rebate. Where will the money go? If the IRS has a checking account on file for you, they should be able to issue a direct deposit into that account. Otherwise, they should mail you a check or debit card to your address on file.

Note:  Even if you end up reporting higher income in subsequent years, you will get to keep the full amount of any payment you receive from Pitch #1. The IRS will not come after you, asking for you to pay it back.

Pitch #2:  Your 2020 Tax Return, To Be Filed

What if you’ve not yet filed your 2020 tax return, but your 2019 income was too high to qualify you for a full rebate? Good news:  You get another chance once you file your 2020 return. At that time, the IRS will perform an “additional payment determination.” If your 2020 return qualifies you for a higher rebate than your 2019 return did, the IRS will essentially send you the difference, again via direct deposit or mail. You could receive:

  • A full or partial payment:  If you received nothing based on your 2019 return, but you now qualify for one or the other based on your 2020 income.
  • A second partial payment: If you already received a partial payment, but you now qualify for more based on your 2020 income.
  • Nothing: If your AGI is still too high to qualify.

Note:  To qualify for an additional payment determination, be sure to file your 2020 tax return on a timely basis, extended to May 17,2021.

Pitch #3:  Your 2021 Tax Return

What if neither your 2019 tax return nor your 2020 return qualify you for a full rebate? You still have one more chance. If your 2021 income is low enough to qualify, you will be able to file for a credit on your 2021 tax return for any amounts not already received.

Additional Ideas:  What’s a Taxpayer To Do?

You may have noticed, the range for receiving a partial payment is very narrow, which means fewer taxpayers will fall into it. Most of us will either qualify for a full rebate … or none at all.

If you do fall into the partial-rebate range, the amount you’ll receive will be calculated based on a straight percentage.

For example:  A couple filing jointly with no dependents reports an AGI of $155,000, smack in the middle of the $150,000-$160,000 range. This means half of their rebate will be phased out. Instead of receiving $1,400 x 2 = $2,800, they’ll receive half of that, or $1,400.

Also, the squeaky-tight gap between receiving a full payment versus nothing at all means a little tax planning could go a long way between now and year-end. Especially if your annual income is close to qualifying you for a recovery rebate, we should touch base soon to explore any 2020 or 2021 tax-planning opportunities that may help. Even if your income falls well within the “yes” or “no” recovery rebate ranges, please let us know if we can address any additional questions or comments. It’s what we’re here for!

Lockheed Martin announced a change to their current 401(k) plan lineup.  Aside from some funds being renamed, the major changes are:

  • Retiring the Global Real Estate Fund. This eliminates exposure to REIT’s in the plan unless you invest in a Target Date Fund
  • Retiring the Emerging Markets Indexed Equity Fun. This change eliminates exposure to Emerging Markets as a separate asset class, and they will be combining International Developed and Emerging Markets exposure in one fund, to be titled “Global Ex-US Equity Index Fund”

We view this change as favorable to the younger, less sophisticated investor as the options are simplified and streamlined.  However, there are less options available for the clients we build custom 401(k) portfolios for.

A good portion of our clients are employees of Lockheed Martin’s plant in Syracuse.  As a result, we receive a lot of questions about Lockheed’s Martin benefit program, 401(k) allocation, etc.  We took some time and did a deep dive into their benefits package and highlighted some areas you don’t want to overlook if you work at Lockheed Martin:

Wellness Incentives in HSA/HRA

Lockheed Martin offers you and your spouse can earn wellness incentives that are contributed in your HSA account (free money).  Once the account reaches $1,000 you are able to invest the funds in the market, just like your 401(k).  The incentive amounts change every year so it’s best to check the benefits guide for information on how to qualify and the dollar amounts.  You can only enroll in this HSA account if you are covered under one of Lockheed Martin’s high deductible health insurance plans, however, if you have coverage through your spouse you can still enroll in Lockheed’s HRA account and the wellness incentives will be deposited there.

Dependent Care Savings Account

Lockheed Martin offers employees the ability to save in an Dependent Care Savings Account (DCSA).  This account allows for up to $5,000/year of tax deductible contributions that can be used for dependent care-related expenses (child care, etc).  This account is a great way to make some of your child care expenses tax deductible!  You can enroll in a DCSA account during annual enrollment or a Qualifying Life Event (QLE).  This account does not come with a debit card so you will need to save receipts and submit them to BenefitWallet.

“Broad” vs “Premier” Health Insurance Plans

Lockheed offers two types of high deductible plans for employees- Broad and Premier.  The premier network has fewer in network providers (thus a slightly lower premium) than the broad network, so It’s important you make sure your providers are in the premier network if you choose that option.

Rally Coins

Lockheed Martin offers a neat and fun way to earn discounts on popular exercise gear like FitBits, yoga mats, etc.  You earn these Rally Coins by signing up for “Rally” and completing the challenges and missions.  You can sync your Apple Watch, FitBit, etc. so your progress is tracked in real-time