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From Shirtsleeves to Success: Ensuring a Lasting Financial Legacy

Executive Summary: 

  • Creating a lasting financial legacy involves more than just wealth; it requires instilling values, open communication, and comprehensive planning to avoid the common “shirtsleeves to shirtsleeves in three generations” cycle.
  • Key strategies include early and frequent communication, recognizing that a legacy is more than money, establishing a robust estate plan, educating the next generation on financial literacy, and empowering rather than entitling heirs.
  • By focusing on these areas, families can ensure their wealth continues to benefit future generations while preserving the values that matter most.

After securing your own financial success, it’s natural to look to the next generation and consider the financial legacy you will leave behind.

And for most, that financial legacy is more than just money; it’s the impact they have, the opportunities they create, and the values they instill. 

But, unfortunately, while many hope their legacy and wealth will provide lasting benefits for generations to come, that’s rarely the case, writes Courtney Pullen, author of Intentional Wealth: How Families Build Legacies of Stewardship and Financial Health. Instead, Pullen writes that roughly 90% of affluent families lose their wealth by the end of the third generation—a phenomenon referred to as going from “shirtsleeves to shirtsleeves in three generations.” 

In his book, he attempts to answer the critical question: What are the other 10% doing? And more importantly, how can you apply this to your family? To that end, here are five essential strategies to prevent the shirtsleeves to shirtsleeves in three generations cycle that plagues many wealthy families.

Strategy #1: Communicate Early and Often

Communication is key, especially when it comes to your financial legacy.

Through open, honest, and clear communication, you can create an environment of understanding, clear expectations, and continuity between generations. Alternatively, without it, you can end up with confusion, unclear or unmet expectations, and worst of all, family members fighting amongst themselves over who gets what. 

But, as Pullen writes, good communication doesn’t mean you discuss everything and of course, no family is going to be perfect, but successful families practice what he calls skillful communication. That is: they talk about the issues that need to be talked about and they do so without putting each other down. 

To highlight the importance of communication, Pullen uses the example of The Mitchells, a couple in their 60s who owned a successful manufacturing business and consulted Pullen over concerns about their son. Ultimately, Pullen discovered that their son, who had started his own manufacturing business but was running it into bankruptcy, “hated the business”, but was in it because he felt it was “the only way to get his parent’s approval.” 

But, when Pullen discussed this with his parents, they replied, “We don’t care what business he’s in as long as he’s happy. In fact, we’d just as soon he tried some other field that’s less risky.” Ultimately, this knowledge led their son to sell his business, go back to school for an advanced degree in history, and pursue a rewarding career as a professor at a community college. 

Pullen goes on to explain that he’s seen many similar situations when working with wealthy families, especially when there’s a family-owned business involved, and often, he can trace the roots of these long-term challenges back to failed communication.  

To avoid this, here are some practical tips to consider:

Practical Tips:

  • Schedule Regular Family Meetings: Set up regular family meetings to discuss the family’s financial situation, goals, and plans. These meetings can be a platform for educating younger family members and addressing any concerns.
  • Encourage Questions: Foster an environment where family members feel comfortable asking questions and seeking clarity on financial matters. This builds their confidence and understanding over time.
  • Involve Multiple Generations in Planning: Include younger generations in financial discussions and legacy planning. This not only educates them about financial management but also ensures that they understand the values and intentions behind the legacy, leading to better stewardship in the future.

Strategy #2: Realize That Your Financial Legacy Is More Than Money

Next, it’s important to keep in mind that a financial legacy isn’t just about passing on money; it’s about passing on the core values and ethics that will guide how that money and opportunity are used. In other words, it’s about passing on what your family stands for.

But, before you can do that, families must first identify what they stand for.

And the beauty of this is that there is no one-size-fits-all for every family, every generation, or every individual. So, Pullen recommends that families first work to establish what is important to them and create their own family culture by defining their core values. 

Some examples of core values could include:

  • Intentionality: Making deliberate and thoughtful decisions about how wealth is managed and utilized.
  • Work Ethic: Valuing hard work and dedication as key components to sustaining and growing wealth.
  • Responsibility: Understanding the importance of stewardship and being accountable for financial decisions. 
  • Humility: Recognizing that wealth is a tool, not a measure of self-worth, and staying grounded in one’s values.
  • Philanthropy: Committing to using wealth to give back to the community and support causes that align with family values.

One of my favorite lines in Pullen’s book comes from a “second-generation owner of a flourishing family business” who said that one of their core family values is: “We don’t go around acting like rich folks.” To their family, being humble with their wealth was critical to their family identity.

Again, these are just examples, and it’s up to each family to identify the core values that are important to them to ensure they are part of their legacy. At the end of the day, the most lasting financial legacies are those that carry forward the values and beliefs that make your family unique, making sure that the money isn’t just preserved, but used in ways that matter to everyone involved.

Strategy #3: Establish a Comprehensive Estate Plan

Next, one of the most effective ways to preserve wealth across generations is with a well-structured estate plan. 

Done right, a comprehensive estate plan ensures your assets flow directly to who you want, when you want, according to your exact wishes. Alternatively, failing to create a comprehensive estate plan can lead to confusion, assets being distributed based on what the court decides, and even disagreements among family members about what your wishes may have been. 

Estate planning tools like wills, trusts, and powers of attorney are critical elements of your estate plan. These documents allow you to get very specific about who gets what, when they receive it, and any potential requirements or conditions they must meet to become eligible for an inheritance. 

Of course, the details of each plan will vary based on the specific circumstances of each family and their overall goals and desires with wealth, but the point is that these documents are the best way to ensure your wishes are carried out and avoid any confusion about how you want your wealth to be transferred to the next generation.

Practical Tips:

  • Professional Guidance: Work with a financial advisor and estate attorney to create or update your estate plan. These professionals can help you navigate the complexities of estate planning and ensure that your plan is tailored to your specific needs and goals.
  • Regular Reviews: Regularly review and adjust your estate plan as circumstances change, such as the birth of new family members, marriage or divorce, or shifts in financial goals. A good rule of thumb to consider is that if you’ve had a birthday that ends in a 5 or a 0, it’s a good time to review and potentially update your estate plan as needed. 
  • Discuss your Plan: Lastly, going back to the importance of communication – consider discussing your estate plan with the next generation. Of course, this doesn’t mean you need to share the details of who gets what or how much they get, but rather, this is an opportunity to explain why you’ve structured things the way you have, who will be in key roles, and any important decisions you’ve made. This can help avoid any confusion or conflicts down the line and ensure that your wishes are understood and respected.

By proactively establishing a comprehensive estate plan and regularly reviewing it, you can ensure your wealth is preserved and transferred according to your wishes, minimizing the risk of confusion or conflict among your heirs.

Strategy #4: Educate the Next Generation on Financial Literacy

Even with the best estate plan, generation wealth will not last if the next generation lacks the knowledge and skills to manage it effectively. That’s why financial literacy is a critical component of preserving and growing wealth across generations.

The Role of Education

Providing your heirs with a strong foundation in financial literacy equips them to make informed decisions and avoid common financial pitfalls. This education should go beyond the basics of saving and investing; it should include an understanding of the family’s financial goals, the responsibilities that come with wealth, and the tools available to manage it effectively.

For many affluent families, this expertise can be enhanced with the help of trusted financial professionals, like financial advisors, accountants, and attorneys. That said, it’s essential that each family member still have a baseline level of financial education, even if they work with trusted professionals. This ensures that they have the knowledge and skills to oversee their team of professionals and ensure their wealth is positioned to last for many generations to come. 

Practical Tips:

  • Formal Education: Consider providing formal financial education for your heirs, whether through courses, workshops, or seminars. This can help them build a solid understanding of financial concepts and strategies.
  • Practical Experience: Encourage your heirs to gain practical experience by managing smaller family funds, engaging in philanthropic activities, or overseeing specific investments. This hands-on experience can be invaluable in building their financial acumen.

By equipping the next generation with financial literacy and practical experience, you empower them to make informed decisions and maintain the family’s wealth for generations to come.

Strategy #5: Empower, Don’t Entitle

Last but not least, it’s critical to take steps to empower the next generation, not entitle them.

One of the interesting points that Pullen makes in his book is that it’s no surprise so many affluent families end up with an entitlement problem. In fact, he points out that entitlement is a pretty normal part of being human as he writes: “No matter what comforts, indulgences, or rewards we get, or whatever lifestyle we become accustomed to, it doesn’t take long for us to start assuming we’re entitled to that lifestyle and have a right to keep it.” 

The challenge is that those in affluent families typically don’t come up against many of the common financial limitations that others face as Pullen writes “money dissolves many limits.” As a result, Pullen explains that it’s common for kids in affluent families to grow up thinking things like: 

  • “I deserve it and I should have it.”
  • “I should always get everything I want.”
  • “My needs and wants should always come first.”

So how can you avoid this? Fortunately, Pullen highlights five key factors that successful families incorporate to shift from entitlement to empowerment:

  1. Be intentional: Accept the responsibility and advantages of wealth and create an intentional plan for how you will use your wealth.
  2. Focus on future generations: Educate the next generation on financial literacy. 
  3. Communicate Openly: Again, successful families talk about the issues that need to be talked about and do so without putting each other down.
  4. Create a family identity: Remember that financial legacy is more than just wealth and spend time discussing the core values that will make up your family identity. 
  5. Redefine success: Lastly, keep in mind that “success” will look different for each generation. For example, success for the first generation is often defined by the businesses they’ve built or the wealth they have created. But, for second and third generations, success could mean ensuring that the wealth is managed effectively and each member of the family is realizing their full potential. 

By focusing on intentionality, education, open communication, and a strong family identity, you can shift from entitlement to empowerment, ensuring that each generation is prepared to uphold and build upon the family legacy.

Conclusion: How to Build a Legacy That Lasts

In the end, creating a lasting financial legacy requires more than just accumulating wealth; it involves careful planning, open communication, and a commitment to instilling values and educating the next generation. By taking these steps, you can help ensure that your wealth not only endures but also continues to benefit your family for generations to come. 

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

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Third Quarter 2024 – Quarterly Letter

3rd Quarter 2024 – Quarterly Letter [PDF]Download

Introduction

As the leaves change color and fall, John Bird, our CEO, reflects on past lessons while eyeing the future. Then CIO Jason Ware notes the signs of post-pandemic normalization emerging, though challenges persist in fiscal policy and market uniformity. As investors navigate this evolving landscape, Financial Planner Anders Skagerberg describes practical measures that can safeguard financial identities. This autumn as nature changes, investors must be vigilant and adaptable in a dynamic financial ecosystem.

Beyond these informative articles, read through to the Community Update for information about our final Conference Call of the year and to meet the newest members of our growing team.

From John Bird’s Desk

When we started Albion in 1982, the era of the “Nifty Fifty” had drawn to a close and much ink was spilt describing their rise and…the several following years when they were just average. For those of you who may not have experienced it, the Nifty Fifty was a moniker for a group of large and fast-growing companies in the1960’s and into the 1970’s. Names included General Electric, IBM, Sears Roebuck, Xerox, Proctor and Gamble, and Coca-Cola. Many investors considered them one decision stocks – companies you could buy and own forever. Investors bought them by the truck load. By the end of 1972 the group as a whole had a price-earnings ratio of 43 while the S&P 500 as a whole had a ratio of 18. For those who are unfamiliar with a price-earnings ratio (PE ratio or just “PE”) it is the price you pay for a dollar of corporate earnings. A PE of 18 means you pay $18 for a dollar of corporate earnings while a PE of 43 means you pay $43 for a dollar of corporate earnings.

All things being equal we’d rather pay less for a dollar of corporate earnings. However rarely are things equal. In the five years leading up to the end of 1972 the Nifty Fifty stocks had as a group averaged 22% annual earnings growth (compared to 4% for the S&P 500) and 30% earnings growth in 1972 alone (13% for the S&P 500). Investors were willing to pay up for growth they expected to continue well into the future.

Alas parties all must eventually end. By 2001 only one Nifty Fifty company – Walmart – had continued to outperform the S&P 500. Another item of note is how the composition of the stock market has changed over time. The following graph shows market sectors from 1807 through 2017.

There are several takeaways from this including the observation that the best performing sector in the future may not yet exist. It’s also worth noting that none of the sectors wholly disappeared. In fact all sectors continued to grow. For most sectors their representation on the graph shrunk because they grew far slower than other sectors and thus represent a smaller percentage of the overall economy.

This graph shows the evolution off the 12 sectors that make up the American economy over the past 200 years. The graph illustrates the capitalization of each sector based upon stocks included in the U.S. Stocks Database.

These days we hear about the magnificent seven – seven companies that have grown far faster than the S&P 500. We note that in 2023 these magnificent seven delivered as a group 101% returns while the equal weighted S&P 500 index delivered 2.5%. Meaning the average stock in the S&P 500 returned 2.5%. There is logic to this. The hardware, software, energy and intellectual property investment required to make Artificial Intelligence and Large Language Models favors those companies with the ability to raise enormous amounts of capital and effectively put that capital to work. The magnificent seven have those resources.

Note that this concentration – where a handful of companies have an outsized influence on market index returns – has a precedent. The following graph shows the weight of the ten largest stocks in the S&P 500 – currently around 32%. While high it’s not record setting. Prior to 1973 the Nifty Fifty had more concentration in the top ten companies than we see today.

The weight of the 10 largest S&P 500 stocks is now 33.1% of the total $SPX, the highest level in almost 5 decades.

It’s weak comfort knowing concentration among a few names has been greater in the past than it is today given that following peak concentration the Nifty Fifty trailed the broader market. We are well aware of this. We are also aware of the reality that much of technology today requires vast investments to remain at the leading edge and the companies that have so far succeeded in staying out front have a significant advantage. The depth and breadth of their existing capacity and the free cash flow they generate gives them the position and the resources to reinvest and stay in the drivers seat.

We will ride our winners, trim them from time to time to avoid being over exposed, and carefully study market dynamics to increase the odds that we will have even further reduced our exposure to highfliers before they fly too close to the sun. Because there is no such thing as a one decision stock.

Economy & Markets by Jason Ware

For over three years in these pages (and elsewhere) we’ve spoke of “normalization” both economic and social. Normalization is the process of, well, getting back to normal. Across so many areas – GDP growth, consumer spending (the how and how much), supply chains, inflation, jobs, corporate earnings, oh, and the vaccines that gave us our lives back – this has happened. Now it’s interest rates. With the Fed’s -0.50% “jumbo cut” on September 18th a new easing cycle is underway. And with it, an oxymoronic feeling that perhaps somehow we’re now reaching … er … “peak normalization.” Wait, is that possible? Can that even be a thing? We’ll leave that philosophical question for another day. What seems quite clear is that there are few major chiropractic adjustments left on the post-pandemic economy. Normal is good, yet there are other areas where stuff is out of whack. The big ones being a more uniform equity market and fiscal policy. More on these in a moment. For now, let us review where things currently stand.

Our economic outlook has been uncharacteristically cautious for several quarters. A host of troubling leading indicators, Volcker-esque Fed tightening, shrinking money supply, a massive inflation surge, and downbeat consumer attitudes informed this view. Recession risks were high, have since diminished, but remain elevated. Through it all the US economy has stayed on a growth course, running a gauntlet that would make Churchill proud (“if you’re going through hell, keep going”). Total output (GDP) paced at roughly +2.25% in the first half of the year and is presently running about +3% for the third quarter. This stride may slow as we exit the year, though probably not to recessionary levels. The expansionary impact of large fiscal spending, abundant real wage growth, impressive business profits, and colossal capital formation (i.e., spending and investment) on AI has offset headwinds. As we opined in our last quarterly epistle, it’s a “growth at all costs” backdrop paired with an animal spirits redux in technology driving the business cycle. The fabled “soft landing” is possible; we all hope it occurs.


On the inflation front, an area of focus since 2022 and one where we’ve consistently offered an out of consensus sanguine view (don’t fret, it’ll sort itself out), it seems that Jerome Powell finally feels content giving the nod that it’s successfully been whipped. “WIN” buttons back into the drawer! To be fair, when assessing all manner of inflation details swirling about it is sensible to conclude that price stability has been achieved and underlying pressures have quieted. Still we reason that structural inflation falling much further is unlikely. Prior to the pandemic core inflation reliably ran at 1-2%. For many reasons, today and over the next few years it’ll probably run between 2-3%. Framed another way, from 2008-2021 the Fed’s 2% target was a ceiling; in the 2020s it will probably be a floor. This isn’t a bad thing. The economy and financial markets can do well in a 2-3% inflation regime.


Speaking of financial markets, US stocks continue apace. It’s been a fruitful year. One item that has changed since our last letter, albeit it’s early days, is the character of those returns. It’s no secret that a small group of lopsided winners account for the lion’s share of gains in this bull market. It’s been a “skinny bull” as we’ve coined it, but that might be shifting. The third quarter was the first time in the contemporary bull run where growth stocks, especially of the mega cap variety, did not lead the way. Instead, other areas like value, cyclicals, defensives, and small caps (eureka!) logged superior advances when compared to their big siblings. At last, Nvidia and AI wasn’t the only story worth discussing. On Wall Street it’s said that “trees don’t grow to the sky.” Translation: nothing lasts forever, future returns get pulled forward, analysts catch up to the story, and lofty expectations become harder to beat. The notion of a resilient economy coupled with Fed rate cuts is just what the doctor ordered for other parts of the equity market that aren’t the “Mag 7.” Finally, it’s been the “493’s” (500 S&P stocks minus 7) day in the sun as participation broadens out. This is a positive development for both your well diversified portfolio and the overall health of the bull market. To be clear, we expect good results from the mega cap stocks going forward. A more uniform market doesn’t have to mean they falter. Rather, we suppose a truly rising tide can lift more boats and the once yawning performance gap enjoyed by the few will better include the many. Stay tuned.


OK, “big fiscal” was cited as the other area that has evaded normalization’s grasp. Out of respect for our collective blood pressure we’ll skip the details. Deficits continue to run at ~6% of GDP, a high spot outside of war, crisis, or economic slump. Full employment and giant deficits are, historically speaking, strange bedfellows. What’s more, interest costs are now larger than total military spending. Just about everyone (including your humble wealth manager) agrees something must be done while simultaneously acknowledging the discouraging political realities in the Beltway. Forecasts from CBO, GAO, and professional economists alike aren’t uplifting. Sigh. But it isn’t all dire. Interest expense aside, much of the current outsized spending is flowing to productive uses, like the
first true “US industrial policy” in decades. We’re investing in our future and putting money to work on our own soil bestowing an assortment of longer run economic and national security benefits.


Bigger picture, the American system endures as the most innovative, dynamic, nimble, and resourceful economy on the planet. The finest universities, brightest minds, and most cutting-edge companies all reside here, not to mention the deepest and most efficient capital markets around. Combined, this is what Buffett calls the “American tailwind” – a force the now 94-year-old sage still believes will propel us onward in the generations to come. We concur. Although improved fiscal restraint is needed, an exercise with observable levers we can pull, forecasting any such fiscal normalization is difficult (too grand an ask for this author). Importantly, the path between here and there doesn’t have to be, and shouldn’t be, calamitous. And so our belief is that stock prices will continue to do what they’ve always done – track the general path of labor force demographics, economic growth, and business profits, all of which move up over time taking with them the enterprising long-term oriented investor.

Thanks for your continued trust in us.

Planners Corner by Anders Skagerberg

Should You Freeze Your Credit? A Simple Guide to Protecting Your Identity and Your Wealth

At a time when data breaches feel common, it’s natural to wonder if there’s anything you should do to protect your personal information and your hard-earned wealth. If you’ve ever heard about freezing your credit, you’re not alone—many people are asking whether it’s a good idea, especially with the recent data breach that may have included the personal records (names, addresses, Social Security numbers, and more) of up to 2.9 billion people.


So, if you’re wondering whether you should freeze your credit or not, read on to decide if it’s the right move for you.

But First, What Does Freezing Your Credit Mean?


Freezing your credit means putting a lock on your credit reports.

This stops identity thieves from opening new accounts in your name because creditors can’t check your credit report unless you “unfreeze” it. It’s like putting a padlock on a file—someone might try to access it, but unless they have the key, they won’t succeed.

Next, here are some of the key benefits to consider when freezing your credit:

The Upsides of Freezing Your Credit

  1. A Strong Defense Against Fraud: If your credit is frozen, thieves can’t open new credit lines, loans, or credit cards under your name.
  2. Peace of Mind: Knowing your credit is locked up can help you sleep better at night, especially if you’re already concerned about your financial security.
  3. No Harm to Your Credit Score: Freezing your credit doesn’t affect your score, so it’s a no-strings-attached way to add a layer of protection.
  4. Easy and Free: It’s free to freeze and unfreeze your credit with all three major bureaus—Equifax, Experian, and TransUnion. And doing so is relatively simple and can be done online.

While freezing your credit offers a solid defense against fraud, peace of mind without harming your score, and is both easy and free, it’s important to consider the potential downsides.

The Downsides of Freezing Your Credit

  1. A Bit of a Hassle: If you’re planning on taking out a loan, mortgage, or even a new credit card, you’ll need to lift the freeze temporarily. It’s not hard, but it is one more thing to think about.
  2. Can Slow Down Some Transactions: Some things like getting utilities set up may require a credit check, so you’ll need to remember to unfreeze your credit for those too.
  3. Not a Cure-All: A credit freeze doesn’t stop all types of identity theft. It’s great for blocking new lines of credit but won’t protect you from other issues like tax fraud or someone getting into your existing
    accounts.

So, while freezing your credit is a proactive step to protect against identity theft, it can be somewhat inconvenient, may slow down certain transactions, and does not guard against all forms of fraud.

So, Should You Freeze Your Credit?


Ultimately, whether or not you should freeze your credit depends on your financial situation, your personal risk tolerance, and whether or not you’ve been involved in a security breach. Here are some questions to consider:

Have you been involved in a security breach?


If Not: Freezing your credit may not be a top priority. That said, even if you aren’t aware of a security breach involving your personal information, that doesn’t mean it hasn’t happened.


If Yes: Freezing your credit can be a great step to help protect you from identity thieves.


Are You Applying for New Credit?


If Not: Freezing your credit might be a smart move, especially if you don’t foresee needing a new loan or credit card anytime soon.


If Yes: You’ll want to consider the hassle factor, especially if you’re in the middle of a major financial move like buying a new home.


What Other Protections Do You Have?


If you already have identity theft insurance or monitoring (or both) then freezing your credit can either be a great addition to your existing protection, or, you may decide it’s unnecessary, depending on your situation.


How Much Protection Do You Want?


Just like investing, everyone has a different comfort level with risk. That comfort level will guide your decision on whether to freeze your credit. But unlike investing, there’s really no advantage to taking extra risk by leaving your credit unlocked. Since freezing your credit is simple and comes with no downside, it’s often a smart move to just take the time and lock things down for peace of mind.


Part of a Bigger Picture


At Albion Financial Group, we believe that making smart decisions over time is key to securing your financial future. Freezing your credit can be one of those good decisions, but it should fit into a broader plan that includes monitoring your accounts, maintaining solid cybersecurity habits, and keeping tabs on your bigger financial picture, either on your own, or with the help of a trusted advisor.

Now, if you’ve decided that freezing your credit is the right choice, here’s what you need to do:

Meet the Three Major Credit Bureaus

When you decide to freeze your credit, you’ll need to do it with the three main credit bureaus:

  1. Equifax: One of the oldest and most recognized credit reporting agencies. Freezing your credit with Equifax is simple and can be done online.
  2. Experian: Known for their credit monitoring services, Experian also allows easy credit freezes. Their website walks you through the process stepby-step.
  3. TransUnion: Like the others, TransUnion’s freeze can be done quickly online.

Once you’ve got your credit freezes in place, just remember that you’ll need to unfreeze your credit when applying for any new loans, and then you can always refreeze it when you’re finished.


Important note: Freezing your credit with just one or two bureaus won’t fully protect you, as lenders can check any of the three major bureaus when reviewing credit applications. For complete protection, you should freeze your credit with all three agencies. In addition, while smaller agencies like Innovis, ChexSystems, and NCTUE may also hold some of your information, the majority of credit applications are processed through the three main bureaus, so freezing your credit with them will cover most scenarios.


Wrapping It All Up


In the end, deciding whether to freeze your credit is like deciding whether to put extra locks on your doors. It’s not necessary for everyone, but for those who want that extra peace of mind—especially with the recent data breach—it can be a wise choice.

ALBION COMMUNITY UPDATE



Conference Call: Scheduled for Tuesday, November 12th at 10 AM MT. Our expert panelists from the Advisor and Investment teams will discuss key issues and provide insights on the current economic and market landscape.


We highly value these moments to connect and share ideas with you. We encourage your participation and welcome any questions you may have—either live during the call or in advance by sending us an email. A recording
of the call will be available on our blog and YouTube channel afterwards, and a copy will be emailed to you. We hope you can join us. www.albionfinancial.com/events


New Faces

We are delighted to announce that Briana Mofhitz-Faieta and Leticia Chetty have both joined the firm as Associate Wealth Advisors. Both of them will be working closely with Liz Bernhard and Patrick Lundergan.


Briana is an alumna of the University of Oregon, while Leticia has degrees from both Brigham Young University – Hawaii and from Utah Valley University.


Also joining the Albion family, as a Financial Planner, is Heath Heavy. Heath is a graduate of Western Michigan University (Go Broncos!) and is a CFP®.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

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Transferring Wealth: The Pros and Cons of Giving While You’re Alive vs After You’re Gone

Executive Summary

  • When transferring wealth, there are pros and cons to giving while you’re alive versus after you’ve passed.
  • For starters, transferring wealth after death ensures control during your lifetime and potential tax benefits after death, but may come too late to be truly impactful for your heirs.
  • Alternatively, gifting wealth during your lifetime allows you to see the positive effects and provides immediate support for your beneficiaries but could risk your financial security and possibly create financial dependence.
  • In the end, balancing these approaches involves considering tax implications, family dynamics, and your own financial security.

When it comes to transferring wealth, the default approach for most is to pass along an inheritance after you die, or give with a “cold hand.” And this makes sense in many ways, not only because of the tax benefits involved (your heirs can receive a favorable “step-up” in cost basis for certain assets) but also because it ensures that you still have access to your wealth while you’re alive—a key concern for many as people are living longer and medical costs are rising.

However, some financial experts argue that inheritances often come too late to be truly beneficial. Bill Perkins, author of “Die with Zero,” suggests that gifting money earlier, when it’s the most needed, can be a wise decision. He believes that waiting until after death to transfer wealth means missing the opportunity to see the positive impact your gifts can have and possibly delaying support until a time when it is less meaningful. 

In his book, Bill tells the story of a woman who had recently gone through a divorce and was struggling to make ends meet as a single mom. Decades later, after her financial situation had stabilized, she inherited a significant sum from her parents. Reflecting on that experience, Bill writes that she would have much rather received even a fraction of the money decades earlier when it would have had a major impact on her ability to make ends meet at a critical time. This example highlights the importance of timing and not waiting until it is too late to make a difference.

In this article, we will explore the pros and cons of giving with a “warm hand” and a “cold hand”. By considering different factors such as tax implications, family dynamics, timing, and your own financial security, our goal is to help you make an informed decision that aligns with your unique values, goals, and personal situation.

Giving With a Cold Hand

Simply put, giving with a cold hand means waiting to transfer your wealth until after you die.

First, let’s explore some of the benefits to this approach:

Pros of Giving with a Cold Hand

Here are some of the key benefits of waiting until after death to transfer your wealth:

Tax Benefits: One of the main advantages of waiting to transfer wealth until after your death is the potential for significant tax savings. Your heirs may benefit from a “step-up” in cost basis for certain assets, which can reduce capital gains taxes if they decide to sell the inherited assets. For example, if you bought stock for $20/share but it is now worth $100/share, typically if you sold the stock you would have to pay taxes on the gain of $80. But, if your heirs inherit the stock when it’s worth $100/share, the cost basis (the amount you paid for it) then shifts from $20 to the current market value of $100/share. The result is that if your heirs sold the stock immediately when they inherited it, there would be no taxable gain. 

Control and Security: By retaining your assets during your lifetime, you maintain total control over your wealth. This can provide peace of mind, knowing you have the necessary funds for any unexpected expenses or long-term care needs.

Legacy Planning: Waiting until after death to distribute your wealth can also allow for a more structured and planned approach. This can include setting up trusts with specific instructions to ensure your wealth is used and distributed for generations to come, according to your wishes.

Ultimately, there are some key benefits to giving after death as it can provide tax benefits for your heirs, allow for more control and security during your lifetime, and enable you to create a lasting legacy. 

Cons of Giving with a Cold Hand

Alternatively, here are some of the cons of giving with a cold hand:

No Immediate Benefit: First, a major drawback to this approach is that you won’t be able to witness the positive impact your wealth can have on your heirs right now, reducing the satisfaction you can get when transferring wealth.

Potential for Higher Taxes: Also, despite the tax benefits that can come from passing on assets after death, depending on the size of your estate and the current estate tax laws, your heirs might face significant estate taxes, which could reduce the amount of wealth they ultimately receive. Currently, with the lifetime exemption amount hovering around $13.61M per person (the amount you can transfer to your heirs free of estate taxes) this is not a huge consideration for many. That said, the current amount is set to expire on December 31st, 2025, and will be reduced to $5.6M per person if Congress does not extend the current laws. This is where smart financial planning can be critical as you navigate the complexities of estate taxes.

Family Disputes: Delaying the distribution of your wealth until after your death can sometimes lead to family disputes or conflicts over the inheritance, particularly if there are disagreements about your intentions or the terms of your will. Alternatively, by making gifts while you’re alive, your heirs can rest assured that your wishes are being carried out as you intended. 

Less Impactful Timing: As Perkins highlights, inheritances often come when recipients are already financially stable. On average, people receive inheritances around the age of 50, a time when many are already financially secure. Alternatively, many could have used the funds in their 30s or 40s as they were starting families, buying homes, and often paying off student loan debt.

In summary, while giving with a cold hand allows for tax benefits, control, and security during your lifetime, it means you won’t see the positive impact on your heirs and could lead to less impactful timing of the inheritance. Next, let’s explore “giving with a warm hand,” which involves making gifts during your lifetime to ensure your wealth benefits your loved ones when they need it most.

Giving with a Warm Hand

Giving with a warm hand is the concept of transferring wealth to your heirs while you are still alive.

This approach to estate planning goes against the traditional notion of passing down assets after death and instead focuses on sharing your wealth with loved ones during your lifetime. By giving with a warm hand, you can witness the impact of your generosity and ensure that your loved ones are financially secure and supported while you are still here. In some ways, it can also allow for more control over how your wealth is distributed today and can help minimize potential conflicts among heirs. 

Ultimately, for some, giving with a warm hand can allow for a more personal and fulfilling way of passing down wealth to future generations.

Pros of Giving with a Warm Hand

Immediate Impact: By gifting your wealth during your lifetime, you can see firsthand how your generosity benefits your heirs. This can be especially rewarding if the funds are used for meaningful purposes such as education, starting a business, or buying a home.

Tax Benefits: There are also certain tax advantages to gifting during your lifetime. For example, you can take advantage of the annual gift tax exclusion ($18,000 per person per year for 2024) and potentially reduce the size of your taxable estate, which could lower total estate taxes upon your death.

Strengthened Relationships: Providing financial support while you’re alive could also strengthen family bonds and foster a sense of gratitude and responsibility among your heirs. It also allows you to offer guidance and support in managing their inheritance.

More Meaningful Timing: As mentioned, by giving to your heirs in their 30s and 40s, you may be able to give financial support when they need it most – when starting a business, buying a home, or raising a family. This can make your gift even more meaningful and impactful for both you and your heirs.

Cons of Giving with a Warm Hand

While giving with a warm hand has many benefits, there are also potential drawbacks to consider:

Reduced Financial Security: Gifting substantial amounts of wealth during your lifetime can potentially compromise your financial security, especially if unexpected expenses arise or if you live longer than anticipated. That’s why it is critical to understand how much you need to sustain yourself throughout the rest of your life, build in a very conservative and healthy buffer, and ensure that you have adequate resources to cover yourself before giving away large sums of money.

Complexity: Lifetime gifting can also add complexity to your financial plan, especially when gifting different amounts to different beneficiaries over time, which may ultimately affect how you want the remainder of your wealth transferred after you pass. 

Dependency Risks: Of course, each situation is unique, but there’s a risk that your heirs may also become overly reliant on, or have an ongoing expectation of your financial support, which could hinder their ability to manage their own finances independently. 

In the end, giving with a warm hand involves transferring wealth to your heirs while you are still alive, allowing you to witness the positive impact and provide support when it is most needed. Though it can foster stronger family bonds and offer tax benefits, it requires careful planning to avoid compromising your financial security and creating dependency among your heirs.

Deciding Which Approach is Right for You


Ultimately, understanding your family’s dynamics and financial needs is crucial when deciding how and when to transfer your wealth. Remember, personal finance is personal, and there’s no one-size-fits-all approach.

Fortunately, open communication with your heirs about your intentions and their needs can help prevent misunderstandings and conflicts. Additionally, consulting with a trusted professional is essential to navigate the complex tax landscape associated with transferring your wealth, both before and after death. They can help you understand the tax benefits and drawbacks of both lifetime gifting and bequests. 

And of course, ensuring your own financial security should be a top priority, so working with a wealth advisor to create a comprehensive plan that helps you understand how much money you need to be secure is essential. 

Finally, remember that there are benefits to both approaches, and for some, it may be best to do a little bit of both, rather than focusing exclusively on one approach or the other. As an example, this could mean making annual tax-free gifts to your heirs during your lifetime while still transferring a larger sum after you pass.

In The End

In the end, whether you choose to give with a ‘warm hand’ or a ‘cold hand,’ thoughtful planning, open communication, and professional advice are key. 

By carefully considering the pros and cons, as well as the unique needs of your family, you can create a wealth transfer strategy that provides meaningful support to your heirs while ensuring your own financial security. 

Ultimately, the best approach is the one that aligns with your values and helps you achieve your unique financial goals.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

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Understanding Employee Stock Options

Executive Summary:

  • Employee stock options allow employees to purchase company stock at a fixed price, offering potential gains if the stock price goes up.
  • There are two main types of stock options: Incentive Stock Options (ISOs) with favorable tax treatment and Non-Qualified Stock Options (NQSOs) with more flexibility but less favorable tax treatment.
  • Key considerations for managing stock options include understanding the vesting schedule, timing of exercise, tax implications, concentration risk, market conditions, and aligning with your financial goals.
  • Lastly, consulting with trusted advisors is critical to making informed decisions and maximizing the benefits of your stock options.

Employee stock options are a powerful tool used by many companies to attract, retain, and motivate employees. 

At a high level, they provide employees with the opportunity to purchase company stock at a fixed price, potentially leading to big gains if the stock price goes up. Many well-known companies, like Apple, Google, Microsoft, Amazon, and Tesla, use stock options, including both Incentive Stock Options (ISOs) and Non-Qualified Stock Options (NQSOs), to align employee interests with company performance. 

But, it’s not just large publicly traded companies that offer stock options. Many startups and small businesses use stock options as an attractive alternative to high salaries to conserve cash and reward early employees.

If you have stock options, understanding how they work and how to manage them effectively can help you make smart decisions and maximize the benefits they can provide.

First, What are Employee Stock Options?

Employee stock options are contracts that grant employees the right to buy a specific number of shares of the company’s stock at a predetermined price, known as the exercise or strike price, after a certain period known as the vesting period. These options typically have an expiration date, by which time they must be exercised or they will expire. Stock options provide employees with the potential to become shareholders in the company and benefit from its success.

Stock Option Example: 

As an example, a typical stock option might give an employee the right to purchase 1,000 shares of the company’s stock at a strike price of $50 per share. If the stock price rises above $50, the employee can exercise their options and buy 1,000 shares at that lower price, effectively making a profit. Then, employees can decide whether to hold onto the stock or sell it for a profit.

Alternatively, if the stock price drops below $50, the employee can simply choose to wait, either until the price goes up beyond the strike price, or until the options expire, avoiding any potential loss.

Two Main Types of Employee Stock Options

When it comes to stock options, there are two main types: Incentive Stock Options (ISOs) and Non-Qualified Stock Options (NQSOs).

What are Incentive Stock Options (ISOs)?

Incentive stock options are company stock options granted to employees that may provide tax benefits if certain conditions are met.

  • Tax Advantages: ISOs offer favorable tax treatment if certain conditions are met. When employees exercise ISOs, they do not have to pay regular income tax on the difference between the exercise price and the fair market value of the stock. Instead, this difference, known as the “bargain element,” is subject to Alternative Minimum Tax (AMT). Then, if the shares are held for at least one year after exercise and two years after the grant date, any gain on the sale of the shares is taxed at the more favorable long-term capital gains rate.
  • Eligibility: ISOs can only be granted to employees (not to directors, contractors, or consultants).

Ultimately, ISOs can be a valuable tool for both employers and employees. They can serve as a way to incentivize and reward top-performing employees, while also providing tax benefits for both parties. But, because there’s a layer of complexity involved in receiving favorable tax treatment, it’s essential to consult with a trusted advisor before executing your options.

What are Non-Qualified Stock Options (NQSOs)?

Non-qualified stock options are a type of employee stock option that allows employees to purchase company stock at a fixed price, with fewer restrictions and no special tax benefits compared to incentive stock options.

  • Tax Treatment: NQSOs do not qualify for special tax treatments. When employees exercise NQSOs, the difference between the exercise price and the fair market value of the stock is taxed as ordinary income at their highest marginal rate. This amount is also subject to payroll taxes. Then, any subsequent gain or loss upon selling the stock is treated as capital gain or loss.
  • Flexibility: NQSOs can be granted to employees, directors, contractors, and others, providing greater flexibility for the company.

Ultimately, NQSOs can be a valuable tool for companies looking to attract and retain top talent, even without the same tax benefits as ISOs. By offering employees the opportunity to purchase company stock at a discounted price, NQSOs can act as a powerful incentive for them to perform well and contribute to the company’s success.

Key Considerations for Managing Stock Options

When it comes to your stock options, planning is key. Here are some important considerations to keep in mind when managing your stock options:

  1. Vesting Schedule: Understand the vesting schedule of your options. Vesting determines when you can exercise your options and purchase the shares. Options typically vest over a period of time, such as four years, with a portion of the options vesting each year.
  1. Exercise Timing: Deciding when to exercise your options can have significant implications. For example, when exercising ISOs, many try to avoid exercising during a year with high income to minimize the alternative minimum tax (AMT) implications. In addition, there are certain rules to consider, such as not exercising more than $100,000 in ISOs in a given year AND the 10-year time limit to exercise your options from the grant date.
  1. Tax Implications: Consult a tax advisor to understand the tax consequences of exercising and selling stock options. The timing of your exercise and sale, as well as the type of option (ISO or NQSO), can significantly impact your tax liability.
  1. Concentration Risk: While stock options can provide substantial financial rewards, they also carry risk. Relying too heavily on company stock (when you already rely on them for a paycheck) can expose you to significant financial risk if the company’s stock price falls or the business falters. Diversifying your investment portfolio is crucial to managing this risk.
  1. Market Conditions: Consider the current market conditions and the performance of your company when deciding to exercise and sell your options. While no one knows what the future holds, it’s wise to weigh everything you know about the company with what you know about the current state of the market as market volatility can affect the value of your stock options.
  1. Financial Goals: Align your stock option strategy with your overall financial goals. Whether you plan to use the proceeds for retirement, buying a home, or other financial objectives, having a clear plan can guide your decisions.

These are just a few of the key considerations to keep in mind when it comes to managing your stock options. As always, it is important to consult with a trusted professional for personalized advice based on your unique situation.

Remember that stock options can be a valuable asset but also come with potential risks and complexities. By understanding the basics and carefully considering your options, you can make informed decisions that align with your financial goals.

Conclusion

In the end, employee stock options can be a valuable component of your compensation that can lead to significant gains if managed wisely. Understanding the different types of options, their tax implications, and the strategies for exercising and selling them is essential. By considering these factors and consulting with trusted advisors, you can make informed decisions that align with your unique goals and risk tolerance.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

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How to Make the Most of Your Golden Years

Understanding and Navigating the 4 Phases of Retirement from Dr. Riley Moynes

Executive Summary:

  • Retirement involves significant financial and emotional transitions, impacting routines, identity, and purpose.
  • Dr. Riley Moynes’ framework of four phases helps retirees navigate these changes: the vacation phase, the loss and lost phase, the trial and error phase, and the reinvent and rewire phase.
  • Addressing emotional challenges is crucial to avoid depression and find fulfillment in retirement.
  • Engaging in meaningful activities and serving others can lead to a rewarding and purpose-driven retirement.
  • Lastly, understanding these phases and staying proactive ensures retirees can make the most of their golden years.

Retirement is one of the biggest financial transitions of your life, so many prepare for years or even decades in advance. 

From maximizing workplace retirement plans to optimizing Social Security benefits timing, retirees-to-be invest significant time understanding the financial nuances and tradeoffs needed for a secure and lasting retirement.

But, while many prepare financially, few consider the non-financial side of retirement, specifically, the emotional and psychological transition they will experience in retirement. 

And that can be hard, because the reality is that leaving behind your career, whether you were financially ready or not, can create significant challenges, ultimately leading to higher rates of divorce and depression among retirees.

Fortunately, just like you can prepare for the financial aspects of retirement, there are things you can do to smooth out the emotional and psychological ride into retirement, helping you to “squeeze all the juice out of retirement.” 

In his book, “The Four Phases of Retirement: What to Expect When You’re Retiring” and viral Ted Talk, Dr. Riley Moynes presents a framework to help retirees understand and navigate this significant life event through the 4 Phases of Retirement, which we will explore below.

The 4 Phases of Retirement from Dr. Riley Moynes

Phase 1: The Vacation Phase

The first phase of retirement is the vacation phase – a time when you enjoy your newfound freedom.

Just like being on vacation, you can wake up whenever you want and spend your time however you want – pure bliss, right? Well, just like being on vacation, there often comes a point where you’re ready to go back home, settle into your routines, and “sleep in your own bed again.”

In other words, the new, fun, and exciting feeling of being able to do anything at any time wears off, and you’re left to wonder: is this all there is? 

According to Dr. Riley Moynes, the vacation phase of retirement typically lasts a year before it starts to lose its luster. He says that once you find yourself questioning if this is all there is, you have officially moved on to phase 2. 

Phase 2: Loss and Lost

As the name implies, phase 2 is not a fun place to be, and in his Ted Talk, Dr. Moynes describes it for many as “feeling like getting hit by a bus.”

In this phase, retirees can experience 5 major losses:

The 5 Major Losses in Retirement

  1. Loss of Routine: While work provides structure and routine, the newfound freedom of retirement can be unsettling for many.
  1. Loss of Identity: Many people intertwine their identity with their work, often defining themselves by their job (e.g., “I am a doctor” or “I am an accountant”).
  1. Loss of Relationships: Strong career relationships built over decades can suffer as you no longer interact with colleagues daily.
  1. Loss of Purpose: Many derive their sense of purpose from their work, especially those who feel they are doing their life’s work.
  1. Loss of Power: Retirees often lose the power and influence they once had as key decision-makers in their careers.

Ultimately, these major losses can lead to what Dr. Moynes refers to as the 3 D’s: depression, divorce, and cognitive decline. This period can be incredibly challenging as retirees struggle to find a new sense of purpose and direction without the familiar structure of their careers. Many may feel isolated and uncertain about how to move forward, which can exacerbate these feelings of loss.

Fortunately, by the time retirees decide they can’t go on like this, they have officially entered phase 3: trial and error.

Phase 3: Trial & Error

Phase 3 is all about throwing things at the wall to see what sticks.

It’s a time when retirees ask themselves a couple of powerful questions: 

  1. How can I make my life meaningful again?
  2. How can I contribute?

Dr. Moyne’s advice is simple: do more of the things you love and the things you’re good at. 

And he says if you are having trouble figuring out what that is, start with some reflection. Ask yourself: a) what are some of your greatest accomplishments and b) what do you love doing? 

Where those two things overlap is where you should focus your time. 

Remember, this phase is all about experimenting and finding what brings you joy and fulfillment. Interested in volunteering at your local community garden or library? Go ahead and give it a try. 

And if you’re struggling to come up with ideas, here are ten activities to consider during retirement:

10 Ideas to Find Purpose in Retirement

  1. Volunteering: Engage in volunteer work at local non-profits, schools, hospitals, or community gardens. Volunteering allows you to give back to the community, meet new people, and find a sense of fulfillment.
  1. Mentorship: Offer your expertise and experience to mentor younger professionals in your previous field or other areas of interest. This can be done through formal programs or informal networks.
  1. Lifelong Learning: Enroll in classes at local community colleges or online platforms. You can study subjects that interest you, ranging from history and literature to science and technology.
  1. Hobbies and Crafts: Dive deeper into hobbies you’ve always enjoyed or pick up new ones. Whether it’s painting, woodworking, gardening, or cooking, engaging in creative activities can be very fulfilling.
  1. Fitness and Wellness: Focus on maintaining your physical health through activities like yoga, swimming, hiking, or joining a fitness group. This can also include mental wellness practices like meditation or mindfulness.
  1. Travel and Exploration: If you enjoy traveling, consider planning trips to places you’ve always wanted to visit. Travel can broaden your horizons and provide new experiences and memories.
  1. Writing and Blogging: Share your life experiences, knowledge, or interests through writing. Start a blog, write a memoir, or even work on a novel. This can be a great outlet for self-expression.
  1. Part-Time Work: Find part-time work or freelance opportunities in areas you’re passionate about. This can help maintain a sense of structure and purpose while allowing you to use your skills.
  1. Community Involvement: Get involved in local community groups or organizations. This can include joining clubs, attending town meetings, or participating in community events.
  1. Family and Friends: Spend quality time with family and friends. Strengthen your relationships by organizing regular get-togethers, outings, or family vacations. Being an active part of your loved ones’ lives can bring immense joy and fulfillment.

Phase 3 is all about experimenting with different activities until you find what brings you joy. Remember, this process is unique for everyone—there is no right or wrong—and it can continue to evolve throughout retirement

Last but not least, on to Phase 4: Reinvent and Rewire.

Phase 4: Reinvent & Rewire

In phase 4, retirees find answers to the most important question of them all: what’s the point?

But, in Dr. Moynes’ experience, not everyone makes it to phase 4, with some retirees bouncing back and forth between phases 2 and 3. But, for those that do, he finds that it almost always involves service to others, in some capacity. 

This could involve giving back to your community through volunteer work or mentorship. In his TED Talk, Dr. Moynes mentions a retiree who found joy in delivering “piping hot pizzas to hungry humans” part-time, not for the money, but for the satisfaction of serving others.”

For Dr. Moynes, success in phase 4 came through a friendship he formed that evolved into community classes teaching other friends how to use their iPhones and iPads. He joked that it all started because he and his fellow retirees were all given various Apple products for Christmas from their kids, but half of them could barely figure out how to turn them on, let alone use them. So, he and a friend taught a class on how to use their devices that snowballed into hundreds of classes on a variety of subjects over the years: from how to repair bikes, to learning different languages. 

The best part of all? Dr. Moynes has found that through Phase 4, retirees can recover many of the losses from Phase 2: routine, identity, relationships, purpose, and power. This phase not only helps retirees regain a sense of stability but can also bring renewed meaning and satisfaction to their lives.

So, knowing what you know now, where do you go from here? 

Dr. Moynes’ advice is simple:

Here Are 4 Steps You Can Take to “Squeeze the Most Juice” out of Retirement

  1. Enjoy the vacation in phase 1.
  2. Be prepared for the losses in phase 2.
  3. Try as many different things as possible in phase 3.
  4. And lastly, squeeze all the juice out of retirement in phase 4. 

In the end, with 10,000 people hitting retirement age every day and retirement potentially lasting a third of their life: a) you are not alone and b) this is a problem worth solving. 

By understanding and embracing these four phases, you can turn the challenges of retirement into opportunities for growth, fulfillment, and happiness. Whether you are just beginning your retirement journey or are already navigating its complexities, remember that each phase is a step towards a richer, more rewarding life. The key is to stay open, flexible, and proactive in finding what makes your retirement truly golden.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

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Conference Call Recording – July 2024

Albion Financial Group – July 2024 Conference Call Video Recording

In our July 2024 conference call our panelists discussed the following topics:

  • General views on the economy
  • Current state of inflation and our outlook
  • The jobs market and recent trends
  • The Fed, interest rates, and bond yields
  • Present conditions in the stock market, including the concentration of returns
  • 2024 presidential election and its potential impact on markets
  • Sunsetting tax laws
  • Social Security planning considerations
  • Downsizing during retirement
  • Portfolio management concepts and asset allocation

Stream the audio of yesterday’s conference call at this link.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

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Quarterly Letter Excerpt: From John Bird’s Desk

As Albion grows and matures – and we’re now in the early years of our fifth decade – it’s inevitable that we find ourselves celebrating the retirement of long-time team members, honoring their contributions, yet continuing into the future without disruption. We’ve had a few over the years and it’s time to celebrate another. Doug Wells, Partner and head of business development, will be retiring in early July. Doug reached out to Albion in the 1990’s when he was looking for financial planning advice. He liked what he saw. Several years later, in 2002, Doug came back and pitched Toby and me on why we should hire him. Those of you who know him know he can be persuasive! We brought him into Albion and never looked back. His desire to learn was immediately apparent and within a few years had earned, in addition to his MBA, the CFP (Certified Financial Planner) and CFA (Chartered Financial Analyst) designations. He helped us along our path of continuous improvement where we strive to add more value to everything we do on behalf of clients. And he worked to get the word out into our community about Albion. Over the years he turned his network of business associates into a group of lifelong friends. From being a ski instructor at Deer Valley, hosting a radio show on KPCW, trying Bikram Yoga, or organizing group mountain bike rides, Doug has never shied away from trying new things. And with that spirit, he is trying a new chapter in his life, that of retirement.

He has helped scores of Albion clients make the decision to retire. More often than not the decision is far more personal than financial; it can be difficult to leave what you’ve known for decades and step off into the unknown. Having successfully counseled people through the transition he knew it was time to follow his own advice.

We will miss Doug. His energy, upbeat attitude, and intelligence are all characteristics we knew we could depend on. But we also know he leaves behind a highly functioning team that is already filling the void he leaves behind. Thank you, Doug, for choosing Albion!

Note: This blog post is an excerpt from Albion’s Quarterly Letter to clients. Find the entire letter posted in the Learning Center of this website.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

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Market Recap – Q2 2024

Q2 2024 Market Recap (FINAL)Download

Q2 Recap:

Inflation

After several hotter-than-expected inflation prints in Q1, the data released in Q2 suggest that price pressures began to cool a bit. The m/m increase in Core CPI and Core PCE fell sequentially in both April and May, leaving Core CPI at +3.4% y/y and Core PCE at +2.6% y/y. Substantially all of the remaining inflation in the economy is in core services. Food and energy inflation are roughly +0.5% y/y combined as of the end of Q2, while core goods inflation is actually negative (i.e., deflation) at -0.4% y/y.

Monetary Policy

There were no changes to overnight interest rates in Q2, and the June update to the Summary of Economic Projections clearly reflected a “higher for longer” outlook, due to lingering inflation concerns. The median projection among FOMC members fell to just one 25bp rate cut in 2024, although to be fair, the committee was quite close to being evenly split between one rate cut and two. Fed Chair Jerome Powell reiterated during the most recent press conference that the committee will need to see more sustained progress towards the 2% inflation target before they will have sufficient confidence to begin cutting rates.

Economy

Data released in Q2 suggest a slowing, but still growing, US economy. The labor market is normalizing: new jobless claims rose by ~20k per week, open jobs fell to 8.06 million, and unemployment ticked higher by 20 basis points to 4.0%, but job creation remained solidly positive (3m avg +249k nonfarm payrolls added). Persistently high mortgage rates have inhibited housing sector activity. Manufacturing remains weak, but strength in services driven by solid consumer demand continues to drive the economy forward. Analysts currently forecast an acceleration in S&P 500 earnings growth in Q2, with bottom-up consensus estimates at +8.8% y/y.

Bond Market

Treasury yields moved higher across the curve in Q2, particularly in the belly and long end as investors continue to grapple with longer-term inflation assumptions and US budget deficits. Credit spreads tightened in April and early May, but then retrenched in June to finish slightly wider for the quarter. In the aggregate, the US investment grade bond market is down slightly YTD at the halfway point of 2024.

Stock Market

Gains were concentrated in Q2, continuing the “narrow rally” theme. Large caps that could be tied to the generative A/I theme did well in Q2, led by semiconductor stocks like Nvidia (+36.7%). Public utility stocks also continue to benefit from the significant expansion in power and cooling that will be required to support the growing A/I infrastructure. Elsewhere though, it was a difficult quarter, with cyclicals, small caps, and most international benchmarks finishing lower.

Albion’s “Four Pillars”:

Economy & Earnings

The US economy has been resilient despite the higher interest rate environment. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

Valuation

The S&P 500’s forward P/E of 21x is well above the long run average, so valuations are likely to be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns from current levels over the coming decade are likely to be in the single digits.

Interest Rates

Futures markets imply that the Fed will cut overnight interest rates once or twice in 2024, most likely at some point in the 2nd half of the year. Belly and long end rates are already at or near what are likely to be their post-pandemic equilibrium levels, unless the US economy enters a recession.

Inflation

After falling rapidly in late 2022 and all of 2023, inflation has become sticky in the 3-4% range in early 2024. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs. Volatile energy prices driven by geopolitical conflicts could present a risk to the inflation outlook.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

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From College Savings to Retirement: How to Fund a Roth IRA with Extra 529 Money 

Executive Summary: 

  • Overfunded 529 Plans can be rolled into a Roth IRA to jumpstart retirement savings. 
  • This can be a great strategy in certain situations, avoiding the 10% penalty on non-qualified distributions and receiving tax-free growth and withdrawals in retirement. 
  • However, there are complex rules to consider, like the 15-year account age requirement and the $35,000 lifetime rollover cap. 
  • In addition, the beneficiary must have earned income, and the rollover amount must stay within annual contribution limits.  
  • Lastly, changing the beneficiary may restart the 15-year clock, though the IRS has not released official guidance at the time of writing. 

While 529 plans are often the best way to save for college expenses, many worry about over funding these accounts. 

And it makes sense, because while a 529 plan is great for qualified education expenses (benefitting from tax-free growth and tax-free distributions), when used for other purposes, 529 distributions can incur unwanted taxes and penalties. 

Of course, in a perfect world, savers would end up with the exact amount they need to fund their education expenses, but the reality is not so simple. Instead, many wind up with extra funds, opting for overfunding rather than underfunding their college needs.  

Which raises the question: what should you do with the extra 529 funds? 

Fortunately, you’ve got options: from simply withdrawing the funds and incurring taxes and penalties, to changing the beneficiary of the account to an eligible family member and funding their college needs.  

And now, with the passage of SECURE 2.0 you’ve got another powerful option: Roll the funds into a Roth IRA for the beneficiary, helping them jumpstart their retirement savings. 

In this article, we will explore the pros and cons of this approach and highlight the key rules and regulations to consider. 

First, let’s look at the pros and cons of rolling unused 529 money into a Roth IRA. 

Pros of Funding a Roth IRA with Unused 529 Money: 

  1. Jumpstart retirement savings: Rolling unused 529 money into a Roth IRA can help the beneficiary get an early start on retirement savings. 
  1. Avoid Penalties: By rolling funds into a Roth IRA, you can avoid the 10% penalty on non-qualified distributions. 
  1. Tax benefits: Roth IRAs benefit from tax-free growth and tax-free distributions in retirement, making them a powerful investment account.  

Ultimately, rolling unused 529 money into a Roth IRA can jumpstart retirement savings for the beneficiary, avoid the 10% penalty on non-qualified distributions, and offer tax benefits with tax-free growth and distributions in retirement. 

Cons of Funding a Roth IRA with Unused 529 Money: 

  1. Withdrawal Rules: While Roth IRAs are great for retirement savings, they do have certain withdrawal rules that can limit your ability to access funds penalty-free. 
  1. Loss of control: With a 529 plan, you own the funds, no matter who the beneficiary is. Alternatively, if you contribute to a Roth IRA for your child or grandchild, they have full control over the account, assuming they have reached the age of majority.  
  1. Complex rules: Lastly, there are several rules that you need to be aware of when rolling unused 529 money into a Roth IRA, which we will cover in detail below. 

Ultimately, this can be a great strategy, but be aware of the cons: Roth IRAs have withdrawal rules that may limit penalty-free access to funds, you lose control of the funds once they are in the beneficiary’s account, and the process involves navigating complex rules and regulations. 

Next, Here Are The Key Rules and Regulations When Rolling 529 Funds into a Roth IRA 

Next, let’s explore the key rules and regulations for rolling 529 money into a Roth IRA. These guidelines are essential to ensure compliance and to maximize the benefits of this strategy.  

  • The 529 plan must have been open for a minimum of 15 years. (Important note: Changing the designated beneficiary of the 529 plan may restart the 15-year waiting period*.) 
  • The Roth IRA must be in the same name as the beneficiary of the 529 plan. 
  • The beneficiary must have earned income during the year the rollover is conducted. 
  • The beneficiary’s income must be below the annual limit for Roth IRA contributions. 
  • The rollover amount cannot exceed the annual contribution limit for IRAs. 
  • The amount rolled over cannot be more than the contributions made to the 529 plan, plus any earnings, within the last five years before the rollover.  
  • The total amount that can be transferred from 529 plans to Roth IRAs is capped at $35,000 per beneficiary. 
  • Contributions made to the 529 plan within the last five years are not eligible for rollover.  

*The 529 industry submitted a letter to the IRS in September of 2023 to determine whether a change in beneficiary would reset the 15-year clock. That said, at the time of writing, the IRS hasn’t released official guidance on this issue, and it is unclear if or when they will.  

The Bottom Line 

In the end, rolling unused 529 money into a Roth IRA can be a powerful way to give your kids or grandkids a jumpstart on their retirement savings. But, like many complex strategies, it’s essential to be aware of the different rules and regulations to avoid running into issues. Consulting with a financial advisor can ensure you’re making the most of this opportunity while staying compliant. By strategically executing this strategy, you can provide a solid foundation for your loved ones’ financial future. 

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.

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Monthly Market Recap – May 2024

Market Recap – May 2024 [PDF]Download

May Recap:

Inflation:

Data released in May suggested that price pressures may have eased back just slightly in April. The m/m change in Core CPI fell 10 basis points sequentially to +0.3%, leaving the y/y figure at +3.4%. Similarly, the m/m change in the PCE Core Deflator also fell 10 basis points to +0.2%, with the y/y figure holding steady at +2.8%.

Monetary Policy:

May featured what might be termed “a meeting in two parts,” at least in terms of how financial markets reacted. At the conclusion of the FOMC meeting on May 1st, markets breathed a sigh of relief that the committee did not appear to be seriously contemplating rate hikes to combat sticky inflation. Rates fell across the curve in early May as a result, while Fed funds futures markets priced in a second rate cut prior to year-end. However, when the minutes from that meeting were released on May 22nd, investors were discouraged by the very clear reminder that many committee members lacked confidence that inflation was sufficiently under control to seriously contemplate rate cuts in the near term. Odds of a second rate cut in 2024 fell to roughly 50/50 by month end.

Economy:

Data released in May was mixed. The labor market remains strong but is gradually normalizing: new jobless claims remain low at ~220k per week, but job creation slowed (175k nonfarm payrolls added) and unemployment ticked higher by 10 basis points to 3.9%. Consumer confidence indicators were also mixed: the Conference Board’s index rebounded 4.5 points to 102.0, while the University of Michigan saw an 8 point decline to 69.1 with weakness in all components. Meanwhile, persistently high mortgage rates appear to have stalled any upward momentum in housing sector activity. Q1 GDP growth was revised lower by 30bp to +1.3% q/q annualized, but Q1 corporate earnings growth was robust at roughly +6% y/y for the S&P 500, well in excess of inflation.

Bond Market:

Treasury yields see-sawed, initially falling after what felt like a dovish FOMC meeting, only to reverse course and retrace most of that ground later in the month after the meeting minutes were released. Finally, yields fell again after the May 30th release of a downwardly revised Q1 GDP print, leaving bond prices higher on the month. Credit spreads remained steady throughout at levels that are very tight by historical standards.

Stock Market:

Stocks of nearly all stripes were higher in May, aided by the tailwinds of lower rates, solid corporate earnings, and renewed enthusiasm for A/I themed companies after yet another blowout earnings report from Nvidia. Falling oil prices pushed the energy sector slightly into the red, but all other sectors in the S&P 500 finished higher, led by technology stocks.

S&P 500 Total Return by Sector – May 2024

Albion’s “Four Pillars”:

Economy & Earnings

The US economy has been resilient despite the higher interest rate environment. Analysts are forecasting low double digit EPS growth in 2024; growth of that magnitude will depend on the economy avoiding recession.

Valuation

The S&P 500’s forward P/E of 20.3x is above the long run average, so valuation could be a headwind to future returns. More predictive metrics like CAPE, Tobin’s Q, and the Buffett Indicator (Eq Mkt Cap / GDP) suggest that compound annual returns over the next decade are likely to be in the mid single digits.

Interest Rates

Futures markets imply that the Fed will cut overnight interest rates once or possibly twice in 2024, most likely at some point in the 2nd half of the year. Rate cut expectations have been tempered recently due to sticky inflation prints.

Inflation

After falling rapidly in late 2022 and all of 2023, inflation has become sticky in the 3-4% range in early 2024. Services inflation remains somewhat elevated, in part due to heavily lagged shelter costs. Rising oil prices driven by armed conflicts in Ukraine and the middle east are also a risk to the inflation outlook.

Albion Financial Group is an SEC registered investment advisor. The information provided is intended solely for educational purposes and should not be construed as an offer or solicitation for the purchase or sale of any particular securities product, service, or investment strategy. Past performance is not indicative of future performance. Additional information about Albion Financial Group is also available on the SEC’s website at www.adviserinfo.sec.gov under CRD number 105957. Albion Financial Group only transacts business in states where it is properly registered, notice filed or excluded or exempted from registration or notice filing requirements.