Buyer’s Remorse – Financial Products Edition

wood man pic


We’ve all had that feeling after a relatively large purchase decision that maybe we should never have bought the product in the first place, right? Maybe we feel that it was pushed upon us, or that it’s overly complicated, or that we just don’t really understand how it works. Well, the purchase of financial “products” are no different.

But, just because we regret buying it, doesn’t mean we should always rush out and sell it. Here’s why:

# 1 We might have to pay surrender fees

These are fees charged if we surrender, sell, or cancel our product within a certain number of years after the purchase date. That means we might not even get back the product’s current account value, but rather some lower dollar amount. In that case, it might make more sense to wait until the surrender period is over before we make any moves. Our firm has even seen products that had an indefinite surrender period, and the only way to get a client’s full account value was to have the product distributed over a multi-year period.

If there are no surrender fees, then we’ll want to understand if…

#2 We might incur significant taxes

If we are surrendering cash value life insurance policies or annuities that are worth more than what we’ve put in, then we’ll probably owe taxes on that gain. The IRS usually classifies this kind of gain as ordinary income, which will be taxed at our highest marginal bracket. Even if we’re selling a product that will be taxed at more favorable capital gains rates, we’ll still want to carefully evaluate the tax consequences.

If there are no adverse tax consequences, then we will have cleared our second hurdle. We still, however, need to research if…

#3 We might have a product with advantageous “secondary benefits”

Depending on when we obtained our product, there may be some generous contract provisions that we don’t want to give up. For example, some variable annuity contracts issued between 2006 – 2008 contained guaranteed income provisions that may have worked out in our favor.

Depending on the purchase date and provisions of the product, it may make more sense to simply keep the product or consider other allowable options, such as annuitization (which converts our product into an annual income stream).

In Summary

The easiest thing to do when we have second thoughts about a financial product that we’ve purchased is simply to unload it.  But “easiest” isn’t always “best.” Even if we regret our initial purchase, we still want to get as much out of the product that we can, by not leaving any benefits on the table and by avoiding excessive taxes and fees.

Let us know if you find yourself with buyer’s remorse, or if a friend or family member finds themselves in that position. We may be able to help you make a more informed decision.

Posted in Financial Planning, Investing, Retirement Planning, Taxes

Medicare’s IRMAA

SS and med
It’s that time of year! The Medicare enrollment period recently began on October 15th and will stay open until December 7th. While the baseline premiums for Medicare Part B aren’t expected to change for 2018, there will be some changes related to income-based surcharges that could impact you.

What Is IRMAA?
Income-Related Monthly Adjustment Amounts (IRMAA) are surcharges that are applied to Medicare Part B and Part D Premiums for higher-income Medicare recipients. There are 4 different “brackets” of surcharges, each corresponding to a specified range of income.

How is Eligibility Determined? IRMAA eligibility is determined by looking at your tax return from two years prior. In other words, information from your 2016 tax return will determine your IRMAA eligibility and any potential surcharge for 2018.

How Is the IRMAA Calculated? IRMAA surcharges and the income bracket structure have been in place since 2007. But in 2018, three brackets will be defined by a lower income threshold, which means the same level of income may now lead to a higher surcharge than in previous years. We’ve noted the changes below:
IRMAA Blog Post Table

What Can You Do About It? If you have experienced a “life-changing” event in the last two years, you may be able to request that Social Security revisit the surcharge determination. Marriage, divorce, death of a spouse, reduced work hours/retirement, and loss of a pension are all considered life-changing events and may help you qualify for a lower IRMAA determination. To request a new initial determination, you can schedule an appointment with Social Security, or submit a Medicare IRMAA Life-Changing Event form, which can be found here:

If you think the new IRMAA surcharge income brackets may impact you, or if you have questions, Woodward Financial Advisors is here to help.

Posted in Uncategorized

Woodward Financial Advisors to Teach Retirement Planning Class: October/November, 2017

Woodward Financial Advisors will once again teach a retirement planning class on the UNC-Chapel Hill campus. Several clients and blog readers are graduates of this course, and reviews have been consistently positive.

Our next course offering will be in October/November, 2017. If you know someone who might be interested in the course, please forward this on to them.

(Please note that this course is not intended for current clients of Woodward Financial Advisors since the material covered is already part of the advice given to current clients.)

Classes will be held on Wednesdays (October 25, November 1 and November 8) from 7 PM – 9 PM

Location: UNC-Chapel Hill Friday Center (100 Friday Center Drive, Chapel Hill, NC  27517)

Course Description: Retirement Planning Today Course Description

Instructor: Benjamin Birken, CFP®

Tuition is $49, which includes the 224-page textbook.

To register, please complete the online registration form  and use Course ID: 5955421, or call our registration hotline at (984) 960-1985

Posted in Uncategorized

Trust the Process

Flow Chart

Over the last 4 years, the NBA’s Philadelphia 76ers have consistently lost in historic fashion. Strange as it might sound, this was intentional: the worst team each year has the highest odds of winning an early pick in the next year’s draft, which is usually where the better players can be found. Philadelphia’s management believed that this was their best path to getting better. And by some metrics, the plan worked. Those four years of epic and calculated losing resulted in lots of high draft picks, and Philadelphia is now formidable.  Along the way – despite much ridicule and public pressure – the 76ers clung to a simple mantra: Trust the Process.

We’re not building a basketball team at Woodward Financial Advisors (yet), and we certainly don’t advocate losing on purpose. But we wholeheartedly subscribe to the importance of processes. While the 76ers have been busy losing, we’ve been building, tweaking and formalizing the processes and workflows that make our firm run.

There’s a tendency to avoid talking about what goes on behind the scenes at advisory firms, with the belief that folks don’t want to “see how the sausage is made.” That’s understandable in some circumstances. But if I was on the outside looking in, I would draw tremendous comfort from learning that an organization that I trusted to manage my life’s savings went to great lengths to formalize and institutionalize all the tasks that go into accomplishing that.

Our business processes range from the mundane (e.g., changing a client’s address) to the series of steps and tasks that go into preparing for and holding a client meeting. One of the more frequently used processes is for when clients call to request cash from their portfolios, a simplified version of which is laid out below:

Cash Distribution Flow Chart


Each box represents a separate task in this process. As each task is completed, the subsequent task is triggered and shows up on the next person’s to-do list. Some steps are only kicked off if certain criteria are met. For example, if a client account has enough cash such that any scheduled distributions won’t be compromised by the request, we might not suggest or make any trades. In other business processes, some tasks consist of instructions to refer to a separate checklist that contains items to review, like with our annual Tax Return Review.

So far, we’ve got 55 active business processes, and we’re constantly tinkering. We have a standing Process Committee whose job it is to solicit feedback, develop new processes and refine existing ones.

Why do we spend so much time thinking about and improving our processes?

  1. Consistency – we want to make sure that all clients enjoy the same client experience. Processes ensure that we all do things the same way for each client.
  2. Accountability – each step in a business process is assigned to someone. That way, we can see where we are in each process, as well as where any bottlenecks might be.
  3. Risk Management – if only one person knows how to do perform some action and that person goes on vacation or gets hit by a bus, we’re in trouble. By documenting our processes, we make ourselves a lot less vulnerable to losing institutional knowledge.
  4. Training – it’s a lot easier to bring a new WFA team member up to speed on how we do things if everything is documented.

We can’t control every outcome. But we can certainly control the steps in the process. In future blog posts, we’ll talk about how this idea is infused into many of the planning and investment-related things we do.

We know that our process-oriented culture results in long-term success for our clients. If you think we might be able to help you, let us know.

Posted in Financial Planning, Firm News