First things first, when you hear cyber-anything your immediate thoughts may jump to computers. That’s reasonable, since the words “cyber” and “online” and “computers” tend to be used interchangeably. However, the exposure you have and the losses you may suffer extend far beyond your computer screen. It isn’t about simply not clicking on links from people you don’t know (you do know not to do that, right?) and the rest will be OK.

Here is a list of potential cyberexposure issues you could encounter that cyber insurance could help you deal with:

Cyberextortion. One day you try to turn on your computer only to find a message stating that you must pay a fee, either in cash or some form of cryptocurrency in order to get into your own computer. Yes, it happens, what expenses would you incur to get your computer back? Think about all that is on your machine — work documents, banking and tax information and personal photos. What wouldn’t you pay? A cyber insurance policy may cough up the bucks on your behalf to get your stuff back.

Network liability. While you’re lounging in your chaise lounge, a sudden pounding on the door startles you. It’s the FBI with a search warrant for your house. Seriously? Yes, seriously. Turns out a hacker gained access to a computer on your home network — maybe your laptop or a desktop computer, maybe even a phone that connects to your Wi-Fi — and was sending out messages threatening people and trying to extort money from them. Naturally, you haven’t a clue about any of this, but this is going to take time to explain and money to deal with.

Identity theft. Remember the name of that odd rectangular object that is mounted near the end of your driveway? I’ll help you — it’s your mailbox. Visiting your mailbox, you open it up to find a statement for a credit card that you don’t recognize. What’s more, it’s a pretty darn active credit card with charges for items that, again, you don’t recognize. Your personal identity has been stolen, and some lowly character parading around as you is opening up credit cards and going on shopping sprees. And that’s just the tip of the iceberg. Later, you find out they have applied for multiple credit cards and even a home equity line of credit. This can be one of the most costly events you can imagine. You will likely need an attorney who specializes in identity theft, because you will now need to actually prove to every bank or creditor that you did not make these charges or open these accounts.

Phishing attacks. Having nothing to do with putting a worm on a line and casting it out to poke some holes in fish, a phishing attack is when someone attempts to convince you they are a legitimate person or business in need of your personal information. What they do with this information can range from opening accounts to promoting illicit drugs, or worse. You may not be aware this has occurred or has been ongoing for months or longer. Just try to explain that away at the next PTA meeting.

Reputation management. Like it or not, you have an online reputation, even if you’re not a heavy user of social media. Type in your name at Google.com, and you may or may not be surprised. However, you will find results that purport to be about you. If a bad actor is out there spreading lies, attacking others or just generally being a jerk, it’s a pretty complex process to get those false narratives offline. If you are at all in the public spotlight, or work for a company that is, your reputation is everything.

It's expensive to put things right

As you can see, you have cyberexposure, whether you like it or not, whether you realize it or not. Sometimes through zero fault of yours, you may end up in a position where you have to endure the time and expense to put things right. You can do it yourself, perhaps, and foot the bill, but do you really want to?

Cyber insurance policies tend to be inexpensive, and there are many insurers offering them. Remember to read your policy carefully, since there is no standard package that exists; comparing the coverage from company to company is challenging. Talk to a broker, talk to the insurance company, find out what they offer and compare it with what you want or, more accurately, what you need.

Cyberexposure is here to stay. Your options are simply to weather the storm on your own or buy a heavy-duty raincoat and umbrella.

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As we all know, long-term care costs are one of the biggest risks in retirement. Three of my four grandparents have needed long-term care, and the experience has been hard — not only emotionally but also financially. The cost of long-term care can be anywhere from $50,000 to $100,000 a year, depending on your location and the type of care. The average stay can be anywhere from two to five years, so that length affects the overall financial impact. 

Knowing that 70% of people will need long-term care at some point in their retirement means that it is especially important for you to plan for. The only problem is — how do we plan for such costs, especially when long-term care insurance is so expensive? Add to that the fact that we have to be insurable to be able to get it. So, instead, let's talk about another option that may be attractive to some people. 

The opportunity is called a Medicaid asset protection trust. The idea of this is to move money out of your estate into this type of trust so that the government cannot come after it for Medicaid planning purposes. Let's take a step back to understand how Medicaid planning works. The government will offer you free long-term care assistance after you spend down the majority of your assets. The good news is that you get the care you need. The bad news? You lose what you have worked so hard for. So how do we ensure we get the care we need but also protect what we've worked hard for? That's where this trust comes into play. 

This trust has to be set up the right way

First, we must set this trust up the right way and give it enough time to satisfy the look-back period. Then Medicaid will not consider those assets when deciding if you are eligible for Medicaid. This can be of a lot of value for those with larger amounts of non-qualified assets, such as multiple properties or non-retirement investments. The things to note with this trust is you will want to make sure it is an irrevocable trust. Now, that can be scary because an irrevocable trust typically means you have no access to those assets anymore. But if you set this trust up the right way, you can still have access to those assets. 

It's important to work with an estate planning attorney who specializes in this area. For our clients, we have an attorney who meets with them at our office to ensure this gets done the right way. 

You also want to make sure that you’re not getting sold this trust if you do not need it, because not everyone needs it. If you don’t have any non-qualified assets, and all of your assets are in an IRA, then it may not make sense for you. Current rules state that money in an IRA will not be spent down until after both spouses have passed. Keep in mind that these rules can change at any time, and that’s why it’s important to find an attorney that you can continue to work with to make changes to these trusts as needed. 

The attorney we work with meets with our clients periodically to make any adjustments required based on rule changes as they happen. We believe preparing for this now will better set you up for success if there are rule changes in the future. 

Setting one up can be costly

The other downside of this type of trust is cost. Depending on who you work with to get it done, the cost can be anywhere from $7,000 to $12,000. The attorney who works with our clients does it for a lower amount since we do not take a referral fee, and we have an exclusive relationship. You’ll likely get the best results when you work with a financial planner who partners with an estate planning attorney to ensure your trust gets done the right way, that you don't get sold something you don't need and that you get the best pricing. 

Other planning advantages and opportunities

A Medicaid asset protection trust can also lead to other advantages and opportunities in other areas of planning. For example, we can also use this trust to help plan for estate taxes. 

Estate taxes may not be a concern for many people, considering the current high threshold before it kicks in ($13.61 million for 2024). However, the threshold is likely to be lowered in the future. It has, in the past, been as low as $1 million or less, so it’s possible that if your net worth is more than $1 million, you could pay a 40% tax on everything above that in the future. 

A Medicaid asset protection trust could help you protect some of those assets by getting them out of the estate so they’re not subject to that estate tax. We do this for many of our clients who have been diligent savers. 

Also, with trusts, you can be more creative about ensuring the money goes to the people you want it to go to and when you want it to go to them. For example, if you wanted your kids to get only a certain amount each year for the rest of their lives, then you could have that set up. Or if you wanted a minor child to not get the money until the age of 25, then you could do that also. You could also ensure that if there were a divorce or one of your family members died, that the money stayed in the family. 

Those can all be reasons why setting up a trust can make sense. We work with many people in or near retirement who have been diligent savers, but only about half of them need trusts. That's why it's important to do your due diligence and see if this makes sense for your specific situation.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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When it comes to withdrawing from your portfolio, many retirees fear that their cash flow might run out before they do. As illustrated in part one of this series, relying on stock sales to meet retirement expenses can be risky, especially during a market downturn early in retirement. 

How can we leverage the insights from parts one and two to safeguard our retirement income? Here are four actionable steps to consider.

Redefine and reframe your principal risk

Price volatility is a popular measure of risk but not a great one for retirement planning. Volatility on its own is simply a probability statistic (and hence why it’s described with technical terms such as alpha, beta, R-squared and the Sharpe ratio). 

For our financial planning purposes, volatility needs to be linked with a consequence to provide a practical measure of risk. For example, the fundamental risk in your portfolio is not having the cash available when you need it to meet your spending needs. In measuring your success, your personal monthly spending need is your ultimate yardstick and the only benchmark that matters.

If an adviser says to you (or you tell yourself) that you beat the market last year, your response should be, “Interesting information, but not my primary focus. Much more important, where am I relative to my financial goals, and do I need to course-correct?”

Utilize a goals-based safety-first strategy

With a more practical and fundamental definition of risk, it’s time to let your financial goals guide your planning and investing, not simply your risk tolerance. Match your assets and income with future liabilities and spending. 

The premise of our goals-based safety-first strategy is to rely as little as possible on the sale of stocks to cover basic needs, especially when the stock market is falling. Your primary objective during the withdrawal stage is not to maximize investment returns, but rather to meet your spending needs.

Add a margin of safety to your projections

Lower your projected withdrawal rate in your modeling to account for the sequence of returns risk (that is, the risk that you start withdrawing during a bad stretch of market returns). Financial author William Bernstein calculated that a particularly bad sequence of returns can penalize your safe withdrawal amount by about 1.5 to 2 percentage points. 

So, for example, if you are projecting a 5% withdrawal rate, consider lowering that estimate to an amount closer to 3% to 3.5% to provide cushion against “bad” market returns in the early years of the withdrawal stage. This may also lead you to conclude that you need to make other course corrections — for example, targeting a larger portfolio balance on your retirement date than you originally assumed. Simply put, plan to spend less and save more.

Maintain a cash reserve

As you approach your retirement date, have a cash cushion. Keep three to five years of spending needs out of the stock market and in cash. Since you hopefully won’t need to sell and withdraw from the equity portion of the portfolio if the market is declining, you avoid the negative compounding effects we saw illustrated in part one. (Remember, compounding works with you during the accumulation stage and against you in the withdrawal stage.) And as the market eventually recovers, you can then sell some of your equity investments to replenish your cash reserve. 

Three to five years of cash is my personal comfort zone. What do others say? Author and investor Darrow Kirkpatrick found that the S&P 500 recovers from declines, on average, in about three years. For business cycle declines going back to the 1800s, it’s about five years. Citing research by Wade Pfau, Kirkpatrick notes that worst-case real stock market losses of greater than 50% take, on average, nine years to recover.

Based on Kirkpatrick’s findings, on a worst-case basis, you might consider having upwards of 10 years of spending needs in cash, plus potentially more in other conservative investments. 

Take as little risk as you need

The above suggestions are but four considerations as you make personal course corrections to your robust financial plan. My primary message is this: Make sure to reconcile cash withdrawal plans with what your modeling and current market conditions indicate you can support. 

In other words, as you plan for the withdrawal stage, don’t take as much risk as you can tolerate; take as little risk as you need.

With a focus on safety first to cover basic spending needs and the right balance of liquidity, the fragile decade can be a lot less frail.

As always, invest often and wisely. Thank you for reading.

This content is for informational purposes only. It is not intended to be, nor should it be construed as, legal, tax, investment, financial or other advice. 

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And finding balance can be especially hard on women. According to a study from the Proceedings of the National Academy of Sciences, women are still more likely than men to take time out of the labor force or reduce the number of hours worked because of caretaking responsibilities. The “motherhood penalty" is a significant contributor to the persistent gender pay gap and the underrepresentation of women in leadership roles globally, according to the World Economic Forum.

The summer break is a great time to revisit your finances and make sure that you are making the most of every resource to help build and secure your family’s financial future (including your own). 

Workplace benefits are a sometimes-overlooked resource that can play a supportive role in helping you and your family work toward various financial goals. 

Here is a path toward maximizing your workplace benefits for the whole family:

Advance your long-term financial goals through workplace wellness benefits

Although setting long-term financial goals and creating a path to achieving them can be daunting, your workplace likely offers financial wellness benefits or a program to guide you down the right path. 

No matter how distant your long-term goals seem, it’s crucial to invest in your financial future at every stage of life. The longer you invest, the more you’ll potentially build in your nest egg by the time you retire. Further, this leaves time for your returns to compound. 

In fact, our research from Morgan Stanley Wealth Management shows that older investors would advise younger generations to start saving as early as possible (74%) and invest for the long term (54%). The key is to identify your goals and get started as soon as you can: Most people are primarily saving in the long term for retirement (78%) and an unexpected emergency (56%) — and many are doing so through their workplace benefits. 

As a first step, sit down as a family and assess what your long-term financial goals are and a timeline of when you’d like to achieve them. Are you setting aside money for college? What age would you ideally like to retire? Is your family complete, or do you anticipate having more kids? By setting clear goals and creating a realistic road map toward reaching them, you’ll be better equipped to make informed decisions about your finances. And look for opportunities to include your kids in the conversation — it's never too early to start building financial literacy and awareness. 

Next, review where your money is going and create a budget — this includes your income sources, debt payments, credit cards and bills. One way to do this is through online tools such as debt calculators, retirement calculators and budgeting apps, which can help you track your monthly income and expenses. If your employer offers a financial wellness program, you can utilize budgeting tools, savings support and even potentially access professional financial advice.

Consider using the 50-30-20 rule to help you budget: Put about 50% of your money toward necessities like food, housing and childcare, 30% toward leisure such as family activities, and then you have 20% left to put toward your long-term goals. For example, if you’re saving for your child’s college education, start contributing to a 529 plan. You can set up automatic contributions, and most states have no minimum or maximum limit. Your workplace may also offer savings programs or vehicles, such as savings accounts attached to 401(k)s.

Keep in mind that life is unpredictable — especially when you have a family. If you don’t have one already, consider setting aside even $10 a month to start building up an emergency savings fund. It’s a good practice to keep this in a separate, easily accessible account just for emergencies — such as a savings account, money market account or CD account. Ask your employer if they offer an emergency savings account match or any additional savings, budgeting or financial planning support. 

Align your workplace benefits with short- and long-term goals 

Look over your budget and goals and see where you can plug in your workplace benefits to better support your progress. For example, if your employer offers a retirement plan such as a 401(k), enroll. Look for wiggle room in your budget to increase your monthly savings contributions. Also, find out if your employer offers a 401(k) match and make sure you’re contributing the right percentage amount to receive the employer match. Our research shows that employees (64%) consider their 401(k) to be the most important benefit in meeting retirement goals.

Beyond direct contributions to retirement benefits, your workplace may offer additional benefits that can help you build investments — for example, equity compensation is growing in popularity, with three in four HR leaders (76%) reporting that their companies are offering some form of equity compensation — up 4 percentage points year-over-year and 11% since 2021, according to the Morgan Stanley at Work State of the Workplace IV report. 

Your employer may offer benefits related to family needs: If you’re saving for college or heading back to work, some workplaces offer student loan repayment and return-to-work programs. Also, if you’re caring for young children, or a part of “sandwich generation”— taking care of children and elderly parents at the same time – your employers may offer flexible work arrangements. Today, about one-quarter of adults are in the sandwich generation, with most also working part or full time, according to a Care for Business report. 

If you aren’t sure where to start, talk to your employer — they can help answer questions, provide information to help you take advantage of workplace benefits and direct you toward resources that can help you navigate your financial life. For example, our State of the Workplace IV report shows nearly 9 in 10 HR leaders offer financial wellness programs to help counterbalance work-life stressors.

For more nuanced questions, or for help building a more holistic approach toward your family financial goals, many companies also offer access to personalized financial guidance, such as self-guided financial education, a financial coach or financial advisor who can understand your family's unique situation and provide deeper support. At the end of the day, the health and happiness of your family is a top priority. Taking the time to invest in your family’s financial future today can bring peace of mind and allow you to focus on what matters to you most. 

This material has been prepared for informational and educational purposes only. As such, Morgan Stanley Smith Barney LLC (“Morgan Stanley”) is not acting as an investment advisor as defined under the Investment Advisers Act of 1940, as amended. 

This material does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Morgan Stanley Smith Barney LLC (“Morgan Stanley”) recommends that investors independently evaluate particular investments and strategies and encourages investors to seek the advice of a Morgan Stanley Financial Advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.

When Morgan Stanley Smith Barney LLC, its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors (collectively, “Morgan Stanley”) provide “investment advice” regarding a retirement or welfare benefit plan account, an individual retirement account or a Coverdell education savings account (“Retirement Account”), Morgan Stanley is a “fiduciary” as those terms are defined under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and/or the Internal Revenue Code of 1986 (the “Code”), as applicable. When Morgan Stanley provides investment education, takes orders on an unsolicited basis or otherwise does not provide “investment advice”, Morgan Stanley will not be considered a “fiduciary” under ERISA and/or the Code. For more information regarding Morgan Stanley’s role with respect to a Retirement Account, please visit www.morganstanley.com/disclosures/dol. Tax laws are complex and subject to change. Morgan Stanley does not provide tax or legal advice. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a Retirement Account, and (b) regarding any potential tax, ERISA and related consequences of any investments or other transactions made with respect to a Retirement Account.

Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving estate planning and other legal matters. 

This material may provide the addresses of, or contain hyperlinks to, websites. Morgan Stanley is not implying an affiliation, sponsorship, endorsement with/of the third party or that any monitoring is being done by Morgan Stanley of any information contained within the websites. Except to the extent to which the material refers to website material of Morgan Stanley Wealth Management, the firm has not reviewed the linked site. Equally, except to the extent to which the material refers to website material of Morgan Stanley Wealth Management, the firm takes no responsibility for, and makes no representations or warranties whatsoever as to, the data and information contained therein. Such address or hyperlink (including addresses or hyperlinks to website material of Morgan Stanley Wealth Management) is provided solely for your convenience and information and the content of the linked site does not in any way form part of this document. Accessing such website or following such link through the material or the website of the firm shall be at your own risk and we shall have no liability arising out of, or in connection with, any such referenced website. Morgan Stanley Wealth Management is a business of Morgan Stanley Smith Barney LLC. CRC 6483296 3/24

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I had the pleasure of watching New York attorney James A. Sherer’s engaging podcast about AI on the LearnFormula platform, a provider of CLE courses. As a partner in the New York office of BakerHostetler, Sherer co-leads the Emerging Technology Team for the Digital Assets and Data Management Group and addresses clients’ questions about AI.

During our interview, he took me on a tour of AI — a look under the hood — and what it can do.

I also discussed practical applications with Palo Alto, Calif.-based attorney Pablo Arredondo, vice president, co-counsel at Thomson Reuters and co-founder of Casetext, which has a commanding 34% market share of AI research tools for lawyers.

It is a fascinating time to be a lawyer 

“The power of AI is simply amazing,” Sherer says enthusiastically. “It can manage enormous amounts of data and, in effect, has read every book in the law library. It can also become a litigation coach — as if you are talking with an associate who has perfect recall for all of the documents in a case. 

“During a deposition, you can ask it to suggest questions that you might not have thought of — but which seem logical based on the data you have provided. Applied to a lease or a contract, it functions as a spelling and grammar check and will reduce the potential for malpractice — minimizing the chance of something important being overlooked, telling the lawyer, ‘Your contract reminds me of XYZ. Have you considered that?’”

AI can make a lawyer far more efficient

Lawsuits often create massive amounts of paperwork and exhibits to review. These can create David-and-Goliath situations where one side — in response to a discovery request — delivers hundreds of thousands of documents. 

“If one side does not have the time or personnel to go through everything,” Sherer notes, “they could miss something critical to their case. But AI reviews it all and might uncover highly valuable facts to support a position of which the attorneys were unaware before.”

He cautions, though, “While it is an amazing technology, we must maintain vigilance and need to develop systems that are self-correcting, as we have the duty to be sure AI acts in a legal and fair manner.” 

Justice delivered faster and less expensively

To learn more of how AI is being used today by lawyers and its practical benefits for clients, I also spoke with Arredondo. I asked him, “As it is often described as a game changer, what is the economic benefit of AI to both lawyers and clients?” 

“This technology helps in obtaining justice faster and less expensively,” he replied, “without a drop in quality, making it especially valuable to people who might not be able to afford top-shelf lawyers, or who rely on legal clinics to find attorneys to help them. 

“Similar to a turbocharged engine, it greatly enhances speed and makes lawyers more efficient — able to do more at a reduced cost to the client. For example, the AI can help you with your research and send it over to the word processor to be more seamlessly folded into the brief that you draft with its help.”

Finding that needle in a haystack

Historically, document review could take weeks — or even months — depending on how many documents there were and the number of associates in a law firm who were poring over them — the expense could be substantial. Often, a lawyer has a hunch that a handful of relevant emails or other evidence exists in a data dump that could contain hundreds of thousands of emails or other documents, but it is like finding the proverbial needle in a haystack.

“In a matter of hours, AI proves its value by finding what the lawyers hoped would be there. So AI is not just helping attorneys reach the same level of quality faster, and more efficiently, it enables us do a better job and get to a better outcome and with a real savings to clients,” Arredondo underscores.

Is failure to use AI a basis for malpractice?

Arredondo is confident that AI will become something that clients expect their lawyers to use. “I envision a day when failure to use it will be malpractice, as it is catching things that humans miss. A lot of solo practitioners are getting it. So we were happy to see it being adopted, not just at the big firms but at small ones as well.”

Will AI have an impact on people wanting to enter the legal profession? I put that question to Nancy B. Rapoport, professor at William S. Boyd School of Law, University of Nevada, Las Vegas, and her writing collaborator, Joseph Tiano, founder and CEO of Legal Decoder, a legal data analytics company.

They believe AI will indeed reduce the number of people joining the legal profession, because fewer people will be needed at the lower, entry levels.

And that is something to think about when considering a career in law.

For another take on this issue, see my 2023 article Could ChatGPT and AI Change Delivery of Legal Services?

Dennis Beaver practices law in Bakersfield, Calif., and welcomes comments and questions from readers, which may be faxed to (661) 323-7993, or e-mailed to Lagombeaver1@gmail.com. And be sure to visit dennisbeaver.com.

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Non-traded REITs proliferated in the decade after the real estate crash of 2008-09. Individual investors placed money with these groups largely through independent financial advisers and, in return, were told to expect distributions for a number of years after which the REIT would pursue liquidation of the portfolio or list to go public. The focus and energy were on raising equity, with investment and operations seemingly an afterthought. Their results were poor, underperforming public REITs and direct, private investments, with numerous examples of complete losses of investment.

After the collapse of American Realty Capital in 2014, other failures and accompanying arbitration awards led to a dramatic decline in non-traded REIT investment. Several years later, though, a number of large publicly traded financial firms entered the space, raising huge amounts of equity through the name-brand wirehouses instead of independent broker-dealers. A twist from the previous non-traded REITs is that this new structure is perpetual, with no planned exit.

While these newer sponsors differ in that they are experienced real estate investment companies with the institutional knowledge, infrastructure and track record to be successful, there are considerations investors in these perpetual-life non-traded REITs should be aware of.

Issues that investors need to know about

Share valuation issues. Current non-traded REITs offer monthly or quarterly share valuations, which are used to calculate both the price at which new investors come in and at which existing investors may endeavor to redeem and cash out. The share transaction price, or net asset value (NAV) per share, is solely determined by the company, which employs third-party valuation advisers, but the ultimate NAV is at the sole discretion of the company and is portrayed as exact.

NAV calculations are not exact and can be far from. Take for example a property declared to be worth $100 million. This is an approximation. No matter how experienced and smart the REIT principals are, that $100 million really means somewhere between, say, $95 million and $105 million. Leverage, in turn, magnifies that disparity. If the above property has 50% leverage, the equity is $50 million. If the ultimate value of the property is $95 million, that equity is worth $45 million. At $105 million, the equity is $55 million. This roughly 10% swing in property value, leveraged, translates to closer to a 20% swing in share equity value. NAV calculations are a good guess of what the share price should be, but they are far from perfect.

Legacy assets acquired at market peak pricing. When investing in a perpetual-life non-traded REIT, one is not investing in the real estate market as it sits now. A good portion of the real estate may have been purchased several years ago, which currently coincides with the peak of this last market pricing run-up. Some non-traded REITs have been slow to adjust their valuations — where overall commercial real estate values have fallen around 20% since November 2022, some non-traded REITs have stated much lower declines, perhaps materially light even taking into account different property-type allocations.

Current investors in a perpetual-life vehicle may believe they are getting into the market at this attractive time, taking advantage of the pricing correction that occurred over the last two years. But with many of those properties purchased at 2021 and 2022 market peak pricing, the assets are likely worth less now than what was paid for them.

While hotels and student housing bought in 2021, for example, may have been good investments as the COVID pandemic beat those property types down, conventional apartments and industrial/warehouses were likely much less so. There could be a good reason why the REIT’s legacy investments are currently attractive. Just don’t take the often shared “it’s better real estate” or “we’re really good managers” as a sufficient answer.

Questionable liquidity. Liquidity (the ability to get one’s investment capital back) in newer perpetual-life non-traded REITs is touted as sort of “no problem,” with passing reference to quarterly liquidity up to some percentage of assets. However, as we’ve seen over the last year, the ability to get your money back and the price-determining mechanism for such are not ideal.

While liquidity is offered, in practice an investor essentially must apply for an equity redemption, which could be approved fully, in part or not at all. Potential investor need for liquidity aside, this removes an important ability of investors to react quickly to changing market conditions, up or down, or changing views of the sponsor.

Dilutive nature of redemptions. Redemptions if met often strain the finances of the non-traded REIT to the detriment of remaining investors. The older REITs, which underperformed, at least had a stated target of company liquidation or public listing after some period. With today’s perpetual non-traded REITs, you get liquidity at the REIT’s sole discretion.

Often the REITs do not have the cash to perform on redemptions, requiring dilutive repayment of current equity with capital coming in from new investors. Note there is a cost of new equity in the form of commissions to financial advisers, so the net new cash to the REIT will always be less than the amount of cash redeemed.

Another way REITs handle redemptions may include sales of assets into poor market conditions or placing of new debt on properties at high interest rates.

None of these equity redemption methods is helpful to the remaining shareholders.

Conclusion

The major sponsors of today’s largest perpetual-life non-traded REITs are generally successful groups with decades of experience successfully managing institutional equity in closed-end real estate funds. They’ve got the institutional capabilities needed for success and strong track records. However, the four structural concerns noted above regarding perpetual-life non-traded REITs are only just now being tested, and the jury is out on how well it will go.

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According to an Edward Jones and Morning Consult survey, 61% of respondents said that inflation prevented them from staying accountable to the financial resolutions they made in 2023, and 43% reported they do not feel financially stable.

The good news is that you can make positive steps through small adjustments to your spending and saving habits. By integrating a few useful financial habits into a daily routine, you can get back on the right path toward meeting your life goals.

Financial wellness begins by building a stable foundation — creating a budget to track expenditures, finding areas where excess spending can be cut and managing debt levels. Once you have an accurate view of your financial picture, you can make informed decisions and plan for long-term goals, such as retirement or future education.

Building a foundation

Financial well-being is a critical component of overall personal well-being. But to reach a stage of financial security — which includes earning enough to cover weekly and monthly expenses while feeling confident about your financial future — it’s important to understand how much you can spend and save.

This is why creating a budget is crucial. A budget will help you identify waste in your daily spending habits and stay focused on your priorities and the things that are important to you.

When thinking about where to reduce expenses, it can be helpful to distinguish between “needs” and “wants.” While a “need” is an item that is necessary for basic living, a “want” is something that makes life more comfortable. Once you understand your needs and wants, you can make a realistic plan that helps you achieve your financial goals.

One simple budgeting tool is the 50/30/20 rule, which calls for allocating 50% of your income toward needs, such as bills and liability payments, and 30% toward wants, such as going to the movies or dining at a restaurant. The remaining 20% of the budget should be set aside for future goals and financial security. These future aspirations could be as near-term as saving for a vacation, or as far out as saving for education.

While the 50/30/20 rule can be an effective budgeting method for most people, it’s not always the right fit. For example, someone with high health care costs — such as an individual caring for older parents with medical expenses — may struggle to fit within the 50% allocated for needs, while others with lower expenses may find this ratio too restrictive.

Whatever method you choose to manage your budget, it’s important to stay disciplined. Doing so will likely reveal areas of strengths and weaknesses in your financial picture and raise important questions that lead you to reexamine your financial practices.

Managing your debt load

Creating a budget and reviewing spending habits are great first steps to getting back on track, but the road to financial stability doesn’t end there. One of the most important practices to solidify financial health is to keep debt at manageable levels, or, better yet, be debt-free entirely.

Carrying a high amount of debt can lead to costly interest payments and cause worry and stress. It’s important to periodically check your debt-to-income (DTI) ratio — a percentage that indicates the amount of your monthly income that goes toward debt payments — to determine whether you’re in danger of carrying too much debt.

While there are no definite rules, you should aim to spend no more than 8% of your monthly income on debt. Not only can a higher ratio place you under significant financial pressure, but it can make securing home and car loans difficult and lead to higher interest rates if your loans are accepted.

To lower your debt load, one approach you can take is to start by paying down the debt with the highest after-tax interest rate. Whether you make minimum payments or can pay more than is required, any amount will help. If you’re feeling overwhelmed, you can reach out to a financial adviser, who can help with renegotiation and consolidation of debt at lower interest rates.

Keep in mind that reducing your debt also requires an attitude shift. As paying off loans usually comes at the expense of investing in other goals, you should be prepared to make sacrifices in other areas of your financial plan.

Looking to the future

Once the initial building blocks are in place, you can start to manage longer-term priorities and set aside money for unexpected events.

Take, for example, an emergency savings account. As unforeseen events often arise in life — such as surprise medical bills or extended periods of unemployment — setting aside a portion of your income for emergencies is essential to avoiding excess debt in the future. Ideally, this account should be kept separate from everyday spending so it’s easy to determine what is set aside for urgent situations.

While there is no defined amount for an emergency fund, prioritizing $500 to one month’s worth of expenses is a good start. From there, aim to save up six weeks to two months’ worth of expenses, with a goal of reaching three to six months’ worth of savings.

Other long-term savings objectives include retirement plans, education and homeownership. For these areas, taking advantage of employer match programs can help accelerate your savings timeline. Not only do employer matches offer an immediate return on your contributions, but they also provide a tax benefit and potential market appreciation.

A general rule of thumb is to save 10% to 15% of your gross income — including any employer match contributions — in retirement accounts. However, everyone has a unique financial picture, and retirement planning will vary based on factors such as desired retirement age, projected assets, anticipated life expectancy and desired income. This means you shouldn’t be discouraged if you fall outside of these levels. Time is your ally, and saving even small amounts daily can lead to substantial long-term returns.

Ultimately, practicing prudent habits such as budgeting, saving and investing wisely will lay the groundwork for a secure financial future. By prioritizing disciplined financial behaviors each day, you not only cultivate stability in the present but also pave the way for peace of mind in the years to come.

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I see all sorts of articles online regarding the benefits of doing $100,000 Roth conversions over a 10-year period, which makes me think that a lot of people aren’t even evaluating income tax brackets. But that’s the best place to start when evaluating whether a Roth conversion makes sense.

Here are three thresholds you need to consider before deciding to do a Roth conversion:

1. Your income tax rate.

This is us looking left. The reality of a Roth conversion is that it’s just a bet that your current tax rate is lower than your future tax rate. If so, you’d rather pay the taxes today. If you’re in the period between retirement and when you start RMDs (required minimum distributions), this can be a pretty safe bet.

I met with a client the other day who is three years out from RMDs. Once both spouses start receiving RMDs, that will push them from the 24% marginal bracket to 32%. So, in doing the conversion calculation, we want to see how much we can convert while staying in the 24% bracket.

2. Your capital gains tax rate.

We are looking right. People talk about capital gains tax rates as though they are 15% for everyone. That is not the case. Evaluating capital gains rates is most important at low income levels and at high income levels.

When your income is very low, a Roth conversion can cause you to go from paying 0% in capital gains to paying 15% on everything. This is an expensive trigger.

Once taxable income crosses above $518,900 (S) or $583,750 (MFJ) for 2024, you jump from 15% to 20%. Less talked about is the 3.8% net investment income tax, which, as it sounds, is a tax on investment income over $200,000 for individuals and $250,000 for a married couple filing jointly.

3. Your Medicare premiums.

Finally, we are going to check the bike lane to ensure we don’t get smacked by an e-bike. Premiums for Medicare Parts B and D are income-adjusted. However, unlike the above income tests, Medicare premiums are determined by gross, not taxable, income. The Part B premiums can increase by as much as $419 per month, per person, based on income. In my experience, this is the one that upsets people the most.

To be clear, you’re not always trying to stay under every threshold. In many situations, it makes sense to pay more in Medicare premiums to avoid a much larger income tax bill down the road.

Evaluating Roth conversions in your situation requires projecting out your future tax rates; i.e., should you even be crossing the road at all? To get a sense of what your rates may look like, you can build out a free plan here.

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But people also recognize this: No one wants to give Uncle Sam more money than necessary, especially since all of us have our own uses for that money.

That’s where good tax planning comes into play. With the right strategies, you can reduce your income tax bill, put fewer dollars in Uncle Sam’s pocket and keep more in yours.

That can be especially beneficial for retirees, who need to make sure their money lasts the rest of their lives.

Let’s look at three ways you can give Uncle Sam less so you can keep more.

1. Carefully consider which assets to leave to beneficiaries.

It’s nice to be able to bequeath something to your children, grandchildren or others after you are gone. But as you make plans to do so, keep in mind the income tax ramifications, both for you and for your heirs. With the right moves, you both can avoid taxes.

For example, if you have assets such as stocks or real estate that have appreciated in value since you purchased them, you should consider the advantages of a “step-up in basis.” If you were to sell those assets now, you would pay capital gains taxes. on whatever gains you have made. Leave these assets to your heirs, though, and the situation changes because the step-up in basis rule comes into play. Under that rule, there is a restart on the date from which the gains are measured. Instead of being calculated from when you purchased the asset, the gain is determined from the time your heirs inherited the asset.

Let’s say that many years ago, you bought several shares of a stock for $10,000, and today those shares are worth $50,000. If you have the option, this might be a good candidate to leave to your heirs rather than sell right now. If you sold the stock, you would owe capital gains tax on the $40,000 gain. But if you leave the stock to your beneficiaries, their starting point for capital gains is $50,000 (or whatever the value is at the time of your death) because of the step-up in basis. If they sell quickly, they likely would owe little or no capital gains taxes.

2. Have a strategy to pay taxes efficiently.

But, of course, leaving assets to beneficiaries means someone else has to pay taxes after you are gone.

You are paying taxes in the here and now. As you do so, you need a strategy to make sure you are paying them in the most efficient manner and that you are taking advantage of anything in the tax code that allows you to pay less.

That begins with capitalizing on the income-tax deductions available to you. About 90% of taxpayers use the standard deduction, which has risen over the years, especially after the Tax Cuts and Jobs Act of 2017 was passed. The deduction is even higher for those who are blind or who are 65 and older, though you have to be sure to check a box on your 1040 form and add on the extra amount.

In the past, more people Itemized their deductions, and that is still an option. It’s just difficult for the average person to come up with enough deductions to bring the itemized total higher than the standard deduction. But if you can itemize and claim an even greater deduction than the standard, you want to go that route.

Among the tax deductions that could help you get to the appropriate total are mortgage interest, medical expenses and charitable contributions. Make sure you deduct only what is allowed, though. For example, medical expenses are deductible only when they exceed 7.5% of your adjusted gross income.

Another way to be efficient with your tax payments is to keep an eye on the income tax brackets and the possibility of dropping into a lower bracket. For example, if a married couple filing jointly can reduce their taxable income to $89,450 or lower, they move out of the 22% tax bracket and into the 12% bracket. (Extra deductions can help you move from one of the higher tax brackets as well, but the gap between the 22% bracket and the 12% is the largest.) It’s worth noting that even when you are in the higher bracket, all of your income is not taxed at the higher rate. Only the portion of your income that exceeds a certain threshold is taxed at that higher rate.

3. Make sure investments are in the proper accounts.

One other way to pay taxes efficiently is to make sure your investments are in the appropriate accounts that will be most likely to produce the desired results. If you aren’t careful, you can incur unnecessary taxes.

Essentially, the accounts you might have money invested in can be broken down into two types: accounts that are taxable and accounts that come with some sort of tax advantage.

Taxable accounts include brokerage accounts, where you might hold stocks. The upside with these is there is no age restriction or other restriction on getting access to your money. You do pay taxes, but if you have held the asset for more than a year, it is considered a long-term capital gain and is taxed at a lower rate than regular income.

Tax-advantaged accounts are those with investments that are tax-deferred, such as a traditional IRA or 401(k), or that are tax-exempt, such as a Roth IRA, where you pay the taxes now but not when you begin withdrawing money. Although these accounts give you some tax advantages, one tradeoff is they have rules on when you can withdraw money and penalties if you break those rules.

So where to put your money?

That comes down to the type of investment. As much as possible, you want investments that are subject to little or no taxes in your taxable accounts. Investments subject to a higher tax rate should go into the tax-advantaged account.

A good financial professional can help you determine the best investment accounts for your individual situation. That person can also help you find other ways to make sure you are paying taxes in the most efficient manner possible.

By taking the right measures, you will still pay what you legally owe — but not more than required.

Ronnie Blair contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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But most people don't realize that the bottom line isn't the end of the story. Humans are emotional creatures, and even the most "rational" of us can seem to act "irrationally" when it comes to money decisions. That's where understanding financial psychology comes in. Recognizing the psychological factors that influence our financial choices helps us make more considered decisions, especially during stressful times.

In my experience working at the intersection of financial and personal well-being, I've helped numerous clients address the qualitative aspects of wealth management. And now, I'm here to share just a few of the most helpful points with you.

Understand the ‘why’ behind your financial behaviors

First of all, it helps to start with why. Did I buy that car for me, or for the impression it makes on other people? Why do I shop online when I'm stressed? Did I sell that stock out of the fear of losing money? 

By deeply contemplating your financial decisions, you can develop an understanding of what your tendencies are. This helps build self-awareness. Eventually, self-awareness could lend you the ability to pause and consider all aspects of a decision before finalizing it.

We all have financial comfort zones, those areas in which we make decisions by habit, without consideration. These zones are shaped by our past experiences. While they can provide a sense of security and help to manage decision-making stress, they can also expose us to our financial blind spots.

Financial blind spots are the biases and emotions that impact our decision-making. Overconfidence, loss aversion and mental accounting can lead to negative outcomes, sometimes without us even noticing. Similarly, money scripts, or money messages, are the core beliefs about money that we develop through childhood experiences and financial flashpoints. These all have a major influence on how we make financial decisions.

By fully understanding our "why" — by identifying what we learned about money growing up and how those experiences informed our current money beliefs — we can mitigate these blind spots and scripts.

Find the balance between needs and wishes

After you start to understand your why, you'll need to examine what your goals are. What is most important to you, now and in the future? What about your family? And when do you want to achieve your goals? All choices have costs.

We define "needs" as anything that enhances your well-being. From eating nourishing food to having appropriate insurance coverage, our needs are critical to our flourishing. On the other hand, our "wishes" are our long-term financial goals and dreams, such as starting a business, achieving financial independence or retiring early. Wishes represent the culmination of our ambitions and the realization of our broader life aspirations.

Finding a balance between these isn't easy, especially in the chaos of everyday life. But by focusing on what we can control, such as how we interact with money and how we use our priorities as a filter for making financial decisions, we can foster conscious, informed decisions that align with both the short term and the long term.

Note: When you're evaluating your own needs and wishes, avoid comparing your financial situation to other people. You never really have a complete view of and understanding of someone else’s financial situation. Someone else's "why" could be entirely different from yours.

Look beyond the money

Defining your wealth by the number in your accounts can be very limiting. In the real world, wealth is defined in a variety of ways.

Your health, your time, your relationships, your skills and your knowledge can be defined as wealth. These are things that money can't buy on its own, and they contribute significantly to overall well-being.

For instance:

• You can pay for a personal trainer, but if you have a poor diet, your health will suffer
• You can pay for an Ivy League education, but if you don't study, you won't get much out of it
• You can pay for lunch when you go out with friends, but this won't create meaningful relationships in and of itself

In this sense, money can be leveraged as a resource — as a means to help you pursue your goals — but it can't accomplish anything on its own. Human intervention is required to direct the purpose of money. And you define that intervention.

Expand your perspectives

Behavioral Wealth Management is about more than just accumulating assets; it's about understanding the deeper motivations behind your financial decisions and making these decisions in the context of the bigger picture — your overall well-being. By expanding your perspective on wealth to include your time, relationships, health and more, you can make financial decisions that create a balanced and fulfilling life.

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