INTRODUCTION

Here is the Summer edition of the Otto & Associates Newsletter. We have a lot to report, including a comment on the volatile stock market that has been losing money since the end of last year. Our first article, however, begins with describing the evolving situations at both our Katonah and Norwich offices. Following that is a brief article introducing our new employee in Norwich.

We then turn to a discussion of the stock market, and the fourth article reviews various ways to make charitable gifts that may help clients save some money in the process. This is followed by a piece on Life Care Communities.

The penultimate piece is a collage of employee information about themselves during time off. Don’t miss the final “SAVE THE DATE.”

WHERE ARE THE O&A OFFICES?

As many readers are aware, we closed the 200 Katonah Avenue office in August, 2021. Though our lease was up for renewal, Covid was a primary mover in the decision. After more than a year, the employees had grown to love working from their homes in Westchester County. All of us got onboard with leaving that office behind. We had a lot to figure out, but we are now fully functional in different locations in and around Katonah.  

The accounting firm of Heckler and O’Keefe, used by O&A for many years and also by many of our clients, offered their conference room as a place to see clients. Their offices are in the same building as our old office. In the last nine months we have found that conference room comfortable and compatible, for both clients and staff.  

David and Mary have owned a condo in Katonah for many years (11 Wildwood Road) and that now serves as the location for all nine of our computers, as well as being a place for the staff to meet together and work individually. It appears that this new arrangement in Katonah will be satisfactory for the long-term future.

In the process of making changes in Katonah, we moved our corporate offices to 289 Main Street, Norwich, VT. That is three doors up the street from our old Vermont office. As the Newsletter masthead suggests, this is now also the place where correspondence should be sent. We hired an interim person during that transition, but after a few months she decided that this was not the right job for her. We have now hired Laura Bergstresser, who seems to be an excellent fit.  

BUT, we are on the move again. The Main Street office in Norwich has proven to be too small. We expect to sign a lease very soon for larger office space, still in downtown Norwich. Stay tuned.

There is no change in our telephone numbers. Both the New York number and the Vermont number go to all phones. All staff members have a phone in their home office (except Laura, who does not have a home office). Phone numbers are also listed on the masthead. 

LAURA BERGSTRESSER JOINS O&A

As was mentioned in the previous article, we have a new employee in the Norwich office. Laura Bergstresser joined Otto & Associates as an administrative assistant there in March. She’s new to financial planning, but brings wide-ranging work experience to the job.

Laura has a master’s degree in anthropology and spent several years working as an archaeologist and environmental planner with the National Park Service (NPS) before the fact of having small children in remote locations made staying home the more sensible option. Her husband still works for the NPS, and his career brought the family to the Upper Valley in 2010. 

In the intervening years, Laura has balanced her life of shuttling kids around the region for after-school sports, arts, and musical theater events along with her paid and volunteer work. She’s been production manager for school musicals, the religious education director for their church community, a long-standing board member with the local library, and the assistant clerk at the Hartland town office. The Covid shutdown coincided with her mother’s need to move to memory care, and she is now in a nearby facility where Laura visits her frequently.

With the kids getting older and (hopefully) more independent, it seemed the right time to forge a new career path. Fortune had her perusing the want ads just as Otto & Associates was hiring. It’s a good match all around, and she looks forward to a long career here. 

THE STOCK MARKET IS DOWN

“It feels like everything is down this year! What's going on and what do I do?” The above was a recent Dimensional Fund Advisor’s (DFA) question of the week. As you undoubtedly know, both stock and bond investments are down this year, which is unusual. Typically bond investments provide protection against stock downturns, but that has not been true recently. Although diversification hasn’t helped so far this year, we are confident that it will over the long term.

What follows is DFA’s answer to the question at the beginning. The article has been edited for clarity and brevity.

DFA says: Rarely have we seen quarters with both stocks and bonds down at the same time. In the last 173 quarters only 14 quarters have experienced negative returns from both US Stocks and US Bonds.

• It's normal to be nervous, but you don't have to be scared. By accepting that uncertainty is part of investing, you can avoid unnecessary anxiety. If investing were a definite slam dunk without ambiguity, there would be no reward. For an investment to do better than an investment from a money-market fund, it needs to carry risk.  
• Information about risk and returns are constantly being incorporated into market prices. These expectations can include macroeconomic and company-specific factors as news develops. If you read an article about what the latest news for ABC company means, it's likely that the information has already been incorporated by other buyers and sellers before you make your buy/sell decision.
• History shows us that markets have rewarded long-term investors. Think all the way back to two years ago. In March of 2020, the S&P 500 Index declined 33.79% from the previous high as the pandemic worsened. Even if investors were able to time getting out of the market, they were probably unable to correctly time getting back in. As more information became available, the S&P 500 Index jumped 17.57% from its March 23 low in just three trading sessions. 
• The Federal Reserve Bank has been getting attention recently as it announced plans for a series of rate increases to combat inflation. Historically, on average, US equity market returns are reliably positive in months with increases in interest rates. Similarly, within bond markets, periods of rising rates do not necessarily result in negative returns. 
• FAANG stocks (Facebook, Amazon, Apple, Netflix, and Google) whose returns have been very high in recent years, have posted disappointing returns this year. As of May 5th, the group collectively underperformed the Index by nine percentage points. This reversal is a warning about the allure of assuming past returns will continue in the future. 
• While the future is uncertain, the quality of your choices doesn’t have to be. When headlines scream do something, remember lessons learned. A financial advisor can integrate your unique needs into a plan that you can stick with in good times and bad. 

As the O&A Newsletter goes to press (6/17) the U.S. market has lost over 11% in the first half of June. This can be painful to experience, but the DFA perspective offered above reminds us that big swings down can result eventually in big swings up. 

CHARITABLE GIVING 

Building thoughtful, expansive and creative giving into your financial plan allows you to align your financial interests with your personal values. While writing a check to a charity is one way to make a donation, there are two other options that can help clients attain their charitable goals while also saving money: a qualified charitable donation (QCD) and a donation of appreciated assets. We should note, however, for clients to take advantage of one of these options, O&A asks that the charitable gift be at least $1,000.  

One choice we like is giving through QCDs. Only donors over 70½ can make QCD donations, which come directly from IRAs. When Required Minimum Distributions (RMDs) are mandatory at age 72, the RMDs is taxed as ordinary income. However, making a charitable donation from an IRA can satisfy some or all of the donor’s required distribution. In this case the money comes out of the IRA with no Federal tax being due. An illustration might be enlightening.  

Sally is 73 and thus required to take $10,000 from her IRA. She wants to give $6,000 to the local food bank, which she does by making the donation directly from her IRA. She owes no tax on this withdrawal. Since she is still required to take another $4,000 out of her IRA, she can give that money to other charitable organizations and still pay no tax. She can also opt to take the money out to spend or save it. In that case there will be taxes due on the withdrawal. 

A second option we discuss with clients is charitable giving through appreciated stock from a taxable investment account. Fred wants to give $10,000 to his temple. He owns ABC mutual fund which he bought a few years ago for $5,000. It has now appreciated to $10,000, so he decides to donate the entire mutual fund to the temple. In this case, he gets an income tax deduction of $10,000 as a charitable donation. As well, neither he nor the temple pay tax on the $5,000 of capital gain. Had Fred sold the fund, he would have owed capital gains taxes of approximately $750 (while this figure applies to most of our clients, it could be more or less), but in this case the capital gains tax goes away. It’s a win-win situation!

If you want to take advantage of one or both of these programs, in order to avoid problems at the end of the year please let us know of your intentions sooner rather than later. We are asking that charitable decisions be made by the end of October. Should problems arise, that gives ample opportunity to solve them.

We and TD Ameritrade have made notable improvements in getting money in IRAs to charities. All withdrawal checks will now have the name and address of donor on the check, thus eliminating confusion on the part of the charity as to who is making the donation when it arrives from TD Ameritrade.  

Please let us know if you would like to discuss these options for charitable giving – or to talk about giving to charities in general.

EVALUATION OF LIFE CARE COMMUNITIES

In recent years, we at O&A have developed something of an expertise in retirement communities. We now have well over a dozen clients who have considered, evaluated, and moved to retirement communities, many of them into a Life Care Community. Our learning has been greatly enhanced because, as many of you know, David and Mary moved to such a facility in August, 2020.  

We have written in past Newsletters about compelling reasons older clients should consider Life Care communities as their ultimate residence. (For previous articles go to the O&A website; click the Newsletter tab and then scroll to the March 2018 edition and see article titled “Long Term Care.” A related article is found in the March 2020 edition called “because I said I would”.)  

Some background: there are many kinds of retirement communities. Some offer only housing and no additional services, but simply require that one member of a couple be a minimum age, often between 55 and 65. At the other end of the spectrum are CCRCs – now seemingly referred to more commonly as Life Care Communities. These communities have independent living homes or cottages as well as apartments. They also offer units for licensed residential care where people can live somewhat independently, but need modest help, as well as skilled nursing and memory care facilities.  

Other communities offer independent living with some additional support, but not full-time care. However, those residences often have another facility near-by that offers higher levels of care.

The community that David and Mary moved to is Wake Robin in Shelburne, VT. It is a Life Care Community. They moved there less than two years ago and are now fairly settled, particularly as Covid guidelines slowly, and unevenly, loosen up.

Evaluating a Life Care Community can be a challenge. Prospective residents should ask a lot of questions of themselves as well as of the facility they are considering. How important is privacy? Do you want a cottage, a stand-alone house, or an apartment? How do you assess the extended care options that residents can receive as needs arise?  

How much autonomy is there for those who need no special care and who want to continue to live an independent life? How important is the opportunity to stay active by walking on trails, having an extensive fitness center, etc.? How much meaningful participation could residents have in an active residence association? How involved are residents in major decisions regarding the facility? What is the relationship residents have to the corporate board?

Perhaps the most useful external group to help perspective residents evaluate Life Care Communities is the National Continuing Care Residents’ Association (NaCCRA.) That association exists for potential residents to find guidance in assessing a community. Their Consumer Guide document (readily available online) concludes: “The CCRC industry emerged from former ‘old people’s homes.’...A paternalistic pattern of governance is a legacy of this early history, a pattern which is only gradually being overcome. 

“Now that it is the residents who pay for the services they receive, rather than a governmental agency or a fraternal or religious sponsoring organization, it is appropriate that the industry evolve toward more governance accountability to residents themselves….As the baby-boomers, with their greater aversion to paternalism, enter the field as new residents, the CCRCs with the most robust enrollments will be those who meet this governance challenge creatively.”

The sole purpose of NaCCRA is to help individuals and couples figure out how to meaningfully evaluate various Life Care communities in matters that are important to their ultimate satisfaction as residents. The membership fee is modest ($25/annually), given the importance of the decision in choosing a Life Care community. O&A will also continue to be a resource to our clients in considering such choices.

We will add that Life Care communities are not the best option for everyone. Finances are a consideration. Sometimes moving into the home of a child makes sense, particularly if there are quarters that are somewhat separate. The larger point is that plans should be made in advance, prior to an incident that requires quick decisions when the option of returning home from a hospital or rehabilitation center is not viable.

EMPLOYEE COLLAGE

In this edition of the Newsletter, we have invited each employee to say a few words about current activities and interests.

Susan Otto Goodell
Susan is enjoying the benefits of having a retired husband at home. After 25 years of teaching, Jeff has hung up his backpack and put away his lunch box. He misses many things about being at the Newbury Elementary School, especially interactions with the children, but he is happily adapting to his new roles as chief cook and keeper of the house, as well as an active participant in a few volunteer opportunities. Their kids continue to come home often: w Carter from Portland, Maine, where he is an oyster farmer, and Eliza from Oberlin College, where she is one semester away from graduating with a major in Geology.

David Otto
For David, the state of VT continues to expand, or at least his knowledge of it does. While moving from Norwich to Shelburne, just south of Burlington, has had some losses, it also has some gains. With Covid now more manageable and Burlington just 20 minutes from home, he and Mary are discovering restaurants, shopping, the Flynn Theater, music at UVM, a film festival, and good walking along the lake. Closer by are the Shelburne Museum and Shelburne Farms. Both are worth a visit if you are in the area, as are their websites if you’re not. They are also enjoying the connection with the Charlotte (just south of Shelburne) United Church of Christ, and David sings in the choir there. In general, he travels to Norwich every other week, he and Susan go to Katonah once a month, and they work from the office in Maine for much of the summer. Getting to know the Wake Robin Life Care community continues to go well.

Deborah Maher
Deborah and her husband are selling the house they’ve lived in for over 25 years and are moving to an apartment. Downsizing is hard work and she looks forward to soon being done and settled in a new place with great views of the Long Island Sound. She is too busy packing and finding good homes for things they don’t have room for to write any more.

Kathy Patton
The Patton Family is expanding. Kathy and Chuck Patton will welcome their first grandchild this summer, giving new meaning to the date Labor Day. Their elder daughter and her husband, who reside in Washington, DC, are expecting a little boy and it has sent the whole family over the moon. The expectant parents are doing well and having fun kicking around boy names. Kathy and Chuck are also having fun diving into the “grandparent name” trend. Everyone will have to wait until the end of summer to find out who’s who in the Patton household. 

Joan Poulin
Many happy events in Joan’s family. Joan and Steve’s older daughter, Olivia, just moved into a new apartment. She works for a small company (much like O&A) and loves the team atmosphere. She helps people find working capital solutions for small businesses. Their younger daughter, Juliette, graduated with a Master’s Degree in Elementary Education. She spent her first-year teaching in Tampa, Florida. While the weather is wonderful, the state was not for her. In July she will be moving to Maryland and has a second-grade teaching position lined up. 

Joan’s niece, Danielle, just had a baby boy and Joan met him for the first time on June 15th. They marvel at her energy juggling the new baby and two boys ages five and two. They get tired just watching her! 

Laura Bergstresser
See article above. 

SAVE THE DATE!

The year 2021 marked the 30th Anniversary for O&A. For obvious reason our celebration had to be postponed to 2022. But it is going to happen at the end of September in Norwich and the first week of October in Katonah.

In Norwich we will be returning to the site of the 25th Anniversary party at the Montshire Museum of Science. The date for that event is Thursday, September 29th. In Katonah the event will be held the following Thursday, October 6th. The venue will be Le Fontane Restaurant three miles outside of town. For those of you within driving distance of one office or the other, we look forward to welcoming you to our celebration. 

Everyone in the office contributed to this Newsletter. While David (and Mary) are the editors, this Newsletter had more than the normal amount of staff input.

The O&A Team wishes you a relaxing and restorative summer.