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November 6th, 2009
MAKE ESTATE AND FINANCIAL PLANNING A FIRST STEP AFTER DIVORCE
After a marriage breaks up, about the last
thing most people want to do is sit down with one more attorney. But no matter how old you are or whether you have kids, it’s
important to consult both financial and legal experts to make sure you have an updated estate and financial plan for your
new life once the divorce decree is final.
The immediate months after a divorce can be disorienting – even if you don’t move,
you are literally starting a new household that you will have to direct yourself, and that means new money issues to face.
This is why that the weeks immediately after a divorce are a good time to revisit
short- and long-term spending and planning goals. Here’s a general road map to that process:
Start with a financial planner: It’s
good to get a baseline look at your finances as early as possible after the divorce is final. Expenses for the newly
single can pile up quickly and unexpectedly, and a financial planning professional can help you review your new current spending
and savings needs, compare strategies to achieve long-term goals and give you critical tools to protect your assets and loved
ones if you die suddenly. Even if you have a good relationship with an ex-spouse and you addressed key issues for your children
as part of the divorce proceedings, you need to revisit all these issues as a single individual before you move on to the
next stage.
Talk with a trained estate planning attorney
about wills and other critical documents: It makes sense to
coordinate the activities of a financial planner with an estate planning attorney who can tailor an overall estate plan specific
to your needs no matter how basic they might be right now. Even if you are very young with few assets, it makes sense to get
some solid advice in this area so you’ll be able to manage such planning as you age and your finances get more complex.
Particularly if you have kids, such planning is important if you plan to remarry and if you want to guarantee that specific
assets are guaranteed for them when you die. In some cases where a spouse dies unmarried with minor children, an ex-spouse
might automatically gain control of assets that were supposed to be earmarked for the kids. If you don’t want that to
happen, you need to plan for that legally.
Make a guardianship
game plan for your kids: It’s not enough to plan how money and
assets will go to your children if you or your ex-spouse die suddenly or are incapacitated. If your children are minors,
it’s particularly important to make sure you and your ex-spouse have a guardianship plan for their upbringing as well
as any assets they may inherit. You might completely trust your ex-spouse’s new husband, wife or partner to raise your
kids if your ex-spouse dies before you, but there may be others better-equipped to do so – spell that out now.
Also, if there are any trust or wealth issues that will become effective for your children once they reach adulthood, it’s
also important to establish an efficient legal structure for distributing those assets as well as appointing a trustee in
a will to train and guide your kids through that financial transition.
Plan for special needs kids: If one of your children is disabled
and is expected to need lifetime assistance of some type, then you should consult a qualified attorney to help you create
a special needs trust. It will help protect your child from having to give up any public or social financial assistance as
well as access to special doctors, medical help, special prescriptions or treatments that could be taken away if they were
to personally inherit assets that would disqualify them for these programs. When such assets are held in trust, they are not
counted as the child’s assets. The advantage is that those inherited assets may still be used to support their housing
or other personal living needs.
Get solid protection in
place: Most people focus on what may happen to their health
insurance if they get divorced, but insurance issues like life, property/casualty and disability insurance are sometimes put on the back burner.
If you’re newly single, you definitely need the best health coverage you can afford for yourself and your kids, but
life, property, liability and disability insurance becomes doubly important, particularly if you failed to address those needs
during the divorce. Even if your ex-spouse is cooperative with financial support, it’s wise to insure yourself
as if they weren’t. A financial planner should be able to go through those options in detail.
Review all your investments for primary ownership and beneficiary information: Even if you were advised correctly to change the names on assets you and your spouse were dividing
between yourselves, it still makes sense post-divorce to review that the names are indeed correct on those assets, and most
important, to make sure all beneficiary information is correct.
October
30th, 1009
WHAT IF YOUR EMPLOYER DOESN'T WANT YOU TO RETIRE?
The mass Baby Boomer retirement anticipated over
the next 20-30 years is expected to create an overall U.S. labor shortage of 35 million workers. That’s potentially
good news for future retirees who either want to work or need to work due to the recent investment downturn.
A recent study by Hewitt Associates showed that out of 140 mid-size and large employers, 55 percent already had evaluated
the impact that potential retirements could have on their organization, and 61 percent have developed or will develop special
programs to retain targeted, near-retirement employees. Only one in five said that phased retirement is critical to their
company's human resources strategy today, that number more than triples to 61 percent when employers look ahead 5 years.
Phased retirement might be one of the great opportunities to repair the retirement debacle so many have suffered. What’s
phased retirement? Conventionally, it’s the process of allowing employees who have reached 59 ½ to cut their
hours while voluntarily receiving a pro-rata portion of their pension annuities. The company gets to keep its intellectual
capital in place a little longer while the worker gets to segue into retirement gradually while accessing some of their retirement
assets along the way. Provisions in the Pension Protection Act of 2006 made it easier for companies to create phased retirement
strategies. Hewitt said that in addition to retaining current employees, employers are reconsidering their policies toward
rehiring retirees. While 45 percent indicated they currently have policies in place that limit the ability to rehire retirees,
46 percent said they would likely to review their rehiring policies in the future.
Envision how a phased retirement or return to your workplace would affect
your life: If you’re reviewing your retirement planning at any age, it makes sense to ask
yourself under what conditions you’d leave the workplace or return to it. If you were offered phased retirement, how
would you deal with the cutback in responsibility and hours? Some people thrive on work relationships and might not know what
to do with significant time outside the office. You obviously need to know based on current projections how much money you’re
likely to gather from savings and other retirement resources. Then you need to consider how much money you’d be satisfied
making in your post-retirement working life and for how many years you’ll earn that income.
See
if there’s an opportunity to reshape a job or design a position from scratch: Older workers may not have
the energy of their 20 and 30-year-old brethren, or maybe they just don’t want to spend their energy the same way.
Older workers should be proactive about suggesting particular work structures that meet the company’s needs while accommodating
the worker’s personal objectives. Telecommuting, flex time, shortened hours – these are options that might work
as well for older workers as the rest of the remaining team.
Check what returning to work will
do to your total retirement income: You obviously need to know based on current projections how much money
you’re likely to gather from savings and other retirement resources. Then you need to consider how much money you’d
be satisfied making in your post-retirement working life and for how many years you’ll earn that income. Early retirement
transitions can have some adverse effects particularly where pensions are involved. If, but if the place where you spent
your career comes calling, you might get some attractive pension incentives to get people to come back. Talk these options
over with both financial and tax experts.
Can you negotiate for benefits? If
you’re investigating post-retirement employers, including your own, see what benefits you’ll qualify for.
Consider insurance issues: If you are a retiree returning to the workforce and you’re already
receiving Medicare or covered by a “Medigap” policy, you may be able to lower your costs or improve your coverage
by accepting group coverage as primary underwriter of their medical expenses. Since people over age 55 are generally the greatest
users of the healthcare system, coverage issues are particularly important to run by a financial expert.
Can you add to your existing pension? Some governments allow returning employees who have already
retired to earn additional pension benefits or otherwise enhance their retirement nest egg. Make sure you understand what
these opportunities might be and get some advice on how it might affect your own finances.
Keep
saving: If you return to the workplace, see what you can do to take advantage of any new wrinkles in your employer’s
401(k) plan or any other tax-advantaged retirement savings benefits, particularly if they match your contribution. Don’t
miss a chance to enhance your retirement savings, even if you’ve already retired once.
October 23rd, 1009
10 THINGS YOU CAN DO IMMEDIATELY TO SLASH DEBT AND SPENDING
Any financial planning process begins with a change in financial
behavior and expectations. The degree of change varies based on financial priorities, but in the end, it’s about adopting
new habits and abandoning others.
Before you take any of the following steps, it makes sense to talk to an
expert who can help you see your whole financial picture who can examine all your sources of income and expenses and find
the most efficient ways to cut expenses, pay off debt and boost the money you have for saving and investing.
In the meantime, here are some ideas:
Refinance if you can: Mortgage rates are still at
historically low levels. You’ll need at least 10 percent equity (20% of equity will save you the PMI insurance cost)
in your home and a credit score exceeding 720 to qualify for the best rates. Start negotiating with your current lender first
and see how well you do.
Track your spending: Either on paper or on the computer, write
down every dollar you spend in the average week. At the end of that week, start marking out non-essential items just to see
how much you could live without.
Make a budget: Once you’ve established
how your income covers the essential expenses you must plan for, and a few inexpensive treats that should stay in, build a
budget that includes specific amounts you can allocate toward debt. Keep a running total of your spending going forward, and
revisit how that budget is working on a monthly basis until you start to see some positive results, and then you can review
the performance of that budget a little less frequently.
Reset your entertainment expectations:
Find ways to save money with friends – cook more meals at home or rent a movie instead of going out to see one. Also,
get used to checking entertainment listings for free events that interest you.
If you can do
it safely, take over home and auto maintenance yourself: The do-it-yourself movement is in a new phase with the economic
downturn. For any home or auto maintenance chores you may have during the year, learn as much as you can about those tasks
and estimate the cost of materials and your time before doing them yourself. See if that option is right for you and
you might save considerable money doing it. Also, for bigger jobs, pair up with friends and family and you can help each other
save money.
et a new gift policy with your adult friends and family: Does everyone on your gift
list over the age of 21 really need a present for birthdays and major holidays? Suggest to family and friends to have a budget
limit, a moratorium on gifts, or some other alternative where you trade off gifts for quality time. Even though the
holidays are a few months away, it’s not too early to think about reining in the traditional holiday overspending.
Go debit: Debit cards wearing a bankcard logo are typically welcome at most stores where credit cards
are accepted. This way, you pay cash without carrying cash. If you don’t have such a card, you can get one from your
bank to replace your traditional ATM card, but remember to tell them to limit your buying power on the card to only what you
have in your account.
Revamp your shopping list: Give this a shot: start a central
weekly shopping list on a single piece of paper and add a dollar value for each. Write everything you think you need to buy
on that single sheet, from groceries to clothes for the kids. That way, you’ll see all your proposed spending in front
of you, and you can get a closer look at what your true priorities are. You’ll be surprised at all the “essentials”
that are not really that essential that you can cross off before you spend.
Talk to your family about
spending: When you’re talking to kids about budgeting and lowering your expenses, you have to walk a fine line
between discipline and fear. But setting money priorities is part of growing up, and it’s essential to discuss and agree
upon them as a family.
Buy used for yourself: Make someone else’s poor luck your good luck. If you need clothing, a car or a new watch to replace
the old one that’s past fixing, it might be worthwhile to buy second-hand. The best places to find these gems are on
the internet on places like craigslist. Plenty of people have unloaded items in relatively good shape to bring in cash during
the recent downturn.
October
16th, 1009
AFFORDING A PET – WAYS TO SAVE AND PLAN
Some of the most heartbreaking news reports out of the latest recession involved the number of pets being left
at animal shelters by owners who could no longer afford to keep them. If you’ve considered giving a rescue or a pedigree
a home, think first about whether you can really afford to give them proper care.
According to The ASPCA®,
the first-year spending for a dog of medium size (under 60 pounds) after adoption or purchase averages $1,618; for a cat,
the number is $860. What’s included? Vet bills, food, grooming, toys, treats, licenses and other miscellaneous
items.
While bringing home a pet should first and foremost be about love, money is an increasingly
important consideration. And a surprising number of things can add to the cost. Here are some important issues to consider
before you bring home a pet:
Are you allergic? According to the American Academy of Allergy, Asthma
& Immunology, there are almost 10 million pet owners who have some sort of allergy to their pets, which are in 70 percent
of U.S. households.
Make sure your home or rental policy allows pets: There are some insurers
who might reject you or charge you considerably more for coverage if you own certain large-breed dogs. Check your coverage
before you get the pet.
Research breed health: If a pet is a single or dominant breed, it makes sense to
research particular health issues specific to the breed to avoid future costly care.
Watch that grocery
bill: Depending on the pet and your desire to give them only the best, an annual pet food bill can cost anywhere from $150
to $400. This isn’t an argument for buying generic, but
When it comes to pet food, always clip
the coupons and check around to various pet stores for case discounts on your pet’s gourmet chow. And check with your
vet about possible allergies your pet may have. E.g. my golden retriever has sensitive skin so I have to use a Salmon or Venison
based dog food.
Your pet’s stuff: What stuff does a pet need? Well, a lot more than most of us
expect. According to ASPCA the average annual bill for toys and treats for a medium-size dog is around $55. For a cat, it’s
around $25.
Doctor, doctor: Vet bills can be the scariest financial aspect of pet ownership, and dealing
with them spurs the most debate. Annual vet bills can average $100 to $300 just for the basics, which include an annual vaccination
and checkup – no medication. For more serious matters such as cancers, joint and bone problems, bills easily run into
the thousands. There are pet insurance companies, but financial experts argue whether premiums justify the benefits. The Humane
Society offers some affordability options:
- Ask the vet to let
you negotiate a payment plan;
-
Contact your local shelter to see if there are subsidized veterinary clinics in
your community;
- If you have a specific breed, contact
the national club for that breed and see if
they might
have a veterinary assistance fund;
- Ask your vet to submit
an assistance request to American Animal Hospital
Association
Helps Pets Fund.
Grooming: Grooming is an important function for all pets. Claws
need to be cut so that overgrown or matted hair doesn’t get the chance to cause skin or infestation problems. Talk with
your vet first about what he or she believes is a proper grooming regimen for your pet, and shop for a groomer based on experience
and familiarity with your pet’s breed. Grooming rates vary by the size of your pet, with per-visit rates ranging from
$20 to $100.
Daycare, pet-sitting and lodging: Daily dog-walking services can cost $20 and up,
overnight kennel fees may go well over $30, and pet-sitting services can cost $50 a day or more. It’s always best to
get references. You can also check out the National Association of Professional Pet Sitters.
October 9th, 2009
A PRIMER ON MEDICARE AND MEDIGAP
COVERAGE
Despite all the public discussion about health care, very few people under the
age of 65 understand the basics of Medicare, the federal health program for seniors and certain disabled individuals, or Medigap,
the supplemental private coverage many buy to cover treatment that shortfalls what the federal program doesn’t pay.
Even if you have years before you qualify, why focus on Medicare and Medigap now? Because as big changes happen in
our healthcare system, those who understand the programs and products ahead of time will not only be better equipped to plan
for their post-retirement healthcare options, but they’ll have a better understanding of these critical federal programs
change over time.
Here’s a summary:
Who is eligible for Medicare?
More people than you might think. Medicare is available to anyone over the age of 65 who is a U.S. citizen or a permanent
legal resident for five continuous years. Yet people under the age of 65 qualify under certain circumstances, including: If
they are permanently disabled and have received Social Security disability payments for the last two years, or if they need
a kidney transplant, are under dialysis for permanent kidney failure or have Lou Gehrig’s disease.
How does Medicare cover expenses? Medicare coverage is divided into 3 primary parts: Part A, Part B and Part D. And yes,
there is a Part C. Here’s what each part covers:
· Part A is the segment of the program
most associated with hospital care. It covers hospital inpatient care, a limited amount of care at some skilled nursing facilities,
some specific home health care alternatives and hospice care. Most people are enrolled automatically in Part A when they reach
65 and they get this coverage for free. What’s important is that Medicare doesn’t cover long-term nursing home
expenses, so that’s why long-term care planning is necessary for all individuals.
·
Part B is about outpatient services. This is the part of the plan that covers doctors’ visits,
outpatient care and some other medical services that Part A doesn't cover, such as the services of physical and occupational
therapists, and other aspects of home health care. You do have to pay a monthly premium for Part B coverage with a deductible
– in 2009, the basic premium is $96.40 per month though it might be higher for some people based on income.
· Part D is Medicare’s
prescription drug coverage. Part D is administered by a number of private insurance companies that operate in various areas
of the country, so this requires some shopping on your part to make sure you’re getting the right drugs at the right
price. Financial assistance might be available if you need it.
·
Part C is actually the Medicare Advantage Plan, which is an optional plan individuals may choose
so they receive their Medicare benefits through private health plans. You’ll also hear this plan referred to as Medicare+Choice.
These private plans include conventional HMOs and PPOs and are required by law to offer benefits that cover everything that
Medicare covers, but they don’t have to cover everything exactly as Medicare Part A and B do. There might be some customized
options that allow for lower copayments or lower total out-of-pocket expenses. In simplest language, Medicare Advantage plans
blend the benefits of Parts A, B and Medigap plans (more on this below). By law, you can’t buy Medigap supplemental
insurance if you’ve chosen Medicare Advantage. However, it’s very important to get some expertise on the choice
between Parts A and B versus Medicare Advantage plans based on your anticipated health needs to make sure the coverage you
buy covers what you really need.
Medigap is supplemental coverage that’s available
for people who opt to be covered under Original Medicare – Part A and B coverage. You buy Medigap insurance from a private
insurer, and your primary goal is to determine whether that supplementary coverage actually pays for the things you know you’ll
need that Medicare doesn’t cover. You do have to pay a monthly premium for this coverage. And again, if you choose Medicare
Advantage (Part C) coverage, you’re not allowed to buy Medigap coverage.
To compare Medicare
and Medigap coverage, visit the Medicare Website at www.medicare.gov scroll down to Search Tools and click on Compare Health Plans and Medigap Policies in Your Area”.
When
do I enroll for Medicare? You have a 6month window to enroll for Medicare that starts three months before your 65th
birthday and ends three months after. If you’re already receiving Social Security at age 65, you’ll automatically
be enrolled in Part A, but if not and you enroll more than three months after your 65th, you may be subject to
a late enrollment penalty.
What’s Medicaid? This is the name for the federal
program – and corresponding state programs – that pick up healthcare costs for indigent children and adults. Unless
you’re below the poverty line or you spend out your assets in your senior years you will not be eligible
October 2nd, 2009
REVIEW YOUR 401(k) AGAIN
A May survey by Hewitt Associates noted that despite record losses in their 401(k) savings in 2008,
individuals stuck with their 401(k) plans. However, more people dealt with their worry about investment conditions by shifting
money into more conservative investments. In addition, a significant number of companies either eliminated or cut back significantly
on matching employee 401(k) contributions.
Hewitt's annual Universe Benchmarks study, which examines
the saving and investment behaviors of more than 2.7 million employees eligible for 401(k) plans, showed that the average
401(k) balance dropped from $79,600 in 2007 to $57,200 at the end of 2008. 44 percent of employees lost 30 percent or more
of their savings. Only 11 percent of employees were able to break even or see a gain in their 401(k) portfolios. Even still,
74 percent of employees participated in their 401(k) plans in 2008, about the same as in 2007.
However,
the Hewitt survey stated that some workers are reacting to the market downfall by moving 401(k) assets into less risky investment
funds to try and blunt their losses. In 2008, 19.6 percent of investors made trades in their 401(k) plans versus 18.7 percent
in 2007. And the volume of money they transferred in 2008 was much higher. Nine of the 10 most active trading days were the
day after a large downturn in the market, or days with an average return of negative 4 percent. Employees' average equity
exposure dropped to just 59 percent in 2008—which is an all-time low since Hewitt began tracking it in 1997. Stable-value
funds, which are considered less risky investments, experienced an 11 percent increase in asset allocation in 2008.
That’s why it might be wise for investors to get a fresh start with 401(k) advice as the economy improves. For
existing investors or those who have never begun to save or invest for retirement, it might be time to consult both financial
and tax experts to make sure both personal and work-related retirement savings complement each other.
Some recommendations to keep in mind:
Save even if your company fails to match:
When you have money automatically taken from your paycheck you are “dollar cost averaging”. That means the fixed
dollar amount that comes from your paycheck buys more shares when prices are low, and fewer when prices are high. Thus your
average cost per share is lower than the average price per share.
Make sure you contribute
to a plan: According to 2006 data from the Profit Sharing/401(k) Council of America, more than 22 percent of eligible
workers don’t participate in available 401(k) plans. For the companies that are still matching, that’s like giving
up free money.
Contribute the maximum: Not every employee can afford to contribute
the maximum allowed by the plan, but try. In 2009, the maximum 401(k) contribution is $16,500, and those older than 50 can
make an additional catch-up contribution of $5,000.
Don’t let your company do all the work:
More companies are automatically enrolling their workers in their 401(k) plans, but some workers fail to take charge afterward.
They don’t know how much they’re allowed to contribute and they don’t discuss or review the types of investments
they have in relation to their age or retirement plans. It makes sense to bring an outside investment advisor to review those
choices with you.
Avoid poor diversification over time: It’s necessary to do a yearly
checkup on all your retirement savings – 401(k) s, individual IRAs and other investments fueling your retirement goals
to make sure you’re on track.
Don’t over-invest in company stock: Most financial
planners advise that you put no more than 15 to 20 percent of your whole 401(k) portfolio in company stock. Don’t
borrow from the 401(k): A 401(k) shouldn’t be a house fund or a source of emergency cash. You’re taking
money out of the account that otherwise would grow tax-deferred, and if you fail to pay back the money, you could face income
taxes and penalties.
Don’t cash out: Some workers think it’s a great
idea to treat a 401(k) as a windfall for when they quit a job. Don’t do it. You’ll pay huge penalties and lose
your retirement savings momentum.
Don’t “lose” your old 401(k) accounts:
Maybe you’ve changed jobs several times and never got around to moving older, smaller 401(k) accounts from past employers
to current ones or into a self-directed retirement account. Always get advice about 401(k) funds when you leave an employer.
September 18th, 2009
A FEW IDEAS TO PROTECT YOURSELF
AGAINST RISING INTEREST RATES
While the struggling economy
has put a vice on inflation, many experts don’t expect things to stay that way for much longer. Experts fear the current
level of federal spending will inevitably lead to printing more money, and that’s regarded as an inflationary solution.
As of late August, the federal deficit was estimated at $1.58 trillion and expected to increase roughly $1 trillion
more based on the final size of President Obama’s healthcare plan. Even if inflation moves slowly, it’s not a
bad idea to at least start thinking about some savings, spending and investment strategies that take inflation into account.
Here are a just a few:
Refinance if it makes sense for you: In March, April
and May of 2009, mortgage rates were at 50-year lows. While they’ve largely bounced around in recent months, an economic
recovery may mean rates are headed up.
Ladder CDs and other interest-bearing savings
vehicles: For emergency funds and other forms of savings, a rising rate environment is actually a good thing. “Laddering”
means buying CDs, T-bills or other similar investments consistently, so they’ll mature on a consistent basis. Like the
steps of a ladder, this process allows a saver to deposit money on a specific date each month – for example, the first
of the month – so as each month goes by at hopefully higher interest rates, you can build the nest egg faster.
Consider TIPS: Treasury Inflation-Protected Securities (TIPS) are Treasury securities whose principal
and coupon payments are indexed to inflation based on the movements of the Consumer Price Index (CPI). Like ordinary Treasury
securities, TIPS have a fixed coupon interest rate but principal is adjusted to reflect the inflation rate. If inflation goes
up, the amount of principal to be paid at maturity rises. Coupon payments rise along with the principal since the rate is
calculated on the principal amount. If your bet goes wrong and there’s deflation, you won’t lose your principal.
There’s a floor at par. When rates rise, TIPS lose value, but they tend to lose a little less because of inflation protection.
It might be best to own TIPS in an IRA or other tax-advantaged account because the periodic inventory adjustment is subject
to ordinary federal tax at intervals before the bond matures.
I-Bonds might be right for you:
Series I Savings Bonds, also issued by the U.S. Treasury, might be worth considering after you see rates finally headed upward.
I-bonds are sold with a fixed interest rate, which never change, plus an inflation adjustment. It’s a good idea to buy
them when the announced fixed rate is high, because you’ll be guaranteed that fixed return over the life of the bond
plus any additional inflation adjustments later. The fixed interest rate at issuance guarantees a minimum return, plus any
benefits from future inflation adjustments. Purchases of I-Bonds are limited to $10,000 per year per investor, though in addition
to your name, you may be able to buy bonds under the name of your spouse, trust account and your children. Before you start
buying, it might be a good idea to talk to your tax professional about the potential impact once you redeem them.
September 11th, 2009
SHOULD YOU BOTHER WITH TARGET DATE FUNDS ANYMORE?
There’s no such thing as a single solution investment
product that works for everyone. One category of investments that became a target of scorn is target date funds, which are
mutual funds with investments tailored to the particular retirement date of the account holder.
According
to U.S. News and World Report, funds that were designated for individuals retiring in 2010 lost an average of 25 percent of
their value in 2008. Despite the fact that these supposedly diversified investments are supposed to shift most assets into
conservative investments as the individual gets closer to retirement, critics have said managers still keep too much stock
in these funds near the end. Over the decade, money has been gushing into these funds, according to the Investment Company
Institute. By year end 2006, this fund category held $114.3 billion in assets, up from $12.3 billion in 2001. By the end of
2008, that number had receded to $109 billion. Why the demand? The whole “check it and forget it” mentality made
target funds a natural choice for individuals who didn’t want to actively manage their own 401(k) accounts at work.
Also, the Pension Protection Act of 2006 gave employers the right to put 401(k) participants in target funds as the “default”
choice if the employees don’t make their own selection. Ibbotson Associates reported in July that after an industry
average of six quarterly losses, target date funds finally posted a solid gain at the end of the second quarter. So does that
mean it’s time to go back on autopilot again?
The first step in determining whether target funds –
or other investments – should be part of your retirement rebuilding effort is to sit down with a professional objective
financial planner. For instance, some critics say life-expectancy issues are not adequately addressed in target-date plans.
Others say that many people may underfund such plans without realizing the correct amounts they should invest to meet their
goal. A planner’s job is to advise individuals on an ongoing basis about meeting such goals. That said,
how should you evaluate a target-date fund?
Here are some questions you should ask:
- Do you
know how much money you’ll need to retire? A successful retirement is not all about the retirement date. It’s
about the quality and activities you’ll prefer in retirement and how much it will cost to afford them.
-
It is one thing to invest in a fund that promises consistent growth until a scheduled retirement date, but what if you need
more growth?
- What if there are specific tax and spending issues that might interfere with putting the right
amount of money into such funds each year? This is why individual advice makes sense.
- What about
the target funds your employer has selected? Obviously, most employers want to make the right fund choices for employees,
but just because they’re offering target funds doesn’t mean they’re offering the right target funds for
you and your needs. Keep in mind that most fund choices offered to companies are heavily marketed and might not be the cheapest
or most efficient investment choices out there. Always check the Morningstar rating of any fund your 401(k) invests in. Morningstar
is a major ratings agency for mutual funds. It’s wise to check the performance of all the funds within your company
retirement accounts.
- What if you leave your job and take your 401(k) with you? What happens to your targeted
investment plan then? You can roll over these assets into another tax-advantaged retirement plan, but what will happen to
your annual retirement savings strategy at that point?
- What are you paying for a targeted fund? Granted, the investment choices are being made for you,
but what are you paying for those choices? Often, these funds are constructed based on a fund-of-funds structure that layers
a fee on top of the fees incurred by the individual funds. Always understand the fee structure of any fund you invest
in.
September 5th, 2009
LEARNED YOUR LESSION? PLAN NOW FOR THE NEXT RAINY DAY
As we work its way out of recession and investors begin
to take stock of what looks like a lost decade in their portfolios, it might make sense to execute some simple ideas now that
will give better preparation for possible tough times in the future. After all, disaster can’t be predicted, but
it can be blunted by preparation.
Here are a few ideas to implement as the economy recovers.
Start with expert advice: A fresh financial start should begin with some solid, up-to-the-minute advice.
Consider making a trip to talk over your current finances and retirement picture – no matter what state they’re
in – with your tax advisor and a financial advisor professional. Many people feel they’ve made mistakes
that they’ll never be able to repair with their money, and the only way that might be certain is if they don’t
properly assess what they’ve done and should do in the future. Getting trained, experienced advice is one way to change
that.
Pay down your debt: There was once a time when mortgage debt was referred to
as “good debt,” but even that perception has changed for many families in recent years. While mortgage debt
has tax advantages, the relatively recent tendency for homeowners to look at their property as a piggy bank looks headed for
permanent change and our relationship with plastic is bound for big changes as well. Resolve to get a better handle on existing
debt and above all things, resolve to pay it off in sensible fashion, attacking the highest-rate and less tax-advantaged balances
first.
Reevaluate your career plan: Many of us may have to work longer than we planned
to assure a healthy retirement. But you shouldn’t stop there in making that assessment. As we come out of this economic
slump, you should also be considering whether your current career meets your personal as well as your financial needs. A chance
to earn extra money would certainly be great, but if you’re unhappy doing what you’re doing or you see your industry
going nowhere, then it might be time to retrain or research a change.
Get serious about an
emergency fund: If you suddenly lost your home, your job, or were disabled with limited health or disability
benefits, how would you afford a hotel, transportation or medical bills? How would you pay for all that? Credit cards? Okay,
but how would you pay off those cards? An emergency fund needs to be three to six months worth of cash at a minimum kept in
an easily accessible place—not as accessible as a mattress, but not in a stock fund or some other investment that might
fluctuate in value and then be tough to access for a week or more. You need to treat that cash as money that isn’t there
unless a disaster occurs. And try to open it with a high enough balance so you’ll keep it from being eaten away
by any account maintenance fees. Write down a list of things that are potential emergencies and you should not touch
the funds except in case of some of the following:
.
Loss of employment;
· Medical bills that exceed
your insurance payments (if you have insurance);
· Emergency
home or car repairs in excess of insurance. Insure yourself properly: Insurance exists to prevent financial devastation.
You owe it to yourself to buy whatever coverage you can afford for risks that affect you directly. Not everyone needs life
insurance or particular forms of liability insurance, for example. But most of us need help knowing what coverage to buy,
and that’s where the help of a financial adviser might come in handy—there is no one-size-fits all insurance solution.
It’s a good time to evaluate whether your coverage in any of the following types of insurance is adequate:
·
Health insurance
· Life insurance
·
Home or rental insurance
· Disability insurance
· Auto insurance
·
Liability insurance related to a particular business or work activity.
Create a worst possible scenario:
Based on your own personal circumstances what would be the biggest potential risks you might face financially? Some examples:
· If there was hereditary evidence cancer or heart
disease among your closest relatives,
how would you pay for treatment
if your insurance didn’t fully cover the costs?
·
If you live in a flood plain, do you have adequate federal flood insurance?
·
If your company has been losing money for the last year, how likely is it you might be laid
off?
· Will you need additional training or
education to stay in your job going forward?
· If
you were disabled, how would you make up your lost salary?
August 28th, 2009
TIME TO LOOK AT YOUR BUSINESS EXIT PLAN
Business owners on the brink of retirement are facing potentially the worst conditions for selling or handing off a business
in decades. But their circumstance should serve as a lesson to their younger counterparts. It’s critical to build
an exit plan that works under both sunny and stormy conditions.
Exit plans are essential in companies
large and small, and not strictly for the purpose of letting the owner and founder retire. They set in motion a series of
triggering events for the owner to get his or her money out of the business at retirement and they also incorporate succession
and other strategic moves a company might make to assure its future in family hands or in the hands of a new owner.
If possible an exit plan should start to develop when the business owner starts a company, and if not, within 3-5
years of the date they’d like to exit. Key professionals and planners with specific business expertise can help
owners find answers to the broadest issues in any company’s exit plan, including:
• The family’s
business legacy – should a business be passed on to family or associates,
or should it simply be sold or closed?
•
The owner’s own career goals – does he or she want to do this for the rest of their life, or
should they make way for other professional
or personal directions?
•
The company’s overall creation of wealth – as a creator of wealth that can support one or
more generations of a family. Wealth is
accumulated money that can either be invested
smartly in
the business or outside the business to support philanthropy,
or family and
personal goals
.• The owner’s
retirement strategy that allows them to do everything they’ve dreamed after
they leave.
Planners can help owners get to more specific questions based on the broader goals they’ve
discussed with family members:
• How
many more years does the owner want to run this business?
•
What’s the optimal way to get rid of the business – sell it, transfer it to family or
associates or just close it down?
• What’s
the value of the business now and how can it be made more valuable to potential
buyers or for transition to the next generation?
•
If the company is being transferred or sold to family members, is there a growth plan in
place that they have contributed to and are
therefore likely to follow?
•
What happens if there’s an unforeseen event or market downturn that threatens the
business or the industry as a whole?
Are there healthy relationships in place with
potential
acquirers?
•
What if there was a great offer on the business tomorrow?
•
If the business is sold, how do owners protect themselves from a personal and business
tax standpoint?
• How does the owner communicate
his or her ideas with spouses, children and other
family
members with a stake in the business?
• What
about employees, clients and customers? How will they be protected if the owner
dies or leaves the business?
• How much
money does the owner want after leaving the business and how should it be
handled?
• How should investors in the
business be compensated if the owner leaves?
•
Are there specific goals that should be met by the business before the owner leaves?
An exit plan allows
an owner not only to move out of a business, but also to make a wholesale career change. With an exit plan owners can
leave open the possibility for an endpoint that will allow them to travel, become philanthropic or engage in any number of
new activities in business or other walks of life.
And while the economy is struggling back from the
brink, many smart exit planners realize that there are ways to manage delayed transitions without losing valuable employees.
For instance, many owners may elect to take a sabbatical while allowing next-generation leadership to get behind the wheel
before an official transition takes place. Such a move lets the next generation steer the boat on the schedule they hoped
for instead of standing in place while the owner found her best opportunity to go. The owner, meanwhile, benefits from the
chance to step away from the day-to-day operation to better plan their future and the company’s.
August 21st, 2009
ACTIVELY MANAGED EXCHANGE TRADED
FUNDS
With so many investors and their advisors questioning traditional market thinking about index-based investing, exchange
traded funds (ETFs) are starting to move beyond their traditional passive, index territory into more active management. To
some, it’s a fad. To others, it’s a serious threat to the territory traditionally held by mutual funds.
Yet one thing so far is clear. Many of the biggest names in the mutual fund world are now seeking permission from the Securities
and Exchange Commission to offer actively managed ETFs.
ETFs are baskets of securities
that trade like stocks and until recently have almost always tracked market indexes like the Standard & Poor’s 500.
ETFs have certain advantages over mutual funds – they generally have offered lower fees and tax advantages than mutual
funds, and clearer tracking of their underlying investments because they are required to make that disclosure daily. Here’s
what’s changing. After the ETF industry won regulatory approval for actively managed funds after a 10-year effort, and
so the first actively managed bond ETF surfaced last spring with a few more based on stocks. What does active management mean?
That managers have more leeway to choose the underlying investments within a fund, while indexed funds require holdings to
mirror its chosen index.
What will make things interesting in the new ETF world is the continuing requirement
that these active managers disclose every step they make. This is why active management is a challenge, because in the traditional
mutual fund world, managers don’t have competitors looking over their shoulders when they try to build or exit positions.
In the ETF world, disclosure is made on a daily basis, so managers have to worry about competitors mimicking their strategy
and foiling their efforts to get the best price for their investments.
Some experts believe that
as this category develops, the first baby steps for investing will go toward major stocks that are generally less volatile
and therefore tougher for competitors to mimic. Others believe that actively managed ETFs will operate with a series of managers
whose moves would be tougher to spot on any particular ETF’s disclosure list. However actively managed ETFs evolve,
it makes sense to ask the following questions: How will these investments fit into my overall portfolio? It makes
sense to look at how ETFs fit into one’s overall portfolio mix given particular retirement and investment objectives
as well as tax considerations. How about fees? One of the chief advantages of index-based ETFs was low expense ratios.
Actively managed funds generally do cost more. Try and get an idea of what the fee structure will be before you invest, and
compare them to similar investments in the mutual fund arena.
What are the tax issues? Active
ETFs have better tax advantages because the fund manager can sell the lowest-basis stocks via in-kind stock transfers through
the creation and redemption process. This helps systematically reduce the tax exposure for investors. What about the
track record? This is a very good point, because as a relatively new investment category, it’s important to realize
that these new categories of ETFs won’t have terribly long investment records to compare to other investments. Do your
homework first.
August 14th, 2009
EVERY COLLEGE FRESHMAN SHOULD START A ROTH IRA
College students are extremely worried about money as their tuition rises and financing sources contract. So
why should a student worry about finding money for, of all things, retirement? A few dollars a week put toward a Roth
IRA can reap enormous benefits over the 40-50 years of a career lifetime that today’s average college student will complete
after graduation. Take the example of an 18-year-old who contributes $5,000 each year of school until graduation. Assume that
$20,000 grows at 7.5 percent a year until age 65 – that would mean more than a half million dollars from that initial
four-year investment without adding another dime. Consider what would happen if they added more.
There are a few considerations before a student starts to accumulate funds for the IRA. First, they should try
and avoid or extinguish as much debt – particularly high-rate credit card debt – as possible. Then establish
an emergency fund of 3-6 months of living expenses to make sure that they can continue to afford the basics at school if an
unexpected problem occurs. $5,000 a year sounds like an enormous amount of outside money for today’s student to
gather, but it’s not impossible.
Here’s some information about Roth IRAs and ideas
for students to find the money to fund them.
Roth IRA Basics: Traditional IRAs
allow investors to save money tax-deferred with deductible contributions until they’re ready to begin withdrawals anytime
between age 59 ½ and 70 ½. Roth IRAs don’t allow tax-deductible contributions, but they allow tax-free
withdrawal of funds with no mandatory distribution age and allow these assets to pass to heirs tax-free as well. If someone
leaves their savings in the Roth for at least five years and waits until they're 59 1/2 to take withdrawals, they'll
never pay taxes on the gains. For someone in their late teens and early 20s, that offers the potential for significant earnings
over decades with great tax consequences later.
Getting started is easy: Some banks, brokerages
and mutual fund companies will let an investor open a Roth IRA for as little as $50 and $25 a month. It’s a good idea
to check around for the lowest minimum amounts that can get a student in the game so they can plan to increase those contributions
as their income goes up over time.
Get advice: Every student’s financial
situation is different. One of the best gifts a student can get is an early visit – accompanied by their parents –
to a financial advisor and financial planning professional. A planner trained in working with students can certainly
talk about this IRA idea, but also provide a broader viewpoint on a student’s overall goals and challenges. While starting
an early IRA is a great idea for everyone, students may also need to know how to find scholarships and grants and smart ideas
for borrowing to stay in school. A good planner is a one-stop source of advice for all those issues unique to the student’s
situation.
Plan to invest a set percentage from the student’s vacation, part-time or
work/study paychecks: People who save in excess of 10 percent of their earnings are much better positioned for retirement
than anyone else. Remarkably few people set that goal. One of the benefits of the IRA idea is it gets students committing
early to the 10 percent figure every time they deposit a paycheck. It’s a habit that will help them build a good life.
Get relatives to contribute: If a student regularly gets gifts of money from relatives, it might
not be a bad idea to mention the IRA idea to those relatives. Adults like to help kids who are smart with money, and
if the student can commit to this savings plan rather than blowing it at the mall; they might feel considerably better about
the money they give away. At a minimum, the student should earmark a set amount of “found” money like birthday
and holiday gift money toward a Roth IRA in excess of the 10 percent figure.
August 7th, 2009
REVERSE
MORTGAGES
WHAT
SHOULD YOU AND YOUR PARENTS KNOW BEFORE APPLYING?
At a time
when seniors have seen their retirement assets depleted by market losses, tapping home equity has been a safety net.
But it can be a risky one. If your parents are at least 62 years of age and have significant equity in their home, a
reverse mortgage can turn that equity into tax-free cash without forcing them to move or make a monthly payment. A
reverse mortgage gets its name because of the way it works. Instead of the borrower making payments to the lender, the lender
releases equity to the borrower in a number of forms:
· A lump sum cash
payment
- A line of credit (which tends to be the most popular option)
- Some combination of the above
When the owner dies or moves
away, the house can be sold, the loan paid off and any leftover equity value can go to the living owner or the designated
heirs. Heirs don’t have to sell the house. They can either pay off the reverse mortgage with their own funds or
refinance the outstanding loan balance within six months with the option of two 90-day extensions that must be applied for.
There are three basic types of reverse mortgages:·
· Single-purpose reverse mortgages, which
are offered by some state and local
government agencies and nonprofit organizations
- Home Equity Conversion Mortgages (HECMs) are federally
insured
reversed mortgages backed by
the U.S. Department of Housing and Urban Development
(HUD)
- Proprietary reverse mortgages are private loans that are backed
by the companies that
develop them.
The size of
a reverse mortgage is determined by the borrower's age, the interest rate and the home's value. The older a borrower,
the more they can borrow, but the amounts are capped by the maximum FHA loan limit for each city and county. Reverse
mortgages have traditionally been chosen by older Americans who can’t cover everyday living expenses or who otherwise
need cash for such things as long-term care premiums, home healthcare services, home improvements or to pay off their current
mortgage or credit card greater than their income can support. More recently, though, they’ve become popular with individuals
who see them as a better alternative to home equity lines. Because reverse mortgages can be complex and risky
elderly borrowers will have to consult with a financial advisor before they’re granted this loan – that’s
one of the requirements. This step can be completed within the first few days of the process. The basic loan closing now takes
place in about 30-40 days from the date of application. Generally the only out-of-pocket costs are an appraisal fee ranging
from $300- $500 and a counseling fee of approximately $125 which can be paid for at closing.
Here
are other things to consider:
Cost can be substantial: Reverse mortgages are generally
more expensive than traditional mortgages in terms of origination fees, closing costs and other charges. The basic FHA-backed
HECM loan finances these fees into the initial loan balance, and they can run between $12,000-$18,000. The loans are based
on anticipated home value appreciation of 4 percent a year, so if the housing market is healthy, those costs are generally
recovered in a short period of time. But if the housing market sours, it will definitely take longer to recoup those fees.
They’ll need to make sure they’re not endangering their Federal and State benefits:
The basic FHA HECM is designed as tax-free income to the senior receiving their Social Security income. However, if their
total liquid assets exceed allowable limits under federal guidelines, they might endanger your benefits. This is another critical
reason to work with a financial adviser on this decision.
Rates can
be higher: Reverse mortgages have rates that are typically higher than those charged on conventional
mortgages. Interest is charged on the outstanding balance and added to the amount they owe each month. Again, check
the total annual loan cost.
Their mortgage can be called: The
homeowner or estate always retains title to the home, but if they fail to pay your property taxes, adequately maintain their
home, pay their insurance premiums, or change their primary residence, the lender can declare the mortgage due or reduce the
amount of monthly cash advances to pay those overdue amounts.
The family needs to talk. If your parents’ house is their major asset, getting involved in a reverse mortgage may not leave
much to the next generation – if it appreciates, there may be some difference that the kids can have. That’s why
that in addition to discussing a reverse mortgage with a financial adviser, parents and their adult children need to talk
with their family.
July 24th, 2009
EVEN WHEN A SPOUSE DIES, DEBT LIVES ON
The death of a loved one
is a paralyzing event. Many survivors find it difficult, if not impossible to start dealing with the financial afterlife of
a spouse even if they’ve planned extraordinarily well. Consider then, the one single element that can turn this
difficult process into a lengthy nightmare and potential financial disaster for a surviving spouse – the deceased’s
outstanding debt. Married couples -- particularly those who hold credit cards jointly and keep month-to-month
balances on them – really need to pay attention. And we’re not simply talking about elderly spouses. A spouse
can die at any time. The earlier a married couple focuses on the joint issues of credit management and estate planning,
the better. While the following information can be a guide for individuals who have lost a spouse, it’s
a much better guide for couples in good health who want to alleviate major financial problems for their survivors later on.
Just remember: The worst time to deal with joint or separate credit issues is after the funeral. Some key points to
consider:
Joint credit in moderation…or not at all: If spouses have separate
credit, then their rating won’t be affected by the spouse’s bad credit behavior (late payments, charge-offs, bankruptcies,
etc.). Joint credit leaves the surviving spouse with a total obligation for any debt remaining on a car loan, credit
card, mortgage or any other kind of debt.
Watch those “additional card”
offers: Again, it might seem like a great idea for both spouses to carry credit cards on the same account, but in
death, outstanding balances are often treated the same way as joint account is. It’s not unusual for an issuer to come
after the holder of the additional card for that outstanding debt.
They will find you:
You’ve never met Big Brother until you’ve tussled with today’s toughened-up lenders. Particularly as problem
credit has grown to epidemic proportions, credit card companies in particular have gotten a lot better about determining whether
customers have died so they can make a claim against the deceased’s assets. State laws put a timetable on a lender’s
ability to make claims against an estate, and executors may have certain responsibilities under those laws to inform those
creditors.
Keep in mind that keeping separate credit won’t protect the estate’s
assets: Granted, a deceased partner’s bad credit may not affect your ratings on your separate accounts, but
creditors will go after the assets of your shared estate to settle up.
If the worst happens,
what’s the process? It’s important to contact all lenders swiftly to let them know your spouse has died
for several reasons. First, identity thieves are getting more sophisticated about checking death notices and tracing that
information to their credit accounts. Dealing with a deceased spouse’s debt is one problem. Dealing with an identity
theft calamity based on your spouse’s accounts is even worse. Also, if you do have joint accounts, ask the issuer if
it will issue the card in your name only, and keep in mind that you will still need to maintain payments on those balances
to preserve your credit rating as a single person. Lastly, lenders tend to look askance at customers who fail to make disclosure
of a spouse’s death. So matter how tough things are, you need to make these calls.
What
about the last joint accounts? For joint accounts, removing the deceased’s name from the account should have
no impact on the survivor’s credit score, but the survivor should think twice before he or she closes the account, because
it cuts back the amount of credit available to the survivor.
Just get rid of the debt:
Debt-free is the best way to go through any crisis. Couples should strive to be debt-free not only for the good times, but
for the awful ones as well.
July 17th, 2009
DEALING
WITH PAY AND BENEFITS CUTS
Most economists expect some continuation of job, pay and benefits cuts to
continue throughout the year. So, what can you do about these moves, even if they’re still in the rumor stage?
Hold a family meeting: Talking about money issues is a delicate balancing act between teamwork and
fear, but there are already plenty of TV commercials showing Dad or Mom losing their jobs and kids rising to the occasion.
As awful as economic circumstances have gotten, there’s a spirit of teamwork in the air. Sit down, discuss what’s
going on, and solicit suggestions equally on the best ways to conserve excess and luxury spending, save more money on essential
spending and find an appropriate treat for everyone when trouble lifts. And if your kids are working age, let them get
a job to help with their expenses as long as it doesn’t affect their schoolwork.
Get advice:
Don’t wait for a crisis to occur to get some useful strategic advice. A Financial Planning professional will
be able to help you with spending issues, but they will also be able to help you shore up your retirement investments if your
company decides to alter its traditional pension plan or cut or eliminate matching contributions to your 401(k).
Create a budget and stick to it: Analyze every cent of spending, build a budget of mainly essentials
and a few scheduled treats and swear to live by it to the letter until your employer restores pay and benefits or you find
a new job. And when happy times come back, do one more thing – see if you can still stick to that budget so you
can accumulate an emergency fund and additional savings. You’ll be in a much better position when the next downturn
occurs.
Boost cash flow through simple tax planning: Talk to your tax professional
about whether it makes sense to boost your withholding allowances to make up for that percentage of lost pay. If you find
you’re claiming too many allowances, you can send in an additional tax payment later.
Renegotiate
what you’re paying for insurance. If you have an emergency fund, raise your deductibles on home and auto insurance
so you can save on premiums. If your car is old, consider dropping that collision coverage and make sure you have your policies
consolidated with one carrier because that can save you money. I recently shopped out both my Auto and Homeowners Policies.
I saved $450 a year on my auto and nearly $1,100 a year on my homeowners. Not only was my monthly mortgage lowered by $90
@ month I also received a check for $800 representing excess escrow.
Start haggling over bills and
fees: Sick of that cable bill? Either cancel it or tell your provider you’re going with a competing cable provider
or satellite network and see if you can get a lower rate. Start pre-shopping all purchases online, and if you buy online,
use discount codes to save money on your purchase and on shipping. Start asking about pricing on elective medical procedures
among a range of doctors. Wherever you buy a product or service, make it a policy to see if there is a cheaper way to do the
transaction. The worst thing the merchant, company or professional can say is “no,” and you can choose whether
to stick with them or go elsewhere.
Refinance your mortgage while rates are low: A rate
cut of a percentage point or more may save at least $200 or more off your monthly payment.
Start buying used. Can you really tell whether someone wore that blouse that originally cost $300 that you picked
up for $15? Are used DVDs that much harder to watch than new? Start getting familiar with Internet auction sites, local
flea markets, consignment shops and thrift stores to find ways to stretch a budget farther.
Plan
a job search: You might absolutely love where you work and are willing to be a team player toughing out the downturn.
But fortunes can deteriorate as well as improve at companies with severe cutbacks, so it’s wise to spruce up that resume
while you have time to think about it and start networking just to see what’s going on in other parts of your industry,
your city, or possibly in other cities. And if you can do it quietly, start lining up respected professionals to provide references.
June 26th, 2009
TIPS ON FILING HOMEOWNER’S
INSURANCE CLAIMS
Since
it is now hurricane season and last week Gov. Sanford was in Beaufort to discuss hurricane preparedness’
I thought it would be an excellent time to discuss homeowners insurance and the importance on knowing what to do and what
to expect when you file a claim for losses under your homeowner’s policy. Having paid premiums for years to be
covered in case of a disaster, you will want to do whatever is necessary to make certain that you will be properly compensated
for your loss and help to speed your family’s return to a normal life.
The Insurance Information
Institute publication, “Settling Insurance Claims after a Disaster” provides a wealth of information and can be
found at the following website: http://server.iii.org/yy_obj_data/binary/773593_1_0/settlingclaims.pdf
This pdf document describes what you will or would need to know and do, including:
Filing a claim. Contact your insurance agent or company to report your damages. Confirm that your policy’s
terms cover it so that you can file a claim, your claim exceeds your deductible, you need estimates for repairs, and so on.
Get ready for an adjuster. Fill out a form that you will receive with descriptions of damaged and
destroyed items, dates of purchase, original costs, and replacement costs. When the company sends out an adjuster to assess
the damage, be prepared to show him/her the description of damages – keeping a copy for yourself – and copies
of detailed estimates for repairs from contractors whom you are considering. Also be prepared to show the adjuster damaged
items and give him/her sales slips, invoices, or cancelled checks, which you have kept since their purchases, as well as receipts
for any necessary temporary repairs, for which you will be reimbursed.
How much you may get.
The amount of money you may get from your insurance company depends primarily on the type of policy that you have.
- Actual Cash Value Policies pay what’s left after deducting depreciation from
replacement costs, which can leave very little.
- Replacement Cost Policies provide you with whatever is needed to replace damaged items
with similar ones of equal quality If your home is so damaged that it cannot be repaired,
a
typical replacement cost policy will pay to replace it within specified limits;
an inflation-guard
clause will help you to keep up with increase in building costs. Under
an extended
replacement cost policy, a company will pay 20% or more above the specified
limits to give
you protection against very large cost increases. A guaranteed replacement
cost policy pays
whatever it costs to rebuild your home, but not to improve on it.
Temporary Quarters. If you and your family have to live elsewhere until your home is repaired or
replaced, your policy will probably pay for your loss of use: reasonable additional living expenses – such as rent,
eating out, utility installation cost, added transportation costs – which may be 20% or more of the insurance on your
house.
Water damage. Homeowner’s policies don’t cover flood damage but do cover
other kinds of water damage, such as rain coming through a hole made in the roof during a hurricane. If you have a flood policy
and can substantiate flood damage, you will need to get actual repair costs for payment.
Trees and
shrubbery. Policies typically pay for removing trees that fell on your house but not for those that fell on your
lawn or for replacing damaged trees and shrubbery. Getting the money. You usually get 2 insurance checks when both house
and contents are damaged. If you have a mortgage, the check for home repairs will be made out to both you and the lending
institution. The lender is likely to put the money in an escrow account, pay for work as it is completed, and inspect it before
making the final payment.
June 12th, 2009
IT’S TIME FOR A MIDYEAR
FINANCIAL CHECKUP
Last week I wrote about keeping your retirement plans intact and the need not
to let current economic conditions stop them. Hopefully the article was of help to some. Now let’s look at your
general financial picture. A successful financial plan needs to be monitored and adjusted frequently and the summer
is a good time to do this task because there’s still enough time to correct lapses in savings, spending or tax planning.
A review can be far more valuable than the rushed attempt most people make at the end of the year—or when it’s
too late at tax time. Here’s what most people should cover:
Retirement savings:
Given the state of the economy, it’s not a bad time to review your retirement funds and your current investment allocation.
If you are on schedule to max out your contributions to your company retirement plan this year, great. But don’t forget
to check your existing IRAs and other retirement accounts to see if you’ll have enough cash on hand to contribute the
maximum in each account by their respective deadlines next year.
Health and Health Insurance:
Increasingly, what we pay for health insurance will be tied tothe state of our health. Commit to a plan to walk or hit the
gym a specific number of hours a week. Many insurers reset premiums at mid-year in a rising cost environment, so make sure
you're ready to switch plans or negotiate different coverage if necessary during open enrollment.
Taxes:
If you got a sizeable refund in April or found it necessary to empty savings to pay Uncle Sam, it's definitely time to
reassess what you'll owe at tax time next year. Also, if you think you'll have some losing stocks in your taxable investment
accounts, keep an eye on those in case you'll need to offset gains in your portfolio at the end of the year.
Spending: Either on your computer or on paper, take the time to figure out where you’re money’s going.
A look at the last six months of spending may reveal opportunities to reduce spending and redirect money toward more necessary
goals. Doing this exercise can identify a surprisingly large amount that’s unaccounted for that can be redirected to
debt payment, savings and investments.
Reserve fund: Most financial experts encourage you
to have between three and six months of living expenses in an emergency fund. If you don’t have that minimum,
go back to your spending review and see where you can start socking money away.
College
savings: If you are saving for your child’s education or your own, check to see if you’re on track with
the goals you made for the year. It’s also a good idea to read the latest news on financial aid since schools change
their financial aid policies annually. Even while your child is still in grade school, it's a good idea to learn
as much about college financial aid while you've got plenty of time to learn.
Special
goals: If your car, or furnace are looking like they will need to be replaced see if you can direct more money into
a reserve fund to cover replacement costs or at least a heavy down payment. If there’s a vacation you want to take by
the end of the year or a special household purchase you want to make, focus on the cash you’ll set aside to make that
happen
Credit: If you haven’t set a schedule for receiving your three credit
reports throughout the year, do it now. You have the right to get all three of your credit reports – from Experian,
TransUnion and Equifax – once a year for free. You can do so by ordering them at www.annualcreditreport.com. By staggering receipt each of your credit reports at different points in the year, you’ll get a continuous picture
of how your credit picture looks. Also, you’ll have the opportunity to focus on possible errors in a single report,
which will give the other two credit agencies time to update their files.
June 5th, 2009
DON’T LET ECONOMIC TROUBLES THREATEN YOUR RETIREMENT PLANS
Worry about retirement seems to be widespread. A January survey by the National
Institute on Retirement Security noted that 83 percent of Americans are concerned about their ability to retire. Yet the worst
thing you can do is tap or give up on your retirement funds. No one can know with any certainty how much the investment
markets will rebound or even pull back again but even if you can can contribute something you stand to gain much
more in the long term. Selling all of your investments on their down side and locking in a very low interest rate will come
back to haunt you as you watch the inflation rate rise and exceed the interest rate you are receiving. Even more important,
you risk penalties and the lost potential for the earnings if you turn your back. Before you make a move,
seek out some advice. It's a good idea to check in with an expert to see where your retirement funds stand in light of
all your finances before you do anything. An objective non-commissioned advisor can assist you in developing a personalized
and flexible retirement portfolio utilizing stocks, bonds, bank certificates of deposit, and even annuities. In the meantime,
here are things you can do to put your retirement funds in better shape.
Don’t
stop funding your 401(k) under any circumstances: In March, the Spectrem Group, a Chicago-based consulting
firm, reported that 34 percent of U.S. employers have reduced or eliminated matching contributions to their defined contribution
retirement plans – which include 401(k)s and 403(b)s – since January 2008. The Pension Rights Center reports
that besides the Big Three automakers, dozens of major companies have cut back their match, including Motorola, Starbucks,
and JPMorgan Chase & Co. It’s a significant impact. US News & World Report recently reported that a worker who
earns $50,000 annually and receives a full employer match of 50 cents to the dollar on six percent of his or her pay, the
match cut means $16,000 less for retirement. An employer dropping its contribution is bad news, but you should make every
effort to keep up with your contribution because if you don’t, you’ll miss valuable tax deductions and the chance
to build your funds more effectively for the long term.
Stay invested: Because
no one precisely knows when the market is headed up or down it’s best to stay invested at a time when everyone is waiting
for a rebound. Keep in mind that the market’s top performing days typically come at the start of a recovery, so
leave your money in your 401(k) and IRAs.
Keep in mind that withdrawing or borrowing your funds can be
costly: If you have an emergency situation, be careful. Workplace 401(k) plans do allow for hardship withdrawals,
but you might have an option to take a loan, which would save you the taxes and the 10 percent penalty that accompany hardship
withdrawals for account holders under the age of 59. The majority of 401(k) plans allow you to borrow up to 50 percent if
your vested account balance or $50,000, whichever is less.
Adjust your spending so you can save more:
If you have an existing Roth or traditional IRA or other means of saving for retirement, do whatever you can to get more money
into these accounts. It may not come close to meeting the shortfall from losing an employer’s contribution or the chance
to add to a 401(k) after you’ve lost your job, but it’s critical to keep some savings going.
May 29th, 2009
FINANCIAL PLANNING
MATTERS IN THE TOUGHEST OF TIMES
Why enlist the services of a financial planner when your holdings are down and you’re facing a host of financial problems?
Because as dark as times may seem, you’re actually giving yourself a fresh start in building a stronger financial future.
Indeed, many people don’t make that choice. A recent Financial Planning Association/Ameriprise Financial survey
showed that many people try to go it alone when it comes to a financial plan—and they suffer considerably worse performance
in their investment and savings goals over time than those who do. The cost of a financial planner may not be prohibitive
due to factors we’ll mention below and young people have a particular advantage on their side when using one—time. Here
are some things to know about financial planning process.
It’s a collaboration and a learning experience. A financial planner is not a substitute
for your own final decision-making. Planners serve as guides, editors and strategists. They should begin by asking questions
of you—plenty of them. Their purpose is to find out all the goals you have right now – and maybe determine a few
you haven’t thought of. Some of these dreams might include buying a home or business for yourself, saving for
college education for your children, taking a dream vacation, reducing taxes and retiring comfortably. Financial planning
is the process of wisely managing your finances so that you can achieve your dreams and goals—while at the same time
helping you negotiate the financial barriers that inevitably arise in every stage of life.
Planners
often specialize: Planners, like any professionals, tend to specialize in certain areas of interest,
and they may receive continuing education in more than a dozen areas of expertise. A professional planner like a Certified Financial Planner
™ (CFP) alone can earn continuing education credits in asset management, employee benefits, commercial real estate,
insurance, investment management, estate management, retirement planning, 401(k) administration and health topics, among others.
Ask about tackling specific problems: If your problem is credit card debt or difficulty refinancing,
a planner may have specific contacts or the ability to make certain recommendations on how to get yourself in a better position
to plan for the future.
They charge based on specific services: Planners
charge for their services in a variety of ways – always ask up front what they charge and how they expect to be paid.
Some “fee only” planners charge for a consultation, plan development or investment management, and they may be
charged on an hourly or project basis depending on the client’s needs or as a percentage of assets under management.
Some charge commissions for the sale of financial products they are licensed to sell, and others have hybrid structures mixing
fees and commissions. Discuss advisory services first before committing to buying any particular products.
They can talk about your personal investments as well as the ones at work: One of the best
advantages to working with a financial planner is the chance to have a second set of eyes look at your wages, investments
and benefits at work vs. what you’ll be investing on your own outside work-based retirement and other savings plans.
Be prepared to bring all of your finances into the discussion.
Portions of this article was provided by the
Financial Planning Association (FPA)
May 22nd, 2009
LOOKING TO START A BUSINESS?
IN THIS ECONOMY, START WITH GOOD ADVICE FIRST
Whether you have lost your job or are
thinking about quitting it and are considering starting a business you will need to do some parallel planning in advance for
your business and personal finances. That’s because business owners – even those who are acquiring ongoing businesses
or starting their own companies on the cheap – quickly find their business and personal finances are inextricably linked.
Before you plan the business, plan your finances first.
Here are some basic steps to consider now.
Get advice first:You need not one, but two sets of financial advice. The first involves the viability
of your business concept. You should understand your business idea inside and out before you launch and what your new company’s
immediate and long-term cash needs will be. The second set of advice involves your own finances and how prepared you are for
what will surely be a major lifestyle transition. Because new business owners frequently underestimate their new business’s
expenses starting out, they can find themselves funding those business needs out-of-pocket. That means less money for day-to-day
living expenses as well as long-term planning for retirement. That’s why it’s critical to consult with a business
Attorney, CPA and Financial Planning expert.
Get rid of your debts: With the possible exception of mortgage debt, there’s very little
“good debt” in the life of a businessperson. So while you’re researching your business concept and putting
together your own financial plan, start cutting back and erasing as much credit card and adjustable-rate debt from your personal
life as possible. The credit crisis is making it tough for any business owner – even experienced ones – to borrow
money at attractive rates. You’ll have the most flexibility when you owe as little as possible.
Work on your emergency fund:While it’s wise for everyone to have cash set aside for basic
living expenses in case they lose their job or face a medical emergency, emergency funds are particularly necessary for new
business owners. Startups can be particularly expensive, and most businesses are not profitable from day one. Plan a more
extensive emergency fund for yourself and for the business as well.
Start thinking about
your legal business structure: Your personal financial situtation and the kind of business your're
starting should determine the legal designation of your company. Before choosing a business structure, such as
a sole proprietorship, S or C corporation, partnership ,Limited Liablility Partnership (LLC), or Limited Liability Company
(LLC), owners should reflect on their business in the context of the overall financial life and ask themselves a series of
questions:
•
Is the business going to be your primary source of personal wealth and daily cash
flow?
•
Is it a side business?
• Do
you expect the business to pay for your retirement?
•
Do you want to provide other financial benefits?
• Do youwant to pass it on to family members or sell it to
existing employees or
outside buyers?
The answers to these questions figure importantly into the decision, along with other key factors
such as what type of business your're starting, its risk factors, current tax laws, and regulations such as workman's
compensation.
Plan your healthcare, disability and other basic benefits: Automatic
benefits are the plus side of working for someone else. When you're working for yourself, you become your own HR departmentand
chances are you won't be able to match your old employer's buying power. If you support a family with these benefits
or if you have particular health concerns, you need to price the out-of-pocket costs of such benefits before starting
your own company. You should also price long-term disability coverage based on your present working salary so you can qualify
for the highest possible benefit. Disability coverage is critical for self-employed people since they're their own support
system.
May 15th, 2009
TIPS TO PRESERVE THIS YEAR’S
FAMILY VACATION
Many families
are looking at keeping costs down for this year’s annual family vacation and may even be considering not having one.
But there are ways to preserve the tradition by being smart about spending. Some ideas:
Get on the mailing list: For any possible destination you can think of, go to their Web sites early and get
on their mailing list. You may get lots of email but some may contain coupons to those locations and other linked businesses.
Go to the tourism Web sites of the states you’re planning to visit to take advantage of coupons and specials
Driving vs. Flying: While energy prices might not approach the levels of 2008 this summer,
you might find that driving vacations aren’t necessarily the cheapest alternative. Measure the gas mileage on your car
and see what it would really cost you to drive to your desired destination – add wear and tear (roughly 10 to 20 cents
a mile), meals and/or hotels on the road. If you plan significantly ahead of time, traveling by air might not only get you
there faster – but cheaper. Go to the Airline Web sites of the airlines you fly the most and sign up to get advance
notice of cheap fares. If flying figure in the cost of a rental car
Reserve online: Discounts
are offered when you book on line. If you’re not a regular user of the Internet, you should know that airlines and hotels
have migrated more of their deals for rooms and meals to their websites.
Package
deals: Online travel sites make it easy to combine hotel, airfare and rental car at a cheaper rate. And remember
the days and times that are typically cheaper to fly – Tuesdays, Wednesdays and Saturdays if you’re willing to
fly early in the morning or late in the evening.
Know when to use travel
agents: A good travel agent can be a great money saver, particularly for lengthy or complex trips. It’s
OK to compare prices yourself, but consult a travel agent if you are going to remote destinations – they’ll know
the territory, and if you have to make changes, they might be able to help you do so without paying a lot of extra money.
Going abroad: Review currency rates before you go to see how much money you’ll really
have to spend on the trip. See if there are specific ways you can save money for dining, lodging and shopping in that country.
Check in with your credit card company before you go – some might charge high currency conversion fees, and you can
either negotiate them downward or apply for a card with a lower conversion rate that you’ll use only for this kind of
travel.
Make sure phoning home is affordable: Check with your wireless
provider to make sure your destination has adequate network strength for your phone, and check what it will cost to call home
or other destinations abroad if you’re overseas. Also check with your arriving airport to see if local stores rent cell
phones or disposable cell phones at a significant savings.
Check on car insurance: For
domestic trips, double check whether your own car insurance policy is likely to pick up the bill if you crash your rental
car. For overseas trips, check with your rental agencies as well as your credit card company to see what insurance options
you have. Don’t think only in terms of accidents. Think about blown transmissions in small towns with only one mechanic
who doesn’t speak English. Be very sure you have adequate coverage required in every country. You might have to
buy supplemental coverage.
Consider travel insurance: Trip cancellation
insurance can reimburse you for non-refundable costs in the event of things like an illness for you or a family member that
causes you to cancel your trip. Check with your health insurer to verify if you have coverage at your destination, you
may need supplemental insurance. It’s important to realize that health insurance issues crop up on domestic trips
as well as those overseas.
Prevent theft at home and abroad:
Photocopy your driver’s license and passports and keep the originals with your valuables in the hotel safe. Also,
don’t forget to hold your mail and pay all your bills before leaving town so identity thieves aren’t attracted.
May 8th, 2009
REBALANCING A 529 PLAN
ALLOCATION
Market extremes tend to make uninformed people invest at extremes.
As the market has suffered over the past nine months, families putting their college savings into 529 college savings plans
have watched their stock-based holdings shrink with the market and many have run for cover.
This has fueled
a growing number of states with 529 college plans to offer accounts that are insured by the FDIC. According to InvestmentNews,
Arizona, Ohio, Montana, Virginia and the latest state, Utah, have adopted FDIC-insured investment options such as savings
accounts and certificates of deposit.
If you’re a first-time investor in 529s or are still reeling
from the impact to your current plan results, before you run for the safe cover of minimum returns, you may want to run for
advice first. After one of the worst market downturns since the Great Depression, now is actually a great starting point
for this kind of advice.
Here are a few things to consider about more conservative investments in a 529 portfolio:
Is 1 or 2 percent good enough? Yes, keeping your investment safe is a critical goal during
a downturn, but how long do you have until your child needs the money and how close are you to your savings target? Investing
for such an expensive goal takes a mixture of risk and caution, and if you were one of the smart ones who shifted your 529
funds into conservative investments last summer, bravo. Just make sure you have the right information so you know when to
get out. A mixture of equities and fixed-income investments are the best structure for these portfolios, but they bear
watching in case of a downturn.
CD flexibility is limited: The attraction of
investing in CDs is not only safety, but the ability to “ladder” (buying at regular intervals) your investment
as CDs mature into potentially higher-paying investments. Here’s the problem. Current rules for 529 savings plans allow
investors only one investment change per calendar year though in 2009, the IRS made an exception and allowed two changes.
So much for laddering – that means you can’t roll over funds from a matured CD into a new one more than twice,
though some of the plans are devising ways to automatically roll over mature CDs into shorter-term investments as the funds
meet their target date of use. Yet, it won’t be the same as making those decisions yourself.
Could rolling into more conservative investments now be a mistake? Knowing when a market bottoms out would
guarantee riches. So you have to have some exposure in the portfolio to the possibility of growth, even in these times.
If you rolled your investments into conservative waters between October and March you may have locked in losses of as much
as 40 percent. It makes sense to get advice with such a move and keep your ear to the ground with respect to economic news.
Let the younger child’s 529 pay for the older child’s tuition: If your oldest child
is ready to or has started college and you have more than one child and one 529 plan for each, consider using the cash in
the younger child’s plan to pay for the older child’s tuition. This way the equity investments in the older
child’s plan have a chance to recoup their losses and pay for the younger child’s tuition in future years
May 1st, 2009
PLAN YOUR JOB SEARCH
Whether you’ve lost your job or are expecting to be your employers next cut, it definitely makes sense to plan
a job search before you actually have to do one. Call it a response plan. Here are some basic steps in getting
that process started:
Start or build your emergency fund: Unemployment insurance won’t
even come close to meeting your cash needs when you’re out of a job. Start slashing your spending and funnel that
extra cash into an emergency fund that won’t be touched for anything but essentials. Look first at
cutting your basic spending and then possibly by paying the minimums on debt purchases until you get that fund in good shape.
If you’ve still got your job after you hit your emergency fund target, then keep your tight spending in force and go
back to attacking any debt that you have more forcefully.
Get advice: There’s nothing
better than going into an exit interview with a plan to put yourself in the best situation possible when you lose your job.
. Always ask if you can build unused vacation and sick days into a package and see what you can do about extending
health benefits before you start having to pick up the cost via COBRA. COBRA refers to the Consolidated Omnibus Budget Reconciliation
Act, which gives workers and their families who lose their health benefits the right to choose to continue them under their
group plan for a limited time.
Research health coverage beforehand: The recently passed
federal stimulus package provides 65 percent subsidy for COBRA premiums for up to 9 months, which is good news because COBRA
can be very expensive. In any event, it makes sense to research individual, high-deductible coverage that might be an affordable
alternative to staying on your employer’s health plan while you’re looking for your next job. Many quality carriers
offer enrollment online, but ask around and see if friends or associates know good agents who can find coverage that fits
you so you’ll be prepared if you need it.
Get personal disability coverage now: Disability
coverage offered through your workplace may barely cover you if you are disabled while working, but once your job is gone,
there goes your coverage. It’s always a good idea for individuals to have some personal disability coverage of your
own, and you should buy it while you’re employed because you need to prove income before you can get the maximum coverage
based on your current income.
Understand your unemployment benefits: Generally, it’s
a good idea to file immediately for unemployment benefits, even if you’re getting severance. Check on these provisions
as soon as you can. Also remember that the federal stimulus plan applies here as well. The first $2,400 you receive in benefits
will be exempt from federal taxes. Also, if you get a job before your severance or unemployment runs out, use those funds
to top off your emergency fund and then attack debt so you’re in a good position to weather any future storms.
Take advantage of free job advice and assistance: If your employer is providing office space, resume-writing
assistance or any other benefits to help you transition to your next job, by all means, take advantage of them. It’s
particularly smart to get advice with resume writing because as industries change, the type of experience that hiring executives
want to see on resumes changes as well.
Network: Make sure you’ve identified
key professional groups both locally or nationally that will allow you to meet colleagues and hiring executives in your industry
or the industry you hope to work in next. And plan to do little things that keep you in touch with potential employers
– make sure your cell phone, e-mail and voicemail are always working, and make sure you have resumes, cover letters
and an interview outfit always at the ready in case you have a sudden opportunity to interview.
April 24th, 2009
MAINTAINING YOUR CREDIT SCORE IS EVEN MORE IMPORTANT NOW!
Fair Isaac, the company that created the FICO score, has been working on
a new version of its credit scoring method that might have serious consequences for you if you’re planning on borrowing
in 2009. The new version of FICO is going to be particularly focused on your balances, not only on your on-time payment
records. Your top priority under this new system: Get balances down. Reports say that the new FICO revision will
actually allow a bit of lenience on late payment. Obviously, this won’t mean that someone can chronically pay late,
but once or twice won’t make the same impact as in earlier FICO versions. Yet credit utilization – essentially
the amount of credit you’re actually using relative to your credit limit – is a much bigger deal. From the
lender’s perspective, high balances mixed with a tough economy means a higher risk of default among customers. So
what’s a good target utilization rate for all your revolving credit accounts? No more than 50 percent of your credit
limit. So, the lower your credit utilization, the better your score. What does that mean for ordinary Americans who don’t
meet that under-50 percent goal? It means you shouldn’t be applying for new credit or refinancing for awhile. So
instead of bemoaning your tougher chances of getting a loan for a home or a car, why not use the current environment to launch
a credit makeover that will position you for a better shot six months to a year from now? Some ideas:
You’ll need at least a 740 score for the best rates: You’ll often hear that credit scores of
700 and up will get you best customer status with lenders. You should aim higher. For the lowest rates and best
terms, you need to get your credit score above 740 (the top credit score, by the way, is 850).
Budget:
If you’ve never reviewed your spending and picked out areas where you can cut, you’ve never done a budget.
Start tracking your spending either on paper or with financial planning software and start pinpointing what spending you can
shift over to paying off debt.
Get those balances down: Get all your non-deductible
debt under 50 percent of your credit line in each account. Go after your balances with the highest interest rates first, and
once you hit 50 percent...keep trying and get those balances down further.
Keep an eye on your credit
reports: Remember that you have the right to get all three of your credit reports -- from Experian, TransUnion and
Equifax -- once a year for free. You can do so by ordering them at www.annualcreditreport.com. Don't order all three of them at the same time, though. By staggering your credit reports you'll get a continuous
picture of how your credit picture looks because the three bureaus feed each other the latest information. You’ll also
be able to clean up errors as you find them and you’ll also keep an eye out for identity theft. Oh, and by the
way, keep in mind that all “free” credit report sites are not free – if they ask you for a credit card number,
remember they’re doing that because they want to charge you. Just go to the site above and you’ll be fine.
Get on time and pay more than the minimum: Yes, we indicated above that you might get a bit of a
break on late payments with the new FICO system, but that’s a break you should consider only in a dire emergency. Electronic
bill payment will allow you to save on postage while guaranteeing on-time postage, and the budgeting advice mentioned above
will allow you to put a few more bucks toward getting that loan or credit card bill paid off.
Once you’re paid off, don’t close the account: In the world of credit scoring, closing accounts (even
those that have not had balances for years) is a lousy idea. Lenders want to see a long record of credit management, and longtime
accounts that you haven't touched in years may actually help your score because it shows you have some restraint.
April 17th, 2009
WAYS TO SAVE MONEY ON HEALTH CARE AND
HEALTH INSURANCE IN TROUBLED TIMES
Whether you buy your healthcare coverage through your employer or independently,
you need to look at your coverage the same way cost-cutting entrepreneurs do. Buying coverage in the future won’t
stop at finding the best price – what you pay increasingly will involve how well you personally manage your health. Here
are some ideas to help you take the first step in monitoring these costs:
Change your negative healthcare behavior: Getting down to your ideal weight will
not only have immediate health benefits, it will also make your health insurance options and potential out-of-pocket costs
more affordable over time. A Stanford University and Rand Corporation study reported that lifetime medical costs related to
diabetes, heart disease, high cholesterol, hypertension and stroke among the obese are $10,000 higher than among the non-obese.
It added that lifetime medical costs could be reduced by $2,200 to $5,300 following a 10 percent reduction in body weight.
Know what you’re buying: Whether you buy health insurance through an agent or your employer, insist
that they explain exactly what you’re getting for your premium, and where deductibles do and don’t apply. If you’re
purchasing your own insurance policy, compare the premium savings from a higher deductible plan with your usage pattern of
health services. What you save can often cover your high deductible.
Always research
and discuss the potential cost of a diagnosis: If your physician diagnoses a condition that requires tests, prescription drugs,
a hospital stay or ongoing therapy, ask polite but detailed questions about what you’ll be charged, from the doctor’s
bills to ongoing ancillary costs associated with treatment. Ask the doctor or his office manager if discounts can be negotiated
through cash payments or other means. Consider asking doctors for generic options and samples of prescription drugs to extend
your savings.
Make sure your exact spending is reducing your deductible: Keep track of
this year’s out-of-pocket spending and how it is reducing your insurance deductible. Also, make sure you understand
which procedures are offered through your plan that will be paid even though you haven’t paid up your deductible.
Check local pricing resources: In non-emergency situations, you should always compare prices on treatments.
Check with local medical boards and state health officials to see if they have online databases on costs for various medical
procedures. Also, if there is a support group for your condition, talk to members about what they paid locally for care.
Be smart about emergency and non-emergency health visits: Emergency-room visits tend to cost $300 to
$1,000 compared with $150 at an urgent-care center and $35 to $45 at a convenience-care clinic in a drug store or some other
location. First, make sure the alternatives to hospital emergency room care are acceptable for your illness. Understand what
they offer, what their hours of business are, and under what conditions you’d choose them. In particular, make sure
the facility and the provider are in your health plan's network so whatever you pay out-of-pocket counts toward your deductible.
Also rely on your insurer's 24-hour advice hotline for guidance on where to go for care. Either tape that call or keep
a written record of it in case you have a claim denied.
Take advantage of your company’s flexible
spending account: A flexible spending account is a separate, tax-advantaged account where you deposit funds to pay for medical
expenses not paid by your insurance. You need to check what your particular company’s FSA allows you to stockpile funds
for, and you will need to estimate carefully because you’ll have to spend out these funds by a particular annual date
or lose the remainder. It’s also good to discuss how you’re allocating those expenses with a financial adviser.
April 3rd, 2009
HAVING TROUBLE COMING UP WITH YOUR GRANDKID’S GRADUATION
GIFT?
TRY THE GIFT OF TAX-ADVANTAGED SAVINGS
It’s a few short weeks until cap
and gown season begins, and for grandparents hoping to do something nice for their grandkids, there are several options to
explore.
Roth IRAs: The Roth option is a good one if you want to help them start a retirement
fund of their own. However to have a Roth they must have earned income to be able to make contributions. If they fit
that description – as many kids working in high school do – either their parents or guardians can open the account
and grandparents can make contributions Parents or grandparents may want to consider setting up and funding a Roth IRA
for their children or grandchildren as soon as the children or grandchildren have enough earned income from part-time or summer
jobs. This will ensure that the five-year requirement is met when the individual for whom the Roth IRA is established is ready
to make a withdrawal to buy a home, for example.
529 Plans: Another great tool
for grandparents is the 529 a tax-deferred college savings plan. Grandparents can fill out a plan enrollment form designating
a grandchild as beneficiary, select the investments from the plan’s options, and make future contributions either by
check or by automatic contribution. It’s also fine for grandparents to make their contributions directly to a
529 account already owned by the grandchild's parents.
The South Carolina 529 Plan has a minimum to open
of $250 with subsequent minimum investments of $50. You can use any states plan regardless of your state of residence. There
are various services – including Morningstar Inc. – that now rank the offerings of each state’s plan.
www.SavingforCollege.com and www.FinAid.org are leading sites to help educate you in how these plans work.
Grandparents can treat their contribution as complete gifts, which means they can apply the $13,000 per year gift
tax annual exclusion or an accelerated contribution of up to $65,000, with a special five-year, gift-spreading election. Check
with your tax adviser first.
Another great benefit is that a 529 plan owned by grandparents should not affect
the grandchild's eligibility to receive federal financial aid because a grandparent's assets are not reportable on
the free application for federal student aid, or FAFSA, and the tax-free withdrawals from a grandparent-owned 529 plan are
not counted as student income or student resources.
A 529 college savings plan is not the same thing
as a 529 prepaid college tuition plan. Prepaid tuition plans are just that – tax-deferred savings plans that allow you
to save for tuition for in-state schools (though some plans allow you to transfer out a portion of those assets to out-of-state
schools). Prepaid tuition plans are not an automatic guarantee a student will get into that college.
Coverdell Education Savings Accounts: For grandchildren heading to private school who are under
the age of 18, most grandparents – check your eligibility with a tax professional first – can contribute up to
2,000 dollars annually per grandchild to a Coverdale Educational Savings Account. Coverdell earnings accumulate free
of federal income taxes, and can be taken to pay for private elementary, secondary or college. Yet, your income is a factor.
You can make a Coverdell contribution as long as your modified adjusted gross income is between 95,000 and 110,000
dollars if you’re single or between 190,000 and 220,000 dollars if you’re a married and filing jointly.
Yet, if you exceed either of these requirements, you can ask the parent of the adult child to open up the account and make
the contribution, though you will have to give up control over the account.
Make a direct
gift of your grandchild’s tuition: Under current tax law, you can make gifts of any amount to cover your
grandchild’s tuition. Yet, you’re going to need to pay the college directly and you need to be aware that it won’t
dent your federal estate tax exemption (3.5 million dollars in 2009), but it will cut the overall amount of your taxable estate.
You can, however, go ahead and make additional gifts per grandchild of $13,000 to help with other college expenses.
March 20th, 2009
THE DEATH TAX
IS LIKELY TO LIVE ON
The Obama Administration has indicated its plans to block the estate tax from disappearing in 2010, though to
offer a bit of relief, it might freeze it at the rate and exemption levels that took place this year. That would mean
that estates worth up to $3.5 million for individuals and up to $7 million for couples would be exempt from any taxation and
those above those amounts would be taxed at 45 percent. (At the end of the Clinton Administration, estates of less than $1
million would be excluded with the rest taxed at a 55 percent rate.)
Even with the downturn in the real estate
and stock markets, it’s a good time for high net-worth individuals and couples to look at ways to shelter their estates
from the possibility of taxes going forward. One possibility for couples who have a substantial investment in real estate
they consider a residence is the Qualified Personal Residence Trust (QPRT).
A QPRT is a trust that owns
the home at a discounted value for a specific term while allowing the parents to continue living in the home. The QPRT
works best for those people who expect to live another decade or so. The longer the term of the trust, the greater the benefit
to the kids. Yet you’re essentially playing a game of chicken with the Grim Reaper—if one or both of the parents
die before the trust expires, the heirs have to pay the estate tax on the value of the house at the time the parent died.
A good first step in finding out if a QPRT makes sense is a trip to see your tax or estate planner. Such a trust
has to be set up carefully with a thorough review of actuarial tables and a discussion of each parent’s financial history.
Technically, QPRTs make the most sense when interest rates are high, because the higher the interest rate, the greater the
discount applied to the property, which, in turn, increases the tax savings. A QPRT is based not on the current value
of the house at the time the trust is being written, but what is determined to be the present value of a future gift, which
is actually a discount to the current value. When a home is put into the trust its value is not the current value of
the house, but what is called the "present value" of the future gift - a decrease of 25-50 percent in value.
The Internal Revenue Service calculates these formulas, so ask your expert how current calculations will affect the value
of your estate.
Another potential benefit of the QPRT is that if the parent runs into trouble with high hospital
or medical bills, the hospital cannot demand any money gained by refinancing or selling the house, since the occupant does
not have any right to that money.If the rough real estate market has devalued your home at least a little, chances are that
the market may rebound sometime during the term of the trust and if you outlast the trust at its expiration, the strategy
may work out very well for your heirs. Obviously there are a number of considerations here, not the least of which involves
the current value of the property. Your adviser should help you consider all these issues, and you should keep an eye on the
news for what eventually happens with the capital gains tax as well as what ends up happening with the estate tax.
Oh, and if the parent outlives the trust, the parent can continue to live
in the house by paying the kids fair-market rent. There’s one more wrinkle to try if the kids want to avoid income
taxes on the rent they’ll receive from their parents—they can form a grantor trust for the property so the rent
is paid to the trust.
March 13th, 2009
IS YOUR CHILD HEADED TO COLLEGE NEXT FALL?
TIME
FOR TO A CRASH COURSE ON BORROWING AND SPENDING
Even
if you’ve planned relatively well for your future college student’s expenses, the credit crunch and downturn in
investment income for colleges have changed the game for financial aid at many schools. That means both parents and students
need to approach the college financial aid scene with unprecedented caution. Harvard University, the world’s
richest school, announced in February that it was slashing 25 percent of its investment staff after its endowment lost 22
percent of its value in the previous four months.
The National Association of College and University
Business Officers reported that college
endowments fell on average 23 percent in the five months ended Nov. 30, 2008. Why is this important? While endowments help to pay for faculty and facilities they also provide
both grants and scholarships for students who need them. When students have a tougher time finding lower-cost school financing,
the demand for scholarship and grant funding goes sky-high. In many cases, students are forced down the borrowing chain to
increasingly risky loan options.
The private student loan sector has also been hit by reports of questionable
practices in the last two years. In December, New York Attorney General Andrew M. Cuomo reached an agreement with the College
Board – the developer and administrator of the SAT and AP – to stop discounting products and services in exchange
for a ranking on colleges’ preferred lenders list. The College Board will now develop a set of tools to help financial
aid administrators to help students and parents compare student loan offers and identify the lowest-cost loan options.
What can you do? One of the best starting points is a meeting with a Financial Planner such as a CFP ™ or ChFc
with specific expertise in planning for college and financial aid options. Best, work with a planner when kids are young
to amass the right amount of savings for college, but it makes good sense for both parents and students to meet with a planner
before school starts to underscore the complete list of financial issues the student will face.
These include: Plan
alternatives for financial aid shortfalls: Over the past few years, colleges have not been able to offer adequate amounts
of funding through Perkins, Stafford and Plus federal education loans, and private student loans through banks have closed
up with the credit crunch. However, many college students get in trouble with debt because they are unaware that
many for-profit companies advertising access to federal loans pull their financing from private sources that cost the borrower
far more than actual federal loans would. The ability to plan for college well in advance and work with an expert to
sift through proper loan alternatives can make the difference between an affordable debt load when a student graduates and
potential bankruptcy. Set a budget as early as possible for basic expenses: Until the student gets to school it
will be tough to tell what actual expenses will be, but it won’t hurt to set a tentative budget that involves taking
full account of the student’s savings, the parents’ (and possibly the grandparents’) contribution to everyday
expenses and any planned income from work-study or other sources. For a template of a budget written specifically for college
students, go to: http://www.aie.org/Calculators/budgetworksheetinschool.cfm
Start managing credit and debit cards before school starts: The time to start managing credit and bank accounts isn’t
freshman year. While a teenager won’t build a credit history as an authorized user on a parent’s card, it’s
good to get a little practice using it under a parent’s watchful eye. When a child goes on to college, the challenge
will be looking for the best credit card offer amongst many and managing that credit responsibly.
March 6th,2009
6
MONTHS LATER
I thought it would of interest to revisit a column I wrote On September 19th, 2008 at the beginning of this
Great Recession. The title of the column was “IF YOUR CAPITALIST ECONOMY IS FAILING TRY SOCIALISM”. Here are a
couple of points made in the column and where we are now.
“Over the past weekend Merrill Lynch
was purchased by Bank of America and Lehman Brothers filed for bankruptcy. AIG has been taken over by the
Feds, Washington is looking for suitors to take over Washington Mutual and financial analysts wonder about Wachovia.”
Well Merrill Lynch-ed the Bank of America, who in turn cried fowl for more help
to Washington and Lehman Brothers went bye bye. The taxpayer now has an 80% stake in AIG having forked over $180 Billion.
Wachovia, well it didn’t take long to wonder about their outcome. Hello, Wells Fargo.
“Washington will not allow a collapse of the financial markets. Good
or bad they are the basis of our economy. In protecting the economy Washington will continue to bail out, find suitors or
offer low interest rate loans and try anything.” Over
1 Trillion dollars in bailout funds have or will be used. The biggest recipients include AIG at $180 billion and CitiGroup
at $45 billion. Citigroup and their stockholders also benefited from Washington’s decision to generously convert at
an above market price the preferred stock that we obtained in an earlier bailout to common stock.
“The failure of so
many financial firms knows no political affiliation. Politicians from both major parties took part or at the very least chose
to turn a blind eye to the run up……….. Washington consists of many ex- Wall Streeters who know its workings
yet Federal laws are reactive instead of proactive.” Regardless of political affiliation our representatives
can’t just get past their special interests. A January 27th, 2009 Wall Street Journal Article disclosed that a bank in Massachusetts received $12 million in
TARP funds after Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, had inserted language in
the TARP legislation that aimed specifically at helping the bank. Not to be outdone has been Alabama
Sen. Richard Shelby the ranking Republican on the Senate Banking Committee. According to Alabama banking Superintendent John
Harrison “(Shelby) has been a big proponent for Alabama state-chartered banks……and he was really concerned
that the TARP money went here…..“I think [the Treasury] got the message.” 2 Large Investment scams
have unraveled. Bernie Madoff a former NASDAQ Chairman and (Sir) Allen Stanford. What is more, the operations of both men
raised red flags long before regulators brought charges, for which regulators were under fire for not moving fast. Both men
and their firms bought trust and favoritism by smoozing among the elite and making significant monetary contributions to charity
and politicians. Madoff was investigated 8 times in 16 years by the SEC yet nothing was done until investors rushed
for withdrawals and couldn’t cash out. Reports said there were warning signs about Stanford as far back as the early
1990s. Stanford ran into trouble after big investments such as holdings in Florida property started to unravel.
“Expect
considerable turmoil in financial markets and emotional selling can take prices to levels well-below the intrinsic values
of the underlying businesses.” Stocks
prices continue to sink. Some have been oversold and others may still be overvalued. While the domestic Bond Market has started
to show signs of stabilization the Equity Markets continue to look for leadership and direction. 6 Months from now I hope not to have to revisit the September
’08 column and report no change. I will be both surprised and extremely disappointed if we haven’t
taken some positive small steps on the road to recovery. For the long term investor the time is now to sit down with your
Registered Investment Advisor, Financial Planner or Broker to start putting a plan together to buy back into the market.
February 27th,2009
BIG WINDFALLS
and STRUCTURED SETTLEMENTS
WHAT ARE THEY and HOW TO HANDLE
THEM
If you’ve received this windfall, it might sound like you’re fixed
for life. The reality is that your financial life has changed drastically, and you need to plan for it. A structured
settlement is a way of receiving partial payments for a major amount of money you’ve won or received in a lottery, a
court or insurance case. You hear a lot of commercials on the air for getting cash from structured settlements, but it’s
important to understand what they are and how they should be handled if you’re ever the recipient. A good
place to start is with a tax expert like a certified public accountant, a financial planning professional, or an attorney
or structured settlement consultant who has significant experience dealing with these payment structures. When there is big
money at stake, it might make sense to consult all three. Some ideas:
First, the definition: A structured settlement is structured like an annuity. It is a contract written by an insurance company that provides
periodic payments to a winner in a lottery, a lawsuit or some other settlement arrangement over time. Amounts
can be paid out weekly, monthly or yearly.
The benefits: Structured correctly – and with the right oversight going in – a structured settlement
annuity provides a payment stream that may be tax-free over a period of time during the winner’s lifetime and remaining
payments may be bequeathed to his or her survivors after their death.
The pitfalls: One should never accept a structured settlement agreement without vetting it
against their own tax situation or estate needs. Also, it helps to have an expert who understands these
agreements well enough to know whether certain fees or charges connected with that settlement are appropriate to the overall
size of the award. Keep it in mind that the structured settlement must be purchased by the person or company that is at fault
or is making the award. This is why it’s particularly important to have an expert watching over that selection process
from the moment the award is announced.
The lump sum alternative: If a winner chooses a lump sum payment over a periodic payment based on the full amount of the award,
that payment will likely be handled with an insurance contract that physically pays the lump sum but at a much heftier chunk
of the full total – they get a big payoff for giving you a big one-time payoff. Keep in mind that
the lump-sum payoff idea may not be worth pursuing unless it’s large enough to throw off substantial investment income
in the future and that you have talented management making sure that lump sum makes money over time. This is why it’s
always a good reason to confer with tax, financial and investment experts on the best way to go with either a lump sum or
a periodic payment from the moment you’ve been informed you won the money.
Keep in mind that others get an advantage too:
Many attorneys are also structuring their fees that are taken directly out of a court award. This allows them to postpone
receiving their share of an award on a tax-deferred basis so they can build their own retirement funds. There’s
nothing wrong with this, but it’s important to know who else in the process might benefit from any decisions that get
made.
February 20th,2009
DEMENTIA IS NOT ONLY A FAMILY MATTER: IT’S ALSO A FINANCIAL MATTER
When a close relative or friend starts to display signs of dementia or related neurological ailments, it is a family
tragedy requiring speedy action and medical care. But in many cases, the disease comes on gradually, and it becomes evident
with inconsistencies in behavior and sometimes, problems with money. It is not uncommon for older people with diminished
cognitive function to be a ready target for scams and ID theft as well as out-of-character decisions with regards to savings
or investments. If this were you in five, 10 or 20 years, would you have a plan? Last July, a Mayo Clinic
study reported that men were twice as likely as women to develop mild cognitive impairment over the age of 70, a transitional
phase between healthy aging and full-blown dementia, which is a significant loss of intellectual and memory abilities severe
enough to interfere with social or occupational functioning. Women develop Alzheimer’s disease in greater numbers than
men, but that’s due largely to the fact that women live longer than men. So when does this become a money
issue? In the best circumstances, as part of a full estate planning process before an individual becomes ill. In the worst,
it needs to happen immediately after a loved one is diagnosed. Once stricken, older relatives may be unable
to understand questions or express their wishes in proper detail. If there is no plan, family members grasp at responsibilities
– or shirk them – without any idea of what the older relative would really want. So what’s the answer?
Everyone should make a plan that includes the worst-case scenario of incapacity in one’s long-term financial plan.
Some key points:
Have a discussion with people you trust to make decisions for you: It’s not fun to imagine yourself in the state dementia brings, but it’s
important to consider trigger points where trusted people would step in to do specific functions for you. It would make sense
to pre-select individuals as your executor as well as your health and financial powers of attorney, responsible for paying
bills and executing your specific investment wishes under specific circumstances.
Make sure how major assets will be used to pay for care: If an elderly relative becomes sick and irreversibly incapacitated, the equity in your home may come under
consideration as a resource to pay uncovered medical or household maintenance. Since the home is both a major asset and an
emotional focal point, it’s best to get good advice and spell out specifically what you want done you’re your
property and under what conditions.
Pick the right experts: The
professionals and nonprofessionals in this role should have significant experience working with seniors and be prepared to
interact with other members of your team if they notice anything particularly out of character in your future actions.
Put it in writing: Once you’ve
established the team that will carry out your wishes in a variety of situations – not just in the case you are diagnosed
with dementia – then you should have such instructions written into a formal estate plan with the necessary powers of
attorney as well as your updated will.
February 13th,2009
DIVORCE MAY END A MARRIAGE
BUT UNCHECKED CREDIT ISSUES
JUST MIGHT LAST FOREVER
While Valentine’s Day should be focused on the happy side of love,
it’s always important for smart individuals to be aware of the potential money pitfalls of love gone wrong. A divorced
couple’s respective credit histories can still be destroyed if one or the other practices poor credit habits during
or after the divorce. For example, a failure to remove one’s name from home mortgages, auto loans,
credit card balances or home equity lines once a divorce is final can produce significant headaches if an ex-spouse loses
a job, runs into medical problems or for any other reasons stops paying on time. With the current state of the
economy, pre- and post-divorce credit deserves even more focus from soon-to-be-single individuals. Here are some key points
to consider if you are planning to divorce or if you are post-divorce and are unsure about how your ex-spouse is handling
credit you once held jointly:
Enlist your own financial planner with your own attorney or mediator:
You may have spent the lion’s share
of your life making money decisions with your spouse, but when you split, it becomes all about protecting your best interests.
Good planners with experience in divorce matters should be able to identify financial issues unique to your situation and
guide you as you handle them.
Inspect each others credit reports: Before a divorce is finalized, it’s particularly important for both sides
to review each other’s recent credit history because debt trouble can surface during a breakup and cause problems later.
Good divorce attorneys and mediators can draw attention to this need, but couples are ultimately responsible for making
this process happen. It’s best for divorcing couples to make time to pull copies of their credit reports and gather
those for the same period from their estranged spouse and inspect both thoroughly (with the help of a planner or their attorney
if possible). These respective credit snapshots can be used to make decisions that will protect their credit
in the future. If both sides haven’t already obtained their annual free credit reports from the three major
credit agencies (TransUnion, Experian and Equifax), the place to go is www.AnnualCreditReport.com. Keep in mind that most “free” credit report services you see advertised on TV take your credit card number and
find a way to charge you for your “free” credit information later – don’t fall for it.
Remove your ex-spouse’s name from your accounts immediately: If you are keeping certain credit card, auto or mortgage loan accounts, both of
you should call each lender and follow their respective processes to remove your ex-spouse’s name from those accounts.
Consider refinancing the debts you keep once the divorce is final: Ex-spouses can run into debt trouble and creditors may come after the other ex-spouse for payment
if that debt still exists with a history of both names as creditors. That’s why if they’re able, both spouses
should immediately refinance the debt from mortgages, home equity loans, credit cards or any other consumer loans that they’re
splitting up. This might be easier said than done given current tight lending requirement and each ex-spouse’s profile
as solo borrowers, but again, this is why it’s particularly important to collect debt advice before the divorce is final.
Keep a continued watch on credit reports and scores going forward: For some couples, it might make sense to sign up for services that alert you to sudden negatives
in your credit data, but above all, set a staggered schedule immediately to check your credit reports in the 2-3 years following
your divorce to spot any erratic credit activity that an ex-spouse might cause.
February 6th,2009
BANK OWNED REAL ESTATE MAY BE PLENTIFUL,
BUT LEARN THE ROPES BEFORE YOU INVEST
Last month, RealtyTrac, a leading online market
for foreclosure properties, reported that over 3.16 million foreclosure filings were made in 2008, up 81 percent from 2007
and up 225 percent from 2006. For those with money to invest in real estate, this is an exciting but extremely risky time. Those
who consider investing in foreclosure properties should not only understand foreclosure and the importance of cash in the
process, but the emotional element unique to this kind of investment. After all, each foreclosure represents
someone who has lost a home. Those who deal regularly in foreclosures know that making a profit can be tough,
and that’s true even for individuals with lots of cash, close ties to lenders and public officials and plenty of experience.
Here’s a look at the foreclosure process and how it works.
What is foreclosure? A foreclosure happens when a buyer defaults on their payments and the lender takes
formal legal action to seize the property. State rules govern this process, but generally, a lender decides to forclose on
a property it files a notice of default or a lis pendens (Latin for "lawsuit pending"). This document is a
public record,and it's the first step in locating a property for forclosure.
Do all troubled properties
have to be in foreclosure to be sold? Actually,
no. You will hear about “pre-foreclosure” or “short sale” properties put up for sale by lenders who
have entered into agreements with troubled homeowners who elect to give up the property to avoid a foreclosure on their credit
report. You will also hear about such sales being done by intermediaries who claim to deal in these transactions.
Some are legitimate, some are not. Check them out.
How do people invest in foreclosure properties?
There are 3 primary ways this happens. First, you
will see buyers coming in at the “pre-foreclosure” stage. Second, you will see buyers going after “REO”
(real estate owned) properties – literally foreclosed real estate still on the books of a lender. Third, you’ll
see foreclosures auctioned off at a local government building or in private auctions, depending on how the lender wants to
market such properties to get them off their hands. Each process has its own conventions for inspecting the properties –
sometimes prospective buyers get time to inspect what they might buy, other times little or none. That’s
where the risk comes in – it’s not uncommon for owners losing their property to neglect it or damage it on purpose
on the way out. Repairs can be costly.
Cash or loan? Borrow to buy a foreclosure property? With today’s credit environment, don’t count on any lender to stake
you no matter how attractive your credit rating is. This is risky stuff. There’s also a second reason. While the typical
purchase of a home or business property involves mortgage financing that takes weeks to secure due to credit checks and other
factors, the sale of foreclosure properties is typically a fast-moving process that requires no-strings financing. Bottom
line, a lender marketing foreclosed property likes cash. There’s another good reason to enter this process with cash
instead of debt. Even sophisticated foreclosure investors often discover ugly surprises when buying – property with
greater damage than they anticipated, for example – and they may not have the flexibility to borrow to fix those unexpected
problems after they borrowed to buy in the first place.
Where to learn more? Start by learning how various local lenders deal with
pre-foreclosure and foreclosure property and how public officials and private auction houses handle the auction process for
such property. Generally, this is knowledge that will take time to obtain since all the parties involved
in this process are busy and besieged by many like you who want to learn. Be patient, take the proper time to study the process
and don’t spend a dime until you do.
January 30th, 2009
STAYING CLEAR OF TAX SCAMS
Now that it is tax
season it’s also time to alert you to tax schemes that can lead to problems for both scam artists and taxpayers. Here are some of the most common tax scams:
Phony Wages. Filing
A phony wage- or income-related information return to replace a legitimate information return has been used as an illegal
method to lower the amount of taxes owed. Typically, a Form 4852 (Substitute Form W-2) or a “corrected”
Form 1099 is used as a way to improperly reduce taxable income to zero.
Misuse of Charitable Organizations and Deductions. Misuse includes arrangements to improperly shield income or assets from taxation, attempts by donors to maintain control
over donated assets or income from donated property and overvaluation of contributed property. There are even instances where
taxpayers try to disguise private tuition payments as contributions to charitable or religious organizations.
Frivolous Arguments. Promoters of frivolous schemes encourage people to make unreasonable and unfounded
claims to avoid paying the taxes they owe. Taxpayers who file a tax return or make a submission based on one of these
positions on the list are subject to a substantial penalty.
Retirement Plan Manipulation. These abuses
include avoiding contribution limits and eligibility requirements. Taxpayers should be wary of advisers who encourage them
to shift appreciated assets into IRAs or companies owned by their IRAs at less than fair market value.
Return Preparer Fraud. Dishonest tax
return preparers can cause many problems for taxpayers who fall victim to their schemes.
Fuel Tax Credit Scams. Some taxpayers,
such as farmers who use fuel for off-highway business purposes, may be eligible for the fuel tax credit. But some
individuals are claiming the tax credit for nontaxable uses of fuel when their occupation or income level makes the claim unreasonable
Misuse of Trusts. For years, unscrupulous
promoters have urged taxpayers to transfer assets into trusts. They promise reduction of income subject to tax, deductions
for personal expenses and reduced estate or gift taxes. However, some trusts do not deliver the promised tax benefits.
As with other arrangements, taxpayers should seek the advice of a trusted professional before entering into a trust.
Phishing. This is a tactic used by
Internet-based thieves to trick unsuspecting victims into revealing personal information they can then use to access the victims’
financial accounts. The information obtained is used to empty the victims’ bank accounts, run up credit card
charges and apply for loans or credit in the victims’ names. Phishing scams often take the form of an e-mail that appears
to come from a legitimate source. Some scam e-mails falsely claim to come from the IRS. The IRS never uses e-mail
to contact taxpayers about their tax issues
Hiding Income Offshore.
Individuals continue to try to avoid paying taxes
by illegally hiding income in offshore bank and brokerage accounts or using offshore debit cards, credit cards, wire transfers,
foreign trusts, employee leasing schemes, private annuities or life insurance plans.
Disguised Corporate Ownership. Some
people form domestic shell corporations in certain states for the purpose of disguising the ownership of a business or financial
activity. Once formed, these anonymous entities are used to underreport income, non-filing of tax returns, engaging
in listed transactions, money laundering, financial crimes and even terrorist financing.
January 23rd, 2009
LESSIONS YOU SHOULD HAVE LEARNED ABOUT YOUR RETIREMENT ACCOUNT
2008 devastated many retirement investment portfolios. I have had clients tell
me of friends and co-workers who have had losses of greater than 40%. So let’s take a look at some
lessons you should have learned. #1- Always have an emergency fund.
Since the beginning of investment time this basic rule has continually
been disregarded by the greed of investors. The result: investors end up tapping into retirement accounts in down markets
and thus sell at the wrong time.
#1- Keep a minimum of 6 months of living expenses in a money market or savings
account at all times. Also, don’t invest funds earmarked for short-term goals of 5 years or less.
#2- It’s going
to take time to recover. A 40% loss would require a 67% gain just to recover. Can that happen in one year? Unlikely.
4 Good years perhaps. However, if you ran scare after seeing your December portfolio statement it would take nearly 16 years
of 4% returns to get even. If you were fortunate enough to have only a 20% loss then you would only need
a 25% gain and that certainly can happen in the markets first year or two rebound.
#3- Don’t count
on pensions. You can kiss defined benefit pensions plans good bye.
At present, there are some 44 million
workers and retirees who have a traditional defined-benefit pension plan and there are more than 29,000 such plans in existence,
according to the Pension Benefit Guaranty Corporation (PBGC), the federal corporation that insures defined benefit plans.
These plans are in deep trouble and the PGBC will not have the funds to back them.
#4- For the foreseeable future
its sayonara to employer matching contributions in 401(k) plans.
#5- If you lost 30% or more and
had a financial advisor, Get a new one. If you don’t have an advisor find one. Be sure that they are Registered Investment
Advisors (RIA) and either registered with the SEC or South Carolina. Oh yea, fee only. Don’t need commissions generated
every time a move is made in your portfolio.
#6- The theory of Strategic Allocation (simply buying asset classes and occasionally
rebalancing them) alone doesn’t work. Diversification must be mixed with Tactical and Dynamic allocation. Tactical allocation
looks to rebalance the percentage of assets held in various categories in order to take advantage of market pricing anomalies
or strong market sectors while Dynamic allocation is the selling of assets that are declining and purchasing assets that are
increasing. For example, if the stock market is showing weakness, you sell stocks in anticipation of further decreases, and if the market is strong, you purchase
stocks in anticipation of continued market gains.
#7- Be flexible. The golden rule in my practice is to be flexible with your
investment portfolio. Your account should be liquid at all times. You should be able to sell your holdings at any time. See
#5 about commissions.
#8- Keep your funds with a 3rd party custodian. Your advisor should not be holding your assets. See
Bernie Madoff.
#9- Don’t stop investing. The economy will recover. The market is down. It may even go lower but keep the
faith and buy frequently to average out your cost.
#10- Taxes are going up. Someone has got to pay for the billions of dollars
spent in bailout funds and it’s going to include the wealthy retiree. Wealthy Retiree = anyone receiving more than social
security.
#11- If it sounds too good to be true. IT IS!
January 16th, 2009
CONSUMER BORROWING IN 2009 MEANS MAKING A PLAN
Getting a loan this year is going to be a lot tougher without an excellent
credit score and a significant down payment. According to credit scoring giant Fair Isaac Corp., the best FICO score range
as of late 2008 stood at 760-850, that minimum is roughly 20 points higher than it would have been a year ago.
The Federal Reserve
Board’s statistics show that outstanding consumer credit has increased from a bit more than $2 trillion in 2003
to $2.5 trillion by the end of the second quarter of 2008, a 25 percent increase over five years. These high levels of debt,
combined with a global credit crunch, have tightened up lending to all but the best customers–and they’re having
trouble too. If you
have extraordinarily high debt levels, a record of late payments or very little money to put down on that home or car, you
need to do some advance planning before you contact any lenders.
Here are issues you need to incorporate into
your planning:
Get some advice: You might be focused on paying down debt or saving up your down payment, but credit is
only one part of your lifetime financial picture. It might be a good idea to talk with a tax professional or a financial planner
to learn how to best use credit.
Pay down balances:
Fair Isaac Corp. will be adjusting the way it computes its credit scores. One of the top changes will be a greater negative
weight on credit utilization–how close you get to the borrowing limit of each of your accounts. The company says that
for optimal scoring, each account’s outstanding credit should be no more than 50 percent of the credit line and hopefully
less. As you’re paying down your balances, it’s wise to focus on the highest-rate credit cards
or loans first.
Set a credit report review schedule:
You have the right to get all three of your credit reports—from Experian, TransUnion and Equifax—once a year for
free. You can do so by ordering them at www.annualcreditreport.com. Don't order all three of them at the same time, though. By spreading out the dates you receive each of your credit
reports, you'll get a continuous view of how your credit picture looks because the three bureaus feed each other the latest
information. By the way, all those ads that advertise free credit reports? Most of them will demand a credit
card number from you, which means at some point those reports won’t be free. The aforementioned Web site is the best
place to get reports that are truly free of charge.
Pay on time and more than the minimum: If you’ve
been late with payments or have stuck only to paying the minimums, it’s time to give that up now. Here’s what
you do. To avoid late payments, note the due dates when the bills arrive and then set a date for payment 7 to 10 days ahead
so you’ll definitely be able to mail your payment on time. You can also pay on line to avoid mail delays.
To put more toward the balance, finally do a budget–this will help you identify the non-essential spending you’ve
been doing so you can pay your outstanding credit balances faster. No-doc or low-doc loans?
Find another way: If you
are self-employed or otherwise don’t have a lot of verifiable income, you may have the most trouble getting a loan.
While banks and other lenders two years ago might have bent over backwards to lend to people with unverifiable income, that
gravy train is mostly over now. If you do get a loan, you’ll pay far more for it than you would have before the credit
markets blew up.
January 9th, 2009
THINKING ABOUT MUNIS? MAKE SURE YOU'RE MAKING WISE PICKS?
Municipal bonds have long been a safe haven for higher-income investors looking for safety and greater tax efficiency.
The credit squeeze put the municipal bond market through its paces but it may be time to take a second look at both municipal
bonds and muni bond funds.
A municipal bond, or muni, is a bond issued by a
local government or their agencies to raise funds for a host of reasons tied to keeping the government going.
Issuers may include cities, counties, redevelopment agencies, water and sewer projects, school districts, publicly
owned airports, seaports and other transportation entities. Munis come in 2 flavors—general obligation
bonds and revenue bonds.
General obligation bonds raise capital to cover government expenses; revenue bonds are
the ones that fund infrastructure projects. Interest income is often exempt from federal
income tax as well as the income tax of the state in which they are issued The credit
crunch sucker-punched funding sources for projects and many were dropped because investors weren’t there to buy the
paper and other sources of financing had dried up as well. Keep in mind that even during the Great Depression, no state defaulted on its
general-obligation bonds, and while some munis have defaulted, overall, such defaults are very, very rare.
Where’s the opportunity for you? Look at highly rated outstanding bonds. Even though their prices have plunged, some
municipals late last year were offering long-term, tax-free yields of five percent and above, which translate into the equivalent
of nearly seven percent for taxpayers in the 28 percent bracket and nearly eight percent for someone in the top 35 percent
bracket when the tax exemption is considered.
Before you buy, here are some things
to know and steps to follow.
Are munis right for you? The first call you make shouldn’t be to a broker. It should be to your tax professional and
your financial adviser who can take a look at your entire taxable investment portfolio and determine whether they’re
the right approach to take for your investments.
What munis are in trouble? Some governments issued a hybrid muni known as a variable-rate demand note. These were sold mainly to institutions with maturities
of up to 30 years that were paying at rates reset as frequently as once a day. During the crisis, the rates on these notes
shot up to double-digit territory, putting the municipalities that issued them under particular strain due to short-term interest
rates that can be reset as frequently as once a day.
Watch for the AMT: While most munis pay interest that’s free from federal income taxes, some
may pay rates that are subject to the alternative minimum tax, known as the AMT. It’s a little more
complicated than we have space for here, but this is absolutely why you need to talk to your tax professional or financial
planner before making a move into munis.
Ladder : “Laddering” is a portfolio structuring term meaning that you are buying them with maturities
occurring at regular intervals, so when they mature, you’ll have money to reinvest at those same regular intervals.
Watch those ratings:
Yes, the main private investment ratings firms–Moody’s and Standard & Poor’s among them–have been
in the doghouse for rating many battered investments highly, not just munis. But most municipals rated AA or AAA are generally
safe to consider. It’s also important to check the issuer’s long-term ratings history.
January 2nd, 2009
BE CAREFUL ABOUT PICKING
BENEFICIARIES FOR YOUR IRAs AND 401(k)s
Inheriting IRA or 401(k) proceeds can be a potentially huge windfall, but it can also be a sizable tax headache.
For both the giver and the recipient, it’s worth getting some advice. Bank accounts, stocks, real estate and life
insurance proceeds generally pass to heirs free of income tax. However, inherited retirement benefits can be a different story.
Beneficiaries have to pay ordinary income tax on distributions from 401(k) plans and traditional IRAs after they are inherited.
Prior to making any changes you should consult with a financial planning professional, an experienced tax advisor
or an estate tax attorney who can work with you based on your personal tax and estate circumstances to determine an inheritance
strategy that is best for you.
Some general guidelines:
Spouses are the first stop: Federal law dictates that your surviving spouse must be the primary beneficiary
of your 401(k) plan benefit unless your spouse signs a waiver to redirect those funds. Even with a traditional IRA, naming
the spouse as the primary beneficiary may be an appropriate option. Should the surviving spouse have his
or her own IRA, this approach would allow them to simply roll over the assets from the decedent’s IRA into their own.
Furthermore, if the surviving spouse is significantly younger than the deceased, the surviving spouse would receive
the added benefit of stretching out distributions from the IRA until he or she turns 70 1/2. The stretch-out
allows the assets to continue to grow on a tax- deferred basis, thereby maximizing asset value and delaying any income tax
due.
When might you want
to rethink a spousal beneficiary? When the
surviving spouse’s estate is expected to be large enough to exceed the applicable exclusion amount for federal and state
estate taxes. The applicable exclusion amount after allowable expenses for 2009 is $3.5 million ($7 million for a married
couple). Proper estate planning may alleviate this issue.
What about non-spousal beneficiaries? Non-spouse beneficiaries may be able to rollover all or a part of inherited 401(k) benefits to an inherited IRA.
A recent change in IRS regulations still requires non-spousal heirs to withdraw a minimum amount from Inherited IRA assets
every year, but it’s based on the age of the recipient rather than the age of the decedent.
Establishing a Stretch IRA:
Taxpayers may establish IRAs designed to stretch out the time period
over which a non-spouse beneficiary (i.e. child) is required to take minimum distributions from an inherited IRA.
Proper use of this vehicle may potentially allow for continued growth of tax-deferred earnings over multiple generations
and can have a substantial impact on the future value of the family portfolio.
Naming trusts or charities as beneficiaries.
Placing IRA assets in trust can have substantial advantages but can be complex.
It should only be considered after receiving tax advice from a competent professional. It is particularly
important to get tax advice related to this issue. Trusts can be complex instruments with which to bequeath assets, and even
though naming a charity as one’s primary beneficiary will not affect distributions in your lifetime, it could affect
the tax consequences for non-charitable beneficiaries who are sharing the same asset upon your death.
December
26th 2008
TAKING STEPS TO SAFER INVESTMENT DECISIONS IN 2009
It's tough to tell how much one investor can do alone to preserve their assets in 2009. But there
are some general ideas to employ as markets and economies hopefully stablizein the New Year.
Start with a plan – or review an old one:
If you’ve worked with a good financial planner, you should be able
to articulate your long-term investment goals by yourself. Much of the riskiest investing, overbuying and
panic selling during the late 1990s and early 2000s could have been avoided if individual investors had sought advice for
achieving long-term specific goals such as retirement or a college education.
Check all your assets in banks: As a result of federal economic bailout legislation, the Federal Deposit Insurance
Corporation (FDIC) temporarily raised the per-deposit account, per bank coverage level from $100,000 to $250,000 through Dec.
31, 2009. Certain retirement-related accounts carry $250,000 of FDIC coverage. Check with your bank to make sure you’re
covered, and if not, get the right advice for moving funds so you don’t incur an unexpected tax liability or fees.
Review your risk tolerance: Having a plan doesn’t mean make the plan and leave it to sit for years.
You and your planner should decide when it’s time for a review of your investment goals and your feelings about them.
An annual conversation makes sense if nothing’s going on, but when unusual circumstances in life or the markets take
place, a phone call might be a good idea.
Prepare to stay invested: Stock downturns are always filled with panic selling – and buying. If your financial plan is sound, be prepared
to stay the course, but work with your advisor to make sure you have your priorities covered. While times
are tough, it’s wise to examine all your investment choices, but if they make sense, definitely put what you can afford
in. You’ll reap rewards when the market returns.
Check your credit: No one knows how long it might take to unravel the nation’s current credit situation. That’s why
creditworthy individuals might want to delay looking for new lines of credit until things loosen, and it’s definitely
a good time to schedule review of each of your latest credit reports at staggered intervals throughout the next year
Pay attention to your cash:
You should have an emergency fund of at least three to six months’
worth of living expenses in case your job situation goes south, but the market turbulence we’ve experienced also highlights
the need to be somewhat liquid in your investment positions so you can take advantage of certain opportunities. Not every
investment that’s lost value is necessarily a bad investment, and with careful study, you should be able to have cash
on reserve so you can capitalize on legitimate opportunities.
Re-budget:
It’s a good time to make a budget or re-assess the one you have. Keep your spending smart, your debt low so it’s
easier to set savings and investment priorities that will do you the most good when the economy and the market come back.
Check your retirement: How will the activity in the market affect your retirement timetable? You
might want to continue working full-time or plan a phased-in approach as you continue to build assets. There is a great danger
now that people may become either too risk-adverse or assume too much risk in planning for their retirement, and that’s
why it’s wise to get advice
December 19th 2008
AFTER A TURBULENT 2008,
MAKE SOME NEW YEAR'S RESOLUTIONS FOR A FINANCIALLY
HEALTHY 2009
A 2006 study by Mental Health America showed that parents are more stressed than all other demographic groups by finances
and females are more likely than men to feel stressed by finances. Money isn’t everyone’s No. 1 worry, but if it’s yours, why not
consider the following New Year’s resolutions to improve your financial life?
Resolve:
1. To write down your
goals: Have you ever written down the big things you want in life? Granted, all great dreams don’t
cost money, but many of them do. Money buys freedom – to travel, to retire early, to start a business, to change careers.
Putting goals in writing gives them a formality and a starting point for the planning you must do.
2. To evaluate your
risk tolerance: One of the most beneficial things financial planners do is help you articulate your financial goals and establish
(or re-establish) your tolerance for risk. With the market turbulence that’s marked 2008, many individuals would benefit
from an analysis of how much risk they want – or need – to take given what they want to achieve with their money.
3. To track your spending:
If you haven’t purchased financial accounting software or set up a reliable accounting method of your own, this is the
year to do it. Diligent expense tracking is the first critical step to getting personal finances in order.
4. To consider advice
on taxes and planning: Maybe you’ve always winged it with your taxes and considered your company 401(k) the ticket to
your financial future. Chances are your planning is inadequate. Start getting references on good tax professionals and consider
sitting down with a financial planning professional to discuss your current retirement savings picture and what you can do
to improve it.
5. To cut your credit card debt: If you can’t ever seem to get yourself completely out of credit card debt, make this
the year to do it. Take inventory of your balances, figure out if you can consolidate them under your lowest-rate card, and
resolve to pay off an amount that exceeds the minimum – on time, every month and pay cash from now on
6. To save: If you
haven’t signed up for your employer’s 401(k) plan or begun a savings plan tailored for the self-employed, this
is the year. And resolve to save at least 5-10 percent of your take-home pay based on your cash flow, and place the maximum
in whatever retirement savings plans you qualify for.
7. To redefine the way you shop: If you’re an impulse shopper, break
the habit in ’09. As a suggestion, get a legal pad and make that your centralized shopping list – use a single
page for groceries, stock-up goods (it’s wise to start buying essentials in bulk if you can measure the savings), essential
clothing or big expenditures you’ll need to make at specific times. Taking that pad with you wherever you spend money
is a good way to keep a grip on your wallet as long as you don’t stray from the list.
8. To attack that miscellaneous
column: Do you really need deluxe cable? How much are you paying for your Internet service? Can you wear a sweater around
the house and lower the thermostat? In every budget, there are items that can be cut – or at least trimmed. Take a hard
look at all your “essentials” to see how essential they really are. Aim for a target of at least 10 percent and
start setting that money aside on a regular basis.
December
2nd 2008
HELPING YOUR KIDS RECOVER AFTER
A MAJOR MONEY MISTAKE
The average
college graduate is $20,000 in debt, and today’s young adults are clearly exposed to more opportunities for self-directed
financial disaster than any group in history. Despite the current credit crunch, credit cards
are still a common way most young people afford their new adult lifestyle. So it happens. Your kid gets in trouble with
those credit cards, loses a job, or can’t find a job to pay the sum total of the rising debt he or she has. What can
you do? Make sure you can afford to help: It’s tough to say no to a financial bailout
for your kid, but depending on the level of trouble he or she is in and your own financial responsibilities, you may need
to.
Here are some ideas:
Both sides should come clean: Remember that this situation is as much about the relationship as about money.
The decision to help a family member with money problems requires understanding – lecturing tends to work not so well.
But it’s right to encourage your kid to take a frank look at their financial situation and if they are in debt trouble
of any kind, they should get help. It’s also important that you show confidence that they will make it through this.
Consider a joint talk with a financial planner: A financial planner can look at their financial situation and your own and give
you both a road map on how to work through your child’s money problems and set up better money management techniques
for after the crisis.
Should help be considered a gift? This is a good first question in any scenario where you offer help to a friend
or family member. What happens if you don’t get the money back? For the sake of the relationship involved, it might
make sense to think through that possibility. Would the potential loss of money injure you, and worse, will it injure the
relationship? This is why it might be a very good idea to present this solution as a one-time gift – and then stick
to it.
But if it’s a loan: Structure it professionally with clear consequences if it goes unpaid. Handled correctly, such a solution can offer
benefits for the borrower and lender alike. Terms should be at arm’s length to meet IRS rules but it can still be more
attractive than the child could obtain in the current marketplace. But there’s the potential for incredible downside.
Unclear agreements can lead to missed payments or default. If the borrower dies suddenly, the lender’s investment may
be lost if the agreement isn’t structured correctly. A properly executed promissory note is still an obligation of the
estate, and may continue to be paid to an heir or other person or entity based on the terms as agreed. It
is advisable that the loan agreement be in writing and properly executed to meet IRS rules.
Work
with them on budgeting: Even if you don’t
use a financial planner to help you both work through the situation, it’s important to set a clear financial course
for your child going forward. They obviously have to have a stake in the planning, but you’re going to have to provide
guidance.
Encourage them to start an emergency fund: Encourage them to start an emergency fund. Optimally, they’ll need to stash
away three to six months’ worth of living expenses, and even if it’s just a small start, it’s part of the
recovery effort.
November 28th 2008
IT’S A GOOD TIME TO CONSIDER CONVERTING TO A ROTH IRA
With the major stock market indices having plunged over 30% this year an opportunity exists
for those wishing to convert their retirement accounts into a Roth IRA.
To do so you need to
meet 2 criteria:
- have a traditional individual retirement account (IRA), 401(k) or other company retirement
plan (if they are eligible to take a distribution from the company plan) that are invested in stocks
- and have
2008 income that doesn’t exceed $100,000 on a single or joint tax return.
2008 presents an opportunity to
convert those plans to a Roth IRA now at a lower tax cost. For example, Jack has $250,000 in his traditional IRA a year ago. If he is in
a 28% tax bracket the tax to convert to a Roth last year would have cost him $70,000. Today Jack’s
IRA is worth $175,000. A Roth conversion now would cost him $49,000. I should stop right here to review the taxation of Roth IRA’s vs. the traditional
IRA, 401k and other company retirement plans.
Roth IRA’s do no receive favorable tax treatment at
time of contribution (tax deduction or pre-tax dollars) like the other plans. However at the time of distribution Roth IRA
distributions are tax-free. There are a number of other changes however due to space constraints I am only discussing the
taxation. In the
case of conversions Roth IRA distributions are completely tax-free five years after a conversion, as long as the account owner
is at least 59 ½ years old. Actually the period may be less since the IRS considers conversions to have taken place
on January 1st of the year.
For Jack his conversion is considered to have occurred on January 1st
2008. Thus if Jack takes funds out of his IRA by December 31st of
2008 he actually only has 4 years and 1 day to wait. If you think that tax rates may increase in the future you should consider converting to a Roth
IRA. Even if rates don’t change or even go down you have until October 15th of 2009 to change your mind and
undo or re-characterize your 2008 Roth conversion.
Finally, and very important Jack needs to have $49,000 to pay the tax bill
caused by the conversion. The funds need to come out of other assets. If he doesn’t have the funds he may want to consider
converting a smaller portion. Once done, assuming Uncle Sam doesn’t change the rules, Jack will never have to pay any taxes on distributions.
He doesn’t even have to take distributions out - ever. However, before doing a conversion you will need to contact your financial planner
or tax advisor and discuss Roth IRAs, the details, your eligibility and if a conversion is right for you. But don’t wait there is
only 1 month left to do so.
November 21st 2008
BEFORE THE HOLIDAYS, GET THOSE CHARITABLE DONATIONS
LINED UP
Charitable giving is part of the holidays and is also an important part of tax planning at
year end, so let’s look at the cash and noncash aspects of giving.
You have to itemize: Only individual
taxpayers who itemize their deductions on Schedule A can claim a deduction for charitable contributions. This deduction is
not available to people who choose the standard deduction, including anyone who files a short form (1040A or 1040EZ).
Get out the checkbook: To deduct any charitable donation of money, a taxpayer must have a bank record or a written communication
from the charity showing the name of the charity and the date and amount of the contribution – and it definitely helps
to have both. Bank records mean canceled checks, bank or credit union statements and credit card statements. Bank or credit
union statements should show the name of the charity and the date and amount paid. Credit card statements should show the
name of the charity and the transaction posting date. For payroll deductions, the taxpayer should retain a pay stub, Form
W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the
pledge card showing the name of the charity. If you remember the IRS being satisfied with personal bank registers or scribbled
notes to document the donation, they’re not anymore. I
s the Charity Qualified?: Make sure that organizations are qualified to make tax-deductible contributions to. IRS Publication
78 lists most organizations that are qualified to receive deductible contributions. Just go to IRS.gov and type in “Search
for Charities.” One key exception -- it’s important to note that churches, synagogues, temples, mosques and government
agencies are eligible to receive deductible donations, even though they often are not listed in Publication 78.
Giving away property: Get a receipt
that includes a description of the donated property. If a donation is left at a charity’s unattended drop site, keep
a written record of the donation that includes a description of the property and its condition. For a vehicle, boat or airplane,
the deduction is now limited to the gross proceeds from its sale. This rule applies if the claimed value of the vehicle is
more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the
donor’s tax return.
You can’t deduct junk: Under a provision of the 2006 Pension Protection Act, contributions of physical items must be in
good used condition or better to qualify for a deduction. That means that you can’t deduct ripped or discolored clothing
or appliances that don’t work. If you donate noncash property that is valued at more than $500, you need to report to
the IRS how and when you acquired the property and your cost basis. You must file Form 8283, Noncash Charitable Contributions,
for all donations of property valued at more than $500.
Use that digital camera: If you’re ever audited, it helps to have photographs or video of these
items, and obviously, demand a detailed receipt.
Learn rules about giving away appreciated
securities: This is where a financial planner or
tax expert would come in handy. When you donate stocks or mutual fund shares you have held for more than
one year, generally you may deduct the stocks’ current fair market value. Additionally, you avoid paying capital gains
taxes on the appreciated value
November 14th,2008
AS MEDICAL EXPENSES RISE,
DON'T MISS KEY DEDUCTIONS
Anytime you
or a family member is facing a health crisis or an unusual medical-related expense, it’s best to check to see if you
might get a break from Uncle Sam. A tax professional and a financial planner should be consulted to determine whether there are any
tax issues or any ways to defer cost or save money at any part of the process.
The IRS allows
you to deduct medical costs that are greater than 7.5 percent of your adjusted gross income (AGI). Getting there requires some planning,
which is why it’s so important to gather up every dime of unreimbursed medical, dental and vision care expenses and
review it carefully. Here are things people often miss:
Medically related travel: The IRS evaluates the standard cents-per-mile allowance each year
for travel to and from medical treatments. Between Jan. 1-June 30, that rate was 19 cents a mile. Between July 1 and Dec.
31, the rate is 27 cents a mile.
Insurance payments from already taxed income: Includes the cost of long-term care insurance,
up to certain limits based on your age.
Uninsured medical treatments: Includes what you spend for eyeglasses, contact lenses, false
teeth, hearing aids or artificial limbs.
Rehab treatment: Payments for alcohol or drug-abuse treatments can be noted on Schedule A.
Weight-loss
to smoking cessation: If a doctor prescribes it, you’ll be able to deduct it.
Laser
vision correction surgery: May be an allowable expense to deduct on your current taxes.
Doctor-recommended equipment and related expenses: If your doctor prescribes the installation of a humidifier
on your heating and air conditioning system to help your breathing problems, you might be able to deduct all or part of the
cost for the device as well as the additional energy costs to run it.
Some medical education costs:
If you, your spouse or child have a chronic medical condition and you attend a conference to learn more about it, you
can count admission and transportation expenses as a deduction, but not meals and lodging.
Self-employed:
You may deduct, as an adjustment to gross income, the full cost paid for medical insurance for you, your spouse and your dependents.
Lodging for
out-of-town treatment: When accompanying a minor dependent to out-of-town medical treatment, hotel bills may be partially
deductible.
Here are some less common expenses:
Medically necessary home improvements or equipment: If you do a home improvement or bring in special equipment
that’s considered medically necessary for you, your spouse or your dependents, you’ll be able to deduct the cost.
These may include special entrance/exit ramps to your house, widening doorways, modifying kitchens or bathrooms, or adding
a chairlift for the physically disabled. Because these improvements are not expected to add to the market value of the home,
they are considered fully deductible. If the improvement increases the value of your home, only the amount of the expense
that exceeds the increase in the property value of your home is deductible.
Nursing
services: If you are paying out-of-pocket for a home-based nurse, these expenses may be deductible.
Lead paint removal: Lead paint is dangerous, and the money
needed to remove the paint from a home is deductible.
October
31st 2008
Veterans Set For a Big Benefits Upgrade in 2009
The new Post- 9/11 Veterans Educational Assistance Act
effective positions returning U.S. veterans one of the biggest upgrades in post-military education benefits since the G.I.
Bill was signed in 1944. The act pays up to the full cost of tuition and fees at the most expensive public school in the state in which a veteran
enrolls.
Some can get a free education if they qualify for the full amount, and it not only
extends to the five branches of the military, but also activated members of the National Guard and the Reserves.
Best of all, the new program allows returning servicemen and women with qualifying service to transfer their benefits
to spouses or children if they already have a degree.
To qualify veterans need to have served at least three months of active
duty since 9/11, after which benefits are pro-rated according to months served, up to 36. Veterans, who have served at least
three years of active duty, qualify for 36 months worth of in-state tuition and fees, or four academic years. Vets, who serve
24 months, qualify for 80 percent of in-state tuition, plus 80 percent of the costs of books and housing.
Those who leave the military due to a service-related disability and served at least 30 days of continuous
active duty qualify for the maximum benefit. The program covers in-state tuition and fees and gives veterans a housing stipend
pegged to area housing prices. It will also pay $1,000 a year toward books and up to $1,200 toward tutoring expenses as long
as it’s for an in-state school. Out-of-state students will need to make up the difference between in-state and out-of-state
costs.
There’s also the Yellow Ribbon G.I.
Education Enhancement Program, where the federal government
matches institutional grants offered by participating schools to vets who qualify for the maximum benefit.
Other things returning
vets should remember:
Getting back to retirement planning: Military service counts toward vesting for all civilian retirement plans. The Heroes Earned Retirement Opportunities
(HERO) Act enacted in 2006, allows military and their families to put more money into their traditional or Roth IRA accounts.
Tax-free combat pay can be considered as earned income for determining the contribution amount for traditional and Roth IRAs.
Understand
tax issues: Activated and deployed military personnel
receive special tax breaks. Military income earned by soldiers in combat zones is federally tax-free and they don’t
have to file taxes until 180 days after their return. Activated military personnel also are entitled to an extension on the
period of time allowed for a tax break on the profits from the sale of a home. There are also tax breaks on childcare assistance
and certain travel. Nontaxable combat pay can also be considered for the Earned Income Credit.
Know your rights if problems
occur: The Servicemembers Civil Relief Act of 2003
provides stays on civil litigation including bankruptcy and divorce and prevents wage attachments while military personnel
are away. Coverage requires active duty confirmation from a commanding officer but expires 90 days after that status has been
terminated. The law also makes it tougher – but not impossible – for landlords to evict military families for
nonpayment of rent.
October 24h, 2008
OPPORTUNITY IN AN ECONOMIC CRISIS
From the ashes of the current economic crisis will rise opportunity. Some
people are going to get very rich thanks to the moves they make today. Here are a few things to think about if you are trying to manage your investments during these turbulent
times.
1. Only invest for
the long-term. That means five years or more. Ignore short-term noise
2. Invest during a panic. Especially when it hits
the front pages. Somehow, the system almost always seems to recover. Yes, there have been a few exceptions in history -- Japan
after 1990. But they are rare.
3.
Don't speculate. It takes a 100% profit to recover from a 50% loss. You're better off looking for securities that
offer a more modest, but more predictable gain.
4. Be very wary of any boom. Internet use really did soar after 1999, just as the bubble boys
predicted, but the Nasdaq collapsed anyway.
5. Don't put too much weight on expert financial analysis. Economists, goes the joke,
have successfully predicted seven of the last three recessions. And when analysts all agree about a security, the price will
follow suit. It will often end up too high if they are bullish or too low if they are all bearish. You may be better off betting
against them.
6. You don't need
to pick individual stocks. Even most professionals are pretty mediocre at doing it. Usually most investment returns come from
picking the right sectors or types of assets, not from the individual stocks. You may want to consider using Exchange Traded
Funds (ETFs) or Indexed Funds
7. Consider picking a really good active fund manager to make your bets for you. They do exist. Look for mutual funds
where the manager has not changed and has a terrific long term record -- ideally 10 years or more
8. Invest in stages. I can almost guarantee that if you wait for the perfect
moment to make that big bet on the markets, you'll either be way too soon, or you'll miss it altogether.
9. Don't make too many bets. If you don't have a strong view on
financials or commodities, you don't have to take a position. The best investors, like poker players, sit most hands out.
They only bet when they really like the odds. You can be diversified without owning every asset class.
10. Finally, if you're simply too afraid of taking any risks at
all -- try thinking about what inflation is going to do to you if you sit in cash on the sidelines. There are, literally,
no risk-free places to hold money.
October 10th, 2008
COMMUNITY BANKS – A BETTER CHOICE
As of today 3 banks control 1/3 of all banking deposits. Other than easy access to credit cards, which is not necessarily
a good thing, just why are you dealing with them? Let’s
look at a comparison between the Big 3.
INTEREST RATES: Big 3 pay below the average
on most savings accounts and certificates of deposit. Local
Banks offer very competitive rates. While those rates are not as high as those offered by the Internet Banks they tend to
be higher than the Big 3. Heck, some even pay interest on checking accounts without a minimum balance.
FEES: The Big 3 charge fees for checking balances below a set minimum, ATM use at foreign banks (foreign being other bank
ATMs), wire transfers in and out and much more.. Of course if you keep a minimum balance say $10,000 they may waive those
fees and you may even earn a miniscule interest rate on that balance but not enough to warrant keeping your money out of a
much higher earning money market fund. Some community
banks waive all ATM fees including those charged by the foreign bank and charge no fees for incoming wire transfers. Checking
accounts are free with no minimum balance requirements and pay some interest.
LOANS: New Mortgages,
Equity Lines of Credit, Personal and Auto Loans are virtually frozen at the Big 3. While Fannie Mae mortgages
qualifications are much harder you can still obtain them locally. Lines of Credit, along with Auto and Personal loans remain
available. Your local community banker tends to be more adaptable to you loan needs.
SERVICE: Sure
the big 3 branches employees are very friendly after all they are local folks.. But, what they can do is controlled by the
home office located in another state. Your local small banker is more flexible striving to attend to the communities needs.
DEPOSITS: Many local banks have no cut
off time for deposits. That is to say once the deposit is made the funds may be available. Not so for the Big 3, cut off time
may be as early as 2. So, if you may a deposit at 2:15 those funds may not be available for 2 days. This is called float time.
A big money maker for banks. In this day and age you
can bank with your local bank from any location as long as you have a computer so forget the old argument that you need a
national bank for when visiting relatives in another state. There
are more reasons to consider the local bank just take some time and visit one you’ll be pleasantly surprised. I did
and switched.
October 2nd, 2008
NOW IS THE TIME
TO CONQUER PERSONAL DEBT
Now more than ever is the time for each
and everyone of us to look at our spending habits. The current economic conditions and lingering effects will require all
of us to re-consider our priorities in life and what really matters the most to us and our loved ones. Your priority may be
keeping a roof over your head, saving for college or just having enough food on the table. Whatever it is you need to know
times are going to be tough. We all need to look at ways to reduce our excess expenditures particularly those consisting of
wants. Borrowing to keep up with the life style fabricated
in advertisements and television is no longer going to be available to most of us.
So here are some tips to help
conquer debt.
LEARN HOW
TO SPEND: Regardless of income we have a tendency to overspend on everything.
Last week I wrote about creating a budget. To do so you need to keep track of spending even to the extent of creating
a diary to write down each expense.
REDUCE OR CUT UP CREDIT CARDS: Nearly three quarters
of the people who use credit cards leave unpaid balances from month to month. Compounding monthly that unpaid balance on a
credit card that charges an 18-percent annual percentage rate means you’re paying an effective interest rate of 19.56
percent. If you maintain a balance of $2,500 the annual interest charges amount to $489. If you need a credit card for convenience, pay it off each month. If you can’t control your charging, cut up your cards.
PAY CASH: Debt experts find that people
who pay cash instead of charge not only eliminate expensive interest charges; they typically spend 25 to 30 percent less in
the first place. The only tough part about spending cash is that it is more difficult to track for your spending diary.
PAY OFF UNNECESSARY DEBTS: Two approaches are possible.
Pay off the highest-interest debt first. That saves the most money. Or pay off
the lowest balance first out of monthly income. Each is rewarding and it gets you into the habit of controlling
both spending and debt.
SPEND
SMARTER: Wear clothes longer, put off buying a new car, take less expensive vacations,
eat out less, buy store brand products, eliminate the 300 channel TV package and so on. There are lots
of newsletters, books, websites and other sources for tips on being a smarter shopper.
AVOID BANKRUPTCY IF POSSIBLE: Bankruptcy is a last
resort. It’s expensive and it stays on your credit record for ten years. Try negotiating
with your creditors to stretch out payments. They’d rather get late payments than none at all! Some debt maybe necessary. But keep it to a minimum.
Reducing debt is one of the best avenues to financial security you can find.
September 19th 2008
IF YOUR CAPITALIST ECONOMY IS FAILING TRY SOCIALISM
Help! I have been struggling to
make the mortgage payments on some properties I purchased but really couldn’t afford. I know it was a bad decision on
my part but that’s the past. I need my readers to lend me or better yet give me some funds to get out this mess.
We Americans love Capitalism
unless of course things go bad then we prefer socialist programs. Fannie Mae and Freddie Mac have been placed into conservatorship. Over the past weekend Merrill Lynch was purchased by Bank of America and Lehman
Brothers filed for bankruptcy. AIG has been taken over by the Feds, Washington is looking for suitors to
take over Washington Mutual and financial analysts wonder about Wachovia.
Looking at this whole sub-prime debacle caused by the greed we know the following:
- Washington will not allow
a collapse of the financial markets. Good or bad they are the basis of our economy. In protecting the economy Washington will continue to bail out, find suitors or offer low interest
rate loans and try anything. For Example late Monday
the Federal Reserve asked Goldman Sachs Group Inc. and J.P. Morgan Chase to help make $70 billion to $75 billion in loans available to the company. On Tuesday Goldman Sachs posted
a 70% drop in fiscal third-quarter net income so no
check to AIG from them. So on Tuesday evening the Federal Reserve Bank
of New York decided it will lend as much as $85 billion to AIG in exchange for a 79.9% equity interest. Folks, we (U.S. Govt) may actually make money on this
deal once all of the assets are sold off. Also on Tuesday and Barclays
Bank agreed to by Lehman at a deep discount.
Just recently they had walked away from a deal with Lehman. Now there are only 2 independent investment banks remaining, Goldman Sachs and Morgan Stanley. Morgan Stanley is considering a purchase
or merger so Goldman Sachs may have no choice but to seek a bank partner. Good bye independent Investment Banks.
- Wall Street will be reconstructed with the end result being behemoth
financial institutions.
-
Wall Street employs some of the smartest minds in the world, much smarter than our politicians. With their intelligence and ingenuity comes great ideas and potential
abuse.
- The failure of so many financial
firms knows no political affiliation. Politicians from both major parties took part or at the very least chose to turn a blind eye to the run up. Heck, we all know mortgages
were easy to obtain regardless of income.
Yet, President Bush (R), Sen. Christopher Dodd (D) the Chairman of the Senate Committee on Banking and Housing, Congressman Barney Frank (D) Chairman of the Financial
Services Committee, Christopher Cox Chairman of
the SEC and former Congressman (R) did nothing. Washington consists of many ex- Wall Streeters who know its workings yet Federal laws are reactive instead of proactive. - We, our children and grandchildren will be stuck with the
costs in the form of taxes. Regardless of who wins the general
election in November taxes will increase. The Fed in just the last year has put nearly $800 billion, yes billion, of our money at risk to bail out the economy. What is next? Expect considerable turmoil in financial markets and emotional selling can take prices to levels well-below the intrinsic
values of the underlying businesses
Are we all going to h-e-double hockey sticks in a hand basket? Nah, I don’t
think so. If you are a true investor, I’m not talking day trader, you know that when the sky is black
and the news is all doom then it is the time to buy. As for me and other independent Registered Investment Advisors and Financial Planners there is good news amongst this
turmoil. The turnover in client for independents is extremely low. Why, because we independents work only for our clients.
No quotas to meet, beholding only to our clients. Our success is based solely on the success of our clients. We provide full
disclosure. It’s a great time to be independent. The lines of who serves who continues to get clearer. Finally, capitalism is a great thing yet it
comes occasionally spawns greed. New investment vehicles will continue to be packaged and sold as the next great investment
that is needed in your portfolio. You will need to become a better educated investor, ask questions, develop an unbiased financial
plan and a strong trust with your advisors.
September 12th 2008
A FAMILY MISSION STATEMENT
CAN KEEP FAMILY GOALS FIRST
AND MONEY SQUABBLES AT BAY
When rich families squabble over the family legacy,
it becomes headline news. For most average Americans, such stories are an illustration not only of how money doesn’t buy happiness, but
how it breeds dissention and distance between people who could be enjoying their wealth and moving in concert.
With all that money, how can people be so unhappy and contentious? Families with substantial assets – or
the promise of substantial assets as a business grows – might consider creating a family mission statement. While the
end product should produce a document built from discussion, argument and consensus, it’s not so much about the piece
of paper as the process. When a family sits down to discuss what is really important to them, it’s an opportunity to
take the machine apart and see how it works.
Many families start the process as a way to build consensus about
long-term financial, business, estate and philanthropic goals, but to their surprise, money can take a back seat. Families
discover particular strengths, weaknesses and unexpected courses of action within their ranks. The process might identify
future leaders of the family. The general creation of a family financial mission statement should have 4 key touch points: estate issues, philanthropy,
business direction and family dynamics.
Here are some questions that should be asked of everyone in preparing the family’s financial mission statement.
They should focus on relationship issues first, and then move into business and money matters.
•
What’s most important about our family?
•
What do you think our goals should be?
•
When do you feel most connected to the rest of us?
• How should we relate to one another?
•
What are our strengths as a family?
•
Where do you think we’ll be as individuals in 5, 10 and 15 years?
• In order, what are
the five things you value most in life?
•
How should we behave toward each other?
•
How should we resolve our disputes?
•
How important is the family business to you?
•
What should we be doing differently with our family money as well as our assets inside
the business?
•
What’s the best way for us to be building our wealth?
• What do you think the role of our family
should be in helping the community?
•
What should we be doing individually and as a family with regard to philanthropy?
Structurally,
the written mission statement can be whatever you agree it should be – a few paragraphs or a page or two. And it needn’t
be set in stone – a family should have a meeting every year or two to revise or approve its mission.
The family mission statement helps your family establish its identity and the variety of voices within. It
can help set goals and diffuse tensions later. It can also be used to moderate discussions that inevitably happen after major
changes within the family – death, divorce or happily, an increase in the number of heirs and participants.
September 5th 2008
MAKING YOUR HOME BURGLAR PROOF
Just the other day I read that a neighbor of mine woke up during the night to
their dog barking at an unwelcome intruder. Naturally I wondered if I’ve taken all the precautions necessary to prevent
the same from happening to me. Generally thieves are lazy and avoid difficult jobs so here are simple precautions we all should take to substantially
reduce the chances of becoming a burglary victim.
Protect Doors and Windows: - Install solid wood or steel exterior doors.- Strong door frames and bolt locks are important.- Replace vulnerable windows with unbreakable safety glass.- Install a lock on the door that leads into the home from the basement. Light
all doorways and other potential entry areas.- Install a peephole in the front door and a convex mirror outside the door to eliminate blind spots.- Install key locks on all lower floor windows. -
Trim close bushes and landscaping to three or four foot high to remove hiding places.- Plant thorny bushes or cactus below first floor windows.- Remove all tree branches helpful to entry seekers via climbing.
Other Precautions: - Mark valuables with your driver’s
license number and state.- Photograph small, expensive items
with your driver’s license to make identification easy.-
Hide valuables in unlikely places. Burglars first look under beds, in medicine cabinets, in night stands and dressers. - Leave cheap decoy jewelry in an accessible place. - Display only a street number outside the home - not your name.- Consider installing automated lighting that can be turned on before you enter
a darkened house.
Good Security Habits:-
Vary your daily routine; vary lights left burning when you leave home. - Do not open the door to someone with a car or other emergency -offer to summon assistance by calling 911, etc.- Do not assume anyone in a uniform is legitimate. Ask for
valid identification and verify it by calling a number from the phone book, not the number the visitor furnishes. - Never let a stranger know you are home alone. Before answering the door, loudly call
out, “I’ll answer the door, Brian.”- Keep house keys, car keys and your address separated. - Keep keys in hand and ready to use when approaching car or door.- Leave at least one inside light on all night. Do not leave
it on during the day or burglars will think you are on vacation.- Give only a work number if you must give strangers a phone number.- Watch for oddities - a car circling a block. Record the license.
Vacation Precautions: - Remove valuables from your home.
Put them into a safe deposit box or leave with a relative or friend.- Join a citizen watch or hire a house sitter.- Ask
a neighbor to pick up delivered items while away.- Hold
deliveries if possible.- Have your lawn cut and watered
- Reduce phone volume so it cannot be heard outside.
Or redirect calls to another number. Or disconnect the phone.- Set timers to turn on lights, televisions and radios tuned to a talk station at various
times.- When you return, walk around the home before entering.
If you see evidence of an entry, go straight to a neighbor’s home and phone police.
August 29th 2008
CONSIDERING AN ANNUITY?
Managed Payout Funds Are One
More Entry in the Retirement Spend-Down Picture Insurers have long been part of the effort to help retirees spend down their nest eggs through annuity products. Now,
the mutual fund industry is jumping in witha competing offering for individuals who may or may not be so keen on annuities. Called “target distribution” or “managed payout” funds,
individuals who are retired or about to retire can invest in these fund products that contain stocks, bonds or other asset classes. They are structured so investors can designate regular withdrawals
and the account balance can be transferred easily at the time of the account holder’s death to any spousal or non-spousal
beneficiary.
Managed payout funds have been compared to fixed immediate annuities
and are also known as retirement income funds. Any distribution taken by the account holder is expected to keep pace with
inflation and come from dividends, fund appreciation and a portion of principal. The rest of the assets stay invested.
For retirees who want to continue building their nest egg while generating a steady stream of monthly income, they’re
worth examining. It’s estimated that some $16 trillion in retirement assets are up for grabs and looking for disciplined
distribution. These funds issue checks regularly based on the account holder’s preferences, but the amounts
are tied overall to fund performance. Vanguard, Fidelity Investments and Charles Schwab have all recently entered this business.
Most of the funds encourage account holders to pull out between 3-7 percent of their total portfolio annually. It is
important to realize that these funds are designed as long term investments relying on historical returns and in bear markets
such as the current market the fund may need invade principal to make payments.
As the number of retiring
Americans continues to increase, there will continue to be new wrinkles in the spend-out game. It makes good sense to get
some personalized advice on how to best spend down your assets in a way that fits your needs. One way would
be to consult a financial planning professional a few years before you’re ready to retire to check the following: ·
See how your current assets are working so you know if you
have enough to retire – know what you have before
you question how to spend it. · Consider various scenarios that describe the way you’ll want to live after
retirement and whether your invested
assets support that plan. · Are your long-term care needs covered? Before you start talking
about locking up assets in specialized fund
products, make sure you have money in reserve or long-term care insurance in place should you need to pay for temporary disability
or end-of-life care. · What are the fees on the various managed payout funds you’re looking at?
Most specialized funds have some
fee structure that you should compare against other alternatives. Compare the expense ratio of your chosen fund against other
possibilities. .
How will your assets in these funds be invested? Do those choices match your risk tolerance and your investment goals post-retirement?
You’ll still need to be making smart investing choices with what hasn’t been spent down.
August 22nd 2008
TOP MONEY MOVES FOR TODAY'S COLLEGE FRESHMAN With college
tuition up over 6 percent at private and public schools this past school year, money management is a bigger issue than ever
on college campuses. That’s why it’s good to send your freshman off to school with a plan on how to best manage
their money:
Take baby steps with credit: It’s one thing for a teenager to use their parents’ credit card while they’re still living at home.
It’s quite another when they get their first taste of freedom hundreds of miles away. Parents may co-sign the student’s
credit card but keep it in the student’s name. That way, parents will know when financial missteps occur, a strong incentive
for the student to keep his credit rating clean. Most important: Parents should do whatever it takes to make sure the child
doesn’t sign up for any credit cards on campus.
Bank smart: Students need to get some familiarity with the banking system before they head to college. Kids generally should set
up a checking account on campus, but talk to them about debit options and how banking fees (particularly for overdrafts) can
eat away at their money. You want your child to be independent, but if necessary, make it a joint account and check those
balances online.
Work with them to set up their first emergency fund: A young person should get used to the idea of savings and reserves for unforeseen events. Make
it clear that late-night pizza and mochas are not an emergency.
Put the student in charge of maintaining her financial aid: Each year, the FAFSA (Free Application for Federal Financial Aid) is due in June.
State applications are due earlier. Students need to be aware of how their education is paid. Everyone should file the form
whether or not you think your child may be eligible, and your child should be searching for scholarships at all times.
Make them
budget: If they’re leaving for college with
a computer, consider giving them personal finance software to track their everyday expenses and make sure the computer has
a security password. Work together to determine necessary realities about everyday expenses, tuition and financial aid.
Occasionally sit down with them to review those figures and make reasonable adjustments.
Help
them open their first IRA: If your 18-year-old
child is earning wages by working part-time have them open a Roth IRA in a growth fund. Make sure they understand this is
essential to their future savings so they don’t cash it in.
Discuss identity theft. Personal financial data left on laptop computers, cell phones and other electronic
devices can be readily stolen. Tell your kid to keep all paper records in a safe place and introduce passwords to keep all
their digital information safe.
Get them networking: Internships and jobs in their chosen field
during summer breaks can give your student a head start on their career path. Encourage them to research these opportunities
freshman year so they’ll be in the front of the line when it’s time to apply.
July 25h, 2008
WHAT IS THE DIFFERENCE BETWEEN A BROKER AND INVESTMENT ADVISOR?
A reader asked “Ric, What is the difference between my broker/registered
representative (RR) and a Registered Investment Advisor (RIA)? “
Licensing - There are different
licensing requirements for the RIA and the RR. A RIA must register with the Securities Exchange Commission
(SEC) and/or the states in which they operate. A RR is registered with FINRA (previously NASD).
Fee Structure
- The RIA charges a fee for managing client investments. You have a written contract spelling out their fees. This is quoted
in an annual fee but usually comes out on a monthly or quarterly basis. Their paycheck is directly linked to your investments
performance. It is in the RIA's best interest to make your money grow. The RR charges a commission. Usually a commission is charged going into an investment and coming out of an investment.
Fiduciary
Responsibility - This is the biggie. Fiduciary Responsibility means that client best interests come before anyone
else's. An RR has no fiduciary responsibility. The RIA on the other hand has an enforceable fiduciary
responsibility. That means that by law they have to recommend the investments that best fit your needs. A RIA
manages the assets and must sit on the client’s side of the table. There can be no outside influences, like how much the commission will be, to worry about for the
client. The advising firm will work with the clients to design a portfolio that suits the client's situation. They
may use a mix of funds and individual issues or only funds as a way to streamline asset allocation. The client knows that
every trade or move in assets is specifically made to make their portfolio of investments better. In fact you should receive
an Investment Policy Statement (IPS) spelling out your portfolio’s goals, time horizons, allowed investments, allocations,
constraints and performance measurements.
Firm Involvement - Most wirehouses
have relationships with a lot of the companies that are offering the actual investments. Or they will buy large chunks of
the investment for a discount and then sell it to their clients at retail. Of course since they bought the large chunk, they
will be pushing the investment on their RR's. They do this by building it up, raising the commission level just for this
investment. When you get a call from your RR recommending some great investment, keep this in mind. The RIA is a different
story. As fiduciaries they have to act in your best interests by law at all times. All of these points lead to a conclusion that
is controversial and many people don't like to hear, especially RR's. An RR is really a point of sale relationship.
That means that you can go to them and buy investments. They will sell them to you or you can tell them what you want. A RIA can not
invest your money into anything that does not adhere to your IPS even at the expense of losing you as a client. As Fiduciaries
they are required by law to serve your best interests.
Most RR’s are as honest as the day is long and many put their client’s
best interest first. In addition, do not think that all RIA’s are good just because of the law; there are still RIA's
out there that hide under the premise of fiduciary that just have not been caught. So, do you homework before allowing
someone to manage your money by getting referrals, asking questions, getting a free consultation and checking the background
of the advisor or broker at:http://www.sec.gov/investor/brokers.htm
July 18h, 2008
FINANCIAL PLANNING FOR NEWLY SINGLE PARENTS
For a newly divorced or widowed
parent, the right tax, estate and financial planning advice are crucial. Here are some general steps
the newly single should take:
Revise or make an estate plan:
Revisit your estate plans or set an estate plan for the first time. It’s important to make immediate plans for
who will raise the children if something happens to you. In case of divorce, plans might have been set for the ex-spouse to
take full-time custody in case of the other’s death, but if a parent has never been married, it’s particularly
important to select the right custodian for the child and perhaps a separate person who can become custodian of the child’s
finances to invest properly for their support and their future.
Make sure all beneficiaries
are correct: If you’ve separated assets in a divorce or you’ve just had or adopted
a child, it’s particularly important to make sure your beneficiary designations are correct to make sure your child
or a trust or other investment structure set up in the child’s name receives those assets. Don’t forget all your
insurance policies, your work and individual retirement accounts and any investments you might have recently acquired.
Make sure ex-spouses are removed from any joint accounts you’ve been awarded: You also need to notify
each of the three credit bureaus of your divorce so future reports will be based only on your credit reports.
Adjust your investment focus: For retirement as well as investing you will do for your child’s future,
get specific advice on what they’ll need for college and what you’ll need for retirement as a single person.
Revisit your career plan: Unless you are wealthy, you are probably going to have to either return to the
workforce or possibly change jobs to increase your earnings or improve your benefits if you’re not receiving any other
source of income. If additional career training is necessary to improve your prospects, you may consider
going back to school – always tough with a kid at home – and you’ll need to strategize how to pay for it.
You might also choose to work for an employer with great educational benefits.
Make
sure you get the pension assets you’re entitled to: If divorced, you need to present an
approved Qualified Domestic Relations Order (QDRO) by the court at the time a divorce is finalized to your ex-spouse’s
plan administrator to make sure agreed-upon assets get transferred to the account you’ve designated. Get some advice
on how to best invest those assets.
Make sure health insurance is in place: If
you’re divorced, it’s likely you won’t be able to stay on your spouse’s plan, so you’ll have
to locate your own insurance option. But if your ex-spouse’s plan is a good one, try and make sure that he or she can
keep your child covered until a better option comes along. Again, the need for health insurance may also
drive your career decision, so consider it.
Make sure your life and other insurance
is in place: You may need to adjust the amount of your life insurance relative to any insurance
coverage your ex-spouse has with your children as the beneficiaries. Check regularly that your ex-spouse has not cancelled
that coverage.
Check in with Social Security: See if your ex-spouse’s
work record may entitle you to receive certain benefits.
Have an emergency fund: If you have the option of acquiring six months’
of income in a divorce settlement or if you can set aside that amount somehow, it’s particularly necessary because you
won’t have another partner’s income to fall back on anymore.
July 4th, 2008
TO RETIRE OR UN-RETIRE? WAYS TO CONSIDER
THE QUESTION
Last week I
wrote about the increase in the number of older employees going back to college to change their career. In addition to a career
change you can add retirement to the list of things Baby Boomers are changing their minds about.
An April, 2006 study
by Zogby International and the MetLife Mature Market Institute found that a significant number of older Americans are revising
their ideas about their post-career years. The study found that 78 percent of respondents aged 55-59 are working or looking
for work, as are 60 percent of 60-65 year-olds and 37 percent of 66-70 year-olds. Across all three age groups, roughly 15
percent of workers have actually accepted retirement benefits from a previous employer, and then chose to return to work (or
are seeking work). Called the “working retired,” these workers represent 11 percent of 55-59 year-olds, 16 percent
of 60-65 year-olds and 19 percent of 66-70 year-olds.
Returning to work isn’t necessarily a negative nor is it a sign
that older Americans are having trouble making ends meet. Some work simply because they want to change careers for
a new challenge. Delaying retirement or returning to the workforce from retirement is a decision that should be made after a thorough
financial review.
The best time to talk about working in retirement is at least five years before you retire. If you’re working
with a good advisor, they’ll force you to answer key questions about the retirement you want to have. You might discover
that working in retirement is something you want to avoid at all costs, and you’ll have to accelerate your savings and
investments to avoid it.
Here are some critical points to consider in a working retirement:
Making working
retirement a variable in your planning: When reviewing
your retirement plan it makes sense to ask yourself under what conditions you’d return to the workplace. Maybe you want
to take a year off after you retire from your current job and then you’ll go back into another career. You obviously
need to know based on current projections how much money you’re likely to gather from savings and other retirement resources.
Then you need to consider how much money you’d be satisfied making in your post-retirement working life and for how
many years you’ll earn that income.
Check what returning to work will do to your pension: Early retirement transitions can have some adverse effects particularly where pensions are involved.
Get some advice here.
Talk to a tax professional before you make a move: Tax issues shouldn’t determine your ambitions and goals, but it’s important to consider
the impact work-related income will have on your retirement. It may not take much post-retirement income to tip youinto a
higher bracket. Look for ways to control the taxes you’ll ultimately pay, including continued participation in qualified
plans, and IRAs, and other tax-favored accumulation vehicles. And don’t forget to discuss your Social Security options.
Consider insurance
issues: If a retiree returning to the workforce
is already receiving Medicare or covered by a “Medigap” policy, they may be able to lower their costs or improve
their coverage by accepting group coverage as primary underwriter of their medical expenses
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