The First Steps in Planning Home-Based Care for an Elderly Relative

August, 2010

No one wants to see someone they love in a nursing home. That’s why many older Americans and their families would opt for home-based care whether it’s for a temporary illness or disability, or end-of-life.

Yet the best time to plan for such an event is exactly at the time when no one wants to – when everyone’s healthy and in no mood to think of being sick.

Money is a big part of this decision. Financial planning professionals can take a big-picture look at all the money and structural factors that go into any long-term care decision – the retirement picture, tax situation and estate structure the elderly relative has already made or needs to make. But the money planning process needs to be concurrent with a process to determine what role family members will play.

Here are some ways to begin the process, whether it’s for you or an aging relative.

Talk to family: Even before you start addressing financial concerns, it’s important to understand how individual family members feel about the long-term care issues of an aging relative. Some family members will want to pitch in to care for them personally if they’re nearby; others may want to but fear the disruption of their careers and their own family life. And keep in mind that the perspectives stated in a private conversation or family meeting might change over time. Family members also need to work out how siblings, cousins and others will collaborate and give each other respite, because caregiving is an exhausting job.

Start by evaluating the senior’s finances: If you have time and a good rapport with the senior, you have a valuable opportunity to settle a lot of important details. If there’s not a pending emergency, it’s a good idea to schedule a family meeting between you, your spouse and the elderly relative to make sure you understand what assets they have and how they want those assets applied to their long-term care. And even if an elderly relative is older but in relatively good health, it might make sense to check the cost of long term care insurance as a backstop to their savings. The premiums will definitely cost more – sometimes considerably more – than the average 50-year-old would pay, but depending on the relative’s situation, such a move might make sense.

Make sure key documents are in place: It’s also important that you ensure that the elderly relative have critical documents in place such as a current will, relevant legal and health powers of attorney and any written instructions relevant to their care, their funeral wishes and other property issues. All that information should be stored in an agreed-upon place that all key decision-makers can get to easily.

Start researching care options now: For a good overview website, check out FamilyCaregiving101.org, the website of the National Family Caregivers Association. Meanwhile, in virtually all communities, there are guides to various community programs that ramp up services as the relative needs them. Your local department on aging will have resources in at least these four critical areas related to caregiving:

• Home care services: Guides to find certified professionals who can help with medical issues or personal care.
• Meals and transportation: At the very least, meals-on-wheels can help assure proper nutrition for individuals who need more help with that. Also, many communities offer door-to-door transportation to medical and community facilities.
• Adult day care: Similar to child day care, community centers offer a variety of programs for seniors to take part in during the day when caregivers need respite.
• Respite care: These programs bring trained caregivers into the home for either a few hours or a few days, allowing the full-time caregivers to get away for as little as a hair appointment or a weekend off.

Make sure the care option fits the stage of health as well as the budget: The options immediately above suggest there are different stages to home-based care. Home health aides obviously allow a relative to stay in the home and have company when traveling outside, but adult day care can be a cheaper option. Also, part-time caretakers can handle key tasks and supervision as needed – keep in mind that responsible college students need money more than ever and can help with grocery shopping, cleaning, meal preparation and supervision on health issues that medical personnel don’t always need to be present for.

August 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

The material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. All information and ideas should be discussed in detail with your own adviser prior to implementation in order to determine whether the strategies mentioned are appropriate for your specific situation.

Medical Tourism: What You Should Know - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

August, 2010

Medical Tourism: What You Should Know

The latest Deloitte Center for Healthcare Solutions report on Medical Tourism projects renewed growth in medical tourism in 2010 as the economy recovers. The reasons? Consumer pocketbooks will be able to better withstand trips for non-emergency care outside the country. Also, it’s believed that more insurance companies will eventually agree to fund procedures at international hospitals that win extensive accreditation.

The consulting firm division’s 2009 report predicts that the number of people leaving the United States for various procedures will reach 1.6 million by 2012. That’s more than double 2007’s numbers.

Medical tourism used to be all about cosmetic procedures – hiding the occasional facelift or tummy tuck from prying eyes back home. But today, the rising number of underinsured or budget-conscious patients has made going abroad for medical care much more prevalent and for more complex procedures such as knee or hip replacements. It’s also getting the support of domestic insurers and the American Medical Association, which has set nine guidelines for patients and medical travel.

But before you hop on the plane, it’s best to do significant due diligence of financial and safety issues related to the procedure and the hospital where it would be done. First, check and see if your insurer supports medical tourism and makes its own recommendations on where you might go for certain procedures. Insurers like Aetna, WellPoint and BlueCross BlueShield of South Carolina have tested foreign facilities in their physician and hospital networks, arranging one-stop shopping for overseas treatments including care, travel and lodging for patients and their families.

But whether your insurer offers these options or not, the first step is researching the institution. The primary way to do that is to consult Joint Commission International (JCI), a division of the leading U.S. organization that reviews hospitals for quality, now provides similar services to hospitals abroad. JCI provides an online list of accredited hospitals and medical centers worldwide. (In fact, even if you aren’t planning a trip strictly for a medical procedure, the JCI list is a good one to use when planning a vacation – it will help you determine the best hospitals abroad if you need emergency care.)

But learning about good overseas hospitals is just the first step. Consider the following:

Include your doctors: Don’t assume your doctors are automatically going to veto your thinking. They may help you find the right program, particularly if you’re having trouble affording procedures here at home. Compare the cost of a qualified facility overseas to a negotiated price for treatment here – always ask if you can get the care cheaper in the U.S. first. Whatever happens, the discussion shouldn’t end at where you should go for overseas treatment – if there are complications or a need for aftercare, it’s very important your doctor be involved.

Check your employer first, then your insurer: If you are insured through your employer, start with human resources to get an overview of where your various plans stand on overseas medical coverage. Disclosure is best. If an insurer doesn’t endorse treatments at a particular hospital, it’s likely going to be tough to get them to cover any problems that could crop up domestically after overseas treatment. Ask them how – or if --they would deal with post-care complications. Also, if you have long-term care insurance, check in with them to find out if getting treatment overseas could potentially risk your coverage when you need to draw on it later.

Get some money advice: If you are planning a non-emergency procedure that won’t be covered by insurance, take the opportunity to see how such a move will affect your overall finances. It makes sense to talk to a financial advisor such as a financial planning professional to weigh this expenditure – which may still be in the tens of thousands even at a sizable discount – against your other financial needs and concerns.

Designate a family member as your primary contact: Choose a family member, friend, or health power of attorney (more on this below), to keep in touch with your family, friends and employers you designate they call. This primary contact should also be prepared to pay bills and deal with the unthinkable – if you suffer complications or die outside the U.S.

Make sure your health care directives work where you’re going: A health care directive – also called an advance directive – specifies your medical wishes in case you’re incapacitated. They come in two forms: the living will and the power of attorney for health care. The living will indicates specific wishes about medication and life-support treatment if you’re incapacitated, and you need to refer to your own state laws on how these documents need to be written. The power of attorney for health care – also called a durable power of attorney for health care—also specifies your wishes for treatment but allows you to designate a specific person to act in your stead if you are incapacitated. You should check with the hospital where you’ll be doing the procedure as well as your attorney about what documentation will be effective where you’re going.

Pick your representatives wisely: Your health care power of attorney may or may not be the person with the power to disburse your assets if you’re incapacitated, but that person should have their name on a joint checking account in case bills need to be paid. Also, make sure you have a line of credit established that your designated representative can access in case of emergency. Make sure all these sources of cash can flow easily to the foreign country where you’re recovering.

Update your estate matters: No one expects they’ll die in the hospital, but it’s necessary that your will be up to date so your spouse or designated executor can step in immediately to handle your affairs. Again, it makes sense to see whether anything needs to be amended based on out-of-country care.

Have an up-to-date disaster plan: If you are incapacitated or die, it makes sense to have all critical papers and data in one place so your health care power of attorney, your executor or a trusted friend or family member can access them. Include the following with an index:

• Full details on administrative contacts and physicians at the hospital where you’re undergoing treatment (and money set aside for your health power of attorney if they have to travel to you);
• Birth, death, marriage certificates (with 10 copies each in case they’re needed for estate purposes); Your passport information in case they have to contact the U.S. Embassy for any reason;
• List and location of all household bills that must be paid with due dates;
• Divorce decrees with all relevant settlement information;
• Location of wills, trusts and any power of attorney information;
• Advanced healthcare directives;
• Adoption papers, if applicable;
• Key identification numbers, including drivers’ license, Social Security, passport and employee identification data;
• Recent bank and brokerage statements;
• Detailed funeral and burial wishes;
• Location of cash that may be used to handle other emergency expenses;
• Copies of recent medical records in case you’re incapacitated;
• Copies of deeds for primary home, vacation and investment properties;
• Car title, lease, loan information and license plate data;
• All insurance policy (health, disability, life, auto and long-term care) with agent contact information;
• Photocopies of credit and debit cards, front and back (displaying the individual’s signature);
• A current copy of the individual’s home financial software program reflecting up-to-date financial data;
• All password information necessary to get inside any computers, and handheld devices you own;
• The locations for all investment documents;
• Notes on house maintenance and service providers;
• Where safe deposit, lockbox and filing cabinet keys are;
• The name and number of your human resources department at work;
• Location of tax returns for the last three years;
• All relevant contact numbers for executors, financial advisors, trustees, guardians, attorneys and any other individuals who will need to step in if you are dead or incapacitated;
• All user IDs and passwords for online accounts;
• Guidelines on what to do about orphaned pets, including set plans for who will adopt them and pay for their care.
• A general statement of family origins, values, and hopes for future generations, including what you want for children in the way of day-to-day parental guidance as well as aspirations.

Why It’s Important To Take an Interest in Retirement Plan Fees - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

August, 2010

Why It’s Important To Take an Interest in Retirement Plan Fees

As investors start cautiously peeking at their investment statements again, it’s a good idea to take a renewed interest in investment fees and sales charges they pay to their personal retirement plans as well as those at work.

Why? Because most individuals never take the time to learn about what they’re being charged in good economic times. In a continuing economic slump, however, every nickel charged to an account provides a teachable moment.

Many of these are fees you don’t see in your monthly statement, but they definitely affect what your company collectively pays for its retirement program whether it is a traditional defined benefit plan or a defined contribution plan like a 401(k). But thanks to a move by the U.S. Department of Labor in mid-July, employer plan managers are now going to have greater access to information about fees and charges they’re paying so they can make more informed comparisons between plans they’re considering for employees.

But that’s not all. There is a second set of rules being reviewed by the Labor Department that will affect individual investors. Once approved, all 401(k) investors will be able to see what each individual mutual fund or related investment they’ve chosen for their retirement fund actually costs in fees.

There’s also a transparency move affecting many of the mutual funds we invest in ourselves. In late July, the Securities and Exchange Commission proposed rules that would let the “no load” mutual fund business charge 12b-1 fees that are generally used to cover marketing costs.

It’s important to know the various categories of investment fees you pay as well as the ones paid by your employer. Ultimately, they all come out of your pocket. Here are the major fees paid by employers and individuals:

Employer-based plan fees:

Plan administration fees: These are fees that cover basic recordkeeping, accounting, legal and trustee services all defined benefit and defined contribution plans have. But defined contribution plans like 401(k)s, might charge for additional items like live customer service operators, voice-activated customer-service-by-phone systems and various customer and advisor services delivered through the Internet. Many of these fees are deducted from investment returns, but they might also be billed separately.

Investment fees: These go to pay individuals who manage plan investments, and they need to be watched closely based on how much work actually goes into the management function. These amounts are decided generally as a percentage of plan investments, but if a plan is invested largely in indexed investments that don’t require as much active management, the fees that the company pays should generally be lower.
Individual service fees: If an employee borrows from their 401(k), there’s likely to be a fee for that. Make sure your employer is particularly clear about these fees among all the others.

Mutual fund fees:

Sales charges: Also known as loads and commissions, these amounts are transaction costs you pay for buying and selling shares in a mutual fund. Some of these fees are paid when you invest which you’ll hear referred to as a front-end load, or when you sell, which are fees known as back-end loads. You’ll also hear terms like deferred sales charges or redemption fees – they mean the same thing.

Management fees: You’ll hear these referred to as account maintenance fees or investment advisory fees. These charges cover the cost of managing the fund and are expressed as a percentage of total assets. When comparing mutual funds to invest in, it makes sense to compare fees as you compare performance. You’ll also hear about 12b-1 fees, which may cover everything from broker commissions to marketing expenses. 12b-1 fees are currently under review from the Securities and Exchange Commission, which is seeking to make the purpose of these fees clearer. In some cases, funds referred to as “no-load” might instead charge a 12b-1 fee.

Annuity fees: Annuity products often feature sales expenses, mortality risk charges and account management charges. You might also see surrender and transfer charges when an employer terminates the investment in a particular part of its retirement plan or when an individual withdraws an amount from his or her annuity contract.

The Do’s and Don’ts of Passing Down Vacation Property to Family - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

August, 2010

The Do’s and Don’ts of Passing Down Vacation Property to Family

A family vacation home is a place of fun, memories and refuge for generations of friends and relatives. But when the matriarch or patriarch who bought the home dies, it’s not uncommon for the same family members to go to war over visitation rights and ownership of the property, which can be worth a significant sum.

This is why it’s important to include any vacation property as a part of the buyer’s estate planning. According to the National Association of Realtors’ 2009 analysis based on U.S. Census data, there are 7.9 million vacation homes and 41.1 million investment units in the United States, compared with 75 million owner-occupied homes.

Such significant property can mean significant discord when there’s a desire on the part of some family members to sell. Siblings may not have the cash to buy other family members out. That’s why it’s important for experts in financial planning, tax and estate issues to be brought into what might seem as a fairly minor investment issue. Some suggestions:

Do a market analysis: How valuable is the family vacation home, anyway? It might make sense before you talk to any of your heirs to appraise the property and launch a competitive marketing analysis to see what other homes in the immediate area are worth. Knowing whether the property is appreciating or depreciating is important, but knowing future maintenance costs is important too. If the home is in significant need of repairs or updating, it’s fair to get estimates and determine whether the owner wants to do those now or if heirs want to make that investment, at which time they’ll have full control over the choices that get made.

Discuss scenarios with your team of experts: Again, it’s important to bring in your entire financial team to talk through the sale or succession issues involved in deciding what to do with the vacation property. This will give you something to think about so you’ll have more to discuss when you finally bring it up with your heirs.

Discuss family feelings about the property before you solidify your plans: It might be a good idea for the property owners to casually sit down with family members over time to gauge their interest in keeping the property. Eventually that can result in a more formal meeting when it’s time to start making decisions. An owner might find that the children he or she were certain would want to keep the property want to sell, or vice-versa. This is one emotional investment issue, so it makes sense to take time to feel out all the family members, particularly if sets of children from previous marriages are involved.

Start developing the plan: Once you reach consensus with all relevant family members, act. If there are children who want out of the ownership plan, see if you want to compensate them and decide how that will be done. Parents might offer a buyout sum to children in the form of a gift over several years while they’re alive so surviving heirs don’t have to pony up after the owner dies. The key advantage of planning ahead is having the time to consider all the financial and emotional fallout before it happens. It’s good to get advice on what a sensible buyout price is ahead of time. Because it won’t include traditional selling costs, family members might be able to buy the property at a premium.

Consider different ownership structures: Homes that older family members want to keep in the family might consider a limited liability company (LLC) as an ownership vehicle for the vacation home. LLCs can offer lawsuit protection from creditors and users, they’ll keep the property in the family and they will help the owner set up a structure for ownership, maintenance and governance issues that will stay in place long after he or she is gone. Again, financial, tax and estate experts should be consulted.

Have some fun: Don’t let the process of handing down the property or discussing future ownership detract from the property’s original purpose – to keep family together and to create good memories. Once decisions are made, it might be a good idea to have one last, big gathering there so everyone can either say goodbye or solidify their plans for the next generation of family gatherings.

Keeping Your Credit Score Healthy - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

July, 2010

Keeping Your Credit Score Healthy

It doesn’t take much these days to damage a credit score. Before the recession, late payments and blasting through credit limits would take its toll. But in the past year, Fair Isaac, the company that developed the algorithm that is the leading determinant of our scores, made an important change in its formula.

It’s now putting much more emphasis on the size of your balances and how close they are to your total credit limit. It’s a behavior trigger that creditors see as a bigger worry than ever. So the best thing you can do for your credit score is to get your balances down to under half of your credit limit.

Even better, pay them off entirely and use them only when you know you can pay them off at the end of the month. Inactive accounts will ding your credit score, but quick payments can only help.

The latest revision in the FICO system will actually allow a bit of lenience on late payment – something that might affect more than a few consumers with the downturn in the economy. 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 – the amount of credit you’re actually using relative to your credit limit – is a much bigger deal simply because high balances are still prevalent among consumers. From the lender’s perspective, high balances mixed with a tough economy means a higher risk of default among customers.

So, one more time. What’s a good target utilization rate for all your revolving credit accounts? No more than 50 percent of your credit limit, and if you can get it significantly lower than that over time, that’s a good plan. 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, and that includes something as innocuous as a department store charge.

So maybe that means deferring gratification for awhile until you get things under control. But look at it this way – you can use this time as a way to develop more knowledge about credit and be in a better position long-term. Here are some things you need to know:

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. That’s true, but you need to aim significantly 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), so keep that target in mind.

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 some advice: Remember that debt is just one part of your overall financial picture. It might not be a bad time to sit down with a financial planner to talk about your debt issues, planning for retirement, your kids’ college education and any other key financial goals.

Monitor 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 http://www.annualcreditreport.com. Order them individually at different points in the year. That means you’ll get an extended 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—errors can drag down a credit score – and you’ll also keep an eye on identity theft. Oh, and make sure you use the site above and avoid the businesses that use “free credit report” in their title. It’s easy. If they ask for your credit card number, don’t do business with them.

Make electronic payments: Electronic bill payment will allow you to save on postage while guaranteeing on-time payment, 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. It’s important to always pay more than the minimum payment on your bill – otherwise your balance will barely move.

July 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

A Midyear Financial Checkup Can Make For a Smarter Second Half - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

July, 2010

A Midyear Financial Checkup Can Make For a Smarter Second Half

This is not the time of year when everyone wants to stay indoors with their finances. But a midyear review of your tax situation, retirement and spending issues 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.

Summer’s actually a good time to do this task because there’s still enough time to correct lapses in savings, spending or tax planning. Here’s what most people should cover:

Budget: How’s your spending going? It’s a good time to see what’s being spent on non-essentials and whether you can make some cuts and redirect those funds towards bills or savings. A look at the last six months of spending may reveal opportunities to reduce spending and redirect money toward more necessary goals. Also, take a look at such things as gym memberships, magazines that are piled up and coffee expenses. If you’re not using these things, you can probably live without them. Doing this exercise can identify a surprisingly large amount that’s unaccounted for that can be redirected to debt payment, savings and investments.

Taxes: If you got a sizable 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.

Retirement savings: 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 to the state of our health. While the weather is good, 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 in the fall.

Emergency fund: Most financial experts encourage you to have between three to 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 if your kid’s 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 is suddenly looking like it will need to be replaced or if this might be the last year for your furnace, 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. Of course, if you have credit card debt rolling over from one month to the next, maybe that should be your initial focus.

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 http://www.annualcreditreport.com. By staggering each receipt 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.

Some Annuities Offer a Way to Pay for Long-Term Care - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

July, 2010

Some Annuities Offer a Way to Pay for Long-Term Care

Current estimates from AARP put the annual cost of a private nursing home room at a national average of $78,000. As older Americans are still struggling to reassemble their retirement plans from the worst economic downturn in 70 years, relatively few are considering the potentially most devastating threat to their plans: the spiraling cost of long-term care.

On January 1, some important provisions of the Pension Protection Act of 2006 went into effect to help pay for those costs. Individuals no longer have to pay federal income tax on the proceeds from an annuity if those proceeds are used to pay for long-term care coverage. That means that chronically ill or disabled people will no longer have to rely on their own private long-term care policies or Medicaid to pay for costs related to long-term care.

The change is spurring the creation of hybrid deferred annuity policies that also carry long-term care coverage. These products allow policyholders to use the proceeds for LTC coverage, for income or for both. The proceeds that went to pay for long-term care costs for the policyholder would not be subject to federal tax.

These long-term care annuities can generate tax-deferred gains, which works particularly well for those in high tax brackets who believe they will be in a lower bracket by the time they would need to draw on that coverage.

This option isn’t for everyone and it’s important to consult a financial expert and more important, a tax expert to decide if this alternative is for you. It’s also important to compare the offerings of standard long-term care policies and these annuity/LTC hybrids since the hybrids are generally regarded to offer less LTC coverage in duration of benefits. Unless you have a significant amount to invest, these hybrid policies may not last beyond a year or two of benefits.
It’s important to talk to both financial and tax experts before wading into this arena and to see how much coverage you can buy based on the size of the annuity you can afford.

Before studying these products more closely, it’s important to look at the big picture of your finances and your expectations for care if you became temporarily or permanently disabled:

What resources do you have? This question goes beyond monetary issues. While caregiving puts a strain on family, it’s important to consider whether family and friends are truly willing and able to help with your care, which can provide a considerable financial and emotional benefit.

Check your health history: People in good health purchasing long-term care insurance at the age of 55 usually get the most affordable deal in LTC insurance. But an individual’s family health history and current health status are the real determinants of what your LTC insurance policy will cost – or if you’ll qualify for coverage at all. Also, it’s important to note that 40 percent of long-term care is provided to individuals between the ages of 19 and 65, so the need for care can strike at any time.

Are you a single female? Again, personal and family resources come into play here, but since women typically live longer than men – and they still earn less on average than men – women should take a heightened interest in providing for their long-term care safety net. Long-term care insurance might be a good solution given their other investments and their health history.

What types of services are covered? Over the course of time, long-term care policies have evolved to place more emphasis on home-based care or assisted living, since most people would choose to recover or live out their last days in a familiar environment. A basic LTC insurance policy pays for assistance with activities of daily living including eating, dressing, bathing, toileting, incontinence, and transferring (bed to chair, etc.). Each policy lists the types of services that are covered under nursing home care and under home health care. Homemaker services are generally covered and other services as listed in the policy.

What triggers the coverage? A qualified LTC policy won’t go into effect until the covered individual can’t perform two tasks of daily living for a specific period of time, typically 90 days, or when that person needs substantial supervision related to cognitive impairment. This is where you have to read the fine print since some policies are more restrictive than others. More affordable policies generally take longer to kick in. See if coverage for other physical ailments is available as part of the policy and what per-diem or monthly allowances are offered.

What if I never want to go to a nursing home? The idea is to cover every eventuality. The best-designed LTC policies will pay the same amount of benefit whether care is received in a long-term care facility, an assisted living facility, an adult day care center, or in the home. Some policies do offer reduced percentages for home health care versus nursing home care, but it’s a better idea to keep full percentages on home health care benefits since most people would rather stay in their homes.

How good is the insurer? Do your homework on the financial health and track record of the insurer you choose, and that’s particularly important if you’re buying a hybrid policy.

The 4 Percent Rule—What is the Right Amount to Withdraw from Your Retirement fund each year? - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

July, 2010

The 4 Percent Rule—What is the Right Amount to Withdraw from Your Retirement fund each year?

With stagnant incomes and roller-coaster investment returns over the past decade, individuals on the brink of retirement might wonder what became of all those “rules of thumb” affecting how they handle their nest egg once they walk away from their jobs.

They’re still there. But the question of how well they work comes down to the individual.

Chief among them is the “Four Percent Drawdown Rule” first revealed by CERTIFIED FINANCIAL PLANNER™ professional William Bengen in the October 1994 issue of the Financial Planning Association’s Journal of Financial Planning. Bengen wrote that retirees who took out no more than 4.2 percent of their mostly stock-based portfolio in the initial year and adjusted their remaining portfolio toward a 60/40 split in stocks and bonds each year, that money could last an average of 30 years. That approach made Bengen’s work a gospel in the financial planning industry.

But after this decade, which ended with the worst recession in 70 years, some experts are taking a new look at the 4 percent rule.

1990 Nobel Laureate William Sharpe of the Stanford Graduate School of Business reported last month that this particular rule can be harmful to many simply because of its level of risk tied to stocks and other assumptions including lifespan. He suggests that planners and investors need to do a better job of assessing client risk tolerance and consider more stable investment choices like TIPS (treasury inflation protected securities) among other low-risk options as a foundation for post-retirement drawdowns.

In other words, consider client risk tolerance and the content of the portfolio more, a standard percentage of drawdown less. In fact, Sharpe points out that investors actually risk wasting money by adhering to a percentage drawdown that actually could leave more money behind after a few good investment years – in essence, the annual strict drawdown concept could lower a retiree’s standard of life unnecessarily.

So what do you do? You work on the big questions first, not the numbers, and the best time to do this is as far in advance of your retirement date as possible. Here are some conversation starters for key discussions you should have with your financial planner as well as your tax and estate experts:
Set a vision of retirement and revisit it every year before and after you’re retired: If you’ve already been working with a good investment manager or financial planner, you might have already done this. But retirement goals change as most life goals do, so treat the subject organically. Talk about the fun stuff, but state your objectives for a post-retirement work picture if you want to create a new career or simply want healthier finances. Set your lifestyle expectations now and revisit them as necessary.

Track your working-life expenses for 3-6 months and examine how well your current retirement nest egg and other resources could support that spending: This is where your imagined vision of retirement becomes real—or falls apart. A thorough examination of your current spending habits is a great first step in determining how realistic your preparation for retirement has actually been. It will also provide a picture of what else has to be done.

Consider worst-case scenarios: For many retirees, increasing healthcare expenses and the cost of end-of-life-care account for significant spending. As a result, many retirees may pay for expensive experimental treatments to fight disease or long-term home or nursing home care. Current statistics from AARP show that the average home health care aide makes $18 an hour and a private nursing home room costs $78,000 a year. While public aid picks up medical expenses for those who exhaust their assets in most states, most of us desire more than minimal standards of care. Health care reform is not even close to solving this problem, so it’s time to plan.

Build a phased-in retirement: Many companies are becoming more open-minded about keeping older workers on the payroll or actually hiring more workers over age 60. Keep apprised of such opportunities and the skills it will take to take advantage of them – a successful phased-in or post-retirement work plan will require more than sensible financial planning. It may also require training and other personal investments, so keep your ear to the ground and always be ready to consider a fresh perspective on your value in the workplace.

Planning for a Child’s Private School Education - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

June, 2010

Planning for a Child’s Private School Education

Sending your child to private school is an expensive proposition. For most people, it’s made a little tougher by the fact that it’s necessary to save for a child’s college education at the same time. Some have the income that makes this easier, but for the rest, it’s necessary to create a pay-as-you-go system that will somehow make it all work.

The parents who make it work tend to plan from the time the child is very young. They keep abreast of every possible resource for scholarships, discounts, loan programs and other forms of financial aid.

It makes sense to find a financial advisor such as a CERTIFIED FINANCIAL PLANNER ™ professional who can link a child’s pre-college education planning to the financial planning necessary for college, grad school and beyond. Here are some things to know about the process:

Start with cost: The National Association of Independent Schools (NAIS), a national organization representing private pre-schools, elementary and secondary schools, estimates that the median annual tuition in 2009-10 for all grades of private day schools was $17,880. For boarding school, the average annual tuition was $34,900.

Is aid available? Definitely, and that’s why it’s important to keep your ear to the ground as part of your overall planning strategy. Just remember that grants and scholarships are the best form of financial aid because they don’t have to be paid back. Financial aid grants for private elementary and secondary schools are awarded on the basis of demonstrated need, just like college. According to NAIS, the average endowment per student during 2009-10 was $19,122. This is why it is important to check the size of the endowment fund at any school you consider – that’s money that the school keeps in reserve to invest so it can extend aid to families in need.

The application process: Most schools use the Parents’ Financial Statement (PFS) from the School and Student Service for Financial Aid (SSS). This is a service owned by NAIS that helps schools determine how much a family can afford to pay for school tuition and other educational expenses. If the school you are considering does not use SSS, be sure to ask what steps you need to follow in order to apply for assistance. The form considers how many children you’re paying tuition for in K-12 or college and how high the cost of living is in your area.

Don’t forget your retirement: Despite the huge challenge of paying for your child’s education, you have to pay yourself first. Talk to a financial planner to see how much you’ll need in retirement and how much you’ll need to save weekly to make that goal. Keep in mind that your greatest potential for a successful retirement comes from starting savings early and you can’t forfeit that in favor of your child’s education.

Consider a Coverdell Account: While the best solution will differ by family, one savings vehicle might be a Coverdell Education Savings Account. Coverdells are trusts created to save money for a child’s primary, secondary or college education. Contributions are relatively small—$2,000 per beneficiary from all sources during the year. Yet since Coverdells are considered the asset of the account owner, you may want to keep it in your name since an account in the student’s name could adversely affect financial aid eligibility.

Enlist the grandparents: If your grandparents can afford to help, they have several options to help you save for your child’s education without triggering their gift tax obligation. First, each grandparent can give up to $13,000 tax-free to each child. Also, they can give up to $2,000 annually to a Coverdell account you’ve set up for the child.

Don’t use debt as a Band-Aid: Avoid the trap of being forced to use debt while trying to “do it all.” Stay within your means. If you find yourself close to using your debt options, enlist the help of a financial planner to talk through ways to adjust your spending or find student aid.

June 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

How Personality Traits Affect Financial Planning - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

June, 2010

How Personality Traits Affect Financial Planning

The ancient Greek expression “Know thyself” carries a lot of weight when it comes to investing. Indeed, an investor’s personality can speak volumes to their ability to spot opportunities and avoid risk. If more people truly “knew themselves” when it came to money over the last decade, it’s arguable we would not have seen many of the individual excesses and mistakes that marked the recent economic slowdown.

Many companies and experts have attempted to label various money personalities over the years. And while there is no definitive set of definitions, taking a look at these efforts can at least get you thinking about where you are on the spectrum and how that’s affected your decision-making. One of the most recent high-profile efforts came from financial services firm TransAmerica in 2008 with its study revealing four basic investing personalities, including:

• Venturers take a “nothing ventured, nothing gained” attitude with their money, but their potential pitfall is that they’re overconfident in their level of preparedness.
• Anchored individuals always “stay on the safe side,” but extreme risk aversion might leave them unprepared.
• Pursuers will “try anything once” but their continual efforts to grab at new directions might leave them without a clear plan.
• Adapters take investment situations “as they come” but may not be realizing their full potential as investors.

Now even if you have a handle on your money personality, what do you do with that information? It might make sense to seek advice from a trained financial professional, such as a CERTIFIED FINANCIAL PLANNER™ professional, to review the plans you’ve made and take you in a direction that not only suits your comfort level, but your future financial success.

If you’ve never worked with a financial planner before, one of the first steps in the process will be reviewing or filling out a risk analysis questionnaire.
Why is risk analysis important before you make decisions with your money? Risk tolerance is an important part of investing – everyone knows that. But the real value of answering a lot of questions about your risk tolerance is to tell you what you don’t know – how the sources of your money, the way you made it, how outside forces have shaped your view of it and how you’re handling it now will inform every decision you make about it in the future.

Here are some of the questions you might be asked before you start work with a planner:

1. What’s important about money?
2. What do you do with your money?
3. If money was absolutely not an issue, what would you do with your life?
4. Has the way I’ve made my money – through work, marriage or inheritance – affected the way I think about it in a particular way?
5. How much debt do I have and how do I feel about it?
6. Am I more concerned about maintaining the value of my initial investment or making a profit from it?
7. Am I willing to give up that stability for the chance at long-term growth?
8. What am I most likely to enjoy spending money on?
9. How would I feel if the value of my investment dropped for several months?
10. How would I feel if the value of my investment dropped for several years?
11. If I had to list three things I really wanted to do with my money, what would they be?
12. What does retirement mean to me? Does it mean quitting work entirely and doing whatever I want to do or working in a new career full- or part-time?
13. Do I want kids? Do I understand the financial commitment?
14. If I have kids, do I expect them to pay their own way through college or will I pay all or part of it? What kind of shape am I in to afford their college education?
15. How’s my health and my health insurance coverage?
16. What kind of physical and financial shape are my parents in?

One of the toughest aspects of getting a financial plan going is recognizing how your personal style, mindset, and life situation might affect your investment decisions. A financial professional will understand this challenge and can help you think through your choices. Your resulting portfolio should feel like a perfect fit for you.

However, a planner can help you do much more than control risk on the investment side. You can also work to develop an emergency fund that will support you in case you lose a job or go through a protracted leave of absence due to health or caregiving issues. A planner can also make sure you have a disaster plan in place in case you’re disabled or your home is hit by a natural disaster. Financial risk can take many forms, and a planner can help you work through those issues key to your lifestyle.

A Family Mission Statement Can Help Any Family Manage Assets, Philanthropy and Direction - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

June, 2010

A Family Mission Statement Can Help Any Family Manage Assets, Philanthropy and Direction

A family doesn’t need a surname like Vanderbilt to benefit from a family mission statement. A mission statement is a collaborative document created by one or more generations of family so standards and goals can be set for the handling of all family assets, including businesses and philanthropy in particular.

While mission statements aren’t legal documents – in fact, many are done both in written form and on videotape as a companion to legal wills and directives— their purpose is to make a record of the family’s values, goals and aspirations and how those sentiments should drive future decisions about family wealth management, business succession plans and charitable pursuits. Multi-national companies have mission statements. Non-profit corporations have mission statements. A mission statement for your family, helps identify and clarify specific values and goals, facilitates group decisions, instills confidence and encourages unity.

It should also identify family leadership who will work with other relatives in implementing those goals.

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. Many families start the process as a way to build consensus about long-term financial, business, estate and philanthropic goals, but the conversation can take twists and turns that don’t directly involve the family money. In this process, a family can identify the strengths, weaknesses and unearthed priorities of all family members and might reveal leadership few had expected.

Trained financial advisors including financial planners, tax experts and estate attorneys, can help explain the process and set an agenda for families to follow in creating the mission statement. While some extended families may elect to bring in a facilitator to guide their process, there are generally four components to a family mission statement – estate issues, philanthropy, business planning and family dynamics in general.

It also helps to start with some questions that can guide the discussion. Many experts start with questions that first get family members talking about their relationships and how their dynamics work, 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 take care of relatives who are or become sick or disabled?
• 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 professionals or structures should we bring in to help us manage our wealth?
• 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 – most experts say it should be no more than a paragraph long, but that’s a guideline, not a rule. It is also very important to focus on the positive, meaning what you want to accomplish and achieve as a family, as opposed to want you want to avoid. 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 a family establish its identity and the variety of voices within, and those voices may be subject to change over time. The family mission statement is a living, breathing document that can evolve over time. In today’s fast paced world, it is easy to get caught up in the here and now, a family mission statement can help you stay true to your family’s values. As a result, families may not feel the pressure to keep up with the Joneses because their mission statement helps achieve balance. It is also very important to focus on the positive, meaning what we want to accomplish and achieve as a family, as opposed to want we want to avoid.

The right mission statement can help reset 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.

As for the age of the participants, it can start in very basic form with younger children and the process can mature as they age. It’s actually a good idea to bring young members into a customized version of the process for youngsters so they can comfortably adjust to working as adults with the older members of the family.

For additional resources on how to create a family mission statement, please consider utilizing any of these websites

http://www.nightingale.com/mission_select.aspx?from=homepage&element=missiontitle
http://www.ehow.com/how_2043790_write-family-mission-statement.html
http://www.franklincovey.com/msb/

Feel Like Un-Retiring? How to Prepare - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

June, 2010

Feel Like Un-Retiring? How to Prepare

Last October, the MetLife Mature Market Institute released a study that said the over-55 workforce will account for almost 93 percent of the net increase in the U.S. civilian labor force between 2006 and 2016. At the same time, MetLife reported that many American workers plan to stay on the job “at least” until age 69.

The Pew Research Center’s Social & Demographic Trends Project echoed those findings in May 2009, saying that just over half of all working adults aged 50-65 plan to delay their retirement, with 16 percent saying they never plan to stop working. The issue, says the Pew study, is not about what these Americans earn, but how much they lost during the investment meltdown and the worst economic downturn in more than 70 years.
Add all these factors together and you have one of the most interesting labor situations for older Americans ever. That’s why that for every retiree or potential retiree who feels they need to return or stay on the job, it’s particularly important to review investment, insurance and tax issues. It makes sense to meet with a financial advisor such as a CERTIFIED FINANCIAL PLANNER™ professional.

Here are some critical points to address:

How are your skills? This is a valid point for current and potential retirees. The best job candidates are those with current skills in technology and procedures specific to an industry, so staying in the workforce may mean retraining. If there’s a way to get an employer to pay, do it. But if you have to pay for your own education, you really need to weigh whether your earnings will justify it.

Be realistic about your demographic in the workplace: While age discrimination is illegal, there are some workplace cultures where older workers frankly seem out of place. You have to ask whether you are going to be happy staying in a field that’s populated by younger workers with different interests or whether you might try another line of work.

Consider how a return to the workplace will affect you personally and socially: If you’re 40, 50 or 60, working right now probably feels like breathing – when have you not worked? But it may not be the best option after a year or two out of the workplace.

Consider health insurance issues: If a retiree returning to the workforce is already receiving Medicare or is 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. Since people over age 55 are generally the greatest users of the healthcare system, coverage issues are particularly important to run by a financial planner.

Know your tax picture: Tax issues shouldn’t determine your ambitions and goals, but it’s important to consider the impact full or part-time income will have on your finances. Most retirees realize that it doesn’t take much income to knock them into a higher bracket. Look for ways to control the taxes you’ll ultimately pay, including continued participation in qualified plans, IRAs, and other tax-favored accumulation vehicles and using annuity income to fill the gap between the beginning of the “post-retirement” period and the age when full Social Security benefits can be drawn without an offset for employment income.

Consider what earnings will do to all your retirement payments: If you are planning to continue working or returning to work, consider not only the tax impact, but also how that might change the way you plan to draw on your retirement savings and investments as well as Social Security. If you are planning to work, it’s important you consider suspending or delaying receipt of those benefits for as long as you can.

Look for work-related incentives: Particularly for public sector workers, there are opportunities to return to state employment and actually augment existing pensions. Keep an eye out for these programs and see if they work for you.

Keep saving: If you return to the workplace, see what you can do to take advantage of your new employer’s 401(k) plan or any other tax-advantaged retirement savings benefit, particularly if an employer matches your contribution. Don’t miss a chance to enhance your retirement savings.

How Much Term Life Insurance Should You Buy? - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

May, 2010

How Much Term Life Insurance Should You Buy?

You may have read that term life insurance rates are at historic lows and that now is the time to buy. It’s worth a quick primer on why life insurance is necessary and who should buy it before getting to specific amounts that individuals should own.

First, a quick definition of what term life insurance is. A term policy is a policy with a set duration on the coverage period – anywhere from one to 30 years – and when it reaches the end of that term, the policyholder decides whether or not to renew it. Term policies provide no cash buildup like whole or universal life insurance – it only provides a death benefit at the time the insured dies. Because term doesn’t provide that investment component – the cash value that can be borrowed against – term is generally cheaper to buy than whole or universal life.

There is plenty of debate whether consumers should buy term or whole life. Some critics argue that whole life is a poor choice because you arguably could get a better return from other investments. Yet there are good purposes for these investment-feature policies – many use them as part of an estate-planning strategy.

But the first point is to decide whether you need insurance. People without dependents generally don’t, while people with spouses and families generally do. The primary point of life insurance is to replace income if a breadwinner dies.

As for the decision on what kind to buy, it helps to get some advice. A financial planner can help you determine the right insurance products to buy based on your needs and other assets. Better still, he or she can help shape your insurance purchases as part of an overall estate plan.

A planner can help a buyer decide how much life insurance to buy and over how long a period. Some critical questions that should be asked when purchasing insurance:

1. How much income would your spouse and your children need to replace your income over a period of years based on your current age?
2. Will your spouse or guardian need to provide childcare support?
3. Is there a mortgage to pay off?
4. Are there substantial short-term debts, like credit cards or auto loans, to pay off?
5. What are estimated college expenses for children and spouses, and when will those expenses start?
6. How much will burial expenses be?
7. Do you have any other life insurance?
8. Are there anticipated expenses for caregiving for elderly relatives or children or family members with special needs?
9. Do you anticipate substantial estate taxes when you die?
10. Do you have any other assets that can be liquidated sensibly or will bring in income?

Most online life insurance calculators found at most business news and personal finance websites can help you address questions 1-8. The last two questions require a bit more strategic thinking in terms of what you or your spouse have done with overall estate planning. Keep in mind that youth and health will also be factors in how much insurance you can afford to buy. And keep in mind that life insurers will investigate suspicious claims, so be honest about all facts you report.

Many term life policies are both “renewable” and “convertible.” Renewable means you can renew your coverage without a medical exam. The latter allows you to convert your term life policy into an equivalent cash value policy from the same carrier, should this make sense during the term of the policy. Again, the kind of coverage you choose should depend on your own personal needs and a financial planner can help you determine what those are.

Also, as you check various companies, it’s important to work with the most financially healthy carriers. Insure.com provides free ratings from Standard & Poor’s on various insurers, and many public libraries have subscriptions to ratings from A.M. Best.

One more thing. Don’t buy insurance and forget about it. Make sure that every few years you are reviewing your insurance purchases as part of your overall financial plan. Life circumstances change – incomes rise and fall and family size changes. Your insurance holdings always need to reflect current needs and conditions.

May 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

Ways to Analyze Charities and Give Smarter - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

May, 2010

Ways to Analyze Charities and Give Smarter

Despite the recession, Americans haven’t shut down much of their charitable giving. According to the Giving USA Foundation, U.S. charitable giving stood at $307.65 billion in 2008, down only 2 percent from the previous year.

This year may not be an exception given the outpouring after the Haitian earthquake. But if you’re going to give, give smart. It makes sense to develop a long-term giving strategy that dovetails with your current finances, your estate-planning strategy and your values.

A visit with a qualified financial and tax adviser is a good first step in the giving process no matter what your age or assets. It’s important to view this process the way you would examine any investment – with solid research and an open ear to advice.

Here are ways to research and give to nonprofits and charities:

Go online: More than ever, the Internet is a great starting point for investigating various charities. Among them: Guidestar.org, Charitynavigator.org, Charitywatch.org and Give.org are search engines that give detailed overviews of various charities, but they also help you identify nonprofits that work within specific causes and subject areas. A foundation called Philanthropedia not only rates various nonprofits but allows visitors to make direct donations through the site. If your charity is not on the Internet, request a copy of their Form 990, the form the Internal Revenue Service requests from all nonprofits. The IRS did an overhaul of the form in 2007 to request more information on governance. While the forms are detailed and sometimes tough for neophytes to understand, it’s not a bad idea to keep the information on file as you discuss the material with your advisers.

Figure out if you’ll need income from your gift: There are ways to draw income from donations. Your financial adviser can work with an attorney and CPA help you in understanding the following options:
• Charitable gift annuities allow a donor and a charity to enter into an annuity agreement that will allow payments back to the donor that may be partially or all tax free;
• Charitable remainder trusts allow someone to donate cash or appreciated property to a trust that can sell the appreciated property and distribute proceeds to the donor on a tax-advantaged basis;
• Life estate agreements let someone with a home or farm to keep living there while they receive a tax deduction for the gift. When they die, there may be savings in probate costs and estate taxes.
• Pooled income funds are now offered by established mutual fund companies and allow you to deposit money now for distribution to charity in the future while allowing you to receive tax-advantaged income.

Consider making a major direct donation if the charity or foundation will accept it: If you know of a foundation or charity that you want to support, research it first and then see what its policies are toward accepting donations of cash, stock or property. Not all foundations accept such gifts from the general public.

Why 2010 is the Year You Should Pay Closer Attention to Your Estate Plan - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

May, 2010

Why 2010 is the Year You Should Pay Closer Attention to Your Estate Plan

Estate planning is an essential part of anyone’s personal finances—no matter how wealthy you are. But even for those who have been diligent about planning for their spouses and heirs, this is a year when it may make particular sense to re-examine your strategy.

With the nonstop flurry of legislative activity in Washington, Congress has still not acted on the phase-out this year of the estate tax. If nothing is done this year, the heirs of any person who dies in 2010 won’t be liable for any federal estate taxes, no matter how big the estate. (The carryover basis rules for 2010, however, may give rise to additional planning considerations.)
Yet the potential bad news will come next year when the estate tax is scheduled to return with a vengeance on all estates over $1 million in size (the threshold was $3.5 million for individuals in 2009) with a potential return to a 55 percent top tax rate..

It’s worth a trip to your estate planner and your financial planner to help ensure your paperwork is in order and the previous plans you’ve made won’t cause problems.

Family trusts – also called bypass or credit shelter trusts – are of particular concern. These trusts work this way: Individuals add what’s known as a formula clause to their will or revocable trust that distributes up to the maximum amount of assets that can pass free of estate tax to the trust if the individual dies before their spouse. The creation of the trust helps ensure that once your spouse dies, neither these assets nor any appreciation on them will be subject to estate tax. But if you die this year, a failure to address the formula clause could potentially cause you to unintentionally disinherit your spouse.

The bottom line: It’s worth making a call to a financial planner and your estate attorney to make sure your plans are still in order.

And what if you’ve never made an estate plan? Even if you’re not particularly wealthy, you definitely need one. Here are some specific things you should do and make sure you have in place:

Make a financial plan: You can’t have a very effective estate plan without a full grip on your finances. First, sit down with a financial planner to gain an understanding of all the various aspects of your finances from your income and investments to your debt. Add various facts about your family situation to the mix, and that’s the starting point for an estate plan.

Make a will your first priority: Unless you have a very complicated estate, a standard will with wording common to your state may be satisfactory to properly dispose of your assets, but it’s generally a good idea to get feedback from an estate attorney to make sure your will fits you and your financial structure.

Create all necessary directives: It’s important to create a durable power of attorney to oversee financial issues and a healthcare proxy to appoint a trusted individual to oversee health-related decisions if you are unable to do so for yourself. Some states will allow you to appoint more than one individual in each role to allow for checks and balances, but it’s particularly important to work with an experienced estate attorney to make sure things are done right.

Establish guardianship and financial directives for your children: If you and your spouse were to die at the same time, who would take care of your kids? Based on your state’s requirements, your decision may need to be written up as part of or an addendum to your will. It’s also a good idea to name alternates in case the people you name have a change of heart for any reason, or if something happens to them. If your children are to inherit substantial assets or insurance proceeds, it is also wise to make sure that their guardians are qualified to handle that money. If not, someone else should be legally named to do so.

Review all beneficiary information: Make sure all your beneficiary designations on retirement accounts, insurance and other assets not distributed through your will or trust are current and clear.

Consider transferring IRA assets to a Roth: You’ll take a tax hit with the conversion, but converting traditional IRAs into Roth IRAs removes another headache for your heirs because no income tax will be assessed once the funds are withdrawn, assuming certain requirements are met.

As Annuities Get Attention in Washington, It’s Worth Reviewing the Basics - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

May, 2010

As Annuities Get Attention in Washington, It’s Worth Reviewing the Basics

Recent research from the Financial Planning Association® (FPA®) shows that planners are embracing annuity products to help a more conservative generation of clients protect assets and reach their retirement goals. Apparently the White House is getting in on the annuity bandwagon as well.

The question is, should you? First, start with the definition. An annuity is a financial product that accepts funds from an individual with a plan to grow them, and then at a specific time begins a stream of regular payments to guarantee a steady flow of inflation-protected cash to that individual until they die. Annuities come with various features, which will be detailed below.

The whole notion of guaranteed payments after an economic crisis seems to be more attractive these days.

A report in the April FPA Journal of Financial Planning stated that 35 percent of advisers surveyed said the recent financial crisis had changed the way they viewed annuities and as a result, they were more likely to use or recommend them than they were before the crisis. Washington also appears to be getting friendly with annuities as a conservative solution for those in retirement. In January, the Obama Administration released a report from its Middle Class Task Force favoring annuities as one of a series of tools that might offer guaranteed life income to millions of Americans.

Annuities have plenty of promoters and detractors, and it’s best to start by reading as much about them as possible first, and then discussing your retirement savings choices with your tax professional and an experienced financial adviser. Some basics:

Annuities come in two flavors – fixed and variable: Fixed annuities offer a return that are tied to interest rates or a particular index, meaning these are “fixed” investments your money will always be tied to. Variable annuities are invested in a series of investments—including mutual funds—that allow the investor to change their investment allocations. If you are willing to pay heftier fees, you may be able to receive a guarantee that your variable annuity will not dip below the value of the initial principal.

Tax-deferred growth, but payments are taxed as ordinary income: Just like a 401(k) or IRA, the contributions and earnings within an annuity grow tax-deferred until the funds start coming out. But also like a 401(k) or IRA, you pay a 10 percent penalty for early withdrawals if you are younger than age 59 ½. Yet there’s a tradeoff for a lifetime guaranteed payment, and that’s the taxman. All withdrawals are treated as ordinary income and don’t qualify for more favorable long-term capital gains treatment.

Money for life, but check the company thoroughly: The number one selling point of any annuity is that the issuer – typically an insurance company that writes up an annuity contract – guarantees that you will receive money for as long as you live. Of course, you need to make sure the insurance company behind the annuity contract is financially healthy. Check its Comdex ranking, which is an average percentile ranking of credit ratings provided for life and health insurance companies by firms such as Moody’s Investors Service, A.M. Best Company and Standard & Poor’s Corporation.

Fees and commissions can be steep: Always ask how much commission an agent makes – and planners can be agents if they are properly licensed – when they sell you an annuity. And be sure to compare commissions and ongoing fees on any annuity products you consider. Also keep in mind that some annuities can charge a surrender fee if you withdraw your money before age 59 ½ in addition to the 10 percent penalty.

Compare promised returns: We’re still in a low interest-rate environment. Understand how any annuity you’re considering will react in various interest rate scenarios.

Check out consequences of transferring an annuity: Find out what the tax and economic ramifications might be for transferring an annuity to spouses or other family members when you die. This effort should be part of an overall review of your personal finances and the creation of an estate plan.

Stay diversified: Keep in mind that putting everything you have into an annuity is not good financial planning. Discuss how you should allocate all your assets as you head into your retirement years.

Adult Children with Nest Eggs Can Create Private Low-Cost Reverse Mortgages for Their Parents - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

April, 2010

Adult Children with Nest Eggs Can Create Private Low-Cost Reverse Mortgages for Their Parents

Parents typically don’t like to burden their kids with their financial problems. That hesitancy can sometimes lead seniors to choose financial solutions that charge high fees and often don’t deliver what they promise.

Reverse mortgages – advertised so frequently on TV and other media have become a major attraction for people over the age of 62 who need to pay medical bills or otherwise have a need for cash. They are perfectly legal transactions under the law – they are called “reverse” mortgages because of the way they work. Instead of the borrower making payments to the lender, the lender releases equity to the borrower in a lump sum or monthly cash payment, or as a line of credit.

But reverse mortgages can be costly solutions to a senior’s cash crunch. Closing fees on a reverse mortgage can go as high as 7 percent of a home’s value, compared to a typical high of 3 percent for conventional mortgages. If not part of HUD’s HECM program, Interest rates can also be higher than conventional market rates on a reverse mortgage. The lender may also require mortgage insurance and monthly servicing fees. If the homeowner doesn’t live in the house for long, a reverse mortgage can end up being an extremely expensive short-term loan.

Plus, there is a counseling requirement that adds time to the process.

But if children or other close relatives have the means, they can buy the house outright or essentially create a private reverse mortgage. Either way, the parent gets the benefit of more cash in their pocket and the adult child may receive some attractive tax benefits. A family reverse mortgage will also avoid the limitations on age 62 and older and type of residence that would be imposed by another lender.

Advice is the first step in this process. A financial planner can team with a tax professional to advise children and parents on these options. A promissory note will need to be written to reflect a revolving credit agreement, and depending on state or county requirements, deeds and other paperwork will need to be filed with local authorities. A loan must be properly documented so as not to trigger the gift tax, and must be at a fair market rate (the applicable federal rate or higher) so as not to be considered a gift.

It’s a good way to keep an asset in the family. 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 even have to sell the house. They can either pay off the reverse mortgage with their own funds or refinance the outstanding loan balance within a stated time period including extensions.
Also, it’s smart for parents to buy additional life insurance which can pay estate taxes if necessary.

It’s particularly important to structure and record the loan legally so it’s less likely to be challenged by other family members after the parents die, but that’s why it makes sense for all family members to be brought in at the idea stage. It’s also a good idea to do a title search, in case there are any surprise liens on the home.

There is one other possibility – for the adult children to buy their parents’ home outright and allowing them to live in that property. It’s a way to avoid any and all transaction costs and keep one or both parents in the home for as long as they are able, avoiding the whole loan question altogether.

April 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

What to Know and Ask About Disability Insurance - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

April, 2010

What to Know and Ask About Disability Insurance

The commercial featuring that loud, quacking duck has gone a long way to making people think about individual disability coverage as a way to keep bills paid if the family breadwinner gets sick or injured over an extended period of time.

It’s true—individual disability insurance is more important than ever, and every working individual should have it.

The key is shopping smart for that coverage. A financial planning professional is a good first stop for advice on that coverage, which should be considered as part of an overall financial plan.

Why is it a good idea to have personal disability coverage, particularly when most employees can buy such coverage at work for a nominal fee? That’s because most employers offer disability coverage that lasts 12 weeks or less and covers less than 60 percent of a worker’s pretax income. That might be workable for a surgery or injury with a relatively quick recovery time on the couch, but a diagnosis for even the most curable cancers can put workers with even the best financial coverage into a devastating financial bind.

And if you are self-employed, the need for the best, most flexible long-term disability insurance is even more important because other than your own resources, that coverage will be your own safety net.

Here are some essential things to know about long-term disability coverage. Remember that policy language is critical, and a financial planner can give you a second, helpful set of eyes to review what your insurance agent recommends:

If you’re considering becoming self-employed or might lose your job due to layoff: The time to buy long-term disability coverage is NOW. Insurers will base your initial coverage limits on what you’re earning in your current job, which is important since entrepreneurs and unemployed often earn considerably less – at least for awhile—once they’ve left their current employer.

Make sure you can purchase more coverage as your income increases: Because you stand to earn more in future working years – if only based on inflation – you should make sure your benefit levels can rise to meet the demands of replacing that income if you need to in the future. Obviously, people who expect to make vastly higher salaries in the future need to plan for this.

Check for a non-cancellation feature: Make sure that once you’re approved, the insurer can’t cut your coverage unless it decides to stop writing coverage for everyone in your job class. It should also state that the insurer can’t raise your rates based on the benefits you’re to receive.
Compare benefits and premium cost: Get bids from several carriers and consider going to more than one agent. The premium you pay will depend on a wide array of factors and can vary dramatically from person to person. Such things as your age and your gender (women pay more for disability insurance because they currently tend to live and work longer, for example) will be a factor in what you pay.

Go for “own occupation” coverage: Even if you are able to work in a different capacity, own-occupation disability insurance will provide you with the income replacement you need if you are unable to work in your current occupation. Make sure you understand how that coverage fits your current profession.

Know what “elimination period” means: Like a deductible in home, health or car insurance, the elimination period is a big cost determinant in disability coverage. (It’s actually a big factor in long-term care policies as well.) Most long-term disability policies will kick in after 30 days after you’ve been declared disabled. But if you specify an elimination period of 60, 90 or 120 days, your premium will be lower. An important point about the 30-day elimination period: the benefits don’t start accumulating until you’ve been laid up a month after the ruling date and you won’t get your payment until a month after that. Be very clear with your insurer when you’ll get your first check based on what elimination period you choose, and make sure you have a cash cushion to cover that need in your emergency fund.

What’s your benefit term: For each disabling incident, your policy may pay benefits for a certain period – two, five years or until retirement. It’s all in how your policy is constructed. Many policies may pay for life if you purchase this benefit and you are disabled prior to age 60. Also, make sure there’s language that increases your benefits as your income increases over time.

See if there’s a residual benefit feature: Some policies may offer you ‘residual benefits’ or a partial payment if you’re less than 100 percent disabled, but still can’t perform all the duties of your job.

Does It Make Sense to Get Into The Market for Troubled Homes? - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

April, 2010

Does It Make Sense to Get Into The Market for Troubled Homes?

In March, RealtyTrac, a leading online market for foreclosure properties, reported that February 2010 foreclosures were actually down 2 percent from the previous month.

Yet, RealtyTrac indicates this break might not last long. Even though the 6 percent year-to-year increase in February foreclosures was “the smallest annual increase” RealtyTrac recorded in 50 straight months, it believes that current foreclosure prevention programs and processing delays are keeping a lid on the numbers. If those programs end and processing glitches lift without an upswing in the economy or job market, or the foreclosure could accelerate.

For individuals with some money to spend and invest, the troubled home market has its attractions. First, there’s the possibility of attractive real estate – albeit some in need of serious repair – at a bargain price. Then there are the sellers, both banks and individuals, who are at best eager, at worst, desperate to get out from under their obligations. But the trail to ownership of properties that are under a cloud can be treacherous and it’s best to know what you’re doing. It’s wise to consult a tax planner and a financial planning professional before making a move into this risky arena. Here are some of the things potential investors should know:

How foreclosure works:
A foreclosure happens when a buyer defaults on their payments and their lender takes legal steps to take back the property. Rules vary by state and local government, but generally, when a lender decides to foreclose on a property it files a notice of default or a lis pendens (Latin for “lawsuit pending"). This document is a public record, and for buyers – including other lenders—it’s the first step in locating a property in foreclosure. A buyer looking for foreclosures can look online (RealtyTrac is a good source) for lists of properties in default, but individuals with contacts inside lenders holding these properties have a particularly good leg up.

Pre-foreclosure sales are attractive, but often tough to close.
With so many homeowners struggling with payments, “pre-foreclosure” or “short sale” transactions are currently common, but fraught with obstacles. Short sales essentially allow a seller to sell their home for less than they owe as long as they get their lender to buy their story about a lost job or other financial hardships. The second obstacle is getting a real estate agent to work to sell the property for a far lower commission than they usually get. Third, many states allow for very tight timeframes between the notice of default – the first news a homeowner is facing foreclosure, if they’re checking their mail – and an actual foreclosure notice. Deals of this variety need to close within days, not months.

How do people invest in foreclosure properties? There are three 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 the public courthouse 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. It’s best to learn the process as a bystander before putting any skin in the game. The most knowledgeable foreclosure investors also have good intelligence on how heavy the lender’s inventory is with troubled properties – the more headaches they want to get rid of, the faster they’ll get rid of them.

Is it wise to borrow?
Given the current state of the lending industry, such a question might be a moot point even for the most-creditworthy individuals. Buying distressed property is primarily a cash game. It lowers the cost of entry and speeds these kinds of transactions where time is definitely of the essence. 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.

Moving Toward a No-Debt Lifestyle: Steps to Consider - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

April, 2010

Moving Toward a No-Debt Lifestyle: Steps to Consider

Any financial planning process begins with necessary changes in financial behavior. The degree of change varies based on financial priorities, but in the end, it’s about adopting good habits and abandoning bad ones.

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. A financial planning professional 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:

Start with nickels and dimes: You can’t wish your way out of debt – it takes cash. And recovery literally can start with loose change. If you’ve never done a real budget, it’s time. That means tracking every cent of your spending either online (Mint.com is a free online website that offers some unique expense-tracking tools) or on paper. Once you see what’s left your wallet in the last month, start cutting non-essential spending like designer coffee, carryout and deluxe cable and start applying that extra cash to the highest-rate, non-deductible debt you have. Seeing everything you spend in black and white is the first step in changing your relationship with money for a lifetime.

Attack the highest-rate debt first: In most households, this means attack the credit card balances. While February’s credit card reform law has given borrowers a slight boost by applying monthly payments to highest-rate balances within every credit card statement, it won’t matter much unless you begin paying more each month than the minimum balance. Zero in on your highest-rate cards first, pay more than the minimum and then work downward.

Refinance if you can: Mortgage rates are still at historically low levels. You’ll need at least 10 percent equity in your home and a credit score exceeding at least 740 (out of 850) to qualify for the best rates, but negotiating with your current lender first is a great place to start. Be sure to inquire about the various government programs and how they pertain to your specific situation.

Make debt-fighting a family lesson: 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. Generally speaking, it helps to solicit the input from others as they feel involved in the decision making process.

Set some post-debt money goals: Getting out of debt means you’ll be in for an extended period of frugality, and that might be a bit depressing. But as you battle your balances, make some time to really think about what you want to do with your life after the debt is gone. Having a debt-free lifestyle doesn’t stop at having zero balances (though that might call for a celebration!). Being debt-free is the gateway to better money management that will help you reach your dreams. A financial planner can get the conversation started on what those dreams and aspirations are and what permanent savings, spending and investment philosophies will be necessary to achieve them.

Shop differently: The retail explosion of the last generation – and its implosion of the last 2-3 years – have revealed to a wider audience what money-smart people have always known. Happiness is not measured in what you wear, what you drive, or even where you live. If there is a cheaper solution to find both necessities and luxuries, adopt it. If used or wholesale options are available for food, clothing, housewares or services, why pay retail? Internet retailers, price-comparison shopping sites and online coupon sources are popular for a reason – they almost always offer lower-cost paths to savings. Use them and compare. Here’s another suggestion – keep a centralized shopping list on a big sheet of paper that lets you see all the spending you feel you have to do, and then try to handle it during one organized trip. Seeing everything in front of you will make it easier to prioritize what you really need and what you don’t.

Do-it-yourself or barter repairs and services: The do-it-yourself movement is in a new phase with the 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. Previous generations made do-it-yourself a necessity. See if that option is right for you and you might save considerable money doing it. Also, for more complicated jobs, partner with friends and family and you can help each other save money.

Rebid your home and life insurance: Most everyone knows that bundling home and auto insurance with one carrier saves money. Increase your deductibles if you can afford to. But ask your agent specifically about changes in behavior that can save you money. See what taking mass transit most of the week can do for your insurance rates. See if you can benefit from age-related discounts. And check whether it might be worth beefing up your home security or adding more protection against weather-related disasters (storm shutters, shatter-proof glass, etc.) or upgrades to appliances, plumbing or electrical systems. Lastly, be tax-smart about improvements – EnergyStar.gov lists rebates and other breaks for upgrades around your home.

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 probably 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. And use overdraft protection to avoid fees.

When Doing Your Own Taxes Makes Sense…And When It Doesn’t - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

March, 2010

When Doing Your Own Taxes Makes Sense…And When It Doesn’t

Tax deadline is April 15, so if you haven’t begun gathering your annual tax records it’s time to do so. Every year, however, people’s lives change – they buy and sell houses and move, they take new jobs, have kids, buy and sell stock. Those and dozens more reasons might give you cause to hire a tax preparer.

It’s worth going over the primary reasons why some people should get help with their taxes and others can continue going it alone.

Should you do it by yourself? If you meet the following circumstances, you can probably do your taxes by yourself:
• You work for only one employer who gives you a W-2 tax form each year.
• You rent your residence and don’t own a home or vacation property.
• You don’t have kids or other dependents.
• You don’t have any complex investments such as a partnership, a trust or extensive stock holdings.
• You really like numbers, are willing to investigate annual changes to the tax code and double-check your work.
• You’re comfortable doing computations by calculator or by hand, or by using tax software on your computer or online.

For do-it-yourselfers with computers, the Internal Revenue Service’s Free File program is aimed at some 95 million taxpayers with an Adjusted Gross Income (AGI) of $57,000 or less in 2009 to prepare and e-file their federal tax returns for free. E-file, the IRS’s online tax filing service, is available to both tax professionals and individuals with compatible home computer tax software. You can learn more about the e-File program here.

Should you seek help? It generally makes more sense to get help with your taxes if:
• You’re buying or selling property.
• You own a business or rental property.
• You get regular income from a trust or partnership.
• You trade investments frequently or have a complex portfolio.
• You’ve undergone a major financial impact during the previous tax year, such as a divorce, death of a spouse, an inheritance or a move of more than 50 miles for a new job.
• You are supporting a child between the ages of 19 and 24 who is a full-time college student.
• You don’t have time to do it yourself.
• You are subject to the Alternate Minimum Tax (AMT).
• Your income has increased by a considerable amount from the previous year.
You’re still legally responsible for your return even though you have professional help, so it’s important to choose a qualified professional to help you. The IRS gives the following suggestions for finding a qualified preparer:

1. Ask how they charge: Avoid preparers who claim they can obtain larger refunds than other preparers. If your returns are prepared correctly, every preparer should derive substantially similar numbers.
2. Don’t believe promises: If a preparer guarantees results or bases fees on a percentage of the amount of the refund, be suspicious. Tax preparers aren’t allowed to charge a contingent fee (percentage of your refund) for preparing an original tax return.
3. Ask what preparers will need: Reputable preparers will expect you to provide receipts and other paperwork if they need it to justify the return they’re preparing for you. You need to keep scrupulous records.
4. Make sure you know exactly who’s preparing your return: It’s OK if your preparer has onsite staff assistance in preparation of your return, but the person you hire needs to be the person who reviews your return and signs off on it.
5. Investigate your preparer’s record: Check with the Better Business Bureau, the state’s board of accountancy for CPAs, the state’s bar association for attorneys or the IRS Office of Professional Responsibility (OPR) for enrolled agents.
6. Check your preparer’s credentials: Find out if the preparer is affiliated with a professional organization that provides or requires its members to pursue continuing education and holds them accountable to a code of ethics.
7. Stay aware of tax scams: Newspaper business sections and news programs focus on abusive tax shelters and scams. So does www.IRS.gov. If you have a preparer encouraging you to get involved in tax avoidance strategies that are overly complex, check them out before you agree to jump in.

March 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

Stepping In Financially For An Older Relative at a Time of Need - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

March, 2010

Stepping In Financially For An Older Relative at a Time of Need

No one wants to give up control of their lives. That’s true for someone who’s 20 or 80. But if you sense an older relative is slowing down, or if a serious illness is threatening the finances of any loved one, it’s time to fashion a battle plan.

A good first stop is a financial planner – a financial expert with the experience to step into a tense situation and help you create a system for locating key information so you can make the necessary critical decisions. Of course, the best way to set up a system is to work with the relative before there’s a problem or in the early stages of illness. Some suggestions:

Understand their condition and strike a cooperative balance: The first step in helping someone in a crisis is not to talk about the money but to understand the crisis. Before talking about money issues, do everything possible to understand how they’re feeling and most important, how they want to handle family, work and money issues at each stage of their illness. It’s not unreasonable for someone to want to keep control until the point when they really have to give up the reins. Get them to talk about what they believe will be triggers for them to give up control, and then find out how they would like to proceed and formulate a transition plan.

Talk about legal documents: Does this parent, relative or friend have a will and necessary health directives in place? Health directives name a single individual to manage all key health decisions if a patient cannot make them; a will depending on their assets and lifestyle situation – if they have kids to raise or a business to run, for example – check to see what detailed legal instructions they have in place to manage their finances or run their business if they are incapacitated. And if those plans have not been made, they need to be made immediately with the help of a CFP® professional and necessary tax and legal experts. An individual who is ill needs to designate people whom they trust to handle health and personal finance decisions. But if they have not planned for the future of their business, that is a third and very detailed step that needs to be addressed in collaboration with other family members as well as key co-workers or executives.

Talk about long-term care provisions: According to the American Association of Retired Persons, the average nursing home stay is 2.5 years. Whether an individual chooses long-term care in the home or in a facility, it’s important to understand that while some direct medical expenses will be covered by private insurance, Medicare or Medicaid, most of the cost including daily living expenses, will not.

Get a handle on bills and other key financial events: It’s not the most pleasant dinner table conversation, but if more people planned their affairs with the assumption that they could die or become permanently incapacitated tomorrow, survivors would have a much easier time running or settling matters in their absence. Such planning goes beyond having simple wills and powers of attorney in an easy-to-find location. It makes good sense to establish the following:
• Electronic transactions: Older relatives tend to trust traditional means of paying bills, but automatic bill pay is an extraordinary benefit for caregivers or relatives charged with managing someone else’s finances. By gathering all bills that need to be paid and programming in their payment dates, there’s little or no risk that any regular bills will be paid late. Automatic bill payment should be one of the first decisions made if an elderly relative establishes a joint checking account with a caregiver or whoever holds their financial power of attorney. Also, if a relative wants to continue a regular savings or investment plan while they are incapacitated, those payments can be made as well. Most important – once those automatic transactions are set up, all the security codes and passwords must be kept in a safe place for both to access.
• Set up a home maintenance schedule: If the relative is hoping to return to the home or if it must be sold at a later date to pay bills or to settle the estate, it must be maintained to assure its value at the time it needs to be reoccupied or sold.
• Set up a correspondence system: In addition to the stress of helping someone who’s ill or incapacitated, the sheer amount of paperwork associated with a serious illness can shake the most unflappable person. Again, a CFP® professional with special skills working with elderly clients can help you set up a system for collecting and sorting that information as well as non-medical financial correspondence. If the house is unoccupied, it’s also important that there is a way to keep mail secure to avoid identity theft – buy a shredder for all mailed materials that don’t need to be filed.
• Pull credit reports: Get permission from your relative to pull the three annual credit reports they are entitled to during the year so you can confirm all accounts are current and that identity thieves haven’t targeted their accounts.

Ways to Afford Your Retirement Account Catch-Up Contributions - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

March, 2010

Ways to Afford Your Retirement Account Catch-Up Contributions

Turning 50 might not be everyone’s idea of excitement, but when it comes to saving for retirement, 50 is when things start getting a lot more interesting.

That’s because people age 50 and over can make what are known as “catch-up” contributions to IRAs and most workplace-based retirement plans. These special contributions are in addition to regular contribution limits and allow individuals to maximize the amount of tax-advantaged retirement savings they can stash away.

The catch-up phenomenon has never been more important as American workers attempt to rebuild retirement savings devastated by recent market losses. Taxpayers 50 or older are permitted to make additional contributions beyond standard limits. For calendar year 2010, here are the standard contribution limits with their catch-up amount:

1. Traditional and Roth IRAs have a standard contribution limit of $5,000 with an over-50 catch-up contribution of $1,000 for a total contribution limit of $6,000.
2. SIMPLE IRAs have a standard contribution limit of $11,500 with an over-50 catch-up contribution of $2,500 for a total contribution limit of $14,000.
3. 401(k), 403(b), 457(b), Roth 401(k) and Roth 403(b) plans have a standard contribution limit of $16,500 with a catch-up contribution of $5,500 for a total contribution limit of $22,000.

So, where to find the money? Here are some suggestions to make it happen:

Earn more: Yes, a tall order in a tough economy. But if you can take on extra freelance work or a part-time job that you enjoy, you can work to extinguish debt and maximize your savings.

Cut out the extras: Either on paper or on the computer, write down every dollar you spend in the average week (and cut off credit card use during that week). At the end of that week, start marking out non-essential items just to see how much you could live without. Start with gourmet coffee and restaurant or carryout meals and work backward from there. And don’t forget those regular monthly expenditures that can really add up. Do you really need premium cable? Can you surrender your landline in favor of a cell phone that’s matched to the exact number of minutes you’ll need? Can you afford a higher deductible on your health, home or auto insurance to save on premiums?

Set 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. Going forward, keep a running total of your spending 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.

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. Previous generations made do-it-yourself a necessity. 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.

Turn down the thermostat and park the car: Don’t underestimate the value of energy savings in your budget. Keep the temperature down at home and opt for public transit, biking and walking where you need to go. For a look at how much public transit can save you, go to the American Public Transit Association’s gas savings calculator . And if you’re going to walk or bike, that’s not only going to save your money, it’ll do wonders for your health.

Buy used for yourself: 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 at shops or on the Internet. Plenty of people have unloaded items in relatively good shape to bring in cash during the recent downturn. Get in the habit of saving money on everything.

New Careers After Age 50 – Where The Jobs Are, How to Spruce Up Your Skills and Ready Your Fin - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

March, 2010

New Careers After Age 50 – Where The Jobs Are, How to Spruce Up Your Skills and Ready Your Fin

During the recent recession, many have found themselves back in the job market after age 50 due to layoffs or changing demands at their employers. Yet as life expectancies lengthen, a late career change isn’t always a negative. It may be a welcome chance to renew, re-educate and restart a full life.

It’s possible that in the future, an over-50 career change might become a common event, maybe even a desired event in our society – which means it’s definitely worth planning for.

A visit to a financial planner might be a good first step in planning a move to a second career or dealing with a sudden change in your career prospects. You need to plan for any possible change in income up or down in any opportunity you entertain. You’ll also need to plan how you’ll afford any training you’ll need – college or otherwise – in making that successful transition. To make an over-50 career transition successful, it’s all about preparation. So here are some ideas:

Start with research: One of the best-detailed, up-to-the-minute career resources for the types of jobs that exist in this country and their salary and hiring forecasts is the U.S. Bureau of Labor Statistics’ Occupational Outlook Handbook. This extensive online resource not only lists major career groups, but the leading occupations in it. If you haven’t been in the job market for awhile, this kind of research is a good way to reset your knowledge of your industry and whether its hiring prospects are bright. This database also lays out the need for the necessary training required to reach certain salary and career levels.

Check industries that are friendly to older workers: Healthcare and education are just two industries that are more welcoming to older workers. U.S. News & World Report has come up with its own list of popular over-50 occupations, and it’s a good starting point for people looking for flexible scheduling and other workers their age in the field.

Network: Face-to-face contact with people in your target fields is important. If you can, check out events at professional organizations in that field or attend casual networking functions to learn more. Being someone over 50, you can get an idea of whether there’s true age diversity in a field and how all those groups work together – or if you’re simply the oldest person in the room. Obviously if you feel welcome, networking will give you a better idea of which companies with someone with your maturity and experience might fit in.

Emphasize your up-to-date experience and training, not your birthday: Career experts suggest that older workers should lead with work experience and skills and leave off all but the most essential timeframe information. You’re not there to lie about your work experience, but the reason young workers are so valuable is that they’ve gotten the most recent training and they are generally less costly to employ. That’s why older workers should lead with every strength that makes them attractive to employers and should de-emphasize descriptors that broadcast age.

Make your perspective an asset: If you are already familiar with the industry you’re targeting, you can use your extensive work experience to position yourself as a problem solver. If you know what a company really needs in your chosen job, say so in the cover letter and be clear in stating why you’d be a great solution.

Consider timing issues at your current employer: If you are up for a salary review soon, it might make sense to have a better idea of what you’re worth in the marketplace. Also, as the end of the year is coming, you might want to use up any money in your flexible benefits accounts for medical appointments, glasses or dental work before you leave.

Don’t be shy about approaching managers who aren’t hiring – publicly: The best jobs aren’t always advertised. Instead of limiting your options to companies with posted openings, send letters of introduction to managers at firms where you’d really like to work. And again, make your perspective an asset – if you can see what a great role for you would be in their organization, tell them about it. The worst thing they could do is not respond. The best might be an interview that puts you on their radar screen.

Get in shape: It’s not just a matter of looks. Healthy employees cost less. It makes sense to lose weight if you need to and upgrade hair and wardrobe not to look like a twenty-something, but to fit in comfortably at the organization where you want to work.

Decide what you’ll be doing with your 401(k) and other retirement funds: You may not want to make any moves for awhile, but it’s good to talk with a CFP® professional about whether you’ll be moving that money to private accounts. Also, make sure you know when you can enroll in the company 401(k) and other retirement offerings at your new employer.

Secure your health insurance: You might wait a few months to a year for new health coverage to kick in at a new job. You might need to buy private insurance until then or go onto a spouse’s health plan in the meantime.

Helping Older Relatives Articulate Their Long-Term Care Wishes - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

February, 2010

Helping Older Relatives Articulate Their Long-Term Care Wishes

In the best of all situations, helping an older relative or a parent plan for long-term care and other end-of-life issues happens when they’re healthy and various options can be considered with adequate time to do so. Unfortunately, events can sometimes intervene and make an elder’s need for assistance an emergency.

This is why it’s so important for adult children and younger relatives to gather up the courage and preparation to begin a series of important conversations when elders are healthy. 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.

These talks actually should go far beyond money. There should be discussions about independence and basic preferences for the way individuals want to live or die. Demographers believe that with the rising number of single Americans – those divorced or never married – these conversations will become increasingly complicated as they fall to nieces and nephews, younger friends or designated representatives.

Want to avoid a worst-case scenario? Start the conversation now. Here are some ideas:

Start with the most important priorities: Maybe this first conversation isn’t just about where the will or health care power of attorney is, though you’ll eventually have to get to that. Maybe this conversation is about you noticing that a parent or loved one is moving slower, is more forgetful, is clearly looking like their health has taken a turn for the worse – and maybe that’s why you want to know where the will is. Jumping into money issues first is usually a mistake. Deal with immediate health and lifestyle issues first.

Prepare your questions in advance: When a parent or relative is unconscious or unresponsive, the younger relative is immediately in the drivers’ seat. That’s why it’s critical to make a list of questions for the elderly relative to answer in detail while they have the capacity to address them. The basics: Where important papers are, how household expenses are paid, who doctors and specialists are, what medicines are being taken and whether there’s a will, an advanced directive and a funeral plan (and money or insurance proceeds to pay for it). There may be dozens more questions beyond these based on your family’s personal circumstances. But in creating this list, ask yourself: “What do I need to know if my family member suddenly becomes sick or dies?”

Turn the conversation to affording long-term care: One of the greatest continuing fallacies about long-term care is that Medicare pays for it – it pays for a significant amount of medical care associated with it, but not for the actual cost of home-based or nursing home-based care. In 2009, private room nursing home care averaged more than $60,000 a year. Long-term care insurance is something that should be purchased in one’s 50s for the best chance at affordability, but the conversation needs to be a mixture of preferences and finances. If an elder cannot afford top-quality care, families need to plan alternatives, especially if it means pitching in.

Be patient: In some families, having a successful financial discussion means several attempts and some frustration. Don’t become angry or frustrated if this happens. Just keep starting the conversation until it catches on. It might make sense to say something like, “You’ve always been so independent, Mom. I just want you to give us the right instructions so we do exactly what you want.”

Offer to get some qualified advice: If you don’t fully understand your relative’s financial affairs, it might make sense for you both to talk to an attorney or a tax or financial advisor, including a CERTIFIED FINANCIAL PLANNER™ professional. A qualified advisor can help you straighten out whatever confusion exists and can help you put specific legal documents in place and set up ways to pay medical and household bills if they’re unable to do so. If you can, involve your elder in that conversation – an impartial third party can sometimes move things along. Above all, an elder should have a current will and health power of attorney documents in place – either making or reviewing those documents can be a good starting point for making sure other necessary plans are in place.

Plan a care-giving strategy together: You should discuss the relative’s preferences and trigger points for various stages of health care. An individual always wants to stay in his or her home, but you should have an honest discussion about how much you can do at home as a caregiver and whether various services (home health aide, geriatric care manager, assisted living) should be introduced at various stages. Talking through what a parent will be able to live with at various health stages, and putting that information in writing, will save plenty of doubt and bitterness later.

Discuss what should happen with the home: If an elderly relative becomes sick and irreversibly incapacitated, the equity in his or her 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 the elderly relative wants done with his property and under what conditions.

Make sure everyone knows the plan: Once you settle on a strategy, make sure all family and friends understand the plan and their assignments.

February 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

Downsizing Isn’t All About Stuff: It Can Be a Smart Financial Move, Too - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

February, 2010

Downsizing Isn’t All About Stuff: It Can Be a Smart Financial Move, Too

As people move into their 50s and 60s, priorities change. The hours spent on home improvements and the sheer time necessary to maintain a full-sized home seem to be a little more of a burden. As kids move on, there’s all that unneeded space.

Men and women tend to turn on the gas in the last 15-20 years of their working lives to make sure their retirement savings will be adequate to their needs. That’s why the idea of downsizing is a good one to start early. It’s also a good time for a financial check-up as well.

A CERTIFIED FINANCIAL PLANNER™ professional may not be able to help you sort out what dishes and furniture to sell or give away, but he or she would make a good first stop in developing a complete downsizing strategy involving assets, investments, career and overall financial lifestyle planning. With life expectancies lengthening, many people 50-55 years of age could conceivably be at only the midpoint of their lives.

What is the chief advantage to downsizing? Handled correctly, it can save a lot of money. Selling a larger home – possibly one that still has a mortgage – in favor of a smaller house or condo that’s completely paid off can save potentially tens of thousands of dollars in interest payments over time while still building equity. The earlier the process starts, the better.

Here’s a checklist of considerations in downsizing your life:

Get advice first: As mentioned, downsizing should be a holistic process, a chance for a check-up of your overall finances while identifying things, expenses and habits in your life that you can jettison. A CFP® professional can give you a push by asking important questions that will get you to a better place financially. It’s helpful to set up a plan to extinguish debt in all of its forms and move on to a check-up of savings, investments and estate matters.

Downsize potential health issues: No matter what the final effect of health reform on pocketbook issues, your out-of-pocket and premium-based health costs over time will be cheaper if you take steps to better maintain your health. Make weight and other personal health maintenance issues a new priority as you move into your pre-retirement years.

Plan for a retire-career: You might be working for a company or organization that has a mandatory retirement age or you have a year in mind when it might finally be time to pack up and go. And there’s nothing wrong with a retirement devoted to travel and leisure activities. But if you think you won’t be able to afford to quit working completely or if doing nothing will eventually drive you nuts, consider getting some career counseling, personality testing and do some research now that will help you train for a new full- or part-time career for after you retire from your present job.

Start thinking about real estate and new places to live: Today’s retirees don’t necessarily have to move to predictable retirement destinations. Telecommuting allows many people to continue working lives and education from anywhere. For many people, the magic combination might involve cheaper real estate, desired weather and activities, travel options and access to good doctors and quality health care facilities. Decide what kind of home you could see yourself living comfortably in at age 70 or 80. This combination of factors might happen in a surprisingly large number of places based on individual preference. To get you thinking and hone your expectations, start with resources like U.S. News & World Report’s online “Best Places to Retire” selection tools.

Talk to your family: It’s really important to discuss not only your expectations for later in life with your family members, but it’s important to get their feedback on what they consider good ideas for you. There may come a day when you need to rely on others for help, and it would be a good idea to identify how realistic that is. Also, if you’re talking about downsizing certain assets or property that might have been in your family a long time, it’s important to discuss that with others who might be affected by that decision.

Start weeding: Physical downsizing isn’t something that’s done in a month. Give yourself a year to go through each room in your home and prioritize what you’re really going to need if you move to a smaller place. Make a list of what you hope to give to friends and family members and what you’ll donate or trash. Time will give you more opportunities to put good, usable items in the hands of people who could really use them. Develop a recordkeeping system that fits you so you won’t forget any decisions you’ve made along the way. Also, you might want to set up a separate area for family photos and other keepsakes that have high emotional value and set up a hopefully egalitarian system for who will get what either when you move or when you die.

Don’t start upsizing later: When you do move, chances are you will need to invest in some new household items or possibly furniture to match new surroundings. Try to avoid going overboard with this – that’s why thoughtful downsizing should prevent a lot of spending for stuff you’ve already chucked. Oh, and make a permanent life decision if possible not to start re-using credit cards or mortgage debt if you can possibly avoid it in your later years.

10 Ways to Help Your Kid Build a Lifetime Emergency Fund - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

January, 2010

10 Ways to Help Your Kid Build a Lifetime Emergency Fund

One of the most effective financial tools you can give a child is an appreciation for an emergency fund and the advice on how to build it themselves.

An emergency fund should contain 3-6 months worth of money to cover living expenses – its main focus should cover all loss of income, not just a car payment or a refrigerator repair. With parents losing jobs and college expenses continuing to grow, the younger you can get a person started, the better. Some advice:

1. Start by encouraging them to save something, no matter how small the amount: Even if it’s a few cents out of an allowance, a teenager should be encouraged to set up a separate savings or checking account – someplace not easy to access – where they can house the money. Interest-bearing accounts are better. For young children, this is why piggy banks work so well. It’s about setting goals and knowing where the money is.

2. Help them develop a balance between treats and sacrifices: Financial independence requires a balance of risk and reward. Life can’t be all about building reserves, so tell the teen when they hit a certain level for the fund – maybe a midpoint toward the three-month mark – they can treat themselves to clothes or an electronic device. After the purchase, they go right back to saving.

3. Encourage them to direct all change into the emergency fund: No matter how old or young the child, it’s a good idea to take non-essential funds and direct them toward the emergency fund. Change is a great way to get started.

4. Set an example: Can your child see you saving? Do you physically set aside money and talk about goals for that money? Your child hears all of this. While parents can’t be perfect, think about the money behaviors you’re demonstrating in front of the kids, and try to make them positive.

5. Keep them away from credit as long as possible: 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; this will be a strong incentive for the student to keep his credit rating clean for the next four years.

6. Set up money meetings: Whether the child is living at home or off at school, it makes sense for the parent and child to have a few meetings during the year to talk about the range of money issues the child is facing, and during that time, the emergency fund can be up for inspection and discussion.

7. Make them set up a real budget: Budgeting comes with saving. Young kids can do their first budget on paper – they can track what they spend and save over a month or two and then establish what comfortable amounts for both will be. Teenagers and prospective college students might find it useful to have personal finance software to track their everyday expenses, though they should make sure both the computer and the passwords necessary to access their program are secure. Again, review these details during your money meetings.

8. Get them interested in better-paying, safe savings vehicles: At some point, the piggy bank’s got to go. An emergency fund can eventually gravitate to other interest-bearing accounts that might pay more, but only as long as the money stays liquid. If the emergency fund is healthy, it’s also wise for parents to talk to their children about setting up their first IRAs to get a jump on retirement planning and considerable tax savings.

9. Remind them that today’s emergency fund may not fit next year’s needs: An emergency fund will almost always need to expand in size as the person ages. More years, more expenses, more emergencies – make time to convince your child that emergency funds should change with life circumstances.

10. Train them to start saving tax refunds: If Uncle Sam kicks back a few bucks, then by all means, put it in the emergency fund or other savings vehicles.

January 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

10 Money Steps to Take When a Family Member is Facing a Serious Health Crisis - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

January, 2010

10 Money Steps to Take When a Family Member is Facing a Serious Health Crisis

A June 2009 article in the American Journal of Medicine reported that medical bills are behind more than 60 percent of U.S. personal bankruptcies, adding that more than 75 percent of these bankrupt families had health insurance but still were overwhelmed by their medical debts.

The article, based on research from Harvard Law School, Harvard Medical School and Ohio University, underscores how a single health crisis can financially destroy both individuals and families. It is information that underscores the need for adequate planning ahead of any health crisis, particularly when known risk factors exist in a family. A financial expert such as a CERTIFIED FINANCIAL PLANNER™ professional can help individuals determine if their insurance and savings options are adequate to handle the possibility of any future health crisis.

If you have time to prepare, most financial planners will advise:

• Creation of an adequate emergency fund to cover several months (usually a minimum of three months and, even better, up to a year) of family expenses if a patient can’t work during their treatment;
• Purchase of separate disability insurance to pay everyday expenses since company-bought disability coverage will likely be limited - the benefits on any individual policy need to be coordinated with the group policy;
• Creation of health care advance directives, health care powers of attorney and financial powers of attorney, health care proxies (each state has a “preferred” document that is accepted; clients need to execute the form for their state of residence) and DNR forms among the examples.
• Building lists of critical phone numbers, major assets and where information on each can be found on investment accounts and other key information in case the person is incapacitated;
• Communicate funeral plans to family members in writing so that wishes can be implemented in the event of death. Even better, complete a personal death awareness document that covers both the practical aspects of death and the interior emotional aspects of death.

But if you’re suddenly faced with a frightening, expensive and potentially life-threatening diagnosis without such preparation, here are some basic steps to take:

Start by realizing it’s not all about the money: If you or someone you love is sick, obtain the best care possible, not what your bank account and health insurance can buy. A CFP® professional with experience in dealing with healthcare issues can help you assess your financial situation against various goals for retirement, your expenses, your children’s education and other matters.

Grill the patient’s insurance agent or HR person: If you or family members have bought health insurance through an agent or your employer, insist that they explain exactly what the plan covers and where your deductibles do and don’t apply. Generally, a serious illness will quickly use up the deductible (this is where your emergency fund is important). Pay attention to how much the insurance will pay and how much you’ll pay out of pocket once the deductible is exhausted.

Check on experimental treatment and see how it will affect coverage: If the diagnosis is cancer or some other potentially life-threatening illness, in addition to tried and true treatments, research medical centers offering clinical trials. And, keep in mind that some insurance plans might look askance at certain treatments that could potentially lead to other health issues. Err toward caution in these matters, but if the insurer approves, see if such experimental treatment can get you a break on costs.

Get those directives in order: A health care advance directive is a formal, preferably notarized instruction sheet for doctors to follow in case you or family members are incapacitated. The most commonly known health care directive is a do-not-resuscitate (DNR) order. A health care power of attorney designates a particular individual — a spouse, a friend, an adult child — to carry out your medical wishes if you are incapacitated. Meanwhile, financial powers of attorney designate an individual to handle financial affairs if the sick or deceased are single or did not designate joint tenants for certain assets. Again, each state follows a particular set of documents.

If there isn’t a will or a complete estate plan, make one: A will doesn’t have to be enormously detailed to relieve problems for survivors, but it can create enormous problems if it doesn’t exist. If there is no executed will, the estate is intestate, which means that property is distributed by state laws. Yet it makes even more sense to review all of a patient’s assets to determine if more detailed directives are necessary and most important, to make sure beneficiaries on insurance, retirement accounts and other investments are up to date.

Consider whether you can make monetary support a gift: It’s good to get tax and financial advice on making a one-time gift to support the patient. Would the potential loss of money injure you, and worse, will it injure the relationship? If you don’t think you will be repaid would you be willing to consider it a gift?

Ask for generics and samples: Many physicians are willing to recommend a generic substitute or at least supply you with a few samples of the drug they’re already prescribing. While doctors can’t get away with passing sample drugs to all their patients, always ask. As long as they are prescribing the medication, samples with the proper dosage can provide cost savings to patients.

Begin negotiations before there’s a financial problem: The best time to speak with hospital bean counters isn’t when you’re behind on your payments. Once a diagnosis is made, either you or someone you designate as your agent needs to contact the hospital business office to check on payment schedules and possible discount plans if you are uninsured or fear your insurance may not cover a significant portion of costs. Any creditor appreciates a customer who’s willing to come to the table first.

How to Get 2010 Off to a Great Financial Start - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

January, 2010

How to Get 2010 Off to a Great Financial Start

Plenty of people make resolutions to lose weight, get a new job or make other things happen in their personal lives, but relatively few make solid resolutions about money. Make 2010 the year you’ll live a better life financially. Here are a few resolutions to think about:

Write down the things you really want in life: 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.

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 recent recession and market turbulence, many individuals would benefit from an analysis of how much risk they want (or need) to take based on what they want to achieve with their money.

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 whether you do it on paper or on your computer. Mint.com or QuickenOnline.com are free online programs that help you do this.

Get tax and planning advice toward retirement, other goals: 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 CERTIFIED FINANCIAL PLANNER™ professional to discuss your whole financial picture.

Cut your 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 if you can pay extra toward mortgage, auto, student or other borrowings, do so.

Start saving—or save more: 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 amount in your retirement plans and savings.

Invest in yourself: If going back to college or taking specific coursework will help you advance in your career, plan to do it. If investing in a health club membership that you actually use makes sense for your health as well as your insurance costs, do it. Keep in mind that bettering yourself is always a good investment.

Redefine the way you shop: If you’re an impulse shopper, break the habit in 2010. 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.

Change the way you commute: If driving is the single best option to getting to work or other destinations, it’s tough to make that switch. But if you have the option to leave the car in the garage at least one day a week and walk, bike, carpool or take public transportation instead, try it. You’ll save money on gas, maintenance, insurance and parking costs, you’ll benefit the environment and in the case of walking or biking, the exercise may do you good.

Cut unnecessary expenses: 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.

Too Rich for a Roth? In 2010, That’s Going to Change - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

November, 2009

Too Rich for a Roth? In 2010, That’s Going to Change

Next year, individuals with a modified adjusted gross income of more than $100,000 will be eligible to convert a traditional IRA to a Roth IRA. The IRS is offering taxpayers a three-year window in 2010 to pay taxes due on a conversion as part of removing the income limits.

Traditional IRAs allow investors to save money tax-deferred with deductible contributions (within certain income limits if either spouse is eligible for a qualified plan at work) 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 you leave your savings in the Roth for at least five years and wait until you’re 59 ½ to take withdrawals, you’ll never pay taxes on the gains. You can convert a traditional IRA to a Roth, but you must pay taxes on any pre-tax contributions, plus any gains.

Keep in mind that conversion might be a good idea for people in lower income tax brackets. Talk to your tax professional about doing a full or partial Roth conversion.

Remember that when you do a conversion, you must pay income tax on the amount you are converting. Since you received a tax deduction on your initial contributions to most traditional IRAs, you must pay the taxes due on those initial contributions and any growth in your IRA. But, subject to certain restrictions, you won’t pay tax when you finally need to withdraw your money. That’s where the silver lining comes in for you, or for your heirs if you pass that money on to them.

The conversion issue is a potentially attractive retirement and estate planning idea for all Americans who want to make sure they maximize the assets they have for themselves and for their heirs on a tax-free basis. And the conversion option isn’t available just for traditional IRAs – it can be used for retirement assets held at other employers and 401(k) holdings. But anyone considering such a move – regardless of his or her income status – should first review their current retirement asset strategy with a tax or financial advisor such as a CERTIFIED FINANCIAL PLANNER™ professional.

Things to consider:

How close is retirement?
If you have more than five years until you plan to withdraw your retirement funds, conversion of traditional IRA assets to a Roth IRA might make sense. The longer the time span where earnings can grow tax deferred, the greater the benefit of being able to withdraw those earnings without paying tax on them.

What will your tax rate at retirement be?
Many people, such as business owners, may be paying taxes now at a fairly low rate. So they might pay higher taxes at retirement. If that’s the case, converting to a Roth might make a lot of sense. Additionally, with Social Security benefits being taxable at certain income levels, Roth IRAs can allow you to limit or eliminate such taxes.

A Roth conversion can be expensive:
You’ll have to pay taxes on contributions that you previously deducted, as well as taxes on the accumulated earnings. Also, you need to be aware that conversion could push you into a higher tax bracket, especially if you’ve accumulated sizeable earnings over the years. This is why a conversion needs to be planned with a tax expert. Why? It may trigger the Alternative Minimum Tax (AMT) due to those high earnings.

Know how the conversion window will work:
Keep in mind that 2010 is the actual year you will be able to convert your retirement assets to a Roth, but you’ll be able to spread out the tax hit. The Internal Revenue Service has granted taxpayers the option to claim 50 percent of conversion amount as income in 2011 and the remaining 50 percent in 2012. Also, you have to understand that if you choose the conversion period, your tax will be based on the bracket you fit that year. That means swings in income will affect what you pay.

November 2009 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

How Late-Life Marriages and Remarriages Require Unique Financial Planning - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

November, 2009

How Late-Life Marriages and Remarriages Require Unique Financial Planning

As the holidays approach, plenty of couples think about marriage. That includes older couples with kids, accumulated assets and debts and previous marriages behind them.

That’s why marriages for older individuals require a specific sort of planning. For couples making another effort at marriage, a prenuptial agreement can either set the groundwork for a new and trusting relationship or reveal that money issues may prevent the marriage from working well.

It’s actually not the agreement by itself that makes the difference – it’s the way the couple gets the agreement down on paper. When two parties sit down to formalize a prenuptial agreement with their respective mediators or attorneys, it requires both sides to make full disclosure of their current financial situation and long-term money goals.

Prenuptial agreements can be considerably more complex for couples making a repeat trip down the aisle. Money issues are not just a matter of full disclosure between two people – in remarriage, they can affect a much wider audience including aging parents, siblings and children and ex-spouses from previous marriages. In some cases, there are sizable business and personal assets gathered before the upcoming wedding day that must be protected.

It is always wise to consult a financial advisor such as a CERTIFIED FINANCIAL PLANNER ™ professional to set the ground rules for this process, though legal documents that hold up in court generally need review by respective family law and estate attorneys.

Here are the primary issues any remarrying couple should discuss ahead of a formal engagement:

Families first: Blended families bring their own financial complications. Indeed, if couples are bringing children from previous marriages into a blended family, it’s necessary to establish not only how they will be supported and educated, but also what percentage of the family assets they will be entitled to in case their biological parent dies. There may be alimony and other support arrangements already in place for ex-spouses and children from earlier marriages as well as elderly parents to support. All of these financial requirements need to be understood and spelled out beforehand.

Is there debt? And if so, how much?
The first money conversation should take place at a table with both sides showing their credit reports, savings, investments and debt figures – every dime. Both should start the process of talking about how that debt should be paid off – by the person who accrued it, or by both potential spouses. Couples also need to decide how they will handle debt going forward – jointly or separately.

What about investments?
If so, how will they be handled once the couple is married? Will these investments be held after the marriage is in joint tenancy? Are some of the investments promised to children, ex-spouses or other family members? From a tax or estate perspective, does it make sense to do anything specific with those assets before the wedding? And after the wedding – assuming debt is being dealt with – how will you maximize those investments?

What about company assets?
If one or both spouses run their own companies or partnerships, it’s a huge planning priority. That’s particularly true if other family members work for their respective companies. Depending on the size and complexity of the operation, some advisors might encourage couples to go through a formal valuation process of those assets to establish a base of wealth going into the marriage. A prenup could spell out who will get future percentages of those assets if the couple splits – this is particularly necessary if the goal is to keep the company in the hands of the founding family.

Handling daily expenses:
This is a universal question in any marriage, the first or the sixth. Couples need to agree on how they’ll share accounts and pay bills. The most common option is to create one joint account. Others work with three accounts – one joint and then one for each individual.

What about insurance?
Life, health, home, and disability – all coverage that singles hold separately needs to be reviewed and consolidated to make sure the couples and their families have adequate coverage after the wedding.

What about our estates?
Blended families with means produce a surprisingly complex estate picture. Engaged couples need to begin addressing this need before the wedding. A qualified estate attorney who understands the variety of estate issues affecting the assets, business issues and philanthropic commitments of blended families is a particularly good investment and can work with financial planners, tax attorneys and accountants to create an estate plan for the couple that makes sense and minimizes conflict among heirs.

What about retirement?
Retirement discussions go beyond money. Couples should decide how they want to live in retirement, whether they’ll continue to work and what will happen if one or both get sick. This is a particularly important discussion if one spouse is significantly older than the other and may retire years ahead. There needs to be a close look at what retirement assets have been accumulated by both parties and how they’ll be shared during the marriage and after the death of one or both of the spouses.

What about our tax status?
It makes sense for couples to consider their tax status before they marry, particularly if there are sizable business or personal assets being brought into the marriage or past tax liabilities. In any event, remarrying couples should involve a tax expert in all pre-marital financial planning.

While Real Estate is Struggling, Now’s a Good Time to Consider That Kiddie Condo - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

November, 2009

While Real Estate is Struggling, Now’s a Good Time to Consider That Kiddie Condo

For parents with investment dollars to spare in deflated college-area real estate markets, there’s never been a better time to invest in condos or single-family homes to house a student during their undergraduate or graduate years while providing tax breaks and potential investment appreciation for the folks.

But, it’s very important to consider pros and cons because the potential rewards of buying housing for a student carries many risks. Over the past decade, the once-galloping real estate market made condo and home purchases in college areas attractive to parents looking for an actual return on the room and board expenses they would otherwise throw away to their kids’ schools. With the double-digit home appreciation of the 1990s, parents looked at buying property as a way to essentially house their kids for free.

Today, in most markets, home values have fallen, which makes for a better investment proposition. But it’s critical to talk to tax and financial experts such as a CERTIFIED FINANCIAL PLANNER™ professional. As a starting point, parents need to consider the following:

How responsible is your kid?
If your kid thinks you’re buying them a crash pad or party palace, you’re already in trouble. He or she will have to be responsible enough to act as an onsite landlord making sure the interior and exterior of the property stay in livable and salable condition. That’s not a job that every child can handle, so unless you can afford housekeeping and maintenance help, any doubts on your part should dissuade you from such a purchase. Also, if you have ANY suspicions that your child might drop out, take a break or transfer from her chosen school, do you want to risk becoming a landlord yourself or paying for an empty property?

How’s your cash flow?
If you are already a homeowner, you know what owning a home costs – mortgage payments, property taxes, insurance, homeowners or condo association dues, maintenance costs – can you cover these things in a remote residence (including emergencies) without batting an eye? And keep in mind those costs are going to be considerably higher for your kid’s property in downtown Chicago than they would be in Omaha. Also, keep in mind that it will cost considerably more to insure this property because even though it’s your kid, you’ll essentially need to be insured as a landlord based on the damage that can occur in rental properties.

When would you have to sell?
Most people think in terms of owning a kiddie condo for four years – the term of a standard degree. A decade ago, that was a relatively easy commitment to make as housing prices were skyrocketing and buyers always seemed to be circling. Today, however, owners have to consider that it may take them considerably longer to sell the property at a profit with necessary investments in maintenance along the way, and a big 5 to 6 percent slice off the top to pay a selling broker.

Location, location, location:
Buying a property in the immediate vicinity of campus might be great for your kid who rolls out of bed late for class, but bad for you if you’re expecting your property to appreciate. In most markets, on-campus real estate is notoriously low on appreciation (think how you’d feel buying next door to Animal House). This is why investors do better buying in established, off-campus residential areas or developments that are near but not on campus. Your child will have to miss the experience of living with their peers, though, and that’s a big consideration.

Can the property do double duty?
Students are pretty possessive about their space and privacy in college, which is why you don’t see many parents crashing in their kids’ dorm rooms for the weekend. But if you have regular business or vacation plans in the city where your kid goes to school, see if that might be one more incentive to invest as long as it doesn’t cramp your style or your kid’s.

Might your investment become your kid’s investment?
Again, this requires sensible planning and the full cooperation of a responsible child, but if your child is planning to stay in the city where they’ve graduated, parents might consider a plan to sell the property to their kids at graduation. This could give the grad a great start on their finances during their first earning years.

Prepare Now for Moves on the Estate Tax - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

November, 2009

Prepare Now for Moves on the Estate Tax

The nonstop discussion this year of health care reform and the economy crowded out discussion on the estate tax, which was scheduled to expire December 31. But as of this writing it appears that the estate tax will be continued at 2009 levels through 2010, which means that the 2010 top rate will likely be 45 percent and the exemption will be $3.5 million per person.

For now, the Republican dream of killing the estate tax seems to be dead, at least through 2012 as federal spending continues to expand. That means it’s a good time to talk to tax and financial experts about the best ways to pass your holdings to the next generation no matter what happens with the future of the “death tax.”

If you suspect your estate or the estate of relatives you might inherit from may fall prey to the estate tax, it makes sense right now to enlist the help of experts. Assets may be expected to grow over time, and your estate may turn out to be larger than you may think. You should be talking to estate and tax specialists as well as financial advisors such as CERTIFIED FINANCIAL PLANNER™ professionals.

Here are some things to keep in mind as you prepare for those conversations:

Give during your lifetime: You can now give $13,000 per calendar year per recipient without paying gift tax or affecting your 1 million dollar lifetime exemption. You can also pay someone’s tuition or medical bills directly, or give to a charity, without paying gift tax on the amount, thereby reducing the size of your estate and your eventual estate tax bill after you die.

Check whether your state charges an estate tax: Roughly half of all states charge estate tax, and that’s a recent thing. States previously received a slice of the federal estate tax, which no longer happens, so it’s important to consider the state’s impact when making an estate plan.

Think about a life insurance trust: Whether you need it for estate liquidity or for other purposes, an irrevocable life insurance trust can be created to keep the proceeds of the insurance out of your taxable estate. An added benefit is that such trusts may permit spousal access to the cash value of the policy. Yet note the word “irrevocable” – it means a decision that cannot be changed.

Know if your assets are expected to increase: A grantor-retained annuity trust, or GRAT, is an irrevocable trust that is popular among families with assets that are expected to increase, because such appreciation can be passed on to heirs with minimal tax consequences.

10 Things You Can Do Immediately To Slash Debt And Spending - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

October, 2009

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 old ones.

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. A CERTIFIED FINANCIAL PLANNER™ professional 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, but start negotiating with your current lender first and see how well you do.

Track your spending for a week: Either on paper or on the computer, write down every dollar you spend in the average week (and cut off credit card use during that week). At the end of that week, start marking out non-essential items just to see how much you could live without. Start with coffee and restaurant or carryout meals and work backward from there.

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.

Set 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 gift drawing, 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. And use the overdraft protection to avoid fees.

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. You might do very well, and if anyone asks, don’t call it used; call it “vintage.”

October 2009 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

A Primer On Medicare And Medigap Coverage - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

October, 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.

A visit with a CERTIFIED FINANCIAL PLANNER™ professional can give a broader view of what the federal government will and won’t pay and how you should plan your coverage going forward.

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 Amyotrophic Lateral Sclerosis, also known as Lou Gehrig’s disease.

How does Medicare cover expenses? Medicare coverage is divided into three 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 all 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. By the way, you’ll sometimes hear people refer to Part A and Part B coverage as “Original Medicare.”

• 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 Original Medicare 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 Original Medicare and Medicare Advantage plans based on your anticipated health needs to make sure the coverage you buy covers what you really need.

What about Medigap? So-called “Medigap” coverage 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 Personal Plan Finder on the Medicare.gov website.

When do I enroll for Medicare? You have a six-month window to enroll for Medicare that starts three months before your 65th birthday and ends three months after. As mentioned above, 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.

By the way, 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, this won’t be part of the discussion.

If You’re Considering Entrepreneurship At Any Age, Business Planning Is A Necessity - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

October, 2009

If You’re Considering Entrepreneurship At Any Age, Business Planning Is A Necessity

The Ewing Marion Kauffman Foundation released a study in June entitled “The Coming Entrepreneurship Boom” that credits entrepreneurship as a major force that will bring the current troubled economy back to health. The twist, however, is that Baby Boomers – ranging in age from 45 to 63 – are expected to be in the vanguard of this movement.

It’s a particularly interesting group to be leading such a wave of startups, though not a complete surprise. After all, the oldest Boomers are on the cusp of retirement yet unable to retire due to shrunken portfolios. At the same time, they are not exactly the most attractive job candidates in the market due to age. So, many are exploring a third option – starting their own companies.

Before any firm decisions are made, however, individuals not only need to examine their personal and potential business finances but also the considerable lifestyle changes entrepreneurship can bring. One of the first stops on that learning curve should be to financial and tax experts—a CERTIFIED FINANCIAL PLANNER™ professional can give any individual an overview of their financial and personal capacity to make such a new enterprise work; and. work with tax, estate and investment experts to make sure a new business career is on a sound footing.

Here are some basic strategic and financial steps to follow in starting a business:

Start writing your business plan: There are some people who tell you that a business plan is necessary for a new company only if you want to borrow or seek investors for a startup. The truth is that sitting down and writing a formal business plan is an excellent way for anyone to examine the idea, structure and money sources for their business concept and most important, the potential of profit from the idea. One of the best places to get the basics of the business planning process is the U.S. Small Business Administration’s Small Business Planner website.

Branch out for specific advice: You need not one, but two sets of financial advice when starting a business. 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 a tax advisor as well as a CFP® at the outset.

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 continuing 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 3 to6 months of 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.

Plan your healthcare 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 department and 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 – depending on the business and the cost of those benefits, you might want to rethink your plans.

Price disability coverage now: You might have short-term disability coverage as part of your current employee benefits, but that will likely end once you quit your job. You should 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.

Even In Tough Times, Grandparents Can Still Help Their Grandkids Get A Good Financial Start - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

October, 2009

Even In Tough Times, Grandparents Can Still Help Their Grandkids Get A Good Financial Start

Though grandparents are among the millions who have taken a big hit to their portfolios in recent years, careful planning can ensure a healthy contribution to the education and financial future of their grandchildren.

The first step involves a talk between grandchildren and their adult children. According to 2008 research from The Hartford Financial Services Group, 65 percent of grandparents surveyed reported that they plan to contribute financially to their grandchildren’s college education, but that less than one third of all survey participants talked with their adult children about those plans.

Statistics show the amount of money that changes hands between grandparents and their grandchildren is substantial even before the kids head off to college. Hartford reports that more than 40 percent of grandparents spend more than $2,000 annually on their grandchildren before they reach 18 years old. And once it’s time for the kids to head off to school, over half of grandparents who plan to contribute will give more than $10,000, with a quarter of those planning to give more than $30,000.

A visit to a CERTIFIED FINANCIAL PLANNER™ professional can help grandparents and their adult children coordinate a gifting strategy that makes sense. In the meantime, there are several options to consider:

Talk: Adult children and their parents might find it difficult to talk about money issues in general, but discussing a positive goal like funding a child’s future can pave the way to make discussions later about the grandparents’ estate issues and end-of-life care a little easier to handle. But initially, these discussions will hopefully deliver a reality check. The Hartford survey points out that 60 percent of the grandparents surveyed believe that financial aid will be the most likely way their grandchildren will pay for college in an era where federal aid is declining and grants and scholarship cover only an estimated 15 percent of total college costs.

Start early: While many families don’t turn to relatives for help until there’s an immediate need, earlier planning almost always produces better results. Grandparents already know that saving for a child’s college education is easier if it starts at birth. The same is true for the next generation, so grandparents or adult children need to set a plan in place as early as possible for maximum benefit.

Coordinate college support with overall estate planning: Grandparents should look at their support for their adult children and grandchildren as an overall part of their estate strategy. A CFP® professional, in concert with estate and tax experts, can help grandparents and their adult children settle a series of estate issues at one time, saving time, money and worry later.

Consider the 529 plan option: A 529 college savings plan is an investment vehicle operated by a state or educational institution designed to help families set aside funds for future college costs. It is named after Section 529 of the Internal Revenue Service Code, which created these plans in 1996. If parents have set up a 529 plan for their child, grandparents can contribute to that plan or they can set up their own 529 plan account with their grandchild as the beneficiary.

Watch the fees: No matter what savings or investment options you choose, make sure you’re not overpaying fees. A stock mutual fund may charge in excess of 1 percent of assets; you can certainly find quality mutual funds that charge less. Two good resources: Morningstar.com can provide you a general review of most mutual funds you might be considering. The second is the Security and Exchange Commission’s online Mutual Fund Cost Calculator () which can help you determine how the fees and other costs associated with the fund will add up over time.

Offer some investing training wheels: Grandparents have a unique relationship with their grandchildren. They can teach without “lecturing” like their parents, and for that reason, they might consider setting up an investment account with a small balance that the kids can monitor and discuss under the supervision of the grandparent.

Make the grandkids beneficiaries: Naming your grandchild as the beneficiary of a retirement account or insurance policy can be a tax-smart way to provide financial support for college or possibly a first home.

Thinking Ahead About Inflation? Here Are A Few Ways To Protect Yourself - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

September, 2009

Thinking Ahead About Inflation? Here Are A Few Ways To Protect Yourself

While the struggling economy has put a vise on inflation, many experts don’t expect things to stay that way for much longer. Why? Many economic 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 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. If you need advice on whether refinancing is right for you, consider contacting a CERTIFIED FINANCIAL PLANNER™ professional who can examine your whole financial picture and determine whether the timing and terms of a refinancing make the most sense. A CFP® professional can look at your income, expenses, liabilities and other assets as well as whether your property is adequately insured as replacement costs increase with the rate of inflation.

Consider laddering 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 2009 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

Affording A Pet – Ways To Save And Plan - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

September, 2009

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 American Society for the Prevention of Cruelty to Animals® (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. And believe it or not, first-year cost for a rabbit is $1,055. 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? Wait – what do watery eyes have to do with affording Fido? Plenty. 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. Check to see if you or your kids might be allergic to your chosen animal before you bring him home – or at least check your healthcare policy for coverage for allergy shots or other medications that can help you co-exist.

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 between $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 confirm with your vet whether you’re giving your pet the right amount of food and at the right time.

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. In major metro areas, 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. It might make more sense to put aside money on a regular basis in an “emergency fund” for your pet as a way to subsidize care if necessary. The Humane Society of the United States offers other 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 Helping Pets Fund.

When looks are everything: There are some people who may wait weeks for a haircut but their dog always looks fabulous. Vanity is one thing, but 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 community and size of the pet, with per-visit rates ranging from $20 to $100.

Daycare, pet-sitting and lodging: Very few people can take time out of their workday to go home and walk and play with their pets. Likewise, many people fear taking pets on cross-country trips in cars and planes. That’s why daycare and lodging services are so popular, but not exactly cheap. Depending on the community, 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 from local veterinary clinics and fellow pet owners you trust. You can also check out the National Association of Professional Pet Sitters.

Taking A Fresh Look At Your 401(K) Allocations - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

September, 2009

Taking A Fresh Look At Your 401(K) Allocations

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 such as a CERTIFIED FINANCIAL PLANNER™ professional 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: This is not the easiest thing to do, but even if your company cuts back on matching, it’s important to try and put additional money into personal retirement investments outside of work. You will still realize the benefit of pre-tax contributions made to your traditional 401(k). And, 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.

Continue to save while you wait to join a plan: A significant number of companies don’t let you join the 401(k) until you’ve been working there a year. If that’s the case, get in the habit of putting money away for retirement anyway. Start an individual IRA with the funds you would put in the company plan, or set aside money in a savings account so you can supplement your cash flow and put the maximum amount into your 401(k) once you’re allowed to join.

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 will be $16,500, and those 50 and older can make an additional catch-up contribution of $5,500.

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 might make sense to bring an outside investment advisor such as a CFP® professional 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 rely on the 401(k) alone: Particularly if matching lags for awhile, 401(k) plans can’t be relied upon as a single source of retirement dollars. You must invest outside your company plans.

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): The Employee Benefit Research Institute® reports that employees contribute more to plans that let them borrow. Don’t be fooled. 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. Instead, build an outside emergency fund of three to six months of living expenses you can draw from.

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.

Reverse Mortgages – What Should You And Your Parents Know Before Applying? - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

August, 2009

Reverse Mortgages – What Should You And Your Parents Know Before Applying?

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.

If it’s right for them, it’s a worthwhile financial tool. If not, they could make some serious mistakes with their financial future.

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 monthly 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. Some use the proceeds to supplement monthly income, buy a car, fund travel and second homes and evaluate with the help of a financial adviser if reverse mortgage funds can be used to restructure estate taxes.

Elderly borrowers will have to consult with a financial advisor before they’re granted this loan – that’s one of the requirements. They should consider a Certified Financial Planner ™ professional to do this because reverse mortgages can be complex and risky. 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 cost is an appraisal fee ranging from $300- $500.

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 retirement 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.

August 2009 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

Getting Your Finances Ready For The Next Rainy Day – Or Decade - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

August, 2009

Getting Your Finances Ready For The Next Rainy Day – Or Decade

As the nation continues to 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 such as a Certified Financial Planner™ 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 with new credit card lending rules on the horizon, Americans’ 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: It’s true that many Americans will have to work longer than they planned to assure a healthy retirement given the events of the last decade. But you shouldn’t stop there in making that assessment. As the country comes 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 sign it as a personal contract with yourself. That agreement should state that you will 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 that are required to make the home livable or the car drivable.

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: It’s not the easiest thing in the world to do, but 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?

Understanding Actively Managed Exchange Traded Funds - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

August, 2009

Understanding Actively Managed Exchange Traded Funds

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. For advice on this new generation of securities, investors should speak with a qualified financial advisor such as a Certified Financial Planner™ professional.

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 require 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.

Re-setting the Business Exit Plan in a Tough Economy - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

July, 2009

Re-setting the Business Exit Plan in a Tough Economy

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 certainly set in motion a series of triggering events for the owner to get his or her money out of the business at retirement, but 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.

That said, an exit plan isn’t born in a day. In fact, many financial experts in investment, tax, valuation and estate planning disciplines think it’s wise for business owners to come up with the first broad strokes of an exit plan when they start a company if possible, and if not, within 3-5 years of the date they’d like to exit. A CERTIFIED FINANCIAL PLANNER™ professional with specific business expertise can be a helpful liaison that works with other key professionals to 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 – too many people think of a business as a job and a paycheck instead of a creator of wealth that can support one or more generations of a family. A paycheck supports short-term goals; 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 when I’m ready to go – 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. No one has to stay in the same industry – or company – for life, and with an exit plan, owners 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.

July 2009 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

What if Your Employer Doesn’t Want You to Retire? Planning for a Second Act - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

July, 2009

What if Your Employer Doesn’t Want You to Retire? Planning for a Second Act

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.

What kind of consideration process should you undertake if your employer offers this option? A good first step is to consult a CERTIFIED FINANCIAL PLANNER™ professional to talk through the possibilities.

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, and take a close look at educational benefits that may allow you to upgrade your skills for free. If your company will pay you to go to school and give you the time to actually work on a degree, that might be a very nice incentive indeed.

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.

Even When a Spouse Dies, Debt Lives On - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

July, 2009

Even When a Spouse Dies, Debt Lives On

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. And a financial advisor like a CERTIFIED FINANCIAL PLANNER™ can tie the necessary elements of estate, retirement and debt planning together because they absolutely need to be.

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. Most states have specific laws that 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. A planner or estate attorney can help you go over those requirements in your home state as you’re addressing your estate, retirement and debt issues.

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. So what’s the message here? Keep debt under control at all times.

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.

Dealing With Companywide Pay and Benefits Cuts - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

July, 2009

Dealing With Companywide Pay and Benefits Cuts

Even as the economy shows a few glimmers of improvement, most economists expect some continuation of job, pay and benefits cuts to continue throughout the year. 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, and families should harness it. 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 some advice: Don’t wait until a crisis descends to get some useful strategic advice. A Certified Financial Planner™ 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: Whether you build one in a family meeting or in front of a computer screen by yourself, it’s time to budget. 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 withholding changes: 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. One more thing to consider – do you absolutely need that extra car? Selling it and car pooling or shifting to public transportation can save you thousands a year.

Start haggling over bills and fees: Sick of that cable bill? Either cancel it or tell your provider you’re going with a competing satellite or phone-based TV 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, lock in a rate cut of a percentage point or more and lop at least $200 or more off your monthly payment. You might gain some tax advantages from that move as well as cover a good portion of your pay cut. And if you find your company will be cutting its match to your 401(k) plan, that might not be a bad place for the surplus funds to go either.

Downsize your home: If you can sell your current residence, this might be a good time to downsize into a smaller home that gives you more equity and a lower mortgage 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.

A To-Do List for Settling an Estate - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

June, 2009

A To-Do List for Settling an Estate

The adjustment to the loss of a loved one is hard enough without the inevitable workload of settling their affairs. Even if they don’t have much in the way of assets, the process takes time – typically up to a year.

It makes sense to get advice from tax, estate and financial planning experts in the preparation of an estate plan. A Certified Financial Planner™ professional in estate matters is a good choice to start the process.

It also makes sense to have an idea of how that year will go, so here’s a list what needs to be done at critical intervals of the process. But this is not just a list to help survivors. This can be a key estate-planning tool for you as well. Remember the way that you handle your estate, financial and funeral arrangements can lighten the load on family members. Tailor the following list to your own needs, and discuss it with your chosen executor while you’re in good health. And if you need to make changes, keep them informed:

Step #1 – Start rounding up key documents: An executor has to find, identify and organize a deceased person’s financial records, tax returns, and other key papers to figure out what the decedent owned or controlled. If that individual was working closely with a financial planner or investment manager, they may have all that material summarized in one place. But otherwise, the executor needs to look for bank accounts, brokerage accounts or other investments, life insurance or annuity policies, retirement plans, deeds to real estate, automobile titles and other evidence of assets with value. She will also be looking to see if the decedent had a will or trust that directs what they want done with the previous items. Also, the executor needs to track down all records of outstanding loans, mortgages or credit card bills. Make sure at least 10-20 copies of the death certificate are ordered. Note: This won’t be done in a day, even if the deceased was extremely well organized.

Step #2 – Start making key phone calls: The executor needs to inform key contacts that the person has died. Make sure they contact:
• Social Security if the deceased was receiving benefits;
• The Veterans Administration if they were a qualified veteran for burial benefits;
• Their employer, health insurer, credit unions, mortgage company and credit card companies for possible death benefits;
• Life insurance agent for possible death benefits;
• Automobile insurance agency if they owned a car;
• All creditors – mortgage companies, credit card companies, any organization that’s owed money by the deceased – needs to be notified that their customer has died. They’ll probably request a copy of the death certificate, so make sure you have enough copies.

Step #3 – Get permission to check safety deposit boxes: If there isn’t a will in an easy-to-find place or an at-home lock box, the executor may need to try and get into a bank safety deposit box, which can take a bit of time. The procedures vary from state to state, but the bank should be able to direct the executor. (NOTE: This is why it’s good to keep important papers in an at-home lock box.)

Step #4 – Getting filing the will for probate: If you find a will, the executor named in the will should be notified, and a decision should be made about whether to file the will for probate. It is usually not necessary to probate a will unless there is property in the name of the decedent that needs to be transferred, so if everything is in joint names with a surviving spouse or surviving children, there may be nothing to pass under the will. This is something for which the advice of a lawyer might be needed. If there is a trust document, the trustees or successor trustees should be notified.

Step #5 – Bring in a lawyer if necessary: The executor may or may not to choose to work with an experienced estate attorney. Generally, it can be a good idea. If there is no will and no trust, the property owned by the deceased will pass to the “intestate” heirs determined under state law, and one or more of those heirs (or some other qualified person) will need to file a petition for “letters of administration” in order to sell or transfer the decedent’s property. The procedures for probating a will, or petitioning for letters of administration, vary from state to state, and often will require the services of a lawyer.

Step #6 – Make sure bills get paid: The executor needs to make sure that all the deceased’s bills and other outstanding debts continue to be paid until they are disposed of. If assets are insufficient to cover these debts, the executor will have to find another way to pay them or make sure talks take place to lower the amounts.

Step #7 – Make sure taxes are paid: The executor needs to make sure there is a final tax return filed on behalf of the deceased. A federal tax return needs to be filed if the gross estate is more than $3.5 million in 2009.

Step #8 – Make sure assets are properly distributed: The executor, working with estate and tax experts, can determine after all expenses and taxes are accounted for, that all of the assets are distributed properly. Only at that time can the estate be truly closed.

June 2009 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

It’s Summertime – Not a Bad Time for a Midyear Financial Checkup - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

June, 2009

It’s Summertime – Not a Bad Time for a Midyear Financial Checkup

The weather’s great, so staying inside with your finances probably doesn’t sound like a very entertaining option. But a midyear review of your tax situation, retirement and spending issues 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.

Summer’s actually a good time to do this task because there’s still enough time to correct lapses in savings, spending or tax planning. 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.

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. Also, take a look at such things as gym memberships, magazines that are piled up and coffee expenses. If you’re not using these things, you can probably live without them. 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.

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 http://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.

Don’t Let Economic Troubles Threaten Your Retirement Plans - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

June, 2009

Don’t Let Economic Troubles Threaten Your Retirement Plans

As the economy has worsened, not only have retirement funds dropped in value with the market, but also many people have been tempted to tap savings as a way to cut debt or otherwise shore up their finances after a job loss. Still more have found that employers have dropped matching contributions to shore up their own finances.

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 when the investment markets will rebound, but even if you can contribute something, you stand to gain once markets start to rebound. 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 such as a Certified Financial Planner™ professional to see where your retirement funds stand in light of all your finances before you do anything.

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.

Top 10 Money Decisions for Today’s Incoming College Freshman - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

June, 2009

Top 10 Money Decisions for Today’s Incoming College Freshman

The National Center for Public Policy and Higher Education reported last December that college tuition and fees increased 439 percent from 1982 to 2007 while median family income rose 147 percent. The report also noted that student borrowing has almost doubled since 1998.

What’s the most worrisome statement to come from the report? If current trends continue, our country might be without an affordable higher education system in 25 years.

This is why it’s crucial to train incoming college freshmen in critical personal finance skills. Before you send your child off to school, make sure you cover the following lessons:

It’s never too early to plan: If you think your words won’t hold enough weight – or you need some guidance yourself – consider bringing in an expert such as a Certified Financial Planner™ professional. It’s never too early to deliver the message that how a child manages his money in college will set the stage for how well she manages it in adulthood. A planner can help a child focus on spending and debt issues in college, but it also makes sense to discuss how your student will save for a home and a car. That might force some smart spending, saving and investing decisions while she’s still in school. Once your child gets the message, consider a meeting for yourself.

Focus on 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, often without the parents’ knowledge. Parents should opt to co-sign the student’s credit card but keep it in the student’s name. That way, parents will know when financial missteps occur, which will be a strong incentive for the student to keep his credit rating clean for the next four years. Most important: Parents should do whatever it takes to make sure the child doesn’t sign up for any credit cards on campus where they’ll be bombarded with offers.

Be 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 fees, particularly for overdrafts, which are sky-high at many banks now. Also ask your child to ask the bank about direct-deposit options if you’re planning to deposit money for their tuition or agreed-to spending needs.

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 such as emergency trips home or related expenses. Make it clear that late-night pizza is not an emergency.

Put the student in charge of maintaining his or her financial aid: Each year, the FAFSA (Free Application for Federal Financial Aid) is due in June. State applications are due earlier. While parents need to run the financial aid process, students need to be equally 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. By the way, legitimate scholarships never change fees and are typically open to all applicants for consideration. It might also make sense to take your child to your tax preparer to make sure you’re taking advantage of any income tax opportunities.

Make them budget: If they’re leaving for college with a new computer, consider giving them personal finance software to track their everyday expenses and make sure the computer has a security password. (Keeping track of spending by calculator is fine, too.) Work together to determine necessary realities about everyday expenses, tuition and financial aid. Then tell your kid that when he or she comes home at Thanksgiving, you will sit down again to review those figures and make reasonable adjustments. You obviously need to trust your kids, but you might want to do this for as long as it takes them to develop solid and consistent money habits.

Schedule a holiday budget and credit check: When the triumphant freshman returns home for the holidays, schedule some R&R, home cooking and the first reading ever of their fall budget figures and their first credit reports. Since credit reports can be ordered online, parents and student should sit down with each of the child’s three credit reports from Experian, TransUnion and Equifax and review them for activity and errors. Since everyone is entitled to one free report from each of the agencies each year, go to http://www.annualcreditreport.com for theirs.

Help them open their first IRA: If your 18-year-old child is earning wages by working part-time at school, at home during breaks or for your own company, 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. Ask your planner about this.

Discuss identity theft: Personal financial data left on laptop computers, cell phones and other electronic devices can be readily stolen on campus or in a dorm or roommate environment. 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.

Handle mistakes carefully: Most kids will make money mistakes in college. If they overdraw a checking account or overdo it with their credit card, make the criticism constructive but firm and always come up with a corrective plan you’ll work on together.

Starting a Business? In This Economy, Don’t Quit Your Day Job – Start With Good Advice - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

May, 2009

Starting a Business? In This Economy, Don’t Quit Your Day Job – Start With Good Advice

If you’ve ever fantasized about quitting your job and starting a business, you’re certainly not alone. However, it’s definitely not something to do on a whim – you’ll need time and good advice.

A business startup requires 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.

That means that before you plan the business, plan your finances first. Here are some basic steps to consider right now:

Get some advice first:
You need not one, but two sets of financial advice when starting a business. 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 a tax and financial expert such as a CERTIFIED FINANCIAL PLANNER™ professional at the outset.

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 3-6 months of 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 situation and the kind of business you’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 Liability Partnership (LLP), or Limited Liability Company (LLC), owners should reflect on their business in the context of their 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 it to provide other financial benefits?
• Do you want 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 you’re starting, its risk factors, current tax laws, and regulations such as workman’s compensation.

Plan your health care 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 department and 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 – depending on the business and the cost of those benefits, you might want to rethink your plans.

Price disability coverage now:
You might have short-term disability coverage as part of your current employee benefits, but that will likely end once you quit your job. You should 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 2009 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community. It has been modified and is provided by Thomas A. Fisher, a local member of the FPA.

Why Financial Planning Matters in the Toughest of Times - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

May, 2009

Why 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, often specialize in certain areas of interest, and they may receive continuing education in more than a dozen areas of expertise. CERTIFIED FINANCIAL PLANNER ™ professionals 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.

Be Careful When Rebalancing Your Kid’s 529 Plan Allocation - Fee-Only Financial Planner in Boston and Cambridge, MA: Fisher Financial Strategies

PERSONAL FINANCIAL RESOURCES