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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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?
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 other, 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 receipt each of your credit reports at different points in the year, you’ll get a continuous picture of how your credit picture looks. Also, you’ll have the opportunity to focus on possible errors in a single report, which will give the other two credit agencies time to update their files.
June 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
May, 2009
Be Careful When Rebalancing Your Kid’s 529 Plan Allocation
Market extremes tend to make uninformed people invest at extremes. As the market has suffered over the past nine months, families putting their college savings into 529 college savings plans have watched their stock-based holdings shrink with the market and many have run for cover.
This has fueled a growing number of states with 529 college plans to offer accounts that are insured by the FDIC. According to InvestmentNews, Arizona, Ohio, Montana, Virginia and the latest state, Utah, have adopted FDIC-insured investment options such as savings accounts and certificates of deposit. Could your state’s plan be next?
If you’re a first-time investor in 529s or are still reeling from the impact to your current plan results, before you run for the safe cover of minimum returns, you may want to run for advice first. A CERTIFIED FINANCIAL PLANNER™ professional can evaluate not only your 529 investments but your entire investment and savings situation to make sure you’re not only doing the best for your college student, but for your retirement – which actually should be your first priority. After one of the worst market downturns since the Great Depression, now is actually a great starting point for this kind of advice.
Here are a few things to consider about more conservative investments in a 529 portfolio:
Is 1 or 2 percent good enough?
Yes, keeping your investment safe is a critical goal during a downturn, but how long do you have until your child needs the money and how close are you to your savings target? Investing for such an expensive goal takes a mixture of risk and caution, and if you were one of the smart ones who shifted your 529 funds into conservative investments last summer, bravo. Just make sure you have the right information so you know when to get out. A mixture of equities and fixed-income investments are the best structure for these portfolios, but they bear watching in case of a downturn.
CD flexibility is limited:
The attraction of investing in CDs is not only safety, but the ability to “ladder” (buying at regular intervals) your investment as CDs mature into potentially higher-paying investments. Here’s the problem. Current rules for 529 savings plans allow investors only one investment change per calendar year though in 2009, the IRS made an exception and allowed two changes. So much for laddering – that means you can’t roll over funds from a matured CD into a new one more than twice, though some of the plans are devising ways to automatically roll over mature CDs into shorter-term investments as the funds meet their target date of use. Yet, it won’t be the same as making those decisions yourself.
Could rolling into more conservative investments now be a mistake?
Knowing when a market bottoms out would guarantee riches. So you have to have some exposure in the portfolio to the possibility of growth, even in these times. Rolling your investments into conservative waters may actually lock in losses of as much as 40 percent. It makes sense to get advice with such a move and keep your ear to the ground with respect to economic news.
Let the younger child’s 529 pay for the older child’s tuition:
If your oldest child is ready to or has started college and you have more than one child and one 529 plan for each, consider using the cash in the younger child’s plan to pay for the older child’s tuition. This way the equity investments in the older child’s plan have a chance to recoup their losses and pay for the younger child’s tuition in future years.
May 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.
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.
April, 2009
How Does the Stimulus Plan Affect You? It’s Good to Get Some Advice Now
The biggest benefit from the $787.2 billion federal stimulus package will hopefully be a noticeable improvement in the nation’s economy. But on an individual level, it’s wise to check if you might be eligible for benefits in health care, education, various tax credits and housing.
A visit with a tax expert or a financial adviser such as a CERTIFIED FINANCIAL PLANNER™ professional can help you determine the best ways to use the following provisions that may affect you. It’s also a good idea to get a financial checkup in an uncertain economy for the following reasons:
• As much as it might hurt to look at the performance of your current retirement accounts and other investments, the economy will recover. When an upturn comes, it’s wise to position your holdings to take full advantage of the recovery.
• Your future plans with regard to spending for your home, your family and your education come into sharp focus under the stimulus plan, and making these provisions work for you in the short-term should be part of a long-term plan.
• If you fear your job might be in danger in the coming months or you might be facing pay or benefit cuts, it’s good to talk through your personal finances before your employer makes a move. The best time to prepare for a job loss is while you’re still making a salary. Not only is it a good opportunity to build an emergency fund, but it’s generally easier to look for new opportunities while you still have your current one.
Here’s a quick summary of the stimulus plan provisions that could affect your finances.
Educational provisions:
College student aid: The package awards $15.6 billion to increase maximum individual student Pell grants by $500.
American Opportunity Tax Credit: This credit temporarily provides taxpayers with a new tax credit of up to $2,500 of the cost of tuition and related expenses, though it phases out for taxpayers with adjusted gross income in excess of $80,000 ($160,000 for married couples filing jointly). Forty percent of the available credit is refundable.
529 Plans: The scope of allowable education expenses expands to include computers and computer technology.
Tax credit provisions:
One more cap for the Alternative Minimum Tax (AMT): Lawmakers put one more patch on the AMT to protect a wider number of people from getting hit. This latest break for potential AMT targets increases the exemption amounts to $46,700 ($70,950 for married couples). The bill would also exclude interest on all private activity bonds issued in 2009 and 2010 from the AMT.
“Making Work Pay” Tax Credits: This is the refundable tax credit of up to $400 for individuals and $800 for families for 2009 and 2010 that would phase out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 for married couples). This isn’t a lump sum payment, but instead is reflected in reduced payroll taxes.
Car Buyers Tax Credit: This allows a deduction for state and local sales and excise taxes paid on the purchase of a new vehicle through 2009. This deduction is phased out for taxpayers with adjusted gross income in excess of $125,000 ($250,000 in the case of a joint return).
Expanded Child Credit: This increases the eligibility for the refundable child tax credit in 2009 and 2010 by reducing the minimum income for eligibility to $3,000.
Earned Income Tax Credit: This provision will create a temporary tax credit increase for working families with three or more children.
Housing provisions:
Refundable First-Time Homebuyer Credit: First-time buyers can claim a credit worth $8,000 - or 10 percent of the home’s value, whichever is less - on their 2008 or 2009 taxes. The added bonus is that the credit is refundable, which means that filers will see a refund of the full $8,000 even if their total tax bill was less than that amount.
Unemployment and healthcare-related benefits:
Extension of Unemployment Benefits: The package provides 33 weeks of extended benefits through Dec. 31, 2009.
Unemployment Compensation: The first $2,400 a person receives in unemployment compensation benefits in 2009 won’t be taxed.
Short-Term COBRA Subsidy for Involuntarily Terminated Workers: This provides a 65 percent subsidy for COBRA premiums for up to 9 months, which will put a dent in the considerable cost of COBRA health benefits for the unemployed.
April 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.
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.
April, 2009
Ways to Save Money on Health Care and Health Insurance in Troubled Times
Whether you buy your healthcare coverage through your employer or independently, you need to look at your coverage the same way cost-cutting entrepreneurs do. Buying coverage in the future won’t stop at finding the best price – what you pay increasingly will involve how well you personally manage your health.
According to a report last year by benefits consultant Watson Wyatt, nearly half (47 percent) of the 453 large U.S. employers currently offer a consumer-directed health plan (CDHP), a high-deductible plan offered with a personal account that can be used to pay a portion of medical expenses not covered under the plan. In the world of independently purchased health insurance, it’s the same concept as the pairing of a high deductible health plan (HDHP) with a health savings account (HSA).
Also, don’t be surprised if your employer or insurer is going to get tougher about you losing weight, quitting smoking or taking part in a monitored exercise plan.
Here are some ideas to help you take the first step in monitoring these costs:
Change your negative healthcare behavior: Lowering the number on your bathroom scale will not only have immediate health benefits, it will also make your health insurance options and potential out-of-pocket costs more affordable over time. A Stanford University and Rand Corporation study reported that lifetime medical costs related to diabetes, heart disease, high cholesterol, hypertension and stroke among the obese are $10,000 higher than among the non-obese. It added that lifetime medical costs could be reduced by $2,200 to $5,300 following a 10 percent reduction in body weight.
Know what you’re buying: Whether you buy health insurance through an agent or your employer, insist that they explain exactly what you’re getting for your premium, and where deductibles do and don’t apply. That way, you’ll have a baseline when you buy your own coverage. If you’re purchasing your own insurance policy, compare the premium savings from a higher deductible plan with your usage pattern of health services. What you save can often cover your high deductible. The California Medical Association offers a plan comparison checklist on its Web site, http://www.cmanet.org.
Always research and discuss the potential cost of a diagnosis: If your physician diagnoses a condition that requires tests, prescription drugs, a hospital stay or ongoing therapy, ask polite but detailed questions about what you’ll be charged, from the doctor’s bills to ongoing ancillary costs associated with treatment. Ask the doctor or his office manager if discounts can be negotiated through cash payments or other means. You also need to be careful that you’re not being charged a rate for uninsured patients when you are simply going to paying for all or part of the bill to get to your deductible. Last, consider asking doctors for generic options and samples of prescription drugs to extend your savings.
Make sure your exact spending is reducing your deductible: Keep a binder or a filing system to monitor how this year’s out-of-pocket spending is reducing your insurance deductible. Your insurer’s total may not always be accurate or up-to-date. Also, make sure you understand which procedures are offered through your plan that will be paid even though you haven’t paid up your deductible.
Check local pricing resources: In non-emergency situations, you should always compare prices on treatments. Check with local medical boards and state health officials to see if they have online databases on costs for various medical procedures. Also, if there is a support group for your condition, talk to members about what they paid locally for care.
Be smart about emergency and non-emergency health visits: Emergency-room visits tend to cost $300 to $1,000 compared with $150 at an urgent-care center and $35 to $45 at a convenience-care clinic in a drug store or some other location. First, make sure the alternatives to hospital emergency room care are acceptable for your illness. Write yourself a note at some point to check out these options in your community so you understand what they offer, what their hours of business are, and under what conditions you’d choose them. In particular, make sure the facility and the provider are in your health plan’s network so whatever you pay out-of-pocket counts toward your deductible. Also rely on your insurer’s 24-hour advice hotline for guidance on where to go for care. Either tape that call or keep a written record of it in case you have a claim denied.
Talk to a financial advisor about planning for long-term care: If you or a loved one are diagnosed with a chronic illness, that’s a financial issue that requires a plan. As tough as it may be to focus on money issues at a stressful time, make an appointment with a tax professional or a CERTIFIED FINANCIAL PLANNER™ professional to discuss affordability options that will safeguard your assets, including Medical Spending Accounts that can backstop out-of-pocket costs on high-deductible policies.
Take advantage of your company’s flexible spending account: A flexible spending account is a separate, tax-advantaged account where you deposit funds to pay for medical expenses not paid by your insurance. You need to check what your particular company’s FSA allows you to stockpile funds for, and you will need to estimate carefully because you’ll have to spend out these funds by a particular annual date or lose the remainder. It’s also good to discuss how you’re allocating those expenses with a financial adviser.
April 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.
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.
April, 2009
Planning a Cost-Effective Job Search
Whether you’ve already cleaned out your desk or are expecting your department to be next at work for cuts, in this economy, it definitely makes sense to plan a job search before you actually have to do one. Call it a response plan.
Here are some basic steps in getting that process started:
Start or build your emergency fund: Unemployment insurance won’t even come close to meeting your cash needs when you’re out of a job. Start slashing your spending and funnel that extra cash into an emergency fund that won’t be touched for anything but essentials – housing payments, food and insurance expenses. Get a head start on building an amount equal to 3-6 months of those expenses as soon as you can, first by cutting your basic spending and then possibly by paying the minimums on debt purchases until you get that fund in good shape. If you’ve still got your job after you hit your emergency fund target, then keep your tight spending in force and go back to attacking any debt that you have more forcefully.
Get advice on finances, taxes and possible legal issues: There’s nothing better than going into an exit interview with a plan to put yourself in the best situation possible when you lose your job. You might start by talking with a CERTIFIED FINANCIAL PLANNER™ professional and a tax expert about any spending, saving or tax specifics you should focus on now as a way to blunt the damage from lost income later. And depending on the situation and your room to negotiate, it might not be a bad idea to invest in the services of a workplace attorney to make sure you know what to ask for in an exit package. Always ask if you can build unused vacation and sick days into a package and see what you can do about extending health benefits before you start having to pick up the cost via COBRA. COBRA refers to the Consolidated Omnibus Budget Reconciliation Act, which gives workers and their families who lose their health benefits the right to choose to continue them under their group plan for a limited time.
Research health coverage beforehand: The recently passed federal stimulus package provides 65 percent subsidy for COBRA premiums for up to 9 months, which is good news because COBRA can be very expensive. In any event, it makes sense to research individual, high-deductible coverage that might be an affordable alternative to staying on your employer’s health plan while you’re looking for your next job. Many quality carriers offer enrollment online, but ask around and see if friends or associates know good agents who can find coverage that fits you so you’ll be prepared if you need it.
Get personal disability coverage now: Disability coverage offered through your workplace may barely cover you if you are disabled while working, but once your job is gone, there goes your coverage. It’s always a good idea for individuals to have some personal disability coverage of your own, and you should buy it while you’re employed because you need to prove income before you can get the maximum coverage based on your current income.
Understand your unemployment benefits: Generally, it’s a good idea to file immediately for unemployment benefits, even if you’re getting severance. Check on these provisions as soon as you can. Also remember that the federal stimulus plan applies here as well. Benefits will increase by $25 per week for some 20 million jobless workers, while the first $2,400 they receive in benefits will be exempt from federal taxes. Also, if you get a job before your severance or unemployment runs out, use those funds to top off your emergency fund and then attack debt so you’re in a good position to weather any future storms.
Take advantage of any free job advice and assistance you can: If your employer is providing office space, resume-writing assistance or any other benefits to help you transition to your next job, by all means, take advantage of them. It’s particularly smart to get advice with resume writing because as industries change, the type of experience that hiring executives want to see on resumes changes as well.
Network: Make sure you’ve identified key professional groups both locally or nationally that will allow you to meet colleagues and hiring executives in your industry or the industry you hope to work in next. And plan to do little things that keep you in touch with potential employers – make sure your cell phone, e-mail and voicemail are always working, and make sure you have resumes, cover letters and an interview outfit always at the ready in case you have a sudden opportunity to interview.
April 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.
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.
April, 2009
Why Maintaining Your Credit Score Becomes Even More Important During the Continuing Credit Crunch
Even if borrowing loosens up a bit in 2009, you still need to do everything necessary to keep your credit score high. Fair Isaac, the company that created the FICO score, has been working on a new version of its landmark credit scoring method that might have serious consequences for you if you’re planning on borrowing for a home or establishing any other new credit in 2009.
The new version of FICO is going to be particularly focused on your balances, not only on your on-time payment records.
Your top priority under this new system: Get balances down.
Reports say that the new FICO revision will actually allow a bit of lenience on late payment – 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 – essentially the amount of credit you’re actually using relative to your credit limit – is a much bigger deal simply because high balances are so prevalent right now. From the lender’s perspective, high balances mixed with a tough economy means a higher risk of default among customers.
So what’s a good target utilization rate for all your revolving credit accounts? No more than 50 percent of your credit limit, and if you can get it significantly lower than that over time, that’s a good plan. So, the lower your credit utilization, the better your score.
What does that mean for ordinary Americans who don’t meet that under-50 percent goal? It means you shouldn’t be applying for new credit or refinancing for awhile. But because most lending institutions may continue their strict lending requirements, you might as well defer borrowing goals in favor of reforming your credit behavior.
So instead of bemoaning your tougher chances of getting a loan for a home or a car, why not use the current environment to launch a credit makeover that will position you for a better shot six months to a year from now? Some ideas:
You’ll need at least a 740 score for the best rates: You’ll often hear that credit scores of 700 and up will get you best customer status with lenders. You should aim higher. For the lowest rates and best terms, you need to get your credit score above 740 (the top credit score, by the way, is 850), 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.
One more time—get those balances down: Get all your non-deductible debt under 50 percent of your credit line in each account. Go after your balances with the highest interest rates first, and once you hit 50 percent...keep trying and get those balances down further.
Get some advice: It might not be a bad time to sit down with a tax professional or a financial adviser – such as a CERTIFIED FINANCIAL PLANNER™ professional—to talk about the way you’re going to manage your debt going forward.
Keep an eye on your credit reports: Remember that you have the right to get all three of your credit reports—from Experian, TransUnion and Equifax—once a year for free. You can do so by ordering them at http://www.annualcreditreport.com. Don’t order all three of them at the same time, though. By staggering receipt of each of your credit reports, you’ll get a continuous picture of how your credit picture looks because the three bureaus feed each other the latest information. You’ll also be able to clean up errors as you find them—errors can drag down a credit score – and you’ll also keep an eye out for identity theft. Oh, and by the way, keep in mind that all “free” credit report sites are not free – if they ask you for a credit card number, remember they’re doing that because they want to charge you. Just go to the site above and you’ll be fine.
Get on time and pay more than the minimum: Yes, we indicated above that you might get a bit of a break on late payments with the new FICO system, but that’s a break you should consider only in a dire emergency. Electronic bill payment will allow you to save on postage while guaranteeing on-time postage, and the budgeting advice mentioned above will allow you to put a few more bucks toward getting that loan or credit card bill paid off.
Once you’re paid off, don’t close the account: In the world of credit scoring, closing accounts (even those that have not had balances for years) is a lousy idea. Lenders want to see a long record of credit management, and longtime accounts that you haven’t touched in years may actually help your score because it shows you have some restraint.
April 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.
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.
March, 2009
Having Trouble With Your Grandkid’s Graduation Gift? Try the Gift of Tax-Advantaged Saving
It’s a few short weeks until cap and gown season begins, and for grandparents hoping to do something nice for their grandkids and something sensible for their estate, there are several options to explore.
Roth IRAs: The Roth option is a good one if you want to help them start a retirement fund of their own or if you want them to inherit a Roth where they can make tax-free withdrawals after your death.
Roth IRAs aren’t a useful alternative for very young kids because the rules state that all Roth holders have to have earned income to be able to make contributions. If they fit that description – as many kids working in high school do – either their parents or guardians can open the account and grandparents can make contributions to match the percentage of earnings kids put in their Roth IRA. Grandparents simply match that contribution.
Also, if you have a Roth IRA, you can benefit your grandchildren by naming them as your primary beneficiaries, and when they inherit it, they’ll be able to make tax-free withdrawals for a home, an education or any other purpose.
Parents or grandparents may want to consider setting up and funding a Roth IRA for their children or grandchildren as soon as the children or grandchildren have enough earned income from part-time or summer jobs. This will ensure that the five-year requirement is met when the individual for whom the Roth IRA is established is ready to make a withdrawal to buy a home, for example.
529 Plans: Another great tool for grandparents is the 529 college savings plan. Grandparents can fill out a plan enrollment form designating a grandchild as beneficiary, select the investments from the plan’s options, and make future contributions either by check or by automatic contribution. It’s also fine for grandparents to make their contributions directly to a 529 account already owned by the grandchild’s parents.
As a refresher, 529 college savings plans – named for the federal law that created them in 1996 – allows a parent to open a tax-deferred college savings plan with as little as $25 to start in some states. A 529 college savings plan is not the same thing as a 529 prepaid college tuition plan. Prepaid tuition plans are just that – tax-deferred savings plans that allow you to save for tuition for in-state schools (though some plans allow you to transfer out a portion of those assets to out-of-state schools). Also, it’s important to note that prepaid tuition plans are not an automatic guarantee a student will get into that college.
Since 2006, withdrawals from 529 plans have been permanently tax-free. In some states, contributions may also be deductible on state tax returns. All 50 states now have 529 plans college savings plans, and a majority of them provides additional incentives, such as a state-tax deduction to in-state residents who invest in their respective plan.
It’s a good idea to have your financial adviser or your CERTIFIED FINANCIAL PLANNER™ professional help you sort through the details of various state plans. There are various services – including Morningstar Inc. – that now rank the offerings of each state’s plan. http://www.SavingforCollege.com and http://www.FinAid.org are leading sites to help educate you in how these plans work.
Grandparents can treat their contribution as complete gifts, which means they can apply the $12,000 per year gift tax annual exclusion or an accelerated contribution of up to $60,000, with a special five-year, gift-spreading election. Check with your tax adviser first.
Another great benefit is that a 529 plan owned by grandparents should not affect the grandchild’s eligibility to receive federal financial aid because a grandparent’s assets are not reportable on the free application for federal student aid, or FAFSA, and the tax-free withdrawals from a grandparent-owned 529 plan are not counted as student income or student resources.
Coverdell Education Savings Accounts: For grandchildren heading to private school who are under the age of 18, most grandparents – check your eligibility with a tax professional first – can contribute up to 2,000 dollars annually per grandchild to a Coverdale Educational Savings Account. Coverdell earnings accumulate free of federal income taxes, and can be taken to pay for private elementary, secondary or college. Yet, your income is a factor. You can make a Coverdell contribution as long as your modified adjusted gross income is between 95,000 and 110,000 dollars if you’re single or between 190,000 and 220,000 dollars if you’re a married and filing jointly. Yet, if you exceed either of these requirements, you can ask the parent of the adult child to open up the account and make the contribution, though you will have to give up control over the account.
Make a direct gift of your grandchild’s tuition: Under current tax law, you can make gifts of any amount to cover your grandchild’s tuition. Yet, you’re going to need to pay the college directly and you need to be aware that it won’t dent your federal estate tax exemption (3.5 million dollars in 2009), but it will cut the overall amount of your taxable estate. You can, however, go ahead and make additional gifts per grandchild of $13,000 to help with other college expenses.
March 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.
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.
March, 2009
The Death Tax Is Likely To Live On – High-Net Worth Individuals Might Consider a QPRT
The Obama Administration has indicated plans to block the estate tax from disappearing in 2010, though to offer a bit of relief, it might freeze it at the rate and exemption levels that took place this year.
That would mean that estates worth up to $3.5 million for individuals and up to $7 million for couples would be exempt from any taxation and those above those amounts would be taxed at 45 percent. (At the end of the Clinton Administration, estates of less than $1 million would be excluded with the rest taxed at a 55 percent rate.)
Even with the downturn in the real estate and stock markets, it’s a good time for high net-worth individuals and couples to look at ways to shelter their estates from the possibility of taxes going forward. One possibility for couples who have a substantial investment in real estate they consider a residence is the Qualified Personal Residence Trust (QPRT). A QPRT is a trust that owns the home at a discounted value for a specific term while allowing the parents to continue living in the home.
The QPRT works best for those people who expect to live another decade or so. The longer the term of the trust, the greater the benefit to the kids. Yet you’re essentially playing a game of chicken with the Grim Reaper—if one or both of the parents die before the trust expires, the heirs have to pay the estate tax on the value of the house at the time the parent died.
A good first step in finding out if a QPRT makes sense is a trip to see your CERTIFIED FINANCIAL PLANNER™ professional or your tax or estate planner. Such a trust has to be set up carefully with a thorough review of actuarial tables and a discussion of each parent’s financial history.
Technically, QPRTs make the most sense when interest rates are high, because the higher the interest rate, the greater the discount applied to the property, which, in turn, increases the tax savings. A QPRT is based not on the current value of the house at the time the trust is being written, but what is determined to be the present value of a future gift, which is actually a discount to the current value. When a home is put into the trust its value is not the current value of the house, but what is called the “present value” of the future gift - a decrease of 25-50 percent in value. The Internal Revenue Service calculates these formulas, so ask your expert how current calculations will affect the value of your estate.
Another potential benefit of the QPRT is that if the parent runs into trouble with high hospital or medical bills, the hospital cannot demand any money gained by refinancing or selling the house, since the occupant does not have any right to that money.
If the rough real estate market has devalued your home at least a little, chances are that the market may rebound sometime during the term of the trust and if you outlast the trust at its expiration, the strategy may work out very well for your heirs.
Obviously there are a number of considerations here, not the least of which involves the current value of the property. Your adviser should help you consider all these issues, and you should keep an eye on the news for what eventually happens with the capital gains tax as well as what ends up happening with the estate tax.
A parent who outlives the trust can continue to live in the house by paying the kids fair-market rent. There’s one more wrinkle to try if the kids want to avoid income taxes on the rent they’ll receive from their parents—they can form a grantor trust for the property so the rent is paid to the trust.
March 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.
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.
March, 2009
How to Prepare For Your First Visit With a Financial Planner
If you’ve never met with a financial planner before or if it’s been years since you’ve visited one, you need to find a planner and prepare for your visit.
Generally, you should research individual financial advisers or firms, and you should look to trusted friends and family for advice. You should interview two or three advisers by phone before you sit down and understand their compensation structure.
It’s also important to discuss your overall goals with the planner you’re interviewing so you can gauge their ability to help you meet those targets.
Here are some questions you should ask a prospective financial planner:
What training do you have? Find out how long the planner has been in practice and what kind of certifications they hold. A CERTIFIED FINANCIAL PLANNER™ professional is someone with a minimum experience of three years who has completed a comprehensive course of study through a degree or certificate program offering a financial planning curriculum approved by The CFP Board of Standards, Inc. CFP® practitioners must pass a comprehensive two-day, 10-hour Certification Examination that tests their ability to apply financial planning knowledge in an integrated format. Based on regular research of what planners do, the exam covers the financial planning process, tax planning, employee benefits, retirement planning, estate planning, investment management and insurance.
What services do you offer? What a financial planner offers is based on credentials, licenses and areas of expertise. Generally, financial planners cannot sell insurance or securities products such as mutual funds or stocks without the proper licenses, or give investment advice unless they are registered with state or Federal authorities. Some planners offer financial planning advice on a range of topics but do not sell financial products. Others may provide advice only in specific areas such as estate planning or taxes.
How do you charge for your services? Professional planners will provide you with a financial planning agreement that spells out the services they provide and how they’ll be compensated. Payment can happen in one of several ways:
• Salaried planners are actually employees of a firm, and you help pay their salaries through fees or commissions you agree to pay.
• Direct fees to the planner through an hourly rate, a flat rate, or on a percentage of your assets and/or income.
• Commissions paid by a third party from the products sold to you based on the planner’s recommendations. Commissions are typically a percentage of the amount you invest based on those recommendations.
• A hybrid of fees and commissions based on services. A planner may charge a fee for designing a comprehensive financial plan and occasional visits and calls to review it, while commissions might come from products they sell that you invest in. (Planners may offset some fees in exchange for commissions.)
Do you have any potential conflicts of interest? It may seem like a rude question, but the best planners expect this one and are prepared to make disclosure. Obviously, if a planner profits from the sale of investment products to you, she must spell that out.
How do you feel about teaching and training? One of the primary benefits of having a financial planner is education about the moves you are making or may potentially make. Don’t view a planning relationship as tossing someone your finances so you won’t have to deal with them anymore. As long as you’re paying for their services, make sure you get a long-term education out of it.
When you select a planner, they’ll give you a list of documents and information to bring in for your first meeting, and generally, it will be detailed on a checklist that may include:
An income and expenditure checklist. This is a summary of current and projected income. You’ll need to bring or detail:
Income
• A current pay slip
• Profit and loss statements for business income
• Pension income statements
• Statements of non-investment income
• Family trust distribution documents
• Tax returns
• Annuity, maintenance agreement statements
Expenses
• Home: Mortgage, rent statements, utilities, household repairs, insurance, appliance purchases, landscaping or house cleaning
• Transportation: Gasoline, car loan, public transit expenses and parking
• Food: Grocery and restaurants
• Medical: Doctor, dentist and prescription bills
• Education: Tuition, school fees
• Child care: In-home our outside-the-home care
• Personal grooming: Clothing, shoes and accessories, hair, makeup
• Pet care: veterinarian, food and grooming bills
• Insurance: Health, life, auto, disability
An asset and liability checklist. This is a summary of what you own and what you currently owe. You’ll need to bring or detail:
Assets:
• Principal residence
• Vacation home
• Investment property
• Bank accounts
• Investments
• Collectibles and personal property
• Automobiles, other vehicles
Liabilities:
• Mortgages
• Credit card debt
• Auto loans
• College loans
• Business loans
March 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.
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.
March, 2009
Is Your Child Headed To College Next Fall? It’s Time for a Crash Course on Borrowing and Spen
Even if you’ve planned relatively well for your future college student’s expenses, the credit crunch and downturn in investment income for colleges have changed the game for financial aid at many schools. That means both parents and students need to approach the college financial aid scene with unprecedented caution.
Harvard University, the world’s richest school, announced in February that it was slashing 25 percent of its investment staff after its $36.9 billion endowment lost 22 percent of its value in the previous four months and could decline as much as 30 percent by the end of June. In two separate surveys released in January, the Commonfund Institute and TIAA-CREF, in a survey done for the National Association of College and University Business Officers, reported that college endowments fell on average 23 percent in the five months ended Nov. 30, 2008.
Why is this important? It’s true that endowments at schools of all sizes mostly pay for faculty and facilities. But they also provide both grants and scholarships for talented students who need them and have been under significantly more pressure to do so. When students have a tougher time finding lower-cost school financing, the demand for scholarship and grant funding goes sky-high. In many cases, students are forced down the borrowing chain to increasingly risky loan options.
The private student loan sector has also been hit by reports of questionable practices in the last two years. In December, New York Attorney General Andrew M. Cuomo reached an agreement with the College Board – the developer and administrator of the SAT and AP – to stop discounting products and services in exchange for a ranking on colleges’ preferred lenders list. The College Board will now invest $675,000 to develop a set of tools to help financial aid administrators to help students and parents compare student loan offers and identify the lowest-cost loan options.
What can you do? One of the best starting points is a meeting with a CERTIFIED FINANCIAL PLANNER™ professional with specific expertise in planning for college and financial aid options. The smartest thing is to work with a planner when kids are young to amass the right amount of savings for college, but it makes good sense for both parents and students to meet with a planner before school starts to underscore the complete list of financial issues the student will face. These include:
Planning alternatives for financial aid shortfalls: Over the past few years, colleges have not been able to offer adequate amounts of funding through Perkins, Stafford and Plus federal education loans, and private student loans through banks have closed up with the credit crunch. For students already admitted at schools for their freshman year in the fall, financial aid letters will start going out this month.
Here’s the catch – many college students get in trouble with debt because they are unaware that many for-profit companies advertising access to federal loans pull their financing from private sources that cost the borrower far more than actual federal loans would. The ability to plan for college well in advance and work with an expert to sift through proper loan alternatives can make the difference between an affordable debt load when a student graduates and potential bankruptcy.
Setting a budget as early as possible for basic expenses: Until the student gets to school it will be tough to tell what actual expenses will be, but it won’t hurt to set a tentative budget that involves taking full account of the student’s savings, the parents’ (and possibly the grandparents’) contribution to everyday expenses and any planned income from work-study or other sources. For a template of a budget written specifically for college students, go to: http://www.aie.org/Calculators/budgetworksheetinschool.cfm
Start managing credit and debit cards before school starts: The time to start managing credit and bank accounts isn’t freshman year. While a teenager won’t build a credit history as an authorized user on a parent’s card, it’s good to get a little practice using it under a parent’s watchful eye. When a child goes on to college, the challenge will be looking for the best credit card offer amongst many and managing that credit responsibly. This is another good reason for both parent and student to meet with a financial planner ahead of school to discuss proper credit card usage and monitoring of a student’s fledgling credit score.
March 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.
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.
February, 2009
Big Windfalls and Structured Settlements – What They Are, and How to Handle Them
If you’ve received a windfall, it might sound like you’re fixed for life. The reality is that your financial life has changed drastically, and you need to plan for it.
A structured settlement is a way of receiving partial payments for a major amount of money you’ve won or received in a lottery, a court or insurance case. You hear a lot of commercials on the air for getting cash from structured settlements, but it’s important to understand what they are and how they should be handled if you’re ever the recipient.
A good place to start is with a tax expert like a certified public accountant, a financial planning expert like a CERTIFIED FINANCIAL PLANNER™ professional, or an attorney or structured settlement consultant who has significant experience dealing with these payment structures. When there is big money at stake, it might make sense to consult all three. Some ideas:
First, the definition: A structured settlement is structured like an annuity. It is a contract written by an insurance company that provides periodic payments to a winner in a lottery, a lawsuit or some other settlement arrangement over time. Amounts can be paid out weekly, monthly or yearly.
The benefits: Structured correctly – and with the right oversight going in – a structured settlement annuity provides a payment stream that may be tax-free over a period of time during the winner’s lifetime and remaining payments may be bequeathed to his or her survivors after their death.
The pitfalls: One should never accept a structured settlement agreement without vetting it against their own tax situation or estate needs. Also, it helps to have an expert who understands these agreements well enough to know whether certain fees or charges connected with that settlement are appropriate to the overall size of the award. Keep it in mind that the structured settlement must be purchased by the person or company that is at fault or is making the award. This is why it’s particularly important to have an expert watching over that selection process from the moment the award is announced.
The lump sum alternative: If a winner chooses a lump sum payment over a periodic payment based on the full amount of the award, that payment will likely be handled with an insurance contract that physically pays the lump sum but at a much heftier chunk of the full total – they get a big payoff for giving you a big one-time payoff. Keep in mind that the lump-sum payoff idea may not be worth pursuing unless it’s large enough to throw off substantial investment income in the future and that you have talented management making sure that lump sum makes money over time. This is why it’s always a good reason to confer with tax, financial and investment experts on the best way to go with either a lump sum or a periodic payment from the moment you’ve been informed you won the money.
Keep in mind that others get an advantage too: Many attorneys are also structuring their fees that are taken directly out of a court award. This allows them to postpone receiving their share of an award on a tax-deferred basis so they can build their own retirement funds. There’s nothing wrong with this, but it’s important to know who else in the process might benefit from any decisions that get made.
February 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.
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.
February, 2009
Dementia Is Not Only a Family Matter; It’s Also a Financial Matter
When a close relative or friend starts to display signs of dementia or related neurological ailments, it is a family tragedy requiring speedy action and medical care. But in many cases, the disease comes on gradually, and it becomes evident with inconsistencies in behavior and sometimes, problems with money.
It is not uncommon for older people with diminished cognitive function to be a ready target for scams and ID theft as well as out-of-character decisions with regards to savings or investments.
If this were you in five, 10 or 20 years, would you have a plan?
Last July, a Mayo Clinic study reported that men were twice as likely as women to develop mild cognitive impairment over the age of 70, a transitional phase between healthy aging and full-blown dementia, which is a significant loss of intellectual and memory abilities severe enough to interfere with social or occupational functioning. Women develop Alzheimer’s disease in greater numbers than men, but that’s due largely to the fact that women live longer than men.
So when does this become a money issue? In the best circumstances, as part of a full estate planning process before an individual becomes ill. In the worst, it needs to happen immediately after a loved one is diagnosed.
Once stricken, older relatives may be unable to understand questions or express their wishes in proper detail. If there is no plan, family members grasp at responsibilities – or shirk them – without any idea of what the older relative would really want.
So what’s the answer? Everyone should make a plan that includes the worst-case scenario of incapacity in one’s long-term financial plan. Some key points:
Have a discussion with people you trust to make decisions for you: It’s not fun to imagine yourself in the state dementia brings, but it’s important to consider trigger points where trusted people would step in to do specific functions for you. It would make sense to pre-select individuals as your executor as well as your health and financial powers of attorney, responsible for paying bills and executing your specific investment wishes under specific circumstances.
Make sure how major assets will be used to pay for care: If an elderly relative becomes sick and irreversibly incapacitated, the equity in your home may come under consideration as a resource to pay uncovered medical or household maintenance. Since the home is both a major asset and an emotional focal point, it’s best to get good advice and spell out specifically what you want done you’re your property and under what conditions.
Pick the right experts: It would be wise to confer with a tax professional as well as a trained financial expert such as a CERTIFIED FINANCIAL PLANNER™ professional. The professionals and nonprofessionals in this role should have significant experience working with seniors and be prepared to interact with other members of your team if they notice anything particularly out of character in your future actions.
Put it in writing: Once you’ve established the team that will carry out your wishes in a variety of situations – not just in the case you are diagnosed with dementia – then you should have such instructions written into a formal estate plan with the necessary powers of attorney as well as your updated will.
February 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.
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.
February, 2009
Bank-Owned Real Estate May Be Plentiful, But Learn the Ropes Before You Invest
Last month, RealtyTrac, a leading online market for foreclosure properties, reported that over 3.16 million foreclosure filings were made in 2008, up 81 percent from 2007 and up 225 percent from 2006. There was one more stunning fact – that one in 54 U.S. housing units received at least one of the following—a default notice, auction sale notice and/or full-scale bank repossession – during the last year.
For those with money to invest in real estate, this is an exciting but extremely risky time. Those who consider investing in foreclosure properties should not only understand foreclosure and the importance of cash in the process, but the emotional element unique to this kind of investment. After all, each foreclosure represents someone who has lost a home.
You’ll hear many advertisements telling you how easy it is to invest in foreclosures and make a fast profit. But those who deal regularly in foreclosures know that making a profit can be tough, and that’s true even for individuals with lots of cash, close ties to lenders and public officials and plenty of experience. Here’s a look at the foreclosure process and how it works.
What is foreclosure? A foreclosure happens when a buyer defaults on their payments and the lender takes formal legal action to seize the property. Foreclosures have accelerated not only due to a downturn in the economy that’s affected home sales, but because many homeowners were tripped up by adjustable-rate mortgages that moved to higher payment levels that they could not afford. State rules govern this process, 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 for lists of properties in default, but it’s particularly important to double-check these listings.
Do all troubled properties have to be in foreclosure to be sold? Actually, no. You will hear about “pre-foreclosure” or “short sale” properties put up for sale by lenders who have entered into agreements with troubled homeowners who elect to give up the property to avoid a foreclosure on their credit report. You will also hear about such sales being done by intermediaries who claim to deal in these transactions. Some are legitimate, some are not. Check them out.
How do people invest in foreclosure properties? There are 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 a local government building or in private auctions, depending on how the lender wants to market such properties to get them off their hands. Each process has its own conventions for inspecting the properties – sometimes prospective buyers get time to inspect what they might buy, other times little or none. That’s where the risk comes in – it’s not uncommon for owners losing their property to neglect it or damage it on purpose on the way out. Repairs can be costly.
Cash or loan? Borrow to buy a foreclosure property? With today’s credit environment, don’t count on any lender to stake you no matter how attractive your credit rating is. This is risky stuff. There’s also a second reason. While the typical purchase of a home or business property involves mortgage financing that takes weeks to secure due to credit checks and other factors, the sale of foreclosure properties is typically a fast-moving process that requires no-strings financing. Bottom line, a lender marketing foreclosed property likes cash. There’s another good reason to enter this process with cash instead of debt. Even sophisticated foreclosure investors often discover ugly surprises when buying – property with greater damage than they anticipated, for example – and they may not have the flexibility to borrow to fix those unexpected problems after they borrowed to buy in the first place.
Where to learn more? Start with some solid advice about your personal finances and your tax situation. A CERTIFIED FINANCIAL PLANNER™ professional can help review your circumstances and how prepared you might be for this risky form of investment. Beyond that, it’s a process of learning how various lenders in your community deal with pre-foreclosure and foreclosure property and how public officials and private auction houses in your area handle the auction process for such property. Generally, this is knowledge that will take time to obtain since all the parties involved in this process are busy and besieged by many like you who want to learn. Be patient, take the proper time to study the process and don’t spend a dime until you do.
February 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.
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.
January, 2009
One Good Thing about a Tough Market— It’s a Good Environment for Roth IRA Conversions
Most of us will not start the New Year happy about our investments. But if you are looking for a bright spot, it’s not a particularly bad time to consider converting a traditional IRA to a Roth IRA.
Right now, anyone with modified adjusted gross income of less than $100,000 a year (individual or joint income) can convert a traditional IRA account to a Roth IRA. Higher-income Americans will get the same break in 2010 if Congress doesn’t reverse its 2006 approval of provisions in the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA).
Keep in mind that this also might be a good idea for people who were also unemployed or disabled during the past year and therefore had lower income. Talk to your tax professional about doing a full or partial Roth IRA conversion.
Remember that when you do a conversion, you must pay income tax on the amount you are converting, which can be all of the funds in the traditional IRA or just a portion of those assets. 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.
Take another look at your statements and how much your investments are down. Assuming that the markets perform historically and fight their way back, your tax-free amount available for withdrawal could accumulate significantly under that Roth status.
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. 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 adviser such as a CERTIFIED FINANCIAL PLANNER™ professional.
Things to consider:
The difference between a traditional IRA and a Roth IRA: 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 1/2 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.
Time to retirement matters: 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.
Your tax rate at retirement is important: 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.
January 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.
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.
January, 2009
Taking Steps to Safer Investment Decisions in 2009
It’s tough to tell how much one investor can do to preserve assets in 2009, particularly with unprecedented government intervention in world markets. But here are some general ideas to employ as markets and economies hopefully stabilize in the New Year:
Start with a plan – or review an old one: If you’ve worked with a good financial planner, you should be able to articulate your long-term investment goals by yourself. If you can’t discuss such goals in detail, it might be time to meet with a financial advisor including a CERTIFIED FINANCIAL PLANNER™ professional. Much of the riskiest investing, overbuying and panic selling during the late 1990s and early 2000s could have been avoided if individual investors had sought advice for achieving long-term specific goals such as retirement or a college education.
Check all your assets in banks: As a result of federal economic bailout legislation, the Federal Deposit Insurance Corporation (FDIC) temporarily raised the per-deposit account, per-bank coverage level from $100,000 to $250,000 through Dec. 31, 2009. Certain retirement-related accounts carry $250,000 of FDIC coverage, but again, check in with your bank to make sure you’re covered, and if not, get the right advice for moving funds so you don’t incur an unexpected tax liability or fees.
Review your risk tolerance: Having a plan doesn’t mean make the plan and leave it to sit for years. You and your planner should decide when it’s time for a review of your investment goals and your feelings about them. An annual conversation makes sense if nothing’s going on, but when unusual circumstances in life or the markets take place, a phone call might be a good idea.
Prepare to stay invested: Stock downturns are always filled with panic selling – and buying. If your financial plan is sound, be prepared to stay the course, but work with your advisor to make sure you have your priorities covered. While times are tough, it’s wise to examine all your investment choices, but if they make sense, definitely put what you can afford in. You’ll reap rewards when the market returns.
Check your credit: No one knows how long it might take to unravel the nation’s current credit situation. That’s why creditworthy individuals might want to delay looking for new lines of credit until things loosen, and it’s definitely a good time to schedule review of each of your latest credit reports at staggered intervals throughout the next year. Why? Because in tough economies and times of tight credit, identity theft might be on the rise, and you’ll need to make sure the information on your credit data is truly your own.
Pay attention to your cash: You should have an emergency fund of three to six months’ worth of living expenses in case your job situation goes south, but the market turbulence we’ve experienced also highlights the need to be somewhat liquid in your investment positions so you can take advantage of certain opportunities. Not every investment that’s lost value is necessarily a bad investment, and with careful study, you should be able to have cash on reserve so you can capitalize on legitimate opportunities.
Re-budget: It’s a good time to make a budget or re-assess the one you have. Though the federal government would love for consumers to start spending again to lift the economy, that doesn’t mean you have to jump in with both feet. Keep your spending smart, your debt low so it’s easier to set savings and investment priorities that will do you the most good when the economy and the market come back.
Check your retirement: How will the activity in the market affect your retirement timetable? You might want to continue working full-time or plan a phased-in approach as you continue to build assets. There is a great danger now that people may become either too risk-adverse or assume too much risk in planning for their retirement, and that’s why it’s wise to get advice.
January 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.
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.
January, 2009
Whether You Call It a Budget or a Spending Plan, It’s a Good Way to Start 2009
Granted, the New Year is a time for best intentions. People vow to stick to a diet, knuckle down at work, spend more quality time with people they care about, start scratching off that long list of key chores around the house, and of course, keep a closer watch on their pocketbook.
If you find you can do only one of these things, focus on that last item: making and sticking to a budget. It might help you handle the rest of those resolutions:
• Being in control of one’s finances reduces stress. Stress can make people eat more and spend more.
• Having a spending plan in place means you’ll have already prioritized the key activities, expenditures and projects you’ll need to make for the year and the money you’ll need to afford them.
• Spending less time worrying about money means you’ll have more time to think about the people in your life.
Here are some ideas you may want to incorporate into that process.
Don’t be afraid to ask for help: Do you know where you need to be? A financial planner can ask the right questions and develop a customized plan to figure out your starting point and where you’ll finish based on your age, earnings potential and the new habits you’ll develop.
Start tracking every dime you spend: Whether you do it with a pen and a notebook or a computer program, make a concerted effort to track your everyday spending. Physicians say overweight people should track every morsel of food they eat; with money, it’s the same thing. Knowing where every penny goes gives a quick picture where certain pennies can be saved or invested.
Prioritize… When it comes to spending, there are needs and wants. Try this exercise. You can do this on a big 2009 desk calendar (or an electronic calendar that allows space for lots of notes to yourself). Mark down at the appropriate dates and times of the year items for which you need to spend and those for which you want to spend. What are needs? In part, food (not carryout or restaurant meals), monthly mortgage, tuition, auto or rent payments; monthly utilities; home, auto, life or disability insurance; retirement savings; property taxes and credit card payments. What are wants? Non-essential items like vacations, non-essential home improvement projects, restaurant meals (you can cook at home) or treats like clothing splurges or electronics. Compare these total expenditures to your total income. What will this crowded calendar tell you? That by attacking debt, making certain sacrifices and spending and saving smarter, you can eventually un-crowd that calendar and your financial life.
…then zero in each month: There has to be a living, breathing side to budgeting that accommodates change. Do this: Near the end of each month, make a list of the specific “needs” and “wants” you’ll face next month, and figure out how much money you’ll have for wants after needs are addressed. For example, if your car needs a necessary repair, that’s certainly going to boost the “needs” side of the page. If you find due to a one-time event (paying off a particular credit card, for example) that you have more to spend in the “wants” column, then it’s time to decide whether it’s time for a treat or to throw more into savings, investments or attacking any other debt.
Identify and plan for long-term goals: You need to think about the things you really want to do with your life and what those things will cost. Putting goals in writing gives them a formality and a starting point for the planning you must do. If these goals require saving, make sure you put those savings dates on the financial calendar you made.
Build failure and recovery into the plan: How many diets have evaporated with the words, “I blew it!” The fact is, with food or money; everyone goes off course at times. The important thing is to have a plan for corrective action – if you’re about to make an impulse purchase; implement a three-day spending rule. That means you should give yourself three days to check your budget and think through the purchase before you make it. If you can minimize the damage and get back on course, your progress will continue.
January 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.
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.
December, 2008
After a Turbulent 2008, Make Some New Year’s Resolutions for a Financially Healthy 2009
Money worries are the most common cause of holiday stress, according to Mental Health America. The 2006 study showed that parents are more stressed than all other demographic groups by finances and females are more likely than men to feel stressed by finances.
Money isn’t everyone’s Number One worry, but if it’s yours, why not consider the following New Year’s resolutions to improve your financial life?
Resolve:
1. To write down your goals: Have you ever written down the big things you want in life? Granted, all great dreams don’t cost money, but many of them do. Money buys freedom – to travel, to retire early, to start a business, to change careers. Putting goals in writing gives them formality and a starting point for the planning you must do.
2. To evaluate your risk tolerance: One of the most beneficial things financial planners do is help you articulate your financial goals and establish (or re-establish) your tolerance for risk. With the market turbulence that’s marked 2008, many individuals would benefit from an analysis of how much risk they want – or need – to take given what they want to achieve with their money.
3. To track your spending: If you haven’t purchased financial accounting software or set up a reliable accounting method of your own, this is the year to do it. Expense tracking is the first critical step to getting personal finances in order.
4. To consider advice on taxes and planning: Maybe you’ve always winged it with your taxes and considered your company 401(k) the ticket to your financial future. Chances are good that your planning is inadequate. Start looking for good tax professionals and consider sitting down with a CERTIFIED FINANCIAL PLANNER™ professional to discuss your current retirement savings picture and what you can do to improve it.
5. To cut your credit card debt: If you can’t ever seem to get yourself completely out of credit card debt, make this the year to do it. Take inventory of your balances, figure out if you can consolidate them under your lowest-rate card, and resolve to pay off an amount that exceeds the minimum – on time, every month. Oh, and pay cash from now on.
6. To save: If you haven’t signed up for your employer’s 401(k) plan or begun a savings plan tailored for the self-employed, this is the year. And resolve to save at least 5-10 percent of your take-home pay based on your cash flow, and place the maximum in whatever retirement savings plans you qualify for.
7. To get ahead on your mortgage: This advice isn’t for everybody, but if you’ve paid off your credit cards by paying more than the minimum, you can apply the same principle to your mortgage payment. Every dollar you prepay will potentially save thousands in interest over the life of the loan if you plan to stay in your home long-term. In fact, if you make one extra payment a year, either at once or in equal monthly shares over the course of a year, you can cut at least five years of payments on a 30-year loan. Just don’t short your retirement investment plans to accomplish this.
8. To 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 makes sense for your health as well as your insurance costs, do it.
9. To redefine the way you shop: If you’re an impulse shopper, break the habit in ’09. As a suggestion, get a legal pad and make that your centralized shopping list – use a single page for groceries, stock-up goods (it’s wise to start buying essentials in bulk if you can measure the savings), essential clothing or big expenditures you’ll need to make at specific times. Taking that pad with you wherever you spend money is a good way to keep a grip on your wallet as long as you don’t stray from the list.
10. To attack that miscellaneous column: Do you really need deluxe cable? How much are you paying for your Internet service? Can you wear a sweater around the house and lower the thermostat? In every budget, there are items that can be cut – or at least trimmed. Take a hard look at all your “essentials” to see how essential they really are. Aim for a target of at least 10 percent and start setting that money aside on a regular basis.
December 2008 — 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.
November, 2008
As Worker Shortage Increases, So Will Incentives to Keep Boomers on the Job
For several years now, various agencies and academics have predicted a systemic labor shortage that will create a labor shortage over the next 25-30 years as the gap between Baby Boomers and entrants of college-educated workers widens due to the Boomers’ mass retirements.
There are plenty of arguments over this theory, but employers are acting now to keep older workers in their jobs just a little longer. Some Boomers are finding out their bosses don’t want them to retire or are willing to make interesting compromises to give them an incentive to stay on full- or part-time. In a survey of older workers in the July 2008 EBRI Issue Brief, published by the nonpartisan Employee Benefit Research Institute (EBRI), 29 percent of workers said that feeling truly needed for an assignment was one of the top three most effective draws for staying on the job. Other incentives that were ranked highly include:
• Receiving a full pension while working part time;
• A pay increase;
• Continuing company-subsidized health insurance at the same level as full-time workers, and
• Receiving a partial pension while working part time.
So what would convince you to stay on the job or un-retire if your employer comes calling again? It makes sense to talk over such issues with a tax professional and a financial planner. No matter what the incentives put in front of you, there are key issues to consider:
Make working retirement a variable in your planning: If you’re 5-10 years away from retirement and reviewing your retirement thinking so far, it makes sense to ask yourself under what conditions you’d return to the workplace. 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.
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.
How will it affect your taxes? Tax issues shouldn’t determine your ambitions and goals, but it’s important to consider the impact work-related income will have on your retirement. Many retirees find that it doesn’t take much post-retirement, work-related income to tip 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 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 delaying receipt of those benefits for as long as you can.
Look at all the incentives: The top incentives luring experienced workers back to the workplace may be very attractive to you, or not attractive at all. Do some thinking about this. If you get the call, be prepared with a counter-proposal of what would really convince you to come back.
Consider insurance issues: If a retiree returning to the workforce is already receiving Medicare or covered by a “Medigap” policy, they may be able to lower their costs or improve their coverage by accepting group coverage as primary underwriter of their medical expenses. 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.
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.
November 2008 — 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.
November, 2008
Before the Holidays, Get Those Charitable Donations Lined Up
There’s a special sinking feeling as you approach Dec. 31 and realize you’ve done no tax planning whatsoever. That includes big issues like end-of-the-year investment decisions, and the smaller ones – like that stuff you no longer use piling up in the basement.
Charitable giving is an important part of tax planning at yearend, so let’s look at the cash and noncash aspects of giving. It makes sense to contact a tax expert or financial planner to talk about what giving makes sense for you:
You have to itemize: Only individual taxpayers who itemize their deductions on Schedule A can claim a deduction for charitable contributions. This deduction is not available to people who choose the standard deduction, including anyone who files a short form (1040A or 1040EZ).
Get out the checkbook: Uncle Sam likes a record. To deduct any charitable donation of money, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution – and it definitely helps to have both. Bank records mean canceled checks, bank or credit union statements and credit card statements. Bank or credit union statements should show the name of the charity and the date and amount paid. Credit card statements should show the name of the charity and the transaction posting date. For payroll deductions, the taxpayer should retain a pay stub, Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity. If you remember when the IRS was satisfied with personal bank registers or scribbled notes to document the donation, they’re not satisfied anymore.
There are charities, and then there are charities: You need to make sure that organizations are qualified to make tax-deductible contributions to. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions, but there’s an online version too. Just go to IRS.gov and type in “Search for Charities.” One key exception—it’s important to note that churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even though they often are not listed in Publication 78.
Giving away property: If you give away property, including clothing and household items, get a receipt that includes a description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes a description of the property and its condition. For any kind of vehicle, boat or airplane, the deduction is now limited to the gross proceeds from its sale. This rule applies if the claimed value of the vehicle is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.
You can’t deduct junk: Under a provision of the 2006 Pension Protection Act, contributions of physical items must be in good used condition or better to qualify for a deduction. That means that you can’t deduct ripped or discolored clothing or appliances that don’t work. If you donate noncash property that is valued at more than $500, you need to report to the IRS how and when you acquired the property and your cost basis. You must file Form 8283, Noncash Charitable Contributions, for all donations of property valued at more than $500.
Use that digital camera: If you’re ever audited, it helps to have photographs or video of these items, and obviously, demand a detailed receipt.
Learn rules about giving away appreciated securities: This is where a CERTIFIED FINANCIAL PLANNER™ professional or tax expert would come in handy. When you donate stocks or mutual fund shares you have held for more than one year, generally you may deduct the stocks’ current fair market value. Additionally, you avoid paying capital gains taxes on the appreciated value.
November 2008 — 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.
November, 2008
As Medical Expenses Rise, Don’t Miss Key Deductions
There are plenty of horror stories about uncovered medical expenses these days, and the truly horrifying part is that many of them belong to people who actually have health insurance. But anytime you or a family member is facing a health crisis or an unusual medical-related expense, it’s best to check to see if you might get a break from Uncle Sam.
A tax professional and a financial planner should be consulted to determine whether there are any tax issues or any ways to defer cost or save money at any part of the process. The Internal Revenue Service lets you deduct medical costs as long as they are more than 7.5 percent of your adjusted gross income (AGI). That means if your AGI is $50,000, you can deduct only those unreimbursed expenses that exceed $3,750.
Getting there requires some planning, which is why it’s so important to gather up every dime of unreimbursed medical, dental and vision care expenses and review it carefully.
Here are things taxpayers often miss:
Medically related travel: The IRS evaluates the standard cents-per-mile allowance each year for travel to and from medical treatments. Between Jan. 1-June 30, that rate was 19 cents a mile. Between July 1 and Dec. 31, the rate will rocket to 27 cents a mile.
Insurance payments from already taxed income: This includes the cost of long-term care insurance, up to certain limits based on your age.
Uninsured medical treatments: This includes what you spend for an extra pair of eyeglasses or set of contact lenses, false teeth, hearing aids or artificial limbs.
Rehab treatment: What you pay for alcohol or drug-abuse treatments can be noted on Schedule A.
Weight-loss to smoking cessation: If a doctor prescribes it, you’ll be able to deduct it.
Laser vision correction surgery: May be an allowable expense to deduct on your current taxes.
Doctor-recommended equipment and related expenses: If your doctor tells you that you need a humidifier installed on your heating and air conditioning system to help your breathing problems, you might be able to deduct all or part of the cost for the device as well as the additional energy costs to run it.
Some medical education costs: If you, your spouse or child have a chronic medical condition and you attend a conference to learn more about it, you can count admission and transportation expenses as a deduction, but not meals and lodging.
If you’re self-employed: You may deduct, as an adjustment to gross income, the full cost paid for medical insurance for you, your spouse and your dependents.
Lodging for out-of-town treatment: When accompanying a minor dependent to out-of-town medical treatment, hotel bills may be partially deductible.
Here are some less common expenses to watch:
Medically necessary home improvements or equipment: If you do a home improvement or bring in special equipment that’s considered medically necessary for you, your spouse or your dependents, you’ll be able to deduct the cost. These may include special entrance/exit ramps to your house, widening doorways, modifying kitchens or bathrooms, or adding a chairlift for the physically disabled. Because these improvements are not expected to add to the market value of the home, they are considered fully deductible. If the improvement increases the value of your home, only the amount of the expense that exceeds the increase in the property value of your home is deductible.
Nursing services: If you are paying out-of-pocket for a home-based nurse, these expenses may be deductible.
Lead paint removal: Lead paint is dangerous, and the money needed to remove the paint from a home may be deductible.
November 2008 — 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.
October, 2008
Short-term Long-term Care Insurance? Make Sure it’s a Good Idea for You
As the long-term care (LTC) insurance market has matured over the past 20 years, features have been added to the costly policies to make them more attractive. Even the IRS has even come on board, making a portion of the premiums tax-deductible. Yet with the tougher economy, insurers are looking for ways to get more consumers in the door – so they’re adjusting features to give people a break on cost.
Enter the “shorter-term” long-term care policy for individuals who are willing to play the odds. The main change in such policies is that they eliminate the “lifetime” feature in favor of a shorter time limit on benefits, usually between two and three years, currently the length of an average nursing home stay. These shorter-term plans can potentially cut the cost of average annual premiums in half, and if couples buy a combined policy, they potentially may cut the premium cost further.
The idea of lower-cost LTC insurance is certainly attractive, but it makes sense to get some advice and ask some very important questions before committing. A financial planning professional can help you assess how well prepared your finances are to sustain a serious long-term illness with a current national average of $70,000 in annual nursing home bills that would not otherwise be covered by insurance. In addition, consider:
What’s your health like? People in good health purchasing long-term care insurance in their 50s or younger usually get the most affordable deal in LTC insurance. But to some degree, your current health status is no guarantee that you’ll only be looking at 2-3 years of expenses in total. Keep in mind 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 and may do so more than once.
Are you 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, LTC policies have evolved to place more emphasis on home-based care or assisted living, since most people would choose to be cared for in a familiar environment. However, it is important to review what all home-based as well as nursing home/assisted care center services may be covered. 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 may be covered. Also, if you are considering a policy with a fixed dollar benefit, compare all of these features with a lifetime policy.
What triggers coverage? Most LTC policies won’t go into effect until the covered individual can’t perform two tasks of daily living for a specific period of time or when that person needs substantial supervision related to cognitive impairment, such as Alzheimer’s disease.
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. Discuss these options with a financial planner if you can, because the amount of your personal assets will be a factor here.
What’s the record of particular companies in this business? Over the past generation, more companies have gotten involved in the LTC insurance business, and it makes sense to see not only who the leaders are at the time you’re buying and what they’re offering, but how financially healthy these companies are and have been over the course of time. You’ve probably heard of insurance companies that have gone out of business and stranded customers. There’s no restriction on that happening with LTC providers, so check their ratings and financial history very carefully.
October 2008 — 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.
October, 2008
Nervous? Time to Reassess – or Make – A Financial Plan
We’re in a financial crises the likes of which most of us have never seen. It is marked by the biggest bank failure in American history, Dow swings of nearly 800 points to the downside and upside swings of more than 600, a dry-up in the nation’s consumer and business credit markets, and world governments still trying to calm the waters.
How are you handling this? Are you sitting dumbfounded in front of the TV? Do you strap on the iPod and vow not to turn it off until the crisis passes? Or do you check your financial plan to make sure you are well-positioned for clearing after the storm?
It’s easy to succumb to the urge to panic in an economic crisis. Some people sell fearing worse losses. But sudden action is usually a mistake. In the late 1980s, Harvard psychologist Paul Andreassen made news with a research project which found that those who listened to market news actually achieved lower returns than those who didn’t. Why? Because those who sold – or bought – during a market swing probably discovered a day or two later that the market was really running on hype, not fundamentals.
Now is not a time for knee-jerk action. It’s a time for planning and for thoroughly considering opportunities. If you don’t work with a financial planner, it may be time to consider talking with an expert like a CERTIFIED FINANCIAL PLANNER™ professional. You pay a financial planner to devise a financial strategy that matches your risk tolerance and long-term financial goals. There is absolutely no way to guarantee that you’ll never lose money in a turbulent market. But if a plan truly matches you, the noise level on TV shouldn’t make a difference because you’ll already have contingency plans in place for rough times. So the next time the Dow spikes or slides, ask yourself:
What’s my plan? If you’ve worked with a good financial planner, you should be able to articulate those goals all by yourself or refer to an investment policy statement you made together. Much of the riskiest investing, overbuying and panic selling during the late 1990s and early 2000s could have been avoided if individual investors had sought advice for achieving long-term specific goals such as retirement or a college education. Obviously, if you don’t have a plan, it might be time to make one with the help of a qualified professional.
How are my bank accounts? As a result of federal economic bailout legislation, the Federal Deposit Insurance Corporation (FDIC) has temporarily raised the per-depositor coverage level from $100,000 to $250,000 through Dec. 31, 2009. Certain retirement-related accounts carry $250,000 of FDIC coverage, but again, check in with your bank to make sure you’re covered, and if not, get the right advice for moving funds so you don’t incur an unexpected tax liability.
Am I prepared to stay invested – no matter what? We all remember the “Tech Wreck” of 2000. At the worst of that downturn, investors bailed out of the stock market or drastically cut back, only to get back in after they were “convinced” that the market was rebounding. In reality, they missed out on stock market gains during the early stages of recovery, and that’s costly in the long run. Of course, some investors looking for a late 20th-century investment high also got into the real estate market, and they perhaps learned a similar lesson when that market started heading south two years ago.
In 2004, SEI Investments studied 12 post-World War II bear markets. Investors who either stayed in the market through its bottom, or were fortunate to enter at the bottom, saw the S&P 500 gain an average of 32.5 percent (not counting dividends) during the first year of recovery. Investors who missed even just the first week of recovery saw their gains that first year slide to 24.3 percent. Those who waited three months before getting back in gained only 14.8 percent.
Am I diversified? The NASDAQ lost 39 percent of its value in 2001, and another 21 percent in 2002. Meanwhile, real estate investment trusts, which performed poorly in 1998 and 1999 when stocks were booming, had banner years in 2000 and 2001, performed so-so in 2002, and had an excellent 2003. Bonds also returned well during the bear market. Your planner, based on your risk profile, should have you in diversified investments that fit your goals. Besides, moving holdings while the market is turbulent not only costs you money, but potentially returns as well.
Do I still feel the same way I used to about returns? Having a long-term investment plan doesn’t mean make the plan and leave it to gather dust. You and your planner should decide when it’s time for a review of your investment goals and your feelings about them. An annual conversation makes sense if nothing’s going on, but in times like these, a phone call to your planner might be a good idea.
How’s my retirement? Obviously, the ups and downs in the market have been going on for a while and they might last a while longer. How will this impact your retirement timetable? You might want to continue working full-time or plan a phased-in approach as you continue to build assets. There is a great danger now that people may become either too risk-adverse or assume too much risk in planning for their retirement, and that’s why it’s wise to get advice.
How’s my spending? It’s a good time to make a budget or re-assess the one you have. Though the federal government would love for consumers to start spending again to lift the economy, that doesn’t mean you have to jump in with both feet. Keep your spending smart and your debt low so it’s easier to set savings and investment priorities that will do you the most good when the economy and the market come back.
Got cash? You should have an emergency fund of three to six months’ worth of living expenses in case your job situation goes south, but the market turbulence we’ve experienced also highlights the need to be somewhat liquid in your investment positions so you can take advantage of certain opportunities. Not every investment that’s lost value is necessarily a bad investment, and with careful study, you should be able to have cash on reserve so you can take advantage of such events.
How’s my credit? No one knows how long it might take to unravel the nation’s current credit situation. That’s why creditworthy individuals might want to delay looking for new lines of credit until things loosen, and it’s definitely a good time to review each of your latest credit reports at staggered intervals throughout the next year. Why? Because in tough economies and times of tight credit, identity theft might be on the rise, and you’ll need to make sure the information on your credit data is truly your own.
Should I keep saving and investing? Definitely. Again, while times are tough, it’s wise to examine all your investment choices, but if they make sense, definitely put what you can afford in. You’ll reap rewards when the market returns.
October 2008 — 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.
October, 2008
Be Careful About Picking Beneficiaries for Your IRAs and 401(k)s
Inheriting IRA or 401(k) proceeds from a friend or relative can be a potentially huge windfall, but it can also be a sizable tax headache. For both the giver and the recipient, it’s worth getting some advice.
Bank accounts, stocks, real estate and life insurance proceeds generally pass to heirs free of income tax. However, inherited retirement benefits can be a different story. Beneficiaries have to pay ordinary income tax on distributions from 401(k) plans and traditional IRAs after they are inherited. (You don’t see the same problem with Roth IRAs – their benefits can be free of income tax to your heirs if all tax requirements are met.)
A financial planning professional or an experienced tax advisor can work with you based on your personal tax and estate circumstances to determine an inheritance strategy that is best for you. Some general guidelines:
Spouses are the first stop: Federal law dictates that your surviving spouse must be the primary beneficiary of your 401(k) plan benefit unless your spouse signs a waiver to redirect those funds. Even with a traditional IRA, naming the spouse as the primary beneficiary may be an appropriate option. Should the surviving spouse have his or her own IRA, this approach would allow them to simply roll over the assets from the decedent’s IRA into their own. Furthermore, if the surviving spouse is significantly younger than the deceased, the surviving spouse would receive the added benefit of stretching out distributions from the IRA until he or she turns 70 1/2. The stretch-out allows the assets to continue to grow on a tax- deferred basis, thereby maximizing asset value and delaying any income tax due.
When might you want to rethink a spousal beneficiary? When the surviving spouse’s estate is expected to be large enough to exceed the applicable exclusion amount for federal and state estate taxes. The applicable exclusion amount after allowable expenses is $2 million in 2008 and above $3.5 million in 2009. It should also be noted that in addition to federal estate tax, many states impose a state tax on estates with considerably lower asset levels (often anything over $1,000,000). Proper estate planning may alleviate this issue.
What about non-spousal beneficiaries? Today, non-spouse beneficiaries may be able to roll over all or a part of inherited 401(k) benefits to an inherited IRA. A recent change in IRS regulations still requires non-spousal heirs to withdraw a minimum amount from Inherited IRA assets every year, but it’s based on the age of the recipient rather than the age of the decedent.
Establishing a Stretch IRA: Due to recent changes in the minimum distribution law, taxpayers may now establish IRAs designed to stretch out the time period over which a non-spouse beneficiary (i.e. child) is required to take minimum distributions from an inherited IRA. Proper use of this vehicle may potentially allow for continued growth of tax-deferred earnings over multiple generations and can have a substantial impact on the future value of the family portfolio.
Naming trusts or charities as beneficiaries. Placing IRA assets in trust can have substantial advantages but can be complex. It should only be considered after receiving tax advice from a competent professional. It is particularly important to get tax advice related to this issue. Trusts can be complex instruments with which to bequeath assets, and even though naming a charity as one’s primary beneficiary will not affect distributions in your lifetime, it could affect the tax consequences for non-charitable beneficiaries who are sharing the same asset upon your death.
October 2008 — 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.
September, 2008
Is A Health Savings Account Right For You?
Fall is approaching; for many workers that means that open enrollment is coming. Open enrollment is a specified time period during which companies let their employees sign up for various health and retirement savings benefits as well as smaller benefit options that may be unique to a company.
One of those options might be a health savings account, also known as an HSA. Health savings accounts were created as part of the Medicare Modernization Act of 2003. Anyone under age 65 who buys a qualified high-deductible health plan (HDHP) can open an HSA. However, you can still own an HSA and be covered under other types of insurance policies that cover liability, dental, vision and long-term care needs.
Why are companies offering these plans? Because a high-deductible health plan option allows a company to save money while giving their employees a shot at lower or stable monthly individual and family premiums. It’s important to know that in 2007, the contribution rules on these plans changed. Previously, the maximum contribution was calculated as the lesser of the deductible of the high-deductible health plan or a specific indexed amount. Now, the limit is the maximum annual contribution alone.
What’s the big advantage in choosing one? Contributions are made to HSAs on a pretax basis where they are allowed to grow tax-deferred and spent out on a tax-free basis for medical expenses. HSA contributions could be made through a company’s cafeteria plan if allowed by the company’s cafeteria plan document, and can potentially save FICA/Medicare taxes on the contribution along with federal and state taxes.
Yet there are some critical things to know before you make the switch.
Get some individual financial advice first: The enticement of potentially lower or more stable health insurance premium increases may lead you to jump immediately, but it makes sense to speak to your tax professional as well as a financial adviser about how an HSA should fit into your overall financial strategy.
Understand your 2008 HSA limits: These are the maximum contributions you can place in an HSA and the minimum and maximum out-of-pocket amounts for an HDHP insurance plan:
• Maximum HSA contribution: $2900 for individual, $5800 for families
• Minimum HDHP deductible: $1100 self-only coverage, $2200 family coverage*
• Annual out-of-pocket maximum: $5600 self-only coverage, $11200 family coverage
• If you are 55 or older and your HDHP is in effect, you are eligible to deposit catch-up contributions, and in 2008, the additional amount is $900.
Know the difference between an HSA and a medical flexible spending account (FSA): One important difference is that HSAs allow balances to be rolled over from year-to-year, growing on a tax-free basis as long as they’re used for medical expenses. On the other hand, Medical FSAs require that the money you contribute each year be spent by year-end (or within a brief grace period if provided by the plan) or you’ll lose it. But in certain cases, such as when you incur medical expenses early in a year, you can be reimbursed by your FSA without having to fully fund it – so FSAs might be a bit more flexible in this regard. Get help from your tax or human resources professional.
Know whether you can have both: In some situations, you may be able to have both an HSA and an FSA. If your FSA provides for limited reimbursement for items not covered by your health insurance plan (such as dental, vision or wellness care), you can use an HSA for items covered by your plan and your FSA for medical expenses that are not. Obviously, double-check this with an expert.
Know penalties for non-medical withdrawals: You’ll get hit with a 10 percent penalty, plus any withdrawals will be taxed at ordinary income tax rates. After age 65, you’re free to use the funds for any purpose without penalty, but non-medical withdrawals are still taxable.
You may actually use an IRA to fund an HSA on a one-time basis: The rules let individuals roll over money from an IRA once so people can use the money tax-free for medical expenses, but the amount of the rollover is limited to the HSA maximum contribution for the year minus any contributions already made.
September 2008 — 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.
September, 2008
Preparing Your Finances for a New Baby
Bringing a child up is a tremendous financial responsibility, and it’s better to plan in advance than to deal with a surprise down the line.
The U.S. Department of Agriculture compiles an annual survey on what it costs to raise a child from birth through age 17. In 2007, expenses ranged from a total of $7,830 to $8,830 for a two-child, husband-wife household in the lowest income group to $15,980 - $17,500 for families in the highest income group. Once again, those are the latest annual figures. If you held spending unrealistically static for the next 17 years, the cost of raising a child in the lowest income group would range from $133,110 to $150,110 adjusted for inflation. In the highest income group, the range would be between $271,660 to $297,500.
Note that we haven’t begun to discuss college yet. Across the United States, the average tuition and fees at four-year private institutions in 2007-2008 was $23,712, representing a 6.3 percent increase of more than $1,400 over 2006-2007, according to College Board’s 2007-2008 Annual Survey of Colleges. At public four-year colleges, the average in-state tuition and fees averaged $6,185, a 6.6 percent increase.
All parenthood comes at a price. But with the help of a financial planner you can create a strategy to afford kids from birth through college. Here are some key points in that process:
Create or review your financial plan: A financial plan is a written set of goals, strategies and a timeline for accomplishing those goals. For many individuals, it may be the first time that they seriously examine their financial future in such black-and-white terms. But it starts with the basics – determining how much you really have in savings, debt, insurance and investments. Your financial planner can also help you understand how much the additional costs of raising a child, including the startup costs of birth or adoption will affect all those numbers. A financial plan should be reviewed periodically, and with every major change in life. Having kids is certainly one of those landmark events.
Get rid of high-interest debt: A major decision like having a child is a good reason to take a “clean slate” approach to debt. Before you can build a reserve fund, it’s wisest to pay off your credit cards first.
Make sure you have a will: If you die without a will, you won’t have a clear path of guardianship for your child, nor will your assets be properly directed to support that child. In cases of adoption, any good adoption attorney will insist that you develop and file a will as part of the adoption process.
Check your insurance options: In today’s health insurance environment, the addition of a child to a policy may bring tremendous additional cost – sometimes without the guarantee of the best coverage. Check with your employer or your independent insurance provider to make sure you have the best coverage for what you can afford. Also look into medical savings accounts with your financial planner if you decide to take a high-deductible policy to keep premiums low.
Know your tax advantages: If you’re adopting, you can get some tax relief. In tax year 2008, parents will be entitled to a one-time tax credit of $11,650 per eligible child. There are income limits – the credit disappears for individuals with modified adjusted gross income between $174,730 for individuals and $214,730 for couples.
Ask what your employer can do for you: If you’re working at a family-friendly company, it’s often considerably easier to apply for leaves of absence or work schedules that make more sense when you’ve got a young child at home. Some companies may offer to reimburse some portion of their workers’ adoption expenses.
Build your reserve fund: When a baby, toddler or older child comes into the house, money flies out the door at a velocity most childless people have never seen. Children always cost money and sometimes unpredictably so, but it pays to build your savings before they arrive so you won’t overuse your credit cards. Also, it’s possible that a birth mother’s health may take a negative turn during the pregnancy, so that’s an expense that needs to be anticipated.
September 2008 — 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.
September, 2008
Blended Families Should Plan Early for College Financial Aid
Finances for blended families – one of the fastest-growing demographics in the United States – can be complicated. The needs of stepchildren may fall into direct conflict with one’s own, and aside from the many financial entanglements that result from previous marriages or partnerships, college planning is a particular area where couples should seek help.
Why? Because more than 60 percent of all college students now apply for some form of financial aid, and those numbers will go higher as college costs rise. Add that to the sometimes-conflicted financial goals within families with children from previous marriages and relationships, and a couple’s financial picture may become a source of considerable strain based on negotiations with former spouses.
Both tax experts and financial planners should be consulted before couples remarry in order to address the host of financial issues blended families face. In particular, individuals with children from a previous marriage should think through how college will be funded for their own children as well as for any children born after the new marriage.
Here are several key issues that soon-to-be remarried individuals should consider with regard to planning for college:
Divorce agreements should spell out college support: By the time individuals are planning to remarry, a divorce may be long past. But in cases where a divorce may be pending before remarriage, couples may have the opportunity to secure adequate college support if state laws allow that as part of a settlement. Even if the children are very young, support agreements should always look ahead to the years when the child heads to college, not only to make sure that the education is properly funded, but to spell out those financial responsibilities for each divorcing spouse.
Prenuptial agreements should spell out college support too: Even if a remarrying couple has very small children, it makes particular sense to look to the future when the children of this blended family are heading for school. In many situations, it’s common for remarrying spouses to shoulder the full burden of the blended family’s college expense. But a prenuptial agreement – a financial agreement made by two individuals planning to marry—can do two things. It can look into the past and document existing agreements with ex-spouses to pay for college expenses and other financial support and it can look into the future to do contingency planning for the kids in case this marriage ends up in divorce as well.
Get advice about the FAFSA: On January 1 each year, students become eligible to file their Free Application for Federal Student Aid (FAFSA) online for the coming school year. This process can get very confusing in blended families because parent-child relationships determine the level of financial responsibility and the potential for aid. It is critical for divorced spouses to get advice on this issue. Colleges will determine financial aid packages on the custodial and financial profile of parents based on any of the following parental scenarios:
• The parent who provided the majority of financial support to the child during the past 12 months.
• The parent who supplied more than half of the child’s support and pledges to continue to do so.
• The parent who has legal custody of the child.
• The parent who claimed the child as a dependent on their taxes.
• The parent who provided the most financial support to the child during the most recent calendar year.
• The parent with the greater documented income.
College financial aid is tough enough for traditional families to navigate. A financial planner with specific expertise in navigating financial aid issues can help you make the best choices in preparing your application for college aid.
Remember that if the parent who provided financial support was single, divorced or widowed but has since remarried, the student will have to submit the stepparent’s financial information. While this information will be evaluated, it doesn’t legally obligate the stepparent to provide financial assistance.
September 2008 — 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.
August, 2008
Top 10 Money Moves for Today’s College Freshman
With average college tuition up 6.3 percent at private schools and 6.6 percent at public schools this past year, money management is a bigger issue than ever on college campuses. That’s why it’s good to send your freshman off to school with a 10-point plan on how to best manage his or her money.
1. Take baby steps with credit: It’s one thing for a teenager to use his parents’ credit card while still living at home. It’s quite another when he gets his first taste of freedom hundreds of miles away from home. 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. That can be a strong incentive for the student to keep his credit rating clean. Most important: Parents should do whatever it takes to make sure their child doesn’t sign up for any credit cards on campus.
2. Bank smart: Students need to get some familiarity with the banking system before they head to college. Kids generally should set up a checking account on campus, but talk to them about debit options and how banking fees (particularly for overdrafts) can eat away at their money. Also ask your child to ask the bank about direct-deposit options if you’re planning to deposit money for tuition or agreed-to spending needs. You want your child to be independent, but if necessary, make it a joint account and check those balances online.
3. 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 and mochas are not an emergency.
4. Put the student in charge of maintaining financial aid information: 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. You 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. It might also make sense to take your child to your tax preparer to make sure you’re taking advantage of the child’s “tax capacity” and other income tax opportunities. It will be a good learning experience.
5. Make them budget: If they’re leaving for college with a new computer, consider giving them personal finance software to track their expenses. Make sure the computer has a security password. Work together to determine necessary realities about everyday expenses, tuition and financial aid. Tell your kid that when he or she comes home at Thanksgiving, you’ll 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.
6. 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. Everyone is entitled to one free report from each of the agencies each year; go to http://www.annualcreditreport.com .
7. Help them open their first IRA: Get some advice on this from a trusted personal financial planner – but 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 that this is essential to their future savings so they don’t cash it in prematurely.
8. 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 child to keep all paper records in a safe place and use passwords to keep all their digital information safe.
9. 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 so they’ll be in the front of the line when it’s time to apply.
10. Handle mistakes the right way: 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 that you’ll work on together.
August 2008 — 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.