Objective information about financial planning, investments, and retirement plans

Are You Ready For Retirement?

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Happy Thanksgiving to all of you and to your families.  We are thankful for having all five of us home together and the time we get to spend as family. For anyone with adult kids you know that doesn’t happen as often as we might like sometimes.

As I write this we are sitting out Black Friday as we always do and looking forward to a weekend filled with family, great leftovers, and football. Especially on Sunday when I am hoping for a Packer victory over the Partriots at Lambeau Field.

If you are looking for some financial reading this weekend check out this excellent infographic depicting retirement readiness across a number of developed countries.   You might also find the comparisons of what retirement means across the various countries interesting as well.  I want to thank the folks at the Irish firm All Finance Tax for sharing this with me.

This infographic provides some excellent retirement planning tips. Are you ready for retirement?  With the end of the year approaching why not take the steps to get on track and avoid retirement planning regrets down the road.

 All Finance Tax

 

Retirement is a journey.  I can’t think of a better time to get started or to gauge your progress than now no matter what your age.  Why not take some time over the last month of year to ensure that you hit the ground running in 2015?

Five Things to do During a Stock Market Correction

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As you may or may not know the stock market has been going through some tough days recently.  For example the S&P 500 Index is down about 8% from its all-time high reached in September of this year.  While we are not officially in correction mode (this is usually defined as a 10% or greater drop in an index) there has been a lot of volatility lately.  Here are five things you should do during a stock market correction.

Do nothing

Assuming that you have a financial plan with an investment strategy in place there is really nothing to do at this point.  Ideally you’ve been rebalancing your portfolio along the way and your asset allocation is largely in line with your plan and your risk tolerance.  Making moves in reaction to a stock market correction (official or otherwise) is rarely a good idea.  At the very least wait until the dust settles.  As Aaron Rodgers told the fans in Green Bay after the Packers 1-2 start, relax.  They have since won three straight.  Sound advice for fans of the greatest team on the planet and investors as well.

Review your mutual fund holdings

I always look at rough market periods as a good time to take a look at the various mutual funds and ETFs in a portfolio.  What I’m looking for is how did they hold up compared to their peers during the market downturn.  For example during the 2008-2009 market debacle I looked at funds to see how they did in both the down market of 2008 and the up market of 2009.  If a fund did worse than the majority of its peers in 2008 I would expect to see better than average performance in the up market of 2009.  If there was under performance during both periods to me this was a huge red flag.

Don’t get caught up in the media hype

If you watch CNBC long enough you will find some expert to support just about any opinion about the stock market during any type of market situation.  This can be especially dangerous for investors who might already feel a sense of fear when the markets are tanking.  I’m not discounting the great information the media provides, but you need to take much of this with a grain of salt.  This is a good time to lean on your financial plan and your investment strategy and use these tools as a guide.

Focus on risk

Use stock market corrections and downturns to assess your portfolio’s risk and more importantly your risk tolerance.  Assess whether your portfolio has held up in line with your expectations.  If not perhaps you are taking more risk than you had planned.  Also assess your feelings about your portfolio’s performance.  If you find yourself feeling unduly fearful about what is going on perhaps it is time to revisit your allocation and your financial plan once things settle down.

Look for bargains

If you had your eye on a particular stock, ETF, or mutual fund before the market dropped perhaps this is the time to make an investment.  I don’t advocate market timing but buying a good long-term investment is even more attractive when it’s on sale so to speak.

Markets will always correct at some point.  Smart investors factor this into their plans and don’t overreact.  Be a smart investor.

Your 401(k) – A To Do List for the Rest of 2014

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In a recent post Eight Financial To Do Items for the Rest of 2014, I outlined several items for your financial to do list for the rest of 2014.  One of those items was to review your 401(k) plan.  Here are a few more steps to take with your 401(k) plan yet this year.

Review your salary deferral amount

The maximum dollar amount that you can defer from your salary is $17,500 or $23,000 if you are 50 or over at any point during 2014.  If you are not on track to max out your contributions now is a good time to see if you can increase your salary deferral percentage even by 1%.  In the long run this will put you that much farther ahead in your question to build a retirement nest egg.

Review and if needed rebalance your account

Both the S&P 500 and the Dow Jones Industrial Average have hit a number of new record highs during 2014 on the heels of a very solid 2013.  In fact the S&P 500 Index is up almost threefold since the market lows of March, 2009.  If you haven’t recently rebalanced the asset allocation of your account back to your target allocation this is an excellent time to do so.  Better still if your plan offers auto rebalancing this is a great time to sign up if you haven’t already.

Be aware of any changes to the plan

Fall is open enrollment time for employee benefits for many companies.  While changes to the level of your salary deferral contributions as well as to the investment choices you make can be done throughout the year, many companies choose this time frame to announce changes to their plan for the upcoming year.  This might include the level of the employer match, the addition of a Roth 401(k) feature, or changes to the menu of investment choices available to you.  You need to be aware of any and all changes to the plan and be ready to make any applicable adjustments based upon your situation.

Be cautious when it comes to company stock 

Perhaps as a sub-set of the rebalancing section mentioned earlier if your account includes an investment in your company’s stock this is a good time to review how much you have allocated there and if needed pare that amount down.  There are no hard and fast rules but many financial advisors suggest keeping your allocation to company stock to 10% or less.  The rational here is that you already depend upon your employer for your livelihood; if the company runs into problems you might find yourself unemployed and holding a lot of devalued company stock in your retirement plan.

Get a handle on any old 401(k) accounts 

It’s not uncommon for folks to have several old 401(k) accounts from former employers.  It’s also not uncommon for these accounts to be neglected and unwatched.  If this describes you make this the year to get your arms around these accounts and make some decisions.  Roll them over to an IRA or if eligible to your current 401(k) plan.  If leaving one or more of them with that former employer is a good decision make sure you monitor the account, rebalance when needed, etc.  The point is even if these accounts are relatively small they can add up and help as you save for retirement.  Take charge and take affirmative action here.

Understand your options should you leave your current employer 

Let’s face it the last part of the year is often when companies do layoffs.  If you suspect that you will be impacted in this way you should at least start thinking about what you will do with your 401(k) account.  The same holds true if you are looking for a new job or considering going out on your own.

As we head into football season, the kid’s activities at school, and the holidays please make some time to tend to these and perhaps other items in connection with your 401(k) plan.  For many of us our 401(k) is our primary retirement savings vehicle, make sure that it is working hard for you.

Please check out our Book Store for books on financial planning, retirement, and related topics as well as any Amazon shopping needs you may have (or just click on the link below).  The Chicago Financial Planner is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.  If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small fee, yet you don’t pay any extra. 

The Plutus Awards – Finance Blogs to Read and Discover

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The finalists for the 2014 Plutus Awards which celebrates the best in personal finance blogging were recently announced.  Check out the official announcement here.  I was very honored and flattered to have this blog named as a finalist in the Best Financial Planner Blog category.

What is most gratifying is that the finalists were chosen by other finance bloggers.  I am humbled by and grateful for being selected as a finalist among all of these outstanding finance blogs.  I read many of them and plan to check out the ones that I am not familiar with.

If you are looking for a list of finance blogs to read and learn from here is list of the finalists by category:

Best New Personal Finance Blog

FITnancials
Listen, Money Matters!
Rock Star Finance
Stapler Confessions
ValerieRind.com

Best-Kept Secret Personal Finance Blog

Debt Discipline
Free From Broke
L Bee and the Money Tree
The Frugal Exerciser
Wealthy Single Mommy

Best Designed Personal Finance Blog

Be Wealthy & Smart
Budget Blonde
Christian PF
Financially Blonde
Good Financial Cents

Most Humorous Personal Finance Blog

The Empowered Dollar
Financial Uproar
Frugalwoods
Len Penzo dot Com
Punch Debt in the Face

Best Microblog

@JimYih
@MMarquit
@MoneyCrashers
@rockstarfinance
@wisebread

Best Personal Finance Podcast

Cash Car Convert
Dough Roller
Listen Money Matters
Money Plan SOS
Stacking Benjamins

Best Retirement Blog

Escaping Dodge
Financial Mentor
Mr. Money Mustache
Retire by 40
Retire Happy

Best Entrepreneurship Blog

Beat the 9 to 5
Careful Cents
Create Hype
Microblogger
My Wife Quit Her Job

Best Blog for Teens/College Students/Young Adults

Broke Millennial
Making Sense of Cents
TeensGotCents
The Broke and Beautiful Life
Young Adult Money

Best International Personal Finance Blog

Monster Piggy Bank
Reach Financial Independence
The Skint Dad Blog
The Money Principle
Miss Thrifty

Best Canadian Personal Finance Blog

Blonde on a Budget
Boomer & Echo
Canadian Budget Binder
Canadian Finance Blog
Money after Graduation

Best Religious Personal Finance Blog

Bible Money Matters
Christian PF
Indebted and in Debt
Luke1428
Out of Your Rut

Best Tax Blog

The Blunt Bean Counter
Tax Girl
JoeTaxpayer
TaxProfBlog
The Wandering Tax Pro

Best Deals and Bargains Blog

$5 Dinners
Bargain Babe
Bargain Briana
CouponMom
Hip2Save

Best Frugality Blog

Club Thrifty
Frugal Rules
I Am That Lady
Pretty Frugal Living
Stapler Confessions

Best Debt Blog

Dear Debt
Debt Roundup
Enemy of Debt
Money Plan SOS
The Frugal Farmer

Best Investing Blog

Dividend Mantra
Financial Mentor
Investor Junkie
Personal Dividends
The College Investor

Best Contributor/Freelancer for Personal Finance

Cat Alford
Jason Steele
Michelle Schroeder
Miranda Marquit
Stefanie O’Connell

Best Green/Sustainability Blog

DIY Natural
Prairie Eco-Thrifter
Sustainable Life Blog
Sustainable Personal Finance
The Frugal Farmer

Best Financial Planner Blog

Financially Blonde
Good Financial Cents
Nerd’s Eye View
Mom and Dad Money
The Chicago Financial Planner

Lifetime Achievement

FMF (Free Money Finance )
FrugalTrader (Million Dollar Journey)
Jim Wang (Bargaineering)
Lazy Man (Lazy Man And Money)
Ramit Sethi (I Will Teach You To Be Rich)

BLOG OF THE YEAR

Afford Anything
Broke Millennial
Canadian Finance Blog
The Empowered Dollar
Making Sense of Cents
Mr. Money Mustache
PT Money
Stacking Benjamins
Wealthy Single Mommy
Wise Bread

Congratulations to all of the finalists.  Note I did leave off a couple of categories that were mostly internal blogging resources.

There is plenty of excellent personal finance information contained in the list above, time to get reading.

Please check out our Book Store for books on financial planning, retirement, and related topics as well as any Amazon shopping needs you may have (or just click on the link below).  The Chicago Financial Planner is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.  If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small fee, yet you don’t pay any extra. 

Money Conversations – Caring for Aging Parents

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Thanks to Cheryl J. Sherrard, CFP®, NAPFA Registered Advisor and Director of Planning for Clearview Wealth Management in Charlotte, NC for contributing this post.  

This post is a follow-up to my recent post Family Financial Conversations and to the post previously contributed by Cheryl’s colleague Megan Rindskopf Meaningful Family Conversations for the Holidays.

We all know that when we get married, we marry the entire family.  What we may not realize is that each of us comes into a marriage with expectations about how we will interact with and assist our families.  Most couples talk about and come to consensus on topics such as when to visit which set of parents and can usually resolve that by rotating holidays with their respective families.

However, the discussions you may not have had revolve around each of your expectations surrounding caring for aging parents and in-laws.  You may be fortunate if the prior generation has already dealt with planning for any needs that will arise in their later lives, but you and your spouse should consider what you know about their current situation, their preparedness for unexpected issues and your ability and willingness to help and supplement their care if needed. While we can’t control the specific course of events nor the time frame of how our parents age, married couples can and should proactively discuss what their expectations are and how they want to approach caring for aging parents should a need arise.

Stuck in the middle

Consider the following;   a married couple are in their fifties and are busy saving and preparing for their eventual retirement.  They both work outside the home in fulfilling careers and can finally see the end in sight for college tuition payments for their children.  Because they fully paid for their children’s educations, they believe that if they save aggressively over the next ten years, they can reach their retirement goals.   Suddenly, the husband’s mother experiences a stroke and needs extensive rehabilitation, which the husband automatically assumes they will assist with.  He doesn’t want his mom rehabbing in a facility; he wants to move her into their house and care for her there.  

However, because of the demands of his career, care and coordination for his mom would likely fall to his wife and would require her to work part-time or not at all.  The wife never considered moving parents into their home in the event of a need and although she loves her mother-in-law, she isn’t sure it would be good for their marriage or her relationship with her MIL to bring her into their home.  She is happy to coordinate care and assist on occasion, but she isn’t sure how their family can aggressively save for their own retirement if she has to scale back on work in order to provide care to her MIL.

Caring for aging parents takes planning

The example above illustrates a case where an in-depth discussion between husband and wife well in advance of any parental issues may have eliminated some misunderstandings and potential disagreements down the road.  Caring for aging parents can be stressful enough simply because it is difficult to see them struggling.  Combine that with the stressors of parents vs. in-laws, the demands of careers, teen or young adult children, saving for retirement and you have a recipe for stress and strain in a marriage.

What should you be talking about with your significant other, prior to the onset of any parental aging issues?

  • What are the expectations each of you have for how you want to care for your parents if they need your help?
  • Are the relationships (spouse, children, parents, in-laws) strong enough to withstand one of the parents being assisted by you?
  • What are your parent’s expectations for how they would want to handle a long-term care need if it occurred?
  • Do your parents have adequate resources, either assets or appropriate insurance, to cover the cost of paid caregivers?
  • Does your home have adequate space to accommodate the additional person, as well as provide some level of privacy for them and you?
  • Will daily care of a parent further inhibit your ability to adequately save for your own retirement?
  • If you decided to assist, which of you would be the likely caregiver and why? 

These are just a few of the questions that spouses/partners need to discuss, well in advance of any need on the part of a parent.  It is important to know that there is no right answer, as it will vary by the circumstances of each family and extent of the parent’s care needs.  Recognize that even if you do plan, things may change and you will have to be flexible to deal with whatever the situation presents.  However, having the discussion in advance will help to eliminate some of the stress on your relationship by bringing expectations out into the open and working to find common ground for the two of you.

Cheryl J. Sherrard, CFP®, NAPFA Registered Advisor is Director of Planning for Clearview Wealth Management in Charlotte, NC.  Cheryl can be reached at csherrard@cvwmgmt.com and via Twitter.  

Please check out our Book Store for books on financial planning, retirement, and related topics as well as any Amazon shopping needs you may have (or just click on the link below).  The Chicago Financial Planner is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.  If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small fee, yet you don’t pay any extra. 

Family Financial Conversations

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Family financial conversations dealing with retirement, estate planning, elder care issues and other important financial matters between parents and adult children can be difficult at best.  A recent article by Fidelity highlighted some of the key issues involved.

According to Fidelity:

“In life and money, timing is often everything. And that’s particularly true when it comes to sensitive family discussions about retirement security, eldercare, and estate planning.

According to Fidelity’s latest Intra-Family Generational Finance study,1 three-fourths of parents and their adult children agree it’s important to have frank conversations on such topics, but almost two-thirds (64%) can’t agree on when. While parents would prefer to wait until after retirement, their children want the conversations to take place well before their parents retire or experience health issues.” 

“These discussions aren’t always easy, but there can be real emotional and financial consequences when they don’t happen or lack sufficient depth,” says John Sweeney, executive vice president of retirement and investing strategies at Fidelity. “It’s absolutely critical that families come together to sort through important matters related to such things as retirement preparedness, caregiving responsibilities, estate planning, and the tax implications of an inheritance.”

Suggestions for successful family financial conversations

 

How to have key family discussions

While these steps suggested in the Fidelity piece are no guarantee of a successful dialog, I think you will agree these steps offer a solid framework for these often difficult conversations.

PREP for family financial conversations

 The Fidelity piece offered this outline (their PREP plan) to break the ice and get these family meetings going: 

Make family meetings on retirement issues easier

While every family and every family’s situation is different, this is a good framework from which to start.

What’s at stake?

These conversations can be difficult because there is a lot at stake.

  • How will your parents provide for their retirement?
  • Where will the money come from in the event of a Long-Term Care situation?
  • Who will take over your parent’s financial affairs in the event they become unable to do so?
  • What are your parent’s wishes in terms of a myriad of issues including disposition of their assets upon their death, burial, staying in their home, etc.? 

Besides these issues a lack of communication and planning can be costly to the family in terms of taxes and other issues in terms of transferring your parent’s wealth to the next generation.  While this might sound like it only pertains to the very wealthy this is not the case.

At the end of the day what is really at stake is the opportunity for parents to communicate their financial wishes to their adult children and for the children to help their parents make these desires come true.

There is nothing easy about discussing these issues and having these family financial conversations.  But any difficulties that might exist will be dwarfed by the potential guilt and regret felt by both parents and children later on if this dialog does not occur.

Please check out our Book Store for books on financial planning, retirement, and related topics as well as any Amazon shopping needs you may have (or just click on the link below).  The Chicago Financial Planner is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.  If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small fee, yet you don’t pay any extra. 

Time for a Mid-Year Financial Review

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It’s hard to believe that the first half of the year has come and gone already.  We enjoyed having all three of our adult children home over the holiday weekend.

Financial Review

Mid-year is always a good time for a financial review and 2014 is no exception.  So far in 2014:

  • Various stock market indexes are at or near record high levels. The Bull Market in stocks celebrated its fifth anniversary earlier this year and through June 30 the S&P 500 Index is up 190% since the March 2009 lows.
  • Bond funds and ETFs have surprised us by posting some pretty decent returns.  This is contrary to what many expected, especially in the wake of weak performance in 2013.
  • After largely not participating in the in the strong equity markets of 2013 REITS have been a top performing asset class YTD through the second quarter.
  • Emerging markets equity lost money as an asset class in 2013 and has also staged a nice recovery YTD through the first half of 2014.
  • Small cap stocks have underperformed so far in 2014 after a very outstanding 2013. 

In just about any year at the midpoint there will be asset classes that outperformed and some that have underperformed expectations.  That’s completely normal.  As far as your mid-year financial review here are a few things to consider.  These apply whether you do this yourself or if you are working with a financial advisor.

Review your financial plan 

Whether you do this now or at some other point in the year you should review your financial plan at least annually.  Given the robust stock market gains of the past five years this is a particularity opportune time for this review.

  • How are you tracking towards your financial goals?
  • Have your investment gains put you further ahead than anticipated?
  • Is it time to rethink the level of investment risk in your portfolio? 

Adjust your 401(k) deferral

If you aren’t on track to defer the maximum amount of your salary allowed ($17,500 or $23,000 if you are 50 or over at any point in 2014) try to up the percentage of your salary being deferred to the extent that you can.  Every little bit helps when saving for retirement.

Rebalance your portfolio 

This should be a standard in your financial playbook.  Different types of investments will perform differently at different times which can cause your overall portfolio to be out of balance with your target.  Too much money allocated to stocks can, for example, cause you to assume more risk than you had anticipated.

While it is a good idea to review your asset allocation at regular intervals, you don’t want to overdo rebalancing either.  I generally suggest that 401(k) participants whose plan offers auto rebalancing set the frequency to every six months.  More frequent rebalancing might be appropriate if market conditions have caused your portfolio to be severely misallocated.

Note some investment strategies call for a more tactical approach which is fine.  If you are using such a tactical approach (perhaps via an ETF strategist) you will still want to monitor what this manager is doing and that their strategy fits your plan and tolerance for risk.

Review your individual investments 

Certainly you will not want to make decisions about any investment holdings based upon short-term results but here are a few things to take into account during your mid-year financial review:

  • If you hold individual stocks where are they in relation to your target sell price?
  • Have there been key personnel changes in the management of your actively managed mutual funds?
  • Are any of your mutual funds suffering from asset bloat due to solid performance or perhaps just the greed of the mutual fund company?
  • Are the expense ratios of your index mutual funds and ETFs among the lowest available to you?
  • Has your company retirement plan added or removed any investment options?
  • Is the Target Date Fund option in your 401(k) plan really the best place for your retirement contributions? 

Review your company benefits 

I know its July but your annual Open Enrollment for employee benefits at most employers is coming up in the fall.  This is the time where you can adjust your various benefits such as health insurance, dental, etc.  Take a look at your benefits usage and your family situation as part of your financial review to see if you might need to consider adjustments in the fall.

Review your career status 

How are things going in your current job?  Are you on a solid career path?  Is it time for a change either internally or with a new employer?

A key question to ask yourself is whether you feel in danger of losing your job.  Often companies will time their layoffs for the second half of the year.  Ask yourself if approached with a buyout offer to leave would you take it.

For most of us our job is our major source of income and the vehicle that allows us to save and invest to meet financial goals such as retirement and sending our kids to college.

Start a self-employed retirement plan 

If you are self-employed you need to think about starting a retirement plan for yourself.  The SEP-IRA and the Solo 401(k) are two of the most common self-employed retirement plans, but there are other alternatives as well.

You work too hard not to save for your retirement.  If you don’t have plan in place for yourself it is time to take action.

Mid-year is a great time for a financial review.  Take some time and take stock of your situation.  Failing to plan your financial future is a plan to fail financially.

Please check out our Book Store for books on financial planning, retirement, and related topics as well as any Amazon shopping needs you may have (or just click on the link below).  The Chicago Financial Planner is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.  If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small fee, yet you don’t pay any extra. 

Photo credit:  Flickr

Dangerous Myths About Asset Protection

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This is post was written by Ike Devji, a Phoenix, AZ-based asset protection attorney and one of my oldest online friends.  I have spoken with Ike many times for advice on client asset protection issues and had the pleasure of meeting him in person a couple of years ago when he spoke to my financial advisor study group during a meeting we held in Phoenix.  Ike generally advises physicians and high income professionals, but these asset protection tips are relevant to all of us. 

I’ve spent the last eleven years of my practice helping successful Americans at all net worth levels protect and enjoy their hard earned wealth. A good part of that involves re-educating people about their money and their risks.  Below is a summary of the most common asset protection myths and mistakes top legal and financial planners want their clients to be concerned about.

Trumbull County Courthouse, Courthouse Square ...

I can do it later 

Asset Protection it best analogized to “net worth insurance” and like insurance you have the best, most effective and legally supportable options available to you when you implement the planning before a crisis exists. Transfer of assets into plans after you have specific exposures is costly, ineffective and some cases illegal (fraudulent conveyance). The best time to act is always now and every day that passes makes your planning stronger.

I’m not rich enough to worry about asset protection  

This is a sin I see committed on a weekly basis, often by professionals like lawyers, CPAs and financial advisors. These advisors often tell clients that they are not rich enough to do any planning and that that they should have a net worth north of five or even ten million dollars to consider it. Nothing could be further from the truth, especially if you are in the “Fall” of your earning career. Of course high net worth individuals must implement this kind of planning and always have, but all you have is important to you and there are precautions that can be taken at any net worth level. When should you start?

There are many simple ways to analyze this but here is an easy one, answer these questions: 

  • If you lost what you have today, or some significant portion of it, are you at an age, earning level and financial condition that will allow you to maintain your family’s goals and expenses?
  • Do you have assets that would be difficult or impossible to replace given your age, health and economic conditions?
  • Are you financially and legally prepared for a lawsuit that is either not covered by liability insurance or which often produces verdicts above the limit you are carrying?

No one can touch me because I have a “Trust”

Not a week passes when I don’t talk to someone who says, “I’ve got this covered, I think. I have my home, cars, and investments all titled in my Trust.” A little more probing on my part reveals what I expected, that the layperson I am speaking to feels that a transfer of these assets to a vehicle like an estate planning trust, commonly a Revocable Living Trust, is effective protection; it’s not. The first word in the trust is “revocable” and in most cases a judge will simply order you to revoke the trust and tender the assets for a judgment. I’m all in favor of estate planning, the huge new looming estate tax exposure is one of the issues on my client exposure checklist we address every day, but  that is death planning. What has been done about your life planning and the exposures you face every day practicing your profession, driving a car, having children (some driving your car), or having employees…?

I lease all my vehicles through my business and get an awesome tax deduction in addition to asset protection 

Similarly, we often see dangerous articles of personal property like your personal vehicles moved into this structure or others like an LLC or S-Corp that is your primary business, or equally dangerous, into an entity like an FLP that is holding safe and attractive assets like cash, stocks, bonds and other liquid assets. Think about it, if you lease or own your vehicle through your business, you have linked the most dangerous thing you likely do on a daily basis, drive a car, and linked it to either the source of your wealth, your business or in the case of your FLP, the place you keep your wealth. 

I don’t own anything – I gave it all to my wife and kids 

Transferring all of your assets to your spouse and/or children, especially after something has happened, will not protect your assets from a lawsuit. Even if it did protect you from your lawsuits, transferring your assets to your spouse and/or children opens up another Pandora’s Box. Keeping in mind that there are thousands of lawsuits filed daily due to employment grievances, “slip and fall” and auto accidents, consider this scenario:

Let’s suppose that you transfer all of your assets to your 18-year old son who causes an auto accident. Several other cars are involved in the accident and several injuries are incurred. Chances are high that the other parties will come looking for the driver with the deepest pockets. If your son “owns” your house and business, a sympathetic jury will undoubtedly take the possession away from your son in order to teach him a lesson for his reckless driving. The same holds true for spouses, parents and even friends. Also, gifting is limited to about $14K annually, per spouse, per donee. Gifts over that amount must be documented with a gift tax return. Failing to do so will result in you having to answer the question, “Are you lying now re: the date and validity of this transfer or did you cheat the IRS?” A bad place to be in a time of need.

I’m insured and have an umbrella

This is a reasonable and common question we get from clients and advisors alike. In the most egregious cases of arm-chair quarterback misinformation, we actually see uninformed advisors telling their clients that the only Asset Protection they need is a good umbrella policy – THIS IS FLAT OUT WRONG for the kind of successful people we protect. Why? Because they are successful, visible and typically have assets above and beyond just the insurance policy itself, they are good targets from a net-worth perspective.

Our position on Liability Insurance (as distinct from Life Insurance) is pretty simple: Buy as much liability insurance as you can afford, assume it won’t be adequate and have a plan B. Asset protection planning is about layers, redundancy and backstops.

What about my “umbrella” policy? – It is a great idea to have an umbrella policy, in fact, I insist on it for my clients as one of several layers.  You and your liability carrier have different ideas about what umbrella means. To you it means everything, to your carrier it means specific events in the base policy, covered to specific increased limits, and governed by a specific set of exclusions detailed in the fine print of your policy. Clearly two very different definitions. The lesson here is that there is no real way to insure yourself against a universe of possible exposures and have every single one covered to an unlimited dollar amount, nor is this reasonable to expect of your liability coverage.

Some real examples of the “impossible” that actually happened and resulted in large claims: 

  • Parents away for the weekend return to find that a teenager died at their home during a party their child had from the drugs he brought with him results in multi-million dollar wrongful death lawsuit;
  • Chiropractor adjusts a patient’s hip and the woman dies on table from cardiac arrest-he is sued for wrongful death;
  • Long time, most trusted employee of medical practice molests a minor female patient during treatment;
  • Employees of moving company get drunk and severely beat another employee and lock him in company truck in company yard over weekend;
  • LLC for real estate development is pierced and a passive member is held jointly and severally liable for the actions of the other members;
  • Dentist works on elderly patient who goes home and dies of unrelated heart attack hours later, dentist sued for wrongful death. 

SOLUTION – So how do we help make sure that the coverage is enough? Pretty simple – we buy all the insurance we can reasonably afford, make sure we have the appropriate riders and umbrellas in place then we present a hard, uncollectible target beyond the limits of the policy. Most, if not all, lawsuits are motivated by the potential financial gain to the plaintiff and their attorney. In most cases, plaintiffs and their attorneys don’t chase people beyond the limits of the policy if there is nothing else to take or if there is nothing that they can get their hands on with any reasonable certainty.

This article just scratches the surface of what you need to consider when evaluating your exposures, Asset Protection planning and the countless options available. I encourage you to act today, seek experienced counsel, and remember that information in forums like this is not specific to you, is written in the broadest terms and is never a substitute for consulting with an experienced professional.

Attorney Ike Devji has a decade of practice devoted exclusively to Asset Protection and Wealth Preservation planning. He works with a national client base including 1000’s of physicians and business owners often through their local attorney, CPA or financial advisor. Together, he and his associates protect billions of dollars in personal assets for these clients. Ike also regularly writes, teaches and speaks on these issues to executives, physicians and other professionals nationally. See his work in WORTH, Advisor Today, Physician’s Practice and at www.ProAssetProtection.Com.

As always, the information presented here is general and educational and can never replace the advice of experienced counsel specific to your assets or situation. 

Please check out our Book Store for books on financial planning, retirement, and related topics as well as any Amazon shopping needs you may have (or just click on the link below).  The Chicago Financial Planner is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.  If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small fee, yet you don’t pay any extra. 

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Financial Advice and Mini Bottles of Liquor

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Regular readers here know that the inspiration for some of my blog posts comes from non-financial sources such as youth soccer fields and the Rolling Stones.  In that spirit the idea for this post popped into my head while waiting in line to pay for an item at a local gas station.

Financial Advice and Small Bottles of Liquor

I noticed the clerk behind the counter restocking the very prominent display case with mini bottles of liquor of the type you would buy on an airplane.  When I asked if they sell a lot of these she indicated that I would be surprised and I was.  This is the last place that I would think of buying mini bottles of liquor.  My hope is that the contents are not being consumed en route from the gas station.

I liken this to some of the places that people seek financial advice.  Are you getting financial advice from someone best positioned to advise you or simply from where it is convenient to obtain it?  Here are a few thoughts on some of the alternative sources available to you when seeking financial advice.

Insurance companies and agents

We have had our auto, homeowner’s, and person umbrella policies with an agent affiliated with a major insurance company for years.  Our agent is great and has provided outstanding service.  His company made a big push into providing personal financial planning largely to tap into their vast customer base to try to sell various financial products to these customers.  When I asked my agent if he was now going to become a financial planner he just kind of grumbled as he wanted no part of this.

My experience is that insurance companies are looking to sell annuities and other insurance-based products as their answer to your financial and retirement planning needs.  Many of these companies also offer their own proprietary families of mutual funds and other investment vehicles.  As with anything you need to understand the motivations and capabilities of the person trying to sell these products to you.  Is this agent qualified to provide you with unbiased financial advice or do all questions lead to a solution that involves the sale of a variable annuity or a related product?

Banks offering financial advice

Many banks offer investment and financial advice across a number of formats.  It’s not uncommon to have a registered rep at the branch selling various financial products.  The bank may even have their own line of mutual funds and their own brokerage operation.

Other banks have in-house or affiliated investment advisory operations which offer investment and perhaps wealth management services for a fee as opposed to the commission-based services mentioned above.

Again banks view this as a way to expand their service offerings and broaden their revenue streams by tapping into their depositor base.  As with any financial services provider you need to understand what your bank offers, how they offer it, any potential conflicts of interest, and most of all if this type of arrangement is right for you. 

CPAs offering financial advice

CPAs have rightly earned a reputation as a trusted advisor, especially for business owners.  The good ones offer a range of tax and financial advice that is invaluable.  Many CPAs have ventured into the business of offering investment and financial advice as well.  They realize that this is an excellent revenue stream, often a better one than they can generate via their core business.

As with other providers of financial advice you want to understand that if your CPA is qualified to provide financial planning and investment advice as this is a different knowledge base than his or her normal world.  A few other considerations:

  • Does the CPA have specific knowledge or training here?  A designation such as the CFP® or the PFS (the CPA equivalent) can be good evidence of training and commitment to this area.
  • What happens during tax season?  Are they available to answer your questions and monitor your situation?
  • Is the advice offered as an RIA (Registered Investment Advisor) or via a Broker-Dealer type arrangement?  In the latter case the CPA is likely engaging in advice via the sale of commissioned financial and insurance products.   

Financial Planners 

The term financial planner can be used by anyone so you will want to understand a few things about how any financial planner operates before determining if this is the right advisor for you.

  • What are the financial planner’s credentials and training?  Does he/she hold a CFP® or some similar designation?
  • How is the financial planner compensated?  Fee-only?  Commissions?  A combination of fees and commissions?  It is important for you to understand if there will be any conflicts of interest involved in the delivery of financial advice.
  • What type of financial advice does the financial planner offer?  Hourly as needed?  Comprehensive financial planning? Investment advice and wealth management?  More importantly is this the type of advice that you need?
  • Who are the financial planner’s typical clients?  If you are 60 and nearing retirement an advisor who specializes in clients in their 20s and 30s is probably not the right advisor for you.
  • Check out NAPFA’s guide to finding an advisor for some tips on choosing the right financial advisor for you.  

I’m often puzzled by the process used by many folks in choosing a financial advisor, but I guess it is no stranger than buying mini bottles of liquor at a gas station.  Choosing the right financial advisor can be very rewarding, choosing the wrong advisor can have a devastating impact on your financial life.

Please contact me at 847-506-9827 for a complimentary 30-minute consultation to discuss all of your investing and financial planning questions. Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services.

Please check out our Book Store for books on financial planning, retirement, and related topics as well as any Amazon shopping needs you may have (or just click on the link below).  The Chicago Financial Planner is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.  If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small fee, yet you don’t pay any extra.

  

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