Objective information about financial planning, investments, and retirement plans

Meaningful Family Conversations for the Holidays

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This post was written by fellow NAPFA-Registered fee-only financial advisor Megan Rindskopf.

With Christmas less than a week away and the streets abuzz with holiday spirit, it is easy to get consumed by the busyness of the holidays. We encourage you this season, amidst the shopping shuffle and the corporate holiday parties, to pause. Take time this year to reflect on the people and the relationships that are most important to you.

Diabetes365 Day 48 November 24 - The family

Every family is different and there is no one-size-fits-all solution to a family’s situation – whether family members are estranged or everyone is “thick as thieves,” take the opportunity this year to have meaningful conversations with your loved ones. Reflect on memories – appreciate the tough moments that have made your relationships stronger and be grateful for the memories that make you laugh. Most importantly though, share your thoughts and feelings with the ones you love, because we never know how short life might be.

As you enjoy the company of family and friends during the holidays, pause for a moment to consider the following: 

If something happens to me, will my loved ones be taken care of?

While this thought may seem a bit morbid around the holidays, in reality, what better time than when we are surrounded by family and friends to remind us to have the appropriate insurance coverage in place to protect the ones we care about most.

If you or your spouse become disabled, do you have the right coverage(s) in place to make sure you can still support your family? Retirement, college and other savings goals become much more difficult to accomplish when your income stream is greatly reduced or eliminated entirely.  Proper disability insurance can help supplement the loss of income associated with a long term disability. My colleague Cheryl Sherrard was recently quoted in Financial Planning Magazine regarding group disability insurance. Click here to read the article (free registration may be required).

If you or your spouse become ill and needs skilled nursing care, do you have Long Term Care insurance or adequate additional resources in place to cover in-home care or a skilled nursing facility?  Equally as important – have you had those conversations with your family members so they know what type of care you desire in the event a long term care need arises? It is important to have these discussions before an issue arises.

If you or your spouse passes away unexpectedly, do you have the right life insurance in place to support your family? Depending on your family and financial situation, you may or may not need life insurance coverage. It is important to understand both the amount and type of life insurance you need, in order to assess whether any adjustment is necessary. Work with a financial professional who knows you and thoroughly understands your needs and your goals when assessing your family’s needs.

Do I have current estate planning documents and have I communicated my wishes to my family?

It is imperative to have the essential legal documents in place to protect against the unexpected. In order to avoid family turmoil once you are no longer living, it is also helpful if you have discussed your wishes with the friends and family members involved. While these conversations can be difficult to initiate, they can bring clarity to a situation and help reduce family conflict once you are gone. If the conversations are too difficult to have, a hand-written letter or video can accompany the Last Will and Testament explaining your decisions.

If you are unsure if your documents are still adequate, consult your estate planning attorney to see if you need to establish new estate documents or update your existing documents.

The holidays present opportunities for family members to spend quality time together and create lasting memories. Show your gratitude this season by making sure your loved ones are properly protected financially and by having open, honest conversations with your family members before issues arise. Being proactive for the benefit of those you love is the best gift you can give this season.

Megan Rindskopf is a Financial Advisor for Clearview Wealth Management in Charlotte, NC. As a NAPFA-Registered Financial Advisor and CERTIFIED FINANCIAL PLANNER™ professional, Megan helps individuals and families reach their goals through a holistic and customized approach to financial planning. Much of her time is spent helping young, high earning professionals prioritize competing demands so that they may successfully achieve financial clarity and independence, along with a healthy work-life balance for the long term. Clearview Wealth Management is an independent, fee-only Registered Investment Advisor firm that cares deeply about each relationship and is committed to lifelong partnerships with clients and their successive generations. Megan can be reached at mrindskopf@cvwmgmt.com, or connect with her on LinkedIn. If you would like to learn more about Clearview Wealth Management and the people they work with, check out their website at www.clearviewwealthmgmt.com 

Thanks to Megan and her firm for these excellent thoughts and tips for addressing these difficult issues.

As always please feel free to 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.  

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Do You Have a Back-Up Financial Plan?

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In a recent Monday Night Football game against the hated Bears, Green Bay Packer star Aaron Rodgers went down with down with a game ending injury.  The second-string quarterback was Seneca Wallace who was at best an NFL journeyman with at best a checkered career.  Needless to say the Packer’s high-octane offense came to a grinding halt and the Packers lost a key divisional game.

Seneca Wallace in this fan’s opinion was not a credible back-up plan, but rather a joke and an insult to loyal Packer fans everywhere.  Regular readers of this blog know that I stress financial planning as a starting point for almost every financial endeavor you might undertake.  Part of a sound financial plan involves planning for the curve balls that life sometimes throws at us.  Here are some components of a solid back-up financial plan.

An emergency fund 

This represents very liquid savings that are set-aside for emergencies such as job-loss, the need to replace your furnace on the coldest day of the year, unforeseen medical expenses, and other unexpected events that have a way of popping up in life.  This is not money that is invested in stocks or mutual funds, but rather in a money market fund or a similar vehicle.  Liquidity and little or no risk of loss are key.  For example a CD that ties up your money for a period of time and assesses a penalty if you need it early is not a good vehicle for this money.  The rule of thumb is 6-9 months of expenses, your actual need will vary and you should look at your own unique situation.  If you don’t have enough right off the bat for an adequate emergency fund, accumulating this money should be a top savings priority.

Insurance

Regular readers of this blog know that I have a healthy skeptiscm of many insurance and insurance-based financial products and many of the folks who sell them.  However insurance is a key component of a financial plan for most people.  The key is finding a competent financial professional who will assess your needs and sell you the insurance product that is right for the risk that you need to insure.  I assist my clients in finding and working with insurance professionals of this type.

Life insurance is a basic component of a financial plan for many folks.  Insurance replaces some or all of your future income for your family or other beneficiaries in the event of your death.  It can help pay off the mortgage, send your kids to college, or fund the retirement for a surviving spouse if you haven’t had time to accumulate sufficient assets.  Even in the case of a non-working spouse it can replace the “services” he or she provides in terms of child-care and the like.  Life insurance can also be used as an exit strategy for a closely-held business or to offset the impact of losing a key employee.  All too often life insurance is sold for purposes other than providing a death benefit.  This is often in the form of some sort of policy that builds cash-value and for uses such as a supplemental retirement vehicle.  For many folks inexpensive term insurance is the best deal, be very leery of a pitch for whole life, Variable Universal Life, and the myriad or other cash value policies out there.  These are very lucrative for the agent, not always so for you.

Disbility insurance is perhaps more important than life insurance in that it provides coverage for an event that is more likely to occur than death.  This is “lifestyle” insurance and I generally urge folks who have access to it via the workplace to buy as much Long-Term disability insurance as possible.  These policies are not always great in that their definition of disability and own occupation is often broad.  Private policies will often have a narrower definition of your own occupation for purposes of paying a benefit, but these policies can be expensive.  On the other hand I’ve seen several high earning professionals over the years become disabled and having proper disability insurance has been a financial life-saver for them and their families.

Property and casualty and liability insurance comes in various forms and can help insure against all sorts of events that can occur on your property or in the course of doing business.  These range from personal polcies such as umbrella coverage against the UPS guy falling and hurting himself while delivering a package to your home to having sufficient auto liability coverage for yourself and perhaps younger drivers using your vehicles.  Professionals such as doctors, financial advisors, and lawyers need professional liability insurance to protect them.  Details on these and other types of liability coverage (both personal and professional) are beyond the scope of this article, but they are none the less a key part of a back-up financial plan.  One successful judgement against you or your business can bring financial ruin without proper insurance and asset protection planning.

Long-Term care insurance provides coverage for long-term health problems that can plague us later in life.  This might include a nursing home stay or home health care.  This insurance is complicated and expensive.  Whether or not buy Long-Term Care insurance, which features to buy, and many other decisions requires research and perhaps professional guidance.  The reason to consider this type of coverage is that the cost of caring for a loved one with a long-term health situation can be staggering and can wipe out the finances of a family.

Estate Planning 

Estate planning is all about ensuring that your assets pass to your desired beneficiaries in the manner that you intend.  A will naming a guardian for minor children is a must for parents.  Retirement plans and insurance and annuity products are passed on via a beneficiary designation so make sure these are up to date.  A trust may or may not be in order depending upon your situation.  An often overlooked factor are items such as a medical power of attorney and other similar documents that designate who can handle your affairs and/or make decisions for you in the event that you are incapacited.  Few of us will have to worry about paying estate taxes, but these other issues can be huge and if not handled properly can cause major financial headaches for your family and loved ones.

Accumulate wealth and become financially independent 

This is along the lines of “… the best defense is a good offense…”  Saving and accumulating wealth and building financial independence represent the best financial contingency plan.

Contribute to your 401(k) or similar retirement plan.  Investing for retirement via salary deferral is painless and doesn’t require you to do anything except make an election to have the money withheld from you paycheck.  Obviously you will want to make good 401(k) investment choices and you will certainly want to make good decisions with your 401(k) account when leaving a job.

Starting a business or investing in one is another way to build wealth.  Business ownership if managed properly can be a great way to accumulate and pass on wealth to your heirs.

If you’ve saved and positioned yourself properly over the years you’ll be like several of my clients who couldn’t wait to receive a buyout offer from their employer so they could retire and/or otherwise move on with their lives.

The items listed above are not meant to be an exhaustive list, but they do represent a good starting point to help you prevent a potential financial catastrophe.  I want you to be better prepared then the Green Bay Packers were at quarterback.

Check out the retirement planning calculator tool at the end of this post.  At the very least this will help you determine where you stand in terms of your readiness for retirement which can provide peace of mind in the event of a job loss or other unexpected financial life event.

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

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Do I Need Life Insurance in Retirement?

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My fellow Baby Boomers and I have been told that life insurance is generally not needed once we retire. The thought was that we would have accumulated sufficient assets and our dependents are grown and self-sufficient.  This is great in theory, but may not hold true in practice.  Here are a few thoughts as to why you might need life insurance as you approach retirement.

Universal Life Insurance Company

An estate-planning tool

Life insurance can be used to help your heirs pay any estate taxes that might be due. At the federal level, the exemption is scheduled to fall to $1 million in 2013 and the estate tax rate is scheduled to increase. In addition there may also be estate taxes at the state level to consider. Life insurance can be used by your heirs to pay the estate taxes and allow the rest of your assets to pass to them as you intended.  There are many considerations in using life insurance as an estate planning tool, including how the policy is owned.

A bridge to “final” retirement

Retirement continues to evolve for Baby Boomers and will be different than the retirement our parents experienced. By this I mean that many of us will continue to work into what were traditionally retirement years, either because we want to stay active and connected or out of financial need (or sometimes both). Perhaps working a few more years will allow you to amass the nest egg that you need to be able to retire “cold turkey.” If you die prior to being able to accumulate enough assets, life insurance can fill the financial gap for your surviving spouse.

Assistance for a child with special needs

If you have a child or grandchild with special needs, life insurance can be a means to provide funds for his or her care after you are gone.

A means to fund charitable intentions  

You can leave a charitable bequest by making the organization the beneficiary of your life insurance policy.

A tool to help pass on a business

Life insurance can be used to fund a buy/sell or similar business succession arrangement. The life insurance proceeds can be used to buy out your heirs and to allow the business to go to the remaining owners.

If you die this business ownership interest will be a part of your estate and could be subject to estate taxes. Life insurance can be used to pay those taxes and allow the business to remain in the family if so desired.

As a supplemental retirement plan

Cash value life insurance is often touted by life insurance agents and commissioned financial representatives as a supplemental retirement savings vehicle.  They tout the ability to borrow against the policy’s cash value in retirement without having to pay the money back.  Besides potentially reducing the policy’s death benefit, you have to manage the amount borrowed.  Additionally you need to ensure that that all premiums are paid as required to ensure that you don’t trigger an unintended taxable event.

Further you really need to understand the underlying growth assumptions in the policy illustrations you will be shown.  Often the rate of growth of the underlying investments is unrealistic and this can lead to a need to fund the policy to a greater extent than you had planned while working in order to build the level of supplemental retirement assets you had intended.  While this can be a viable strategy, make sure that you understand all of the underlying assumptions before heading down this path.

Whether or not to own life insurance during retirement will be dependent upon having a risk to insure against. It can be easy to be sucked in by life insurance agents portraying it as an investment or a tax shelter. While everyone’s situation is different, in my opinion, life insurance should be viewed as a death benefit. This should drive your decision, whether this involves keeping a policy in force or purchasing a new policy.

Questions about your need for life insurance or about retirement planning in general?  Please feel free to contact me with to discuss your unique situation.

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Friday Finance Links October 5, 2012

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Looks like there will be a bit of a nip in the air this weekend; fall is upon us here in Chicago.  Can winter and snow blowingThumbnail for version as of 14:19, 5 September 2012 the driveway be far behind?  Good excuse (like I needed one) to plant myself on the couch and catch the Packers on Sunday.

Here are some articles and blog posts that I suggest for your weekend personal finance reading: 

Personal Finance Blogs

Phil Taylor looks at the issue Should You Payoff the Mortgage (s) Early? at PT Money.

Hank Coleman tells us Why Your Stay At Home Spouse Needs Life Insurance at Money Q&A.

Kevin Mulligan discusses the Disadvantages of Target Date Retirement Funds at Cash Money Life.

Posts from Fellow NAPFA members

Don Martin shows us the Best Way To Buy Bonds at FiGuide.com.

Anthony Farella writes about 401(k) Disclosure Coming To Your Statement at FiGuide.com.

Other articles from around the web

Chuck Jaffe provides 6 reasons to dump a bad mutual fund at Market Watch.com.

Kimberly Palmer tells us How to Market Your Business Online at usnews.com.

Aaron Pressman discussed Vanguard’s recent decision to switch index providers Vanguard dumps MSCI indexes from 22 funds to cut costs at MSN Money.

Phillip Moeller says that Estate-Tax Changes Would Affect More Than the Super Rich at usnews.com.

In case you missed it here is my latest post for the US News Smarter Investor Blog Using the “Four Percent Rule” for Retirement Planning. 

Here’s wishing everyone a great weekend.  

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Friday Finance Links August 24, 2012

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After our anniversary last past weekend; this week has been relatively quiet and uneventful.  The unfortunate exception was early Sunday morning when we had to put down our 11 year old Chow, Zoe.  She was a good dog and will be missed.

Life Insurance (album)

Here are some articles and blog posts that I suggest for your weekend personal finance reading:  

Personal Finance Blogs  

Many of us wrote posts about life insurance in connection with Jeff Rose’s life insurance movement designed to raise awareness of the need for life insurance, especially among younger families.  Here are three posts in support of this movement:

Fellow financial advisor and blogger Chuck Rylant asks Are You Worth More Dead Than Alive? 

Ryan at Cash Money Life discusses Life Insurance, Part of a Comprehensive Financial Plan.  I couldn’t agree more.

Jason at One Money Design told us  Why Life Insurance is Important for My Family? 

Money Q&A reveals that A Shocking Number Of Americans Rely Entirely On Social Security By The End Of Their Life.  A sobering piece via Business Insider.

Posts from Fellow NAPFA members

Robert Schmansky wrote A Lost Decade?  Not The Case For All Investors at forbes.com.  His point is that investors in a diversified portfolio did relatively well despite the mediocre performance of the S&P 500.

Jim Blankenship discusses The Roth 401(k) Plan.

Other articles from around the web

Josh Brown, The Reformed Broker wrote Lest Anyone Ever Forget… about the fact that four years later, nobody has been prosecuted in connection with the Lehman Brothers bankruptcy, the largest in U.S. history.

Ian Salisbury tells us that ETFs become surprise mutual fund holdings at Marketwatch.com.

Kelly Greene offers advice on When Kids Return Home at WSJ.com.

Mark Miller tells us that Senior financial scams often all in the family at Reuters.com.

In case you missed it here is a link to my latest post for the US News Smarter Investor Blog 4 Financial “To-Dos” for Right Now. 

Here’s wishing everyone a great weekend.

Photo credit:  Wikipedia

 

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Life Insurance – You Probably Need It

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Jeff Rose, a fellow financial planner and blogger, has started another movement on his blog Good Financial Cents.  Jeff is committed to raising the awareness of the need for life insurance in general and especially among younger families.  Overall it is estimated that 35 million households don’t have any life insurance and another 58 million households that do have some coverage feel that they are underinsured.

As a financial planner I am convinced that life insurance coverage is a key element in the financial planning process.  Not all clients have a need for it, but it is always something that I look at.

You have young children and a non-working spouse.  I can’t tell you how many young professional couples that I have encountered who either have no life insurance or far too little insurance.  Often I will get a call from a high earning young professional who is eager for guidance on investing and perhaps in buying income property.  However when I ask them about the basics such as life insurance or a will the answer is all too predictable.  They haven’t paid any attention to these key protection elements.

In this case life insurance is an essential element of this family’s financial plan.  If the breadwinner spouse were to die, how would the mortgage be paid?  Assuming the non-working spouse needed to return to work how would childcare be paid?  How would the non-working spouse accumulate enough funds for both retirement and college?

Life insurance is an essential element in this family’s financial plan.  Life insurance can also be critical in a variety of situations.  Here are some examples from my experience in working with clients.

  • Life insurance allows the non-working spouse time to make decisions about the future.  While the death benefit might not last a lifetime it allows time to decide upon whether or not work, time for career training, what to do with the house, and other key decisions.
  • Life insurance is an easy, inexpensive way to build an estate.  Whether a younger family that has not had the time to accumulate assets or a mid-career person who has not been able to save, a life insurance policy can be an excellent way to fund expenses such as college, retirement for a spouse, or to simply provide a financial cushion for your survivors.
  • Life insurance can provide continuity for a business in the event of the death of one of the owners.  Life insurance is commonly used to fund a business buy-sell arrangement.  Under this type of arrangement, the proceeds of the policy are generally used to buy out the interest of the deceased owner and to provide a payout to their family.  This avoids the awkward situation of the remaining owners having to work with a surviving spouse who may have had no involvement in the business previously.

In buying life insurance I always advise clients to look at it for the death benefit first.  Some agents will tout various types of cash value policies as an investment tool or as a means to take money (the accumulated cash value) out of the policy tax-free in retirement.  In general I’ve found that life insurance is an expensive route to go if one is using it as an investment vehicle.

While these types of policies may have their uses, for most people term insurance is the way to go.  Term insurance will provide the least expensive death benefit.  There is no cash that accumulates in the policy and coverage will cease if you stop paying the premium.

For most folks that I encounter, however, buying the largest death benefit is the main reason to buy the insurance.  Two points about term insurance:

  • Term policies often come with a guaranteed level premium period.  This means that the premium remains fixed for a period of 10; 20; or 30 years.  For a younger family I would advise at least a 20 year level policy and perhaps a 30 year term.  Think through how long you might want to have insurance in place.  Also realize that your situation may change in the future and you may want a policy but be unable to obtain one due to changes in your health.
  • I work with clients to review their policies every few years.  Term rates change and we have been able to obtain policies with a larger death benefit in some cases without much increase in premium.

Life insurance often gets a bad rap.  It’s probably not so much that people perceive insurance as a bad product, but rather it’s the way it’s often sold.  If you work with a competent financial professional they can assist you in determining how large a death benefit to look at and other factors to consider.

Please feel free to contact me with your insurance and financial planning questions.

 

Photo credit: Christopher S. Penn

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Should You Accept That Estate Planning Seminar Invitation?

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I recently received such an invitation in the mail. Clearly this was a mass mailing of some sort. I’ve received several similar invitations in recent years. While tempted to check one of these sessions out from a professional curiosity perspective, in the end I always opt not to attend because I don’t want to stick the presenter for dinner when I’m clearly not interested.

Should you go to one of these sessions? In deciding you should think about what you would hope to get out of such a session and perhaps do a little critical reading of the invitation.

A few points about the invitation that I received:

  • One of the topics to be covered was “…new developments in estate planning.” What struck me here was that one of the major discussion topics in the area of estate planning is the expiration of many of the provisions of the estate tax rules and the utter chaos this might lead to with some estates. The lack of any new rules is clearly the problem.
  • I Googled the attorney who would be presenting. All I could find about this individual was that he seems to give a very large number of talks on estate planning during the course of a year. A question that you should ask yourself is whether or not this individual would be the one to either draft your estate planning documents or at least oversee the drafting by another attorney in his firm.
  • Further down the body of the invitation, there was a mention of a special presenter to talk about issues in the stock market. Not sure exactly how this relates to estate planning.
  • What I found interesting is that the guest speaker was not named.
  • Moving to the end of the invitation, I noticed that current clients of a well-know brokerage firm were not eligible to attend. I therefore surmised that several brokers from this firm were likely sponsoring the event and one of them was likely our mystery guest speaker.
  • The invitation did promise that no products would be sold at the session.
  • The invitation went on to say that if attendees brought their current estate planning documents that a representative would review them on the spot after the presentation.

Reasons to attend

  • If you are interested in learning more about estate planning, the speaker might provide the some good information.
  • You either like the restaurant or would like to check it out.

Don’t attend if you are susceptible to sales pressure. While the invitation specifically says there will be no financial products sold at the session, you can bet that you will be solicited to do business with both the estate planning attorney and the brokerage firm sponsoring the event. I’ve got to believe that the on-site review of your current documents generally results in a gap in your planning being uncovered. Further, ask yourself if you want your estate planning documents reviewed in this type of setting.

Whether or not you attend this type of session, you should be skeptical as to the connection between the estate planning attorney giving the presentation and the brokerage firm. Both a properly constructed estate plan and proper insurance coverage are key elements of one’s overall financial plan. I am very leery, however, when the providers of these services seem to have some sort of connection. You should ask whether there is any sort of financial arrangement here.

The fact that this estate planning attorney’s main claim to fame seems to be giving estate planning seminars should also raise a red flag. A question to ask is whether or not this attorney is the person with whom you would be working.

Often brokerage firms try to sell insurance and annuity products to the “leads” they generate from seminar attendees. Again there is nothing wrong with insurance or annuity products per say, as long as these vehicles fit your particular situation. Also, I suspect that annuities sold by this type of firm are generally not low cost products. Buyers of annuities should shop for the product with the lowest expenses and least onerous surrender charges that will meet their needs.

In my opinion, a better method to find an estate planning attorney and/or an insurance agent who deserves your business and your trust is via a referral from a trusted advisor like your accountant or your financial planner. Personally, I work with several trusted professionals in both areas and refer my clients to these people when there is a need. I also remain part of the process to review the proposed insurance products or the estate planning documents and to ultimately advise my clients through the process.

Please feel free to contact me with your financial planning questions.

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