Ray’s Take: Google employees have access to free food, a bowling alley, bocce courts and a fleet of electric cars to drive during work hours. Campbell Soup Company has onsite childcare and kindergarten. Cisco Systems gives employees free acupuncture. L’Oreal employees get access to nap pods.
While most companies aren’t able to offer these fancy benefits and perks to their employees, there are many important legal and financial aspects to consider when offered a new job and asked to sign an employment contract. Contract negotiations can be difficult and stressful. Many times high-level executives use an experienced employment law attorney to assist them in reviewing these documents. You may not be looking for a job at that level yet, but the market is getting tighter shifting more negotiating strength to potential employees.
In addition to the usual salary and benefits, take time to understand your equity grant benefits. Some questions to ask are, “Is the grant tax-advantaged incentive stock options, non-qualified stock options, stock appreciation rights or restricted stock units?” “What is the vesting period for the equity grant?” “If stock options are granted, what is the exercise price?”
If going to a company where acquisitions could be possible, ask about a “Golden Parachute.” These are benefits guaranteed to you in the event you are fired as a result of a takeover of the company. If this happens, are you entitled to terminate employment and receive the golden parachute payment?
You will also want to consider certain liability protection coverage within the scope of your job. Does the company have Directors’ and Officers’ (“D&O”) insurance coverage?
One last thought as the jobs markets further tighten, there’s more to life than cash and benefits. You’ll be spending at least a third of your time working. Now may be the time to negotiate for quality of life. After all, this is not a dress rehearsal.
It’s always a good idea to get help from an experienced attorney when reviewing an employment contract.
Dana’s Take: For parents taking a break from work and recently-retired adults, it’s a tough call whether to re-enter the job market or not. Benefits can tip the scales toward work.
A non-employed spouse may return to work when a self-employed spouse needs family healthcare coverage. Consider part-time work that provides healthcare. A part-time Apple Store employee once told me how shocked he was to receive healthcare benefits. It’s rare but possible.
If a company contributes to retirement savings or matches employee savings, this could be incentive to get back in the saddle. For the recently-retired, re-entering the workforce could also mean delaying tapping into Social Security savings for a bigger paycheck later.
Whether it’s for the employee discounts or a safety cushion of savings, jumping back in the workplace can pay off now and later.
Ray’s Take: According to the Lease Market Report by Edmunds.com, lease volume has doubled in the U.S. in the last five years and the automotive market is on the verge of a fundamental shift in consumer behavior about the value of owning a new vehicle – particularly when the purchase has to be financed.
Deciding whether to lease or buy a car is a personal decision that is usually based on how many miles you drive per year, your credit history and lifestyle.
Leasing is a good option for those who want a low monthly payment, prefer to have a new car every few years and want to avoid repair costs.
Keep in mind that you must have excellent credit to lease and when you do, a portion of the car’s depreciation and financing costs can be deducted on your taxes if you use the car for business purposes.
But leasing can be tricky. Ignoring the fine print can cost you dearly, like early termination penalties, excess wear fees and other hidden costs. Make sure you are clear on the financial commitment you are about to make by getting a detailed written estimate from the dealership with all fees, including monthly payments, down payment, title and registration and delivery charges. Add your insurance cost to that to see the big financial picture.
I recently suggested that a client go a year on Uber rather than buying or leasing. When we did the math at the end of the year, she was better off and loved not having to deal with parking! Transportation is changing. Buying and owning a car was a significant part of the American culture for a long time, but this may soon go the way of the landline.
On a recent family vacation to Chattanooga my son and I took an Uber to Rock City while Dana and our daughter used the car for a show in another city. All went well until I opened the Uber app to go back to the hotel. Nothing. No cars available – at any price. We got a taxi – and I still own a car – for now.
Dana’s Take: I know folks who have leased cars and have not enjoyed or repeated the experience. The additional charges for bumps and scratches were just too annoying and costly.
Searching for a gently used car is one money-smart option. My college friend and I have been looking at electric cars, so we were green with envy when a colleague scored a 2-year-old electric car with only 11,000 miles for about a fourth of the cost of that luxury model new. We will keep looking for a deal like that.
Whether buying new, used or leasing, choose a car plan that fits into your financial goals.
Ray’s Take: It’s crazy to think that there are billons of hard-earned dollars left behind or forgotten about in dormant accounts all across the world. But with that much money left unclaimed, there are clearly many reasons accounts go dormant. Moving to another state and forgetting to close accounts is the usual culprit.
In 2017, significant changes were made to the Tennessee unclaimed property law. The revised law reduced dormancy periods for many property types from five years to three years and introduced new provisions for specific property types – including health savings accounts, custodial accounts and stored-value cards. Dormancy periods vary by state and type of account.
To become dormant, the owner of the account must not have initiated any activity for a specific period of time. Financial institutions are required by state law to make an attempt to contact the owners of the dormant accounts. If this is unsuccessful, unclaimed money in the account is transferred to the state’s treasury department – meaning they get your money.
If you think you have forgotten accounts and unclaimed money, the best place to begin your search is www.Unclaimed.org, the website of the National Association of Unclaimed Property Administrators (NAUPA). This free website contains information about unclaimed property held by each state.
There are services that offer to search for unclaimed inheritance money for a fee. Unless you have reason to suspect that there is a significant sum of unclaimed money out there or your loved one lived abroad, it makes more sense to conduct the search yourself.
I saw a funny commercial suggesting that some people who’ve changed careers keep their old business cards just to remember where their old 401(k) accounts were. Be sure to keep track of all your accounts and never let them go dormant. Even though a dormant account is inactive, it is still subject to fees and maintenance charges, which can erase the balance of your account over time or even put you in the negative.
Dana’s Take: Have you visited your storage unit or lockbox lately? In them, you may find some of your very own unclaimed property, like rare coins or family jewelry. It’s funny how we move these collectibles around, but don’t actually use them. Consider a family meeting to decide what to do with family valuables.
Fees on storage units really add up, and most of what they hold is guilt. Often storage units hold sentimental things, which are the hardest to release. In Peter Walsh’s excellent book, Let It Go, he emphasizes that our hearts and minds hold the memories of cherished loved ones, not the objects themselves. Find a nonprofit like Habit for Humanity’s Re-store and donate once-loved treasures to help others.
Check your storage spaces and see if it’s time to free up some physical and emotional space.
Ray’s Take: Back in 2013, I turned down $1.5 million dollars that I was awarded by a Nigerian prince. He just needed my name, address and social security number to wire the millions directly to my bank account. I also won the lottery several times over the last several years. I completely forgot to send my personal information to the “lottery office” so unfortunately I didn’t get all those winnings.
Everyone has stories like these if you use any kind of technology and while these examples of identity theft seem comical, there were 16.7 million victims of identity theft last year. Thieves stole over $16.8 billion dollars from U.S. consumers. Identity theft happens once every two seconds. Basically, you are more likely to become a victim of identity theft than having your car stolen or your home burglarized.
There are all kinds of identity theft programs out there that offer identity theft protection plans such as Experian, LifeLock and Identity Guard, just to name a few. If you don’t have room in your budget for these protection plans, here are some basic things you can do to keep your information safe.
Income tax identity theft cost the IRS approximately $6 billion last year. File your tax return early to beat criminals to the punch. Make sure your anti-virus security software is up-to-date on all of your devices. Keep your passwords and security questions secure and change them frequently. And limit the use of your ATM card and use your EMV chip credit card whenever possible.
The bottom line is there is no privacy anymore and there is nothing that can protect you 100 percent. Simply do what you can to keep your personal information safe and teach your children to protect their identities as well.
To report identity theft, visit the Federal Trade Commission website to file a claim, then call the three major credit bureaus to create a fraud alert for your file. In addition, contact your banking institution and complete a police report at your local law enforcement office.
Dana’s Take: Since most businesses know us as a number, instead of a face, identity theft has become a real headache. Back in the 1950’s most merchants recognized the faces of their customers but then again, you also couldn’t order a book from Amazon at midnight.
Since identity theft seems to be a growing part of modern life, we might as well be prepared for it. Your bills will keep coming and not all creditors are patient. Keep a backup card with an account that will never go in your wallet. Also, keep your money in more than one bank so you can continue to pay your bills while the financial institutions sort out the situation and to protect your credit rating.
Ray’s Take: Can you explain what risk diversification is? Can you identify the effects of inflation? Do you know how to calculate interest? If you answered yes to these three questions, you are better off than 43 percent of Americans and a whopping two-thirds of the world’s population, according to Maggie McGrath in an article written for Forbes Magazine about the results from the first-ever S&P Global FinLit Survey.
Also, according to this survey, only one-third of the world’s population is financially literate. The U.S. was ranked a dismal 14th in financial literacy compared to all other countries in the world.
By definition, financial literacy is the ability to understand how money works in the world. This means knowing how someone earns and makes money, how to manage it, how to invest it and how to donate it to help others.
We have a financial literacy problem in America. Former Federal Reserve Chairman Ben Bernanke, said, “Widespread problems like the subprime mortgage market and the resulting rash of foreclosures and bankruptcies illustrate just how serious this lack of financial education has become in today’s world.”
“Financial ignorance carries significant costs. Consumers who fail to understand the concept of interest compounding spend more on transaction fees, run up bigger debts, and incur higher interest rates on loans. They also end up borrowing more and saving less money,” said the authors who compiled the S&P FinLit Survey.
When it comes to money and your finances you can never stop learning. There are always new trends, products and situations where you need to spend time researching and educating yourself.
There are lots of resources available to help you improve your financial literacy. You don’t necessarily need to attend a class or join an online course. Read as much as you can. You can go “old school” with The Wall Street Journal or Barron’s. Or you can go global with The Economist. Always remember that there’s someone on the other side of every transaction who may or may not have your best interest at heart.
Dana’s Take: Rather than facing financial realities and learning how to manage money, some people prefer to spend as if they were their financial “dream self.”
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Try one of these to get you started:Name SearchWatch Service'>Peter Walsh’s book, It’s All Too Much, he says that we often keep possessions that reflect our “dream selves.” For instance, my “dream self” throws big outdoor parties, so I must keep a dozen tiki torches. Since I have not accomplished this, I should grieve that they represent a dream not realized and get rid of them.
Similarly, I think we make financial choices based on our dream selves and not in the reality of our actual paycheck. This is called aspirational spending. Financial education can help people get where they want to go.
Ray’s Take: As of August 2017, the oldest person alive was a 117–year-old woman named a class="learn" style="color: #7d0200; text-decoration: underline;" href="htp://www.memphisdailynews.com/Search/Search.aspx?redir=1&fn=Violet&ln=Brown" rel='
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Try one of these to get you started:Name SearchWatch Service'>Violet Brown from Jamaica. And when I scrolled through the list of the top 100 oldest people alive, only three were men. I’ll let you try and make sense of that.
It’s just a fact that we are living much longer than our ancestors. Laura Carstensen, Ph.D., director of Stanford University’s Center on Longevity, said, “The good news is we are living longer. The bad news is … we are living longer. Thanks to advances in science and technology, we have added more years to our life expectancy in the past century than in all of human evolution to this point. It’s a success that’s viewed with a mixture of pride, doubt and – if your job is calculating risk for a health insurance company – dread.”
But living longer can place an unexpected burden on you and your family if you haven’t planned ahead. Many people are seeing this trend and opting to purchase long-term care insurance policies to protect their spouse, children or other family members from being financially responsible for managing their care in the event they need daily assistance because of old age, an unexpected accident or disability.
Long-term care insurance helps provide care beyond a pre-determined period. Generally, long-term care covers services and support not covered by your health insurance, Medicaid or Medicare. This includes personal care and things to assist with daily living. In most cases, you are reimbursed a daily amount (up to a pre-selected limit).
In my experience, I have found that investing in the companies selling the products to support long-term care can be more beneficial to your overall financial plan than purchasing the actual policies. For some, alleviating the anxiety of the risk through insurance can be worth every penny. But for others, it’s important to pass along their portfolio to their heirs and shift the risk of long-term care to an insurance company. It’s a personal decision, but should be evaluated with an independent party.
Dana’s Take: Most of us are hopeful that our children will take care of us until we draw our final breath. But in reality, the number of adult children who can be full-time caregivers is shrinking.
My aunt turns 99 years old this year. She still cooks and her children take her to appointments.
Some of our other family members live in lovely life-care communities. They have great food, lots of activities and caregivers on-site for all stages of life.
Both have been great options. Look at your budget and figure out what’s best for you. We can’t know what will happen tomorrow, so it’s always good to have a plan.
Ray’s Take: Did you know that back in 1870 you could attend Harvard for a mere $150 per year, and for half that amount, you could attend Brown University? According to Best Colleges, college costs began to rise in the 1970s at a rate much higher than inflation, and this hasn’t slowed down.
If you have children or even your own desire for a higher education, the price of college tuition this day and age can be staggering and downright depressing. Many Americans find themselves wondering where they will come up with the funds to pay for it without incurring large amounts of debt.
In the 1990s, 529 plans were introduced to help parents save for increasing higher education costs. Last year, the Tax Cuts and Jobs Act had some interesting news for parents. For the first time, 529 plans are eligible to be used for K-12 private school tuition. This simple change will have a significant impact on how a large number of Americans will approach their strategy for education funding.
Families with children in private or parochial schools will be able to tap their college savings plans to pay for up to $10,000 in private school tuition. Before using this approach, consider what’s most important to you – K-12 education or college.
Either way, money buys options, and the sooner you start the better off you will be.
The new tax for custodial accounts for kids under 18 is pretty unfriendly, but there is still a place for them since they have flexible terms for distribution. For example, if your child needed a car while at college, you’re out of luck with the 529s but a custodial account could be used for the purchase.
Also, if there are leftover custodial savings, this could be used to help your college graduate start off with some money in the bank. Leftover 529 funds are much more complicated.
Consult with a trusted financial adviser before considering these savings options.
Dana’s Take: With a child in college now, we have experienced planning and saving for college expenses. Now, we are learning about add-on expenses that were not included in the budget. Did you know if a student doesn’t like their grade in a college class, they can retake it at a community college and try to improve their grade? Further, a whole new category of student has emerged since our college days, known as a “super senior,” a college senior who returns for a second year.
Fortunately, with part-time and summer jobs, students can build an emergency fund to cover all these extra expenses. Students can research the costs of retaking classes, summer travel and even funding a “super senior” year. Students can even start building their college emergency fund while still in high school.
Ray’s Take: Buying a second home for personal use or as an investment has become one of the fastest-growing trends in the U.S. According to the National Association of Realtors, more than 30 million Americans are expected to enter the second home market in the next decade.
You may think since you’ve been through the homebuying process before, that the second time around should be a piece of cake. Think again. Typically, second home loans require a better credit score and more money down. Lenders will be looking carefully at your finances to see if you can actually afford to pay two mortgages. They will want to make sure your debt does not exceed 40 percent of your gross income.
Also, be prepared for a higher mortgage rate to the tune of one-quarter to half a point. You will probably not get as competitive of a rate as you did on your first mortgage.
Buying a second home can actually be more expensive than you think. Make sure to review your overall budget with a second mortgage in mind. You always need to maintain a healthy emergency fund if an accident or job loss forces you to float two mortgages at the same time.
In addition to the mortgage, don’t forget about all the additional expenses that come with owning another home. This includes utilities, property taxes, maintenance fees, general upkeep and insurance.
For many second homeowners, renters can help offset a lot of expenses. One good thing about buying a second home is that it can actually help you out on your taxes if you live in it more than 14 days per year. You can deduct your real estate taxes and mortgage interest, as long as your combined mortgages don’t exceed a million dollars. If you rent it out for more than 14 days, you will have to report the income to the IRS, but you can deduct some expenses too.
Always consult with your financial adviser before considering purchasing a second home.
Dana’s Take: Ray and I have debated the idea of buying or renting a second home, versus staying in a hotel. Ray favors hotels and does not want to buy a second home, as one home gives us enough headaches. He is open to renting a second place someday, but even that could be problematic when you don’t live there permanently.
Today, with Airbnb and HomeAway, more vacation homes offer long-term rentals. Some people rent their places for a minimum of two weeks, and a hotel in London now offers rooms for months to world travelers.
The hotel option usually wins because of the flexibility. But I wonder if someday people all over the globe will move away from short-term rentals.
Ray’s Take: Did you know that only 17 states require high school students to take a course in personal finance? Unfortunately, financial literacy is often left out of the American education system and it’s up to parents and guardians to teach kids everything they need to know about finances.
Teaching your children financial literacy skills should start early and it’s one of the greatest gifts you can give your children. Many adults I work with who struggle financially do so because they were not taught basic financial skills growing up or were raised by adults who did not demonstrate responsible spending or saving habits.
“It’s actually easy to teach kids about money,” says Jayne A. Pearl, an Amherst, Massachusetts-based author of “Kids and Money: Giving Them the Savvy to Succeed Financially.” “Turn your day-to-day activities into learning experiences. Trips to the bank, store or the ATM machine can be a perfect opening for a discussion about your values and how you use money. When children are very young, you can work money concepts into your child’s imaginary games, like playing pretend store or restaurant.”
Teaching your kids the difference between wants and needs is a great place to start. Even the youngest children can differentiate between a want and a need. You need food and clothing, but you want a toy. You shouldn’t buy something you want unless you have taken care of your needs. Even we as adults forget this basic money management skill.
You can also help your children develop financial muscles by not purchasing every item they request. Even more powerful is demonstrating this skill in front of your children by avoiding impulse purchases yourself. When my kids saw something they wanted, they would ask me to “loan” them enough money to buy it on the spot and take it out of their savings account later. I would offer to take them to the bank to get the money out first. By the time we got to the bank, the craving usually passed.
Remember that teaching children about money can’t be accomplished in one conversation. It will take years and years for them to understand all the money management concepts. So start your journey early and never stop.
Dana’s Take: The best way I learned about money as a teen was by earning a paycheck.
Most teenagers today do not work for a paycheck. After-school sports, homework and exotic vacations seem to have taken the place of a “J.O.B.” Babysitting and cutting the grass are about as rare as a pop song with no explicit lyrics.
Ray and I are guilty as any parents of letting teen privilege get in the way of our kids’ employment. Maybe this year, a job will be that exotic “summer experience” they were seeking.
Ray’s Take: Buying a home used to be the pinnacle of living the American Dream and the trophy of your financial success. Conventional wisdom held that you either paid your own mortgage or someone else’s.
But in recent years people are questioning whether to buy that starter house or just wait to buy the dream house they will live in for 40 years. A new generation is choosing to rent instead of buying, and they may be on to something.
Most often, people choose to rent because the housing in the area is simply too expensive. But there are some other reasons that prove the logic of renting over buying.
Having flexibility is a great reason. If your job transfers you often or if you prefer to explore different areas and locations of the city, renting is probably the way to go. When you are a homeowner, it is much more difficult to relocate because of all the fees associated with buying and selling a house. If you have had a real estate closing, take a hard look at that settlement statement. There are a lot of hands out.
People also choose to rent to save money in the short term. Renting should allow you to save more for the down payment needed to purchase a home. You also avoid real estate taxes and maintenance and repair costs that come with owning property.
On the other hand, if you plan to stay in the same place for more than five years, buying a home could be the smarter choice. Staying in a house for five years or more means you are more likely to recoup what you paid in transaction costs and generate a return on your investment. According to Data Solutions’ 2017 Rental Affordability Report, buying is more affordable than renting in 66 percent of American housing markets.
If you are having trouble deciding whether you should rent or buy, checkout the “Rent vs. Buy” calculators at Trulia.com or Bankrate.com to see what you can afford and always consult with your trusted financial adviser for advice.
Dana’s Take: A friend of mine just experienced the good and bad of renting. Single, with grown kids, she was excited to sell the big house and rent a cozy duplex with a charming front porch. After one year, her landlord notified her that he would not be renewing the lease. That is the ugly side of renting – the landlord retains the right to un-house you, no matter how much work you’ve put into the property.
Soon after, she discovered the good side of renting. She found a new apartment with better security and a new kitchen and bathroom. Flexibility is the upside of renting.
Home is where the heart is, whether you rent or own.
Ray’s Take: Buried treasure may sound like something from a fairy tale, but in 2013 a California couple discovered the largest buried treasure in U.S. history. The Saddle Ridge Hoard, as it became known, was made up of 1,411 gold coins minted in the 1800s and worth more than $10 million.
While I have yet to meet anyone who buries their money as a method to save it, most people do use their employer-provided 401(k) as their primary savings vehicle. While a 401(k) is a simple and effective way to save money, it’s always good to consider other savings options to build your wealth in addition to your 401(k).
If you are enrolled in a qualified high-deductible health plan and are eligible for a health savings account (HSA), this can be a great option to help you save. Contributions to these accounts are pretax and withdrawals are tax-free for qualified medical expenses. In addition, unused money can stay in the account until retirement and you can use the money to pay your Medicare premiums.
Roth IRAs (individual retirement accounts) can also be a key player in your overall portfolio. The tax shelter benefits are so extraordinary that Congress specifically limits them to individuals and families with adjusted gross incomes of less than certain predetermined thresholds. Contributions are not tax-deductible, however, if you need to make a withdrawal of your past principal contributions, you can do so tax-free without an early withdrawal penalty, though you won’t be able to replace the funds again once they’ve left the account.
A traditional IRA is another option to consider. You can make contributions with money you may be able to deduct on your tax return, and any earnings can potentially grow tax-deferred until you withdraw them in retirement.
Finally, a nonqualified investment account can be layered onto the above tax-favored accounts. With wise planning, these retirement savings options can help you save without burying your riches in your backyard.
Dana’s Take: As adults, we marry, get a good job, buy a house, start a family and assume our happily ever after will continue forever. In 2017, the probability of a marriage lasting 20 years was 52 percent for women and 56 percent for men.
Three of my close friends are going through major reversals of fortune in their mid-50s. Each of them had six-figure household incomes and large homes. Now, because of divorce, they are renting much smaller spaces and splitting their retirement fund in half.
Putting your money into a retirement fund is never fun, but it’s a good idea. Since we can’t see what is around the corner, it’s a good idea to seek the counsel of a financial adviser who plans for all outcomes.
Ray’s Take: The story of one of the world’s hottest tech companies starts with two roommates, Brian Chesky and Joe Gebbia, offering air mattresses and homemade breakfast in their apartment to out-of-town guests who couldn’t afford a hotel room in San Francisco. What started as a way to make a few bucks to pay their rent is now the company Airbnb.
Airbnb is a privately owned accommodation rental website that enables hosts to rent out their properties or rooms to guests who use the website to find somewhere to stay. Airbnb now offers over 3 million listings in 65,000 cities and 191 countries.
There are several different reasons people are entering into the Airbnb business. Some want to make a few extra bucks off their available space, others want a stable secondary source of income and then there are those who want to build a serious Airbnb business that will become their main source of income.
Here are some things to consider before listing your property and entering into the Airbnb business. Get a market report for your property. Some markets are not big enough to support this type of business and you may not make money if there is not a demand in your area.
Get the proper insurance coverage. Airbnb’s Host Protection Insurance will act as primary insurance and provides liability coverage to hosts. If you have questions about how this policy interacts with your homeowner’s or renter’s insurance, you should discuss your coverage with your insurance provider. Some policies protect homeowners and renters from certain lawsuits that result from injury to a visitor, while others do not.
Protect your identity. Do your due diligence and screen all potential guests. Lock up or store all passports, bank statements, social security cards and anything that shows your full name and address. You may consider holding or forwarding your mail when you have guests.
Don’t forget about taxes. You might be subject to rental income taxes. To assist with U.S. tax compliance, Airbnb collects taxpayer information from hosts so they can provide an account of their earnings each year via 1099 and 1042.
Dana’s Take: Airbnb lists 300 rentals in Memphis and HomeAway lists 219. According to their maps, one or two of the listings are within walking distance of our house.
As we approach our empty nest years, I daydream about renting out our house on Airbnb. Ray would rather sell the house than rent it to strangers. I suppose Ray is right. Last summer, a Cooper-Young couple rented out their home through Airbnb, and police discovered the renter using it for an illicit enterprise. The neighbors weren’t too happy.
Short-term rentals sound like a dream but could turn into a nightmare.
I always have an umbrella in my car. Most of the time it just takes up space and I end up pushing it aimlessly around the car to make room for other things. And there are many months of the year when an umbrella seems utterly pointless. But in Memphis, when it rains, it pours, and when that day comes I’m happy to have it.
The same holds true with an umbrella policy. Just like the name suggests, it’s important coverage to consider adding to your insurance arsenal. You may not ever need it, but when you do, you’ll be glad it’s there to protect you.
Also known as “lawsuit insurance,” an umbrella policy is extra liability insurance over and above the liability coverage that’s part of your existing homeowners and automobile insurance. In addition, an umbrella policy can also cover the legal fees to defend you from claims of personal injury or property damage that could arise due to accidents. It can even pay for the legal fees to defend you against false arrest and claims of libel, slander and defamation of character.
The truth is, accidents do happen. Do you have a pool, teen drivers, motorized vehicles, a boat, diving board or a trampoline? There are so many different scenarios of the unthinkable happening, and in every case, you need to be protected.
Don’t assume the liability coverage in your home and auto policies are sufficient. Most home insurance covers liability claims only up to $300,000 for personal liability, and most automobile policies provide up to $250,000 per person for bodily injury. It’s usually recommended to get an umbrella policy if you have assets over $1 million, which is the minimum amount covered and costs between $150-$300 per year.
Consult with your financial representative to see if an umbrella policy is right for you and your family so you aren’t caught out in the rain!
Our friends’ college-age child, close in age to our own, was rear-ended by a drunk driver with two friends in the car. Tragically, one child was killed, even though no one did anything wrong. They were simply driving home.
It is hard to imagine the emotional toll this event has taken on those three young adults and their families. Now, imagine if a lawsuit for millions of dollars was added on top of their loss. An umbrella policy could help cover some of the costs if this would have occurred.
Ask your insurance agent or a Certified Financial Planner to review your insurance coverage and the policies of your adult children to make sure a large umbrella policy is there to protect your family. It’s one umbrella I hope you never have to use.
Ray’s Take: What do a class=learn" style="color: #7d0200; text-decoration: underline;" href="http://www.memphisdailynews.com/Search/Search.aspx?redir=1&fn=Mike&ln=Tyson" rel='
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Try one of these to get you started:Name SearchWatch Service'>Mike Tyson, Curt Schilling, Marvin Gaye, Francis Ford Coppola and Meat Loaf all have in common?
They were all worth millions at one point in time yet all found themselves bankrupt and broke. According to the New York Times, when Francis Ford Coppola filed bankruptcy his assets came out to be a whopping $52 million and his liabilities totaled $98 million. Wow. Talk about major overspending.
While most of us will never be as wealthy as these celebrities, calculating your net worth is an essential tool in measuring your overall financial progress from year to year.
To figure out your net worth, start by calculating your assets. For most people, this is your home, other real estate properties and vehicles. If you own a business, list the current market value. Next, you’ll need to gather statements for all your liquid assets. This includes checking and savings accounts, CDs, and other investment accounts like retirement and brokerage accounts. Last, list personal items of value such as jewelry, coin collections or any other items worth over $500.
Now calculate your liabilities. Add up your mortgage, car loans, student loans, balances on credit cards and other debt that you owe. Subtract your total assets from your total liabilities. Hopefully, your net worth is in the green but there are times in life when it could be in the negative.
Because of easy access to credit, many people with zero or negative net worth have lots of “things” like cars, TVs and even houses. It’s possible to have zero net worth yet appear prosperous by many standards. There are only a few good financial planning rules of thumb, and one is “spend less than you earn.”
Finding out how much you are worth is a good exercise to do each year to see how you are progressing or regressing on your financial journey. And to make sure you don’t end up in bankruptcy court with people – even celebrities – living above their means.
Dana’s Take: a clas="learn" style="color: #7d0200; text-decoration: underline;" href="http://www.memphisdailynews.com/Search/Search.aspx?redir=1&fn=Elizabeth&ln=Thames" rel='
Learn more about Elizabeth Willard Thames
Try one of these to get you started:Name SearchWatch Service'>Elizabeth Willard Thames wrote a book called “Meet the Frugalwoods.” It was about a young couple who achieved financial independence and early retirement (they called it FIRE) by saving more than 70 percent of their income in order to achieve their dream of living in the Vermont woods.
This was a truly inspiring story about a couple challenging their peer group’s values and putting their finances exactly where they found joy. They saved and nipped spending until they were able to live their dream of raising their two babies in the Vermont woods. The couple also shared case studies of others around the globe who have aligned their finances with their dreams.
Ray’s Take: According to The American Mortgage in Historical Context, 30-year mortgages are a relatively new thing. In the time before the Great Depression, mortgages had short maturity times and usually required a very high down payment. Pre-Depression mortgages featured variable interest rates and were usually renegotiated on a yearly basis. Boy, have times changed!
I always get the question from clients and friends about when and if they should consider refinancing their home. There are many reasons people decide to refinance their mortgage. It could be to shorten the term of the loan, get cash out of the equity for a large purchase, to convert from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage or vice-versa, or to consolidate debt.
The most common scenario for refinancing is when interest rates drop considerably from the time when you bought your home. A lower interest rate helps you build equity in your home faster and it decreases the size of your monthly payment. I have heard lenders say you should refinance if you can reduce your interest by 2 percent, but now I’m hearing that even a 1 percent savings is an incentive to do it.
Refinancing typically costs 3 to 6 percent of the loan’s principal. So it will take years to get that money back from the savings generated by a lower interest rate or shorter term. It’s important to ask yourself how long you plan on staying in your home before considering refinancing. If you aren’t planning on staying in your home long-term, the cost of refinancing could negate any of the potential savings.
But don’t get too caught up trying to pay off your home early if you do not have retirement savings, need to pay-off high interest debt or start an emergency fund. It’s important to consider the big picture of your overall financial plan. And always consult with your financial adviser before refinancing.
Dana’s Take: Ray’s late father, E. Denby Brandon Jr., shared a lot of wisdom with us. One of his favorite topics was distinguishing an asset from a liability. He said that an asset should pay you money, while a liability costs money. By that definition, a house is a liability rather than an asset.
If any of us kept careful records of how much we spent on the upkeep of our homes, including interest, property taxes and repairs, we would realize that the purchase price is only a small part of the cost of homeownership.
Can you afford to keep investing so much in an asset that’s costing you tons of money? Would renting free up money to save and invest? These are tough and emotional choices. Home is where the heart is and it’s often where your money is, too.
Ray’s Take: We all have memories of preparing to take a really hard test. Up all night studying, lots of caffeine, stressing up until that very moment you sit down with the paper and pencil knowing that everything you worked so hard for depends on the answers you mark on that one piece of paper. And then you have to wait for the results. The waiting may be harder than the test itself. I think this is how many people feel about getting their credit score.
Unfortunately, your credit score doesn’t depend on one test. It is determined over time and takes many years to build a good one. If you’ve had overdue student loans, carried high credit card balances over a long period of time or had a foreclosure, your credit score may not be good, but it can be repaired.
If your score is good, there’s always room for improvement. According to FICO, only 1.4 percent of U.S. consumers have a perfect credit score of 850. And the average national FICO score is a 700.
So how can you improve your credit score if it’s not even close to 700 or 850? Here are some simple ways to start:
Pay off all your bills on time going forward. Late or missed payments are the single most detrimental thing you can do to your credit.
Don’t close credit cards as a short-term strategy; instead pay down the balance and don’t open up any new cards.
Keep your balances low on the credit cards you already have and pay them off completely if you have the financial means to do so instead of making ongoing payments.
I think concern over one’s score isn’t such a good use of time. It only matters if you want to borrow more money, and you only need to borrow money if you want to buy something before you have saved for it. I would rather spend my time and energy figuring out how to earn a bit more or spend less. If you do that, you won’t need to borrow as much money and your score really doesn’t matter!
Dana’s Take: A credit score measures how well one has borrowed money and repaid it. Too bad we don’t have a saving and investing score. Perhaps we do – it’s called net worth.
Is your family creating a culture of financial success? What kind of stories do your kids hear around the dinner table? Do they hear you envy those who are spending or do they hear tales of those building savings and investing?
Look for opportunities to create a family culture where stories of hard work and success are celebrated. Encourage children and teens to ask adults and elders about their paths to success. Change your family’s narrative from big spenders to big savers and investors.
Ray’s Take: One of my greatest joys is helping someone plan and reach his or her goal of buying a new home. Whether it’s a first home, a vacation home, a fixer-upper, new construction or an empty nesting home, buying a new home is exciting.
Homeownership is a milestone that took careful planning, preparation, saving and dreaming. I love seeing these dreams become reality for my clients.
Recently, there was an article in the Wall Street Journal that said U.S. homeownership climbed for the first time in 13 years. One reason for this increase could be that our millennial generation is now seeing the benefit of long-term investment in homeownership as opposed to renting or leasing.
So the question becomes, “How much ‘home’ can I truly afford?” Forget all the online tools and calculators that make claims based on your income or how much the bank “says” they will lend you.
When purchasing a new home, the conversation needs to start with the “B” word – budget. Add up all the extra fees, taxes, insurance, required maintenance and homeowners’ association fees in addition to just the monthly mortgage payment. Does your plan demand that your financial lives go perfectly as planned? If so, stop. “Perfectly planned” is not realistic.
It’s important to keep in mind that the transaction costs of buying and selling a home can quickly negate any appreciation on the property and all of the expenses associated with “more” home can slow down achieving other financial goals.
Ultimately, the amount of house you can afford will depend on your personal needs, desires and financial capabilities. Start by writing up a household budget for five years. This should give you an honest picture of how much you have available for housing expenses.
But most of all, have fun. Having a place to call home and making new memories is a part of living the American dream.
Dana’s Take: Wedding vows say to accept a mate “for better or worse,” but does that mean agreeing to move into his or her house? This is sometimes an issue when people tie the knot later in life.
When Ray and I married, he already owned a house, so I moved into his bachelor pad. This was probably a mistake, both emotionally and financially. I renovated that house for 10 years and it still never felt “right.” I learned a valuable lesson.
My friend recently married a man who has worked on his house for decades and would rather not move. The new bride is planning all kinds of additions and renovations. My guess is it will never feel quite right.
Consider starting fresh when building a nest together.
Ray’s Take: It’s been a long, cold, rainy winter here in the Bluff City, and everyone is looking forward to Spring Break, sunshine, warmer weather and possibly making plans for a summer vacation.
When thinking about a trip, it’s always a good idea to start with your budget before you make any plans. I’ve seen many clients splurge on large, expensive vacations they simply cannot afford. They end up paying them off for years, long after the memories have faded.
If you are a frequent traveler or would like to take a big trip with your family, look for credit cards that offer travel rewards when you make purchases. There are so many credit cards to choose from depending on what kind of traveling you want to do.
Some offer airline miles, others offer discounted hotel stays, domestic and international travel deals, no foreign transaction fees and even customized travel portals to help you plan your trip through their website. But don’t be fooled. Always be sure to read the fine print when signing up for one of these reward credit cards. Many have blackout dates throughout the year and some offer miles that are non-transferable.
When planning a large trip, make a list of the big-ticket items you will be spending money on, such as ski lift tickets, Disney World passes or seats at a Broadway show. Then work your remaining budget around those items. Sometimes it’s fun to live like a local and sample local fare in exchange for a fancy, expensive dinner. But if you have the money, then splurge and don’t feel guilty!
Last year, U.S. News and World Report ranked Memphis No. 6 on the list of the “Top Most Affordable Destinations.” So if an expensive trip is not in your family’s budget this year, visit the Memphis Convention and Visitors Bureau website at memphistravel.com for things to do in Memphis that are “off the beaten path.”
Dana’s Take: Everybody splurges on something, whether it’s a golf trip, season tickets to a Grizzlies basketball game or a designer wardrobe. In relationships, trouble emerges when one or both members hide their splurges. The intent of hiding a splurge is to avoid the blame game, but the unfortunate result is usually a loss of trust.
To avoid splurge wars, start a savings fund. If you both agree to splurge on travel, save for a blowout trip. If you have individual whims, establish a fund for each of you. It can be used to splurge without judgment from the partner.
Two people can love each other without sharing the same priorities for spending money. Communicate and allocate money for each of your passions and watch the love grow.
Ray’s Take: A rabbit’s foot on a string. A silver dollar. A four-leaf clover. A lucky penny. These are all lyrics from a 1961 song by our very own Memphis legend, Elvis Presley, titled “Good Luck Charm.”
But the truth is, when it comes to successful investing, it isn’t about good luck or any luck at all. Creating a successful investment plan requires a sound strategy, time, research and, in most cases, guidance from a financial services professional. Investing is not a one-time event.
The key to making wise investment choices starts with matching risk and allocation with your time horizon. For example, if you are 45 and want to retire at age 65, you have 20 years to get there. How much money will you need when that time comes? If the risk required is too high, reduce the goal or extend the working period.
You also need to learn the market and select an investment path. If you are new to investing, start small. A sudden swoon or spike is always possible. It’s not “bad luck” or investment genius. But it can imprint on you for the rest of your investing life.
Always diversify and review performance, but not too often. Quarterly at most. Watch your investments and learn what’s working and what isn’t. If you have more time, risk is your friend. If you have less time, don’t tempt fate. Most asset classes will regress to their mean. Your own greed and fear are your enemies.
Be careful not to get sucked into the latest market craze or seek short-term profits that may be short-lived. Committing to a long-term investment strategy is best.
Warren Buffet, one of the most successful investors ever, once said, “If I cannot understand it, I won’t invest in it.” This may seem simple, but it is sound and effective investment advice.
In the end, making wise investment choices isn’t about luck. And I think even Elvis would agree with me on that.
Dana’s Take: Can luck apply to money or just to love? I was lucky in love when I met Ray, but with money? Not so much. Now that I’ve seen how a financial planner handles money, I realize that it’s more about good habits and financial realities, than luck.
When I was single, I lived in financial denial. I paid all my bills and didn’t run up credit cards, but I wasn’t accumulating for my financial future. Even saving 10 percent of my earnings would have been a good start.
Visit your company’s human resources department and make sure you’re maximizing savings plans and any company matching. Also, visit with a financial planner to plan for a wedding, children, college or retirement. Odds are your financial “luck” will improve.
Ray’s Take: Most people have heard the expression, “He/she is a trust fund baby.” But what does that mean exactly?
Most people do not understand the basics of a trust and think they are only applicable to children or heirs of high-wealth individuals and businesses. While many times this is true, there are certain situations when a trust might serve as an integral part of your overall planning.
So what is a trust? By definition, a trust allows a third party, or “trustee,” to hold your assets on behalf of a beneficiary or beniciaries. A trust is made up of three parties: the “trustmaker” (you); the “trustee,” which is the person responsible for managing the property or asset until it is transferred; and the last party, the “beneficiary,” which is the person or entity you name as the recipient of the benefits you leave for them.
Before the option of 529 accounts became available, I’ve seen families use trusts to help save for their children’s college and professional education. In addition to professional management, there are a number of estate and income tax advantages. Further, there are asset protection opportunities that are not insignificant in this litigious world.
A trust may be useful when a family has a special needs or grown adult child that may not be able to handle a large sum of money if given to them through a traditional will.
Putting money into a trust allows the trustee to distribute the funds within your selected timeframe and parameters. It also protects those assets from judgments should the beneficiary be liable for damages or divorce settlements. Money in a trust does not go through the court system, allowing access to it more efficiently.
It’s important to understand that once you place assets into the trust, they are no longer yours. But since they are not yours, you will not pay income taxes on the money. It’s a useful tool that can help reduce your estate taxes.
Don’t be afraid of trusts; just know when it’s appropriate to use one. And always consult with your financial adviser or attorney when trying to decide if a trust is right for you.
Dana’s Take: Think of people you know who have inherited wealth. Did it bring them happiness or problems? A gift of money might sap a child’s drive to work and could even cause friction in their relationships. Inherited money often becomes “my” money in a marriage, while earned money is usually “ours.” However, leaving money to worthy causes, instead of family, can breed resentment.
Experienced financial planners and estate planning attorneys have seen every variation and can advise you of options that may achieve a balance that reflects your wishes and values.
Ray’s Take: The start of a new year is a great time to get out your will and really read it. If you don’t have one, call your attorney today and get one. I do not recommend that you try and do this yourself or through an online program. Most people do not have financial situations that are so specific that you won’t need a lawyer. And oftentimes self-prepared wills are not executed correctly. I have lived through too many disasters of flawed wills to go there.
If you do have a will, make it a priority to read it annually. You will be amazed at what might need attention. Things change in our lives and estate planning should not be static.
Most people find creating and reviewing their will to be an uncomfortable task, but in actuality you are creating an invaluable resource for your friends and family should something happen to you. Having an updated and comprehensive plan upon death saves those closest to you lots of time and energy during an already difficult time.
When reviewing your will, double-check your beneficiaries. Have you had a birth or death in your family? Did you get married or divorced and need to add or remove a spouse or other family member? Re-evaluate your executor, guardian and trustee. Are these still the people you want in charge of making important decisions about your estate?
At the same time you are reviewing your will, you should also think about other essential estate planning documents like financial and health care-related powers of attorney. These ensure your wishes are carried out while you are still alive but unable to speak for yourself.
Keep in mind that some insurance and retirement policies are not included under your will, so you will want to review the beneficiaries on those documents separately. Beneficiary designations in these areas will override what’s outlined in your will.
Dana’s Take: I think we can all agree that thinking about death, especially our own, is an unpleasant topic that we would all like to avoid. But death is a natural part of life. And having an up-to-date, clear and concise will should give everyone peace of mind, especially you.
Don’t be afraid to communicate your wishes with your loved ones. While it can be scary and uncomfortable to discuss this topic with friends and family, it’s important that those closest to you know what their role is and what to expect.
Your children should know who will take care of them should something happen to you. Creating open dialogue in your home around this topic, may even help you in your decision-making process. Communication provides security and peace of mind that everyone will be taken care of and supported both emotionally and financially should the unthinkable happen.
Ray’s Take: “We make a living by what we get. We make a life by what we give.” This was the wisdom of Winston S. Churchill, but living a life of generosity is beneficial for you, your family and your community. Some of the most successful and powerful people in the world have tapped into the power of giving.
Since our kids were young, Dana and I have tried to model the importance of giving back. We have been blessed in many ways. Tuesdays have always been Rotary Day, and at dinner I try to share what happened that day at the meeting and the important things our club is doing both locally and internationally. Creating a charitable culture in your family should be a fun bonding experience. Even the youngest members of your family play an important role and you should listen to them. Having buy-in from each member of your family is crucial to creating a family-giving plan.
Start by meeting once a year to determine what causes are important to each member of your family. Then start creating a plan to help you support those causes financially and with your time.
The causes you support may change from year to year as kids grow and life takes different directions. Be sure to have an annual report from each charity you are considering at your family meeting. This will help determine what resources they need and where your money can make the most difference.
Typically, people donate anywhere from 3 percent to 10 percent of their taxed income. However you decide to divide up your donations, charitable giving requires forethought. You may want to single out one charity and make a sizable donation through a monthly pledge or you may choose to shotgun money to different charities if your income fluctuates each month.
The Community Foundation of Greater Memphis is an invaluable resource in the Memphis area. For more information about the organization, visit www.cfgm.org.
Dana’s Take: I have chronic guilt that I’m not giving enough money to all the great causes in Memphis. What I need is a phone app to automate giving a gift every day of the year to my favorite charitable organizations. I would like to be able to check off organizations from a list and have a fixed amount gifted daily from my bank account. Is that so much to ask?
Perhaps every Sunday a gift would be sent to our church, but Mondays to a health care organization like the Church Health Center, St. Jude or Le Bonheur. Tuesdays could be homeless and food scarcity missions. Wednesday could be women’s causes like YWCA women’s shelters, Women’s Foundation of Greater Memphis or Dress for Success. Thursdays could be blanket organizations like the Community Foundation of Greater Memphis and United Way. Fridays could be for schools and youth programs like Streets Ministries and Youth Villages. You get the idea.
Ray’s Take: It’s that time of year when many people find themselves scrambling through file cabinets, sorting through stacks of papers and gathering receipts in preparation for filing their yearly tax return. If you are unhappy with the lack of organization in your tax preparation, that could be your resolution for the coming year.
In a perfect world, your refund should be minimal, if you get one at all. Your personal situation will determine how accurately you can calculate your total tax liability for the year.
If you estimate your refund to be substantial, you may be over-withholding (giving the IRS an interest-free loan and missing out on last year’s market gains). If you are overpaying, the easiest correction is to complete a new W-4 form through your employer. If you’d like to get some extra money back each paycheck, increase the number of withholding allowances you claim.
If your refund is more reasonable in size, you are right on track. But don’t run out and spend it all in one place. Create a savings/spending “contract” with yourself. Commit to a fixed percent of certain windfalls (bonus, tax refund, etc.) that must be saved and the rest you can spend guilt-free.
It’s important to remember that the personal exemption, under the new tax bill, will disappear starting with 2018 taxes, but it still operates for your 2017 taxes according to the number of withholding allowances you claimed on your W-4 form.
And don’t wait until the last minute to file your return. This can set you up for a late-filing penalty of up to 5 percent of the amount due every month. Avoid the common mistake of thinking that getting an extension means that you don’t have to pay your tax bill in April; you will still owe interest and a late-payment penalty.
Dana’s Take: If you had a toothache, would you pull your own tooth? Unlikely. So why do non-accountants file their own taxes?
When I was single, I filed my own taxes. I didn’t know that emptying my 401(k) to buy a used Honda Civic was a big no-no. Well, the IRS took their sweet time to discover my error. The penalties and interest they charged me totaled more than the cost of the car.
Now, I pay a dentist to pull teeth and an accountant to file my taxes.
I know that CPAs charge a lot of money. But not only will they save you penalties and jail time, a CPA will provide you with organizing tools to make your job, and theirs, much easier. Most everything is handled via email.
I remember my father sitting at his desk preparing our taxes, looking miserable and overwhelmed. If you can afford it, give yourself a break and hire a CPA. He or she might even save you some money.
Ray’s Take: A new year for many brings with it thoughts of New Year’s resolutions. Whether it’s stopping smoking, losing weight, saving money or spending less time at work, resolutions too often feel negative or depriving. Instead of talking about “making resolutions,” we should be talking about “setting goals.”
One of the most important things you can do to set yourself up for financial success is to set financial goals each year. There are a lot of people who make lots of money but wind up broke because they did not set financial goals and manage their money accordingly along the way.
These goals should not be vague. Your goal should not be to be “rich” or to retire “someday.” It should be to retire on a specific date with a certain amount of resources. If you want a vacation home, your goal should be to buy the home at a specific location, costing a specific amount, by a specific date.
Once you create your goals, then you can start working backward to create the plan to get there.
Success is rarely a sudden event. It is a series of consistent choices. Think of small things you can do each month to help you reach your ultimate financial destination. And don’t forget to create measurable goals so that you can keep track of how you are doing and build off your success or clearly see areas that need to be reevaluated or improved upon.
Review your financial goals at least once a year. Some things that may have been important at the first of the year may not be important by the end of the year. And some goals you set in your 40s may not be important in your 60s. Your financial goals will change, so review them periodically to ensure you are on the right track.
Dana’s Take: On cold winter days, I dream of sugar-white beaches. It’s a pre-retirement fantasy of spending more long weekends in sunny places. I guess you could call that a financial goal. So, I must ask myself, “What I can do now to make those dreams a reality?”
First, I could delay replacing my car. Even though the car has passed its 10-year birthday, it works great and I could drive it for at least another year.
Second, I may be investing too much in renovations and redecorating of our Memphis home. I could free up some of that cash for a sandcastle on the beach.
Third, I can look in the trash. What am I giving away to Goodwill that I can stop buying in the first place? Target and Amazon impulse purchases will be a good starting point.
By reining in home renovations, car purchases and impulse shopping, I can already smell the sea. I’ll see you there.
Ray’s Take: There was a time when you worked your entire career at one company and retired with a pension and a gold watch after 40 or so years of service. But, like so many things, that picture has changed over the years. Job hopping – once a red flag on your resume – is now the norm.
In the short term changing jobs can be a winning proposition. It’s a quicker way to move up the ladder and often offers quick cash incentives. Changing jobs can work in your favor. But before you jump on the opportunity, stop and do the math on some important factors that may impact you negatively down the line.
The first thing to assess is how long have you been at your current company. Some companies require you to work for them for a specific period of time before you can contribute to a 401(k). And once you’ve hit that number of years, many require you to remain for a specific number of years, usually five, in order to keep any company matching contributions. Are you losing retirement savings money by making the change to another employer? Review other benefits as well. Health insurance, life insurance, disability insurance, HSA’s all cost money. Some companies short on those “boring” details in order to “fluff up” that salary number.
According to the Bureau of Labor Statistics, workers currently stay at a job for 4.4 years. So if you’re at any company that requires five years to keep your company matching funds, the odds are that you will never see that money. That can really add up over time. If you do leap, be sure to move your retirement account with you.
There are alternatives to company sponsored 401(k) plans to start putting money aside for your independence. It’s important to create a retirement saving plan early and stick to it. The earlier you start, the better off you will be once you close in on retirement. It’s hard to make up money lost by not saving early. And even harder to be old and broke.
Dana’s Take: Young people entering the job market now have never seen the 40-years-and-a-gold-watch retirement plan. For most of them, their experience with the working world is watching their parents struggle with being downsized. So it’s really no surprise that they have a different mindset toward employment than previous generations.
That experience created a sense that companies are not loyal to their employees. And so, why should the employee be loyal to the company in this new world view. It’s become kind of a chicken and the egg conundrum. Which came first?
Whether working in the gig economy or for a lifetime employer, saving for the future is something that never changes, and being smart about it won’t go out of style.
Ray’s Take: Life insurance is an important part of most overall financial plans. Replacing the capital value of the significant providers is critical should they not be able to provide. Owning the right insurance for the right price at the right time in your life is a crucial element to your financial well-being.
It’s usually true when you’re young and want to have a way to provide for your family in the event something happens to you. But as time goes by and you have saved and invested, by your 50s or 60s you may no longer need some types and as much of the coverage you’ve had.
Further, you could be overpaying for what you do need and might be inadvertently underinsured against some other risks.
As you start your flight path towards retirement you should consider ways to reduce risk while still preserving wealth. It may be time to reduce focus on life insurance and put it on health insurance and liability protection. The right coverage is crucial since, according to the Center for Disease Control and Prevention, three out of every four people age 65 or older have a chronic health condition.
Long-term care is something to be evaluated. These policies can help shield funds you intended to leave to loved ones.
While life insurance may no longer play as important a role as it once did, it still doesn’t mean that you don’t need it in some form. Take a look at your existing policies and see if they can be adjusted to meet current life needs – or needs you anticipate down the road a few years. As your wealth grows and your working career winds down, your need for liability increases as your need for life insurance goes down.
Re-shop homeowners and auto insurance at least every three years. You may be qualified for discounts related to age or no claims that you’re not getting. We tend to let these types of insurance policies just automatically renew without doing a review.
Working with a good financial adviser can help you to figure out what types of insurance, and how much, can take you comfortably into your retirement years.
Dana’s Take: Who’s driving the bus in your life? You? Your family? The fickle wind of life’s circumstances?
The best way to ensure your life is healthy and happy is to make sure you take care of yourself first. That sounds extremely selfish. But it’s counterintuitive. If you are not nourished and happy, you don’t have those things to give others.
Address any issues head on. And if you need professional help to handle them, then be sure to get it. Pick the one change you see that you feel would make the biggest positive impact on your life and go after it. Self-care is your best insurance.
Ray’s Take: On the surface it seems simple. Most of us know we need to save more cash – especially to bolster an emergency fund. And yet savings are at historic lows and many are a couple of paychecks away from serious financial problems.
We believe we can just sweep that “leftover” cash from the month to our emergency fund, but somehow it’s just not there. We have had a robust economy for a good many years and many have forgotten how things go when we hit “bumps.”
Most Americans are willing to work and pay their bills, and that’s certainly a good start. The next step is to learn to “PYF.” Pay yourself first. Building more savings, like retirement accounts and college savings funds, must be treated like your mortgage and utility bills.
To save a significant amount of money, you have to make more than an intermittent effort. You have to make a lifestyle changes.
It seems simple and obvious, but writing down everything you spend is a great way to get a handle on where your money is going and spotting ways to make some changes that will open the door to more savings opportunities. Whether you do the list old-school style and write it in notebook or use an app, that visual creates a psychological cause and effect.
My bank is very old-school about one thing – they only let me spend a dollar once. Once it’s gone to my savings goal or creditor, there’s nothing left for eating out, going to Starbucks or the latest I gadget. The key is to start working backwards with the budget. Don’t start with the depravation of something, look at everything you are spending toward.
Try automating deposits from every paycheck and use only cash. You don’t spend money you don’t see in your account and by using cash instead of your debit card, you are more aware of spending.
Financial planning includes achieving long-term goals, but it’s also about making sure you have what you need in the short term too. Those dollars will add up much more quickly than you think.
Dana’s Take: My debit card cracked in early December and I had to order a replacement card. Due to mix-ups, I had to go without a debit card until Dec. 23. As a result, my holiday shopping became very inconvenient. I had to write checks at the bank, old school, if I wanted cash. It was like living in the 1950s with no card access to cash.
Turns out, slowing down access to money proved to be a good thing. If I ran out of cash, I couldn’t spend any more. In short, I had to plan my spending. And guess what? Little impulse purchases disappeared.
Consider hiding your debit card and see how much you can save in a month. Maybe grandfather knew best, after all.
Ray’s Take: January is the time of year when many people make decisions about how they want to improve their lives in the coming year. Part of your plans for improvement should be to figure out if there are any places in your life where you can save more than you did last year (and the year before).
One definition of insanity is to keep doing the same thing but expecting the results to be different. Coming up with some simple strategies now can help you end the year with a lot more put aside than you had at the beginning of the year.
It can’t be said often enough that planning and conscious spending are two tools that have the biggest impact on growing your retirement fund and savings account.
Automatic saving is a certain way to increase your savings account. If the money isn’t in your checking account, you’re much less likely to spend it. Put your credit cards in the freezer. Then put ALL discretionary spending in a “no sacred cow” pile and work backward. Alternate picks until there’s no available spending money left in the budget. You have just set your priorities. Are you expecting to receive an income tax refund? Make good use of that money by putting it into your emergency fund.
Review your contributions to your retirement plans. Are you on target for the amount you’ve projected that you’ll need? Can you increase any of your contributions or start a different account for a need that wasn’t apparent last year? Increases now will pay big dividends in the future. Money you don’t see is more difficult to spend.
Make it a point to become familiar with the new tax laws that just passed and see if there are things you need to adjust, depending on if you are retiring within the next five years or so. Some of the new laws sunset rather than stay permanent.
Sitting down with a financial adviser and a tax expert could lead to changes in your retirement planning that you didn’t know you needed to make.
Dana’s Take: January. A new year. Time for new goals and getting rid of old bad habits.
This month is the biggest one of the year for making resolutions to change. Lose weight. Save more. Go back to school. The options are endless. And should be. Reflection is good for everyone. Sitting down quietly and really thinking can open our eyes to things we want or need that we didn’t notice in the hectic rush of day-to-day living where we are moving from one thing to another almost mindlessly, trying to keep our schedule.
When was the last time you made an appointment with yourself to just sit down and reflect on life and your circumstances?
Ray’s Take: There are multiple moving parts to a good estate plan and various powers of attorney are an important element. Power of attorney basically gives someone else the right to act on your behalf; there are two types of powers of attorney.
A medical power of attorney names someone to make medical decisions for you if you’re unable to make them yourself. It can be very broad and general powers or very specific powers they may have.
A financial power of attorney allows someone to manage your financial affairs. You can limit it to certain functions or make it all-encompassing. This is different than your power of attorney for personal care; you need to have them both in your financial planning process.
Spouses just assume they will be able to act for each other if such trouble strikes, but that’s not necessarily true. For example, you would not be able to make any financial decisions relating to investments or retirement accounts held solely in your spouse’s name without a power of attorney.
When it comes to health care decisions, under the Health Insurance Portability and Accountability Act (HIPAA), health care providers can only talk with and release information to authorized representatives.
Once you’ve decided to execute these powers of attorney, sit down with the person to whom you are giving the authority. It can be a difficult conversation, but it’s crucial that this person understands your wishes and agrees to act on your behalf.
In many cases they can and should be different people. Not everyone is good in financial matters. Not everyone can keep a cool head in the face of life-and-death decisions at the hospital. Having this conversation in advance can spare your family from having to make difficult decisions on your behalf – often on short notice and in a state of emotional distress.
The potential cost of not having these documents in your plan could be very high in the event you become incapacitated.
Dana’s Take: At age 18, your child is an adult in the eyes of the law. And that means you no longer automatically have access to their medical or financial information or have the right to make medical decisions on their behalf. Increasingly protective privacy rules, while they are beneficial in the big picture, limit your powers as a parent.
For example, if your child goes to college in another town, or even out of state, and a medical emergency arises, most likely the medical staff will not discuss your child’s condition with you. When your child turns 18, make arrangements to have him/her execute both of these powers of attorney. Hopefully you will never need it, but better to have it in place just in case.
Ray’s Take Times change. And more couples put off getting married for numerous reasons. People are marrying at a later age and sometimes not at all. Older Americans who have been widowed or previously divorced are deciding to cohabit instead of marrying.
While there are many good reasons to make these choices, it is important to know what rights you are giving up when you choose not to marry.
For example, legally married couples are allowed to leave their entire estate to the surviving spouse, free of estate taxes. Everyone else is subject to pay tax on amounts over the exclusion amount. State laws generally award assets to biological relatives unless there is a will or other beneficiary documentation in place.
Additionally, should there be a medical crisis, without the proper power of attorney in place, biological relatives will make all the decisions. Be sure to title any property appropriately so that your loved one isn’t turned out of the home in the event of your death.
There is a common misperception that if you live together for a certain number of years you are married in a common-law union with all the rights of a couple that was married by license. That is not true.
Without additional planning, if one person in an unmarried couple dies, the survivor is not entitled to any benefits, notice in a probate proceeding or continuing support that is afforded to legally married spouses.
Know the costs and benefits of your choices and do appropriate planning around them. Laws vary from state to state, so it’s important to be aware of how they work in the state where you live. If you haven’t created an estate plan, your state has a default plan for you. A good financial planner can help you create a plan that works for you.
Dana’s Take The average age for marriage is now at an all-time high: 27 for women and 29 for men, according to the 2012 American Community Survey.
According to Pew Research Center, of all Americans ages 18-29, only 20 percent are currently married, compared with 59 percent in 1960. Delaying marriage leaves time for developing careers, exploring alternatives and developing as an individual before tying the knot.
Ray and I married after age 35, so I get it. But if you’re committed enough to share a home, wouldn’t you want to protect your partner in the event of your death or illness? In the case of your unexpected disability, wouldn’t your spouse feel more committed to care for you than a roommate would?
For numerous legal, financial and emotional reasons, legalize that union. A lavish wedding is not required, just a trip to city hall.
Ray’s Take Many employers offer 401(k) plans that grant participants the option to take out a loan. And when times are tough – or maybe you really, really want to renovate your kitchen – it’s tempting to withdraw money from your 401(k) for a loan.
The loan gets paid back over time by payroll deductions. After all, you’re borrowing money from yourself – what could go wrong? It looks easy and painless on the surface. But digging deeper, there are some very good reasons not to do it.
If you leave your job, the full balance left on the loan becomes due immediately. And the same rule may apply if you are downsized from your job. Defaulting on a 401(k) loan makes the outstanding loan balance into a withdrawal subject to full income tax and, if the borrower is not 59 1/2, the 10 percent penalty too.
The debt typically has to be repaid within five years, or tax and penalty apply to the balance. These sound like some pretty good reasons not to take a loan from your 401(k), but there’s an even bigger one.
The biggest drawback to these loans is opportunity cost that comes with the missed potential growth of your investments. In addition to the lower balance in the account making less money, people typically reduce or stop contributions to their 401(k) while repaying a loan, which means they’re missing out not only on their normal contribution but also on their employer match.
People are living longer than ever, with fewer safety nets. That makes taking loans from your 401(k) even less of a good idea than ever. When you borrow from your 401(k), you are borrowing from your future self and even when you pay back the principal and interest, you probably still won’t break even in terms of lost investment growth by the time you retire.
Dana’s Take Seeing money in your 401(k) account is like smelling freshly baked brownies – it’s hard to keep your hands off. Those of us who are more impulsive may have a hard time leaving that big pile of money alone.
Having a financial planner on retainer to manage your investments can be like having your mother in the kitchen when those delicious brownies emerge from the oven. While a financial planner cannot stop you from raiding your savings, he or she can go over the benefits of leaving that money to grow and compound for decades.
As Ray’s father, Denby Brandon Jr., used to say, “It’s very inconvenient to be old and broke.”
Ray’s Take: After years of working, planning and saving, many retirees are well-prepared financially to stop going to work in order to earn a living. But many are less prepared for how to fill the space previously filled by work.
Most of us envision retirement as that golden age at a predetermined point in the future where we’ll be free to do all the things we want to do but don’t have time for now. Do you have actual activities that you’re already trying to fit into your routine? Or are they more idealized, hazy, abstract things that you intend to figure out once you reach retirement?
A great question to ask yourself before you retire is: What do I feel like I missed out on? Or What resonates with me now that I want to know more about? Let that be a guide to some things you might want to begin exploring before taking the retirement plunge.
It’s hard to break the routine of a career, but now is the time to get your feet wet in other areas. Retirement may provide more time to do the things we’ve thought about for years, but it still doesn’t provide magic pixie dust – or energy – that will give us the motivation to engage in those activities. Retirement tends to magnify existing behaviors and habits. Putting a foundation in place now to build on later can be one of the best retirement plans you make.
As I have said before, retirement is nothing short of creating an entirely new identity. The transition from full-time worker bee to fully retired can be far more challenging than asset accumulation. If you’re already squeezing in some interests, then you’re ahead of the game. Building a bridge by starting on interesting and fulfilling projects or exploring interests now, before you retire, can make the transition a lot smoother.
Retirement is about more than money. It’s also about creating a new, engaged and fulfilling life.
Dana’s Take: The retirement decision is as much, or maybe more, psychological as it is financial. Some people enjoy what they do so much that it could be unwise to retire without a solid replacement activity or passion established before leaving the workforce. Others are waiting avidly for the day when they can walk out the door of work for the last time and celebrate. Knowing which personality type you are will help you plan the best way to build your retirement lifestyle.
Are you already involved in hobbies or volunteering and passionate about it? If not, it may be unreasonable to expect that you’ll suddenly develop that passion the day after you retire. The most successful retirees plan their post-working lives.
Ray’s Take: With the rise in major hacking instances, it’s more important than ever to be safe, savvy and vigilant when it comes to online accounts. Not only were there major hacks to some of the big-box stores like Target and Home Depot, but they also happened at sites that are perceived to be much more secure. Like Experian – and the federal government. Remember the hack into the personnel database?
What’s the average person to do in the face of all this hacking? A few preventive measures you can take would be these.
Start with a fraud alert. Very effective and not as cumbersome as a credit freeze. Check your bank and credit card transactions online regularly – no less than once a week. Banks and credit card companies are much more vigilant and effective at spotting suspicious activity and reaching out to you, but no one knows your business better than you.
Try not to sign up for every website and web service that asks you to. This spreads your information so far across the web that you’ll never remember where you have accounts. Keep an eye on your email and junk folder. If a website you’ve forgotten about sends you an email, let it be a flag to go there and delete your information and close the account. I’d like to say read what you’re accepting when you sign up for things, but that’s hardly realistic.
Minimize the information you share on any website. If your phone number and address are required to create the account, go back after you’ve signed up to see if you can change or remove information. Try editing the phone number to 1234, or street address to Property SearchCrime ReportNeighborhood ReportWatch Service" style="color: #7d0200; text-decoration-line: underline;">100 Main St. for sites that don’t truly need that information.
Be as careful, and as vigilant, as you can. Keep an eagle eye on all of your accounts. But the harsh cold facts of the new world are that true privacy does not currently exist.
Dana’s Take: When it comes to privacy on the internet, the younger generation seems to be unfamiliar with the concept. Every aspect of their lives is splashed across social media like the latest movie trailer or hot book.
Keeping privacy settings up to date can seem like a full-time job – and sometimes a nightmare. How public are your posts on social media? Have you ever thought about Facebook “about” information like high school and colleges attended? We could be supplying a scammer with a script to say he or she attended the same class. I suppose one has to think like a criminal to set security settings. Or opt out.
Think about how much information you’ve made public already before sharing access to your life and family.
Ray’s Take: Planning how you’ll handle health expenses is one of the crucial jobs for any couple when planning for retirement. While many elements of health insurance are based on the individual, it’s important to evaluate these expenses as a couple because what happens to one person inevitably affects the couple as a whole. From a financial point of view and also from a caregiver point of view.
Trying to figure the impact can be difficult. The range of what health care costs could be in retirement can run from nominal to explosive. You can plan for “average,” but you have to look at best case and worst case as well. Remember that retirement is like a cross-country car trip with no gas stations. What’s in the tank at the beginning is likely to be all there is!
Take a realistic look at your health and your spouse’s health. Know the family history of health issues like heart disease and Alzheimer’s. It’s important to take these factors into consideration when planning for retirement. And to make contingency plans to cover the possibilities. Will your spouse be your main caregiver and vice versa? Or do you have another preference?
People tend to assume Medicare will cover health expenses in retirement, but this simply isn’t true. Medicare covered 62 percent of an individual’s medical expenses in 2013, according to a 2017 report from the Employee Benefit Research Institute (EBRI). That’s on average. Even with Medicare, retirees are going to pay more for health care than many are accustomed to under their current employer-sponsored health plans.
You may not be able to reduce your risk of some diseases, but you cantake care of your health, which will keep your costs down. Retirement is a complex and expensive phase of life, and all aspects should be calculated as carefully as possible prior to taking the plunge. It’s usually not inflation or even market performance that presents the biggest risk to your retirement plan. It’s unexpected medical expenses.
Dana’s Take: Dreaming about retirement with your significant other can be a thoroughly enjoyable experience. Planning for that retirement, however, can be less pleasant. One spouse may take the role of optimist, assuming today’s health and wealth will continue forever. This can place the other spouse in the role of pessimist if he or she wants to plan for assisted living and significant health care expenses.
A couple of good tips for these conversations. Be ready to compromise and be respectful of each other’s views. Nobody wants to feel like they’re being railroaded into something.
Meeting with a financial professional can take some of the pressure off.
Having a third party who sees things from outside can help a couple to bring their differing ideas into a cohesive plan that works for both.
Ray’s Take: Estate planning has undergone a lot of changes over the years, and one of the most significant doesn’t have anything to do with the tax laws. It is the change in family relationships. Chances are, you or someone you know is part of a blended family. This was once an uncommon situation, but in today’s world fully 42 percent of adults have some kind of step-relationship, according to Pew Research.
This state of affairs can make things extra tricky when it comes to estate planning. In these blended family situations, there are more opportunities to get it wrong, and your intentions – like your assets distributed to a current spouse, or that your children and stepchildren are treated according to your wishes – need closer attention to make sure everything is set up correctly.
One area where the wheels are most likely to come off of the best-laid plans is in beneficiary designations on retirement accounts and insurance policies. A perfect plan can be destroyed by an incorrect beneficiary designation because the beneficiary designation trumps everything else – including your will.
Another area where issues may arise is a will that leaves everything to the surviving spouse in the belief that the surviving spouse will provide for all of the children fairly and equally. That’s a lot to expect, and it doesn’t always happen in reality, and the better way to ensure the distribution of assets is to set up a trust that will handle this particular situation.
When it comes to estate planning for a blended family, the concept of “yours, mine and ours” can complicate the process to the point that family dynamics become permanently strained. The alternative is denial resulting in nothing being done, virtually guaranteeing disaster. Working through these details not only can avoid future estate planning hassles but also help maintain healthy relationships between all parties involved. A good estate attorney can help ensure things happen the way you intend.
Dana’s Take: Those of us of a certain age remember “The Brady Bunch” on TV with fondness. Who couldn’t love them?
But that’s TV, not real life. Seriously, six kids and one bathroom? Further, the show didn’t address the anger children and teens can feel when asked to share a parent, home and resources with siblings they did not choose. This is particularly difficult when a family of lesser means blends with one of greater means; issues like a teen’s first car can create fireworks.
No one can predict the way the emotions will make them feel when one parent is gone and there’s nothing in writing about where the assets are going.
Blended families can represent the beauty of new beginnings. But they can also be heartache waiting to happen down the road if solid plans are not put into place early.
Ray’s Take: One day you’ll be able to take a deep breath and say you’ve made it.
All the planning and worry and strategizing has paid off, and you’re retired – or at least have the choice of whether or not you want to work. A wide array of new possibilities has become available to you. You now have the opportunity to create a life that’s determined by your interests, desires and priorities, without the constraint of having to earn a living.
But many people don’t take advantage of the possibilities that retirement offers. They just continue with their daily routine, minus the job.
Expect life changes when you retire – both positive and challenging. Step back and take a look. This stage of your life deserves a more big-picture thought process and plan than simply assuming that you’re beginning a very extended long weekend. Put some thought into what you want your life to look like. How will you get the most out of each and every day?
Successful retirees balance leisure over a lot of different activities and take the opportunity to participate in new things and avoid getting into a rut. You probably have some ideas about what you want to do after you retire, places you want to travel, hobbies you want to spend time on or new things you want to learn. Taking care to manage your money well will open doors to many new experiences.
Money buys options. Maintaining and creating new relationships is another key to a successful retirement. In real-life terms, having people close to you who will share your life and be there for you will not only add to your overall life enjoyment, but will also add years to your life.
Being retired shouldn’t mean there’s nothing interesting about you or that you’re bored with your life. Spend money wisely while creating your new life. Celebrate family events and holidays. Create a new network of friends and an array of activities. Keep growing and learning.
Dana’s Take: Post-retirement can be a good time to look into part-time work that may provide lifestyle perks as well as extra income. Think about airlines with flying privileges and hotel chains with discounted stays. You can even search other countries or cities for an opportunity. How about working as an English tutor in China or as a nanny in New York? The sky is the limit.
Job listing websites like glassdoor.com are searchable for categories like part-time work or work in a particular industry, or location. Think about your dream job or favorite hobby and start searching.
Retirement is a time of maximum flexibility. That can mean new work options in new places and more time to enjoy the fruits of your labor.
Ray’s Take: Planning for your financial independence can seem overwhelming with a minefield of moving parts. Achieving the dream of a secure, comfortable retirement is much easier when you know the significant numbers involved.
The first four are expenditures, portfolio return, inflation and estimated life expectancy. While the sequence of portfolio returns really doesn’t matter during the accumulation phase of life, it matters a great deal during the distribution phase. Certain retirement planning events are triggered at specific ages and knowing those ages and their significance can save you from problems, such as when you are required to take IRA distributions and the early withdrawal penalties.
Two numbers you should pay very close attention to are age 59 1/2 and age 70 1/2. They can have a serious impact on your finances.
For those with hopes to retire early, it’s imperative you know and take into consideration the 10 percent penalty for early withdrawal from certain types of accounts so you can factor that eventuality into your plan by making different decisions about which vehicles you will use to fund your finances in the early years. Life is expensive enough without paying additional penalties.
The other end of the bookend of retirement ages is 70 1/2. This is the age at which you are required to begin taking Required Minimum Distributions (RMDs) from your tax-deferred accounts, whether you want to take them or not.
Withdrawals from traditional retirement accounts become required after age 70 1/2, and each distribution is taxed at your ordinary income tax rate. If you fail to take a required minimum distribution or you withdraw the incorrect amount, the amount you should have withdrawn is penalized at 50 percent, in addition to the regular income tax you owe on it.
Without a solid retirement plan, that light at the end of the tunnel might turn out to be the headlight on a financial train wreck bearing down on you with all the speed and weight of unexpected expenses.
Dana’s Take: Why do people retire early?
Sometimes it’s unplanned like a company downsizing you out of your position. Other times, it’s a conscious decision to give you time to pursue personal interests like traveling or having more time to dedicate to hobbies or volunteering. Early retirement can also serve as a means of getting away from an uninspiring career, a toxic work environment or a frustrating job where you have no room to advance.
If you fall under the second scenario, keep in mind that retiring early may not be the answer you’re looking for. Retiring early has its own challenges – some of them financial. A career change or working part-time might be a better financial choice. And have a more positive impact on finances.
Ray’s Take: Saving for retirement doesn’t just happen by accident. It takes meaningful thought, discipline, and action to create and execute a plan that will sustain you in your golden years. Yet, according to the Employee Benefit Research Institute, only 18 percent of U.S. workers say they are very confident of having enough money to live comfortably during their retirement years. There seems to be a big disconnect going on between knowledge and execution.
Adding to that mix, the shakeup of the markets in 2008 shook up a lot of existing retirement plans. Many investors found they couldn’t stand as much risk as they thought they could and made some costly mistakes. That led to postponing retirement for many Americans. Many of them were too heavily invested in stocks and hadn’t adjusted their mix as they approached retirement.
Many people think they will just work longer to make up for any shortfall they discover in their retirement funds. And it makes perfect sense that people would think that since we’re all living longer and in mostly better health. After all, 70 is the new 50. Right? But, for any number of reasons, this may not work out. Unfortunately, this thought process ignores the reality that unemployment rates for those older than 50 are increasing faster than for any other group.
So, how do we find the magic numbers and the way to execute that plan?
Solid retirement planning is the best thing you can do for yourself. Diversification. Adjusting your mix as you get closer to retirement to help protect the funds you’ve saved. Lose the emotions when it comes to your money. Emotion makes for a bad partner when it comes to your retirement plan. A cool head is a big asset.
Planning for a sufficient nest egg may seem to be an intangible retirement savings goal. Trying to set benchmarks along the way, based on your age and earnings, might be more realistic. A good financial planner can set you on your way to achieving your goals.
Dana’s Take: It seems like everyone is looking for magic, the magic amount of money that will make retirement living easy. For most of us, that amount is simply more than we have now.
Today, I spoke with a teacher who is looking into multiple work options after she retires from teaching. She is aware that her retirement fund isn’t adequate for the rest of her life, so she is starting to plan the next chapter. I admired her openness to new work opportunities in midlife.
To make retirement living easy, you must have a solid plan in place and stick to it. Magic does exist, but it’s in the smile of your child, the joy in your life and the blessings of each day.
Ray’s Take: Worrying is a way that our brain prepares us for the next challenge or opportunity, and it’s healthy in low doses. But too many of us are consumed by worry, which creates stress. And stressful thinking can sabotage your finances. A 2015 study by the American Psychological Association found that money is the leading cause of stress for many Americans.
Worrying affects not only your quality of life but also the quality of life of those around you. And worrying about money can lead you to make bad financial decisions. And actually lead to poor health and strained relationships, which may cause more financial issues. It can become an endless circle leading to a downward spiral.
Some deal with worry by ignoring reality and any constructive ways of dealing with it. This rarely helps.
We all deal with stress in different ways, but a good approach to reducing money worries is to take an active role in taking charge of your finances. Money is a wonderful servant but a terrible master. Always be aware of how much debt you owe and take steps to reduce it. Set some goals and develop a plan to pay off that debt or buy the house you’ve been dreaming of.
Changing the way you think and changing the things you are doing can have a big impact on your stress levels. These are two things that you have control over in a world that sometimes seems to be taking us for a roller coaster ride. Taking a hard look at the worst-case scenario, and figuring out that you would survive it somehow, can take the worst of the edge off of your stress level.
If you’re a worrier, it’s time to let it go. Assessing the details of your situation can seem like an overwhelmingly stressful practice, but if you use stress-reducing tips to keep you on track, you might finally have the control you need to diminish those anxiety levels for the long term.
Dana’s Take: Do you remember the Travelers Insurance commercial with the shaggy white dog that constantly moved his bone because he was worried it would disappear?
It’s easy to become like that poor dog without even realizing we’re doing it.
It’s possible we learned to worry about money from our parents. Or use worry to stay on top of our finances as a kind of safety valve. Or we may simply worry because we don’t know where all of our money disappears to each month.
Worry less. Starting now. Start by figuring out the difference between irrational worries that you can set aside and valid concerns that need action. Once you start figuring things out, all of that worry starts to melt away.
Ray’s Take: It’s common among investors to fall into the “short-term mindset” with investments. The financial media tends to make things worse. If you do not see the returns you want on cue, you decide to move your funds around to the ones that are showing higher short-term returns.
The danger of short-term thinking is that you might have gotten restless when you didn’t see big returns and decided to part with your stake. The daily quote makes it seem like the value is staying the same. This business is getting better and better behind the scenes in a way that’s not reflected in the short-term returns you’re obsessing over.
There are always going to be fluctuations – that’s just the way the investing world shakes out. The behavior of the stock market is inherently so complex that no single variable – or person – can predict how the market is going to behave next or what would be its future returns – at least not on a regular and consistent basis.
The market swings like a pendulum from optimistic to pessimistic, and sometimes overshooting the mark can cause a panic or greed reaction. Be wary about promises of big returns. They usually turn out to be for the person promising them and not for you.
Think about and settle on a long-term portfolio. Once you’ve done that via a good financial adviser, it’s best for your accounts if you stop looking at them. Delete the bookmark from your web browser. Limit yourself to one peek per quarter and only one or two changes per year. Check it at the one-year mark and rebalance it. Move the amounts around in such a way that the money is back at the percentages you want.
Allocating your assets across financial markets is always a smart decision. But being realistic about your expectations is the most important step in achieving success in the financial markets.
Dana’s Take: Being realistic about finances is something we all need to be aware of. Not only about returns on our investments, but about finances in general.
Having ideas of living the life of your dreams in your golden years is great. You may want to retire in five years. But, you only have enough money put aside to last you 10 years.
Is it realistic to think you can save enough money in five years to last for 30? You need to be realistic about where you stand right now, and about what actually needs to happen if you want to make your financial dreams come true.
You may still be able to live the life of your dreams; you’ll just have to save a bit longer to make it happen.
Ray’s Take: There’s nothing quite like the feeling of seeing your neighbor drive up in their beautiful new car or hearing about their fabulous planned vacation. It can make you forget about every other plan or goal you’ve made for yourself. Keeping up with the Joneses can eat away at your financial dreams.
According to dictionary.com, the phrase “keeping up with the Joneses” means to try to own all the same things as people you know in order to seem as good as them. But when you’re making purchases that have no value beyond impressing others, you’re shortchanging your future.
For starters, it takes away your joy in life. Nothing is ever quite good enough anymore. There’s always a nicer, newer something that’s siphoning off your money. Houses, cars, electronics. The list is endless. And none of it makes you happy because it’s a continuous cycle.
Financially, it’s a catastrophe. Trying to keep up with those around you who appear to have it all is devastating financial accounts all over the country. Many times, those others you are trying to keep up with are in crippling debt themselves. It’s all a house of cards.
Taking a good, hard look at previous expenditures is a key way to determine if you’ve fallen into spending based on others vs. your own plan. As you look at those expenditures, ask yourself if you’d buy them if you had the opportunity to do it over. Keep a list of purchases you regret and review regularly as a reality check on where you’re putting your money.
Next time you’re about to make a big purchase, especially one that will put you into debt, take some time to examine your motives. Ask yourself if you truly want or need to buy that expensive item that will be replaced in a few years, or do you want to retire early? If your real goal is financial freedom, keeping up with the Joneses is not the way to achieve it.
Dana’s Take: In today’s FOMO (Fear Of Missing Out) world, it’s easy to fall into the “keeping up with the Joneses” mentality. No one wants to be perceived as being “less than.” But that kind of thinking can not only eat away at your long-term dreams, it’s teaching your kids a lot of bad habits. Overspending on material things can, and eventually will, drag down your financial stability. Which will only make you more stressed out and unhappy in the long run.
It’s time to take some pressure off yourself and stop trying to keep up with the Joneses. As a class="learn" href="http://www.memphisdailynews.com/Search/Search.aspx?redir=1&fn=Will&lnRogers" rel="
Learn more about Will Rogers
Try one of these to get you started:Name SearchWatch Service" style="color: #7d0200; text-decoration-line: underline;">Will Rogers once said, “Too many people spend money they haven’t earned to buy things they don’t want to impress people they don’t like.”
Ray’s Take: Financial professionals have long used an investment policy statement for their clients. It’s a guiding set of principles, of sorts, to help make decisions along the way. It’s an excellent tool for anyone to use to keep themselves on track when it comes to financial planning.
By putting things down in writing, you are making a clear statement of what your goals are and how you plan to reach those goals. Write down the key reasons why you’re investing and your expected time horizon for your goals. Like when you plan to retire. Include any big-ticket items that will affect your plan along the way, like buying a home or saving for college. Want to spend six months touring Europe once you retire? Be sure to include it, or any one-time big expenses that are part of your intended retirement.
Once you have your goals and major expectations mapped out, take a look at your investments and determine what funds will be available to cover these big-ticket items along the way and make investment decisions that will support them.
Include a Plan B, just in case life happens and you need Plan A to go. One day you will likely be tempted to make a major purchase or change. As you consider the options, pull out your IPS and reread it. If it isn’t consistent with the IPS, it’s time to slow down.
An IPS doesn’t need to be, nor should it be, complicated. The idea is to establish a set of guidelines so you’ll know if you’re on course or veering off the road.
Like any important part of life, an investment policy statement needs regular attention, maintenance and rebalancing. It should be flexible enough to accommodate changes in your life like caring for aging parents, children returning home and inheritance.
Once you get the map drawn, a financial planner can help refine it in the beginning and adjust it as time goes by.
Dana’s Take: While we’re on the topic of writing down plans, how about a life plan? It may seem a bit ridiculous to write down the things you want to do in your life. After all, it’s all right there in your head. And your heart. But like an investment strategy plan, having it in writing makes your life plan more concrete and real.
When you’re writing out your plan, use first person. Writing “I will,” followed by your goals makes them more concrete and gives them more power.
Dare to dream outside the box as you write your plan. Our world has changed since the market crash in 2008. At a time when so many established options no longer appear to exist, it’s a perfect time to envision and create and try something new.
Ray’s Take: There aren’t a lot of benefits to getting older, but when it comes to saving for retirement, there are a few. If you’re 50 or older and feel like you haven’t saved quite as much as you would like for your retirement plan, you could be in luck when it comes to contributions.
This savings bonus is called catch-up contributions. These are special provisions that allow you to contribute additional funds to your retirement accounts as you get closer to retirement. These contributions have the double benefit of helping beef up your retirement savings while deferring taxes.
The IRS allows those who will turn 50 or older by the end of the 2017 calendar year to make an additional $6,500 in elective contributions. And you can make those contributions each year as you move closer to retirement. The amount of catch-up contributions, historically, has increased approximately every 24 months. Catch-up contributions can really add up over time to a tidy additional amount of funds in your retirement accounts.
There are – of course – some rules relating to what kind of accounts you can use to make these catch-up contributions, and there are specific amounts that can be contributed to each type of account. Additionally, catch-up contributions only come into play if you max out the elective deferral amounts in your 401(k) or reach the contribution maximums in your IRAs. Aiming to meet maximum deferral amounts is a good starting goal.
If you have a Health Savings Account-eligible insurance policy that meets deductible requirements, that HSA is also eligible for catch-up contributions at age fifty-five and older. This can be an asset for saving additional money for health care expenses.
A financial adviser can assist you with determining the best plan for your circumstances. Time is a non-renewable resource and a critical factor to successful retirement planning.
Dana’s Take: Having the opportunity to get caught up on any of the important things in life is a great opportunity. Funding our retirements dreams are just one of those things. What about getting caught up on you? Are there things in your life that you’ve always wanted to accomplish? Or at least try?
Many of us come up with too many activities and pressures on ourselves in an effort to be everything to everyone in our lives and somehow never reaching our goals of perfection.
Take a little extra time to get to know you. When you get caught up on yourself, you see the best way to get the life you want for yourself and your family. Not just now, but all along the road of life.
Ray’s Take: A long, happy retirement is one of the great American dreams.
Maybe you’ve watched as friends and family have stepped into that long awaited golden time. Watched as they traded in the daily grind of working for a more leisurely lifestyle on their terms. At least, that’s what it looks like on the outside.
But looks can be deceiving because there might be more lurking behind this rosy picture. Without careful planning, retirement can come with some really big surprises. A recent AICPA survey of financial planners found that running out of money in retirement was the top concern of their clients. A close second was health care. Retirement includes creating an entirely new identity, and that’s a lot harder than you may think.
Retirement planning would be a lot easier if you had a magic eight ball that could tell you how long you’ll live. That way, you’d know how many years you’ll need to support yourself without income from a job. We have 12 clients in their 90s and three over 100, and most are in very good health. That wasn’t on their radar when they retired.
The high cost of health care in retirement can be a surprise. Medicare doesn’t cover everything. The cost of health care is soaring and projected to keep going up. Do you have the reserves to pay for those rising health care costs? It’s a big thing that may change the age at which you decide to retire. And be sure to factor in long-term care in the mix. According to the Department of Health and Human Services, 70 percent of people who reach age 65 will need some form of long-term care in their lives. Often my clients think I’m planning for their kids when I try to slow the spending rate in retirement. I’m just trying to make sure they don’t have to move in with them.
Since people are living longer, not having enough money in retirement is a legitimate concern. So is the possibility that a catastrophic illness will drain retirement funds. And these worries can become obsessive, robbing you of your well-deserved retirement. So take some time to plan for the later stages of retirement long before you reach them.
Dana’s Take: There’s an old saying that proper preparation prevents poor performance. But being prepared takes time and commitment. All too often, we end up “winging it” rather than putting in the time necessary to be prepared.
Start by knowing what you want to accomplish. Focus on those things that you’ll need to do to be successful. Understand what you are preparing for so that you’re not doing extra work later to correct errors. Take your time and do it right. Success isn’t about how fast you accomplish your plan. Life is a journey. And it’s one worth taking the time to make the best we can have.
Ray’s Take: When you have your annual physical, your physician looks at a number of your vital indicators; so does your financial planner. Net worth is the value of all assets, minus the total of all liabilities. In other words, net worth is what you own minus what you owe.
And, often, income is not an indicator of net worth. It’s possible for someone with an average income to have a substantial net worth if they’re careful about debt and save money regularly. It’s also possible for someone with a very high income to spend every penny they make and then some, resulting in a negative net worth.
A regular accounting of your net worth is like GPS for your retirement. It tells you where you are now and gives you an idea of the course corrections you need to take to get to your destination.
If your net worth is not consistent with your hopes for the future, take steps to raise it. As a general rule, if the numbers come up low, spending is the culprit. You generally have more control over the outflow than the inflow. Cutting back on discretionary spending is the first step toward turning your situation around. Paying off debts is the next. Taking steps to eliminate credit cards debt, canceling memberships to things you don’t use and being more mindful of where your dollars are going are great ways to raise your net worth without having to resort to a second job.
If your net worth is high, keep building on your momentum. You can include more asset classes and further diversify. The money you’ve saved may enable you to change your lifestyle, provide the funds to travel during retirement or engage in hobbies that you couldn’t afford or didn’t have time to indulge in during your working years.
One last thing, don’t kid yourself that your assets (home, cars, etc.) are wealth. In my world, assets pay me interest, dividends and capital gains. I’m still waiting for the first check from my home.
Dana’s Take: Navigating life can be a tricky business. From deciding where to live to where to send our kids to school, we’re bombarded with decisions we know will have far-reaching impacts not only on ourselves but also on our children. Having a clear-eyed view of what we want to accomplish makes for an easier journey.
So many things in life are outside our ability to control, so taking the time to handle the things we can control gives us a much more peaceful feeling.
There’s no better feeling in life than the feeling you’re in charge. Be it your trip to the beach or your destiny.
Ray’s Take: When it comes to building a portfolio for retirement, your goal shouldn’t be to load up with as many different types of investments as you can in the hopes that you’ll outsmart any fluctuations in the market. Diversification, like all things, has its limits.
Instead, you should work to build a well-diversified group of funds that can help you harness the power of the capital markets in a way that’s consistent with your financial needs, risk tolerance and goals. The idea is to put together a portfolio that can generate the returns needed to achieve your financial goals but won’t be so volatile that you’ll be tempted to make mistakes – from fear or greed – when the market goes through its inevitable swings. If you think you can just nimbly time your entry and exits to the capital markets, prepare to be humbled. If your adviser claims to be able to do it, you should consider finding another adviser.
There are many strategies for creating a great portfolio, but each portfolio shares some basic features. Before choosing your funds, you need to have a good idea of your goals and how much risk you can tolerate. Only then can you determine your appropriate asset allocation, which is the mix of investment assets that make up your portfolio.
When it comes to the number of funds to own in your portfolio, which can range from few to many, less is usually more, as with many things in life. If you start throwing more and more funds into the mix, you run the risk of turning your portfolio into a confusing mix of overlapping holdings. And this strategy can impact each fund in your portfolio, reducing the chances of success in reaching your goal.
Your focus should be on the diversity within your portfolio rather than the number of funds. You can own dozens of funds and still not be well-diversified. Conversely, you can own one fund that is well-diversified if that fund covers the entire stock market spectrum.
A good financial planner can assist you with makes the best decisions for your own portfolio.
Dana’s Take: According to Aristotle, temperance, or balance, is a virtue. Balance and restraint are two keys to long-term financial success. Unfortunately, our culture has changed since the 1930s from one of restraint and caution to one of instant gratification and impulsivity. While we are encouraged by the media to “just do it,” better advice might be your grandparents’ “look before you leap.”
Our grandparents’ over-cautiousness led them to live frugally and save ample amounts for their non-working years. Perhaps today’s younger generation will prefer to leave behind the overspending and consumer habits of the last few decades and pursue a simpler life with less energy spent on acquiring possessions and more spent on living.
Ray’s Take: Many people dream of making an early exit from the work routine, but making that dream a reality has some challenges. By retiring at, say, age 55 instead of 65, you have 10 fewer years of saving and investing for building a nest egg that has to support you through an extra 10 years of retirement. That double-whammy of fewer working years to save and more retirement years to spend is what makes early retirement tough to pull off.
Where will your funds come from to cover expenses? Will you be making withdrawals from deferred retirement accounts? Many have an early withdrawal penalty of 10 percent if you begin drawing from them before age 59 1/2. If you want to make the early retirement dream happen, you’ll have to plan well so that you have funds you can use that aren’t affected by those penalties until you reach the age at which those penalties aren’t a worry. Withdrawing early and incurring the penalties will reduce the amount of funds you have available to pay for your extended retirement.
Health care is another big item to consider and plan for before deciding to retire early. Medicare doesn’t become available until age 65, and even then doesn’t cover everything. How will you pay for health care prior to age 65? You’ll have to buy health care coverage on your own. That can be a budget wrecker if you’re not prepared. And estimating how much you’ll pay for health care in the future is somewhat of a guessing game.
Think about your life after early retirement before you take that leap, not after. Making it happen is entirely possible, but it will take some serious, disciplined planning. The sooner you create a plan and put it into action, the better the chance your early retirement dream will become a reality.
Dana’s Take: Early retirement and a life of leisure may sound like the stuff of daydreams, but the reality can be a big letdown for people who are used to being busy – and important. Once the newness is gone, an ugly reality can raise its head.
Boredom, a feeling of isolation because your friends and family are still working, and loss of identity due to not having somewhere to be and something to do every day are potential realities.
Creating a social network, finding hobbies you love and being physically active prior to pulling the trigger on early retirement all combine to create a much more positive retirement life.