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Coming ‘Of Age’ – ‘Retirement Age’ That Is…

January 27, 2012 by David Bergmann, CFP®

As our baby boomer population starts contemplating the day they will leave the workplace, they begin to realize that there are a lot of decisions to be made regarding workplace and government provided benefits. Decisions regarding pension payouts may be mind-numbing – (a) single life, (b) joint life -100% benefit, (c) joint life – 50% benefit, (d) lump sum etc., etc. The same might be said for social security benefits – (a) take it at age 62, (b) take it at ‘full retirement age’, or (c) take it at age 70, what is the right decision for you? Further complicating the social security election decision could be the ability to draw on benefits of former spouses to whom you were married for more than 10 years. Needless to say there are a lot of decisions ‘of a lifetime’ that need to be made when you ‘come of age’.

Number-crunching a pension plan payout election or number-crunching a 401(k) ‘payout sustainability’ amount are calculations that need to be tailored to the needs of the individual and their comfort level regarding the assumptions used in analyzing the decision options so we won’t explore those calculations here. 

Other coming of age decisions, like Social Security and Medicare can be more generically discussed.

Medicare eligibility begins at age 65. If you enroll to receive social security benefits at, or before, you turn age 65, you will be automatically enrolled in Medicare. If you are not receiving social security benefits when you turn age 65, you can, 3 months before your 65th birthdate or up to 3 months after (to ensure no delay in your Part B benefits), apply for Medicare. Failing to timely file can cause your Part B premiums to jump 10% for each full 12-month period that a retiree did not sign up. Don’t worry if you are still working and have health benefits. The government and your employer plan will coordinate the primary payor issue. Alternatively, if you are still working, you can enroll later without penalty for up to eight months following retirement. Always check with Medicare at age 65 to learn about your options and any penalties that could come into play.

Traditional Fee for Service Medicare or Medicare Advantage. You will have a choice between traditional fee for service Medicare or Medicare Advantage. Traditional Medicare has gaps in coverage so many seniors chose to purchase a ‘Medigap’ policy to help cover those expenses in the gaps. Very important to remember is that a Medigap insurer cannot use medical underwriting in the 6 month window of opportunity (Medigap Open Enrollment Period) which begins on the first day of the month in which you’re both 65, or older, and enrolled in Medicare part B! Prescription drug coverage may be available with a Medicare Advantage Plan as might be vision, dental. Medigap policies sold after January 1, 2006 are not allowed to include prescription drug.

Social Security – Age 62, Age 65 or Age 70? About 50% of Americans file for social security at age 62 despite the fact they then will have an approximate permanent 25% reduction of their annual benefit. If, alternatively, we can wait until full retirement age (‘FRA’ – depends on birth year) and beyond, we can increase our FRA benefit by 8% for each year we wait. If we take Social Security before FRA and continue to work making more than $14,640, we will have to repay $1 of social security benefit for every $2 we earn over that threshold. After FRA, there is no earnings problem with having to repay social security benefits paid to you. If you receive a pension or retirement benefit from work in another country, it may have an effect on your Social Security benefits under the Windfall Elimination Provision. If you were married to a person for more than 10 years you may be able to file for benefits based on their earnings history. This can create an invaluable planning opportunity. If we draw Social Security benefits at FRA on the former spouse’s earnings and postpone taking Social Security benefits based on our earnings history, we can take advantage of that 8% per year benefit payout increase effectively increasing our lifetime payout by as much as $100,000 to $200,000!

Needless to say, there are a lot of critical planning decisions to be made when we ‘come of age’. Don’t miss out on deadlines and make your choices wisely. Your decisions will most often be irrevocable so seek counsel from a learned advisor and the Social Security Administration so that costly mistakes do not occur. It’s been your lifetime of work, now that you’ve Come of Age, it’s time to enjoy the all of the fruits of your labor!

David Bergmann, CFP®, EA, CLU, ChFC
Managing Principal
The David Bergmann Group
Marina Del Ray, CA

Posted in Retirement | Tagged , , , , , , , | Leave a Comment »

Falling Behind on Retirement: What Would Tim Tebow Do?

January 26, 2012 by Karin Maloney Stifler, CFP®, AIF®

Have you ever considered football as a metaphor for life? Over life stages or quarters, players with different jobs and strengths work together, and share moments of pain and glory. Why? To triumph over adversity and “win”. To win at life or football takes gut-busting hard work at each stage of the game. But the pressure to win is volcanic when you fall behind and are running out of time. Take the team that’s out of time-outs, down by 6, with only five seconds left on the clock. The prospect of a last minute turnaround may be good for fans and TV ratings, but is a heart-stopper for players, coaches and owners who have the most to lose if the “Hail Mary” pass doesn’t work.

If you can relate to the Baby Boomers who are behind on retirement plans, now is not the time to quit. Instead, turn your game around by digging deeper into your wallet and your mindset. Tim Tebow reminds us how: The strength to triumph over tough situations comes down to stubborn optimism (that is, belief in yourself and maybe a higher power), the composure to think clearly and perform, and true grit.

Move towards your long term financial goals with these tips from Tebow’s playbook:

  1. Define success your way.  
    “Success comes in a lot of ways, but it doesn’t come with money and it doesn’t come with fame. It comes from having a meaning in your life, doing what you love and being passionate about what you do. That’s having a life of success. When you have the ability to do what you love, love what you do and have the ability to impact people…That’s having a life of success. That’s what having a life of meaning is.” – Tim Tebow 

    Financial Lesson: Keep score based on what “winning” truly means to you, not anybody else. Rethink how much retirement income you really need to be happy.  

  2. Use your talents and abilities fully.
    “Every time I step on the field, I’m going to give my whole heart regardless of the score.” - Tim Tebow 

    Financial Lesson: Give your job skills a regular workout and get in the game with all you’ve got. And guess what, you get to decide what is the “normal retirement age”, not the Social Security folks.             

  3. Control what you can.
    “Something I learned early in college (is) to not worry about what I can’t control…But what I can control is my attitude, my effort, my focus every single day and that’s what I’m trying to worry about.” – Tim Tebow 

    Financial Lesson: Don’t get sidelined by what you can’t change. Get off the bench and tackle one thing everyday to be more financially secure. 

  4. Expect challenges.
    ”You’re going to get knocked down but it’s how many times you get back up.” – Tim Tebow 

    Financial Lesson: Getting sacked is part of football and life. Work your defensive and offensive line to protect and strengthen your income, your health, your assets, your relationships. Trust your preparation and equipment to rebound from the inevitable blows.   

  5. Don’t give up.  
    ”I’ve never quit anything I’ve decided to start…that’s how you succeed at achieving your dreams.” – Tim Tebow via Twitter 

    Financial Lesson: Don’t punt when you can run one more play. This life is your Super Bowl game. Play with no regrets.

karinMaloneyStiflerKarin Maloney Stifler, CFP®, AIF®
President
True Wealth Advisors
Hudson, OH

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What Are Those Census Numbers All About?

January 24, 2012 by Francis St. Onge, CFP®

The other day the news headlines included a note that said the average life of men and women in 2010 was 2 years more than what it was in 2000. That got my attention for several reasons:

  1. That suggested I would have the opportunity to enjoy an extra 2 years on this great earth. Yes, I know that I do not control that decision and neither does the Census Bureau, but it still felt good to know I had an extra 2 years.
  2. It also meant that I needed to have sufficient resources to support my life style for an extra 2 years. Well, let me check that one out.
  3. It means I need to rethink the advice I give my clients about what they will need to save to support their future lifestyle. This provides a discussion point for clients to think about what the rest of their life will mean.

The question of how long one will need financial resources has always been a challenge for many new clients to discuss. The first reaction is someone else knows the answer and he/she is not telling anyone what the right answer is. The second response is their life could end tonight or tomorrow or some other day in the near future due to some unforeseen accident or illness.

I remind clients we are not looking for some exact date, but we do need to have an understanding that we all have a finite time on this earth. So let’s look at what we have available for data. The people who know how to do the math on this keep detailed information and analysis that provides us with estimated average lives for men and woman and we know from the data that women outlive men by about 5 years on average. We also have an idea as to how long any person will live because we get news reports on when people reach certain ages and when the oldest person living passes away.

The same week that I saw the news about living 2 more years, I also saw that a new American citizen became that new citizen at the young age of 114. They even showed her birth certificate in the picture about her.

So how does all this age discussion fit into a financial plan and the amount of money each of us needs to have available for our lifestyle needs? Many times the client will ask what is the average age for people to live today. My response is about 80 years, but that is not the right answer for your financial plan. If we plan for the average and you run out of money at age 80, what will you live on when you get to age 80 and you are going strong? The answer is we need to consider you living longer than the average, but how much longer is enough?

I looked at the Census Bureau report on the 2010 census to get some clues for this blog. Here is some of what I found. For the people who were alive in the 2000 census and were age 80 to 84 then, how many of them were still alive in the 2010 census? The answer was about 30% were in the 90 to 94 age category in 2010. Now I recognize that the people in the 90 to 94 group were not exactly the same people who were in the 80 to 84 age group in 2000 for the statistical purests. However, for our purposes it is close enough for government work as the saying goes.

For financial planning purposes, what would be important for you as you consider what you should plan for as to longevity is that we are a population who is living longer with each passing year – 2 years more in just the last 10 years. That is similar to what happened in the decade from 1990 to 2000 as well. So what will the next 10 years do to our longevity? 

When I am doing a plan for a client, I suggest to them that my calculations will look at getting you to age 100 and still having money left. If I get that far, then I will quit calculating. If you do not get that far under my initial calculations, then we will discuss what changes need to be made to my assumptions until we do get you to age 100 and still have money left.

Maybe we change the return on investment that you need to experience. Maybe it is the estimated cost of your lifestyle going forward. Maybe it is increasing the amount you need to save each year until you reach retirement. There are other variables to consider changing ,but what is important to appreciate, we do not want to have you get to the average age (80s) today and not have money left in your nest egg to cover the next 10 or 20 or however many years you will actually live.

Now, how long did you say you were going to live on this great earth of ours?

FrancisStOnge

Francis St. Onge, CFP®
President
Total Financial Planning, LLC
Brighton, MI

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Mapping Your Financial Future

January 23, 2012 by Robert Schmansky, CFP®

We live in a world that likes to make models. We’re obsessed with economists modeling what inflation may be, how weather patterns will emerge, and we may use them in creating financial outlooks.

When you think about economists and weather reporters, do you have a gut feeling they are generally accurate, or not so much? (My take is not so much).

While models can be useful tools to view what might happen, financial planning seems to me to fit better in a context of map making.

We often get hung up on what’s the best move financially based on a few variables (and many variables such as tax and investment rates we all know will be unpredictable!), and don’t always make the same effort in understanding the practical reasons for financial choice.

I liken investment concepts frequently to working with a GPS device, and have come to realize that the GPS and map work well for discussing financial planning choices as well.

In making a financial map, there are a few items we want to take into account:

  1. Milestones – what are life’s major markers along the way? These are items that represent a change, but are not necessarily a goal. Social Security payments start; children begin their careers, etc.
  2. Destinations (goals) – we’re all familiar with goals, but map goal setting shouldn’t be too rigid. Goals must have dollar amounts and time horizons, and also a sort of ranking (it’s more important to retire, than to buy a vacation home); yet maintain a flexible approach (it’s more important to retire, but I’d work another few years for a less expensive vacation condo).

The beauty of the map is while you are bound to stray off course, but just like a GPS readjusts to get back on path, so too can regular meetings with your adviser. You may start out with a destination or goal in mind, and find you may want to change paths several times.

The goal is to keep some flexibility in your planning, and to think in practical terms as well as financial.

Below are a few planning encounters I’ve observed where a step back and looking at the big picture map conversation is beneficial:

  • Roger made a budget last year, and is basing his 2012 spending on what he created. In January he spends more on food and car repairs and is concerned he is off on the wrong track in the New Year. When taking a look at the bigger picture, last year had relatively few car repairs. Just like a financial plan, a budget needs to see the big picture; he also will need to replace his paid for car in the next few years which means establishing a place in the budget for car replacement .
  • Tom and Sara created a financial plan for the first time last year at Tom’s retirement. Based on assumptions in tax rates, inflation, investment returns, and expenses they conclude they are doing very well to meet their retirement goals. In fact, the data suggests they may be able to pull $50,000 out of their savings and purchase a recreational vehicle they’ve been dreaming about owning and using to visit family across the country. While the data may continue to support this purchase, perhaps it makes more sense for Tom and Sara to learn a little more about what owning this vehicle is like by renting one for a few cross-country trips, and seeing how their budget may change in retirement over the next year to two.

Models can be useful tools to visualize and discuss options, but it’s important to also take a step back and realize they’re all built on assumptions not necessarily likely to be true. Plan, have flexibility for life’s unknowns, and update your map on a regular basis.

robertSchmanskyRobert Schmansky, CFP®
Financial Advisor
Clear Financial Advisors, LLC
Royal Oak, MI

Posted in Goals | Tagged , , , | 1 Comment »

Finding Support to Keep Your Resolutions

January 18, 2012 by John Comer, CFP®

Last night during strength training class, our leader, Lori, wanted us to know that she would whip us into shape. “No breaks,” she said. “I can see your stomach sagging, suck it up.” When she was sure we were struggling to continue she would announce, “Just 25 more.” The more experienced participants knew that just 25 more meant we would be finished after 4 or 5 more.

When Lori announced, “no breaks,” Gina, the co-leader with Lori, muttered sarcastically that the leaders’ job was to scare us away from the class. As she circulated among the attendees and led the second half of class, Gina told us how well we were doing. “That is great form.” “Looking good; keep it up.”

Gina’s comment about scaring the class, in particular, pointed out that Lori and Gina have different motivational styles. Which style would help you achieve your goals? 

Perhaps you have set resolutions or goals for this year. One important step to help you achieve those goals is to tell people about them and seek support in your efforts. For some of us, not just any support will do. Some of us respond better to Lori’s toughness and some of us to Gina’s nurturing support.

When it comes to running, I am pretty self-motivated. Most of the time, I will get up and run on my own. If I get busy and skip running for a period, I can get myself back out.

When it comes to strength training, I respond better to structure and classes to create the routine. Having an instructor that is interesting helps to keep me interested and involved.

Although I am self-motivated with running, I need more support for strength training. When you consider your resolutions and goals for this year, think about the level of support that you will need to keep on track with each of your goals. Perhaps some of your goals can be achieved with your individual effort, perhaps others will only be achieved with support. If so, what kind of support will be needed?

As you think about individuals or groups that can help you achieve your goals, take a look at your overall environment as well. Pay attention to the conversations you are having with friends and colleagues. Pay attention to how the news media either helps you achieve your goals or gets in your way.

If you need support with employment or financial goals, you may not want to follow the mainstream media very closely. It is probably good that bad news is more newsworthy than good news—that suggests that good news is the norm—but even when the news is good it is reported as unlikely to last. 

While I do not suggest that you only listen to positive news and news that supports your views, I do recommend that you not spend too much time dwelling on negative news. Seek out reports that the country will return to its entrepreneurial greatness despite the efforts of both political parties in Washington.

John Comer, CFP®
Consultant
Comer Consulting, LLC
Plymouth, MN

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The College Funding Surprise

January 16, 2012 by Chip Workman, CFP®

Much has been written in this space and many others about the ins and outs and ups and downs of college planning. Information is available virtually everywhere, but typically the searching is being done years too late. Doing research into how much you need to save for college when you’re shopping for high school graduation announcements simply doesn’t cut it.

A more and more common occurrence in my life as a young parent is having fellow parents ask what they should be putting away for college at this early stage. For those that ask, I applaud them for thinking about the question at the right time. From there, a response somewhere between utter shock and sheer terror occurs when I tell them what they might want to consider stashing away for Billy and Sally’s tuition, room & board.

I thought it would be worth spending a few minutes ignoring the in depth how’s and why’s of college planning and just look at some basic numbers. How much do you really need to save? 

For the sake of argument, we’re going to assume that you want to pay 100% of four years tuition, room and board for one child at a public, in-state university. We’ll say that cost comes out to around $25,000 per year in today’s dollars and that those costs will increase at a rate of 6% from now until your child starts school. We’ll also assume that you have no college savings to date and that whatever you do put aside for your child will grow at 8% per year, a generous expectation over the last several years.

With all those assumptions, you would need to save the following, per month, to meet your savings goal based on your child’s age:

Age Monthly Savings Required Total College Costs
0 $602 $312,166
5 $730 $233,269
10 $970 $174,312

Clearly, these numbers can vary widely depending on where you live, how much of your child’s education you actually want to provide, and any savings you may already have. Any current savings or unforeseen scholarships can have a positive impact on the numbers. Out of state tuition or private schooling can send them into the stratosphere.

These basic estimates are not to shock so much as serve to provide a reminder the next time there’s an urge to splurge. When taking on a bigger car payment, looking at a little more house or even day to day spending that doesn’t necessarily fall into the “need” category, keep in mind this often ignored savings need. It’s not your obligation to pay for your child’s college education, but if it’s an important goal to you, procrastination could force some very unwelcome decisions down the road. Make 2012 the year you set up a 529 plan or other savings vehicle to begin preparing for your child’s future.

Chip Workman, CFP®, MBA
Lead Advisor
The Asset Advisory Group
Cincinnati, Ohio

Posted in Education | Tagged , , , , | 7 Comments »

Get Off the Roller Coaster

January 13, 2012 by Joe Pitzl, CFP®

The past 12 months perfectly captured the proverbial roller coaster of the stock market. It went up and down, it zigged and it zagged, and it ultimately came to rest very close to where it started. Each time we started to climb out of a valley, we experienced something to get excited about – a nuclear meltdown, civil wars, the US debt fiasco, Occupy Everywhere, the Greece/Euro threat.

The media likes to portray investing as if it were a game. Pundits blabber on TV about (insert investing guru here) making a “play” on ABC Company by loading up on shares on X date and talking about whether it “worked” several weeks or months later. And particularly during this time of year, comparisons showing winners and losers from the past year are everywhere. Furthermore, every Tom, Dick and Harry is casting their predictions for the year ahead.

As you know by now, I am a big fan of  Carl Richards (www.behaviorgap.com). Carl has made a name for himself by having an uncanny ability to capture the complex paradigms of finance in a series of elegantly simple sketches.

One of my favorite sketches by Carl is shown to the right. Nearly everyone who glances at the image will agree with the general message, but the reality of how we experience this paradox is not that simple.

Consider the following: “the neural activity of someone whose investments are making money is indistinguishable from that of someone who is high on cocaine or morphine.” In the book, Your Money and Your Brain, Jason Zweig shares brain scan images from a Harvard Medical School study that clearly show the exact same location of the brain flaring up during each experience!

The rational part of our brain (which processes these very words and the logic behind it) recognizes that there is a big difference between financial gain and getting high, which makes this very difficult to comprehend. However, the limbic part of our brain (which experiences emotion and feeling) is literally incapable of processing logic. These parts of our brain are physically divided and engaged in an eternal tug of war whether we like it or not.

Investing is not a game, it is not an amusement park ride, and it is not gambling. As such, as soon as we begin to feel the same emotions with our investments as we experience while playing games, riding amusement park rides, or gambling, we may as well cash in our chips.

Many investors often believe they have special information about a particular company, industry or the economy that will yield significant gains in the market. They may have even achieved financial gain through the same type of thinking in the past. But the reality is this: logic would tell you that thousands, perhaps millions, of other people have already had access to that information or have thought of the same thing you so strongly believe. So what part of your brain is really talking to you?

The stock market is merely comprised of thousands of businesses. This is incredibly difficult to fathom in the rent-a-stock world we live in, but it is unquestionably true.

People own businesses because it provides an income stream and/or an opportunity to sell the company for financial gain in the future. Ultimately, the amount of gain realized depends on the price paid for it, but you can only sell it for the price someone else is willing to pay. Every business goes through good times and bad, but serves a specified purpose in the business owner’s life. Great business owners rarely attempt to shoot the lights out because they recognize that doing so introduces an enormous amount of risk to their current and future well-being. And they certainly do not care what they could sell their company for on a minute by minute basis.

Our portfolios are a collection of businesses. As such, we ought to run them more like businesses. We ought to recognize that they are going to go through cycles. Good businesses do not expect the capital they invest back into the company to yield immediate results. Sometimes it takes years to pay off. There are going to be good years mixed in with bad years, but over time, good businesses will succeed. As Warren Buffett has stated, “time is the friend of a wonderful business, the enemy of the mediocre.”

We need to focus on making good business decisions with our money. When we make investment decisions based on what worked well in the prior year, it is not logic talking. A quick way to go bankrupt in retail is to load up on 2011’s hottest holiday item in anticipation of selling them all during the 2012 holiday season.

When we “invest” in a stock with the belief it will double in value overnight, it is not logic talking. You have either done extensive research and determined the stock price is below true value, or you are subscribing to the greater fool theory with the hope that someone will come along later and pay you more. Even if the former is true, great investors will tell you it may take years for the market to reflect reality…it rarely happens overnight. But like gravity pulls everything back to Earth, valuation will ultimately pull market prices toward equilibrium. Like a great business exercises patience waiting for an investment to pay off, sometimes we need to exercise greater patience with our portfolios.

The future is uncertain and loaded with risks. The experience of a roller coaster is riveting because it packages the uncertainty of what is coming around the next corner and the anticipation of another high into a brief series of twists and turns. However, because of countless safety measures, we can jump on the ride feeling confident that we will end up where we started. In financial markets, those safety measures do not exist, so get off the ride and get down to business.

Joe PitzlJoe Pitzl, CFP®
Director of Financial Planning
Intelligent Financial Strategies, LLC
Edina, MN

Posted in Investments | Tagged , , , , , , | 1 Comment »

“Start-itis”

January 12, 2012 by Saundra Davis

Maybe it’s not a word, or even a real disorder but I’m telling you it is TRUE…I have “start-itis.” You may know (or even have) the symptoms: some new idea or thing catches your attention and from all appearances is EXACTLY what you were looking for. So, you leap right in with vigor and your mind is ripe with all of the possibilities of how this could change everything for the better. In the beginning, when the romance with the new object of your affection is unexplored and every interaction offers new and fulfilling promise, sticking to this new thing is easy. You may find yourself unable to think of anything else and you approach each day filled with anticipation.

Then…the honeymoon is over. Little things get in the way and you are too busy, too tired, too distracted…too “something” to spend time on the object so in a corner it sits, longing for your attention.

Truth be told, I have several things that fall into this category. I love adventure and new challenges so much so that each year my partner and I take our grandchildren to a new place and they learn a new activity (last year was badminton – we were running out of new sports to try). I take up new sports, activities and tasks frequently and I often find that after a brief spurt of intensity, my level of participation wanes. I notice that my interest in the thing doesn’t change, but frankly, life gets in the way…and I let it.

So what in the world does this have to do with financial planning? EVERYTHING! Financial planning is ALL about allocating your resources in a way that provides you the security and the life experience you desire. If you have your financial life in order then:

  • your financial management systems are in place;
  • you have appropriate and adequate asset protection;
  • you know how much you need to earn, save and invest to achieve your financial goals; and
  • you are free to give your attention to the people/places/things that make your heart beat fast (in a good way).

When we are overloaded with things that we haven’t quite finished we can be distracted, stressed and unavailable to do the things that really matter most. 

Psychologist, business coach, consultant and public speaker Ed Jacobson has a very useful tool that can help you sort through your busy life and determine what things are most important to you. Jacobson’s Looking Back on 2011. Looking Forward to 2012: An Appreciative Year-End Review guides you through a series of questions designed to help you reflect on the previous year (Looking through the Rear-View Mirror) and envision your direction and goals for the new year (Peering through the Windshield).

I have decided that 2012 is my “Year of Completion.”  There, I said it! I don’t make resolutions, but I do set intentions and this year I will complete my pending or outstanding projects. All of my current knitting UFOs (unfinished objects) will be DONE, my new financial document organization system and family operations manual (more next month) will be DONE and I will complete the Rosetta Stone Spanish Language program. Well, I feel better already.

What about you? Are there any projects pending or that you know you want to do to make your life better? Have you developed a financial plan that will move you toward your life goals? Do you feel secure in the knowledge that when “life happens” you and your loved ones know what to do to appropriately address the situation? If not, what do you want to do about it?

Saundra Davis
President & CEO
Sage Financial Solutions
San Francisco, CA

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My New Year’s Resolution for Everyone

January 10, 2012 by Francis St. Onge, CFP®

It’s that time of year when we make resolutions for the New Year, so I am making my list for 2012. I thought I would take a different approach this year and make a list that anyone could use as their one set of resolutions.

  1. Check your credit records with each credit agency. Request your record from one company this month, check it for accuracy and ask for corrections if needed. Then four months later, ask from the second company; four months later request from the third company and then repeat the process each year beginning with the first company. This gives you a free credit report every four months.Be sure to do this for each of your children and your spouse to be sure that none of your family members have been compromised by identity theft. Someone who has stolen your child’s identity could go undetected for many years before it is detected.
  2. If you have not reviewed your Social Security benefit statement in the past few years, request your record from the Social Security Administration and check it for accuracy. I have found errors in my record in the past where earnings did not get posted properly. Your earnings record eventually determines what your Social Security benefits will be when you retire.
  3. If you have any outstanding credit card balances, develop a repayment plan for 2012 by increasing the monthly payments you are currently making on each card. Given the recent passage of legislation that increases your take home pay by the 2% reduction in social security taxes you have taken out of your pay, this would be a great way to use that money since Congress almost didn’t pass this bill.One way to increase the monthly payment on your credit cards is to use the savings from the recent 2% reduction in your social security taxes that Congress passed rather than spending that money on other things.
  4. If your employer is matching the amount you put into your tax deferred program, be sure you are putting in enough to get this “free money” from your employer. Remember that you control where this money is invested and it is your retirement that you are funding. This is an important “need” of yours versus a “want”.
  5. If you have additional money you can invest, be sure to add the Roth IRA to your list of investment pools because it has distinct advantages for you that are not available with the tax deferred programs through your employer.
  6. If you are self-employed, you have similar retirement vehicles available to you that will reduce your taxable income and fund your future retirement, so be sure you take advantage of them this year.
    • If you did not yet contribute to your Roth IRA or self-employed retirement vehicle for 2011, you have until April 16, 2012, to make that contribution for 2011.
  7. If you have not had a financial checkup in the past year, make an appointment with a financial planner to start that process.
  8. Make sure you have current versions of your will, health care power of attorney, financial power of attorney, and health care directive. These documents are essential for today’s society and the future management of you and your financial life while alive as well as upon your demise. You might also review with your attorney if a trust should be part of those essential documents.
  9. Review the beneficiaries on those documents that need to have beneficiaries. This would include your life insurance policies, pension, IRAs, Roth IRAs, and tax deferred programs at work (401k, 457, 403b). This could also include whether you want or need to add Transfer on Death (TOD) or Payable on Death (POD) provisions to savings or investment accounts with banks, credit unions, or other investment accounts.
  10. If you have used US Savings Bonds and accumulated a number of them, now would be a great time to get a copy of the Savings Bond Wizard software from the US Treasury so you can create an inventory of these bonds. This would also help make sure that all bonds are still earning interest.
  11. Review all your investment portfolios to be sure the investments you have are still the ones that meet your investment objectives, risk level, and other issues that are important to you. This might be a great time to do some tax planning to see if you should be harvesting any tax losses that would help reduce your taxable income for 2012.
  12. Review the taxes being taken out of your paycheck to be sure you are not having too much taken out each pay period. If you are, consider reducing the amount withheld and applying that amount to the ideas listed in items 4 through 8 above. 
  13. Review the deductibles you have on your various insurance policies to see if they are the right amounts based on the premiums you are paying today versus what your premiums would be if you increased the deductible and took on additional risk on your house and car insurance.
  14. Review the amount of life insurance you have to determine if you need more or less based on your station in life today. While you might have needed life insurance when you first started working and raising a family, that same need may not be there today because your children have grown up and you have amassed wealth in savings, pension and Social Security benefits.

This super-sized list of resolutions will go a long way to getting your New Year off to a great start and should help to build your wealth for the future.

FrancisStOnge

Francis St. Onge, CFP®
President
Total Financial Planning, LLC
Brighton, MI

Posted in Financial Planning | Tagged , , , , , , , , | Leave a Comment »

Planning Your Digital Estate

January 9, 2012 by Robert Schmansky, CFP®

A growing concern for those managing the process of closing an estate is figuring out where deceased actively maintained accounts and kept items on the web.

We often plan for ‘physical assets’, but as Claudia Buck points out in this recent article, many do not have a plan in place for “digital assets.” What happens to our online accounts and assets like photographs is important to consider as it can be difficult to find all places where accounts exist and take control of them in a timely manner, or before they may be abused.

Financial Advisor magazine also recently wrote on the topic, and as Ann Marsh points out with an example of a comatose scenario where an individual who lost the ability to capitalize on a financial transaction, this is not just for your social media, but also for getting information to those power holders who may need it.

Buck points to new services that may allow you to have a “digital executor” with access to your accounts at your passing. Financial Advisor magazine references other services that allow for a very personalized dissemination of pre-written messages to specific individuals and groups which may contain instructions on how to access accounts. These services may also include autobiographical websites which leave the story of your life on the web as you would like it.

These services may seem to be too new for some and certainly will yet evolve from their current state, but if you want to go it alone below are a few ideas:

  • Leaving access to your personal accounts. This could be as easy as keeping a list of all of your open accounts and password list available where a loved one can find it, but that can also be a dangerous approach. Since passwords are always changing and being updated, a workaround to this may be to use a password manager like RoboForm, which with one password stores and maintains all of your login information across the web. Since you should frequently change this password as well, you can store a list of preselected passwords that may open your RoboForm account with your estate planning documents.
  • Informing others of your passing. Part of the appeal of the new services is they take the burden of informing many of your passing, and allow you to send personal messages. A more personal approach may just be to handwrite or type those messages yourself, and maintain a current contact database of all of your contacts.

Just as with traditional estate planning, the goal by planning ahead is to take the burden off of those that are already dealing with a huge loss. While you may not think your social media and online life warrants planning since sites like Facebook pages can be taken down, both articles point out that these can also be abused at your survivors expense, and may take time to stop any unauthorized or unwanted postings.

robertSchmanskyRobert Schmansky, CFP®
Financial Advisor
Clear Financial Advisors, LLC
Royal Oak, MI

Posted in Estate Planning | Tagged , , , | 1 Comment »

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