It’s Time for a Midyear Checkup—Financially Speaking

Reviewing documentsOver a third of Americans thought about a financial resolution this year, according to a Fidelity Investments survey. Their top goals were to save more, spend less and pay down debt.
If you were one of these go-getters and goal-setters, this summer is a perfect time to look at your progress, says US News in “Keep Your Money Goals on Track with a Midyear Financial Checkup.”
While summer is a natural halfway point between New Year's financial resolutions and year-end tax planning, it's also a convenient time to contact financial experts, tax planners, human resources representatives and other advisors—who are less busy during their “off-season.” For your midyear financial checkup, look at each of these financial areas.
Taxes. By summer, you should have a decent idea of what's going on with your tax situation and can start planning. Are there any major life changes since last year to include in your tax strategy? This will mean a transition in your tax situation. Also, if you earned a nice tax refund in April or paid a large tax bill, you should ask for a W-4 from your employer and adjust your withholding. Also, look and see if you're maxing out workplace tax benefits—like your flexible spending accounts and retirement contributions.
Insurance. Use the summer to determine if your insurance plans are meeting your needs. Many employers have an open enrollment for health insurance and other benefits in late fall, so now’s the time to think about this.
Estate Planning. If you don't yet have an estate plan in place, speak with an experienced estate planning attorney. Don’t be one of the 64% of Americans that don't have a will. Get the basics prepared, such as an up-to-date will, power of attorney and health care directive.
Emergency Fund. Check on your emergency fund and see if it was depleted by a summer vacation or another event like a change of jobs. Time to beef it up! You should keep three to six months' worth of living expenses readily available. Build your rainy day fund by putting a percentage of your paycheck into savings every month. If you don't see that money available in your checking account, you won't miss it.
The Long Term. Summer vacation is also a great time to look ahead and consider where you'd like to see yourself in the future. Get started with financial strategies that will help you reach those goals.
Reference: US News (July 28, 2016) “Keep Your Money Goals on Track with a Midyear Financial Checkup”


How Much Insurance is Enough Insurance?

CalculatorA $1.5 million term life insurance policy will cover the bills if one spouse dies. But it may not provide an inheritance for your kids, NJ 101.5 says in a recent article, “Do you need more insurance?”
If leaving an inheritance is important to you, start this process by taking an inventory of all your assets. Look at how they may factor into your support during retirement and see what might be left as an inheritance. This exercise may result in discovering that you already have money that will make a nice inheritance for your children someday in investment or retirement accounts. In addition, your primary residence could be a source of inheritance.
Before you buy more insurance, talk with an estate planning attorney about your options. Your attorney will help you review your situation and make projections for where your assets may be in the future.
If you conclude that more insurance is needed, you’ll have to decide the type. Term insurance can be a cost-effective way to provide income replacement during your working years, but look at your policies to be certain you know how the premiums may change in the future.
You can also consider policies like whole or universal life. These may be a better choice for leaving an inheritance. The annual premiums for permanent insurance will be greater for a similar amount of coverage, but these policies can accrue cash value that can be used while you are still alive.
When you weigh your new insurance options, it’s critical to calculate the cost of the premiums into your current and future budget.
Reference: NJ 101.5 (June 27, 2016) “Do you need more insurance?”


Don’t Postpone Your Retirement because of These Mistakes

Happy retirementIf we don't do a bang-up job with our financial planning, it could mean postponing retirement—or abandoning the idea altogether. That's what the CPA Practice Advisor says, and gives some examples of avoidable errors in the article, "3 Retirement Errors to Avoid."

Unfortunately, many folks don't spend a lot of time even thinking about retirement because they think it's a far-off time when money will have magically accumulated. That means no money to buy the condo in Cozumel, pay for the grandkids' education, or live a life of leisure. Someone in this situation might have to find a part-time job to make ends meet—and it's not out of the question that they could outlive their money. Don't end up without the money you need for retirement. Avoid these common mistakes.

  1. Not understanding taxes. We know that most of the time our money is taxable right away, like earnings from employment or interest on savings. But with individual retirement accounts, the taxes can be deferred. There's also tax-free money, like municipal bonds, life insurance proceeds, and 529 education savings plans. You should try to move as much taxable money as you can to the tax-deferred or tax-free categories.
  2. Acting without specialized advice. Don't think that one person can be an expert in all areas of planning. A financial advisor may handle your investment needs, but you should also work in concert with an eldercare and estate-planning attorney, especially if you are 60 or older.
  3. Not appreciating the longevity risk. Modern medicine lets us live longer. But that can create a problem of outliving your money, and it also can mean increased odds of needing nursing home or other long-term care. These can be expensive. So ask yourself if you have enough money to deal with these expenses for your entire lifetime. The sooner you tackle the longevity risk, the more prepared you'll be to live a rich life.

You still have time to get this going even if you are nearing retirement—it is never too late to make a plan.

Reference: CPA Practice Advisor (March 22, 2016) "3 Retirement Errors to Avoid"


Other than That, Mrs. Lincoln, How’s Your Estate Planning?

Mary_Todd_Lincoln_colloidon_1860-65It might sound like a stretch to take personal finance lessons from a first lady who lived 150 years ago. But the financial aspects of the story of Mary Todd Lincoln, as told through Ford’s Theatre’s play, "The Widow Lincoln," might feel familiar to modern consumers. The play, which just ended its run at the historic theater in the District of Columbia, explores the days after President Lincoln's assassination, when Mary struggles to regain her sense of identity and live amid her grief. As her character, played by Mary Bacon, faces dozens of unpaid bills for home furnishings, clothes and jewelry, she asks, “How will I ever pay these debts? I am nothing. I am no one.” On top of moving out of the White House, mothering her sons and moving forward with her life, Lincoln must deal with all these financial stresses. She no longer has her husband to rely on for emotional support, income or an identity.

Becoming a widow often means a drastic change and a new way of life, whether in 1865 or 2015. For many, it means understanding how to manage finances by yourself and experiencing less income, along with debilitating grief. 

A recent article in U.S. News & World Report, titled “Modern Money Lessons from Mary Todd Lincoln, reports that experts recommend participating in money management throughout marriage and preparing for the possibility of one day being on your own, like many women eventually are, due to divorce or death.

The original article urges women to know their money thoroughly, regardless of life stage. Keep all financial paperwork, experts says, including estate planning documents, well-organized and easily accessible.

For example, couples should be able to answer these questions long before retirement:

  • If my spouse were to die, how would that affect the household’s income?
  • What would an expensive illness do to our retirement savings?
  • If either spouse were to die, would the survivor be prepared to take over the management of the finances?

Both spouses need to have a basic grasp of monthly costs, saving and investment strategies, and the way to get to their funds quickly in an emergency. In addition, here are some tips for widows from the original article:

Replace Any Lost Income. Losses sustained from a pension, Social Security, and a spouse’s salary losses may be buoyed by the proceeds from a life insurance policy or other sources of money. Term life insurance, especially for young, healthy people, is relatively cheap. Consequently, it may make sense to purchase a 20- or 30-year policy before you reach your 40s.

Select Your "Trusted Person." Single seniors should have an individual who’s able to make financial decisions for them in case they become incapacitated.

Manage Your Financial Risk. Studies show that women tend to invest more conservatively than men. While spouses tend to balance each other out, when women become widows, it can mean that they might be overly cautious in their investments, creating a risk to inflation.

Experts also generally recommend holding off on any big moves during the first year following a spouse’s death, since the grieving process can interfere with good decision-making. Mrs. Lincoln could barely manage day-to-day tasks and wasn’t willing or able to leave the White House for more than a month after Abe died.

This story might be 150 years old, but its lessons still resonate today.

Contact an experienced estate planning attorney and be prepared come what may.

For more information about estate planning, please visit my estate planning website.

Reference: U.S. News & World Report (February 23, 2015) “Modern Money Lessons from Mary Todd Lincoln” 

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