When was the last time you answered these questions?

I love my career. I get to help my clients plan for their children’s or grandchildren’s education, family trip, retirement, family legacies, and many more financial concerns my clients bring to the table. While going through the planning process, I ask a lot of questions, some of which are tough to answer, but the answers are vital to a plan that has meaning. How long has it been since you answered some of these questions:
Do you know how much you save or spend each year?
What is my current net worth?
Am I borrowing money the most efficiently?
How much am I investing in my own human capital or that of my children and grandchildren so they can earn the most during their working years?
Do I have the proper choices in my retirement or 401(k) plan and is it enough to allow me to retire when I intend to?
Do I have the proper amount in an emergency fund?
If something were to happen to me, will my family be able to put everything together?
Do I have the proper amount of insurance so my family will be taken care of if I die, become disabled or am sued?
Does long term care make sense for me?
What is my risk tolerance and how much risk am I taking right now?
Have I named the proper beneficiaries on my insurance policies and retirement accounts?
What is my greatest extravagance?

I’m sure there are a number of important questions that I didn’t include on this list. I’d love to hear yours so that I can write about them in the future.

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It is a myth!

Planning for retirement takes a lot of factors into account and there are a lot of myths to plan for that many neglect. These myths can ruin a retirement – let’s look at a few so your retirement will not be ruined.
Your income needs will drop.
Many people think because they will not be commuting, wearing dress clothes, or having business lunches, their spending will decrease. This is a big myth. Hobbies, travel, and especially heath care costs will add more in the expense column than any suit or commute will ever add. You should plan on your retirement income starting at as much as 80% of your pre-retirement expenses just to be safe.
You will work past “standard” retirement age.
For many of us today, a family health crisis, especially from our parents, as well as how much we have saved, means we are working longer than first expected. As many as half of those who wish to work past the standard retirement age actually do. Layoffs, as well as the reasons previously mentioned, are the biggest causes of retiring earlier than planned for.
You will only need to draw 4% from you accounts to maintain your retirement.
Inflation does not stop for the retiree. Many people are living much longer than in past generations and health care costs are rising at a pace faster than inflation.
If you plan for the worst, you will be prepared for the best in retirement.

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“What do you mean Social Security is going broke”! “Will I get mine?”

I have always looked at Social Security as one leg of the retirement stool, with personal savings, and a pension if you have one, as the other legs. Many retirees no longer have a pension and have placed their Social Security benefit in higher regard. Social Security was always meant to be a supplement to retirement, not the base of retirement income that is has become, and now we hear that the trust fund is in trouble. We have been saying the trust fund would be depleted sometime around 2036, and the Medicare fund around 2028. The Social Security Trustees are now projecting that the Social Security trust fund will be depleted in 2034, with the Medicare trust fund hitting the wall in 2026. What does this do to your benefit?
We have already seen some changes as to how we claim our Social Security benefit and the full retirement age for many taxpayers has been pushed back. There is talk of “means testing” Social Security benefits in the future. Means testing could take the form of more income taxes, a reduction in benefits, a surtax or some other method. Anyone who has done a good job saving for their retirement on their own should consider the chance that Social Security benefits will be means tested in the future. What we know right now is that current tax withholding will provide Social Security benefits for many years in the future. We have not heard of any changes either currently or projected that would reduce anyone’s benefit. While nothing is written in stone, I imagine any changes to the Social Security system will be discussed at great length and not made without much discussion.

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Merging love and money.

June is known as the marriage month. Having just gone through my daughter’s wedding, I know how much planning goes into the big event. We spent close to a year planning everything, as is typical for most couples. The question is, how much time does the new couple spend planning their financial future? Because my daughter is my daughter, merging their income and outflows started when they moved in together a good year before they were engaged but this is not the norm. Here are a few topics to discuss as you are merging your new lives:

  • Be clear on what each of you bring to the table.
  • What debts do you have?
  • Do you pay more than the minimums on those debts?
  • How much have you saved and how much do your save from each paycheck?
  • Be open and honest without judgement when learning how each of you have managed saving and spending prior to your merge.
  • What are your financial goals?
  • Discuss when you might like to buy a house and how much to save for a down payment as well as how you will pay your monthly household bills.
  • Discuss how much you need for an emergency fund – this is an amount of money that will stay in a liquid account for emergencies.

Individual goals are ok too. It is important to be on the same page for the big items, but individual goals are important also. Each person should write a list of “yours,” “mine,” and “our” goals, then compare the lists so you can focus on the differences.

As I approach my 32nd anniversary, I can say that we came together practicing some of these tips, but were not aware of all of them. We practice all of these tips now and have successfully merged love and marriage.

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Should you compare?

When I lived up North, I had auto insurance through AAA as most everyone did. When I moved to Florida, I had to find another company to insure my car. Everyone I knew had State Farm because they bundled their renters or homeowners insurance together for a “lower” cost. I took everyone’s advice and stayed with State Farm through our home purchase all the way through the hurricanes of 2004.
After the 2004 hurricane season, State Farm decided not carry home owners insurance, so I decided to shop everything. What I found out and what should have been obvious is that it pays to compare. Not only does it pay to compare, it may not be cost effective to have all of your insurances with the same company.
There are a lot more choices today for auto and homeowners insurance. I suggest that when your policy comes up for renewal, you shop and compare.

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The saga has finally ended.

I have written a number of times about my father-in-law’s struggles with Parkinson’s, and our struggles with settling his estate after he passed on. Here we are, 4.5 years later and finally, the estate has been settled. My father-in-law was an artist who did not care about anything that would be considered business. His free spirit was a joy, but his refusal to sign even a basic will had become our burden. We had to open up probate, hire attorneys and accountants in New Jersey, and my husband made countless trips there to settle his estate. We begged him to sign a will, appoint durable power of attorney to someone, and state his final wishes to no avail.
Basic estate planning can be a simple task without a large outlay of cash or time. Please do not leave this type of legacy for your family. If you need a referral to an estate planning attorney, please contact me at nancy@financialgroup.com.

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Do I pay it or do I save it?

I have had two clients ask me in the past week if they should use funds that they received unexpectedly to pay down debts or save the funds.
My answer was different for both clients. Let’s look at the circumstances.
Client # 1 has a daughter with student loans that is also looking to buy a house. Their question was regarding where to gift the dollars for student loan or down payment? I felt that since the loan payments have not been a burden, putting the funds toward a down payment and avoiding PMI would be better in the long run.
Client #2 also has student loans and will be graduating soon. My recommendation was to pay extra toward the highest interest loan, but to keep the bulk of the funds available for an emergency fund.

Everyone is different; therefor, the use of funds will be different too. There is no correct answer for everyone.

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Why do you want to save money?

We have a big problem in this country – not enough people have cash on hand. We are a mere two weeks away from the start of hurricane season and when the power goes out, cash is king. An emergency fund is, in my opinion, so important, but so few people have one. My question to you is, “Why do you want to save money”?
Retirement is a big reason to save as social security is not going to cut it in retirement if that is your only source of income. We need to start saving for retirement from the very first pay check. My recommendation is to start with 10% of your pay and increase that amount as you get raises and bonuses.
Many people save for a home purchase. Housing prices are very high right now. Once you figure out how much you can afford, the goal should be to save 20% for a down payment so you do not need to pay PMI. Private Mortgage Insurance (PMI) is a special type of insurance policy, provided by private insurers, to protect a lender against loss if a borrower defaults.
Vacations seem to be another big reason people save money. When planning a family vacation, add an additional 10% to what you think you might need as you never know what could happen on a trip, good or bad, that could require extra funds.
Identify why you want to save money and be diligent about stashing away cash for that reason, even if you have to sacrifice a bit to achieve your goal.

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