Are You Prepared For the Unexpected?

November 17, 2016

If you’re like me, you may have been quite surprised (whether in a good or bad way) by the election results last week. The fact is that things don’t always go as we expect and sometimes life throws us curve balls. For example, I recently had a trip in which my first flight was delayed, then the Wi-Fi that I had been planning to use to get some work done on my second flight wasn’t working (here’s a different perspective on this), and then I found out my luggage hadn’t made it to my final destination.

Fortunately, I had everything I needed to finish my work (including writing this blog post) on me and the rest was delivered to my hotel by the next morning. The key is to be able to roll with the punches and that’s a lot easier when we’re prepared. The same is true in our financial lives. Here are some preparations for life’s financial curve balls:

Insurance

Knowing how my travel day had gone, I opted for the more complete supplemental liability insurance for my rental car. I knew the odds of an at-fault accident were low, but it could happen and being carless, I have no other insurance. That means I could be personally liable for thousands or even hundreds of thousands of dollars in damages in the event of an accident.

Insurance is for those unlikely but disastrous events that could leave us financially debilitated. (If the event is likely, the insurance wouldn’t make financial sense for the insurance company and if the event wouldn’t be disastrous, the insurance wouldn’t make financial sense for you.) Make sure you have enough property and casualty insurance to replace your valuables and to cover your assets in case you’re held liable for damages. That may mean having an umbrella liability policy if the limits on your auto and homeowners insurance are too low. Don’t forget health, disability, life, and perhaps long term care insurance too.

Emergency Fund

If insurance covers the unlikely events, the emergency fund is also for all the things we know will happen but can’t predict when. Your home and car will need repairs. You’ll have out-of-pocket medical expenses. You’ll probably be in between jobs at some point. If you don’t have adequate emergency savings (ideally enough savings and other supplies to get you through at least 3-6 months), you may end up having to borrow the money at astronomical interest rates or even worse, losing your home or car if you can’t make the payments.

Advance Health Care Directive and Durable Power of Attorney

These documents specify your wishes or delegate someone to make those decisions for you in case you’re unable to. You can get advance health care directives drafted and stored for free at My Directives. A durable power of attorney is relatively inexpensive or you may be able to get it for free as an employee benefit.

Investment Diversification

Just like things don’t always go as we expect in our personal lives, the same is true for the overall economy as well. That’s why we diversify our investments. Have at least 30 different stocks in various sectors (if you have a mutual fund, you probably already have this) with no more than 10-15% of your portfolio in any one stock (especially your employer’s). You may want to include bonds, cash, and even alternative asset classes in your portfolio like real estate and commodities as well. Even the most diversified portfolio can lose value but by holding for the long term (at least 3-5 years), you also diversify by time and so the good years can make up for the bad ones.

Just because most of the political or financial experts predict an outcome doesn’t mean they’ll always be right. Life has a way of making fools of us all. When it does, you’ll want to be prepared.

Rebooting Your Career After a “Gray Divorce”

November 15, 2016

I was recently at a conference talking to a group of women. The conversation was about everything from movies and books to kids and then it turned to marriage. What surprised me about the conversation was not how many women were divorced (we all know that the divorce rate is high in our country) but the age of the women who were recently divorced or facing a divorce. Almost every woman at my table of 20 who was recently divorced or about to be divorced was about 50.

Many were either stay-at-home wives or worked part-time jobs making little money. The reality of being divorced meant they now had to look for work that was not only satisfying but could meet their expenses, and in some cases, help them save for retirement. As these women found themselves job hunting after being out of the job market for decades, I offered the following suggestions on what to look for before accepting an offer:

1) A generous 401(k) match and/or a pension program: Get as much help as your employer can give you to save for retirement, especially if you feel you are behind in savings. Although most pension programs are going the way of the dodo bird, there are still organizations like the federal and state governments that pay a pension. The other is to look for companies with generous 401(k) matching programs. Consider using this article as a starting point to research potentially generous 401(k) plans and verify the information using Glassdoor, Vault or any other website that has employer information and/or employee comments about the company.

2) An extensive benefits package that you can take with you when you retire: Benefits like long term care, life and health insurance while you are working and after you retire (if offered) can be extremely valuable. In most cases (not all), long term care insurance is particularly cheaper when bought through an employer as opposed to an insurance salesperson. In some cases, you can even get it with a less extensive underwriting process.

3) A generous vacation schedule: Most people do not think about it, but you want time to recharge and see the world without having to fight your employer. Look for employers with generous vacation/time off schedules. As they say, time is money.

4) Good opportunities in your career: A company may have the best employment opportunity, but if it is not in the field you are in, you may not experience the full benefits. Consider the potential career opportunities in your field from your potential employer. Explore the job training and tuition reimbursement programs and how committed the company is to helping you develop professionally. Also consider that it may be better to temporarily take a lower paying job if it advances you in the long run.

There are lots of websites to help you on your search. Look at articles such as Forbes‘ “The Best Places to Work in 2016” or similar articles in your local newspaper. Employees are not shy talking about their companies, both good and bad. Go on websites like Glassdoor, Vault and Monster to get insider info about the company. You can even ask questions as many people are happy to reply.

Lastly, do not discount the power of personal connections. Talk to your friends and family about your job search and try to get insight about potential employers. The work you put in at the front end will go a long way to finding a satisfying career.

What I Learned From an Early Retirement Package

November 11, 2016

Over the last few weeks, I have been having a whole lot of conversations about retirement with employees of one of our client companies. They are offering an early retirement package (ERP) to a fairly large number of employees, and they have a fairly short window of time in which to make a decision about accepting it or declining the offer. When retirement is no longer something that has a long term time horizon and is suddenly presented as an immediate opportunity, what is important suddenly becomes crystal clear, and that is slightly different for each person.

I have been able to make some observations on the factors that have driven the decision for most of the candidates for the ERP. It isn’t hugely surprising, but these factors are helping people make one of the most important decisions of their lives. So let’s learn from them so that we can be in a great position to make our retirement decisions with a clear head and on our own time lines. Here’s what I’ve found over the last several weeks:

People with very low levels of debt are much more likely to be able to accept the ERP. The people I met who have paid their mortgage off are, with an almost unanimous vote, accepting the offer and moving on to the next phase of life.

What I learned: I want to pay my mortgage off ASAP! Any debt should be eliminated quickly and you’ll be in a better position over the long haul. When all debt is gone, your embedded cost of living is lower for the rest of your life. That can do nothing but extend the life of your asset base.

The cost of health insurance in the future was a factor in everyone’s decision. Some had a spouse who could cover them or had the ability to roll into Medicare. Others are going to price policies on the exchanges or with affinity groups or simply price policies on a few insurer websites. Those with a clear plan for how to handle the cost of insurance had a very good likelihood of accepting the ERP.

What I learned: In order to prepare for medical costs in the future, I’m planning to max out my HSA annually and invest the account for long term growth, while paying most medical costs out-of-pocket. I plan to keep abreast of the ever-changing landscape of health insurance as well. Recently, we saw significant increases in premiums for health insurance in the exchanges so being aware of the landscape is always a best practice.

The folks who were confident in their ability to land another job before the severance package ran out were also much more likely to accept the offer. With a relatively generous severance package, those who could get jobs relatively quickly could “double dip” for a while. With income from two jobs, they can work on paying debt off or invest a sizable portion of their income.

What I learned: Having an updated resume and refreshing your LinkedIn profile periodically is always a best practice. One never knows when the employment market will turn into the next batch of good (or bad) news, so being prepared at all times is a very worthy endeavor. Keep your contacts organized. Stay in touch with former coworkers, as well as current ones. Use your internal network to help find opportunities.

The lessons I learned over the last few weeks will provide more benefits to me than the benefits I provided to the individual employees. I will consider all of these factors and work to make sure that when the time comes for me to consider retiring, I have all of my I’s dotted and T’s crossed. You should too.

Do You Have a Taxable Estate?

November 10, 2016

To keep pace with inflation, the IRS recently announced a higher estate tax exemption for next year of $5.49 million. For most people, this estate tax exemption means they don’t have to worry about the estate tax because it only applies to the value of estates above that amount. However, there are several main reasons why your estate may be more likely to be taxable than you think:

The estate tax applies to non-financial assets too. It’s easy to see the value of your retirement, investment, and bank accounts, but don’t forget any real estate or business interests you may have. The IRS may also value them higher than you expect.

The tax is on your gross estate. If you own a $1.5 million home with a $1 million mortgage, you may think only your $500k of equity is part of your estate, but the entire $1.5 million is actually included. The same is true for any other property you have with secured debt.

Your estate includes life insurance proceeds. Even though you don’t see a dime of it, life insurance death benefits are included in your estate. This alone could be several million dollars for many people.

Your state may have a lower estate tax exemption. In addition to the federal estate tax, a handful of states impose their own estate tax with rates as high as 20% (Washington) and their exemptions are often lower than the federal one. For example, New Jersey’s state estate tax exemption is only $675k.

The estate tax will likely change. The tax code is constantly changing and the estate tax is no different. Depending on the outcome of future elections, we could see a higher estate tax or even no estate tax at all. Given the rising national debt and the fact that taxing upper-income people is one of the few deficit-reducing policy proposals that polls well, the former may be more likely.

Chances are, you still won’t have to worry about paying the estate tax even with all these caveats. However, if it turns out that you do have a taxable estate, you’ll want to speak with an estate planning attorney about what options you have to minimize the tax burden on your heirs. It’s a good problem to have but a problem nonetheless and one you’ll want to know about before it’s too late.

Do You Need a Will?

November 09, 2016

One of the five components of a complete financial plan is estate planning, the foundation of which is a last will & testament. Most people don’t really start thinking about a will until they have kids, but really, everyone should have one, even if it’s simply written on a napkin. Here’s what you need to know:

What is a will? Your will is a legal document that directs what happens to your stuff, names your executor (the person who will be in charge of making sure your stuff gets to whom you direct), and also names your preferred guardian for any minor children you leave behind.

Where can I get a will? First, check to see if your employer offers any type of legal benefit. Even small employers sometimes give you access to an online portal where you can complete a questionnaire and have a basic will created, which is how my husband and I did our first drafts just to get something on paper. Other employers offer the ability to pay a small payroll deduction for access to discount programs. Depending on the cost, it may make sense to join for one benefit year and then have your key estate planning documents drafted to get the full value.

You can also draft and print a will online through a couple of different services like Nolo or Legal Zoom. My first will was done this way and while an attorney reviews your document to ensure it complies with your state’s laws, it’s easy to mess up. I had just moved and put the wrong county of residence on mine, an error I didn’t know I’d made until it was too late to change it. I’m lucky that I don’t know if it would have made a difference, but that’s the big pitfall of the DIY will. A lawyer checks that it complies with legal standards, but would not be able to verify its correctness.

For people who own businesses, have blended families or even just a notable amount of wealth amassed, hiring an estate planning attorney is usually worth the additional cost to make sure the nuances that come along with more complex lives are properly addressed according to your wishes. My husband and I recently signed new wills with an attorney. She not only made sure our plan coordinated with our various savings and distribution wishes, but pointed out provisions we hadn’t thought of such as including money for our future children’s potential guardian to expand her home if needed to accommodate the added family members or allocating money for our future kids to travel to visit other family members like their aunts and uncles. Most lawyers charge a flat fee for this service, ranging from hundreds to thousands of dollars, depending on where you live and what other documents you also need drafted.

What makes a will valid? Each state has laws that dictate the rules. Yes, you can write your wishes on a cocktail napkin, but you have to sign it and many states require you to have two non-named witnesses also sign that you were the person that signed it.

This was actually a bit of a comical complicating factor in the signing of our wills. My husband and I had trouble finding a time when we were both available at the same time as our attorney when we could also have two non-named witnesses present. We finally met our attorney at my local health club where we asked other gym members to witness as we signed! A bit goofy, but it got the job done. A more common place to find witnesses is your local bank.

Me actually signing my will

What happens if I don’t have a will when I die? Dying without a will is called dying “intestate,” and your estate is distributed according to your state’s laws. If you’re married, at least part of your estate will go to your spouse in all states. But if you’re not or heaven forbid, you both die at the same time, then the laws vary from state to state. In Illinois where I live, a person who is not married with no children would have their estate split equally between surviving parents and siblings.

I had a college friend whose live-in boyfriend died tragically in his 20’s. His parents weren’t fans of their living arrangement, so she was completely cut out of the funeral arrangements and of course, left high and dry when it came to his stuff. He owned the house they lived in, so she was suddenly homeless too. No one likes to think about dying too young, but a will would have at least made sure she could keep some physical mementos of his.

Can I change it? Yes, and that is an important point to remember. You want to draft your will for how your life is today. Then as life happens, you can always update your will for your new circumstances. Key events that should cause you to make an update would include marriage or divorce, birth or death of a named beneficiary or even a falling out with one of the administrators of your estate like your executor or guardian.

The bottom line is that life can get complicated very quickly, and dying without a will leaves the settlement of your estate to the county probate court where you live. You probably don’t want them making critical decisions for your loved ones. Do your family a favor and put your wishes in writing just to be sure.

How to Evaluate an Early Retirement Offer

November 07, 2016

You’ve received an offer from your employer with financial incentives to retire early. You’ve got to admit you’re intrigued. Should you consider accepting it? Before you say “yes” or “no,” ask yourself these questions:

Am I ready to leave?

Before running any numbers, be honest with yourself. When you received the offer of early retirement incentives, were you excited, somewhat interested or depressed? The more interested you are emotionally in moving on, the less likely you will regret your decision if you decide to accept the offer.

It’s also important to assess the state of the company. If you decide to stay, are there any reasons your job might be in jeopardy in the near future? Be clear-eyed about all the possibilities, and factor them into your decision.

Can I afford to completely retire now?

Run a retirement calculator to see if you could retire now, based on what you’ve saved so far and your estimated income from Social Security and any pensions and/or other investments. Make sure you run the worst case scenario, not just the best case scenario. For example, model scenarios assuming a 2% return, a 4% return and a 6% return, and consider running the scenarios through ages 85, 90 and even 100. If the model shows you can retire with a reasonable lifestyle, keep pace with inflation and not run out of money in old age, you will feel more comfortable that you are ready.

What will I do for health insurance?

Health insurance is expensive. Up until now, you’ve participated in a group health plan, with your employer picking up a large part of the cost. If you have family coverage, the typical full cost of coverage is $17,500 per year. If you accept the offer, you’ll need to find and pay for new health care coverage until you are age 65 and can participate in Medicare. Review your options:

Continue your group coverage under COBRA for 18 months. You would pay the full premium yourself (or with retiree health plan dollars if you are fortunate enough to have one). If you have funds in your health savings account (HSA), you can use them to pay for insurance premiums for health care continuation coverage through COBRA.
Get coverage from your spouse’s employer-sponsored plan, if applicable. A spouse losing their coverage is a qualifying event and they will be able to add you to their insurance.
Seek coverage under the Affordable Care Act. Even if you retire outside of the open enrollment period, losing your employer-provided coverage is a qualifying event. Start at healthcare.gov to see what is available in your state. Depending on your new family income after early retirement, you may qualify for a subsidy of your insurance premiums. In any case, you cannot be turned down for coverage.
Look for coverage on the private market. An insurance broker or online marketplaces such as eHealth or GoHealth are helpful places to start comparing plans and prices. Even if you are considering coverage under the Affordable Care Act, it’s a good idea to shop around and compare.

When will I claim Social Security?

The earliest eligible retirees can claim Social Security benefits is age 62. Most workers receiving early retirement incentive offers now would not be eligible for full Social Security benefits until age 66 to 67, depending on current age. If you claim early, benefits will be reduced based on the longer payout period. Delaying Social Security to full retirement age or even as late as age 70 will increase your monthly benefits. Factors to consider include:

Will you need the money? If you will need the income to make ends meet, you have your answer. However, if you can get by with some additional income from part time work, you’ll be able to receive higher monthly benefits by delaying claiming Social Security.
Is your spouse still working or do you anticipate any employment income? If your spouse is still working, you’ll be taxed at their marginal tax rate on your Social Security benefits. Plus, if your family earnings exceeds $15,720 for 2016, you’ll lose $1 for every $2 you earn above the limit. (Note that the benefit isn’t truly lost. You’ll be able to recoup that once you hit full retirement age).
How’s your health? If you have health issues, you may decide to take Social Security early. If you don’t, delaying may make more sense.
Do you have longevity in your family? Do you have someone in your immediate family who lived to 95 or 100? If folks in your family generally live long lives, consider delaying Social Security benefits
Do you have other assets you can tap? Does it make sense to tap your 401(k), pension, Roth IRA or brokerage accounts first? Model different scenarios to see which offers you the highest total lifestyle in retirement.

As you can see, there are a lot of factors to consider in deciding whether to take an early retirement offer. There is no right or wrong answer for everyone. Just make sure yours is an educated one.

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here, and on Twitter @cynthiameyer_FF.

The Parents’ Guide to Making a Will

October 31, 2016

Are you raising one of America’s 73.6 million children? If yes, do you have a will? If you don’t have one, you urgently need one. Don’t wait. A will, with a provision which names the person who should be the guardian of your children if you die, is the most important step in making sure your kids are raised by the people you would want to raise them.

What happens if you don’t have a will?

It’s not fun for any of us to think about what would happen if we died unexpectedly. That probably won’t happen, so you might be tempted to put it off thinking it’s silly to prepare for a worst case scenario. The problem is, if you die without a will which names a guardian for your children and specifies what funds are available to care for them, you have zero control over who raises your kids and how much money remains for their support. Your state’s courts, with government social services, is going to decide what happens to your kids, who raises them and how your money is divided up.

You need a will even if your spouse remains to take care of your children. If you die without a valid will, the courts will decide what happens to your assets according to a preset formula (e.g., some to the surviving spouse, some to the kids). Your spouse may not have full access or control over the money allocated to the children.

Don’t feel sheepish about not putting one together yet. According to a Caring.com survey, nearly half of American parents don’t have a will or living trust. Here’s how not to be one of them.

Make three decisions

Once you’ve decided you are going to make a will, it’s relatively straightforward to get started. You’ll need to make three critical decisions before you write anything up:

Name a guardian. Who is the best person to take care of your children until they are adults in the unlikely event that you are no longer living? Does that person share your values? Do they share your beliefs about parenting? Do they love your children?

FYI, in most cases where parents are divorced or unmarried, the default would be for the children to stay with the surviving biological parent, so if you have an objection to that, you’ll need to put that in writing. Choose your first and second choices for a personal guardian to include in your will. You’ll want to name a legal adult who has the time, energy and willingness to raise your children if needed. Before naming a personal guardian, make sure you’ve asked that person and they have agreed to accept the responsibility if needed.

Decide what happens to your money and stuff. Any assets that do not automatically pass according to their title or beneficiary (called “beneficiary of law,” such as property held as joint tenants with right of survivorship, retirement accounts or life insurance) are included in this category. Make sure you fully designate what happens to your property, bank accounts and investments.

Minor children won’t be able to manage that money for themselves, and you may not want them to have full access to it until they are well established adults. Who will control the checkbook? Decide if that’s an individual – it could be a different person than the guardian if you prefer – or a trust company.

Name an executor. An executor is a person named in your will (or appointed by the court if you die without a will) whose job is to carry out the instructions in your will. The executor takes care of your last financial business such as paying taxes/bills and re-titling property according to your will. Don’t forget to include a digital executor to control your online and social media accounts, who may or may not be the same as your financial executor. As with a guardian, make sure your executor is someone who is willing and capable to take on that kind of big responsibility.

Prepare your will

Once you’ve made the big three decisions, you’re ready to write your will. Here are some options for preparing a valid one:

Use an attorney. The biggest advantage to using an attorney to prepare a will is that — if you pick a qualified estate planning attorney – you can be more confident that it conforms to the laws of your state. The downside is that it’s more expensive. Check your employee benefits. You may have access to a prepaid legal program as a voluntary benefit or access to lower cost resources through your employee assistance program (EAP). The American Bar Association also offers an online state by state guide to wills and estates.

Use an online legal resource. If you need a basic will without a lot of personalization, an online resource may be a fit for your situation. Check with your EAP to see if you have access to any free or low cost will preparation services. There are also online will preparation sites such as Nolo.com and Legalzoom.com where you can make a will for a reasonable price.

Communicate your plans

Finally, a will won’t help if no one knows you have one. Let a few trusted people, such as a sibling, parent or close friend, know that you’ve prepared a will, and where they can find it if it’s needed. Make sure your executor knows how to access your will and has contact information where needed.

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here, and on Twitter @cynthiameyer_FF.

How Can You Avoid Probate in Your State?

October 27, 2016

One of the most common estate planning goals is to avoid probate, which is the process by which the court processes your estate. That’s because probate is public, can cost thousands of dollars, and can take months of time before your heirs inherit your property. Contrary to popular belief, having a will does NOT avoid probate. Having a living trust can help you avoid probate in most states, but these can thousands of dollars for an estate planning attorney to draft. Here are some lower cost way to avoid probate that may be available in your state:

Titling assets jointly with rights of survivorship: When you pass away, these assets will immediately pass on to the joint owner. However, be aware that this is essentially a gift to the joint owner, which means they (and their creditors) will have full legal access to it. In addition, the asset will go through probate when the joint owner eventually passes away as well.

Adding beneficiaries by contract: When you have a living beneficiary on a retirement account, life insurance policy, annuity, 529 or Coverdell education savings account, or health savings account, those assets will not go through probate. Unlike with joint ownership, the beneficiaries do not own the account until you pass away and you can designate contingent beneficiaries in case the beneficiary passes before or at the same time as you. In some cases, the beneficiary can also continue the tax benefits of these accounts. The downside is that this option is not applicable to other types of assets.

POD or TOD: By adding a “payable on death” (POD) designation on a bank account or a “transfer on death” (TOD) designation to an investment account, you can avoid probate on these assets as well. Some states will even allow you to add a TOD designation to a vehicle registration and to real estate (often known as a beneficiary deed). However, many institutions may charge a nominal fee or not even allow it at all. This also can’t be used for most tangible possessions like furniture, jewelry, artwork, etc. For those, you might need a trust.

Your choice isn’t just between paying thousands of dollars for a living trust or allowing your estate to go through probate. Check to see what other options are available in your state. It may not benefit you now, but your heirs will thank you.

How to Reduce Your Auto Insurance Costs

October 25, 2016

You can only imagine all of the crazy scenarios that go on in your brain when you have had two car accidents in under six months. Unfortunately, these scenarios led me to getting practically every auto insurance option available when we bought our cars. Needless to say, I think I went a little overboard, which of course I figured out when I saw my first auto insurance premium bill. If you find that your auto insurance is higher than you would like, consider pairing down by doing the following:

Shop around: Do not assume that the policy you have is the best you can get. First, contact your current insurance company and ask for discounts for things like: multiple vehicles and good driving records to name a few. Consider getting all of your policies (home, renters, cars) from the same insurer to help reduce costs. Next, review websites to help you evaluate various auto insurance companies and consider using sites like Esurance, NerdWallet or The Zebra to help you price auto coverage.

Deductibles: In general, the easiest way to reduce your premiums is to increase your deductible. Typically, the more you have to pay out-of-pocket, the cheaper the policy. A rule of thumb is to choose a deductible amount you can easily pay if needed or allocate a portion of your savings to cover the deductible you choose.

Dump unnecessary coverage: Collision insurance covers physical damage to your car if you collide with an object (car or tree) and comprehensive insurance covers other damages like a flood, theft and fire. A rule of thumb is to consider dropping full coverage when the annual cost for the insurance is more than 10% of the actual cash value of your car. If you decide to drop coverage, consider creating a “car budget” to cover the cost of repairs and a newer vehicle.

Ultimately, I ended up increasing my deductible to an amount that I can afford to pay out-of-pocket and I dropped comprehensive coverage on one of the older vehicles we purchased, which lowered my overall premium. Consider annually scheduling a time to review all of your insurance policies. You can use your birthday or you can use your open enrollment period as a time to not only review your benefits at work but to review your auto insurance policies as well. Taking a few hours to review your policy can help you save money that can go towards other goals like paying off debt, building an emergency savings and saving for college.

When Should You Go the DIY Route?

October 24, 2016

Have you ever wondered, “when does it pay to have a professional do it versus doing it myself?” My fellow planner, Cyrus Purnell, CFP® and I were chatting about our funny home improvement adventures. Then the conversation turned to other areas where sometimes it’s better to go it alone and sometimes to get help. Here’s what he told me:

A couple of weeks ago, I saw an Instagram post of a buddy of mine with his face buried in his hands and a pair of car keys with the hashtag #failmomentoftheday. Apparently, he tried to program a new key for his wife’s car and managed to deprogram both keys. The result was hiring a tow truck to haul the car to the dealership – what he was trying to avoid in the first place.

I spoke with him afterwards and he mentioned he was convinced to go the DIY route after watching YouTube videos. If alcohol is liquid courage, YouTube is definitely digital courage. My own failures after a little digital courage include: various attempts to fix my car and lawnmower, burnt pieces of meat offered up to the grill gods and a Craigslist’s furniture fixer upper which now resides in my attic.

I can now laugh at these DIY disasters. However, sometimes doing it yourself may not be a laughing matter. At what point does the cost of making a rookie mistake outweigh the price of having someone else do it?

When does it make sense to hire a financial advisor to help guide you in decisions related to your nest egg? Should you try to write your own will? Can you find the best insurance and mortgage rates on your own? Here are some thoughts on the value of hiring a professional:

When should you hire a financial advisor?

The value of a financial advisor is found in their ability to work with you to build a portfolio you can tolerate during the inevitable ups and downs of the market. Time in the market generally beats timing the market and a good advisor can help you stay on track in this area. Additionally, once your nest egg is in place, a good financial advisor helps you design a strategy which allows you to take income.

If you want to invest outside of your employer’s retirement plan and retirement is more than 10 years away, DIY investing can make sense. There are a lot of low cost investment options to consider or robo adviser options which can function as an “advisor lite.” If you are simply not comfortable going alone or you are nearing your investment goal, it may be time to interview an investment advisor.

Financial advisor is a generic term so you may want to look for someone reputable and with training specific to your needs. My colleague Erik Carter wrote a blog post that explains exactly what to look for in a trusted adviser: https://www.financialfinesse.com/2012/10/04/can-you-really-trust-your-financial-adviser/. Doing your due diligence is so important my CEO wrote a book about it: What Your Financial Advisor Isn’t Telling You: The Ten Essential Truths You Need to Know About Your Money. That’s a good place to start to see if you really need one.

When do you need a professional to assist with estate planning?

An estate plan can direct where your assets such as a car, home, business, savings, etc., will go in the event of your death. Our own mortality is not the most pleasant topic, but it is one we all deal with it. A well thought out estate plan can make it much easier for those we leave behind.

If you have a blended family or assets across multiple states, professional assistance is especially helpful. If you think a trust might be necessary, you will certainly need to have an attorney to establish one. If you are looking for an attorney that practices estate planning law in your area, a great resource is your local estate planning council: http://www.naepc.org/. Also consider looking into whether your employer offers a legal assistance benefit.

Do you feel your situation does not merit hiring an attorney? Then it can make sense to find a tool to help you put a will in place. Websites like nolo.com offer wills which conform to the laws of your state.

When do you need to hire a tax professional?

If you are filing a 1040EZ or you are not claiming deductions beyond your home and your kids then using tax software will typically do a good job of filing your taxes at a minimal cost. There are cases when a software program may not be the right fit though. If you own a small business, collect income from rental property or if you are settling an estate, hiring a certified public accountant or an enrolled agent can be a very prudent investment.

If you are going to pay someone to help you, hiring a CPA, EA or an attorney would be preferable because they can speak to the IRS on your behalf if you are ever audited. Not only can these professionals help you file your taxes, but they can also give you advice regarding how to run your business to take maximum advantage of the tax rules. The IRS actually offers a site to find qualified professionals in your area: https://www.irs.gov/tax-professionals/choosing-a-tax-professional

When should you work with a mortgages or insurance broker?

From personal experience, I can suggest the more “plain vanilla” your circumstance is the more likely you can save some time and money online, but the more complex your circumstances are, the better off you may be with a seasoned professional. What is not “plain vanilla?” In the case of life, disability, and long term care insurance, if you have a health condition that could be viewed as negative or uncommon, it may pay to talk to an insurance broker. They can point you to the right companies that will insure you in spite of that condition. In the case of a mortgage, if you have some instances which merit explaining on your credit report, it may pay to have a mortgage broker shop and find the bank or mortgage company that would look more favorably on your situation.

Knowing whether to hire someone or DIY can be tricky. Hopefully this gives you an idea of when to call someone. Otherwise, you may experience your own #failmomentoftheday.

Do you have a question you’d like answered on the blog? Please email me at [email protected]. You can follow me on the blog by signing up here, and on Twitter @cynthiameyer_FF.

Don’t Let Open Enrollment Go to Waste

October 21, 2016

It seems like when I start hearing people talk about pumpkin spice lattes, open enrollment season is right around the corner. And in the last several weeks, I’ve talked to a lot of people going through the process of selecting benefits. Here are some quick thoughts regarding open enrollment that you may want to consider as you select your benefits:

Contribution rate escalator: This is a great time to sign up for the rate escalator feature of your 401(k). If you increase your contributions by 1% per year, you will be building ever increasing momentum toward a financially secure future.

Automatic re-balancing: While you’re in your 401(k) to enroll in the rate escalator, it makes sense to sign up for the re-balancing feature as well. There are lots of studies that indicate that re-balancing your portfolio can increase your rate of return anywhere from ¼% to 1% per year. I prefer it as a risk management tool, rather than a growth tool. By never allowing one asset class to run wild and dominate your portfolio, you stand a lower risk of getting devastated if the markets in that asset class collapse.

Life insurance: Most companies allow an increase of 1x salary without evidence of insurability. I’ve talked to a number of people who have developed some health issues that make purchasing life insurance either impossible or very cost prohibitive. It may take a number of years, but if you have any issues with securing life insurance, use every annual open enrollment to increase your company-sponsored insurance benefit by 1x salary.

Disability insurance: Disability insurance is, in my opinion, the single most important insurance coverage anyone can have. At each open enrollment, make sure that you have the absolute maximum disability insurance coverage allowed.

Pre-paid legal benefits. I’ve seen articles saying that between 50% and 75% of adults don’t have a will and advance healthcare directives in place. Pre-paid legal plans are becoming more common in benefits packages and for usually under $20/month, you can get coverage that would allow you to draft these important documents. If you sign up for one year and get your documents drafted, you will experience a tremendous return on the money spent for that benefit.

Your benefits are a key part of your total compensation. Open enrollment season is a great opportunity to make sure you’re taking advantage of them and getting your financial ducks in a row. Don’t waste it.

How to Find a Good Estate Planning Attorney

October 20, 2016

We help people with a lot of different issues at Financial Finesse, but one thing we can’t do is draft estate planning documents. So despite all those lawyer jokes we love, we do need them from time to time. But where and how can you find a good estate planning attorney?

First, make sure you hire an actual estate planning attorney. Estate planning is a specialized field that requires specific initial and ongoing education. A criminal defense lawyer who does some estate planning “on the side” may not be your best bet even if they’re your second cousin.

One place to start is with your workplace. See if your employer offers discounted legal services through either a pre-paid plan or an EAP (employee assistance program). While pre-paid plans are by definition, something you have to pay for, they can save you more in legal fees than they cost in membership fees. You can always choose not to renew after your estate planning is complete.

Another option is to ask family members, friends, and other professionals you work with for recommendations. Lawyers that you or someone else knows can be useful even if they practice in a different area because they tend to know other lawyers and which ones are most reputable. The same can be said for CPAs and financial advisers. After all, much of their professional success depends on building these relationships as a lot of their business comes from referrals.

You can also try your state or local bar association’s lawyer referral service for estate planning attorneys. You can find your local chapter’s site through the American Bar Association’s national Lawyer Referral Directory. There are also national estate planning organizations like the National Association of Estate Planners and Councils, The American College of Trust and Estate Counsel, the American Academy of Estate Planning Attorneys, the National Network of Estate Planning Attorneys, and the American Association of Trusts, Estates and Elder Law Attorneys.

Once you’ve found some prospects, don’t just hire one because they happen to be first on the list. Choosing the wrong attorney can end up costing you a lot of time and money so you’ll want to interview at least three. You might also want to check your state bar’s website to see if any disciplinary actions have been placed against them. Then you might want to ask some questions:

Who exactly will I be working with? You don’t want to find an attorney you really like only to discover that you’re handed off to a junior associate who you don’t like so much.

What are your credentials? Every attorney admitted to the bar in your state is technically qualified to practice law, but some have also obtained an estate planning specialization, a credential like the AEP (Accredited Estate Planner) designation or an LLM (Master of Laws) in an area like tax or estate planning.

How much experience do you have working with clients like me in similar situations? You don’t necessarily want to be the first person they’ve drafted this type of document for. See if you can talk to some of them.

How would you be paid? Whether you’re paying a fixed fee or an hourly rate, you’ll want some idea of what this would cost you and whether it’s worth it.

Do you have any questions for me? A good attorney will be focused on your situation and needs rather than theirs.

Finally, you’ll want to work with someone you like and trust so don’t discount the importance of personality and personal chemistry. In any case, I hope these tips help you choose a good attorney. The last thing you need is another reason for bad lawyer jokes.

Want more info on this or other financial topics? If you have a question you’d like answered on this blog, feel free to email me. You can also receive my future posts by following me on Twitter and/or subscribing to my posts on the blog home page.

Long Term Care Insurance Doesn’t Have to Break the Bank

October 06, 2016

Did you know that you could do everything perfectly right in saving and investing for retirement only to see your entire nest egg wiped out with just a few years of long term care? It’s the missing piece of most people’s retirement plans. After all, it’s estimated that 70% of 65-yr olds will need some type of long term care and yet Medicare and other health insurance programs don’t cover it.

Medicaid does cover it, but you have to spend down virtually all of your assets to qualify. You could purchase a long term care insurance policy, but they can be expensive or even impossible to qualify for if you have health problems. Here are some ways you might be able to get long term care insurance for less:

Ask your employer. Many employers offer group long term care insurance as an employee benefit. While it’s typically not paid for or even subsidized by your employer, you might be able to get a better price with limited underwriting, especially if you have any health issues.

See if your state offers a long term care partnership program. If you purchase a policy through a partnership program and use up all the insurance coverage, you can keep an additional amount of assets equal to the insurance you purchased and Medicaid will pick up the rest of the bill. For example, if you purchase $500k worth of coverage and use all the benefits, you can qualify for Medicaid and keep $500k worth of assets that would otherwise have had to be spent down. This way you know exactly how much insurance to buy: enough to CYA or cover your assets. Without that Medicaid protection, you might need to purchase additional coverage to make sure you have enough.

Consider a life insurance or annuity long term care rider. Many insurance companies sell life insurance policies or annuities with a rider that provides some long term care insurance protection. This is more expensive than a standalone policy, but the underwriting is often more lenient and if you don’t use the long term care benefits, at least your beneficiaries will eventually receive the death benefit.

Buy a single premium policy. One of the biggest problems with long term care insurance is rapidly rising premiums that cause many people to drop their coverage. To avoid this, consider a single premium policy. It’s a lot of money upfront but can save you money in the long run.

Not planning for long term care costs is one of the biggest mistakes people make. Part of that is the feeling that you have to choose between paying unaffordable premiums or risking depleting your assets. As always, make sure you understand all of your options before making a decision.

Don’t Make This Mistake That Ended in Family Tragedy

September 29, 2016

We’re all going to die someday…and many of us sooner than we think. It’s not pleasant to think about, but the consequences of not thinking about it can be much worse. For example, I recently heard about a family friend whose wife unexpectedly passed away, leaving him alone to care for their three children.

To make matters worse, she had just left a job and didn’t take the employer’s life insurance policy with her. It was the only one she had, and two of the kids are in college and too old to be eligible for Social Security survivor benefits. The third will only be eligible for another year or so. The father doesn’t earn enough to pay the bills but still too much to qualify for social services. Here’s how to avoid this mistake and ensure your loved ones are protected:

Make sure you have enough life insurance. Life insurance through your job generally only pays about 1 times your salary. If you have anyone dependent on your income, that’s likely not enough. You can use this life insurance calculator to estimate how much life insurance you need.

Decide where to buy any additional insurance you need. If your health disqualifies you from purchasing an individual policy, purchasing a supplemental policy through work might be your only choice. Otherwise, compare the cost at work with purchasing on your own. Just make sure you can convert any insurance policy you get at work to an individual policy when you leave and be aware that the premiums might increase quite a bit if you do.

You can search for low cost individual term policies at Term4Sale. (Term policies are much cheaper than permanent policies and are what most people typically need.) I like the site because they include companies that sell insurance policies direct since they don’t sell insurance themselves, despite the name.

Make sure you’re covered if you leave your job. This was the mistake of the woman above. See if you can convert your policy to an individual one or purchase an individual policy before you leave.

Buying life insurance may not be the most enjoyable part of financial planning, and it may not feel urgent. You never know when your loved ones will need it though, and by then, it will be too late. Don’t delay.

How to Calculate the Value of Your Benefits

September 26, 2016

Are you overlooking the real value of your benefits when you think about your compensation? According to the Bureau of Labor Statistics, benefits accounted for 31.4 percent of employer paid compensation for U.S. workers in June 2016, with salary making up the other 68.6 percent. It’s “open enrollment” season, the time of year when employees make decisions about their health insurance and other employee benefits for the upcoming year. While you’re weighing your options, it’s a good time to practice some benefits appreciation. One way to do this is to estimate how much the benefits you choose are worth to you:

Health Insurance (typically $5,000 – $30,000) – Your health insurance is a significant component of your benefits. How can you value what your employer contributes for you and your family, as well as the discount you receive on coverage for participating in a large group plan? According to the 2016 Milliman Medical Index, the cost of healthcare for a typical American family of four covered by an average employer-sponsored preferred provider organization (PPO) plan is $25,826, with employers typically picking up 57% of the cost. That means that participation in their company sponsored health care plan is worth at least $14,721 for that typical family at the typical employer. Of course your insurance costs may be different, and your employer may subsidize more or less of that.

More and more employers are also offering high deductible health plans in conjunction with a health savings account (HSA). In many cases, they’re contributing to the employee’s HSA as well. HSAs are a widely misunderstood and underrated benefit, and if you fully utilize your HSA, the long term tax advantages can be a benefit to you in retirement.

Retirement Plan (typically 3-6 percent of your salary in matching contributions) – While companies aren’t required to make matching contributions to what employees save for retirement, most companies with employer-sponsored 401(k) plans are offering this benefit. According to the Society for Human Resource Management (SHRM), 42% match employee contributions dollar for dollar up to a certain amount. 56 percent of companies require workers to save 6 percent or more in order to receive the full employer-matching contribution.

There’s also the value of having an employer-sponsored retirement plan in the first place. If you don’t have one as an employee, you won’t be able to save as much for retirement in tax-advantaged accounts. The consequence: employees without a work-sponsored retirement plan are far less likely to save for retirement. In fact, according to the National Institute on Retirement Security, 45% of working age households in the U.S. have zero retirement account savings.

Stock Purchase Plan (typically 10 to 15 percent of market value per share purchased) – In a typical stock purchase plan, the employer offers employees the opportunity, but not the obligation, to purchase publicly traded company stock at a discount from the market value.

Disability Insurance ($2,000 to $5,000 per year) – Premiums for insurance that replaces a portion of your income if you can’t work due to a non-work related illness or injury can be paid for by the employer, employee or both. Purchasing this insurance as individual policies would be quite expensive. Group policies are much less expense per covered employee, so even if you’re paying some or all of the premiums yourself, you’re getting a good deal. That is if you have access at all. According to the Bureau of Labor statistics only 25 percent of U.S. employees have access to both short and long term disability insurance benefits through their employer.

Life Insurance ($250 to $500 per year) – Many large employers cover their employees with term life insurance at one times their annual salary. Supplemental term coverage is often available for a low, additional cost.

Employer Contribution to FICA (7.65 percent of salary) – What is FICA and why does it get so much money from my paycheck?! FICA stands for Federal Insurance Contribution Act, e.g., Social Security and Medicare, and your employer pays just as much as you do towards both programs. The employer contribution adds up to total of 7.65 percent of your salary and bonus. When you are retired and draw Social Security and utilize Medicare for health insurance, know that your employers were partners in getting you there.

Unemployment Insurance (0.3 – 1.5 percent of salary) – Under the Federal Unemployment Tax Act (FUTA), employers pay your unemployment insurance, not you, as well as most states. If you lose your job through no fault of your own, and you meet your state’s requirements, you can file for unemployment benefits for some period of time (which varies by state). Like all types of catastrophic insurance, you hope you won’t have to file a claim – but it’s comforting to know that it’s there if you need it.

Other great benefits – Your company may offer other benefits such as tuition reimbursement, pre-paid legal assistance, commuter benefits, health and wellness programs, access to group long term care insurance, etc. Before you make decisions during open enrollment, check and see if your company has a workplace financial wellness program. That is the benefit which helps you understand all your other benefits.

Do you have a question about workplace benefits? Please email me at [email protected]. You can also follow me on Twitter @cynthiameyer_FF.

Where Would You Keep Something Very Valuable?

September 23, 2016

I saw the play Wait Until Dark last night, and it was very entertaining. I have not seen the old movie with Audrey Hepburn, so I wasn’t sure how it ended. As a result, my son and I jumped and were shocked by what was happening on the stage during a pivotal scene at the end of the play. While decompressing over a beverage in the theater afterwards, we were laughing at ourselves (and being laughed at by our dates) for not seeing the “jump scare” coming. But we are much bigger fans of comedies and dramas than we are of thrillers.

In the play, a key part of the plot was a frantic search for a doll. The doll’s contents were worth killing a few people over. The whole play was about the lengths various people would go to in order to retrieve the contents of the doll. That raised the question after the play – “if you had a physical object that was incredibly valuable, where would you keep it and why?” I’ve raised that issue with some friends, and here are some of the responses I’ve gotten:

A safe deposit box at the bank

Why? It’s safe and only I would have the key.

Drawback: One downside is that if the valuable thing were something thing that I’d want to see (like jewelry or art), that would be a lousy place for it.

A safe bolted to my basement floor

Why? It’s here at home, and I don’t have to operate on bank hours if I need it. I can also buy it one time and not have to pay a bank an annual fee. If the safe is big enough, I can put way more stuff in it than I could ever put in a safe deposit box at the bank.

Drawback: The price of safes is high, and there’s some serious labor involved to properly bolt it into a concrete floor. It’s also not ideal if you are renting, living in a tiny house or a boat or have very limited storage space.

Keep it at home and simply insure it.

Why? The real risk of theft is statistically very small. I’ll keep the valuables around so that I know where they are and they add to my quality of life. For art, I want to see it. For jewelry, I want to wear it.

Drawback: There is a risk of theft or vandalism or natural disasters (floods, hurricanes, tornadoes, etc) as well as the cost of the insurance to cover the loss.

All of my valuables are on paper, so I scan them and store them in my external drive with a password protected backup in “the cloud.”

Why? Why not?

Drawback: My kids and I have become fans of the show Mr. Robot, which has NOTHING to do with a robot but everything to do with the world of hacking. Anything that is online is at risk of being compromised. If you doubt that, ask Debbie Wasserman Schultz or Hillary Clinton or Colin Powell about their online security!

For the things in your life that you consider valuable or irreplaceable, do you have a plan or, like me, do you have a scattershot approach to this and have a few things secured and a few things unsecured and other things that you put somewhere and just have to remember where so that you can figure out what your game plan is for them? My personal goal, spurred on by the play, is to have a coherent plan for my valuables and have that plan implemented by this Halloween. If I don’t put a date on it, it won’t happen.

So, what’s your plan? What’s your deadline? If you don’t have answers to those questions, spend the next 5 minutes writing down what’s valuable/irreplaceable in your life and develop your plan, complete with a deadline. Then get busy implementing it!

Helping Aging Parents Decide Where to Live

September 13, 2016

As a Generation Xer, it’s amazing how the conversations I have with my friends have changed over the years. At first, the conversations were about who was dating who and the latest episode of The X-Files (the original one). Then it was all about the baby pictures, which quickly turned into prayer vigils as to how we are going to survive the teen years.

Over the last few years, the conversations have been about our aging parents and how we can help them make life decisions, such as where they will live once they retire. If your parents are healthy and can perform activities of daily living, then an independent living facility like a senior apartment/condo may work. These types of homes can be subsidized for those with low income or private pay only.

If your parents have health issues that requires monitoring and struggle with some of the activities of daily living but do not need 24 hour nursing care, then an assisted living facility may be an option. Since there is no uniform standard for assisted living facilities, call and ask about what services are offered and the living arrangements. Another option is for your parents to stay at their home and hire a caregiver for basic non-medical care. If your parents have a condition that is progressive such as Alzheimer’s or that requires extensive nursing care, then a nursing home may be a consideration. Consider using checklists like the one from the Alzheimer’s Association to go over questions to ask.

As you start to evaluate which one is the best option for your parents consider the following:

1. How much can they afford? Assess all their income resources. Some senior facilities are private pay only, and some are income based. If your parent’s finances are limited, consider contacting your local Department of Aging Ombudsman Program for guidance. Review your parent’s benefits and insurance documents to see if they have long term care insurance, and contact the insurance company regarding the requirements to activate the policy.

2. What level of care will your parents need now and possibly in the future? Some active adult community facilities only provide limited heath care while others are connected to an assisted living facility that offers more comprehensive care so if needed, your parents can seamlessly transition. Organizations like A Place for Mom, Adult Living Solutions, Seniors Resource Guide and possibly your local senior center can provide information on helping you make the most informed decision.

3. What level of independence do your parents want? This may require a reality check. Talk to your parents to make sure that the facility they want and the expected level of care matches. Once you have agreed, use the resources above to find the best option that matches your parents needs and wants.

Elder care can be stressful. There’s a lot you can do though. Taking the time to help your parents make the best decision will go a long way into making the transition as smooth as possible.

Lessons in Car Shopping

August 30, 2016

If you have read any of my posts, you probably know that my family has a “hit me” sign on us every time we get into a car. We have been in two car accidents within four months of each other, and I am honestly not sure what was worse: the accidents or dealing with the insurance companies. After the dust settled, we found ourselves needing two cars. Luckily, we had adjusted to having one car and decided to get only one newer vehicle immediately. This began our car shopping odyssey.

The first thing we did was to contact the car insurance company we filed a claim with to ask for an extension. Surprisingly, they were willing to extend their coverage a few extra days and then they allowed us to use their much lower daily rental rate for an additional two weeks. If you are in a similar situation, contact the insurance representative assigned to you and plead your case. Having a few extra days or even weeks takes the pressure off of having to buy a car immediately.

Next, we decided on our budget and researched websites like Kelley Blue Book and Edmunds to gauge what type of vehicle we can get with the features we wanted within our car budget. Next, we reviewed the reliability rating using websites like Consumer Reports. Once we did the research, we were able to narrow down our selection to two types of vehicles. Before heading to the dealer, come up with a budget and research vehicles that fall into your budget so you have a realistic idea of what you can afford to get.

I am sure that there are wonderful car dealerships, but after dealing with high pressure sales tactics, we realized we do not have the time or patience for traditional dealerships so we decided to buy a car through an online dealer. After researching several online dealers, we found that in our case, the fees were cheaper, many had a money back guarantee, you can shop nationally (confirm any fees to transport the vehicle to you) and there was less haggling. We researched consumer complaints using websites like the Better Business Bureau and Yelp. No matter how great the online dealer may sound, do your due diligence by researching the company online for complaints.

After choosing our dealer, we were assigned a salesperson who did a great job asking us about our needs and wants and sending us vehicles that were within our budget. Within a few days, we selected the vehicle we wanted and after it was inspected and detailed, it was delivered to our doorstep. We were so excited and relieved that our experience was pretty painless – or so we thought.

About a week after getting our vehicle, the car had trouble starting. We took it to a mechanic to have it inspected, something we should had done as soon as we got the vehicle, and we found that it had transmission problems. We contacted the online buying service about the problem, prepared for a battle.

They asked to see the report of repairs the mechanic put together. Less than an hour later, they called us and apologized. They said they used a new mechanic for the inspection, and he obviously did not do a good job. Much to our shock, they immediately offered us three options. They offered to pay for all repairs, give us our money back or search for another vehicle using our full purchase price as the trade-in value.

After careful consideration, we decided to trade the vehicle in and ended up in a better vehicle for a lower price. No matter how great the vehicle initially is working, get it thoroughly inspected while you are in your money back guarantee period. Also, make sure that any guarantees or warranties you were offered is in writing.

Even though our car buying experience did not go exactly as planned, we would still include online car dealers when car shopping again. Don’t limit yourself. As you start to think about buying a car, explore all of your choices to help you find the best vehicle for your needs.

_{Creative Commons Photo Credit: Source}

Are HSAs Still a Good Deal?

August 29, 2016

A few years ago, my colleague Greg Ward wrote a blog post called Why I Max Out My Health Savings Account (And You Should Too). In the past, health savings account (HSA) eligible health plans were a lot less expensive than their traditional counterparts, but premiums for HSA-eligible plans have recently gone up, and as a result, the difference in the premiums is not always as great as it was in the past. This has caused some readers to question whether or not Greg still believes the HSA is a good deal. Here is his response to a recent inquiry he received regarding this issue:

The reader writes:

“I’m really struggling to understand all of this. You have to have an HSA insurance plan to have the HSA, but the premiums and deductible are still really high and it doesn’t cover very much so I feel like I’m missing something. Also, are you still suggesting that we max out our contributions to the HSA but then not use the money for qualified expenses or are you incurring the expenses and then having them reimbursed later? It seems that a person will have to be a meticulous record keeper or it just won’t work…or you’ll get audited…or penalized. Am I right to be this worried??”

Here’s my response:

Hi [Reader],

Thanks for your comments. It is true that you must be enrolled in a high-deductible plan in order to be eligible to contribute to a health savings account (HSA). In general, the higher the deductible, the lower the premium, so while your premiums for a high-deductible plan may seem “really high,” they should still be less than their lower-deductible alternatives. Since the participant bears more of the financial responsibility under a high-deductible plan, they are more appropriate for healthy families that do not incur a lot of out-of-pocket expenses for healthcare services.

For example, let’s say my HSA-eligible plan costs $600 a month and my traditional plan costs $1,000 a month. If I incur $3,000 of out-of-pocket expenses for the year, my total cost under the HSA-eligible plan would be $10,200 versus $12,000 under my traditional plan (assuming the traditional plan covered the $3,000 of out-of-pocket expenses). The less I incur in out-of-pocket expenses, the greater the savings under the HSA-eligible plan (and vice versa).

Since my need for healthcare services will likely be greater in the future, such as in retirement, I choose not to use my HSA funds for current healthcare expenditures. That way I can invest the money so that I have more of it in the future. As long as you are not using the funds for unintended purposes, you probably don’t need to worry about an audit or penalty.

I hope that gives you more confidence to use the HSA if you’re eligible, but don’t let the HSA tail wag the health insurance dog. You should choose your health insurance based on your anticipated need for services. If you have an ongoing need for health care that will meet or exceed your deductible under an HSA-eligible plan, then a traditional plan may be more appropriate.

As you can see, I still believe in the HSA. I recognize that with premium disparity, the decision may not be as cut and dry as it’s been in the past. That said, if you (and your family) are healthy, and you feel comfortable investing your HSA dollars for future healthcare expenditures, I strongly believe in the value of this health insurance option.

4 Financial Moves I Wish I’d Made in My 20’s

August 24, 2016

Whenever I have the opportunity to work with an employee who is just starting their career by calling the Financial Helpline to make sure they’re making all the right financial moves, I can’t help but gush a little bit. This simple phone call often sets into motion actions and habits that will legitimately change the course of this person’s life. I often wonder how my life would have been different if I’d had the Financial Helpline to call for unbiased financial guidance from someone who would have given me a straight answer, no strings attached. If I could turn back time, here’s what I’d have done differently:

Joined an HSA plan as soon as it was offered. I still remember the hoopla in the financial services community when health savings accounts were first rolled out, but I didn’t get it. I wasn’t yet a financial planner, so I didn’t fully understand why anyone would sign up for a health insurance plan that could cause them to pay full price for the first couple thousand dollars in healthcare expenses each year, and didn’t even consider signing up. Similar to many people’s logic, I avoided the HSA due to the high-deductible without taking into consideration the fact that my employer was willing to fund some (or all) of that deductible and based on my lack of health issues, I was unlikely to spend even that. By the time I realized the beauty of the HSA, I only had a couple years before it was time to switch to more comprehensive coverage since I knew my costs were going to increase.

Opened and funded a Roth IRA. I’ll never forget the day I stepped into my co-worker Tom’s office and asked him to open a brokerage account for me to begin investing in an index fund with the extra money I had been paying toward my low-interest student loan. Tom looked at me and said, “Are you sure you don’t want to use that money to fund a Roth IRA instead of a taxable account?” I nodded, thinking that I didn’t want to kiss that money goodbye for the next 35 years, so I opted for a regular brokerage account.

I was wrong. Had I instead used that money to fund a Roth IRA, I still would have had access to my deposits without tax or penalty, and I would never have to pay taxes on the growth of my investments after age 59 1/2. When asked by young people about priorities in savings, I never waiver in my answer:

First get the match in your 401k. It’s free money, enough said.
Then max out your HSA. If you don’t need the money tax-free for healthcare expenses, you can access it like a normal retirement account after age 65. It’s also often free money.
Then fund a Roth IRA. While you are still under the income limits and the money has years to grow, take advantage of it.

Created a pet care fund. I adopted my first cat, Hattie May, my senior year of college and over the course of her short 13 year life, I estimate that I spent at least $5,000 on her care. The worst part about this is that I should’ve spent more to take care of her issues, but because I didn’t have money set aside, I skimped. This is something I’ll forever regret and I often wonder if she’d still be alive today if I’d prioritized saving for her costs. Here’s what I should’ve done: find out the cost of pet insurance for annual visits plus emergency care and then instead of buying the insurance, set that amount aside each month into a separate savings account. That way when things did come up, I would’ve had money available and if nothing came up, I wouldn’t be out the money.

Spent less money on cheap clothes. Confession: I engage in retail therapy with the best of them. I just wish I could go back to those early years and made a few less trips to stores like Old Navy and Target, where I succumbed to merchandising brilliance and bought clothes I maybe wore twice. I could’ve re-routed that money toward Hattie’s fund or a Roth IRA. The worst part is that when I went through periods of closet-cleaning during those years, I didn’t receive any tax benefit from donating those clothes as my itemized deductions weren’t high enough to qualify.

What I wish I’d done is put a limit on myself for impulse shopping. I don’t believe in going cold turkey. I do think we can all handle moderation though.

I can’t turn back time, but I can share the wisdom of my mistakes so here’s hoping you can learn from mine. What financial moves do you wish you could do over? Let me know on Facebook or send me a tweet.

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