Quiz: Do You Get the Most Out of Your Benefits?

April 03, 2017

Today is Employee Benefits Day. How will you celebrate? Don’t worry. Celebrating Employee Benefits Day does not require you to make a special trip to the party store or spend a single dollar.

In fact, the best way to celebrate it is to recognize and appreciate the value of your employee benefits and to maximize them for your personal financial situation. Don’t know where to start? Take this quick quiz to test your benefits knowledge.

1) You have decided it’s time to prepare a will. Where might you most likely find links to basic estate planning tools?

a. The public library

b. Your employee assistance program (EAP)

c. Your retirement plan provider

d. The HR department

2) Next year you plan to get laser eye surgery to correct your vision. Where is the best place to save extra money pre-tax to pay for it?

a. A health savings account (HSA)

b. An employee stock purchase plan (ESPP)

c. A flexible spending account  (FSA)

d. A deferred compensation plan

3) Where you can save and invest for retirement so that the income after age 59 ½ will be tax-free?

a. Non-qualified stock options (NSOs)

b. Nowhere – there’s no such thing as tax-free retirement income

c. A cafeteria plan

d. A Roth 401(k)

4) During this year’s open enrollment, you choose a high deductible health plan (HDHP) because of the lower premiums. You have the option to save money pre-tax in an HSA to cover the deductible and a portion of out-of-pocket expenses. You should:

a. Skip the HSA. The point of choosing your health insurance was to save money.

b. Contribute no more than $1,000.

c. Contribute the maximum ($3,400 for an individual and $6,750 for a family in 2017). If you don’t need to use the money, you can roll it forward to future years.

d. Contribute no more than $1,500.

5) Taylor takes the train to work every day, Max drives and parks in the public garage and Jenna rides her bike. Who can use a pre-tax commuter benefits account offered by their employer?

a. Only Taylor. The point of pre-tax commuter benefits is to encourage employees to take public transportation.

b. Taylor and Max can contribute up to $255 per month in 2017, but not Jenna. There are no employer-sponsored bicycle benefits.

c. Everyone but contributions are from the employer only.

d. Taylor and Max can contribute up to $255 per month in 2017. Jenna can’t contribute pre-tax, but she can participate in her employer’s bicycle reimbursement program, for up to $20 per month in eligible expenses.

6) According to our recent financial wellness research, the single most important tool an employer can offer to boost employee retirement preparedness is:

a. A “bank at work” program

b. A retirement calculator

c. Incentive stock options (ISOs)

d. A target date fund

7) Which benefit replaces your income if you have an injury or illness which is not work-related?

a. Disability insurance

b. Long term care insurance

c. Workers compensation

d. Unemployment insurance

8) According to the 2016 Milliman Medical Index, what is the typical total cost for family coverage in an average employer-sponsored group health plan?

a. $25,826 for a preferred provider organization (PPO) plan

b. $6,742 for a health maintenance organization

c. $43,350 for a high deductible health plan (HDHP)

d. $15,003 for preferred provider organization (PPO)

9) Your employer will reimburse you up to $3,000 for an undergraduate course, a graduate course or a professional certification. How will the reimbursement be taxed?

a. Reimbursement for a professional certification will be taxed  but not reimbursement for college/university courses

b. Reimbursement for college/university courses will be taxed  but not reimbursement for professional certification

c. Tuition reimbursements are generally included in the employee’s taxable income

d. Tuition reimbursements of less than $5,250 are generally not included in the employee’s taxable income

10) What type of pre-tax benefit can you use to pay for after-school care expenses for your children?

a. Health savings account

b. None – after school care is not eligible for reimbursement

c. Education savings account

d. Dependent care flexible spending account

See the answers in italics below. How did you do? If you scored a 9 or higher, congratulations! Chances are that you see your employee benefits as an integral part of your overall compensation.

If you scored an 8 or lower, you may be leaving money on the table by not taking full advantage of everything your employer offers. If you have access to financial coaching via your workplace financial wellness program, consider setting up a time to talk to a planner about how you can fully maximize the value of your employee benefits. In addition, check out the blog posts for the rest of this week, which will focus on various aspects of your benefits.

Answers:  1 – b, 2 – c, 3 – d, 4 – c, 5 – d , 6 – b, 7 – a, 8 – a, 9 – d, 10 – d

 

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.

 

Should You Use an Escrow Service?

February 06, 2017

If you are taking out a mortgage for the first time, one of the important decisions you’ll face is whether or not to establish an escrow account. My colleague Cyrus Purnell, CFP® and I were discussing this recently. Here’s what we decided are the essential FAQs for homeowners:

What is a mortgage escrow service?

An escrow account, in the case of a mortgage, functions as a middleman between a homeowner, tax entities, insurance companies, and anyone else whom the homeowner designates to pay with the funds saved in it. It is typically a mandatory savings account attached to the larger mortgage payment. Mortgage escrow services are popular with mortgage lenders because they prevent foreclosures due to the lack of payment of property taxes.

Advantages and disadvantages

One of the major advantages of an escrow is convenience. Rather than making individual arrangements to separately save for property taxes and insurance, these expenses are included in one payment. It’s the same principle as automating your monthly bills and 401(k) plan savings. A mortgage escrow service offers you a way to save for large bills monthly. That way the money is already there when you need it.

Another benefit is that you may get a slight reduction in your mortgage rate for maintaining an escrow account. Escrow accounts can function as an unintentional buffer to reality as well. If property taxes or insurance rates go up, you may delay action to shop for less expensive coverage or dispute a property tax appraisal because the escrow covers it. The lender benefits by having an escrow in place for taxes and insurance because it protects against the risk of the collateral for their loan (your home) being auctioned off by the county if those expenses are not paid. It also reduces the uncertainty of the property not being insured against catastrophe.

However, when purchasing a home, the up-front funding for the escrow account can add several thousands to the closing costs. The escrow generally has to maintain a minimum balance, and if taxes and fees come in higher than estimated, your escrow payment may grow to replace that minimum balance. This can cause uncertainty for your housing budget year-to-year. Another disadvantage is that some escrow accounts do not earn the account holder any interest. If you have a substantial amount to pay in property taxes, imagine an account holding thousands of dollars earning no interest.

Whose responsibility is to pay the taxes and insurance?

It’s your lender’s responsibility to pay your taxes and insurance. Generally, that happens without a hitch. However, keep in mind that it’s your responsibility to make sure that it has been done. If the lender didn’t pay, you could experience a lien against your property for unpaid taxes and/or a cancellation of your homeowners’ insurance policy. You should receive an escrow statement at least once per year that shows what has been collected and paid out.

Problems do happen, luckily rarely. When we first bought our home in NJ, our supposedly reputable national mortgage lender collected funds in an escrow account but didn’t pay our property taxes. We got a past due notice from our town, and it took some sleuthing to discover what the lender had done or not done.

Our town assessor’s office was very helpful once they saw our escrow statement and gave us a grace period until we could get it worked out with the lender. Although the lender apologized for their mix-up, it won’t surprise you to learn that we refinanced with another lender soon after that. We haven’t had any problems since.

Can you avoid using an escrow service?

Yes, but not always. Some mortgages require escrow accounts, especially for first-time home buyers or home buyers putting less than 20% down. If you pay your home down below 80% loan-to-value, you may be able to request removal of the escrow account, but there may be a fee for doing so.

Keep in mind that the escrow is not in place to protect the lender only. If you choose not to escrow, you will need to be very confident in your ability to save for the property taxes separately. You may also want to look into having the insurance premiums auto-debited as well.

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.

 

What a Financial Planner Told His Daughter After Her First Job

December 30, 2016

This week, I’m sharing a blog post from my colleague, Steve White:

My daughter is 22 and recently graduated college with a degree in human biology cum laude no less and she has a job working with a medical practice. (I’m a dad so I have to brag a little.) She has done several things that have reminded me why 1) being able to support yourself is important and 2) your kids do listen to what you say.

She called me when she got her first paycheck and said “Dad, I got a paycheck with a comma in it. Now you have to listen to me.” My father used to jokingly tell me that until I got a job with a paycheck, he didn’t have to listen to me, and yes, I jokingly told her the same (full disclosure – my dad did listen to me and I did and still do listen to my daughter). That paycheck with a comma in it meant that she now got to experience adult things that I’ve taken for granted like employee benefits. Her questions (and my answers) that we covered when she accepted her job included:

What health insurance do I sign up for? (the one that fits your situation) Should I check and see which one covers my prescriptions? (yes) If I take the high deductible plan, should I put money into the HSA? (yes) If I take the other plan, should I put money into the FSA? (yes)

How much life insurance should I get? (enough to cover your debt – see this life insurance needs worksheet) Who do I name as beneficiary? (whomever you want to – not me, name your mom) Wow, I don’t like thinking about if I die (Yeah, I know.)

Who is your beneficiary? (Mom) You need to name me as your medical power of attorney [see human biology major – cum laude] (I’ll think about it – aka no, let’s get back to your benefits.)

How do I fill out a W4? (What do the instructions say?) Will I have to file my own taxes? (yes) Can you help? (yes)

Thanks Daddy! (You’re welcome. What other benefit questions do you have?)

Do I need disability insurance? (yes) Why? (You’re statistically more likely to be disabled than die young – 24% chance of being disabled for 3 months or longer.)

Before she got her 3rd paycheck, she called me about budgeting, here’s how that one went:

Dad, I think I’m going to run out of money before I get paid again. (Oh, why is that?) I’ve got $23.42 in my bank account. (Yeah, I’d say that’s a possibility.)

I hate budgeting. (We all do sweetie.) Can you help me set up a budget? (Sure, I do it every day. That is one of the things I’m paid to do.)

(You remember when I decided to start watching what I ate?) Yeah, I remember you arguing with me about how many calories are in a fried pork chop. (Okay, besides that, when I thought about watching what I ate as a diet, I thought about in a negative light. I decided to think about it as an eating plan. That feels positive to me.)

Oh, I get it. I need to think about budgeting as a spending plan. (Yeah, just like you plan what you are going to eat, plan what you are going to spend.) Can you send me that spreadsheet thing you sent me before? (sure: Easy Spending Plan)

When she got her 3rd paycheck, our conversation went like this:

Dad, this morning at work, I was so excited that I got paid that I gave everyone a hug. (That’s nice.) I don’t think they expected that. (They have gotten a lot more paychecks. They have learned to restrain their excitement.)

I’m working on my spending plan and I’ve got a question. How much should I spend on lattes? (less than you do now) But I really like my soy double pump vanilla latte (I know), so what do I do? (Spend less on something else.)

But I need gas and food! (I know.) Dad – sometimes being an adult stinks. (I know.)

(Love ya sweetie.) Love you too Dad.

 

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.

 

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.

 

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.

 

The DIY Financial Checkup

August 08, 2016

When is the last time you had a financial checkup? Just like physical exams, regular financial exams lead to better overall financial health. While you can’t give yourself a thorough doctor’s exam, you can give yourself a comprehensive financial checkup with today’s abundance of useful online financial planning tools.

The first step in your diagnosis is to get all your important information organized in a central place. Some of this may be in paper form and some of it online. Gather these resources in advance so you have them on hand:

-your employee benefits such as retirement accounts, health/dental/vision insurance, disability insurance, HSA account, flexible spending accounts, commuter accounts, etc.

-the last month’s bank and brokerage account statements, including taxable accounts, IRAs and annuities

-a recent paycheck and your W4 (YTD cash flow statement if you are self-employed)

-estate planning documents, e.g., will, trust, power of attorney, healthcare directive

-additional insurance policies, e.g., homeowner’s, auto, umbrella liability, life, disability

-mortgage statement

-credit card statements, student loans, car loans, etc.

-financial plan, if you have one

-your budget, if you have one

What’s your financial position?

Pull together a summary of everything you own and everything you owe. (Download an easy net worth and budget worksheet here.) Subtract what you owe from what you own. That’s called your “net worth.”

Is your net worth positive or negative? Has it increased or decreased since the last time you calculated it and by what percentage? As my fellow planner Kelley Long says, “Your net worth is the ultimate measure of your ability to weather financial storms and maintain financial choices in life. The higher your net worth, the more financial freedom you can afford.”

Next, calculate your debt to income ratio by dividing your monthly gross pay by your total monthly recurring debt payments (mortgage, credit cards, student loans, car loans, etc.) The lower your debt to income ratio is, the better your financial position. FYI, mortgage lenders often look for a total debt to income ratio of no more than 36% of gross income.

Do you have sufficient cash reserves?

According to our 2016 Financial Stress Research, good cash management is the biggest differentiator between those workers who have no financial stress and those who have overwhelming financial stress. The foundation of cash management is a solid emergency fund to deal with inevitable unexpected events that happen to all of us. While the common guidance is to have at least three to six months in living expenses in savings or money market funds, it’s also important to make sure you have enough additional cash on hand to handle health, auto and property insurance deductibles as well as home and auto repairs. Bankrate.com has a helpful emergency savings calculator to figure out exactly how much you should keep in liquid savings. If your emergency fund could use some work, use this daily savings calculator to figure out how small savings, like $5 or $10 per day, can add up to a big cash cushion over time.

Could you survive a financial earthquake?

The purpose of insurance is to protect you and your family against catastrophic loss. The big idea behind insurance is that people pool their risks of catastrophic events. If you do suffer a loss and are adequately insured against it, you can be restored to your financial position before the loss. Do you have the insurance you need? Here are some guidelines for determining if you are sufficiently covered:

Health insurance – Everyone needs it, no excuses. If you don’t have health insurance, get it right away.

Disability income insurance – How would you pay the bills if you couldn’t work due to injury or illness? Many employers offer short and long term disability insurance. Make sure you take advantage of them during your next open enrollment period. This is particularly important if you are single or if you are the sole breadwinner in the family. To determine how much coverage you need and whether a supplemental policy is in order, use this calculator.

Life insurance – If someone else depends on your income for their living expenses, you need life insurance. There are different methods for determining how much insurance is ideal. For most people, the less expensive term insurance meets their needs. Use this calculator or download this worksheet to see if your coverage fits your situation. Subtract the coverage provided by your employer to determine what you need to purchase on your own.

Homeowner’s insurance – Per the Wall Street Journal, your homeowner’s insurance should provide enough to rebuild and furnish your home if it were wiped off the map. Does your policy reflect the current value of your home, any improvements you have made to it plus the cost to replace its contents? Basic homeowner’s policies do not cover you for things like floods and earthquakes. If those are common in your region, you may need to add specific coverage.

Renter’s insurance – Not a homeowner? When I was a young professional in Washington, D.C., my apartment was burglarized twice. Only then did I purchase renter’s insurance. Renter’s insurance covers the value of the stuff in your apartment that belongs to you like furniture, clothing and electronics. If the value of all those items exceeds the insurance deductible, consider renter’s insurance to cover your valuables.

Umbrella liability insurance – According to fellow planner Scott Spann, most people facing a judgment from civil litigation probably assume that their homeowner’s or auto policy would cover them. Low cost umbrella liability coverage provides an additional layer of protection in the case of a civil lawsuit. Consider policy coverage that is at least twice your net worth – more if you are a high earner.

Are you on track to replace 80% of your income in retirement?

Running a retirement calculator is like stepping on a scale. It is best done regularly in order to compare your results to your goal. Download our easy to use retirement estimator here.

While you may have run retirement estimates before, results can change depending on economic conditions. Review and update your assumptions about your savings rate, inflation and rate of return. For example, a recent report from McKinsey and Company suggests that investors may need to lower their sights, projecting that U.S. stock market returns over the next two decades could be between 4 and 6.5% annually.

If you’re not on track, what can you do to increase your retirement savings? Can you increase your contributions to a 401(k) or other employer-sponsored plan? Sign up for the contribution rate escalator. Contribute to a Roth or traditional IRA. According to our CEO, Liz Davidson, you can set yourself up for success by automating a process that would otherwise require a lot of effort and sacrifice.

How are you handling your taxes?

Did you get a big refund or owe a large sum on your most recent tax return? It may be time to adjust your withholding. This IRS withholding calculator can help you figure out the right number of allowances to claim.  Additionally, are you taking full advantage of tax-deferred retirement accounts, your health savings account, and flexible spending accounts? Make a list of what you need to change during your next open enrollment period.

Do your investments fit your situation?

Do you have a written plan to guide your investing decisions? If not, consider putting together an investment policy statement using this easy guide. Start by updating your risk tolerance by downloading this worksheet.

Has anything changed with your willingness or ability to take investment risk, your time horizon or your required rate of return? What about your inflation expectations or the kind of investments you are willing to make? Evaluate your current portfolio to see if it meets your updated goals and make changes if it doesn’t.

How much do your investments cost you in fees? Calculate your fees both as a flat dollar amount and as a percentage of your portfolio. Do you think you are getting your money’s worth?

Hint: if they are higher than 1%, consider changing brokerage firms or moving to lower fee alternatives such as index funds. Thinking about doing it yourself? Check out this blog post from fellow planner Erik Carter on how to save and invest on your own without getting eaten alive.

What happens to all this when you die?

Has anything changed since you first put together your estate plan? Take a look at all your retirement accounts and insurance policies and make sure your beneficiary designations reflect your current situation. Second, review your will and other estate planning documents such as a living trust, durable power of attorney, healthcare directive and guardianship provisions. Are the documents current and reflective of your wishes? What needs to be brought up-to-date?

Don’t have an estate plan? Follow these simple seven steps. Even if you do have a current estate plan, you may still need to develop a digital estate plan to express your wishes about what happens to your digital life.

Did you give yourself a financial checkup? How did it work out? Let me know by emailing me at [email protected]

3 Lessons I Learned About Insuring A College Bound Kid

May 03, 2016

I was talking to a group of friends whose kids were going off to college. Since I am a late-in-life parent, I was curious to see how they are handling being empty nesters. I expected some tears and sad stories about their kids leaving the nest. Instead, my friends were high-fiving each other that they survived the teen years and deciding what do with their kids’ rooms. They were even talking about going out and celebrating!

Of course, as the financial professional in the group, I had to burst everyone’s bubble. I asked the group if they had talked to their insurance providers about their kids going to college. I  brought this up because of all the lessons my family learned when my nephew went to college.

Lesson #1: Times have changed. When I was in college, my car, TV and computer were worth about $1,000. Today, a kid is going to college with thousands of dollars of electronics between their smartphones, iPads, X boxes and laptops. When my nephew’s dorm room was burglarized, my brother and his wife learned that their homeowner’s policy extended to my nephew’s dorm room but unfortunately, the extension did not cover the amount that was stolen. Contact your insurance company to make sure you have adequate insurance and consider adding additional coverage.

Lesson #2: Moving off campus is a game changer. The second lesson we learned is that when my nephew moved off campus, my brother’s homeowner’s policy did not provide my nephew with any coverage and in our case, a renter’s insurance policy may be needed. Contact your insurance carrier to see if your child will still be covered under your policy if your child lives off-campus. If not, consider renter’s insurance.

Lesson #3: Always update your auto policy carrier about any changes. If your child is leaving his or her car at home, ask about a discount since they will be driving it significantly less. This could have saved my brother and his wife hundreds of dollars in unnecessary car insurance.

Sometimes you may need to pay more though. After my nephew took his car with him to college, he was involved in a fender bender. When my brother contacted the insurance company, they refused to pay because my nephew was using the car for work to deliver pizzas part-time and we learned that he needed additional coverage.

So what’s the bottom line? Whenever you have a major life event, like a child going to college in this case, contact your insurance carrier to make sure that you have the best insurance for your needs. You don’t want to learn any of these lessons the hard way.

 

Why You Need Emergency Cash Reserves

March 18, 2016

Recently, Financial Finesse was fortunate enough to hire Steve White – a bright and handsome gentleman from Texas. If you doubt the handsome part, just ask him…he’ll tell you! Steve shared his view with me of why an emergency fund is critical for your life, and it sounded like something I should share with you. Continue reading “Why You Need Emergency Cash Reserves”

From Single to Married With a Baby

December 15, 2015

My friends often laugh at how quickly my life changed within about 18 months. I was happily single with plans to be a working woman with no husband and no kids. A friend of mine told me that I needed a life and suggested I check out a dating website. I said “never” but was intrigued… Continue reading “From Single to Married With a Baby”

Are You Ready For Open Enrollment?

October 27, 2015

It’s open enrollment time…that time of the year when you get this huge booklet or email of benefits and have to wade through all of the papers and links to figure out what to do while planning for the holidays at the same time. Remember to take time to really think about how you used your benefits last year so you can make the best decision. Here are a few things to consider: Continue reading “Are You Ready For Open Enrollment?”

The 8 Step DIY Financial Plan for Newlyweds

September 16, 2015

 

As newlyweds, my husband and I are just getting started on our money journey. To get and stay on the same page, we have a bi-weekly money meeting where we dig into our finances, which saves us from money fights and also keeps us accountable to completing tasks needed to get us to our goals. One thing we’re working on is creating our family financial plan to make sure we are fully aligned on money going forward, using these 8 steps. Even if you’re not a newlywed, you can follow these steps to get a plan in place for your family. Continue reading “The 8 Step DIY Financial Plan for Newlyweds”

The Hidden Costs Of Overlooked Benefits

July 29, 2015

August is an overlooked month. Every other month of the year has a holiday or is associated with an exciting beginning, but not August. Many of us try to sneak in one last summer weekend or some back to school shopping but other than that, August is usually a lull in the calendar. A great way to make August productive is to examine the employee benefits programs that you aren’t taking advantage of so that you know which options you do want to sign up for during open enrollment this fall. A few minutes now can help you be prepared to maximize your benefits and possibly save thousands of dollars instead of rushing through a decision or just doing what you did last year. Continue reading “The Hidden Costs Of Overlooked Benefits”

The 10 Question Financial Checkup

June 04, 2015

Earlier this week, I spoke to a couple of callers to our Financial Helpline. One was a woman who had just inherited some money and wasn’t sure what to do with it and the other was a man who wanted a complete “financial checkup.” While seemingly very different questions, both involved looking for vulnerabilities or opportunities in their financial situations. Want to do the same thing? In honor of our 4 Week Financial Check-up Challenge, here are some questions to ask yourself: Continue reading “The 10 Question Financial Checkup”

Why You Might Need Umbrella Liability Insurance

April 20, 2015

It is no secret that debt is a major obstacle on the path to financial wellness. Imagine what it would be liked to be saddled with a debt that follows you around for the rest of your life. There are many people that find themselves exactly in that position after a disastrous incident, and it’s not because they weren’t insured. It was because they weren’t adequately insured with the right type of insurance. Continue reading “Why You Might Need Umbrella Liability Insurance”

Should You Buy Life Insurance as an Investment?

January 08, 2015

Should you purchase a whole or universal life insurance policy as an investment? We recently received several questions on our Facebook page on this topic so there seems to be a lot of confusion about it. On the one hand, many agents over-sell these policies as a way to earn big commissions. On the other, they can make sense for certain people. Let’s take a look at some guidelines to use to see if it makes sense for you: Continue reading “Should You Buy Life Insurance as an Investment?”

Fire Drill For The What Ifs​

November 18, 2014

A co-worker recently had a scare when her husband was admitted to the hospital for a possible heart attack. His family has a history of heart problems so she was terrified at the thought of her life without her best friend, having to explain to her children they’d lost their dad, and not spending the rest of her life with him. She shared with me all sorts of thoughts that started creeping into her head…all of the “what ifs.” (Luckily for her, his health problem was not severe, just early symptoms of diabetes, and his problems are treatable with lifestyle changes.) Continue reading “Fire Drill For The What Ifs​”

Be Long Term Careful

November 14, 2014

One of the questions I get asked frequently by people who are on track to retire is if they should buy long term care insurance (if they don’t already own it) or if they should cancel it (if they already own it).Lately, that has been a very difficult question to answer.  Companies that offer long term care insurance are raising premiums, sometimes very substantially, and there are no guarantees that they won’t go even higher in the future.  So if you are considering purchasing a LTC policy or cancelling your existing LTC policy, what are some things that you should factor into your decision? Continue reading “Be Long Term Careful”

Why Wait Until Next Year to Plan Your Future?

October 27, 2014

It seems like every fall I try to take some time to enjoy a few minutes of solitude and reflect on the experiences of the current year. This is also a time where I usually acknowledge that the to-do list that I created earlier in the year still reveals some unfinished business. As a financial planner, I’ll admit that this includes some things on my family’s financial planning checklist that still need some attention. Continue reading “Why Wait Until Next Year to Plan Your Future?”

Retiring Within the Next 10 Years? 10 Things to Do Now

March 03, 2014

This past weekend, I enjoyed a wonderful visit from my mom. As I was enjoying a morning cup of coffee (and not adequately caffeinated for a serious discussion), she told me about her retirement plans. Actually, she mainly shared how she was financially prepared to leave the workforce within the next year but not quite sure she was ready for full retirement.  Continue reading “Retiring Within the Next 10 Years? 10 Things to Do Now”