219

The Rule of 219

Retirement planning applies to every working individual in this country. If you’re just starting in your career, time is on your side. If you’re halfway through, then you should be regularly doing a retirement checkup. If you’re winding down, hopefully, you are adequately prepared to enjoy your golden years.

If you don’t think retirement is important, look at some of the research reports from the National Institute on Retirement Security. If you don’t have time to read each report, peruse the executive summary, and you will get a good flavor of just how horrible this country is doing on the retirement front. That information will blow your mind!

Without proper retirement planning, that virtually means you have only a few options

  1. you need to receive an inheritance
  2. you need to win the lottery
  3. you will or plan on working forever
  4. you pass away the day after you decide to retire

Most people will probably frown at options 3 & 4, and many of us won’t have the luxury of option 1. Option 2, good luck because the odds are not in your favor. People don’t have much saved for retirement because they never set a goal. Plus, we have no clue how much money we are going to need in retirement.

There are so many variables that you simply can’t plan for, but as a starting point, search “retirement calculator” in your internet browser and play around with the numbers. At least that’s a start. But just to put things in perspective, let’s do some simple math concerning the amount of money we’re all going to need in retirement. The rule of 219 is not widely discussed, but here’s how you get the number. The rule assumes:

  • you and a spouse/partner/significant other (2 people)
  • eat 3 meals/day at $5/meal
  • you do this for (20) years
  • there are 365 days in a year

Thus 2 x 3 x 5 x 20 x 365 = $219,000. Obviously, every meal you eat won’t be $5, you may not have a spouse in retirement, and you may live longer than 20 years in retirement. This rule makes a ton of assumptions; however, it is easy to understand—the alternative, trying to determine your retirement number by conducting a time value of money calculation. Simplicity is the goal of this rule.

up and down

The Ups And Downs of the Market

Are you afraid of the stock market? If so, hopefully, there is a good reason as to why you are scared. If your reason isn’t one from experience in dealing with the market directly, then that’s a significant problem. Many people have professed that the stock market is a terrifying place simply because the market could be up or down on any given day, which is defined as market volatility. Because of the constant change that plagues the market, many opt to keep money safe, typically in banking-related products or a shoebox at the house. If you are trying to make money work for you over the long-term, then the stock market is where a portion of your money needs to be.

The fear of the stock market, like anything else, stems from a lack of understanding. The first thing you need to understand is that there are two types of market cycles; bear markets and bull markets.

Bear markets: (pessimistic outlook) the stock market is declining, and we tend to see investments losing value. Investors who get into the market during this period tend to ride the investment down and then sell out after significant losses, locking in their losses.

Bull market: (optimistic outlook) the stock market is trending upward, and we see investment gains. Investors see more significant returns, which prompts them to take a more aggressive approach than they’re comfortable doing. People often get into an investment after the biggest gains have been made, and the actual return to the investor may be much smaller than the investment reports.

Typically, investors will shift between being bearish/bullish on the stock market based on factors such as global economic concerns, national economic data, and corporate financial performance.

Knowing the market cycles is helpful, but now you’re probably thinking about one or both questions; When is a good time to get in the market? When is a good time to get out? This would be classified as “market timing”; you’re trying to buy when stocks are at their lowest and sell when they’re at their peak. Historically speaking, the stock market’s best performances (in any given year) come on a handful of days. No investment professional has a crystal ball allowing them to see into the future, so your best bet is to avoid market timing at all costs. Of course, you may run into investment people who claim they can time the market but keep in mind, it’s not sustainable over the long-term.

Here are a few tricks to the investing game that will help you deal with the volatility of the stock market:

  1. Get invested and stay invested. Don’t let short-term market fluctuations drive your long-term strategy. As a reminder, you should invest in the long-term and not try to “time” the market.
  2. Consider asset allocation; this is an investment strategy that involves spreading your money across the major investment types, like stocks (equities), bonds (fixed income), cash, and equivalents.
  3. Utilize dollar-cost averaging; this strategy involves investing the same amount of money into your investment, regardless of the market is up or down. This allows you to buy more shares when prices are lower and fewer when prices are high. Over time, this results in you lowering the average cost of your shares.
  4. Re-evaluate your attitude toward risk; it’s important to do this as you go through the various stages in your life.

Hopefully, this will help rid you of some of that fear about the stock market. Also, there are PLENTY of financial services professionals who can help you determine the best investment approach for your situation. And if you opt not to work with a professional, there are countless resources for the do-it-yourself investor.

I wish you all the best, my fellow investor!

dyk LI

Did You Know This About Life Insurance

Life insurance is a dynamic financial vehicle, but most people only refer to it as death insurance. Yes, if you have a policy and you’ve been paying your premiums and pass away, a sum of money will be paid out. Who or what gets that sum of money is totally up to you.

Many of you reading this might not have known this, but people use life insurance while they’re alive. Did you know that life insurance can be used to fund a child’s education? Did you know that people utilize life insurance to supplement their retirement income? Did you know that if you borrowed against (taking a loan) your life insurance policy, that in some cases, you don’t have to pay the loan back? Life insurance is a phenomenal tool but it gets such a bad reputation; however, there are so many ways that people can use life insurance while they’re alive. It’s one of the most flexible products that exist, but most people don’t take the time to educate themselves properly.

If you didn’t know about those awesome things that life insurance can do (and that was only an appetizer), perhaps you should schedule an appointment with an insurance agent and let them explain it to you.

debit card

Is The Debit Card Becoming Obsolete?

We are all familiar with what happens when you go into the bank and meet with one of the bankers. They want to make sure you’re taking full advantage of your banking relationship. One thing they will all be sure to mention is their latest and greatest credit card offer for which you’ve been pre-approved, or they state that the credit card you have isn’t their best one. Either way, you didn’t go into the bank that day to get a new credit card. Has your banker ever challenged you to rethink the reason you use your debit card?

Your debit card has a few benefits, and it enables you to buy goods/services, helps you avoid having a ton of cash on hand (safety), withdraw money from the ATM, and serves as identification if you’re doing a transaction at the teller window. Those benefits are not that compelling, which is what this banker was expressing during a recent conversation. This was when the “ah-ha” moment occurred. Why do we consistently use our debit cards to make purchases? They give us no benefit whatsoever when we could be receiving cash back, travel rewards, points to buy stuff, etc.

Now, some of you may be thinking that it’s silly to use a credit card when you already have the money to pay for something. That makes perfect sense, but have you ever thought about it from the other side. Since you do have the money already (and I’m assuming you do), why not take advantage of the benefits and pay off the full balance at the end of the billing cycle. Now, you won’t be worried about carrying a balance that may be subject to an interest charge. And, you will have reaped the benefits (rewards) of using the credit card. Keep in mind, this type of strategy will not work if you are not a responsible financial steward. Utilizing such an approach will also require you to have a steady income, which will allow you to make that payment each month. Not making that payment and incurring that interest charge is what the bank wants you to do. Let’s make sure to stay in control and use what the bank is offering to your advantage.

You still might not be convinced about this credit card idea, and it’s only because most people don’t challenge the status quo. We’ve been programmed to think a certain way for so long that it’s hard to change. But think about how much money you spend each year on food, dining out and groceries, gas and entertainment. Wouldn’t it be nice to get something in return for all of that spending you’re already doing? The banks know this is where you’re spending your money; thus, they offer these credit cards. All you should do is figure out which rewards suit you best and utilize that credit card to your advantage.

LI faq

Life Insurance FAQ

Life insurance is an extremely important product that should be a part of EVERYONE’S #buildwealth plan. Here are some common frequently asked questions as it relates to life insurance.

How much life insurance should I own?

There is no single right answer! Some experts will recommend that you have an amount that is equal to 6 – 10 times your annual gross salary. Others say you should opt to have 2 times your annual gross salary. Coverage amounts are individual and certainly not “one size fits all.” The really nail down how much, it’s best that you meet with a financial professional and complete a personal needs analysis.

When should I review my current coverage?

Your situation has probably changed since you first purchased your life insurance policy. If something were to happen to you today, would your family have enough coverage? Generally, it’s recommended that you meet with your financial professional once a year, however, if you have done any of the following since you purchased your policy, you should review your coverage as soon as possible:

·        Purchased a home

·        Had a child

·        Married, divorced or become widowed

·        Changed jobs

·        Taken out a large loan

·        Started a retirement or college fund

·        Started your own business

·        Began caring for an elderly relative

I already own life insurance, should I purchase life insurance on my spouse?

If your spouse contributes to the family’s annual income, then he or she should have adequate life insurance coverage to help replace his or her income in the event of their death. If you spouse does not earn an income, life insurance can still play an important role in helping to pay for valuable services he or she provides; for example, providing child care, elder care, maintaining the home and running the household. Make sure to meet with a financial professional, who can help you determine the proper amount via a personal needs analysis.

Should I purchase life insurance on my child?

Some people scoff at the idea of purchasing a policy on their child but there are a few reasons you may want to consider it:

1.      You can generally purchase life insurance at the lowest possible premium. If your child were to purchase the same amount of coverage when he or she becomes an adult, the annual cost would generally be much higher

2.      You can help ensure that he or she has life insurance protection for life. If the child develops health problems as an adult, he or she could become uninsurable and may not be able to obtain life insurance coverage. In some families, a grandparent purchases a life insurance policy for the child. Also, keep in mind that some states limit the amount of life insurance that can be purchased on minors.

3.      While it’s not a popular option that is widely discussed, some people decide to purchase life insurance on a child to save money for their college education or some other use. Permanent life insurance policies build cash value, and over time, this could grow into a substantial amount of money.

Do I need individual life insurance if I have group life insurance through my job?

YES! Participating in our group life insurance is a good idea because you may be able to receive life insurance at a lower, group rate. If your group coverage is convertible – meaning, when you leave the company you can convert it to an individual policy without evidence of insurability – the individual policy you convert will generally have high premium cost compared to other policies. If your group coverage ends, you can apply for a new policy, especially if your healthy. Otherwise, you may not qualify or may have to pay higher premiums depending on your age and health status. Group life insurance my not provide an adequate amount of death benefit to meet all of your needs.

Consider supplementing your group policy with an individual policy. An individual policy is one that you own, thus it isn’t tied to your employer and you won’t have to worry about your premiums rising every year. With a n individual policy, you won’t need to wonder whether you still qualify every year or if you will lose your life insurance if you change jobs or get laid off. It’s insurance coverage that stays with you.

how can a planner help

How Can A Financial Planner Help Me?

Having a conversation about financial matters is a struggle for most people. We all understand that it’s imperative to have your financial house in order; however, most people typically don’t. The fear that you face around this issue will never subside until you decide to take action. You either need to do-it-yourself (which most won’t commit to doing) or enlist the aid of a financial planner.

Financial planners don’t get a ton of fanfare, but they should. The issue stems from the fact that people don’t understand the value that a financial planner can provide. People don’t know that a financial planner may be the solution to all of their money woes. People don’t understand that a financial planner needs to be cherished just like your barber or hairstylist. Wait, like your barber or hairstylist? Yes!! When you need your hair done for an event or before you go on a trip, you will move mountains to get that appointment. Or if your person doesn’t do appointments, you will wait as long as it takes. Why?? Because looking good is non-negotiable!! However, when it comes to financial matters, you’re okay with NOT taking immediate action and continuing a life of financial misery. There isn’t a sense of urgency in interacting with a financial planner, nor is there typically a quick (there are exceptions) outcome received. Thus, people tend to shy away from meeting with a financial planner or constantly reschedule their appointment.

Now that we’ve addressed the psychology behind why people avoid financial planners, let’s move on and look at what you need to consider when you are ready to find your go to person. For starters, whoever you decide on, you need to like them. It doesn’t make much sense to do business with someone that you don’t like. Next, it’s recommended that you should interview 2-3 candidates before making your decision. Before finishing that first meeting (which is typically the free consultation that most will offer), you should know precisely how they get paid and what they can do for you.

Here’s a menu (of sorts) that you should consider when walking into that first meeting. A financial planner usually works in one of 3 ways:

Transactional-based business (Needs Analysis):

Think of this level as the basic package. You need a solution, and this planner can sell it to you. The planner will capture the necessary information as it applies to your need, conduct an analysis, and conclude by recommending a solution(s). It doesn’t require much follow up after the transaction is complete. The planner will be in touch at a minimum annually to review or be in touch periodically for service-related matters. The planner earns a commission on the solution that is sold.

Managed Money (Wealth Management):

This can be considered the “I’m in it with my client” level. You are entrusting the planner to manage a certain amount of money for you. The services at this level may involve the following as it relates to your money: 1) how your portfolio is allocated amongst the different asset classes 2) managing risk within the portfolio 3) enhancing (growing) your portfolio and 4) tax planning. You will probably meet with your planner quarterly to review your account. The planner will charge a quarterly fee based on the solution chosen and the account size. A fee-based relationship requires the planner to act in the client’s best interest because their compensation is tied directly to performance. Good performance, better pay, poor performance, less pay.

Comprehensive Financial Planning:

This level is like the deluxe service at the car wash. The planner will assist you with an in-depth analysis of some or all of the following areas: Net Worth and Cash Flow, Investment Planning & Allocation, Risk Management, Retirement Planning, Income Tax Planning, and Estate Planning. At this level, you will meet as necessary to help ensure that you understand your financial plan. At a minimum, you will conduct an annual review of your plan. Compensation at this level is two-fold. First, there will be an agreed-upon fee for the financial planning service. Second, the planner’s commission or fees will be earned if you decide to purchase any solution(s) to implement your financial plan. Some people choose to have the planner produce their financial plan, pay the fee, and opt to implement a solution(s) with another planner.

invest made easy

Investing Made Easy

Some people have learned to make investing a bit easier by utilizing a popular investing technique called dollar-cost averaging. How exactly does it work? You buy a fixed dollar amount of a particular investment regularly, regardless of the share price. In essence, you’re buying more shares of that investment when prices are low, and fewer shares are purchased when prices are high.

Dollar-cost averaging doesn’t guarantee you against losses, and it helps to make sure you’re investing regularly. Investing regularly is a great strategy to implement because it takes the guessing out of investing. Many people try to “time” the market, and while you may have success in the short run, most who try to time the market end up losing more in the end. However, successful day-traders or active investors may argue the contrary. Most of us don’t have the discipline or time to watch the market and place trades continually.

Many of us have been doing dollar-cost averaging for years and didn’t even realize it. Are you participating in your company’s 401k/403b/457b plan? If so, then you’re dollar-cost averaging. The money applied to your retirement account is being placed into your designated investment allocation each pay period. Aside from retirement, dollar-cost averaging is an excellent tool for the novice

money personality

Understanding Your Money Personality

People have different ways of dealing with money-related issues. The characteristics that drive these differences are linked to your unique personality style. Understanding your money personality might be the first step into better managing your financial affairs.

Let’s take a quick dive into the 5 personalities:

1.     Deniers: a denier might say something along the lines of “retirement is just too far away,” and they would be considered your procrastinators. A denier feels strongly that getting their financial house in order will take too much time and effort; thus they tend to be pessimistic in their thinking. A denier usually ends up worse off financially at retirement and, as a group, tend to have less education and fewer financial resources than the general population. As a denier, you will require simple programs/initiatives (like having payroll deduction, so you save money) to motivate you to act in your best interest. Keeping the process simple is what you desire.

2.     Strugglers: a struggler is someone who lives paycheck to paycheck and is prone to a setback if a crisis were to arise. They will deem themselves financially successful if they can save a little bit consistently. An investment program, like dollar-cost averaging, would be suitable for a struggler. With the proper education, planning, and a bit of motivation (from an accountability partner), a struggler can avoid a future crisis.

3.     Impulsives: an impulsive will make a financial decision on a whim. They are well aware that they should have a financial plan and should be saving regularly, but they always have something else to spend their money on first. Since an impulsive can be hot and cold when it comes to their financial decision-making, working with a financial professional and impulsive will need to build a solid upfront relationship, enabling their interactions to flow smoothly.

4.     Cautious Savers: although they are skilled at saving, cautious savers tend to be very careful when investing. They find it easy to save a set amount of money each month but will typically consider conservative investments. Cautious savers are incredibly analytical and meticulous when it comes to all things financial planning related.

5.     Planners: planners are willing to take risks and have the ability to make financial decisions on a gut feeling. However, they have supreme confidence in their financial outlook because they have a well-defined saving/investing plan. Planners are extremely goal-oriented, which drives them to monitor how much they are saving/investing regularly.

No matter which category you fall into, everyone needs to have a financial plan. Many people look to friends, family, and co-workers and want to mimic what they are doing, but that’s not always a great course of action. Understanding your money personality will enable you to customize your plan to fit your needs.

college planning

The Key To College Planning

During a recent workshop with a group of women (all who had children), various financial topics were covered during the session. However, the biggest concern, next to retirement, was college planning. Some in the room felt overwhelmed because they didn’t know how they would be able to afford to send their child/children to the school of their choosing. The sad reality, most people will continue to rely on student loans, which continue to plague many people late into their working years and some even into retirement.
Post-secondary education can be precious, but many people amass vast amounts of debt to obtain a college degree. Is it really worth it? Some are fortunate enough to have parents who got the “memo” about starting early. Please note that time is the crucial component when it comes to saving/investing for any financial goal.
How exactly do you make college planning easy? There’s an old saying that it takes a village to raise a child, and we have completely forgotten about that. If parents could remember that old saying, they wouldn’t fret so much about college planning. The ladies in that room mentioned that they just didn’t have the extra money to start a college plan. I shared a simple story (a true story) to put the women at ease. The story was about a young mother (my really good friend) who took it upon herself to put everyone on notice that the “village” was going to help fund her daughter’s college fund. She did it by way of a Christmas card. She laid it out plain as day in the letter that if people wanted to give Christmas gifts for her daughter, please send gifts of money or mail a check to fund her 529 college savings account. The account number and address were listed right there in the letter. My friend took it upon herself to coach/train the “village” to give gifts of money and not silly gifts she will outgrow or break. Side note, my friend’s daughter was one year old, and clearly, she understood that money (the compounding effect) grows the best over a long period.
As a parent, starting some type of account for college is all that you need to do. Many vehicles can be utilized to save for college, the most popular being the 529 savings plan and Coverdell educational savings accounts (ESA). Some even use their Roth IRA’s or life insurance. No matter which option you choose, make sure to consult with your financial planner/adviser to determine which vehicle(s) suit you best. Opening that account is usually the biggest hurdle, which you must overcome. Once an account has been established, keep reminding people that your child/children need money for school. This method sounds simple, but it will be challenging if you allow your pride to get in the way. Swallow that pride and put the “village” on notice!

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Disability Insurance 101

How would you pay your bills if you were seriously sick or injured and couldn’t go to work? If you don’t have adequate savings in place, hopefully, you have disability income insurance. Disability insurance is designed to replace a portion of lost income due to ill-health. The need for this protection will depend on what benefits are already available from other sources. This type of insurance (if not offered by your employer) is available through private insurance companies and Social Security.

Social security disability income insurance provides benefits that help replace the lost income of eligible disabled workers. This insurance offers eligible workers and their dependents with income during a period of disability expected to last at least 12 months or result in death. There is a 5-month waiting period after which benefits begin. The disability must be considered “total” as defined by the Social Security Administration. Simply put, recipients must not be able to engage in any substantial, gainful activity. If they can do any work for pay, they will likely be ineligible for benefits.

Insurance carriers typically use two definitions of disability:

Own occupation (“own occ”) – means a disability prevents a worker from engaging in typical duties in his/her particular field of employment. Here’s an example – assume a surgeon loses a hand in an accident and can no longer perform surgery. Under the “own occupation” definition, they would be considered disabled. Now assume the surgeon decides to become a medical professor. Even though they are working and being paid as a professor, they would still be considered “disabled” as surgeons and would continue to collect disability benefits.

Any occupation (“any occ”) – means the insured can only receive disability benefits if they cannot perform work-related duties for any occupation. If we use the same surgeon example, they would not be entitled to disability benefits if they began working as a professor under an “any occ” definition policy.

From a worker’s point of view, an own occupation policy would be more advantageous should a disability occur. However, own occupation policies are more expensive than any occupation policies. Also, medically qualifying for own occupation policies is more challenging for any occupation policies.

When trying to determine the amount of disability income needed, you can utilize a simple formula:

Current monthly after-tax income

Less: social security benefits (estimate); employer-provided disability; existing private disability insurance; retirement plan disability benefits; waived life insurance premiums

Equals: Total monthly need