Preparing Financially for Life's Disasters

Preparing for All of Life's Events

We've been hearing a lot about storms and bad weather lately. Some of these natural disasters have been terrible and very destructive, and many people have died or been injured. The aftermath will leave folks rebuilding for months or years. Those people that haven't planned for such a disruption will be hurting, both emotionally and financially. 

It’s easy to forget about preparing for life events. It’s easy to put off planning for these things. But off until when? For many people, they never get around to it- ever! Then when the storm hits, they are the ones hurting. Let’s talk about some things you should consider getting in place for when, or if, a storm ever hits you.

Geographically, there are different considerations. If you live in the Smoky Mountains, you probably do not need flood insurance. But if you live in an area prone to flooding, or where flooding has happened in the past… you better have it! Flood insurance is essential. If you can’t afford it, you should not own property where it may flood. It’s that simple. (For related reading, see: The Financial Effects of a Natural Disaster.)

The Basics: Emergency Funds and Insurance 

What are the other plans you should have in place? Let’s start with disability insurance. If you were injured escaping a flooding city, helping to rescue people, or even when cleaning up and rebuilding, could you afford to pay your bills without a wage coming in? What if you died in the storm or flood? Do you have enough life insurance in place to cover your family’s debt, and future expenses? You don't want to leave your spouse and kids with a huge financial burden. If you are not retired yet, a good amount of life insurance to have in place is anywhere from five to 10 times your gross annual wage. On top of this amount, you'll need an additional amount to cover any debt you may have, including mortgages, auto loans, college loans, credit cards, etc. 

In addition to the basics I mentioned above, everyone should have an emergency fund in case of a long spell when income won’t be coming in. It doesn't matter where you live—an emergency fund of three to 12 months of your monthly expenses should be sitting in a savings account at your local bank. Make sure you include all monthly expenses, including your mortgage, utilities and food.

Emergency Funds Take Care of You and Your Loved Ones

I've been running into some folks lately that had to unexpectedly help a family member or friend out. This act really drained their emergency fund. If your family is prone to borrow, make unwise financial decisions, or you are just a big-hearted person, you could consider adding more to your emergency fund in case you need to help someone out. (For related reading, see: Why You May Not Need an Emergency Fund.)

If you decide to loan money to someone, even if it's your family, make sure you talk to a financial advisor first. Then, have an agreement drawn up by an attorney, and have it signed and witnessed. Make sure there is language in the agreement about how it gets paid back, what happens if payments are late, if it never gets paid back, if you die, if they die, if they get divorced, if they get disabled, etc. If it’s a business venture, make sure there is language on all the above, and language on how a partner can leave the business venture or sell their share. (For more, see: How to Lend Money to Family and Not Regret It.)

Whether it’s a hurricane, flood, earthquake, tornado, snow storm, power outage, nuclear leak, terrorist attack, or whatever else the world might throw at you, it's always a good idea to have an emergency fund!

My final note: don’t take stupid chances. If the authorities say to leave your home, leave your home! There are people who put the lives of their families, and the rescue workers, in jeopardy by staying in their homes. They either don’t have an emergency fund, they can’t afford to leave their home, they are stupid, or they are heartless.

As a CERTIFIED FINANCIAL PLANNER™ my word of advice is not to take big chances with your money. By big chances I mean: gambling in the market by investing in high-risk investments, loaning large amounts of money to family or friends, or putting a large amount into a business venture without thoroughly thinking it through and getting a few expert opinions. One bad decision, when taking big chances, can wipe you out, or even just mess up your retirement plans.

CR: https://www.investopedia.com/advisor-network/articles/preparing-financially-lifes-disasters/

4 Simple Actions to Achieve Financial Safety

Like summer ants in the kitchen, financial advice is profuse and unrelenting. If you’ve got little time and less patience, what are the fewest bits of advice you need to keep yourself financially safe?

Effectively Evaluate Information

Using accurate, relevant and timely financial information is crucial. We’re subjected to a barrage of info every waking moment of every day. Trying to sift through what is completely or partially true, what’s unhelpful, and what’s completely wrong is a never-ending task. (For more from this author, see: 4 Must-Do’s for Basic Financial Safety.)

One of the concepts I teach in my freshman English composition classes is how to evaluate sources to use in a research paper. As a financial consumer, you want to ask the same questions of your sources that college students are taught to ask of their sources: timeliness of the information; relevance of the information to your needs; authority of authors or speakers and their qualifications on the topic; accuracy of the info including its reliability, truthfulness, and correctness of the content; biases of the author or publisher; and the reason why the information is out there – to teach? sell? entertain? persuade? To be truly safe, you need to rely on valid information and using these techniques can bring more confidence in the data you’re using.

Set Yourself Up to Make Good Decisions

A big part of financial safety revolves around making good decisions. You can help yourself achieve this step by setting the stage for success. Psychologists tell you not to undertake emotional activities when you are hungry, tired, angry or sad. That advice applies to making financial decisions as well. Avoid making big financial decisions when you are overly upset or after a major event like a death in the family. Even little financial decisions like what to buy at the grocery store can cost you extra if you shop hungry. Try to put yourself in reasonable and unrushed circumstances when you are deciding on financial actions. If a financial opportunity requires you to hurry in deciding, to keep the deal secret, or seems too good to be true, it’s probably one that’s no good.

Take Prudent Risks

To earn a good return, you need to take calculated risks. You know the adage “Some is good; more is better.” With financial risk (as with hairspray, round-up, and beer) some is good, but too much can be bad. You want your money to make money for you but you don’t want to lose all or most of it. Unlike the 1970s when your risk-free T-bill could earn you a 14% return (I had one), you’re barely making 0.14% today in risk-free investments. So you need to take some risk if you want to grow your money. And that goes back to points one and two - finding info you can trust and using it to evaluate the likely return you’ll get for the risk you’re going to take. If you understand how much you can lose in an investment, you’ll be safer in your choices.

Live Below Your Means

Must I really trot this old chestnut out? Sorry! But whether you make a million a year or $20,000 if you spend more than you make, you are not financially safe. It’s so hard to achieve this goal, and I’m not unsympathetic to the siren call of spending. However, it’s really the golden rule of financial safety.

Conclusion

Do these four activities for a lifetime of protection from financial trouble. (For more from this author, see: Personal Safety: Including the Costs in Your Budget.)

CR: https://www.investopedia.com/advisor-network/articles/4-simple-actions-achieve-financial-safety/

Capital Gains: You May Have to Pay Taxes on a Loss

You meet with your accountant and he informs you that you need to pay capital gains taxes this year even though the mutual fund you bought posted negative returns. You have not sold any funds or made any portfolio changes. How does this happen? Why do some people need to pay capital gains taxes if they lost money and did not trade?

When you own a mutual fund in your brokerage account, you may have to pay taxes even though the value of your fund went down and even if you did not sell the fund or realize any gains. This makes it important to know which funds may generate lots of taxes and to optimize your asset location—brokerage, 401(k), IRA, etc.—for each fund you own. (For related reading, see: The Ultimate List of Painful Financial Mistakes.)

Breaking Performance Down

If you check www.morningstar.com, you will see the difference in performance for many funds before and after-tax. For example, in the last 12-months, taxes may have decreased the performance of PIMCO Long-Term U.S. Government bond fund by more than 21% in a regular taxable brokerage account! The fund has suffered some withdrawals/outflows (fund redemption by shareholders) in the last two years, which created this large difference. The outflows required the fund manager to sell securities (stocks, bonds) which triggered the capital gains.

Although the fund performed well in the past twelve months with a return of more than 7%, its after-tax return was a loss of more than 13%. This occurred as many investors in the fund chose to withdraw money from the fund. As a result, the fund manager was forced to sell many securities to cover the redemptions. The process triggered capital gains tax.

Imagine if you invested $100 in the fund one year ago—you would have lost nearly $14 as a result of taxes on assets that were in the fund before you ever invested your own money in the fund. 

Taxes can have significant effects on stocks as well. An example would be the well-known Acorn Fund from Chicago, which was one of the best funds between 1970 and 2010. In the last 15 years, the fund has outperformed the S&P 500 or its category (top 13%) by more than 2% per year. Yet in the last 12 months, taxes may have decreased the performance of Acorn by more than 9% in a regular taxable brokerage account even though the fund performance was negative!

If you bought $100 of Acorn one year ago, you may have about $94 today. In addition, you had to pay $9 of capital gains tax (IRS form 1099-DIV).

Mutual funds pass through capital gains that are only recognized when a holding or security is sold, so the fund manager can postpone capital gains. That creates a liability for unrealized gains that a new buyer/shareholder picks up when he buys into the fund. A mutual fund with large outflows will be forced to recognize these gains. Acorn's shareholders experienced this over the past few years. (For related reading, see: 15 Ways to Reach Your Financial Goals.)

Even without selling shares of a fund, investors can incur capital gains taxes triggered by the sale of individual securities by the fund manager. Investors buy mutual funds because they're simple, but we recommend looking into finer details, specifically tax ramifications of any financial security, before making a decision to invest. Some funds have a high turnover and may generate high taxes. Even though stock performance has been weak over the past twelve months, many mutual funds still have highly appreciated securities in their portfolios following the market's seven-plus-year rally (U.S. stocks are up 250% since March 2009); those gains haven't been taxed yet.

If there is a change in a fund manager, it may prompt the sale of those highly appreciated securities by the new fund manager. Those gains must then be distributed to shareholders and are taxable. Note that investors in funds or ETFs in non-U.S. bank/brokerage accounts may also have high U.S. taxes on a fund that went down in value and that was not even sold due to PFIC rules.

Taxes are one of the few guarantees in life. Tax strategies can help minimize the amount you may need to pay. Remember that income and capital gain distributions from holdings inside of an IRA, 401(k), 403(b), 529 plan, or health savings account (HSA) don't have any tax consequences unless you withdraw from them for non-qualified distributions. And even funds that appear to have low turnover strategies and historically low capital gains distribution may have investment process changes that lead to higher capital gains distributions.

There are also differences between short- and long-term capital gains. The former are worse than the latter because they're taxed at your ordinary income tax rate, which may be higher. You can receive information about this topic from your fund manager in November and December. Some investors prefer to sell a fund before it makes large distributions. It is also good to know that if you're reinvesting the distributions from your fund, you can adjust your cost basis upward to account for them (and pay fewer taxes later).

The Bottom Line

When possible, some investors put fixed income, commodities, real estate investment trusts (REITs), high-dividend paying stocks, money market funds (which generate ordinary income or short-term capital gains), and stock funds with high turnover in tax-deferred accounts like 401(k)s, 403(b)s, IRAs, HSAs, VAs, VULs, 529 plans, etc., and put equity funds (low turnover or international) in taxable accounts. You may find that a strategy like this will help reduce your overall tax burden. (For more, see: The Impact of Low Rates on Your Investments.)

CR: https://www.investopedia.com/advisor-network/articles/113016/capital-gains-you-may-have-pay-taxes-loss/

Can Your Social Security Benefits Be Garnished?

Unfortunately, the answer is yes, and you might be surprised by one of the reasons why—unpaid student debt. A recent report, “Snapshot of Older Consumers and Student Loan Debt” by the Consumer Financial Protection Bureau, sounds the alarm that delinquencies for unpaid student loans are on the rise:

“The number of consumers age 60 and older with student loan debt has quadrupled over the last decade in the United States, and the average amount they owe also dramatically increased. In 2015, older consumers owed an estimated $66.7 billion in student loans. This trend is not only the result of borrowers carrying student debt later in life but also the growing number of parents and grandparents financing their children’s and grandchildren’s college education.”

There are now about 2.8 million Americans who are 60 and older with at least one active student loan. Of those, nearly 40% of federal student loan borrowers age 65 and older are in default and 40,000 of these borrowers had their Social Security benefits garnished to repay a student loan, up from 8,700 in 2005. If Social Security benefits are a major source of a person monthly income, a benefit offset could create a financial hardship.

As you will see below, student debt is only one of the reasons your social security benefits may be garnished. (For related reading, see: Seniors: Before You Co-Sign That Student Loan.)

Four Reasons Your Social Security Benefits Can Be Garnished

• To enforce child support and alimony obligations
• For certain civil penalties under the Mandatory Victim Resolution Act
• With a Notice of Levy to collect overdue federal taxes
• To withhold and pay another federal agency for a non-tax debt you owe to that agency according to the Debt Collection Improvement Act of 1996.

It is the Debt Collection Improvement Act that allows the government to offset Social Security benefits for the repayment of student loans. Only federal student loans are subject to this rule, not private loans.

How Much Social Security the Government Can Take

For student loans, the government can take 15% of Social Security benefits as long as the balance doesn’t fall below $750. There is no statute of limitations on the debt.

For unpaid federal income tax, the government can take 15% no matter how much money is left. No surprise there.

For child support and alimony, laws vary by state. The maximum amount that can be garnished is 50% of the person’s Social Security benefit if they support another child, 60% if they don’t support another child, or 65% if the support is more than 12 weeks in arrears.

Private creditors may not garnish Social Security benefits. If they attach a bank account to which Social Security benefits have been automatically deposited, the bank is required to look at the debtor’s previous two months of transactions to determine if the debtor received any Social Security benefits by direct deposits, and protect that amount from garnishment by private creditors. For example, if Mary had two $1,200 monthly Social Security deposits to her account, her bank would be required to protect $2,400 from garnishment.

It’s unfortunate, but as the CFPB report indicates, more and more retirees are filing for their benefits only to discover that some of their income has been garnished to pay off old debts. Keep this possibility in mind before taking out or co-signing on federal student loans to pay for your children or grandchildren to go to college.

As with any new debt, you must carefully consider the risks beforehand—in this case, the risk to your Social Security retirement income. As high school seniors across the country receive their acceptance letters and weigh their options for the fall, this becomes especially important.

(For more from this author, see: Social Security Benefits for Dependents.)

Securities and Investment Advisory Services are offered through Signator Investors, Inc., Member FINRA/SIPC, a Registered Investment Advisor. AspenCross Wealth Management is independent of Signator Investors, Inc. 1400 Computer Drive, Westborough, MA  01581.

CR: https://www.investopedia.com/advisor-network/articles/can-your-social-security-benefits-be-garnished/

Protecting Loved Ones Financially After You’re Gone

My client, Mr. B., was an artist in his late 50s. His late wife had been the decision maker as well as the primary income earner. I had been the family's advisor for a few years at the time of her sudden death. Mr. B. wasn't just devastated, he was in shambles, paralyzed by the multitude of decisions he needed to make.

Over the years, I made a few attempts to convince him he needed to play a greater role in, or at least understand, the family’s financial management. But he didn't have much interest in finance or planning. And they seemed to get along fine that way. He was the imaginative abstract thinker who lived for European art tours, fine wine and long philosophical discussions. Mrs. B., a partner at a prestigious law firm, was the pragmatic planner. She could take in multiple layers of complex information, quickly synthesizing and comprehending.

Using Life Insurance Proceeds Wisely

Mrs. B. carried substantial life insurance, designed to replace her income and sustain the family. Initially Mr. B. only used what was needed. He paid off the mortgage along with a few other smaller debts, and used some funds for basic living expenses. But after about 18 months, Mr. B. said he was lonely and exhausted from having to take on various life and family decisions. He had met someone at an art gala a few months earlier and they were discussing marriage. (For related reading, see: How Much Life Insurance Should You Carry?)

Then it happened. Mr. B. and his new wife tied the knot and began their new life together. And with their new marriage came new spending habits. After a few trips to Europe, college tuition payments, buying a home and car for the new mother-in-law, and numerous other expenditures, it was clear that the roughly $5 million from life insurance proceeds and retirement funds wasn't going to last. Less than three years after Mrs. B.'s death, the funds had been depleted to just over $2 million.

Issues Caused by Overspending Retirement Funds

We had many conversations over that period as I attempted to help them plan, but they had other ideas, until it was nearly too late. The new wife had never had much money. Mr. B. wanted to give her everything she’d never experienced, and she accepted. He was only in his early 60s, and it became evident this lifestyle couldn't last. He felt embarrassed and ashamed. His adult children had tried to warn him against spending so much so fast, but there was an unspoken tension because they were less than enthusiastic about the quick marriage from the beginning. Now Mr. B. realized things had to change, but that involved many decisions to be made and Mr. B. quickly became overwhelmed. He was back at square one. (For related reading, see: 5 Things to Consider Before Late-in-Life Marriage.)

After this experience, I began to think about my own family. What did I want my legacy to be? How would I want to leave my wife and kids (or someday, grandkids) when I sailed away from this life? I have no advice about what your answer should be to those questions. However, we likely agree that Mr. and Mrs. B.'s story makes it is clear what the answer should not be. No one makes smart financial decisions with the hope that one day their heirs will be in a position they are completely unprepared for.

The Benefits of Creating a Trust

In thinking through the experience with the B.s, it dawned on me that I was missing the mark. Rather than trying to force something that clearly wasn't going to happen, it would have been better to accept it and create a plan to address Mr. B.'s lack of financial management acumen. Today I advise families to go beyond basic insurance planning and create a trust to outline how funds will be invested and distributed upon the death of a spouse. Mr. B. was a good person. He didn't mean to throw away nearly $3 million, it just happened. And that's how it usually works when a person receives large lump sums.

Some clients are hesitant to do this type of estate planning. Beyond procrastination, to have a detailed plan (i.e. how inherited funds can be invested, distributed or spent) seems to imply that the beneficiary is not capable of handling the money. But I believe that is the wrong inference. This extra step simply mitigates potential undesirable consequences by ensuring the funds are used wisely. We all know receiving a large amount (without earning it) generally doesn’t lead to productive outcomes. My experience has been it is unhealthy for people to receive without earning. Hence, having a plan makes sense; a framework for how the funds will be distributed over time or how much may be used for higher education, philanthropic efforts, investing in a business or other industrious uses.

In the end, no matter how good people are, large amounts of sudden money attracts less-than-ideal situations. I have repeatedly witnessed the unnecessary issues that arise after the death of a spouse—most often, having to make life-altering decisions for money or attracting inauspicious attention because of money. In this case, leaving a windfall without a plan transfers all sorts of avoidable risk to the heir. When I think of my wife and children, when I think of my clients—who I consider family—I am simply not willing to pass on that risk. (For related reading, see: How Trust Funds Can Safeguard Your Children.)

Disclaimer: Certain details have been changed to protect client confidentiality. B. Chase Chandler does not give tax or legal advice. Estate planning considerations vary from state to state. Before making any legal decisions, please seek an experienced estate planning attorney in your state. This information is not intended to be investment advice, and does not offer to provide investment advice or sell or solicit any offer to buy securities. Under no circumstance should this information be construed as an offer to provide investment advice or sell or solicit any offer to buy securities or other investments. Weise Capital Advisors is a division of Capital Markets IQ, LLC, an SEC-registered investment advisor. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

CR: https://www.investopedia.com/advisor-network/articles/protecting-loved-ones-financially-after-youre-gone/

How Market Pricing Should Fit in Your Investing Strategy

The investing world can be a scary place. It can also be exciting. At times, it can seem like there’s nothing to it, and at other times it can seem like the most complicated thing you’ve ever done. All of the thoughts and emotions that are part of investing are enhanced because, after all, you are putting your money and your financial future at risk.

Risk and reward go hand in hand when you invest. You can be very conservative and not subject your investments to much risk, but then you are not going to get much in the way of return on your investment dollars. Or you can take a lot of risk, looking for the proverbial home run. That approach can lead to stellar returns, or it can lead to distressing losses.

So what is your strategy when it comes to investing your portfolio? Are you actively looking for that one piece of information that will give you the edge you need to catch the next wave of increasing prices of your favorite tech stock? Or maybe you suffer from “paralysis by analysis,” overwhelmed by the information flow and its potential impact on your portfolio? (For related reading, see: Information Overload: How It Hurts Investors.)

Investment Strategies

There is no shortage of investment strategies you can follow. In fact, just this morning we learned of a new strategy. A financial podcast that we listen to discussed a strategy that will buy or sell a company’s stock based on the tweets from our tweeter-in-chief, President Donald Trump. If he tweets a positive comment about a company, they will buy the stock, if it’s a negative tweet, they will sell it. Sounds crazy, right? But there are thousands of money managers in the investment world, and thousands of different strategies they use to try to get their edge.

When it comes to investing for the financial future we can’t, and won’t, play games like that. We follow a very disciplined approach to investing, based on a Nobel Prize-winning academic strategy that focuses on controlling what we can control. And we are smart enough to know that we can’t control the markets. This article is the first in a series that will explain our approach and the science behind it.

The First Step to Successful Investing: Humility

The first building block in the science behind this investment philosophy is the need to embrace market pricing. While that sounds a little complicated, it’s really not at all. It simply means that the financial markets are very efficient and that all of the information available on a particular stock, bond or other investment is reflected in the current price. Millions of investors around the world buy and sell investments every day, and the information they bring to the markets helps to set prices. When some new information affecting an investment comes out, it is immediately factored into the price of that investment. 

Let's use the price of Apple stock as an example. If Apple is coming out with a new iPhone soon, you know about it, we know about it, and millions of people around the world know about it. There is no way to profit from any kind of information edge that you might think exists, even if it is only temporary. That’s why it’s not a good idea to run out and buy Apple stock when you hear the news. Years ago, there may have been some pieces of information that took time to work through the markets, but with today’s technology, that time gap has disappeared. Many of us have alerts on our smartphones that let us know in real time when some important news has been released. (For related reading, see: How the Internet Has Changed Investing.)

So the first step in putting an evidence-based strategy into action involves being humble enough to know that we don’t know more than the market. In our next posts we'll cover several more steps to fully build out this disciplined investing strategy.

CR: https://www.investopedia.com/advisor-network/articles/how-market-pricing-should-fit-your-investing-strategy/

5 Ways Your Retirement Plan Can Fail

Consumers and practitioners alike often fall into a trap. In lieu of calculating a retirement plan, we instead rely too heavily on oversimplified rules of thumb and general advice. Rules of thumb, like saving 10% towards retirement and spending 4% of your balance during retirement, can point us in the right direction, but they won't get us there. Unfortunately, many consumers seeking advice receive little more than a precursory glance at the specific facts of their situation.

It's easy to fail because retirement planning is more complicated than it appears. Consumers are sometimes lulled into a false sense of security, especially when someone who should know better asserts everything will work out fine if you just buy their company's product. The truth is, there are way too many variables involved to wing it. (For related reading, see: 6 Tax Planning Steps to Take Before the Year End.)

Some of the issues I continually see ignored are as follows.

1.Inflation. We are currently in a low inflationary environment, but will it continue? Don't count on it, because pieces of your retirement income stream could get left in the dust if you do not consider inflation in your scenario. Even a modest inflation rate will drastically increase your probability of running out of money.
2.Death. Most often, retirement scenarios assume a long life for both spouses. Rarely will an early death of one spouse be considered, and this is a huge mistake. Pension and Social Security income will most likely be reduced upon the death of the first spouse. These poor assumptions also encourage bad decisions regarding life insurance in retirement.

3.Long-term care. Most of us are very aware of the costs and likelihood of losing our ability to care for ourselves at some point, but the solutions have never been more complex than they are today. Insurance to cover the cost of long-term care is extremely expensive and does not cover enough of the risk. Long-term care touches almost every aspect of a good retirement plan, and must be considered in every decision, from where you live to how you exercise and diet.

4.Investment return. The longer we live, the more critical real return becomes. Real return is your investment return over inflation. Cash will lose money on a real return basis every year to inflation and a bond portfolio will probably only break even just above inflation. Stocks must be owned at a relevant level to sustain retirement income over a long retirement time horizon.

5.Retiring too early. If you pull the trigger too soon it can have a drastic effect on your ability to sustain your quality of life in retirement. Retiring too early not only cuts into your accumulation years, it adds those years to your distribution phase, thus doubling its effect on your plan. In addition, when social security and pension payments start after your retirement date, your assets must make up the difference early in your retirement years.

In order to avoid these traps and others, a retirement plan should be run using robust software. Drawing pictures on a napkin over lunch is great for advisors and insurance agents closing a sale, but will not properly consider all of the variables for a sound plan of action. (For related reading, see: 7 Year-End Tax Planning Strategies.)

CR: https://www.investopedia.com/advisor-network/articles/120816/5-ways-your-retirement-plan-can-fail/

Financial Planning for the Self Employed

Being your own boss has many perks. You can set your schedule, work when you want and you get to focus on building a business based on your vision and values. However, whatever results you earn is based solely on your efforts, and that includes creating a retirement plan to save for your future. 

Getting Started

So how can you get started? First, if you don’t have a retirement plan set up now, get one started. Second, make sure you have appropriate insurance coverage coverages in place. These two proactive steps can go a long way to helping secure your financial present and future and it is your responsibility to protect yourself. (For more, see: Retirement Planning for the Self Employed.)

The main reason most people don’t save for retirement is because they have not taken the time necessary to figure out and understand what they need to do to get started. First, know what type of retirement plan meets your needs, open an account and your future self will thank you for taking this very important step.  Contributing something is better than nothing, and you are creating a healthy financial habit along the way. 

You can start now by doing one of two things. If your income is unpredictable, commit to yourself every time to put a percentage of your commission into your retirement plan or commit a monthly amount you can comfortably save. We all know we must contribute money to our retirement accounts for our financial well being just like we know we should eat more fruits and vegetables more than sugars and snacks. But if we are not funding retirement or eating well your health can fail. As a business owner, you cannot afford to be sick. 

The Importance of Being Insured

We all know not having health insurance can be catastrophic to an individual and family. However, when you’re a business owner you must be able to look far enough down the road to take care of potential problems before they arise. For example, what would happen to your business if you became disabled and were no longer able to work? Disability insurance may not seem like a big deal, but if you can no longer provide for yourself you can be assured your income can be supplemented to pay your bills and depending on your profession the cost of insurance can be affordable.

In addition, the insurance premiums you pay for disability, liability, long-term care, etc. are all tax-deductible expenses. It can pay to be protected in the unfortunate event something happens to you or your business.

Where do you go from here? You are probably thinking, “This sounds great, but I am too busy to worry about this now. I’ll do it when my schedule allows.” We all have great intentions, and understandably your biggest priority should be your business. You have a great responsibility to your customers, employees and you have a vision only you can fulfill. However, you shouldn’t have to do it all on your own. You may want to consider speaking with a financial planner who specializes in helping small business owners make sense of your situation and helps you along the way. (For more, see: 10 Tax Deductions & Benefits for the Self-Employed.)

 CR: https://www.investopedia.com/advisor-network/articles/financial-planning-self-employed/

Financial Planning Checklist for Beginners

October is Financial Planning Month, making now a great time to think about your financial preparedness and well-being. Money isn’t everything in life, but it certainly helps to achieve security and to open opportunities for you and your family. 

Personal finance can be complex, especially as your wealth grows. Each of your decisions must support the next, and align with your life goals. The following financial planning checklist will help you identify which financial topics you’ve got covered, and areas where you need help to achieve your wealth and life objectives.

Saving for Emergencies and Retirement

Saving is the most fundamental element of achieving financial freedom. Everyone’s savings goals are different, but the more you earn and spend, the more you need to save. Key questions include:

• Do you have emergency savings to cover at least six months of cash needs?
• Are you maximizing your employer retirement plan contributions?
• Is maximizing your retirement plan enough to put you on track for retirement? For many high income earners, it’s not. (For more from this author, see: Is Maxing Your 401(k) Contribution Enough?)
• Do your retirement planning projections inspire confidence in your long-term financial security?

Picking the Right Investments to Achieve Goals

For most individuals, the right mix of stocks, bonds and other investments is essential to weathering market fluctuations and, ultimately, achieving the investment growth necessary to reach your long-term goals. Top investment questions to consider include:

• Are you properly positioned to enjoy both growth if the markets prosper and security if they contract?
• Do you have adequate cash and bonds to get you through a downturn? 
  • Does your investment mix allow you to sleep at night? 
  • Can your cash and bonds sustain income needs for at least five years to avoid selling at depressed prices?
  • Do you have some extra in cash and bonds to buy stocks when they’re cheap?
• Are you adequately diversified, or could certain stocks or sector positions materially alter your financial standing?
• Are you disciplined in your investment approach (i.e., taking profits as the markets flourish and buying during a market correction)?

Educating Your Kids About Finances and Saving for College

If you have children, financial literacy is a priority. For some families, so too is saving for college. Ask yourself:

• Are you teaching your kids about money, preparing them to become financially confident adults? (For related reading from this author, see: 6 Ways to Help Your Kids Be Smart About Money.)
• Are you balancing saving for college and saving for your own future?
• Are you taking advantage of college savings tax benefits that might be available in your state?
• Do you have a realistic sense of college costs relative to your savings and the expectations you’ve built for your child?

Protecting Your Assets and Income With Insurance

Asset and income protection provide peace of mind for you and your family. There are many forms of insurance and asset titling structures. Key areas to evaluate include:

• Life insurance: Are adequate resources available to support your family’s lifestyle in the event of your death? (For related reading, see: Which Life Insurance Policy is Best for You?)
• Disability insurance: Would you and your family be able to cope financially if you’re no longer able to work?
• Liability insurance: Are your assets protected from personal or professional liability? 
• Long-term care insurance: If you’re 45 or older, do you have insurance in place to protect your retirement from long-term care costs?

Updating Estate Planning Documents

Everyone over the age of 18 needs basic estate planning documents. Key considerations include:

• Do you have the necessary documents in place, including a power of attorney, medical directive and will?
• Do your regularly review your documents and beneficiary designations (which supersede other documents), to ensure they accurately reflect your wishes?
• If you have young children, do your documents include guardianship provisions?
• If assets are going to be held in trust post-death, are your documents and beneficiary designations structured to hold retirement assets without subjecting them to adverse tax implications?

Keeping Your Business Running Without You

If you own a business, it’s both a source of income and a potential asset. You owe it to yourself, your family and your employees to formulate a contingency plan for the future. At a minimum, consider:

• Can someone step in and run your business if you’re not there?
• Are your named agents qualified to manage your business?
• Does your succession plan capture the value of your business? (For related reading, see: How to Create a Business Succession Plan.)

Finding the Right Financial Advisor

Very few people have the time or expertise to adequately research financial topics and make the right decisions. Whether you have an advisor, or are considering hiring one, always ask questions, including:

• Does your advisor have the appropriate training, credentials and experience? We recommend working with a certified financial planner (CFP) for wealth management services and a certified public accountant (CPA) for tax planning and preparation.
• Do your advisors collaborate to ensure that you’re receiving cohesive advice?
• Do your advisors proactively work with you, helping you to plan for life’s many stages and transitions? 

Financial planning can help prioritize your objectives, guide your decision-making and help you secure the future for you and those you care about. The goal of financial planning is to help you to translate your real-life objectives into real-life solutions and achievements.

(For more from this author, see: 8 Ways to Prepare Your Finances for Inflation.)

Disclosure: The information contained herein is obtained from sources believed to be reliable, but its accuracy or completeness is not guaranteed. This article is for informational purposes only. The views expressed are those of SageVest Wealth Management and should not be construed as investment advice. All expressions of opinions are subject to change and past performance is no guarantee of future results. SageVest Wealth Management does not render legal, tax, or accounting services. Accordingly, you, your attorneys and your accountants are ultimately responsible for determining the legal, tax and accounting consequences of any suggestions offered herein.

In accordance with IRS CIRCULAR 230, we inform you that any U.S. Federal tax advice contained in this communication (including attachments) is not intended or written to be used, and cannot be used by a taxpayer, for the purpose of (a) avoiding penalties under the Internal Revenue Code or that may otherwise be imposed on the taxpayer by any government taxing authority or agency, or (b) promoting, marketing or recommending to another party any transaction or matter addressed herein.

The provision of a link to any third party website does not mean that SageVest endorses that website. If you visit any website via a link provided here, you do so at your own risk and indemnify SageVest from any loss or damage incurred.

CR: https://www.investopedia.com/advisor-network/articles/financial-planning-checklist-beginners/

Build A Wall Around Your Assets

The assets that you have worked long and hard to accumulate can be lost within a very short period if they are not properly protected and you are sued, you file for bankruptcy or you are otherwise subject to judgments proceedings. However, understanding that certain assets should be protected from being lost in such circumstances, lawmakers have passed acts under which certain types of assets are, or can be, shielded. In this article, we'll show you what measures you can take to protect your savings.

Anyone With Assets at Risk

You may think that only doctors, corporate executives and others in litigation-prone professions are the only ones who need to worry about protecting their assets. Not so. There are many circumstances under which your assets can be attached or garnished. These include if your file for bankruptcy, you get a divorce or you are on the defensive end of a civil lawsuit. Many of these circumstances are ones that most people don't even consider until they occur. For instance, if your teenage child is on the wrongful end of a motor vehicle accident, that could result in the damaged party going after your assets. (To read more on this subject, see Marriage, Divorce And The Dotted Line.)

Picture this scenario: You hear a knock at the door one night. You find an elderly couple looking for the Smiths. Your name is Jones. The Smiths live next door, you inform the couple. The couple thanks you and walks across your lawn to go to the Smiths. As they are half way there, the man steps into a hole your dog dug that afternoon and breaks his hip - the one he just had replaced. Then what? The next call you get may be from a lawyer trying to find out your financial worth and the type of insurance you carry. It doesn't matter that the couple should have stayed on the sidewalk or at least taken care to ensure that they avoided such an accident. In the end, your home + your dog + your hole = your fault.

Laws May Protect Your Assets

Federal and state laws determine what type of protection most of your assets have from creditors and judgments.

Traditional and Roth IRAs
Contributions and earnings in your Traditional IRAs and Roth IRAs have an inflation-adjusted protection cap of $1 million from bankruptcy proceedings. The bankruptcy court has the discretion to increase this cap in the interest of justice.

In addition, amounts rolled over from qualified plans, 403(b) and 457(b) plans have unlimited protection. However, bear in mind that this protection only applies to bankruptcy and not to other judgments awarded in other courts. In such cases, state law must be consulted to determine whether any protection exists and the degree of such protection.

Qualified Retirement Plans
Employer-sponsored plan assets have unlimited creditor protection from bankruptcy, regardless of whether the plan is subject to the Employee Retirement Income Security Act (ERISA). This includes SEP IRAs, SIMPLE IRAs, defined-benefit, defined-contribution, 403(b), 457, and governmental or church plans under code section 414.

Note: Amounts in your SEP IRA that are attributable to regular IRA contributions are subject to the $1 million cap.

ERISA plans are also protected in all other cases, except under a qualified domestic relations orders (where assets can be awarded to your former spouse or other alternate payee) and tax levies from the IRS. For this purpose, a qualified plan is not considered an ERISA plan if it covers only the business owner (owner only plans). Protection for owner-only plans are determined by state law. (For more on protection for your retirement plan assets, see Bankruptcy Protection For Your Accounts.)

Homesteads
The amount of protection you have on your home varies widely from state to state. Some states offer unlimited protection, others offer limited protection and a few provide no protection at all.

Annuities and Life Insurance
Like the protection on homesteads, state laws determine the level of protection that applies to annuities and life insurance. Some protect the cash surrender values of life insurance policies and the proceeds of annuity contracts from attachment, garnishment or legal process in favor of creditors. Others only protect the beneficiary's interest to the extent reasonably necessary for support. There are also states that do not provide protection at all. (To read more about life insurance, see Understand Your Insurance Contract, How Much Life Insurance Should You Carry? and Exploring Advanced Insurance Contract Fundamentals.)

To find your state's asset protection laws, visit your state's official website or the Asset Protection Book website.

How to Protect Your Assets

Although asset protection may have had a tainted past, legitimate strategies are available. Look at it as a way to put up as many obstacles as possible that potential creditors must jump over before they can get to your property. This might encourage these creditors to make favorable settlements instead of getting involved in long and expensive litigation processes.

Some of the common methods for asset protection include:

Asset Protection Trusts
For years, wealthy individuals have used offshore trusts in such locations as the Cook Islands and Nevis to protect assets from creditors. But these trusts can be expensive to establish and maintain. Now several states, including Alaska, Delaware, Rhode Island, Nevada and South Dakota, allow asset-protection trusts. You don't even have to be a resident of the state to buy into one.

Asset protection trusts offer a way to transfer a portion of your assets into a trust run by an independent trustee. The trust's assets will be out of the reach of most creditors, and you can receive occasional distributions. These trusts may even allow you to shield the assets for your children.

The requirements for an asset protection trust include the following:

• It must be irrevocable.
• It must have an independent trustee that is an individual located in the state or is a bank and trust company licensed in that state.
• It must only allow distributions at the trustee's discretion.
• It must have a spendthrift clause.
• Some or all of the trust's assets must be located in the trust's state.
• The trust's documents and administration must be in the state.

If you are considering looking into an asset protection trust, be sure to work with an attorney who is experienced and proficient in this field. Many individuals have run afoul of tax laws because their trusts did not satisfy regulatory requirements.

Accounts-Receivable Financing
If you own a business, you could borrow against its receivables and put the money into a non-business account. This would make the debt-encumbered asset less attractive to your creditors, and make otherwise reachable assets unreachable by creditors.

Strip Out Your Equity
One option for protecting your assets is to pull the equity out of them and put that cash into assets your state protects. For example, suppose you own an apartment building and are concerned about potential lawsuits. If you took out a loan against the building's equity, you could place the funds in a protected asset, such as an annuity (if annuities are sheltered from judgments in your state).

Family Limited Partnerships
Assets transferred into a family limited partnership (FLP) are exchanged for shares in the partnership. Because the FLP owns the assets, they are protected from creditors under the Uniform Limited Partnership Act. However, you control the FLP and, thus, the assets. There is no market for the shares you receive, so their value is significantly less than the value of the asset exchanged.

Less Complex Ways to Protect Assets

There are some inexpensive, simple ways to protect assets that anyone can implement:

• You could transfer assets to your spouse's name. However, if you divorce, the end results could be different from what you intended.
• Put more money into your employer-sponsored retirement plan because it might have unlimited protection.
• Buy an umbrella policy that protects you from personal-injury claims above the standard coverage offered in your home and auto policies.
• Make the most of your state's laws regarding homesteads, annuities and life insurance. For instance, paying down your mortgage could protect cash that is otherwise vulnerable.
• Don't mix business assets with personal assets. That way, if your company runs into a problem, your personal assets might not be at risk and vice versa.

Some Final Words of Caution

You may have seen self-proclaimed asset-protection experts advertise their seminars or easy-to-use kits on TV or the internet. Perform extensive research, including checking with the Better Business Bureau before deciding to use any of these services. And before you take any of the steps discussed in this article, meet with an attorney who is familiar with the laws of your state and an expert in the asset protection field. Most importantly, don't wait until you have a judgment against you. By then it may be too late, and the courts could declare that you made a "fraudulent transfer" to get out of meeting your obligations.

CR: https://www.investopedia.com/articles/retirement/07/buildawall.asp