Elisabeth Dawson

Considering coverage for your household

A growing family, by definition, means growing financial obligations – both in the present and in the future. Raising children can increase your insurance needs and heightens the urgency for being properly prepared.

Auto. When a child becomes a new driver, one option is to add the teenager to the parents’ policy. You may want to discuss with your auto insurer ways to reduce the additional premium that accompanies a new driver.1

Home. You should periodically review your homeowners policy for three primary reasons.

A growing family generally accumulates increasing amounts of personal belongings. Think of each child’s toys, clothes, electronic equipment, etc. Moreover, household income tends to rise during this time, which means that jewelry, art, and other valuables may be among your growing personal assets.

The second reason is that the costs of rebuilding – and debris removal – may have risen over time, necessitating an increase in insurance coverage.

Lastly, with growing wealth, you may want to raise liability coverage, or if you do not have an umbrella policy, consider adding it now. Umbrella insurance is designed to help protect against the financial risk of personal liability.

Health. With your first child, be sure to change your health care coverage to a family plan. If you and your spouse have retained separate plans, you may want to evaluate which plan has a better cost-benefit profile. Think about whether now is the appropriate time to consolidate coverage into one plan.

Disability. If your family is likely to suffer economically because of the loss of one spouse’s income, then disability insurance serves an important role in replacing income that may allow you to meet living expenses without depleting savings.

Remember, however, the information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult a professional with legal or tax experience for specific information regarding your individual situation.

If you already have disability insurance, consider increasing the income replacement benefit since your income and standard of living may now be higher than when you bought the policy.

Life. With children, the amount of future financial obligations increases. The cost of raising children and funding their college education can be expensive. Should one of the spouses die, the loss of income might severely limit the future quality of life for your surviving children and spouse. Not only does death eliminate the future income of one spouse permanently, but the future earning power of the surviving spouse might be diminished as single parenthood may necessitate fewer working hours and turning down promotions.

The amount of life insurance coverage needed to fund this potential financial loss is predicated on, among other factors, lifestyle, debts, ages and number of children, and anticipated future college expenses.

Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

Some couples decide to have one parent stay at home to care for the children full time. The economic value of the stay-at-home parent is frequently overlooked. Should the stay-at-home parent die, the surviving parent would likely need to pay for a range of household and childcare services, and potentially, suffer the loss of future income due to the demands of single parenthood.

Extended Care. The earlier you consider extended care choices, the better. However, the financial demands of more immediate priorities, like saving for your children’s college education or your retirement, will take precedence if resources are limited.

Have you read my book Wealth by Design yet? If you have not, what are you waiting for? Do you want more education on how to Design your Wealth? Then call our office now at 619.640.2622 for your complimentary copy.

Citations.

1 – cars.usnews.com/cars-trucks/car-insurance/average-cost-of-car-insurance [4/12/19]

When it comes to your future, you may have an idea of what you want your finances to look like, but you may not know how to get there. That’s why creating a plan is so important. It gives you something to look forward to, something to work towards, and the steps to get there.

As a financial coach, I’m dedicated to helping you reach your financial greatness. I believe everyone deserves a better future free from money anxiety and fear. With the proper planning, I know you’ll be able to reach the life you strive for!

Life is too short to be spent tossing and turning, overwhelmed by and concerned about your future. It’s time to create a plan that will set you on the right path, so you can rest easy and gain a peace of mind you never thought possible.

Here are six ways to properly plan for a better future, so you can start living your best life!

Manage your debt

Did you know debt is one of the most pervasive financial issues in America? A huge majority of Americans owe debt in some form, no matter the generation. An average of 80% are in debt, from Millennials to Baby Boomers. In fact, this LendEDU report provides a detailed break down of debt by category and age group: https://lendedu.com/blog/personal-finance-statistics/

Being in debt makes it nearly impossible to get ahead, and can put a damper on looking toward your future with excitement and hope. It’s hard to see a future filled with financial success when you still owe money every month.

Imagine if all of that money you were spending on paying off debt was going straight into a savings account. You’d probably be much less anxious about your financial future! Now, I’m not saying that getting out of debt is easy, but it is important. The best first step to overcoming your debt is to avoid accumulating any more. Then, you can move forward in paying off what you owe, one step at a time.

Come up with a Strong Savings Plan

In order to plan for the future, you need to have an idea of what you want that future to look like. If you want to truly live a life of financial freedom, it’s time to understand the importance of saving for retirement, emergencies, and any other life events you need a set amount of money for.

How many savings accounts, if any, do you currently have open? I’m sure you’d rather look toward your future with excitement rather than fear, and opening a savings account (or even more than one) will help you achieve that positivity.

Look into a few high-yielding savings accounts and start putting money into them each month. If you don’t have a lot to contribute at first, that’s ok! As mentioned earlier, managing your debt is your priority. But savings should always be in the back of your mind… Even if it means you’re only setting aside a small amount each month. And remember, these are your savings, which are separate from your emergency funds and other accounts. Try your best not to touch your savings until retirement, so you’ll have the maximum amount to work with in your golden years!

Create an Emergency Fund

Savings are crucial to a secure future, but you always want to make sure you’re also putting money aside for emergencies. How many times have you felt yourself overwhelmed by unexpected fees such as car repairs or medical bills? In order to feel stable in your future, you should account for those times you won’t be able to see coming. Nothing feels more stressful than being caught off guard, especially when it comes to your finances. As long as you have an emergency fund set aside for those fees you can’t predict, you will be that much more at ease.

Set Realistic Goals

Of course, coming up with a plan means coming up with goals to get there. It’s one thing to have an encompassing vision, but it’s another to think of the steps to achieve that vision. That’s why having goals are so important. However, it can be too easy to fall into a trap of setting lofty goals that make your plan seem more like a chore than something you’re doing to insure a bright future for yourself.

Make sure the goals you’re setting are realistic for your values, your lifestyle, and your budget. For example, if your plan is to retire by a certain age, maybe a goal will be to have a certain amount in savings by that time, rather than “I will have all the money I need for retirement by that age.” If you set unrealistic and hard to achieve goals, you’re setting yourself up for frustration and, ultimately, failure. With unrealistic goals, failure becomes excusable (well, I couldn’t meet that goal anyways) and even acceptable (at least I got part of the way there). Instead, push yourself to reach your goals by making sure they’re actually in reach!

Budget

I’ve said it before, and I’ll keep saying it to anyone who will listen — Budgeting is your ultimate key to financial success, freedom, and stability. And everyone wants, and deserves, their futures to be filled with all three! You should be able to look to your future with excitement and hope, rather than with dread and fear.

Like with setting goals, though, you want to make sure your budget is realistic for you. You’ll only set yourself up for failure by creating a budget so stringent you’d never be able to stick to it. If that means you only set a little bit of money aside for savings and emergencies, or you decide not to cut back on the things that bring you joy, that’s ok!

Setting a budget is all about taking control of your finances and your future. This is something you’re doing for your happiness and success, so it should be something you want to succeed at!

Gain Financial Literacy

Unfortunately, financial literacy is not a skill most people have. In fact, in a survey of Americans over the age of 50, only one third answered three basic questions about finance correctly. Younger generations aren’t any better, either — Other surveys concluded that 44% of American students placed at the lowest levels of financial literacy.

Financial literacy isn’t just the difference between understanding finance jargon or not. It’s actually costing you wealth. Studies found that those with lower financial literacy were more likely to incur higher fees and pay more charges, whereas those with a stronger literacy were more likely to save for retirement, invest wiser, and better manage credit card debt.

It’s time to gain financial literacy… This doesn’t mean you have to go to business school, though! Read articles, listen to podcasts, attend seminars, or watch TED talks — The options are endless for self-education. And if you’re finding yourself struggling with the learning curve, you can always come to a financial coach for guidance.

I want everyone to build a future they are excited about, and look forward to. You deserve to sleep soundly at night knowing your future is secured and that you’re in charge of your plan. Hopefully, these tips will help you create that plan so you can start heading toward the future you deserve.

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A convenient move that could ward off probate on your accounts.

TOD, JTWROS – what do these obscure acronyms signify? They are shorthand for transfer on death and joint tenancy with right of survivorship – two designations that permit automatic transfer of bank or investment accounts from a deceased spouse to a surviving spouse.1

This automatic transfer of assets reflects a legal tenet called the right of survivorship – the idea that the surviving partner should be the default beneficiary of the account. In some states, a TOD or JTWROS beneficiary designation is even allowed for real property.2

When an account or asset has a TOD or JTWROS designation, the right of survivorship precedes any beneficiary designations made in a will or trust.3

There are advantages to having TOD and JTWROS accounts – and disadvantages as well.

TOD & JTWROS accounts usually avoid probate. As TOD and JTWROS beneficiary designations define a direct route for account transfer, there is rarely any need for such assets to be probated. The involved financial institution has a contractual requirement (per the TOD or JTWROS designation) to pay the balance of the account funds to the surviving partner.4

In unusual instances, an exception may apply: if the deceased account owner has outlived the designated TOD beneficiary or beneficiaries, then the account faces probate.5

What happens if both owners of a JTWROS account pass away at the same time? In such cases, a TOD designation applies (for any named contingent beneficiary).4

To be technically clear, transfer on death signifies a route of asset transfer, while joint tenancy with right of survivorship signifies a form of asset ownership. In a variation on JTWROS called tenants by entirety, both spouses are legally deemed as equal owners of the asset or account while living, with the asset or account eventually transferring to the longer-living spouse.4

Does a TOD or JTWROS designation remove an account from your taxable estate? No. A TOD or JTWROS designation makes those assets non-probate assets, and that may save your executor a little money and time – but it doesn’t take them out of your gross taxable estate.

In fact, 100% of the value of an account with a TOD beneficiary designation will be included in your taxable estate. It varies for accounts titled as JTWROS. If you hold the title to a JTWROS account with your spouse, 50% of its value will be included in your taxable estate. If it is titled as JTWROS with someone besides your spouse, the entire value of the account may go into your taxable estate, unless the other owner has made contributions to the account.6

How about capital gains? JTWROS accounts in common law states typically get a 50% step-up in basis upon the death of one owner. In community property states, the step-up is 100%.6

Could gift tax become a concern? Yes, if the other owner of a JTWROS account is not your spouse. If you change the title on an account to permit JTWROS, you are giving away a percentage of your assets; the non-spouse receives a gift from you. If the amount of the gift exceeds the annual gift tax exclusion, you will need to file a gift tax return for that year. If you retitle the account in the future, so that you are again the sole owner, that constitutes a gift to you on behalf of the former co-owner; they will need to file a gift tax return if the amount of the gift tops the annual exclusion.6

TOD & JTWROS designations are designed to make account transfer easy. They simplify an element of estate strategy.

TOD or JTWROS accounts are not cheap substitutes for wills or trusts. If you have multiple children and name one of them as the TOD beneficiary of an account, that child will get the entire account balance, and the other kids will get nothing. The TOD beneficiary can of course divvy up those assets equally among siblings, but in doing so, that TOD beneficiary may run afoul of the yearly gift tax exclusion.6

As you create your estate, respect the power of TOD & JTWROS designations. Since they override any beneficiary designations made in wills and trusts, you want to double-check any will and trust(s) you have, to make sure that you aren’t sending conflicting messages to your heirs.6

That aside, TOD & JTWROS designations can represent a convenient way to arrange the smooth, orderly transfer of account balances when original account owners pass away.

Are YOU Ready to Upgrade Your Relationship with Money?

I’ve created a free cheat sheet to help you discover the 7 hidden costs that are sabotaging your financial success—and what to do about them. Just give us a call now at 619.640.2622 and we will get you your complimentary copy of this cheat sheet.

Citations.

1 – finra.org/industry/terms-and-acronyms [9/26/18]

2 – investopedia.com/terms/j/jtwros.asp [12/20/18]

3 – thebalance.com/why-beneficiary-designations-override-your-will-2388824 [12/19/18]

4 – washingtonpost.com/business/2018/11/12/transfer-death-deed-may-be-good-instrument-leaving-your-home-your-child-beware-flaws/?noredirect=on&utm_term=.3162fd5503c9 [11/12/18]

5 – thebalance.com/what-is-a-transfer-on-death-or-tod-account-3505253 [12/30/18]

6 – investopedia.com/articles/pf/08/joint-tenancy.asp [3/20/18]

A primer for parents and grandparents.

A university education can often require financing and assuming debt. If your student fills out the Free Application for Federal Student Aid (FAFSA) and does not qualify for a Pell Grant or other kinds of help, and has no scholarship offers, what do you do? You probably search for a student loan.

A federal loan may make much more sense than a private loan. Federal student loans tend to offer kinder repayment terms and lower interest rates than private loans, so for many students, they are a clear first choice. The interest rate on a standard federal direct loan is 4.45%. Subsidized direct loans, which undergraduates who demonstrate financial need can arrange, have no interest so long as the student maintains at least half-time college enrollment.1,2

Still, federal loans have borrowing limits, and those limits may seem too low. A freshman receiving financial support from parents may only borrow up to $5,500 via a federal student loan, and an undergrad getting no financial assistance may be lent a maximum of $57,500 before receiving a bachelor’s degree. (That ceiling falls to $23,000 for subsidized direct loans.) So, some families take out private loans as supplements to federal loans, even though it is hard to alter payment terms of private loans in a financial pinch.1,2

You can use a student loan calculator to gauge what the monthly payments may be. There are dozens of them available online. A standard college loan has a 10-year repayment period, meaning 120 monthly payments. A 10-year, $30,000 federal direct loan with a 4% interest rate presents your student with a monthly payment of $304 and eventual total payments of $36,448 given interest. The same loan, at a 6% interest rate, leaves your student with a $333 monthly payment and total payments of $39,967. (The minimum monthly payment on a standard student loan, if you are wondering, is typically $50.)3

When must your student start repaying the loan? Good question. Both federal and private student loans offer borrowers a 6-month grace period before the repayment phase begins. The grace period, however, does not necessarily start at graduation. If a student with a federal loan does not maintain at least half-time enrollment, the grace period for the loan will begin. (Perkins loans have a 9-month grace period; the grace period for Stafford loans resets once the student resumes half-time enrollment.) Grace periods on private loans begin once a student graduates or drops below half-time enrollment, with no reset permitted.4

What if your student cannot pay the money back once the grace period ends? If you have a private student loan, you have a problem – and a very tough, and perhaps fruitless, negotiation ahead of you. If you have a federal student loan, you may have a chance to delay or lower those loan repayments.3

An unemployed borrower can request deferment of federal student loan payments. A borrower can also request forbearance, a deferral due to financial emergencies or hardships. Interest keeps building up on the loan balance during a forbearance, though.1

At the moment, federal student loans can be forgiven through two avenues. The first, the Public Service Loan Forgiveness (PLSF) program, requires at least 10 years of public service, government, or non-profit employment, or at least 120 student loan payments already made from the individual. The second avenue, income-driven repayment plans, first lowers the monthly payment and extends the payment timeline based on what the borrower earns. If the balance is finally forgiven, the loan forgiveness is seen by the Internal Revenue Service as taxable income. (If you have student loan debt forgiven via the PLSF, no taxes have to be paid on the amount.)1,3

Depending upon the type of student loan, refinancing may also be a good option. Consult with a financial professional to see if it makes sense in your situation and do your research in deciding which student loan refinance lender to use. A great place to start is: https://www.consumersadvocate.org/student-loan-refinance

Consult financial aid officers and high school guidance counselors before you borrow. Get to know them; request their knowledge and insight. They have helped other families through the process, and they are ready to try and help yours.

Lastly, avoid draining the Bank of Mom & Dad. If your student needs to finance a college education, remember that this financial need should come second to your need to save for retirement. Your student has a chance to arrange a college loan; you do not have a chance to arrange a retirement loan.

Citations.

1 – nbcnews.com/better/business/student-loan-debt-what-kids-their-parents-need-know-ncna865336 [4/12/18]

2 – www2.cuny.edu/financial-aid/student-loans/federal-direct-loans/ [4/19/18]

3 – credible.com/blog/refinance-student-loans/how-much-will-you-actually-pay-for-a-30k-student-loan/ [12/4/17]

4 – discover.com/student-loans/repayment/student-loans-semester-off.html [8/3/17]

There used to be a fairly common notion that women tend to be more conservative than men with their finances. Yet, aging men and women today both struggle with a shared obstacle in attempting to safeguard their assets: financial indecisiveness. This often occurs when the fear and anxiety associated with making financial decisions results in no action at all – despite the available opportunities.

This financial immobility only seems to worsen as retirement approaches. You may be unsure about how to protect your retirement funds or what to invest in. Especially if you are a retired, single female, investing can seem an incredibly risky gamble to make with your retirement savings.

All these anxieties are understandable due to events like the Great Depression and the market failure in the early 2000s. However, overthinking and hesitation may hurt your financial outlook in the long run. Investing and the asset growth it can provide is a vital consideration since, as people continue to live longer, your retirement could last up to 40 years. Although some individuals may prefer to avoid the risk of the stock market, it is an essential strategy to incorporate within your portfolio to some degree. This is because in order to maintain your lifestyle over a potentially lengthy retirement, you need to build enough revenue by growing your retirement assets.

When you’re on a fixed income, minor fluctuations in the market can affect your purchasing ability. In fact, this is often overlooked as a significant threat to maintaining a retirement lifestyle. Even so, this fact highlights why inaction, or completely avoiding all investment risk, may compromise your future financial security as a retiree. Meanwhile, participating in the stock market – in whichever form of investment you choose – gives your money a chance to keep pace with inflation, or even surpass it.

Another instance of financial indecision can arise when retirees are reluctant to use the assets they’ve spent countless years accumulating. Even though many seniors have pools of money allocated for specific expenditures, they may still be uneasy about utilizing that money. Perhaps a couple has saved $20,000 for traveling. Yet, once they’ve retired, they feel timid about using it for the intended purpose. Other large expenditures for things such as remodeling a home or purchasing a new car can seem intimidating while in the fixed income mindset of retirement.

It’s important to acknowledge that market performance, precise future financial needs, and how long we live are not things we can control. At some point, you need to live in the moment and enjoy your life, knowing that you’ve done your best to prepare for your future financial health and security. Saving everything you can while you are already retired can create a significant mental burden. Instead, focus on using your hard-earned money to enjoy the life and retirement you have built with your loved ones.

Positioning your assets for growth is a smart way to combat the fear of running out of money in retirement. If you are interested in investments, seek out a financial professional so they can create a plan according to your needs, while helping to clarify the risk involved.

Of course, Social Security can also contribute to your retirement income. Your monthly benefits grow by 8% for every year you wait to claim it, after you reach your full retirement age. However, if you claim Social Security before your full retirement age, you will receive a lower monthly payment.1

In the past, many retirement planners recommended that retirees take annual distributions of about 4% from their savings.2 Although the 4% rule can provide a general guideline for retirement, it is certainly not applicable for everyone. An economist from Boston College conducted a study on this topic for the Center for Retirement Research. The study shows that mimicking Required Minimum Distributions (RMDs) from a traditional IRA can provide an alternative, yet effective withdrawal strategy for retirement income. This RMD strategy approach suggests taking 3.1% of your assets as an annual income distribution beginning at age 65. Withdrawals increase to 4.4% when you turn 75, then 6.8% at age 85. While these percentages are based only on principal, interest and dividends may also provide additional income.2

Have you considered how much money you may need for your retirement? Are you interested in finding out how to grow your existing wealth? Speak with a financial professional to find out what options your particular situation enables. By establishing a realistic perspective on your finances, you can make confident, informed decisions which may aid in helping you to acquire greater wealth for your retirement.

Ready to Upgrade Your Relationship with Money?

I’ve created a free cheat sheet to help you discover the 7 hidden costs that are sabotaging your financial success—and what to do about them.

Get your FREE cheat sheet here!

Citations.

1 – forbes.com/sites/nextavenue/2013/08/22/5-cures-for-womens-retirement-spending-paralysis/ [8/22/13]

2 – squaredawayblog.bc.edu/squared-away/retiree-paralysis-can-i-spend-my-money/ [7/11/13]