Retirement...America's Other Pastime

The 4^th of July has come and gone, the heat is up all across the nation, and no one returns phone calls…summer time is most definitely here.

“The Boys of Summer”, can teach us a lot about managing our finances, and no, I’m not talking about the Don Henley song. I’m talking about baseball, America’s pastime. Baseball is a game of skill. But it’s also one of strategy and fundamentals. The teams that make it to the World Series in October are those who practice and master the basics of the game in July.

Finishing the retirement game is the same. You have to practice the fundamentals early in order to win later.

Small Ball
Everyone loves hitting home runs. They’re exciting. But bunting with runners in scoring position can score a run just as effectively as a homer, and it’s a lot easier to do. Chase big returns when it’s prudent. But be sure to take advantage of multiple strategies and tools to put your portfolio in position to win. Remember, consistency will always outperform occasional brilliance

Bring in Your Closer

An ace pitcher can start off a game strong. And if he makes a mistake early in the game, there is time to recover. But in the late stages of the game, mistakes can no longer be tolerated. The Closer comes in with a fresh arm and laser focus to preserve a victory. Your financial life starts with someone that specializes in accumulation. But eventually, you need a specialist who can help you protect what you’ve got, find other ways to generate wealth, and minimize or eliminate mistakes.

Five-Tool Player

A well-rounded baseball player has running speed, arm strength, hits for average, hits for power, and is a good fielder. They are called a “five-tool player”. Your retirement plan’s five tools are an emergency fund, structured income, money for occasional major expenses, long-term growth, and a legacy plan.

 In baseball, if a team ends up with a bad record and misses the playoffs, fans usually say “There’s always next year.” When it comes to your retirement plan, your number of “next years” is very limited. Play to win today. Practice the fundamentals. Use the basics. When the time comes to hit a homerun, you’ll be ready.

Live Fabulously – Diva

www.FianncialDiva.com | www.ChappelWood.com

Your Tax Refund - Evidence of a Terrible Financial Decision

Here we are, with just a few weeks left until one of our nation’s most reviled, I mean revered, dates on the calendar. April 15. Tax Day. That day when you are reminded just when you think no one in your family cares about you, your dear old Uncle Sam is always interested in what you’re up to.

It’s also around this time that I hear from clients, listeners to my radio show, and just about anyone that pays taxes how happy they are to be getting a gigantic refund from the government. I can’t do anything but hang my head and think, “Where have I gone wrong?!”

You see friends, your refund does not represent some financial boon. It is not found money. It is money you have already earned, and it represents an interest free loan to the United States government. It also represents money that you could have invested or used for some other purpose.

I recently gave a presentation at a local company for an event celebrating National Women’s History Month. After the presentation, one attendee asked this question:

“My husband and I have more money withheld from my paycheck because we like to use it as a sort of savings account. We know we’ll get that money back in April to use for major purchases. Do you think that’s a good idea?”

Tax deferral is one of the greatest weapons we have in our financial arsenal, and guess who gave it to us? The government! I spend my every waking moment helping clients avoid, or at least delay, paying taxes. It’s not that I’m un-American or don’t want to pay my fair share. I just don’t want to pay any more than is necessary any sooner than is necessary. My advice to the sweet lady that asked the tax question was this – lower your tax withholding and invest the difference in your company’s 401(k) plan. The 401(K) offers tax deferral, and combined with compound interest over time can be quite powerful. I gave her an example of $1,000 from her paycheck.

  Bank                    401(k)

Earn                    1,000                   1,000
Taxes (28%)         -280                          0   
Save                       720                   1,000
Interest (6%)          43                         60
Taxes (28%)           -12                           0
Total Saved           751                   1,060

If you are paid $1,000, and have taxes withheld, you sacrifice $249. Over 30 years invested at 6% interest, that $249 would have been worth $19,685. Still feel like giving it away for free to the government? Conversely, if you invest the full $1,000 each year in the 401(k), in 30 years at 6% interest, your account total would be $79,058. 

 

Another added benefit of tax deferral to a retirement account is that if you make pre-tax contributions, you will lower your taxable income, which means your overall tax bill will be lower. That’s two tax benefits for the price of one! Tax deferred growth of your investment and immediate reduction of your tax bill. 

 

There’s probably not a lot you can do to reduce your tax bill for 2014 at this point. You do have until April 15 to contribute to your Traditional IRA or a Health Savings Account, which will give you deductions. But from here on out, I want you to learn this rule – large tax refunds represent a bad financial decision. Plan now to keep more money in your pocket and out of Uncle Sam’s.

 

Live Fabulously - Diva

When Is Zero a Great Investment Return? You Might Just Be Suprised!

I remember the date as if it were yesterday.

September 29, 2008. The Dow Jones index fell 777 points, the most in any single day in its history. It was the official beginning of what would become known as the Crash of 2008, and investors everywhere saw portfolios that took years to build blow away in the wind in a matter of weeks.

Less than 18 months earlier, the Dow Jones index had reached its highest level up to that point, 14,164. The economy was flying high and we felt great about the future.  “Let the Good Times Roll!”… but, do good times last forever? The worst recession in a generation set in for two years, but it seemed like a lifetime.

When I think back on that time, I recall two things:

·       Those that lost most of their retirement nest eggs failed to protect them.

·       I didn’t lose one client because mine were well diversified and included protection as well as growth in their portfolios.
 

When I ask potential clients “When is zero a great investment return?” it usually takes them a few seconds to think, but they eventually come up with the right answer – when it’s better than a negative return. Now how is this possible? Don’t all investments come with some risk of loss? All investments in the market do. But there is an option that protects your money from the market, can grow your money at a modest rate, earns no less than 0%, and never declines. This seemingly magic option is not magic at all. It’s called a fixed index annuity, and if protecting at least some portion of your money is something you care about, then it’s an option you should consider.

A fixed index annuity is not an investment in the market. It is an insurance vehicle whose performance is tied to, but not directly invested in, the performance of a market index like the S&P 500. You deposit a sum of money into an account for a certain period of time for an agreed upon rate of interest, and your money is guaranteed never to decrease. Annual interest on a fixed index annuity is tax deferred. Most fixed index annuities will earn you between 3% and 6%, depending on where you live and the type you choose, but can never earn less than 0%. You can add money to some indexed annuities depending on which you choose, so be sure to ask.  Some are Single Premium and will not allow additional deposits. When the term of years is up, you can pull out the money in a lump sum, convert it to a stream of lifetime payments, leave it to grow, or move it to a newer annuity that better suits the current environment and your life. Since you can name direct beneficiaries, an annuity is removed from your probate estate in the event of your death. But the most important thing to remember is this – no matter what happens, this money will always be there for you.

I want you to do a little exercise. Take a look at all your assets – cash, investments, real estate (other than the house you live in), and any other liquid assets you own. Now, of that money, how much would you absolutely, positively not want to lose if you knew the market would crash tomorrow? That is the amount of money I would advise you to protect with a fixed index annuity.

I am an economic realist. I know the market will eventually come down, and if you believe the predictions for this year, we are in a for a major market correction. If you saw a train coming a mile away, it could reverse, stop or keep going. Regardless, would you stay on the tracks or get off just to be safe? The market may go up, it may go down. But the only way to keep some of your money safe is to get it off the tracks.

Live Fabulously - Diva

Love is Blind, and That’s Not Always a Good Thing

As we come off the sugar high of that most romantic of holidays, Valentine's Day, I am reminded of all the events I've attended where loving couples have dressed their best. Gorgeous women with perfect hair and amazing dresses, and good looking men in perfectly coordinated suits, because the gorgeous woman with them said, "Here, you will wear this!"

As I watch the crowds mix and mingle, couples exchange kisses and glances. Events like this always put us in a mood of bliss and happiness. Love truly is blind, and this is especially true when it comes to money.

Now I’m not bashing relationships and love. After all, I’ve been happily married for nearly 30 wonderful years and just came back from a phenomenal trip to Australia that was an anniversary trip more than a decade in the planning. But consider this – there is no romance without finance! Study after study has shown that disagreements over money are among the most destructive in relationships. When the good looks and romance fade, that $50,000 in credit card debt will still be there to remind of you what a great time you once had.

So how can you tell if your significant other is a financial ticking time bomb? Here are a few signs I’ve picked up on after 25 years of counseling couples young and old.

They never want to talk about money.
Money is a taboo subject in our society, but it shouldn’t be in any marriage or long-term relationship.

They have significant credit card debt, and no discernible plan for getting rid of it.
If you get married, their debt becomes your debt.

They are always borrowing money from others, including you.
Trust me, they will probably never get around to paying them or you back.

They spend more time looking for work than going to work.
If your better half is constantly out of work, that’s either a sign they can’t commit to something, lack ambition, or both.

You catch them in lies.
Dishonesty in a relationship is never good, but dishonesty about money, in my opinion, is a form of infidelity.

They have no plan at all.
Plenty of people don’t have well-built, comprehensive plans for their finances. But someone with no clue about what they want is a disaster waiting to happen.

Relationships are certainly about more than money and I’ve seen couples with plenty of money and no financial troubles have fights that would curl your toes. But if you are in a relationship you think could end in marriage, remember this – marriage may be an institution, but being in a marriage saddled with financial problems will put you in an institution.

Live Fabulously – Diva

Shake Your Money Maker

www.chappelwood.com
www.financialdiva.com

Back in the 1970's, as an up and coming Financial Diva, it wasn't out of the ordinary to occasionally find myself in an establishment with adult refreshments and some great music you could dance to. Just imagine a disco ball and the soundtrack from Saturday Night Fever and that should provide you all the mental image you can handle. I had this friend who loved to say, "Let's shake our money makers tonight!" That always made me laugh, and that girl could dance.
Since those halcyon days of polyester and sequins, I've hung up my dancing shoes, but I'm still thinking about money makers.

The most valuable asset you will ever possess is your ability to generate an income. More valuable than your home, your car, or any high dollar toy. Consider the fact that most of us will work for 30 to 40 years. If you average $50,000 per year in salary, which is a pretty low average for a lot of you, that's $1.5 million to $2 million in potential lifetime earnings.

The Social Security Administration says that 1 in 4 Americans who are 20 years old have a chance of
becoming disabled by the age of 67. What happens if you are in your 30s, 40s, or 50s when this happens and have many years to retirement? Once you exhaust your paid leave, how will you generate an income if you can't work? The answer is Disability Insurance.

Short-term Disability Insurance will protect you for six months or less, while long-term kicks in after the short-term period ends. It will not replace your entire income if you are unable to work, but rather a percentage - say 60% to 70%. Depending on the type of coverage you elect, your age, and your health, it can be extremely affordable compared to the alternative of having no income. There are a few things to consider when choosing a disability policy:

• Does your employer offer Disability Insurance as part of its employee benefits package? If not, an individual policy from your insurance company will work just fine.
• What types of disabilities does the policy cover? Total or Partial? Permanent or Temporary?
• Is coverage for Own Occupation or Any Occupation? Own Occupation is better for you since you only have to prove you can't perform the duties of your own job to receive benefits. Any Occupation is more restrictive as you have to prove you can't perform duties of any job to receive benefits.
• What percentage of your income will the policy replace and for how long?
• What is the elimination period? This is the period of time between when your disability starts and when the policy begins paying benefits. The longer you wait to receive benefits, the cheaper the coverage will be.

We all feel invincible when we're young and in good health But anything can, and does, happen. Part of managing your finances includes protecting yourself with insurance. There is no more important thing to protect than your money maker.
Live Fabulously - Diva

Thy Will Be Done

www.chappelwood.com
www.financialdiva.com

I'll tell you what I hate about death...it's so permanent! Once you're gone, you're gone. That's it. Kaput. No do overs.

But through the miracle of modern financial planning, there is a way you can still get your way even after you head off for that great fashion show in the sky. It’s called estate planning and it’s all the rage.

Now let me share a revelation I have come to learn after more than 25 years as a financial advisor.

100% of those reading this, and writing this, will die.

I know, it's shocking. Further, I have also come to learn that no amount of avoiding estate planning will avert death. I’ve found nothing will do that, though I did hear drinking a bottle of Dom Pérignon while binge-watching all six seasons of Sex and the City in one glorious weekend can add significant years to your life. But I digress.

Without a plan of your making, your estate will be subject to your state’s intestacy laws. If you elect to use this “wonderful” government sponsored estate plan, you do not get to choose who receives custody of your minor children. You have no say over who makes financial or medical decisions on your behalf if you become incapacitated, including whether or not to continue life support. You lose the right to pass on your values with a legacy to charities you hold dear. Simply put, without an estate plan, you choose to allow the state and courts to determine what is best for you and your family. I’m not here to make any political statements, but I think we can all agree that any plan of your choosing will be better than one created for you by a bunch of legislators and judges for whom you may or may not have voted.

For an investment of a few hundred dollars or less, depending on your needs, you can have a Will created through a qualified attorney. In some states, it’s even legal to hand write your Will on a napkin, piece of paper, or anything you have handy, called a Holographic Will, though I would advise that you have a Will prepared by a licensed attorney and witnessed by others as appropriate.

Your Will tells the world how your assets are to be divided. But your estate plan also needs to include a Durable Medical Power of Attorney, naming who makes medical decisions on your behalf when you can’t. An Advance Directive, or Living Will, tells your family and doctors how you want life support decisions handled if there is no chance you will recover. This is especially important in making sure loved ones are not faced with the difficult choice of letting you live or die.

You work hard for your money and your family. You may not get to take them with you, but you darn sure can exercise your right to decide what happens to and for them when you shuffle off this mortal coil.


Live Fabulously – Diva

It's a New Year. Time to Sober Up From That Holiday Hangover!

The holidays are over. The relatives have all gone home. The decorations are packed neatly in their tubs or boxes and wait in the attic for another year. But sometimes, it’s so hard to let go isn’t it? You can still hear the Christmas carols in your head, the aromas of cinnamon potpourri may still hang heavy in the house, and all your favorite stores are welcoming you back to take advantage of the post-Christmas sales. This is called the Holiday Hangover.

But something else is about to happen that will shock you back into reality. Soon, you will receive a piece of mail that will remind you of the great time you just had, but that won’t be any fun. It’s your credit card bill, and if you are like 14 million other Americans, you’re still paying off your Christmas bills from last year!

How can you make sure that Christmas 2015 will be merry and bright for your bank account? Take the Diva’s advice:

1.     Make a plan to pay off your credit cards ASAP!

Plain and simple, you can’t build wealth and peace of mind with debt crushing you. Don’t let that $20 sugar cookie candle you bought for your hairdresser be a 12-month loan. It’s $20! Pay it off.

2.     Set a budget now and stick to it.

This really goes for your entire household, but if budgeting seems scary or intimidating, then start small. Build a Christmas budget and don’t go over it.

3.     Open your Christmas Club savings account this month!

Most financial institutions offer some variation of this idea. Take that budget you just made, divide it by 12, and set aside a little money each month to go to a designated account for your Christmas giving this year. Paying with cash avoids needing credit all together.

Christmas is 12 months away. It comes the same time each year, which makes it easy to anticipate and plan for. Save yourself stress, time, and money later by saving a little now.

 Live Fabulously – Diva