Wednesday, December 12, 2012

Budget Your Life - Build Your Lifestyle Ceiling

I want to take a brief moment to wish a very Merry Christmas and a Happy New Year to you and yours from all of us at Kemp & Associates!

As we approach the holidays, it’s both a delightful time to spend with family and friends, and a time to step back, count our blessings and reflect on how fortunate we are. It is also a time when your budget may become slightly tighter. This leads into our next topic, which is the lifestyle ceiling1

My family has been busy helping our oldest son get ready to attend college. It has been a great time to instruct and reflect with him, and it has also given me the opportunity to take a step back and remember what it was like for my wife, Shelley, and I when we attended college. If we go back 25 years when I graduated from high school in 1983, college wasn't a guarantee. If we go back 50 years2, college was a luxury to some, maybe even akin to winning the lottery or striking it rich. 

Wednesday, December 5, 2012

Determining the “Right” Amount of Life Insurance

According to a recent study, Americans are more concerned with being able to pay their mortgage and other bills today than they were a year ago. Now, more than ever, it is crucial that consumers protect their financial security.1 Life insurance is one tool that can provide this kind of protection. The fundamental question is: what is the “right” amount of life insurance?2

Wednesday, November 28, 2012

Retirement and Life Only Pension: Part 2

When planning for retirement, challenges can arise. In the previous blog post we discussed the issues that may arise with life only pensions. In some cases, a life insurance policy purchased prior to retirement can be a great solution. Life insurance policies can potentially provide the security you need to cover several scenarios.

       If the retiree pre-deceases their non-working spouse, the non-working spouse should have enough life insurance in place to purchase a pension, annuity or investment that will give them income for the rest of their life. 
       If the retiree and non-working spouse both die, the life insurance policy should be structured so that their children or heirs can benefit.
       If the non-working spouse passes away first, the retiree has several options.  They can keep the life insurance policy and use it for charitable estate planning, which would include gifting for charities, their community or their children or heirs.  They can also cash it out and, in our example, increase their income from $700/month to $1,000/month plus depending on whether there's any cash value in this policy. 

Wednesday, November 21, 2012

Retirement and Life Only Pensions: Part 1

When it comes to retirement planning, most people just want to provide for their loved ones.  In this blog series, we’ll discuss some ways you can make sure they’re taken care of.

A life only pension is a pension that is designed to pay out for the rest of your life only. These benefits apply whether or not you’re married. If you take a life only pension from an institution and you are married, have a significant other or children, “life only” means it will pay only for the rest of your life and that's it. If you pass away the next day or you never collect, it will be absorbed back by the institution and nothing will be paid to your spouse, children and/or heirs.

Friday, November 2, 2012

Product Performance vs. Personal Discipline

As a financial planner, I often hear people talking about the latest investment portfolio or the latest product on the market. While product is important, I believe that the most important piece of financial security is personal discipline: how you handle your life circumstances and how you will react to inevitable market volatility.

What does this mean? Well, imagine you found a magical product that earns 10% a year. You still could have other areas that need to be taken care of, such as insurances in case of death or becoming disabled, health insurance, auto insurance and having emergency cash set aside to allow that magical 10% product to grow uninterrupted.

Monday, October 22, 2012

Put and Take vs. Put and Keep Part 3: Put and Keep Accounts

In the previous part of this blog series we discussed put and take accounts. Put and keep accounts differ from put and take accounts in many ways. There are two types of put and keep accounts. The first is similar to the frame of your house; this is the safe put and keep account. The second is like the roof of your house; the risky put and keep.

When building your financial house, we want to help you select ways to minimize wealth transfers. One of the best ways of minimizing unnecessary wealth transfers is to understand what they are and ways to minimize them.

Monday, October 15, 2012

Put and Take vs. Put and Keep Part 2: Put and Take Accounts

Are your retirement savings going to a put and take account?

At Kemp & Associates we often meet people who like to share how they’ve saved so much towards their retirement savings account1. A recent client told us how they saved at least $1,000 a month and had been doing so for five years successfully. I did the math quickly and determined that they should have saved $60,000. When I asked where the $60,000 was currently being held, they responded somewhat sheepishly that they only had about $4,000. I questioned them politely as to how they were able to save $60,000 but only had $4,000 and they explained that they were going in and using it for different impulse purchases and bills.

This type of retirement saving isn’t truly saving. Instead, it is a form of “put and take” or, a more modern version, would be called a “delayed spending account.”

Monday, October 8, 2012

Put and Take vs. Put and Keep Part 1: The Introduction

When you build a house, you want a strong foundation.  It is the same with your finances.  You want to ensure everything is in place so your finances will stand firm and you will be protected.  There are three important pieces to the foundation of your financial house:

1.     Updated legal documents including a will, living will and durable power of attorney.
2.    A delayed spending account, called a put and take account.  This is where you're depositing and withdrawing money for day-to-day expenses and annual expenditures.  This is where you want to practice good budgeting habits and self-discipline.
3.    Appropriate insurance coverages.  Typical insurances here are homeowner's, auto, health, disability, umbrella and term life insurance. 

Tuesday, September 18, 2012

Legal Considerations for Retirement Part 7: My Assets

In the previous parts of this blog series, the overarching theme has been protecting your assets. In this, the final part, of the blog series, we will answer a few more questions about your assets, namely whether your heirs will have to pay taxes on your assets and how you can protect your assets from a nursing home. With these questions answered, entering retirement is not as worrisome as it seems.

Legal Considerations for Retirement Part 6: Do I Need an Attorney?

Before retirement, you should consider many important things. In the previous part of this blog series, we discussed power of attorney. In this part of the blog series, we will discuss if you need an attorney to file for social security benefits and what to do if you’re denied.

Do I need an attorney in order to file for social security retirement benefits?
You do not need an attorney in order to file for social security retirement benefits1, although you may find it helpful. You can file for social security benefits on your own. However, you may want to contact your financial planner when you apply for social security benefits. Although you can file on your own, the guidance of a financial planner2 is often useful.

Tuesday, September 4, 2012

Legal Considerations for Retirement Part 5: Power of Attorney

In the previous part of this blog series, we discussed the importance of a living will. When you have a living will, you will need to give someone power of attorney. In this part of the blog series, we will discuss power of attorney and what happens if you don’t have it.

What is Power of Attorney?
Giving someone power of attorney1 is a very important decision. Power of attorney gives another person the ability to make legal decisions on your behalf. If you become ill and incapacitated, then you may consider granting power of attorney to a spouse, adult child, sibling, parent or close friend. The person granted power of attorney has the legal right to make many important decisions including financial decisions, gifts of money, healthcare decisions and recommending a guardian for your children. Since someone granted power of attorney has the legal authority to make your financial and health decisions, you should choose someone that you trust. It is especially important to choose someone you can rely on because power of attorney is not regulated by the court system, which means it could be easy for someone to abuse this power. 

Tuesday, August 28, 2012

Legal Considerations for Retirement Part 4: Living Will

There are many options out there for retirement planning. In the previous parts of this 7 part blog series, we discussed last wills and revocable living trusts. In this part, we will discuss living wills and what you need to know when you create one.

What is a living will?
When creating a living will, you should know a few important things. A living will is commonly known as an “advance health care directive.”1 It is a legally binding document that states your preferences for medical treatment if you are unable to express these wishes. A living will gives healthcare professionals direction when they are giving you treatment. For example, if you write in your living will that you do not want to be intubated, then it is against the law for a doctor to do so. Also, a living will is only effective in the state that you live in. For example, if you live in Pennsylvania and draft a living will, then a hospital in New Jersey does not legally have to follow the will.

Tuesday, August 21, 2012

Legal Considerations for Retirement Part 3: Revocable Living Trusts

Navigating the legal considerations of retirement can be very complex. In part 2 of this 7 part blog series, we discussed last wills. Now, in part 3 of this series, we’ll discuss how you can be sure your assets go to your loved ones with a revocable living trust1 and what happens if you die without a living trust or last will.

What is a revocable living trust?

A revocable living trust is a way for you to leave money for your loved ones. It allows you to have some control over your money, even after you have passed away2. A revocable living trust is a substitute for a will, as it also provides for the distribution of your wealth after you pass away. However, unlike a will, you can distribute your assets while you are still alive.

Tuesday, August 14, 2012

Legal Considerations for Retirement Part 2: The Last Will

As more Americans enter retirement, many are navigating the tricky financial and legal paths ahead. When it comes to planning your retirement, a last will is exceedingly important. In this, part 2 of a 7 part blog series, we will discuss why you need a last will.1

Why do I need a last will?
As discussed in the previous blog post (link to part 1), a last will is the document you use to allocate your resources to your beneficiaries after you have passed on. A last will helps you decide who will receive which assets and how much they will receive. If you do not have a last will, then the state will distribute your assets2 to your relatives after your death.

Monday, August 6, 2012

Legal Considerations for Retirement Part One: The Overview

The average age of Americans is rising1, which means there are now more Americans retiring than ever before. Most people hire a financial planner when planning their retirement, but many do not realize that it is also prudent to hire an attorney. The process of protecting one’s assets is often very complicated and an attorney can help navigate this process. There are many questions a retiree should ask themselves to protect their assets. In this, part 1 of a 5 part blog series, we will discuss why you need an attorney if you have a financial planner, and the difference between a last will, a living will, and a revocable living trust.

Thursday, July 26, 2012

College Planning: The Details Part 2

College is a great time to begin budgeting – a skill that will benefit anyone for the rest of their lives. In the first part of this post, we discussed the importance high school graduates preparing for the investment of college before they start. The conventional wisdom that you have to go to college to get a high-paying job is no longer always accurate. As with any financial decision, going to college should include weighing the pros and cons of the cost and reward. If your child has weighed these options and decided that college is the best financial decision, there are many resources to help figure out how to pay for college and how to choose the right school. 

Thursday, July 19, 2012

College Planning: The Big Picture Part 1

Would you give your 10 year old your car keys and let him drive?  Would you let him drive on the turnpike?  Of course not – any parent would be deathly afraid for his safety and the safety of others.

Just as you wouldn’t let your unprepared 10 year old behind the wheel of the car, you do not want to let your high school graduate go to college without the proper preparation. In many ways, this is what we're doing with our kids and grandkids in college planning. We’re asking teenagers to make decisions about their future and their careers, when they are not prepared. Teenagers don't have the fiscal maturity to understand financing their college education, which is quite possibly putting them and others at risk.

Thursday, June 28, 2012

How to Practice Good Budgeting Habits: Part 2 
Previously, in Part 1 of this blog post, we wrote about finding a role model, changing your outlook, and cultivating discipline to practice good budgeting habits. Read on to find out how setting goals, developing a system and living below your means are key in being financially successful.

Plan your Spending and Know Where Your Money Goes
Once you have cultivated discipline, the next step is to set some goals and prioritize the things you want. This is an opportunity to start setting aside money for things you may not need yet, but will need in the future. For example, you may start budgeting for long term care after retirement. If you plan ahead and keep track of your spending, patterns start to emerge that tell you where problems areas exist.

Thursday, June 21, 2012

How to Practice Good Budgeting Habits: Part 1 
Some subjects seem easy to discuss openly, but shouldn’t be, such as talking about one’s sex life. Conversely, when it comes to speaking up about one’s ability to practice good budgeting habits, why does it seem such a taboo topic? Finding ways to better manage your money is the key to financial freedom.

According to a recent study by the University of Kentucky, people who win only $10,000 are just as likely to file for bankruptcy in five years as those who win $150,000*. Statistics say that a whopping 44% of winners spend their entire earnings within the first 5 years**. As the saying goes, if you can’t learn to manage a little money, you won’t be able to manage a lot. The first in a 2-part series (see Part 2 here), here are some tips to get you started practicing good budgeting habits to ensure a prosperous future for you and your loved ones.

Tuesday, May 29, 2012

Long Term Care - What You Need to Know to Plan for Retirement

With Baby Boomers beginning to reach age 65, the topic of long term care is drawing increasing attention. Unfortunately, long term care is often misunderstood and, as a result, is poorly planned for, if at all.

Long term care refers to a range of services from home health care, to assisted living, to skilled nursing homes. These nursing homes provide assistance and support to manage and meet personal and health needs. Long term care does not always refer to medical care, it may simply be to provide assistance with “Activities for Daily Living”, or ADLs, including eating, bathing, dressing, toileting, transferring, or continence. Long Term Care may be needed for weeks, months or years.