financeFinancial Planning


 

How to Select a Financial Planner
There are so many choices out there; banker, stockbroker, insurance agent, financial advisor...How do you go about selecting a financial planner? [View with RealPlayer]

  • ( CFP) Certified Financial Planner is the highest professional standard
    Ask planner to describe his/her "process" they use with clients.
  • Listen carefully - Ideally, the Financial Planner will ask you questions.
    Experience Counts. What kind of clientele does the Financial Planner serve?
  • Ask for references.
    Find out how the Financial Planner is compensated; fees, commissions, hourly?

 

Estate Planning for Everyone
What are the basic legal documents that everyone should have? [View with RealPlayer]

The 4 legal documents everyone must have: Will, Power of Attorney, Health Care Directive, Living will

  1. Will
    1. Will directs where and to whom your assets go.
    2. Names an Executor
      1. Executor should be someone capable-and alive later
    3. Names a Guardian for your children
      1. If children now adults, consider re-writing will to name them Executor.
  2. Power of Attorney
    1. Directs someone to act on your behalf if you cannot
      1. Allows someone to make financial (and health) decisions.
      2. You should name an alternate/back up to your spouse, maybe your Adult children.
  3. Health Care Directive
    1. Directs someone to act on your behalf for health care.
      1. .E.g. Admitting you to a nursing facility.
  4. Living Will
    1. Final health care wishes if you become terminally ill and permanently incapacitated.

 

ADVANCED ESTATE PLANNING
Congress’ new tax law raises the estate tax exemption to $1,000,000 in 2002. Federal Estate Tax rates begin at 43% on taxable estates above $1,000,000! [View with RealPlayer]

  • If married and net worth is in excess of $1M, consider a Bypass Trust.
    • Allow both spouses to each pass $1m federal estate tax-free
    • You don’t give up control of your assets with a Bypass Trust your Will funds the
      trust after your death.
  • Charitable Giving
    • Gifts to a charitable trust can offer you lifetime income, plus a tax deduction.
    • Easy-to-set-up "Gift Trust Funds" are available from mutual fund companies.
  • Gifts
    • $11,000 can be given per person, tax-free in 2002.

 

RETIREMENT PLANNING
In SOME WAYS, the most crucial retirement investing advice we can offer is also the simplest: Start early, max out your 401 (k), and save as much in other accounts as you can. [View with RealPlayer]

  • The first step in putting your retirement money to work is to create a reliable asset-
    allocation plan.
    • If you are just getting started, your company’s retirement plan probably gives you
      asset allocation suggestions based on your age – a blend of 50% bonds and 50%
      stocks are reasonable for probably most people.
    • But, as your portfolio grows and becomes more complicated –retirement assets,
      college tuition assets, taxable savings – our view is that you should WRAP
      EVERYTHING       into one allocation plan.
  • IRA’s offer some special advantages – you can generally pick whatever type of
    investments you want.
    • If you are younger and desire growth – consider using investments with a high
      tax liability; dividend paying stocks or aggressive growth funds inside your IRA.
      • If you are conservative or retired –consider using investments with
        otherwise high taxable income; bonds or income producing
        investments inside your IRA.

 

Long Term Investing
In the last year (2001), we’ve seen the stock market decline considerably – how do you invest now? [View with RealPlayer]

  • Invest the same as we always have:
    • Diversify and allocate your assets into quality companies and mutual funds.
    • Dollar cost average.
    • Invest for the long-term –tell yourself, "Five years, five years".
  • Despite the poor economy of 2001 and the terrible tragedy of 911, the stock market remains a long-term investment.
    • The longest investors have had to wait for common stocks return to their original
      value is four years.
    • Historically over the long-term, the probability of making money in the market
      dramatically increases –80% and 90% for 5 years and 10 years respectively.

 

Paying for College Education
Worried about the rising costs of college education? [View with RealPlayer]

  • College educated children are more valuable –an average $390,000 lifetime difference
    in salary.
    • Problem: college tuition rates continue to rise
      • Penn State 8%/year, Temple 8%, Penn 7%
    • New 529 College Plans offer advantages
      • Individual savings accounts with investment options
      • High contribution limits
      • Account control
        • If account is not depleted, can change beneficiary.
      • Attend any school
      • Withdraws are tax-fee for education costs
        • Education costs include tuition, room/board, and books
    • With todays double squeeze (saving for retirement & college) on baby boomers consider funding a ROTH IRA.
      • All growth is withdrawn tax-free after age 59.5.
      • Original investment may be withdrawn early if used for education…

 

What is Financial Planning
Most people confuse financial planning with financial products, like mutual funds or insurance—what should a "financial plan" be? [View with RealPlayer]

  • Step #1: Lists Goals
    • E.g., WHAT will you be doing at retirement, WHERE will you be living? How
      MUCH income do you need?
  • Step # 2: Organize
    • Most people spend a lifetime collecting assets: home, bank accounts, IRA’s,
      mutual funds, insurance—But very little time organizing them in a coordinated
      fashion
    • Begin by taking inventory of what you own.
  • Step # 3: Analyze
    • How much does your company benefits provide, Social Security, your
      investments?
  • Step # 4: Recommendations
    • Look at pros and cons of making changes
  • Step # 5: Implement
    • Probably most important step; without action no plan goes into effect.
  • Step # 6: Monitor
    • At least annually, review everything.

 

Long Term Care
There is so much concern among seniors and retirees today about long term care and the potential of a nursing care situation—is it warranted? [View with RealPlayer]

  • After age 65, two out of every five seniors will require nursing home care.
    • Many baby boomers are beginning to have experiences taking care of aging parents.
    • Average cost of nursing care costs about $5,000per month in Philadelphia area.
  • Medicare pays less than 2% of nursing care costs—how will the rest be paid?
    • Medicaid is public assistance for those who cannot afford nursing care.
      • To qualify must have countable assets of only $2,400 (single person)
        in other words, you must spend all of your money on nursing care and be
        Bankrupt!
    • One way to take care of nursing home costs is to "shift the burden" to an insurance
      Company.
      • Over 100 companies offer long Term Care insurance today
      • Policies pay for both nursing care and in-home care.
    • To better afford a policy, look at insuring the difference between your retirements
      income and the cost of a nursing home.
      • Eg., Nursing care $5,000/month; less$1,000 Social Security, less $1000 pension, less $1,000 investment dividends, equals $2,500 insurance policy need.
    • Average monthly premium for age 65 for a policy to pay $2,000/month for 6 years is
      $125/month.

 

Kids $ Money
How to help children become financial responsible? [View with RealPlayer]

  • Children learn best by managing their own money.
    • Give an allowance
    • Teach to live within a personal budget.
    • Help open a bank account.
  • Children 5 to 9 years old.
    • Talk about working life: about your salary, about saving.
    • Start a small allowance in exchange for small tasks.
  • Children 9 to 12 years old.
    • Discuss more complex ideas: credit cards, investments, encourage feedback on the way the family’s money is budgeted.
    • Larger allowance for larger tasks at home.
      • Clarify the terms, be sure to pay on time.
      • Most experts recommend not taking allowance away as a
        discipline strategy.
    • Games: track some stocks and offer a prize, play Monopoly.
    • Outside jobs: babysitting, yard work, pet sitting for
      neighbors.
  • Encourage goal setting.
  • Praise for creating and living within a personal budget.
    • Open a savings account in a child’s name.
    • Make regular visits to the bank.
    • Explain compound interest, e.g., $10 saved per month with 5% compounded interest is $1560 in ten years.

 

New Tax Law Changes

The tax Relief Act of 2001 (The "Economic Growth and Tax Relief Reconciliation Act of 2001") brings some useful changes. [View with RealPlayer]

  • Retirement plan savings amounts are ramped-up:
    • $11,000/year for 401 (k) plans
    • $3,000/year for IRA’s and ROTH IRA’s
    • $1,000/year more for people over age 50
    • IDEA: A person age 50 savings an extra $10,000 over the next 5 years could grow (at 8%) to $25,000 at age 65.
  • A $3,000 deduction is now available for higher education expenses.
  • 529 Plans now offer tax-free withdrawals for education expenses.
  • Estate tax exemption rises to $1,000,000 per person in 2002.
    • IDEA: if married, use a Bypass Trust so both spouses utilize their $1,000,000 exemptions.
  • Income tax rates are going down in the future, eg. the 28% bracket drops to 25% in 2006.
    • IDEA: Defer income to future years.

For More Information, or to locate a Financial Planner in your area, call 215-295-0729; or visit The Financial Planning Association of the Philadelphia Tristate Area at www.fpaphiladelphiatristate.org

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