A College Expense List Is Longer Than You May Think

Every day when I see my children after school I have always asked them if they have any homework. In a couple of years, my daughter will be off to college and now I’m asking myself if I have done my college preparation homework? I have been preparing since she was born. I started a pre-paid tuition plan when she was a baby. I invested in a 529 college savings plan to offset the cost of books, lab fees and room and board that may not be covered by the prepaid tuition plan. Is that enough?

Well I did my homework. I called my friends, family, clients and co-workers that have had or currently have children in college and I asked them one very simple question, “What college expenses came as a surprise to you?” 

I missed a few items and you may have too. You can easily search your child’s college website and create a book budget by looking at the classes he or she will be attending. The only problem with that is when “change” occurs. The teacher may change the book requirement to a newer more expensive version and/or your child may change their field of study requiring more books and supplies. Be prepared to reposition your books and supplies budget. These issues cost a friend $200 last year. Commonly overlooked but an absolute necessity is the need for transportation. How else is your student going to get to and from college, come home for the holidays, head to the beach for spring break or drop by with a bag of dirty laundry? Transportation includes: a car, airfare, bus tickets or even a bicycle. One couple I questioned told me they forgot about adding their son’s car into the budget. They should have added gas, $600 per year, registration, $80 per year, auto insurance, $3,620 per year and maintenance, $150 per year to their budget.

You’ve raised your children so you know them pretty well right? So why not add a dollar amount to your college budget for snacks? I know I’m getting a little picky here but what I found out will amaze you. College kids eat all the time even when the kitchen is closed. A midnight run to Krispy Kreme doughnuts is a necessity for an all-night study session. My interviews revealed that parents are spending on average over $50 a month on snack attacks.

Add it up.

When my daughter was a freshman in high school we begged her to get involved. Well let me tell you, she got involved, and I have been doling out the dollars for Booster club, Key Club, Sophomore Class Council, Diamond Girls (baseball concession stand volunteers), National German honors society and flag football. Did I mention that I am also paying for her to attend football, soccer, baseball and softball games? It may not stop in college and from what I’ve uncovered in my research, the same activities will cost you more. You can utilize individual college websites to gain insight into the cost of student activities, clubs, sports and tickets to sporting events and add it to your student’s college budget. A friend and I averaged out the monthly handouts he gives to his daughter to attend sporting events, donations for charitable events, Christian fellowship and the ever notorious, “I need twenty bucks for … dad.” He spends an estimated $960 a year.

Going Greek! Just a cursory look at my nieces Facebook page and the myriad of sorority activities she is involved in, I can tell that the cost of joining and participating in a sorority can be quite high. On average a sorority will cost $1,280 per semester and a fraternity will cost $605 per semester. Many college freshmen choose to rush a fraternity or sorority so it would be wise to look into the member fees, chapter dues, social expenses and even fines for unexcused absences and tardiness for member events. Additionally, there are extra costs for socials and mixers where sorority sisters pay for their date’s tickets, dinner and sometimes their formal wear. Add to that the rush outfits, Greek letter gear, philanthropy swag and gifts for pledges and members for an estimated $400 per year out of my brother-in-law’s pocket.

Please, please, please do not forget yourselves mom and dad. According to my good friend Sue, she and her husband spend about $1,000 a year driving to see their daughter, taking her (and a friend) out to eat, attending the football games and moving her back home every summer. Creating a solid college expense budget can be a daunting task but taking the time to look at college budget planning tools, listening to others that have been through it already, talking to your student about their wants and needs and consulting with your trusted financial advisor will close that gap between not budgeting enough and having money left over.

 

5 Reasons You Should Think Twice Before Investing in a Prepaid Tuition Plan

My wife and I have been patting ourselves on the back for 14 years now since we were introduced to a prepaid college savings plan.  That’s right, we have been saving for college for 14 years, and we are “Super Parents!”  Smartphones and the 24/7 information super highway didn’t exist back then, so we relied on a pamphlet and missed some very important information that everyone interested in saving for a child’s higher education may want to know. 

First on the list is the fact that enrollment in the prepaid college plan does not guarantee your child’s college admission.  They still need to “qualify” for admission to the college or university of their choice.

The plan may be geared towards public, not private institutions.  You may be limiting your child’s college options.  Does your son have an artistic flair that will only be enhanced by attending a private university?

Your child is an individual and as an individual she may chose a different path in life rather than going to college.  What happens to the money you saved?  You only get back what you put in minus any expenses accrued but that money hasn’t even kept up with inflation.  It is possible that you could have realized a stronger return by investing on your own and now you can use that money for other purposes.

Most prepaid college plans only pay for tuition.  Think about the other expenses that accompany a college career.  If your child leaves home for college you will be out-of-pocket for room and board.  Even if they live at home you will still be paying for supplies, books, lab fees, computers, a car, insurance, sororities or fraternities and beer money.

Your daughter has been accepted to her Aunts alma mater.  In another state!  The college credits that you purchased can be applied toward a college in another state, but there’s no assurance it will cover the entire cost.

So are we “Super Parent’s”?  Yes! We saved for our daughter’s education, but we have had to overcome some of the pitfalls that come with prepaid college tuition plans.  It is important that you review the pros and cons of every college savings plan for your own unique situation to ensure that you will make the best possible choices for your family.

How To Use Dollar Cost Averaging: A Simple Strategy You Can Begin Using Today

Wouldn’t it be nice to have a crystal ball or a time machine to look into the future of your investment portfolio?  The problem is, there’s no such thing, so we have to honestly ask ourselves, can I pick the right time to buy or sell my investments?  Do I have the ability to make financial decisions without my emotional side interfering? Am I experienced enough to do any of this?  The dollar cost averaging strategy helps to achieve all of these important investment objectives.

Dollar cost averaging is a method of consistent investment over a period of time.  If you participate in a 401(k) at work, for instance, you are inadvertently using dollar cost averaging, as you automatically invest a portion of your paycheck into your retirement account each pay period over your career.

Deciding when to buy or sell an investment is called market timing.  Market timers spend all their time researching and analyzing trends in the market to predict when the cost of a particular investment will go up or down.   When using dollar cost averaging you enter the market at your own pace by picking a start date and an end date.   A financial planner may be helpful in incorporating dollar cost averaging into your retirement plan.

We all have heard the golden rule of investing; “buy low and sell high.”  Regretfully, our emotions can get in the way and we tend to buy high and sell low out of fear of what the market may do next.  Using dollar cost averaging you’re investing the same dollar amount each period which leads you to buy fewer shares when the price is high and more when it’s low.  

Let’s look at a hypothetical scenario and see how dollar cost averaging works. 

When you put your dollar cost averaging plan into effect and make periodic investments automatically, you may reduce the emotional frustration of market fluctuations.  Dollar cost averaging can help you keep with the golden rule.

 

Securities offered through J.W. Cole Financial, Inc. (JWC) Member FINRA / SIPC. Advisory Services offered through J.W. Cole Advisors, Inc. (JWCA).  Storace Wealth Services and JWC/ JWCA are unaffiliated entities.

MMA Gyms: Is Trading on a Professional Name Enough to be Successful?

Power MMA & Fitness

Power MMA & Fitness

As we sit down with MMA fighters to discuss their plans for transitioning from an athletic career into their post professional lives, inevitably the idea of owning and operating a gym comes up. Most fighters believe that they'll be able to trade off the notoriety they've made for themselves in the cage and attract enough students that they'll be able to operate a successful gym. For those that have this idea in mind, we want to see you succeed so we present some vital information you'll need when deciding if this type of venture is right for you.

I spoke with Ryan Bader, current top 10 UFC light heavyweight and co-owner of Power MMA & Fitness to gain a fighter’s insight.

“Key factors [to success] are having the right people around you that you trust,” says Bader. 

There's no doubt that a former UFC veteran’s expertise in mixed martial arts is enough to teach others, but are your business skills where they need to be to run your gym? Ryan Bader is a graduate of Arizona State University where he majored in Justice and minored in Business. A solid footing for any entrepreneur, but many fighters, while well educated by sports standards don’t necessarily have the business education that Ryan does.

If you don't have the background in operations management, accounting, and finance then there are two ways to get it. You can return to business school or you can hire the help you need. Obviously hiring someone to manage the business of your gym requires trust and capital investment. It's a good idea to find people that not only shown business acumen but who have experience managing health clubs. These people understand the special challenges of the industry and the varied revenue streams available to you as an owner. They need to be familiar with all aspects from membership sales to product placement. If you decide to go back to school, the education won't stop at graduation. You'll be continuing to learn from your mistakes over the next several years, so you'll need to be prepared to overcome them. 

El Nino Training Center

El Nino Training Center

Many people choose to structure their new gym as a partnership. Be very careful of who you choose as a partner. I recommend running both a criminal and credit background check on anyone you might think of partnering with, even if you've known the person well for a very long time. The best way to build trust between people is to have so much transparency in your dealing that you never have to rely on trusting them. Create a partnership agreement that clearly defines the duties each person is to perform, their compensation and ownership stake of the company, and ability to enter into new contracts. Be sure that each partner hires their own attorney to review the agreements before signing. 

The number one reason a new business fails is lack of capitalization. Create a business plan and learn everything you need to know about your projected costs before you spend your first dollar. Research and write a pro forma statement of cash flows. A pro forma statement is a "what if" report. You'll want to have enough of a capital investment to overcome your start up costs and provide operating capital for at least one year. Be sure to include your salary into these costs. If you'll be using your own money for the initial capital investment, be sure that you're not risking more than 20% of your liquid net worth so you'll be able to rebuild and don't over commit. Remember that only one of twenty new businesses succeeds. There is no shame in failing to produce a profit. If you limit your risk to the downside you'll be able to rebuild in time and possibly try again.

"I've missed more than 9000 shots in my career. I've lost almost 300 games. 26 times, I've been trusted to take the game winning shot and missed. I've failed over and over and over again in my life. And that is why I succeed."  - Michael Jordan

One of the crucial parts of your business plan will be researching your competition. With the increase in popularity of mixed martial arts, not only do you have a larger interest from consumers, but you'll be met with an increase in businesses built by other MMA professionals who may have started well before you. They are established and have what is known as "first mover advantages." You'll need to find a way to differentiate your gym from their's in a way that resonates with consumers. This research will help you decide where to put your gym. Your convenience is not important. The first law of real estate is "location, location, location." Your location will be a result of where your competition is placed and where your ideal consumer lives and works. Take into consideration things like parking, freeway access, foot traffic, and accessibility to your business, and of course cost of the space.

Ultimate Fitness

Ultimate Fitness

For most, the entire idea of opening your own gym is to provide you with a lifetime income while staying close to the sport you know and love. For Urijah Faber, it started as a way to minimize his travel between trainers and bring his MMA family under one roof. Since then, Ultimate Fitness has become so much more.

With over 8,000 square feet of space, Dave Rowen, the operations manager of Ultimate Fitness, wishes he had a larger facility to accommodate more family. The gym shares its member space directly with Team Alpha Male. So while the members train, they rub elbows with the likes of Chad Mendes, Joseph Benavidez, Danny Castillo, current UFC Bantamweight Champion TJ Dillawhaw, and of course, MMA pioneer and living legend, Urijah Faber.

The ranks of this gym have been swelled by the success of the team. With over 400 gym members and 40 pro members from Team Alpha Male, the gym’s success has come with the burden of limited space. Scalability would be ideal in this situation. If you have the ability to occupy a smaller section of a 20,000 square foot facility for example, make sure that you have some provisions written into your lease agreement which allow you the first right of refusal to expand your operation into other areas of the building as they become available. This is one of those places where working with a realtor can really pay off. In California, the property owner is responsible to pay the realtor commission in a rental, so there’s no reason not to seek out professional help when you’re looking for your space.

It’s easy to assume that the names are the big draw of working out at Ultimate Fitness, but Rowen feels it’s more about family.

“It carries over from Faber. In the gym, he’s very humble and the people we bring in are like-minded. [It’s] an easy, relaxed attitude.”

What Faber and his compatriots have built is a relaxed atmosphere where everyone is equal and nobody feels alienated or left out. Both pros and joes mix it up at UF.

Author Chris Storace and Ryan Bader

Author Chris Storace and Ryan Bader

Ryan Bader agrees. “In our business it's a little different than a regular fitness gym in the fact that we interact more with our members. Seeing a lot of the high level mma fighters in the gym and watching them train is a big reason why a lot of members sign up at that particular gym.” 

At Power MMA & Fitness, while high level MMA may be the draw, it’s the experience that keeps people coming back.

Ryan insists that the experience is about "..making your members feel like they are a part of something and treating them like people and not dollar signs."

Anytime you offer something that speaks to a person’s basic human needs, you’ll find a business that has value beyond the obvious service. One of the biggest hardships with running gyms is high membership turnover. The lesson here might be that building a place which becomes the core of someone’s social involvement can reduce turnover and lead to more sustainable profitability. 

Even with a decade of success under their belts, Rowen warns start ups that “There’s a huge learning curve. It’s harder than it looks.” 

Sometimes, knowing when to submit is just as important to fighting. Like everything you do, you'll have put 100% of yourself into the creation of your gym. You'll feel responsible to your students, to those you employ, and in your true fighter spirit you'll never want to give up, but before you get started you and your partners should agree when to call it quits so you can live to fight another day. Create a tap out provision in your partnership and make a commitment to yourself to fold the business if capital losses reach a predetermined point.

Your gym will become an asset, but it shouldn't be the only one. Make sure your personal financial plan continues to include saving and investing so you don't put all your eggs into one basket. Diversify your personal portfolio and protect yourself from downside risks. You never know how outside influences can affect your business. If your partner passes away, you could find yourself in business with the spouse. You could lose a manger to a new job opportunity, your gym to a fire, or your profits to a downturn in the economy. The best way to protect your assets against any casualty is creating a well thought out plan. Don't be shy about engaging professionals to help you. A CPA, attorney, and financial planner will be key components to your success. Be sure that those you decide to work with have the expertise and experience. Finding professionals that works with athletes and understand your unique challenges will help you immensely. 

A new gym can be a great source of revenue and an intuitive place to start your new career after you've retired from pro competition. Be sure that your business value revolves around making your members feel good about themselves and you’ll greatly increase your chances for success. 

Three Things You Need to Know About Internet Security

WORST PASSWORDS OF 2013

SplashData, Inc. has announced its annual list of the 25 most common passwords found on the internet. The top three worst passwords during 2013 were:

■ 123456

■ password

■ 12345678

 

EMAIL FRAUD RED FLAGS

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Email hackers are infiltrating client email accounts and subsequently attempting to make fraudulent account inquiries and wire requests. Here are some red flags to look out for:

CHECK THE SPELLING: Scammers are notorious for their lack of basic spelling and grammar skills. Look for misspelled words and incomplete or awkwardly written sentences.

URGENCY: Scammers always express the urgency of need to wire funds.


NO PHONE ACCESS: Perpetrators have clever storylines as to why they are unable to speak with you on the phone.


DON'T BE A VICTIM

Here are some guidelines for making sure you don't become a victim of this dangerous hacking scam:

CONFIRM: Always verify email requests with your client by telephone or in person. 



ENCRYPT: Do not send client personal information in an unencrypted email. For assistance with encryption, please review SmarshEncrypt.


Personal Information that must be protected at all times:

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  • Account Numbers
  • Account Balances - Values, Screenshots or Attachments
  • Information Regarding Income or Assets
  • Credit Card Number or Debit Card Number
  • Social Security Number
  • Driver's License Number
  • Date of Birth

Obama's Retirement Solution: MyRA Yay or Nay?

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There is a common misconception that those who can afford to save do. The reality is most people fail to save, but instead increasing their lifestyle and living for today. A pair of doctors living paycheck to paycheck make just as much money as someone who works two blue collar jobs just to make ends meet. I met those doctors early in my career. As clients of a colleague, their combined annual income was one million dollars, yet they had no savings and were struggling to pay their bills each month. Financial literacy in this country escapes even the most well educated of us all. The answer to your financial goals is very rarely to make more money, but almost always to spend less and save more.

Barack Obama has introduced a new type of retirement plan which targets low and middle income households called MyRA in an attempt to help these people save more and give them a start at a nest egg. Half of Americans do not have access to workplace retirement savings plans, but have access to Traditional IRAs and Roth IRAs. So what do we hope to accomplish with MyRA? Are we trying to give an incentive to people to save? The program will act much in the same way as a ROTH IRA. The investor will save after tax dollars and be able to withdraw them after age 59 1/2 for use during retirement. The growth will be non-taxable. 

There are some differences. Participants can use payroll deductions to automatically deposit earnings from their paychecks into their MyRA accounts with as little as $5 per pay period. The account will be portable so that the participant can remain with the same plan even if they change employers. Once the account has been open for 30 years or has reached a maximum of $15,000 it will transform into a ROTH IRA by default. Finally the account will be invested into Government Securities and be backed by the full faith and taxation power of the same. 

On one hand, for those people who are only able to put away a few dollars per pay period, this might offer an easy way to save. On the other hand, this could be an easy way to watch people part with their hard earned money. Consider first that the only available investment option will be government securities. Historically, the government pays some of the lowest returns as it also has some of the lowest risk available. According to modern portfolio theory, a certain amount of diversification is necessary to a portfolio. Even Warren Buffet has been quoted saying, “Diversification is protection against ignorance. It makes little sense if you know what you are doing.” The people being targeted by this plan are in dire need of diversification. 

It's estimated that this plan would be offered to half the US workforce or 77 million workers. If participants put in the minimum of just $5 per two week pay period, the number of dollars streaming into the government coffers could be into the staggering billions. As a politician looking for ways to stem runaway spending, it seems the President may have found a simple solution. The real problem comes from early withdrawals. Many people who are living paycheck to paycheck will find themselves in need of liquidity that they don't have. If this resource exists, they will tend to use it.

For example, I have a client who is a dental assistant. Having saved $17,000 into an IRA over the years, my friend contacted me recently to ask if it was possible to take a loan or access the money somehow since there would be a new orthodontic expense that required a $1,000 deposit. The mind quickly searches for places to access money in times of need and so many people look to their retirement plans, but our friends the doctors would be able to pay back a loan far faster than those of lower income.

What is the real motivation to offering this program? From my perspective the government has far more to gain than the low income investor who would do better to establish a certificate of deposit or savings account before entering into a retirement plan, even on this small of a scale. So those asking my vote for MyRA, I give it a resounding nay.

457 Deferred Compensation Plan: What Makes It So Special?

The 457(b) Deferred Compensation plan is very special. It’s only available to employees of a state or local government or to those of a tax exempt entity. The plan allows for the same contribution limits as a 401(k) or 403(b) but can be accessed prior to age 59 1/2. Normally, if you take withdrawals before that age, the member would be hit with a 10% early withdrawal penalty, but the 457 isn’t hindered by the penalty which makes it an incredibly flexible retirement planning vehicle.

"In general, an eligible state or local government section 457 deferred compensation plan is not a qualified retirement plan and any distribution from such plan is not subject to the 10% additional tax on early distributions. However, any distribution attributable to amounts the section 457 plan received in a direct transfer or rollover from one of the qualified retirement plans listed above would be subject to the 10% additional tax."

Many deputies and law enforcement officers retire far before the age of 60. In fact, many retire between the ages of 45 and 50. Not only does this present a problem if you can’t access your retirement funds until 59 1/2, but it also means that those funds need to last longer than they would for most people who have the option of working longer. 

If you’re lucky enough to have a 457 we recommend that you take advantage of it. This allows you to build a fund which you can bridge the gap of useable retirement dollars between and could very well become your main source of income during your first 10 to 15 years of retirement. 

Knowing when you plan to retire can have much broader implications than just figuring out how much money you’ll need to save. Contact us to learn more about the challenges that you could be unknowingly facing.

The Roth IRA: Why Would I Be Interested?

In the world of investment vehicles only three will provide you with a tax free stream of income. Municipal Bonds, cash value life insurance, and Roth retirement plans can offer ways to grow your savings tax free. Today we’re going to focus on the Roth IRA, but feel free to contact our offices at any time to learn more about all your options.

Many people prefer to save their money for retirement in tax deferred programs. They are assuming that they will be in a lower tax bracket during retirement than they were while they were working. One of the strategies we use in planning for retirement is to create a non taxable stream of income to marry with your taxable stream to reduce your tax obligation each year. The money you save remains in your retirement plans earning interest and gives you a greater chance of meeting your retirement needs through your entire life.

To illustrate this concept, consider an example in which a single person might need $100,000 in a retirement year. If $75,000 of that were taken from a 401(k) or similar tax deferred plan and $25,000 were taken from a Roth IRA, our fictitious client would still take in the $100,000 needed, but only pay taxes on $75,000 of it. 

If our client had been responsible for paying taxes on the full $100,000 and had no other deductions or adjustments, the total tax expense would be $21,293.25 but by adding a stream of non-taxable income we’ve not only dropped the bracket from 28% to 25% but reduced the taxable amount for a total tax expense of $14,678.75. The $6,614.50 saved will remain in the client’s accounts earning further interest.

The Roth IRA contribution limit is $5,500 for tax years 2013 and 2014. The new phaseout limits begin at $181,000 and end at $191,000 for couples filing jointly. What this means is that once the adjusted gross income reaches $181,000 you may not be able to contribute the full $5,500 and after your AGI has reached $191,000 you may not be able to contribute at all. For single people and those filing as head of household, the phaseout range is between $114,000 and $129,000. 

Retirement Plans

It all seems like alphabet soup. What does it mean and why is it important to you? The first thing to understand about all these numbers and letters is that they represent different ways to save for retirement. The only differences between them are how they’re taxed and who is eligible for each of them. These traits are determined by the IRS who, shockingly, has also named them.

Each of the plans allows for either tax deferred or tax exempt growth of the money you deposit into the account. If the money is tax deferred, it has likely been taken out of your paycheck by your employer and deposited for you before you’ve been taxed on it. At the end of the year, if you earned $50,000 but contributed $10,000 in this manner to the retirement plan, you will only pay taxes on the $40,000 you actually took home. This money will be available for your use at age 59 1/2 and will only be taxed once you begin taking withdrawals. Only the withdrawals you take are taxed. The principle remains in the account growing tax deferred.

If you’re involved with a Roth IRA, then you will make contributions to the fund which are still taxed in the current year as though you took the money home, but the growth of that money will be tax exempt. When you reach age 59 1/2 you will be able to withdraw from the account and it will be a tax free source of income for you. In fact, there are only three ways to generate tax free income. Municipal bonds, cash value life insurance, and the Roth retirement plans.

The 401(k) is a qualified retirement plan that allows the participant to deposit up to $17,500 in years 2013 and 2014. 

The 403(b) Tax Sheltered Annuity (TSA) is available to employees of hospitals, schools, tax exempt entities, churches, and public school systems setup by indian tribal governments. These types of plans can be invested in either mutual funds or annuity contracts through an insurance company. The maximum contribution for years 2013 and 2014 is also $17,500.

The 457(b) Deferred Compensation plan is very special. It’s only available to employees of a state or local government or to those of a tax exempt entity. The plan allows for the same contribution limits as a 401(k) or 403(b) but can be accessed prior to age 59 1/2. Normally, if you take withdrawals before that age, the member would be hit with a 10% early withdrawal penalty, but the 457 isn’t hindered by the penalty which makes it an incredibly flexible retirement planning vehicle.

"In general, an eligible state or local government section 457 deferred compensation plan is not a qualified retirement plan and any distribution from such plan is not subject to the 10% additional tax on early distributions. However, any distribution attributable to amounts the section 457 plan received in a direct transfer or rollover from one of the qualified retirement plans listed above would be subject to the 10% additional tax."

An IRA or Individual Retirement Account is not a qualified retirement plan as defined by the IRS. The contribution limits to these plans are capped at $5,500 for 2013 and 2014, but everyone over the age of 18 is eligible to participate. These accounts are tax deferred retirement plans.

For those who own and operate a separate business, the SEP IRA and Solo 401(k) are available options which allow the participant to save $51,000 in 2013 and $52,000 in 2014 tax deferred. 

The Roth IRA annual limit is $5,500 per year in 2013 and 2014 and as mentioned previously, grows tax exempt. The new phaseout limits begin at $181,000 and end at $191,000 for couples filing jointly. What this means is that once the adjusted gross income reaches $181,000 you may not be able to contribute the full $5,500 and after your AGI has reached $191,000 you may not be able to contribute at all. For single people and those filing as head of household, the phaseout range is between $114,000 and $129,000. 

Those age 50 or greater may be able to make Catch Up Contributions. The limit to the contribution varies with the plan, but allows those nearing retirement to increase their savings. Give us a call and we can help you determine how much extra you might be able to put away.

What are my options if I'm in DROP right now?

DROP.png

If you’re in DROP, then you’ve decided to work for five more years and then terminate your service completely at the end of that term. Several deputies we work with have done a fantastic job of saving on their own for retirement. They’ve used their 457 Deferred Compensation plans, IRAs, Roth IRAs, brokerage accounts, and spousal accounts to do it. In short, they’ve used virtually every vehicle to get the job done. In a few cases, I’ve actually been able to report that they can retire early! Unfortunately, the good news creates an unforeseen problem. Now you’re faced with the knowledge you can quit today, do you? Here are your options.

You can do the obvious and stick it out. This can be tough to do in more ways than one. Your DROP account increases the closer you come to completing your five year period. Of course you might also be just one bad day away from terminating altogether. Knowing that you’ve saved enough to retire gives you options, but one of them is the ability to make a hasty decision.

You can leave DROP before your five years is complete, take the DROP money you’ve accrued and walk out the door. Be aware that the amount you receive from DROP isn’t based on a uniform earnings schedule and actually ramps up the closer you come to finishing the full five.

Finally, you can terminate employment, leave DROP early, forfeit the money you’ve accrued, and switch to the investment plan. This option may sound nuts to some people, but for others it makes a lot of sense. Those with whom we work that have chosen this option prefer to take control of their investment strategy to either outperform their pension benefit and Cost of Living Allowance or prevent the state from making cuts to their benefits during retirement.

Contrary to popular belief, you are not guaranteed to receive the same payment and COLA from your pension plan that has been projected for you by the system. Anytime the outstanding obligation of FRS to its participants is less than 100% funded, the state is able to make any changes to the program it deems necessary to maintain solvency, including, but not limited  to, benefit reduction. Anytime a pension plan is less than 80% funded, it’s considered to be in in trouble.

"When the FRS is less than 100 percent funded, the legislature may reduce future benefits to lessen plan liabilities, or may raise employee contributions to increase funding. The legislature may make changes to FRS at any time."

The FRS rose from 1985 through 2000, but has steadily declined ever since. While the program remains over the 80% threshold, the 14 year downward trend presents a problem and has caused many to lose confidence that the system will continue to pay benefits at their expected rate. As more and more people retire on the FRS, the financial burden of making payments to these people increases. In order to keep up with the benefit demand, the system must make up the difference from investment returns and the contributions of employed participants.

The FRS fund has done well overall beating its investment benchmark, but the benchmark is custom made and able to be changed each year by state appointees. If we were to substitute the FRS benchmark with the S&P 500, the fund would be falling short. The reason for this is that your pension fund must be invested with less risk than the S&P 500 which seems to make sense, unless the funds don't make enough money to support the system. 

Each of the options available to you during DROP has risks and rewards. Each need to be carefully considered. Be sure you’re getting all the pertinent information to help you make the best choice you can for yourself. Consult an independent financial advisor who works for you and acts as your fiduciary to help you analyze your choices. Call us today with any questions you might have.

The FRS Second Election: You Can Change Your Mind

When you first sit down to complete your FRS paperwork, you’ll have made your first election between the investment plan and the pension plan. As you go through your career, your attitudes and understanding of FRS may change, as well as your needs and ideas about how you’d like to retire. 

The good news is that if you do change your mind, you can do something about it. You are allowed a one time second election which can be used anytime between the first and the time you terminate your employment. With this second election you can switch from the pension plan to the investment plan or vice versa. 

Before you do, you should consult with your financial advisor to make sure it’s the best choice for you. There are several differences between the pension and investment plan that you’ll want to carefully weigh. 

Say Yes to the Dress Without Losing Your Shirt

It's the day you've grown up dreaming about and it's finally here. If you're like most Americans, you're preparing to spend a small fortune on your wedding. According to TheKnot.com an average $28,427 was spent in 2012 on weddings at an hourly rate of $5,600. 

A wedding is a very personal moment. It's meant to be a time that we share our pledge of love and commitment with our friends and family, but how many times have you heard the brides and grooms of weddings past tell you that it went by so fast they can barely remember most of it. Most of what they remember is the work and sacrifice that went into the planning. Even the guests will tell you that their real interest in going to a wedding is the food, the party, and enjoying the moments they share with the couple.

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So how can you lower the cost of your wedding and still have an amazing time? I caught up with Jessica Kuipers of Bijoux Events and asked the expert. As one of Santa Barbara's premier wedding coordinators, Jessica has been featured in such well known publications as the Los Angeles Times, Bridal Guide, and Style Me Pretty. Her answer was surprisingly the very same we give our own clients about saving money. Learn to prioritize effectively. 

She has several suggestions on ways to save that won't detract from the experience. 

"Quality over quantity" says Kuipers. Applying this principle across the board to your wedding will help you create the experience you want without the giant price tag. First, consider your guest list. "This is not the time to reconnect with people you haven't spoken to in years. Don't feel like you need to invite people to your wedding just because they had you at their's and don't include co-workers unless you have to." Jessica points out that when you thin your list from the average wedding size of 100 to 150 people down to a more intimate size of 50-75, you supercharge your savings on all your variable costs. You can look for a smaller venue, pay less per plate, and reduce your alcohol bill dramatically.

Mrs. Kuipers was quick to point out one of her golden rules for event planning. Keep your guests happy by always considering their comfort first. An outdoor venue might seem like a great idea and even inexpensive, but have you accounted for the cost of rented bathrooms? Temperature and accessibility are also key. I attended an early evening wedding in Georgia recently where the temperature was an issue to start with until we were surprised with popsicles. It was a creative, low cost way to keep everyone cool until the sun started to go down. There are some guests who move more slowly and sometimes with the aid of walkers, canes, prosthetics and wheelchairs. Your venue should offer the proper lanes and ease of mobility for these folks.

Jessica Kuipers - Bijoux Events

Jessica Kuipers - Bijoux Events

Use of a hotel should handle all your needs, but alcohol will generally have a significant markup whereas a private home, park, or lower cost setting should allow you to provide your own alcohol. Providing for a simple beer and wine offering can also keep your alcohol costs down. People who drink liquor tend to drink more. Alcohol is also consumed less during afternoon and weekday celebrations.   A private area will also require a rented kitchen to be built or setup. The alcohol savings versus the cost of the extra rentals could easily turn out to be a wash. 

Your decor should annunciate the natural surroundings. Spending money on quality lighting can go a long way to enhance the mood of your event, especially in the outdoors. Again, taking guest comfort into consideration is key. They'll be spending a great deal of time in their chairs and while covers aren't always necessary, finding good seats is a must. 

The timing of your wedding is another important factor. If you're willing to plan it for the off season, many vendors and venues will waive their minimums. Jessica recommends March as the best off season month. Lunch dining is always less expensive as well. One strategy to saving money and still having a great party is to promote a lunch reception with an after party for younger guests without children who are most interested in music and dancing.

For intimate gathering of 50 to 75, it's generally better to hold the reception at a restaurant. Consider buying out the restaurant for the night. You may be able to reduce your per person food costs to between $60 and $80. Don't forget about the gratuity though. It's often overlooked by couples until the night of their wedding and it can be a shocking number. 

To really drop the expense of food, offer your guests an appetizer and dessert menu only. You can create a very classy and light menu offering that keeps people satiated without the need for a sit down dinner and saves from the labor of setting up tables, renting dishes and glassware. 

Wedding Planner Jessica Kuipers

Wedding Planner Jessica Kuipers

There's no doubt that you'll want to preserve your day forever. Jessica explains that this is not a place to cut cost. Every wedding should have two photographers. "There's just no way one person can cover the entire event and all the special moments occurring around you." The highest expense in working with a photographer is in the albums they will offer. You can create these yourself and have fun doing it. Just be sure that you receive all the photos from the vendor to use as you wish. Make sure to complete your photo shoot before the reception so you can spend as much time with your guests as possible. 

Flowers are costly and perishable. They can accent an indoor setting but quite often, couples are led to believe they need more than they do. If your wedding is outdoors, highlight the natural beauty of the area. Using nature is free.

Nothing has a shorter life-cycle than a dress. You spend countless hours finding the right one, wear it for eight hours, hope that it dry cleans well, then preserve it in storage, never to be seen again. You're not going to wear it again. Your daughter isn't going to wear it because her tastes will be different. Seriously consider a dress rental. 

Favors are falling out of favor with couples these days. Nobody gives away favors anymore. They're tedious to make and often left behind. In short, your money is better spent elsewhere or not spent at all.

When it comes to music, DJs are normally less expensive than bands. Rehearsal dinners can be pot luck extravaganzas that you host out of a friend's home. It's considered fashion forward these days for the bridesmaids to wear whichever style dress they feel best suits their personal style. Brides merely need to send out a color palette to their entourage. 

Have a graphic designer friend? Invitations can easily and quickly be designed using sites like Canva.com or MS Office software. Print them at your local printer using a heavy stock paper. 

Need help with labor? Put your friends to work barn raising style! You can accomplish nearly anything on the night of the rehearsal and the reward is the dinner afterward. 

With all these fantastic tips you might be wondering why you would ever consider working with a wedding planner. Jessica seems to have given away the farm on great advice, but she points out that your coordinator has relationships with vendors that you don't have and due to the volume of business she brings, they are able to offer discounts that you wouldn't otherwise receive. When it comes to hiring a wedding coordinator, "you get what you pay for. You'll run into young planners looking for experience and willing to discount their service, but their inexperience will be evident." Do you want someone learning how to do the job on your time? With over 300 weddings under her belt, Jessica Kuipers has the kind of experience that pays for itself in value and savings to your event.

The Difference Between a Trust and a Will

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We are often asked to explain the difference between a trust and a will. People want to know why, if they have one, might they need the other. Since both are associated with wealth transfer, we assume they are the same, but that's not an assumption you want to make. Estate planning isn't about protecting your money as much as it's about protecting your relationships. Too often, we find families squabbling over an inheritance to the point that the lawyers get the lion's share of what has been left behind. Knowing the components of an estate plan and how they work could be the difference between bringing you family together and having it fall apart.

Will

A will is a document that directs how your assets are to be handled once you've died. The probate court oversees the process to be sure it's carried out to your instruction. The downside to that is probate can be expensive and very time consuming. A will can provide guardianship for your children and declare specific directions you'd like to leave for your funeral. None of these things occur until you pass.

Trust

A trust is a legal entity complete with a tax identification number. A trust may provide some tax relief for your assets, but unlike a will, it won't provide for a conservatorship of your kids nor will it denote the details of your funeral. One of the biggest differences between the two is that a trust can function both during your life and after you're gone. The trust will provide an income stream to its grantor, that's you, and leave the remainder of the assets to beneficiaries. Trusts can also be created to deal with very specific issues such as spendthrift beneficiaries or even making sure that your special needs beneficiary is able to take advantage of government programs that may otherwise be unavailable. It's very important with a trust that the assets are placed in the name of the trust as it has no authority over assets not held in its name. A trust doesn't pass through probate court, which can save you the time and legal fees you may have otherwise paid.

Healthcare Directives

Many people have had discussions with their spouses about what to do in a difficult medical situation. It's the age old question about pulling the plug. Since we don't always want those choices to be made by others or we choose not to put the stress of that choice on them, we should always create advanced healthcare directives as part of an estate plan. These legal documents provide instruction to medical professionals on your behalf as to how you want a situation handled. Loved ones may make rash, emotional choices or even choices that aren't in your best interest. The dark side can be very disturbing. Greedy children and spouses may consider the monetary benefit of your death and choose not to pursue action that might otherwise save you. With a well defined healthcare plan you can take control before any of these possibilities occurs. 

The two most common reasons I see people failing to accomplish these important tasks are a fear of the assumed cost and not making it a priority. An attorney specializing in estate planning will tell you that the cost will reflect the complexity of the work, but anyone who has ever inherited an estate that wasn't well conceived will tell you that cost shouldn't be your biggest concern. Spending the money now could save your beneficiaries an exponential amount after you're gone. This process is not one to take lightly. If you take the cheap way out by using Legal Zoom or the free forms you can find online, expect to run into problems.

Estate planning is something that must be very well thought out and tailored to each person. We recommend finding an attorney that specializes in estate planning and whom will work in conjunction with your CPA and financial planner to create the best possible strategies for you. When you interview attorneys for this position, pay special attention to the questions they ask you. A good estate planner will work with you to discover the things you don't yet know about yourself and highlight the challenges you don't yet know you face.

Travelling in Retirement: A Global Health Plan is a Must Have

As reported by WealthManagement.com

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One of the first orders of business for clients considering a move abroad is selecting a location with access to good health care.  “It’s important to not only know if a country has a solid health care infrastructure, but also to make sure you’re in striking distance of a good hospital emergency room, since older people are by definition more prone to needing emergency services” says Josef Woodman, CEO of Patients Beyond Borders, which publishes a guide to health care facilities around the world.

Woodman urges retirees to locate near a western-style hospital that has been accredited by the Joint Commission International, and preferably one built in the past ten to 15 years. “The good news is, most Americans aren’t retiring in the hinterlands - they’re going to be within striking distance of a larger city, and chances are good that there will be an excellent facility within a couple hours of anywhere you’d want to retire.”

Medicare doesn’t cover services provided outside the U.S., so your clients may want to buy an international policy. Market leaders, Woodman says, include AetnaCigna andBlue Cross Blue Shield.

Clients moving abroad can opt not to enroll in Medicare if they expect to get all of their health care needs fulfilled outside the U.S., and for those who already had enrolled, it’s possible to exit the program. Medicare Part A (hospitalization) carries no premium, so there’s no reason to cancel that coverage. Part B (outpatient services) can be canceled by written notice to the Social Security Administration; Part D prescription drug coverage can be canceled by contacting the plan provider.

What about a client who moves abroad and later decides to return to the U.S.? She can re-enroll in Parts B and D during the general enrollment period (January 1 - March 31), and coverage would begin in July. However, she’d be subject to the Part B penalty, which is applied in any situation where a senior is over age 65 and should have been enrolled. The penalty is 10 percent of the standard Part B premium for every full 12 months the beneficiary could have had Part B but didn’t.

“That penalty is permanent in most circumstances,” says Jennifer Whittaker, operations supervisor for Allsup Medicare Advisor, a fee-based Medicare advisory service. There is no penalty for re-enrollment in Part D coverage, she adds.

“Assuming someone kept Parts A and B going while they were away, she could receive a special enrollment period (SEP) for Part D of two months after the month they return to enroll in Part D coverage again. There is no penalty for re-enrollment in Part D coverage. If someone kept both Parts A and B while away, they can sign up for a Medicare Advantage plan with prescription drug coverage during the SEP.”

Living Abroad: What You Should Know Before You Go

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The idea of expatriation isn't new and in fact, more and more US citizens are retiring abroad. If living overseas is your idea of a dream retirement plan, you've probably already identified where you'd like to live, but you need to consider the financial landscape and social service infrastructure as well.

Let's start with basic banking services. You will need a bank account in your new locale to handle your everyday financial transactions such as paying bills. If you thought fees and charges were expensive in the US, you really need to stay on top of these while working in an international setting. As you transfer funds from the US, you'll be faced with higher transfer costs and currency exchange rate risk. Currency risk occurs as a result of the differences in price between one currency and another on a daily basis. You should look for a financial institution that charges no more than 0.5% for asset transfers. Too often, you can unwittingly find yourself paying as much as 3% just to have access to your savings. To help reduce your exposure to credit risk and associated costs, you should consider converting a solid portion of your assets into the currency of your new home country. Before you do this though, be sure the country has a stable economy such as Western Europe. 

Another option is to work with a foreign exchange specialty firm, which often can move money at lower cost than a bank, and can also smooth out exchange rate volatility using forward rate locks.  “We need to be competitive because we’re an added step to the bank,” says Michael Ward, CEO of one such firm, USForex. These companies often work directly with advisers; make sure you’re working with a firm that is licensed by regulators in your state, and by the U.S. Department of the Treasury.

In March 2010, the Foreign Account Tax Compliance Act (FATCA) became law. The provisions were put in place to enforce tax compliance by those living outside the US. One of the repercussions has been that foreign banks are less willing to work with US customers due to increased reporting requirements demanded by the IRS. 

Taxes

As a US citizen, you could be responsible for paying taxes in two counties. Most developed countries require you to pay your taxes based on where you live, but the US bases their tax system on your citizenship. Each year your US tax return may be eligible for tax deductions for the tax you pay to the country in which you live, but you'll still be responsible for your US obligation. This means you could pay taxes in both countries, but not that you'll pay double the taxes. 

Your tax obligations can become extremely complex living abroad. You'll need to find a CPA who is not only well versed in the US tax code, but also that of the country in which you intend to live. Be sure to consult with your tax advisor well before you retire so that you have a plan in place and understand what you're getting into.                                   

Investing

Work to build a portfolio which incorporates investments which are steeped in the currency of the country in which you live. You can continue to invest from US based exchanges and still accomplish this task by using an ADR (American Depositary Receipt), Foreign Currency Exchanges, and more. 

10 Best Countries for Retirement Security

     -As reported by BenefitsPro.com 

Luxembourg
10. Luxembourg dropped from third to 10th place this year. It is one of the most prosperous economies in the world, has the third-highest income per capita in the world and an outstanding health care system. It has relatively low levels of unemployment, at 5 percent in 2014, and remains one of the most equal nations in terms of income. Luxembourg outperforms the top 30 average in the Health sub-index, with high life expectancy and impressive figures for health expenditure per capita.
Sheep in New Zealand
9. New Zealand improved its overall score to 78 percent, moving from 22nd to ninth place on the Index. In Finances in Retirement, the country moved from 88thto fifth place due to a lowering of tax pressures and increased performance on various indicators such as bank non-performing loans. Unemployment levels increased since 2008 but it continues to outperform the top 30 countries average with policies remaining focused on environmental issues. It placed 26th in Health, although it does have a good health care system, it experienced lower indicators compared to last year, with decreases in physicians per capita and life expectancy.
Old Town in Helsinki, Finland
8. Finland dropped two positions this year. It is a country with an overall high quality of life, and although its ranking in Finances in Retirement and Material Wellbeing have decreased, it still maintains a great healthcare system and a sound financial system. Finland has low levels of inflation and has one of the highest levels of income per capita. In terms of Health, it had an overall good performance in health care services and expenditure. The country jumped to 16th in the Quality of Life sub-index.
Cologne, Germany
7. Germany increased its ranking from ninth to seventh this year. It is the largest economy in Europe and has a top welfare and health care system. It ranked second in Health and improved its standing in the Quality of Life sub-index as German policy has continued to focus on environmental issues, Natixis found. In Finances, although increased tax pressures could hinder economic prosperity, low levels of inflation and sustainable government debt have helped boost Germany’s standing in this category.
Copenhagen, Nyhavn
6. Denmark jumped to sixth place from eighth last year even though its score remained 79 percent. Denmark is considered a modern market economy. Its people also benefit from extensive government welfare measures and comfortable living standards. Denmark has extremely low levels of income inequality while possessing one of the highest levels of income per capita, with about $40,000 per capita. Denmark ranked 26th in the Finances in Retirement sub-index, with a reduction of inflation and overall lower levels of governance. IT also improved its ranking on the Health sub-index with one of the most favorable levels of health expenditure per capita coupled with a high number of physicians per capita. It ranked third on the Quality of Life sub-index.
kangaroos at sunset
5. Australia moved from 11th to fifth place in 2014. Australians benefit from a strong welfare system and high income equality, but unlike other large economies, Australia has extremely low levels of unemployment, about 5 percent in 2014. It ranked second in the Finances in Retirement category with low tax pressures and low levels of inflation. Improvements in the number of physicians per capita and stability in the total health expenditure covered by insurance resulted in a rise from 22ndplace to 11th in the Health sub-index. The country also improved its standing in the Quality of Life sub-index.
Stockholm, Old City
4. Sweden maintained its position in fourth place in 2014 even though its overall score decreased to 79 percent. The country’s universal health care system, with high levels of physicians per capita and high life expectancy makes it one of the top health care systems in the index. Swedes benefit from high levels of income equality and one of the highest levels of income per capita in the EU with around $42,000 per capita. To sustain a generous welfare state, tax pressures have substantially increased, which have impacted the Finances in Retirement sub-index. Sweden ranked fifth in terms of Quality of Life.
skiers moutains landscape
3. Austria took third place on the index, up from fifth in 2013. The country has a well-developed social market economy and a high standard of living, with an exceptional universal health care system. It is also one of the wealthiest nations in the European Union with about $44,000 in income per capita. It topped the Health sub-index, with impressive figures in the physicians and health expenditure per capita indicators and had a higher relative life expectancy compared to last year’s figures. Austria placed third in Material Wellbeing because of high income equality and low levels of unemployment.
Traditional Norway
2. Norway dropped from first to second place in the index this year, but it has an extremely high quality of life, an outstanding healthcare system and a sound financial system, according to Natixis. It is one of the wealthiest countries in the world with a sovereign wealth fund worth $800 billion.  Norway saw improvement in a number of indicators and outperforms the average of the top 30 countries in all 4 dimensions of the Global Retirement Index, particularly in Material Wellbeing and Quality of Life.  The country had a lower level of inflation, which prevents the loss of purchasing power of savings, a decrease in unemployment and an improvement in the curtailment of factors that lead to climate change. It underperformed in the Old-Age Dependency indicator because its ultra-low interest rate environment makes it hard for investors to grow their retirement savings and its high levels of taxation, 43 percent of GDP, hurt disposable incomes and the capacity to set aside savings for retirement.
Swiss Alps Landscape
1. Switzerland overtook Norway to claim the top spot on the Natixis Global Retirement Index. Its overall score was 84 percent compared to 87 percent last year, showing that overall country scores have gone down in 2014. Natixis points out that the index included government indebtedness as an indicator for the first time and it is developed country governments that generally have higher levels of debt as a percentage of gross domestic product. This new indicator, coupled with historically low real interest rates and a rise in the proportion of bank loans that are in default relative to other countries in the index, resulted in Switzerland falling from first to 6th place in the Finances in Retirement sub-index. Decreasing income inequality and rising incomes saw the country jump from 9th to fifth place in the Material Wellbeing sub-index. Improvements in the number of physicians per capita and the proportion of total health expenditure covered by insurance pushed Switzerland from 9th to 5thplace in the Health sub-index. It also placed first in the Quality of Life sub-index.

Got the Fever? Here's Your Baby Budget

Really?

Really?

There are few things that we look forward to more than starting a family. Children are the ultimate legacy. They are proof that we existed, the glue that binds us together, and the reason for most, if not all, our labors. If you're planning a pregnancy then congratulations on your first step toward building a family. I'm sure you've asked yourself time and again if it's the right time and how you plan to make ends meet, but having a baby may not be as expensive as you thought. At least not for the first few years. 

Unlike most things you'll have in your life, babies are generally pretty inexpensive to make. Without going into the process in too much detail, let's just say that your production cost is usually next to nothing. You shouldn't have to purchase materials in most cases and while there's definitely some sweat equity involved, the labor intensive exercise can be thought of as owner's capital investment.

The first thing to do is check your health insurance plan and review the costs that you will be responsible to pay. Plan to have several unplanned visits to the doctor. Especially if you're a first time parent. Most new parents don't yet realize the difference between a moderately sick child and an actual emergency. You'll have to spend a few dollars in co-pays each time you go and generally there's an out of pocket cost for medication. While reviewing your insurance, find out if your well-checks are free. Even with fantastic medical insurance, you could find yourself spending as much as $2,000 for the first doctors appointments, ultrasounds, and baby's shots. If your baby requires a stay in ICU or some monitoring, you'll need to shell out extra.

There are some cases in which production requires highly specialized processes such as in vitro fertilization. These processes can run into the tens of thousands and carry no guaranteed results, but carry an increased chance to create twice the output for ideal candidates. A word to the wise on this matter. If your doctor tells you that you are not an ideal candidate, he or she is gently urging you to find another process to use that has a better chance of results without the high price tag.

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Be aware. Twin births account for 3.3% of all births in the United States and the rate has increased a staggering 76% since 1980. This is largely due to the fact that older women have an increased chance to produce more than one egg at a time and when taken with fertility drugs or accompanying a fertility procedure the rate of twins can increase to a whopping 25% with triplets occurring between two and three percent of the time. If you're older and are using any of these methods, consider the real possibility that you may end up having at least two kids to manage.

Sticking to the average model and process method, the bulk of your up front expenses will be made on equipment. Most clothing, baby monitors, linen, crib, rocker, swing, carseats, new furniture and accessories can be easily acquired using the time honored tradition of a baby shower. This is the absolute definition of angel investment from those close to you. Without the benefit of a shower, these things can total in cost from between $800 and $1,000 so be sure not to leave anyone off the guest list.

Be sure to set a baby budget. Decorating a nursery, baby proofing the house, and picking up those extras that you missed at your shower shouldn't run you more than $1,000. Decorating a nursery costs money but this is not a fixed cost as it will vary depending on somebody's taste and budget. Just be sure to stay within your means. In a very short few years, your darling children will be attempting to destroy all your hard work in their room despite your efforts by writing on your walls, throwing their toys at the finely crafted wood furniture, and pulling the stuffing out of the plush chair you used to nurse them in.

Eventually we were going to have to talk about diapers. You can expect to pay about $50 per month for each child to wrap their little gifts for you. The fancy diapers with the designs on them are cute, but they cost more. What you really want is something that is absorbent and fits well around the legs as they're the prime leaking points. 

Breast feeding can be a very personal choice. From a strictly financial standpoint though, it's an all you can eat, free buffet. You'll need to invest in a milk pump too. I suggest looking at Craigslist or talking to friends since these things really don't see a lot of use before people are done using them. If you decide not to breastfeed or use a hybrid method, you will spend anywhere between $50 and $100 on formula each month depending on the type that you buy and your baby's appetite. 

To sum up, when you look at starting your family using the normal procedure, you'll want to make sure you have about $4,000 saved up to pay for your out of pocket costs specifically related to having a new child. Anything above that should be available in your emergency fund. Remember that they're not one in the same. You should save for your baby costs in addition to your normal cash balance. Be prepared to spend up to an extra $250 a month in recurring expenses on the high end. Remember that these little buggers are inexpensive to make and maintain in their first few years, but the real costs are coming down the line. Child care, family vacations, and their education are the things that can put you in the poor house later. Consult with your financial planner to save for the big ticket items so you don't put your family at risk by failing to plan.

Are You Late to the Party? Start Catch Up Contributions at 50

Have you starting to realize that you may not have enough saved to be able to retire? Maybe you've got plenty and you're just looking to shelter a few extra dollars from taxes this year. Either way, if you're 50 years old or greater, there's a solution.

Catch up contributions will allow you to exceed the maximum contribution limit by $5,500 in tax years 2013 and 2014 as long as you meet the age requirement. You can make these extra payments to a 401(k), 403(b), SEP IRA, or 457 deferred comp plan. 

But Chris, can I make catch up contributions to my Roth or Traditional IRA? The short answer is yes! You can exceed the maximum contribution limits after 50, but by $1,000. 

The important thing to remember is that if you're older now and hopefully able to put a few extra dollars away above the maximum amount, you have the opportunity. Give us a call. We can review your retirement plans to find a way that works well for you to maximize your savings.

Putting Your Priorities Straight: The Building Blocks of Success

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Most people will fail. It doesn't matter what the subject matter is. Most people seem just destined to miss the mark they were aiming for. It's oxymoronic really because nothing excites us more than watching people overcome seemingly insurmountable challenges. Movies have been making billions from this base premise of human nature for longer than I've been alive. Peel into your own favorite film archive and ask yourself which flicks will stop your channel surfing dead in their tracks? Having conducted an informal poll over the years, some of the movies I hear most often are The Shawshank Redemption and Rudy; two of the biggest come from behind to win movies ever made! So why, if we're so enamored with success, do we find it so elusive? The answer is that we don't have our priorities straight. 

I know it sounds damning and accusatory to assume that you don't have your priorities together so allow me to hone in on the theme a little better before you leave my blog angry. Most people aren't successful. If you already are it means you're meeting or exceeding your goals. As a financial planner, it would seem obvious that I'm here to discuss financial goals right? Wrong. Of all the people I've had the discussion with about goals, including myself, I've never had anyone seriously say that they hoped to have a lot of money when they die. If anything, I've heard people comment that they'd like to have nothing left when they die. Money isn't the goal, but instead it's what you can do with money that matters. To each goal there is generally some type of financial component so it makes sense to discuss the currency that will help you achieve your goal, but it's not even the first step.

First, you need to figure out why you exist. Now there's the great question of "Why are we here?" and then there's the question of why do you, as an individual, exist? What do you want to do with your time here? Is it to raise kids? Is your purpose to drive awareness to the hungry among us? Maybe you aspire to sit on your couch and watch every chick flick ever made. This part is completely subjective, but at the root of getting your priorities straight. If you know where your passions are, then you can ask yourself the follow up question. What do I get out of it? You have to know yourself and why you do things. You have to understand what makes you tick. Most importantly you have to be honest with yourself. 

Do you crave the unconditional love of children or are you intent on making up for your own lost childhood through them? Are you the type of person who needs to be needed? Do you crave respect from your peers or admiration? Maybe you just want to be left alone. Whatever your reason for having the goals that you do, understand the emotional reasons behind them. Your motivation to achieve your goals will come from these honest answers. This is one of the reasons financial planning is such a personal and individualized process. Two people can have the same goals but completely different motivations. 

Maslow's Hierarchy of Needs

Maslow's Hierarchy of Needs

Once you've focused in on the factors that fuel the passion for your goals, you'll need to start making real priorities. Maslow's hierarchy of needs is a good place to start. Out of instinct, we breathe and seek out basic physiological needs as noted in the base of the diagram. Once you've achieved these basics, you will naturally seek to move up to the next level of Safety. It's this level that requires some basic financial priorities that most people fail to provide for themselves. Create an emergency fund. You've heard it before and you know you need to have a cushion, but do you have enough? It should be equal to at least three months of what you need to pay for your physiological needs. Most emergency funds are grossly understated. That means that most people don't save as much as they really need. They're trying to skip ahead, but ask any contractor that builds homes if taking shortcuts when creating the foundation for your home is a wise idea. 

With the safety phase we need to make sure we are adequately insured. Insurance is our way of protecting our chips as we stack them from being knocked down. If something costly and unexpected happens, such as a home fire, we can place the burden of payment onto an insurance company in exchange for premium payments. By paying a little as you go, you keep from being completely wiped out if a casualty occurs. This strategy not only protects you in the present, but can protect your future earnings as well. Every time you withdraw from your savings to pay for something, you have less money earning compounding interest and the longer it will take for you to reach your ultimate goals. 

When you have afforded all your insurance and protected yourself against as many of the potential risks that you can, then you're ready to begin investing. Remember that during this stage, you should be staying away from loans of any sort unless you need one to buy a house. Try hard to pay for things with cash. There will always be people who tell you that low interest rate loans are a great way to leverage yourself into making more of a return on your money. What you're really doing is leveraging yourself into debt and distancing yourself from attaining your goals. Large purchases such as pools and cars should be paid for with cash having first saved the money. You should also not lend money, even to friends and family. If you truly want to protect these relationships, don't involve money. As Shakespeare once wrote,  "Neither a borrower, nor a lender be." 

Create a systematic monthly investment plan and don't falter from it. If you attempt to invest all your savings on a single day each year, you're gambling that day will been the lowest priced day of the year to invest in the market. If you consistently invest each week then you have 52 chances to invest through the year as the market goes up and down. This concept is known as dollar cost averaging. The average of your overall stock prices should be lower with this system than with fewer investment days resulting in more shares purchased for an equal investment sum.

Now that you're executing your plan, you'll have moved into the Esteem category of Maslow's Needs chart. You should be feeling more confident and satisfied with your progress and as you near the goals you've set. You'll want to start looking toward the pinnacle of financial priorities once you've achieved this status. You'll want to start thinking about the legacy you'll leave behind and charitable giving. Once your own needs have been completely satisfied, you can begin taking care of others. I know it may sound selfish and out of line with what many religions teach, but it's not. There's a reason that when the cabin becomes depressurized during flight, you are instructed to place the oxygen mask on yourself before you do so for others. It's because you can't be of any value to others if you haven't first taken care of yourself. What good does it do to give away your assets and end up putting yourself in a place where you then need to ask for financial help? 

Once you have amassed what you need to reach your goals, you will look back over your life and realize that you've not only been successful about saving money, but you've succeeded in fulfilling your life's passions. You can start today by merely changing the way you think. Imagine the kind of world it would be if we all raised the bar on our priorities a bit. Instead of living for the instant satisfaction of what money can give you today, seek out the immensely greater thrill that comes with satisfying your innermost motives. 

Planning is Power

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All your life you've been told that if you want to get ahead and if you want to be the best version of yourself that you can be, you'll need to prepare. We spend years educating ourselves knowing that we'll never stop learning. We continue to unravel new aspects of our understanding and unlocking potential we never thought existed. We know that the best results require knowledge, dedication, and motivation. If you're the type of person who strives to be better then you need a plan. 

Financial planning is no different from exercise. First, you need to find the motivation to get off the couch and get started. Self-motivation can be a tricky thing. It's there one moment then gone the next. If the one thing you do during that time is to make an appointment with a trainer, then you've set yourself up to succeed. A trainer is someone who has the knowledge and expertise to reach your goals. A good trainer will meet with you and help determine a nutrition and exercise plan that takes into consideration where you are, where you'd like to be, and all the personality traits that might help or hinder your progress. You'll work with someone who challenges you without overreaching your limitations and causing injury. Acting as a coach, you'll be accountable to someone other than yourself to do your cardio, not skip leg day, and push out those last few reps that really make the difference. 

When you've reached your goals, you may find that you have new ones. Using what you've learned from the trainer, you'll have much more input when you reevaluate your plan and be able to personalize it even further. When you look at old photos you won't even recognize the person you used to be. Over time you'll have created the person you've wanted to be and be left with the self confidence that comes from knowing that you made it happen for yourself. Sure you had help along the way, but you'll feel healthy and reinvigorated. You may even decide to share your story with others and help them find their path.

A financial plan can invigorate your life just as well. By focusing on your goals and personality, you can begin to transform your personal financial life and become the person you've always dreamed you would be. Having a coach along the way to keep you motivated is no less rewarding. Knowing what you can do each day to work toward becoming financially free keeps you honest with yourself. 

Successful people always work from a strategy. They set goals and know exactly how to attain them. They find knowledgeable help and work as part of a team. So if you want to get ripped and put yourself into the financial shape you've dreamed of, then get off the couch and make a plan. Planning is power!

Uses For Life Insurance You've Never Thought Of

Life insurance companies place very few restrictions on who may be named the beneficiary of a policy.  This decision rests solely on the owner of the policy.  You can give your money to anyone or any entity.  Life Insurance is not part of the insured donors probate estate, which means that this GIFT cannot be contested by debtors, disgruntled heirs or by the IRS. You can give this gift to your loved ones, a church or charity, a trust, your business partners or yourself. 

Protecting your loved ones is the primary reason life insurance policies are purchased.  It can provide a cash benefit to your family if you die prematurely of unexpectedly.  This cash benefit or death benefit is used primarily for the final expenses of the deceased, to pay off debts, for future living expenses, to fund your children’s educations and/or weddings, and it can be used to leave behind an inheritance.  Purchasing life insurance is a way of placing value on your life and that of your family, and because beneficiaries pay no federal income taxes on life insurance proceeds, it can powerfully impact your family’s long term financial security. 

But what else can it be used for?

Your church has been an integral part of your life and your community.  A community of friends that help support each other in countless ways.  Donating your time by organizing food drives for the needy, toy drives for the children and beautifying a local park makes you feel good inside spiritually, mentally and physically.   By gifting life insurance, you can contribute far more than might otherwise be possible.  It’s a way to continue your stewardship and make a difference even after you’re gone. Making a gift of life insurance to your church or a charitable organization for that matter, offers a number of important benefits.  You create a legacy for the congregation you love.  You receive a possible income tax deduction for paying the annual premium if you name the church or charity the owner of the policy.  You church or charity receives the benefit and can continue to help your friends, neighbors and those in need.

Gifting life insurance helps you achieve your charitable goals today while creating a legacy for the future. 

What if the beneficiary of a life insurance policy is a minor child who lacks the financial sophistication to handle a large amount of money?  When minor children are involved, a Trust is often a good idea. A trust can easily be named as the beneficiary of life insurance proceeds. You can structure the terms of the trust to provide for your children in the manner and timeframe that you think best. The trustee acts as the manager of the trust and has the fiduciary responsibility to oversee the cash benefit.  This responsibility may include, per your wishes, handling the funeral expenses, investing some of the proceeds in the stock market on the child’s behalf, paying off certain debts, and in the end giving a final payment to the child once a certain age has been met.   

Life insurance can designate businesses as beneficiaries. If you own a business, for instance, life insurance can play a key role in a business continuation plan.  A carefully written plan can protect your business should you or other crucial employees die prematurely. Funding a buy/sell agreement with either term or whole life insurance allows the partners or shareholders to purchase the deceased owners share in the company which can help the business continue to thrive.

Don’t forget about yourself.  Many life insurance policies provide features that can offer benefits while you are still living.  Certain policies can be structured to provide a tax-advantaged accumulation of cash value for loans or withdrawals to meet estate planning, wealth transfer or retirement planning needs.  Some policies can simply provide a monthly income stream during retirement.  Planning the future of your life ought to provide benefits in the event you should you become chronically ill (long-term care rider) or disabled (waiver of premium and/or disability rider).

More than ever, Americans of all ages need help in meeting vital protection and retirement needs.   Life insurance goes well beyond family protection.  Life insurance is a gift that can be given to someone, an entity or yourself.  The security you will feel knowing that those you care about will receive this gift is a very comforting feeling.