Confidence Wealth & Insurance Solutions, Author at Confidence Wealth & Insurance Solutions

Confidence Wealth & Insurance Solutions February 5, 2015 No Comments

Beneficiary Arrangements

As you prepare your financial strategies, it’s important to spend some time considering beneficiary arrangements. Whether it’s through an IRA, life insurance, wills or trusts, anytime you want to leave money to others, you want make sure that you have in your mind a good understanding of how you want to designate the beneficiary.

For example, let’s say you’re a husband and a father and you have money in a retirement account — an IRA. Typically, your primary beneficiary will be your wife. What does that mean? It means that if you die and your wife is still alive, your wife will receive all the proceeds of that account. The wife in this scenario is considered a primary beneficiary. But what if your wife dies before you?

Or what if you and your wife die at the same time? In this scenario you may want what are called secondary or contingent beneficiaries. Let’s say you and your wife have three children: child one, two and three. These children can be named as a second line of beneficiaries, or contingent beneficiaries, so just in case your wife dies before you do, or you and your wife die at the same time, you’ve got the second line of beneficiaries, the three children. You may choose to divide the proceeds of your retirement account evenly between the three children — a third/a third/and a third.

But here’s something else to consider. What if your children have children of their own, your grandchildren? Let’s say child No. 1 has 3 children child No. 2 has no children at all and child No. 3 has two children — meaning you have a total of five grandchildren. Now, you may want to start asking some additional questions about designating beneficiaries.

Let’s assume your wife dies before you. Now there is only you. Therefore, when you die, the proceeds are designated to go to your three children who you have named as contingent beneficiaries. Well, what if one of your children dies before you? Let’s say your third child, the one with two children, dies before you .Then what happens? Well, if you haven’t set up your beneficiaries appropriately, you could end up disinheriting those two grandchildren. All of the proceeds could end up going to child one and child two, cutting out your third child’s surviving children.

That’s generally not what people want. Instead, they may say, “We want this child’s share to go to his/her two children.” This is generally referred to as a per stripes distribution, meaning that each branch of the family is to receive an equal share. If that is your objective, you would want to incorporate that term into your beneficiary designations. Then, should both your wife and one of your contingent beneficiaries die before you, the beneficiary designation would direct that contingent beneficiary’s share of the proceeds to go to his/her heirs.

This content is provided for informational purposes only and should not be construed as advice designed to meet the particular needs of an individual’s situation. No statement contained herein shall constitute legal advice. Consult with your attorney about your personal situation.

Confidence Wealth & Insurance Solutions January 15, 2015 No Comments

The Four Tax Buckets

If you’re considering tax planning to make the most of your asset allocations, you need to have a good understanding of how your assets are related to taxes. A good way to gain a basic understanding is by considering the concept of four tax buckets.

The first bucket is your taxable bucket, so any accounts or financial vehicles that you pay tax on each year, whether or not you pull the money out, falls in this bucket. So what does that mean? It might be bank accounts like CDs. It might be brokerage accounts, your mutual funds or bonds or even stock dividends. Anything that gives you a 1099 each year, even though you didn’t pull the money out – maybe you’re just reinvesting – that falls in this taxable bucket.

The second bucket is your tax-deferred bucket. Generally speaking, there are three primary vehicles that fall in the tax-deferred bucket: qualified retirement plans – that’s your 401k’s, 403b’s, 457s, IRAs. Non-qualified annuities also fall in this bucket, as well as savings bonds. Those are all tax-deferred, so those are in that bucket.

The third bucket is your tax-free bucket. There are three financial vehicles that are currently tax-free: municipal bonds, Roth IRAs and properly structured life insurance – notice I said properly structured life insurance.

Nothing else is tax-free. In fact, municipal bonds are not always tax-free, but for the most part they are.

Finally, the fourth bucket is income and estate tax-free, and that’s where you get into charitable trusts and other similar arrangements.

Here’s what you need to know. If you want to reduce taxes on your assets over time, you need to move assets to the right. A common mistake many people make if their objective is to reduce their tax liability is often right here. They have a majority of their assets in qualified retirement plans. This has the potential to create significant tax liabilities down the road. You may want to consider reallocating some assets to the right to help reduce the tax liability over time.

That is the concept of the four tax buckets.

No statement contained herein shall constitute tax, or legal advice. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal situation.

Confidence Wealth & Insurance Solutions January 7, 2015 No Comments

Healthy Resolutions Can Pay Off (Literally)

If you made a New Year’s Resolution to get healthy, you may get more bang for your resolution buck than you bargained for. That’s because healthy habits can benefit your wallet as well as your body.

The link between health and money

According to the Centers for Disease Control and Prevention (CDC), chronic conditions–including diabetes, heart disease, and cancer–account for more than 75% of all health-care costs nationwide. Nearly half of all Americans have a chronic disease, which can lead to other problems that are devastating not just to health but also to a family’s finances. People with a chronic condition pay five times more for health care each year, on average, as those without a chronic disease.*

Many chronic diseases can be linked to four behaviors: tobacco use, excessive alcohol consumption, poor eating habits, and inactivity.* A closer look at each of these behaviors demonstrates the health-money connection.

http://www.forbes.com/sites/danmunro/2013/09/06/the-big-disruption-that-isnt-happening-in-healthcare/

Eating habits and activity level

Proper nutrition and regular exercise are vital to staying healthy, but they can also save you money. For example, reducing the amount of high-in-saturated-fat products, processed foods, and red meat in your diet can result in benefits to your heart and wallet. Replacing high-fat ingredients in some recipes with healthier, low-cost options–such as using beans instead of ground beef–can help trim your grocery bills. And replacing high-calorie meals eaten at restaurants with meals made at home using fresh, in-season ingredients can benefit both body and bank account.

Current guidelines from the U.S. Department of Health and Human Services recommend at least 2½ hours of moderate physical activity per week. Many opportunities exist in everyday life to both accumulate active minutes and save money. Instead of driving to your destination, walk or ride a bike. Do your own yard work or house cleaning instead of hiring help. Go for a hike or play ball with your kids rather than going to the movies or visiting an amusement park.

Long-term considerations

Chronic disease also has indirect long-term costs. Leaving the workforce for extended periods–or having to retire early–means fewer paychecks, less chance to benefit from workplace-provided retirement plans and health-care benefits, and lower earnings to apply toward Social Security benefits. In addition, chronic diseases often necessitate home renovations, the hiring of specialized care providers, or even permanent nursing care. When viewed over the long term, taking steps today to reduce your risks of getting sick down the road may make good health and financial sense.

*Sources: Centers for Disease Control and Prevention, the Department of Health and Human Services, and the Partnership to Fight Chronic Disease

Important Disclosure

Confidence Wealth & Insurance Solutions September 9, 2014 No Comments

Ask the Expert: Can I Retire Early?

Question: Can I retire early? Is it possible? What do I need to do?

-Barbara from Los Angeles

Answer: Yes Barbara, there are ways that will allow you to consider early retirement, but there are some things you must consider. Retiring early means:

fewer earning years
less accumulated savings
freedom to do more activities that could add to your living expenses – activities that you couldn’t do when you were working – such as traveling, social events, dining out, etc.

Also, the earlier you retire, the more years you’ll need your retirement savings to produce income. Depending on how early you actually retire, you may find that you’re going through those retirement accounts more quickly than you had originally intended. This could pose a problem both for your later retirement years when you need income the most.

The first thing I want you to do is to project your retirement expenses

know when your retirement will likely start
how long it may last, the type of retirement lifestyle you want
estimate the amount of money you’ll need to make it all happen

One of the biggest retirement planning mistakes you can make is to underestimate the amount you’ll need to save by the time you retire. Focus on your actual expenses today and think about whether they’ll stay the same, increase, decrease, or even disappear by the time you retire. While some expenses may disappear, like a mortgage or costs for commuting to and from work, other expenses, such as health care and insurance, may increase as you age. If travel or hobby activities are going to be part of your retirement, be sure to factor in these costs as well.

Don’t forget to take into account the potential impact of inflation.

Remember, what you spend today will not be the same from what you spend 15 years down the line, even if you purchase the same items.

A longer retirement also means inflation will have more time to eat away at your purchasing power. If inflation is 3% a year (its historical average since 1914) it will cut the purchasing power of a fixed annual income in half in roughly 23 years. Factoring inflation into the retirement equation, you’ll probably need your retirement income to increase each year just to cover the same expenses.

Source: jemstep.com

Second, identify what sources of retirement income will be available to you to meet those needs.

When you compare your projected expenses to your anticipated sources of retirement income, you may find that you won’t have enough income to meet your needs and goals. Closing this difference, or “gap,” is an important part of your retirement income plan. In general, if you face a shortfall, you’ll have five options:

save more now
delay retirement or work during retirement
try to increase the earnings on your retirement assets
find new sources of retirement income
or plan to spend less during retirement

Third, you must take longevity into consideration.

How long will you need your retirement savings to last? We all hope to live to an old age, but a longer life means that you’ll have even more years of retirement to fund. The problem is particularly acute for women, who generally live longer than men. According to a National Vital Statistics Report, people today can expect to live more than 30 years longer than they did a century ago. To guard against the risk of outliving your savings, you’ll need to estimate your life expectancy.

Remember;

The longer you delay retirement, the longer you can build up your retirement savings.
Medicare generally doesn’t start until you’re 65. Does your employer provide post-retirement medical benefits? Are you eligible for the coverage if you retire early?
If you work part-time during retirement, you’ll be earning money and relying less on your retirement savings, leaving more of your savings to potentially grow for the future (and you may also have access to affordable health care)
If you’re married, and you and your spouse are both employed and nearing retirement age, think about staggering your retirements. If one spouse is earning significantly more than the other, then it usually makes sense for that spouse to continue to work in order to maximize current income and ease the financial transition into retirement.
If you’re going to be using the money from your IRA or retirement plan to fund your retirement, remember that in addition to income taxes, there may be penalties if you withdraw the funds prematurely. Or, there may be a limit on what you can withdraw without penalties.

Retirement is also a state of mind. Don’t underestimate the psychological issues involved in deciding when to retire. Many people welcome the opportunity to reinvent themselves. Others postpone retirement or return to some form of work so they can continue to feel connected and productive.

Confidence Wealth & Insurance Solutions August 20, 2014 No Comments

How Does Divorce Affect Social Security Retirement Benefits?

One of the challenges of planning for retirement is that an unexpected event, like divorce, can dramatically change your retirement income needs. If you were counting on your spouse’s Social Security benefits to provide some of your retirement income, what happens now that you’re divorced?

What are the rules?

Even if you’re divorced, you may still collect benefits on your ex-spouse’s Social Security earnings record if:

Your marriage lasted 10 years or longer
You are age 62 or older
Your ex-spouse is entitled to receive Social Security retirement or disability benefits, and
The benefit you’re entitled to receive based on your own earnings record is less than the benefit you would receive based on your ex-spouse’s earnings record

If you’ve been divorced for at least two years, and the other requirements have been met, you can receive benefits on your ex-spouse’s record even if he or she has not yet applied for benefits.

How much can you receive?

If you begin receiving benefits at your full retirement age (66 to 67, depending on your year of birth), your spousal benefit is equal to 50% of your ex-spouse’s full retirement benefit (or disability benefit). For example, if your ex-spouse’s benefit at full retirement age is $1,500, then your spousal benefit is $750. However, there are several factors that may affect how much you ultimately receive.

Image source: http://pubs.aarp.org/aarpbulletin/201411_DC?pg=14#pg16

Are you eligible for benefits based on your own earnings record? If so, then the Social Security Administration (SSA) will pay that amount first. But if you can receive a higher benefit based on your ex-spouse’s record, then you’ll receive a combination of benefits that equals the higher amount.

Will you begin receiving benefits before or after your full retirement age? You can receive benefits as early as age 62, but your monthly benefit will be reduced (reduction applies whether the benefit is based on your own earnings record or on your ex-spouse’s). If you decide to receive benefits later than your full retirement age, your benefit will increase by 8% for each year you wait past your full retirement age, up until age 70 (increase applies only if benefit is based on your own earnings record).

Will you work after you begin receiving benefits? If you’re under full retirement age, your earnings may reduce your Social Security benefit if they are more than the annual earnings limit that applies.

Are you eligible for a pension based on work not covered by Social Security? If so, your Social Security benefit may be reduced.

Planning tip: If you decide not to collect retirement benefits until full retirement age, you may be able to maximize your Social Security income by claiming your spousal benefit first. By opting to receive your spousal benefit at full retirement age, you can delay claiming benefits based on your own earnings record (up until age 70) in order to earn delayed retirement credits. This can boost your benefit by as much as 32%. Because deciding when to begin receiving Social Security benefits is a complicated decision and may have tax consequences, consult a professional.

What happens if one of you remarries?

Benefits for a divorced spouse are calculated independently from those of a current spouse, so your benefit won’t be affected if your spouse remarries. However, if you remarry, then you generally can’t collect benefits on your ex-spouse’s record unless your current marriage ends. Any spousal benefits you receive will instead be based on your current spouse’s earnings record.

What if your ex-spouse dies?

If your marriage lasted 10 years or more, you may be eligible for a survivor benefit based on your ex-spouse’s earnings record.

Image source: http://www.facethefactsusa.org/facts/think-you-know-who-gets-social-security-think-again-infographic

For more information on how divorce may affect your Social Security benefits, contact the SSA at (800) 772-1213 or visit socialsecurity.gov.