Whether You Call It a Budget or a Spending Plan, It’s a Good Way to Start 2009

Granted, the New Year is a time for best intentions. People vow to stick to a diet, knuckle down at work, spend more quality time with people they care about, start scratching off that long list of key chores around the house, and of course, keep a closer watch on their pocketbook.

If you find you can do only one of these things, focus on that last item–making and sticking to a budget. It might help you handle the rest of those resolutions:

• Being in control of one’s finances reduces stress. Stress can make people eat more and spend more.
• Having a spending plan in place means you’ll have already prioritized the key activities, expenditures and projects you’ll need to make for the year and the money you’ll need to afford them.
• Spending less time worrying about money means you’ll have more time to think about the people in your life.

Here are some ideas you may want to incorporate into that process.

Don’t be afraid to ask for help: Do you know where you need to be? A financial planner can ask the right questions and develop a customized plan to figure out your starting point and where you’ll finish based on your age, earnings potential and the new habits you’ll develop.

Start tracking every dime you spend: Whether you do it with a pen and a notebook or a computer program, make a concerted effort to track your everyday spending. Physicians say overweight people should track every morsel of food they eat; with money, it’s the same thing. Knowing where every penny goes gives a quick picture where certain pennies can be saved or invested.

Prioritize… When it comes to spending, there are needs and wants. Try this exercise. You can do this on a big 2009 desk calendar (or an electronic calendar that allows space for lots of notes to yourself). Mark down at the appropriate dates and times of the year items for which you need to spend and those for which you want to spend. What are needs? In part, food (not carryout or restaurant meals), monthly mortgage, tuition, auto or rent payments; monthly utilities; home, auto, life or disability insurance; retirement savings; property taxes and credit card payments. What are wants? Non-essential items like vacations, non-essential home improvement projects, restaurant meals (you can cook at home) or treats like clothing splurges or electronics. Compare these total expenditures to your total income. What will this crowded calendar tell you? That by attacking debt, making certain sacrifices and spending and saving smarter, you can eventually un-crowd that calendar and your financial life.

…then zero in each month: There has to be a living, breathing side to budgeting that accommodates change. Do this: Near the end of each month, make a list of the specific “needs” and “wants” you’ll face next month, and figure out how much money you’ll have for wants after needs are addressed. For example, if your car needs a necessary repair, that’s certainly going to boost the “needs” side of the page. If you find due to a one-time event (paying off a particular credit card, for example) that you have more to spend in the “wants” column, then it’s time to decide whether it’s time for a treat or to throw more into savings, investments or attacking any other debt.

Identify and plan for long-term goals: You need to think about the things you really want to do with your life and what those things will cost. Putting goals in writing gives them a formality and a starting point for the planning you must do. If these goals require saving, make sure you put those savings dates on the financial calendar you made.

Build failure and recovery into the plan: How many diets have evaporated with the words, “I blew it!” The fact is, with food or money; everyone goes off course at times. The important thing is to have a plan for corrective action – if you’re about to make an impulse purchase; implement a three-day spending rule. That means you should give yourself three days to check your budget and think through the purchase before you make it. If you can minimize the damage and get back on course, your progress will continue.

January 2009 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

As Medical Expenses Rise, Don’t Miss Key Deductions

There are plenty of horror stories about uncovered medical expenses these days, and the truly horrifying part is that many of them belong to people who actually have health insurance. But anytime you or a family member is facing a health crisis or an unusual medical-related expense, it’s best to check to see if you might get a break from Uncle Sam.

A tax professional and a financial planner should be consulted to determine whether there are any tax issues or any ways to defer cost or save money at any part of the process. The Internal Revenue Service lets you deduct medical costs as long as they are more than 7.5 percent of your adjusted gross income (AGI). That means if your AGI is $50,000, you can deduct only those unreimbursed expenses that exceed $3,750.

Getting there requires some planning, which is why it’s so important to gather up every dime of unreimbursed medical, dental and vision care expenses and review it carefully.

Here are things people often miss:

Medically related travel: The IRS evaluates the standard cents-per-mile allowance each year for travel to and from medical treatments. Between Jan. 1-June 30, that rate was 19 cents a mile. Between July 1 and Dec. 31, the rate will rocket to 27 cents a mile.

Insurance payments from already taxed income: This includes the cost of long-term care insurance, up to certain limits based on your age.

Uninsured medical treatments: This includes what you spend for an extra pair of eyeglasses or set of contact lenses, false teeth, hearing aids or artificial limbs.

Rehab treatment: What you pay for alcohol or drug-abuse treatments can be noted on Schedule A.

Weight-loss to smoking cessation: If a doctor prescribes it, you’ll be able to deduct it.

Laser vision correction surgery: May be an allowable expense to deduct on your current taxes.

Doctor-recommended equipment and related expenses: If your doctor tells you that you need a humidifier installed on your heating and air conditioning system to help your breathing problems, you might be able to deduct all or part of the cost for the device as well as the additional energy costs to run it.

Some medical education costs: If you, your spouse or child have a chronic medical condition and you attend a conference to learn more about it, you can count admission and transportation expenses as a deduction, but not meals and lodging.

If you’re self-employed: You may deduct, as an adjustment to gross income, the full cost paid for medical insurance for you, your spouse and your dependents.

Lodging for out-of-town treatment: When accompanying a minor dependent to out-of-town medical treatment, hotel bills may be partially deductible.
Here are some less common expenses to watch:

Medically necessary home improvements or equipment: If you do a home improvement or bring in special equipment that’s considered medically necessary for you, your spouse or your dependents, you’ll be able to deduct the cost. These may include special entrance/exit ramps to your house, widening doorways, modifying kitchens or bathrooms, or adding a chairlift for the physically disabled. Because these improvements are not expected to add to the market value of the home, they are considered fully deductible. If the improvement increases the value of your home, only the amount of the expense that exceeds the increase in the property value of your home is deductible.

Nursing services: If you are paying out-of-pocket for a home-based nurse, these expenses may be deductible.

Lead paint removal: Lead paint is dangerous, and the money needed to remove the paint from a home is deductible.


November 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

Before the Holidays, Get Those Charitable Donations Lined Up

There’s a special sinking feeling as you approach Dec. 31 and realize you’ve done no tax planning whatsoever. That includes big issues like end-of-the-year investment decisions, and the smaller ones – like that stuff you no longer use piling up in the basement.

Charitable giving is an important part of tax planning at year end, so let’s look at the cash and noncash aspects of giving. It makes sense to contact a tax expert or financial planner to talk about what giving makes sense for you:

You have to itemize: Only individual taxpayers who itemize their deductions on Schedule A can claim a deduction for charitable contributions. This deduction is not available to people who choose the standard deduction, including anyone who files a short form (1040A or 1040EZ).

Get out the checkbook: Uncle Sam likes a record. To deduct any charitable donation of money, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution – and it definitely helps to have both. Bank records mean canceled checks, bank or credit union statements and credit card statements. Bank or credit union statements should show the name of the charity and the date and amount paid. Credit card statements should show the name of the charity and the transaction posting date. For payroll deductions, the taxpayer should retain a pay stub, Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity. If you remember the IRS being satisfied with personal bank registers or scribbled notes to document the donation, they’re not anymore.

There are charities, and then there are charities: You need to make sure that organizations are qualified to make tax-deductible contributions to. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions, but there’s an online version too. Just go to IRS.gov and type in “Search for Charities.” One key exception -- it’s important to note that churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even though they often are not listed in Publication 78.

Giving away property: If you give away property, including clothing and household items, get a receipt that includes a description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes a description of the property and its condition. For any kind of vehicle, boat or airplane, the deduction is now limited to the gross proceeds from its sale. This rule applies if the claimed value of the vehicle is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.

You can’t deduct junk: Under a provision of the 2006 Pension Protection Act, contributions of physical items must be in 
good used condition or better to qualify for a deduction. That means that you can’t deduct ripped or discolored clothing or appliances that don’t work. If you donate noncash property that is valued at more than $500, you need to report to the IRS how and when you acquired the property and your cost basis. You must file Form 8283, Noncash Charitable Contributions, for all donations of property valued at more than $500.

Use that digital camera: If you’re ever audited, it helps to have photographs or video of these items, and obviously, demand a detailed receipt.

Learn rules about giving away appreciated securities: This is where a financial planner or tax expert would come in handy. When you donate stocks or mutual fund shares you have held for more than one year, generally you may deduct the stocks’ current fair market value. Additionally, you avoid paying capital gains taxes on the appreciated value.

November 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

Short-term Long-term Care Insurance? Make Sure it’s a Good Idea for You

As the long-term care (LTC) insurance market has matured over the past 20 years, features have been added to the costly policies to make them more attractive. Even the IRS has even come on board, making a portion of the premiums tax-deductible. Yet with the tougher economy, insurers are looking for ways to get more consumers in the door – so they’re adjusting features to give people a break on cost.

Enter the “shorter-term” long-term care policy for individuals who are willing to play the odds. The main change in such policies is that they eliminate the “lifetime” feature in favor of a shorter time limit on benefits, usually between two and three years, currently the length of an average nursing home stay. These shorter-term plans can potentially cut the cost of average annual premiums in half, and if couples buy a combined policy, they potentially may cut the premium cost further.

The idea of lower-cost LTC insurance is certainly attractive, but it makes sense to get some advice and ask some very important questions before committing. A financial planning professional can help you assess how well prepared your finances are to sustain a serious long-term illness with a current national average of $70,000 in annual nursing home bills that would not otherwise be covered by insurance. In addition, ask:

What’s your health like? People in good health purchasing long-term care insurance in their 50s or younger usually get the most affordable deal in LTC insurance. But to some degree, your current health status is no guarantee that you’ll only be looking at 2-3 years of expenses in total. Keep in mind that 40 percent of long-term care is provided to individuals between the ages of 19 and 65, so the need for care can strike at any time and may do so more than once.

Are you female? Again, personal and family resources come into play here, but since women typically live longer than men – and they still earn less on average than men – women should take a heightened interest in providing for their long-term care safety net. Long-term care insurance might be a good solution given their other investments and their health history.

What types of services are covered? Over the course of time, LTC policies have evolved to place more emphasis on home-based care or assisted living, since most people would choose to be cared for in a familiar environment. However, it is important to review what all home-based as well as nursing home/assisted care center services may be covered. A basic LTC insurance policy pays for assistance with activities of daily living including eating, dressing, bathing, toileting, incontinence and transferring (bed to chair, etc.). Each policy lists the types of services that are covered under nursing home care and under home health care. Homemaker services may be covered. Also, if you are considering a policy with a fixed dollar benefit, compare all of these features with a lifetime policy.

What triggers coverage? Most LTC policies won’t go into effect until the covered individual can’t perform two tasks of daily living for a specific period of time or when that person needs substantial supervision related to cognitive impairment, such as Alzheimer’s disease.
What if I never want to go to a nursing home? The idea is to cover every eventuality. The best-designed LTC policies will pay the same amount of benefit whether care is received in a long-term care facility, an assisted living facility, an adult day care center or in the home. Some policies do offer reduced percentages for home health care versus nursing home care, but it’s a better idea to keep full percentages on home health care benefits since most people would rather stay in their homes. Discuss these options with a financial planner if you can, because the amount of your personal assets will be a factor here.

What’s the record of particular companies in this business? Over the past generation, more companies have gotten involved in the LTC insurance business, and it makes sense to see not only who the leaders are at the time you’re buying and what they’re offering, but how financially healthy these companies are and have been over the course of time. You’ve probably heard of insurance companies that have gone out of business and stranded customers. There’s no restriction on that happening with LTC providers, so check their ratings and financial history very carefully.


October 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

How to Takeover an Aging Parent’s Finances

Like many difficult situations with people we love, planning to take over an older relative’s finances is best done in happier times, when both sides are healthy and various options can be considered. Unfortunately, events can sometimes intervene – death, illness or natural disasters can make an elder’s need for assistance a critical matter.

Once stricken, older relatives may be unable to understand questions or express their wishes in proper detail. If there is no plan, family members grasp at responsibilities – or shirk them – without any idea of what the older relative would really want.

What’s critical to understand is that such talks should go far beyond money. They need to be discussions about independence and basic preferences for the way an individual wants to live or die. Demographers believe that with the rising number of single Americans – those divorced or never married – these conversations will become increasingly complicated as they fall to nieces and nephews, younger friends or designated representatives.

Want to avoid a worst-case scenario? Start the conversation now. Here are some ideas:

Decide what’s important to talk about first: Maybe this conversation isn’t just about where the will or health care power of attorney is. Maybe this conversation is about you noticing that a parent or loved one is moving slower, is more forgetful, is clearly looking like their health has taken a turn for the worse – and maybe that’s why you want to know where the will is. Jumping into money issues first is usually a mistake. Deal with immediate health and lifestyle issues first.

Explain why you want to talk about finances: In some families, having a successful financial discussion means several attempts and some frustration. Don’t let yourself become angry or frustrated – just keep starting the conversation until it catches on. It might make sense to say something like, “You’ve always been so independent, Mom. I just want you to give us the right instructions so we do exactly what you want.”

Prepare your questions in advance: When a parent or relative is unconscious or unresponsive, the younger relative is immediately in the drivers’ seat. That’s why it’s critical to make a list of questions for the elderly relative to answer in detail. The basics: Where important papers are, how household expenses are paid, who doctors and specialists are, what medicines are being taken and whether there’s a will, an advanced directive and a funeral plan (and money or insurance proceeds to pay for it). There may be dozens more questions beyond these based on your family’s personal circumstances. But in creating this list, ask yourself: “What do I need to know if this person suddenly becomes sick or dies?”

Offer to get some qualified advice: If you don’t fully understand your relative’s financial affairs, it might make sense for you both to talk to an attorney or a tax or financial adviser. A qualified adviser can offer specific suggestions on critical legal documents that should be in place and ways to make sure accounts to pay medical and household bills are accessible to the older person and the designated friend or relative who will hold power of attorney.

Plan a caregiving strategy together: You should discuss the relative’s preferences and trigger points for various stages of heath care. An individual always wants to stay in his or her home, but you should have an honest discussion about how much you can do at home as a caregiver and whether various services (home health aide, geriatric care manager, assisted living) should be introduced at various stages. Talking through what a parent will be able to live with at various health stages – and putting that information in writing – will save plenty of doubt and bitterness later.

Discuss what should happen with the home: If an elderly relative becomes sick and irreversibly incapacitated, the equity in his or her home may come under consideration as a resource to pay uncovered medical or household maintenance. Since the home is both a major asset and an emotional focal point, it’s best to get good advice and spell out specifically what the elderly relative wants done with his property and under what conditions.

Make sure everyone knows the plan: Once you settle on a strategy, make sure all family and friends understand the plan and their assignments.


August 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

How to Buy Life Insurance

Reminder: Wechter Financial has a new website coming soon to www.wechterfinancial.com!!!

Life insurance is primarily a product for families. If you have a spouse and children who depend on your income and you don’t have extensive resources, then life insurance is a useful tool to help them pay expenses. Single people without dependents typically don’t need the same amount of life insurance because they don’t have as many responsibilities that will outlive them.

Most financial planners would tell you that insurance is not a replacement for a long-term savings or investing strategy but an additional cushion. Depending on your financial situation, life insurance and its ancillary products can have some very attractive tax characteristics as well.

Who needs life insurance: Those with dependents, either children or friends or family members with special needs; with a nonworking spouse or one with an income substantially lower than yours or those with a big mortgage that will be too overwhelming for one income to pay off.

How much is necessary: Optimally, the right amount of life insurance allows your survivors to invest the insurance payout and then draw down the account over time in a way that matches the income you would provide if you were still around. You need to figure far more than a family’s basic living expenses adjusted for inflation. Also consider:

• Education funds needed for each child from grade school to college.
• Money to cover special health expenses for a family member already diagnosed at the time of the insured’s death.
• Funds for child care if the surviving spouse needs to keep working.
• Emergency funds that your survivors can keep in reserve.
  

Types of life insurance: There are six basic types of life insurance.

• Term: Term life insurance is the simplest kind of life insurance because it pays if death occurs during the term of the policy, which is usually from one to 30 years. There are two kinds of term life insurance: Level term means that the death benefit stays throughout the duration of the policy, and decreasing term means that the death benefit drops in one-year increments over the duration of the policy.
• Whole life/permanent: Whole life or permanent insurance has a level premium and pays a static benefit whenever you die. For this guaranteed benefit, whole life is usually the more expensive choice because it front-loads its costs into the early premium years of the policy so it can invest the money to pay for death benefits at the end of several years or decades. At a certain point, the policy owner will pay in enough where he or she will start accruing cash value on that money which can be withdrawn if the policy owner decides to cancel the coverage. There are four types of permanent insurance:
• Whole or ordinary life: This is the most common type of permanent insurance policy, offering a death benefit with a savings account. You agree to pay a certain amount in premiums on a regular basis for a specific death benefit. The savings element would grow based on dividends the company pays to you.
• Universal or adjustable life: This variation offers a little more flexibility, such as the possibility of increasing the death benefit if you pass a medical exam. The savings product attached to this kind of account generally earns a money market rate of interest, and after you start accumulating money in this account you’ll generally have the option of altering your premium payments. This helps if you lose your job or have some other financial misfortune.
• Variable life: This policy lets you invest your cash value in stocks, bonds and money market mutual funds which is good if those investments go up. If they go down, your cash value and death benefit will shrink, but you need to make sure there’s a guarantee that your death benefit won’t fall below a certain level. This type of policy can be fairly risky for ordinary consumers.
• Variable-universal life: This choice allows you the flexibility of premium payments with a more aggressive investment scenario for the cash value of the policy.
  

Life insurance proceeds don’t generally go into Uncle Sam’s collection plate, which makes life insurance an attractive purchase for many individuals hoping to maximize the amount to give to heirs. Yet life insurance can also be purchased in a way to give the living policyholder tax-free income during retirement. Since we’re talking about estate issues here, getting proper advice is critically important. The federal government’s current estate tax ceilings were set to expire in 2010, and this fact alone could affect the attractiveness of this strategy for your situation.


August 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

Top 10 Money Moves for Today’s College Freshman

With average college tuition up 6.3 percent at private schools and up 6.6 percent at public schools this past school year, money management is a bigger issue than ever on college campuses. That’s why it’s good to send your freshman off to school with a 10-point plan on how to best manage their money:

1. Take baby steps with credit: It’s one thing for a teenager to use their parents’ credit card while they’re still living at home. It’s quite another when they get their first taste of freedom hundreds of miles away. Parents may co-sign the student’s credit card but keep it in the student’s name. That way, parents will know when financial missteps occur, which will be a strong incentive for the student to keep his credit rating clean for the next four years. Most important: Parents should do whatever it takes to make sure the child doesn’t sign up for any credit cards on campus.

2. Bank smart: Students need to get some familiarity with the banking system before they head to college. Kids generally should set up a checking account on campus, but talk to them about debit options and how banking fees (particularly for overdrafts) can eat away at their money. Also ask your child to ask the bank about direct-deposit options if you’re planning to deposit money for their tuition or agreed-to spending needs. You want your child to be independent, but if necessary, make it a joint account and check those balances online.

3. Work with them to set up their first emergency fund: A young person should get used to the idea of savings and reserves for unforeseen events such as emergency trips home or related expenses. Make it clear that late-night pizza and mochas are not an emergency.

4. Put the student in charge of maintaining her financial aid: Each year, the FAFSA (Free Application for Federal Financial Aid) is due in June. State applications are due earlier. While parents need to run the financial aid process, students need to be equally aware of how their education is paid. Everyone should file the form whether or not you think your child may be eligible, and your child should be searching for scholarships at all times. It might also make sense to take your child to your tax preparer to make sure you’re taking advantage of the child’s “tax capacity” and other income tax opportunities. It will be a good learning experience.

5. Make them budget: If they’re leaving for college with a new computer, consider giving them personal finance software to track their everyday expenses and make sure the computer has a security password. Work together to determine necessary realities about everyday expenses, tuition and financial aid. Then tell your kid that when he or she comes home at Thanksgiving, you will sit down again to review those figures and make reasonable adjustments. You obviously need to trust your kids, but you might want to do this for as long as it takes them to develop solid and consistent money habits.

6. Schedule a holiday budget and credit check: When the triumphant freshman returns home for the holidays, schedule some R&R, home cooking and the first reading ever of their fall budget figures and their first credit reports. Since credit reports can be ordered online, parents and student should sit down with each of the child’s three credit reports from Experian, TransUnion and Equifax and review them for activity and errors. Since everyone is entitled to one free report from each of the agencies each year, go to www.annualcreditreport.com for theirs.

7. Help them open their first IRA: Get some advice on this from a trusted financial planner but if your 18-year-old child is earning wages by working part-time at school, at home during breaks or for your own company, have them open a Roth IRA in a growth fund. Make sure they understand this is essential to their future savings so they don’t cash it in.

8. Discuss identity theft: Personal financial data left on laptop computers, cell phones and other electronic devices can be readily stolen on campus or in a dorm or roommate environment. Tell your kid to keep all paper records in a safe place and introduce passwords to keep all their digital information safe.

9. Get them networking: Internships and jobs in their chosen field during summer breaks can give your student a head start on their career path. Encourage them to research these opportunities freshman year so they’ll be in the front of the line when it’s time to apply.

10. Handle mistakes the right way: Most kids will make money mistakes in college. If they overdraw a checking account or overdo it with their credit card, make the criticism constructive but firm and always come up with a corrective plan you’ll work on together.


August 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

What’s the Correct Amount to Withdraw from Your Retirement Funds Each Year?

Rules of thumb and guidelines abound in every investment arena – you’ll always hear about specific percentages you should save, spend or invest based on where you are in life. They’re made to draw attention to specific investment needs everyone has, and for that reason, it’s good to have them.

A popular one is that no one should spend more than 4 percent annually of the value of their nest egg in any given year. Another is that retirees only need 70-80 percent of their last working year’s income to maintain their standard of living.

The reality is that everyone’s retirement goals are different and should be planned based on specific needs, not general rules of thumb. This is why retirement plans should be made with the aid of experts in tax, estate and investment issues. A good starting point would be a meeting with a CERTIFIED FINANCIAL PLANNER™ professional who could go over your personal situation and define particular percentages that can be withdrawn from your overall retirement nest egg while you continue to work or relax.

What’s the downside of not planning? Wachovia’s recent fourth annual Retirement Survey showed that many retirees enter their post-working years with no idea – or limitations – on how much of their nest egg they’ll spend on an annual basis. The financial firm reported that 28 percent of surveyed retirees with average total savings of $375,000 withdraw 10 percent or more of their retirement savings annually to pay for expenses. Further, only one-third (38 percent) pegged their withdrawal rate at 5 percent or less. Only about half (47 percent) said they had a written withdrawal strategy, and only 28 percent said they have a written budget for spending their savings.

Here are the major ways to determine an appropriate withdrawal amount withdraw each year in retirement:

Define a vision of retirement and revisit it every year: Anyone who has worked with a good investment manager or financial planner has addressed the kind of retirement they envision. Incorporating part-time work into the retirement picture might make other financial goals more affordable. A person who manages his or her finances or works with an expert needs to revisit those goals annually to assess the feasibility of affording a particular lifestyle in retirement.

Track working-life expenses for 3-6 months: This is where that vision of retirement becomes real. Understanding what an individual spends on lattes and late-night carryout may motivate an investor to shift his behavior from spending to saving.

Create a worst-case health scenario: For many retirees, increasing healthcare expenses and the cost of end-of-life-care account for significant spending. As a result, many retirees may pay for expensive experimental treatments to fight disease or long-term assisted living or nursing home care. According to AARP, annual nursing home costs will be at more than $100,000 a year in the next two decades compared to their current annual range of $45,000-$60,000. While public aid picks up medical expenses for those who exhaust their assets in most states, most of us desire more than minimal standards of care.

Shift into a retirement investment strategy in stages: With a clear majority of investors having inadequate retirement funds in place near or at retirement age, it may seem silly to talk about investing post-retirement. But the younger an investor is, the more valuable the conversation. Good advisers can help build more balanced portfolios that fit the exact needs of the investor as retirement nears.

See how long you can put off taking Social Security: The Wachovia study also reported that the majority of respondents planned to start taking Social Security benefits at age 62, the earliest point possible. Another 17 percent reported taking Social Security benefits at age 65. Only 9 percent reported delaying Social Security benefits past age 65. Even though no one will get rich off of Social Security, delaying taking those payments will result in larger payments later, but get advice to see if that decision is right for you.

July 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

Insuring Your Vacation? Make Sure You’re Actually Covered

High energy costs, a tough economy, you name it; there’s still plenty of travel delays and headaches in the skies and on the ground. Those delays can potentially cost a lot of money, which is why it’s a good idea to carry travel insurance on expensive trips to cover missed connections that can delay your arrival for a day or more. The same goes for lost baggage or sudden medical expenses in different regions of the U.S. or other parts of the world.

But take a moment before you rush out to buy a Cadillac policy for your two-week trip to Hawaii. Travel insurance, like any coverage, should be tailored to your specific needs. You’ll see it sold as a one-size-fits-all product, but that’s not how you should buy it. Here are some pointers:

Call your HR department or health insurer: Yes, you might be out hundreds or perhaps thousands if you can’t get to your destination, but that’s not the biggest potential money risk on any trip. What if your health benefits won’t cross state lines, much less international borders? As you’re planning your trip, check to see if your personal health coverage for you and family members will be effective at your destination. If the answer is no, see whether your credit card company offers health care coverage there and if so, what it costs and what it entails. The next step is purchasing specific travel health insurance that will be accepted at your destination, which may be sold in a package with other coverage we’ll mention momentarily. Also, it might make sense to make an action plan for a health emergency. Call the concierge at your destination to get information on the best nearby hospitals and clinics so you can check if your coverage applies, and see what ground or air transport options exist to get you to the best hospital. Transport can be costly if you’re in a remote location.

Start at least a month in advance: Most people make major trip reservations fairly far in advance to get the best fares and hotel rates, and you’ll need to do the same for travel insurance. You’ll find that carriers are particularly picky about pre-existing conditions for medical or dental treatments, so read the fine print.

There’s no such thing as full coverage – unless you’re willing to pay for it: What’s full coverage? That’s a good question, and it sometimes depends on dozens of factors unique to your trip. Your carrier might not offer protection on your chosen airline or cruise line. You’ll find that terrorism insurance is rare and complicated. And you have to examine medical insurance options closely to understand exactly what is covered. The rare soup-to-nuts coverage – covering trip cancellations, lost luggage, delays that leave you stranded, flight accident, emergency medical and medical evacuations – is typically priced in the hundreds of dollars and may only cover only up to 75 percent of the total cost of your trip.

Make sure your insurance covers missed connections: Cancellation insurance doesn’t cover everything. Investigate whether a missed connection – and the resulting meals, overnight hotel bills and taxi or train transportation you’ll need if you’re stuck overnight in a strange city – is covered.

Start online: Go to some of the leading websites that deal in single or multiple-insurer offerings. InsureMyTrip.com is a market leader and a good first stop in analyzing coverage – you start by punching in the necessary information on your trip (dates, age of travelers, medical coverage needed, etc.) and it spits back more than a dozen possibilities at all price levels. Clicking on any of the choices will give you a detailed view of what those policies will and won’t cover.

Ask about hurricane coverage: The 2008 Atlantic hurricane season began June 1 and will run through the end of November. Even if you don’t live in a hurricane area, hurricanes can disrupt the flow of air travel all over the country. Ask whether your travel insurance has hurricane coverage – or other weather-related coverage -- and what you’ll need to file a claim.

Fight ATM fees – before you leave: It’s not guaranteed, but your bank might agree to waive any fees you incur at overseas ATMs if you ask in advance. Call them and check.

Watch that cell phone: Increasingly, domestic cellular phones are working in more areas of the world. That’s the good news. The bad news is whether you’ll be charged extra fees for using your phone in those areas. Check before you leave.

Marooned? Ask for a break: If you’re sidetracked as the result of a major disaster (weather-related or otherwise), always ask if your airline, hotel or other components of your vacation might be willing to give you a credit or discount on your bill. It’s rare, but some destinations might see it as a chance to build goodwill so you’ll be a repeat customer. The worst thing they can do is say no.


July 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

Why a Business Owner’s Exit Plan Is So Important

There are plenty of days when we want to “take that job and shove it.” But what happens when we’re sick of a job we’ve created for ourselves in a business we’ve founded?

The idea is to make a plan that allows you to get out before you tire of your company or before you are overwhelmed by personal, industrial or economic factors that force you to sell, transfer or close a company. This is called an exit plan.

Everyone glamorizes creating a business as a way to completely control one’s own destiny. But it’s ironic how many businesses go on day-to-day without any thought to a proper ending. An exit plan is not only a set of mental notes about how one should pack up and move on. It is a way to focus an owner’s thinking about:

• A family legacy – should a business be passed on to family or associates, or should it simply be sold or closed?
• The owner’s own career goals – does an owner want to do this for the rest of his or her life, or should they make way for other professional or personal directions?
• The creation of wealth – too many people think of a business as a job and a paycheck instead of a creator of wealth that can support one or more generations of a family. A paycheck supports short-term goals; wealth is accumulated money that can either be invested smartly in the business or outside the business to support philanthropy, or family and personal goals.
• A retirement strategy that allows an owner to do everything they’ve dreamed after they quit.

An exit plan isn’t born in a day. In fact, many financial experts in investment, tax and estate planning disciplines think it’s wise for business owners to come up with an exit plan when they start a company if possible, and if not, within 3-5 years of the date they’d like to exit. A CERTIFIED FINANCIAL PLANNER™ professional with specific expertise in working with business owners could be a helpful partner in helping you determine the following:

• How many more years do I want to run this business?
• What’s the optimal way to get rid of the business when I’m ready to go?
• Do I want to sell it, transfer it to family or associates or just close it down?
• What if I got a fantastic offer on the business tomorrow? What would I do?
• If I sold my business, how would I protect myself from a personal and business tax standpoint?
• How do I communicate my wishes and ideas with my spouse, kids and other family members with a stake in the business?
• What about my employees, clients and customers?
• How do I protect them if I die or decide to leave?
• How much money do I want in my life after my business, and what would I do with it?
• What should I do to make my business as valuable as possible?
• How do I plan the tax implications of my actions toward the end?
• If I have investors, how do I make them happy as I leave?
• Are there any specific accomplishments I want this business to make before I leave?
  

An exit plan allows you to not only to change your own employment, but to help you change your whole career if you choose. No one has to stay in the same industry – or company – for life, and with an exit plan, you can leave open the possibility for an endpoint that will allow you to travel, do philanthropy or any number of new activities in business or other walks of life.

The financial planning aspect of the exit plan will align your monetary needs with your career or post-career needs. Your exit plan can do whatever you want it to. Some entrepreneurs build sabbatical time and other arrangements for study and learning into the timeframe leading up to their exit to help them refresh their minds and decide what their next career or vocation will be.

The bottom line is that it’s never really too early to start thinking of an exit plan for a business you’ve formed. Today, smart entrepreneurs start asking themselves those questions as they’re organizing and forming companies. Get some good advice to start that discussion.

May 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

Q&A: Consider Making an Estate Check-Up a Multi-Generational Family Matter

Questionable estate planning has gotten some recent attention with the sudden death of actor Heath Ledger. The 27-year-old actor died suddenly this year with an older will that provided only for his parents and other immediate family – he never revised those documents to accommodate his young daughter or the child’s mother.

Though Ledger’s parents told the media that the daughter and mother would be fairly provided for, that’s not the same thing as a solid estate plan that leaves nothing to chance. And if Ledger’s death offers a lesson, estate planning should be done at the earliest point in your life that you start to gather assets and responsibility for others.

In estate matters, it’s a good rule of thumb to review your plans every three years or whenever there’s a material change in your family’s lifestyle – a marriage, a divorce, a remarriage, the birth of children, the loss of an immediate family member or a major rise or fall in assets. Those are the biggies.

For individuals and couples with elderly parents and/or young kids starting out on their own, it might be smart to do a multi-generational estate checkup at the same time. Why? Because in families with significant assets or other pressing financial issues involving businesses or dependents, each generation’s wishes for the dispersal of shared or personal assets should be documented legally and shared with all the relevant parties.

Q: What are some of the multigenerational issues in estate planning?
A: In some families, this may mean the future of a multigenerational family business, perhaps one of the most complex estate issues any family will face. In others, the assets may consist mainly of cash, property and other investments, but similar problems can occur when all the parties aren’t on the same page about who will get what.

Q: What kind of problems can be prevented by multigenerational estate planning?
A: It’s important to realize that estate planning isn’t just about splitting up money – it’s also about disaster planning. If a family hasn’t planned for business succession, it’s possible that other damaging secrets may emerge like problems in the business or significant debt the family might be liable for. Also, the sudden death or lengthy incapacitation of the head of a family may turn chaotic without proper health care or financial directives to manage the person’s illness or the money and business issues that follow.
Multi-generational estate planning may not be the easiest thing in the world to accomplish given how families communicate – or don’t communicate – about money. But such dialogue might be the smartest thing any family does together.

Q: How does an estate plan support a family legacy?
A: Proper discussion, documentation and review of a family’s assets – with the participation of the right legal, tax and financial planning advisers – can keep more of those assets in the family and working to the family’s wishes. In the case of a family business, generations of family members have built careers there or might otherwise be depending on that income to live. Yet a business might not even be at the heart of an issue – families may also have foundations or other charitable activities they’ve supported for years with a certain mission that those in charge don’t want changed. More than a few families have imploded in ugly legal squabbles over these situations and more. The results can be lengthy legal battles with damaging tax consequences, a potentially unfair split of assets among relatives or simple mismanagement of those assets going forward.

Q: How can estate planning fail?
A: Bad estate planning can happen in the wealthiest of families. It’s not unheard of in the richest of families for the matriarchs and patriarchs to die or become incapacitated without proper wills or directives for their heirs. Every adult family member – young or old -- should commit to the creation of such documents and as appropriate have them written in a way that doesn’t shipwreck the family fortune or mission, no matter how big or small it is.

Q: What should be done about non-married family?
A: The Ledger situation is a good illustration of the potential for estate problems when couples are not legally married. That’s why multi-generational planning should also address estate and child custody arrangements for unmarried heterosexual or gay couples who might or might not have done the appropriate legal planning necessary to secure the estates of their current or past partners and their heirs. At the very least, all family members should understand the need for such planning to avoid conflict later. As non-traditional families become more common, families need to be open to that discussion.



May 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

A Long-term Care Insurance Primer

As millions of Baby Boomers head into their retirement years, it’s surprising how few actually know that the government provides little more than a few weeks of financial support for home-based or nursing home care when the average person needs it for at least a year.

A 2006 Genworth Financial Survey says the national average private room rate at a nursing home – the most expensive care option – was $194.28 per day/$70,912 annually.

Long-term care insurance (LTC) may be one solution for those who need to bridge the gap between their savings and the actual costs they’ll face.

Determining and paying for long-term care is almost too complex a topic to be covered in a short article like this, which is why it makes sense to discuss your individual situation with a Certified Financial Planner ™ professional. Here are some of the questions you need to answer before investing in long-term care insurance or other options:

What resources do you have? We’re not just talking about money here. While care giving puts a strain on family, it’s important to consider whether family and friends are truly willing and able to help with your care, which can provide a considerable financial and emotional benefit. Also, if you live in a community with reliable volunteer resources to help, that’s something to note, though today’s services may not be there tomorrow.

How old are you and your spouse and what’s your health history? People in good health purchasing long-term care insurance at the age of 55 usually get the most affordable deal in LTC insurance. But an individual’s family health history and current health status are the real determinants of what your LTC insurance policy will cost – or if you’ll qualify for coverage at all. Also, it’s important to note that 40 percent of long-term care is provided to individuals between the ages of 19 and 65, so the need for care can strike at any time.

Are you a single female? Again, personal and family resources come into play here, but since women typically live longer than men – and they still earn less on average than men – women should take a heightened interest in providing for their long-term care safety net. Long-term care insurance might be a good solution given their other investments and their health history.

What types of services are covered? Over the course of time, long-term care policies have evolved to place more emphasis on home-based care or assisted living, since most people would choose to recover or live out their last days in a familiar environment. A basic LTC insurance policy pays for assistance with activities of daily living including eating, dressing, bathing, toileting, incontinence, and transferring (bed to chair, etc.). Each policy lists the types of services that are covered under nursing home care and under home health care. Homemaker services are generally covered and other services as listed in the policy.

What triggers coverage? A qualified LTC policy won’t go into effect until the covered individual can’t perform two tasks of daily living for a period, typically 90 days, or when that person needs substantial supervision related to cognitive impairment. This is where you have to read the fine print since some policies are more restrictive than others. More affordable policies generally take longer to kick in. See if coverage for other physical ailments is available as part of the policy and what per-diem or monthly allowances are offered.

What if I never want to go to a nursing home? The idea is to cover every eventuality. The best-designed LTC policies will pay the same amount of benefit whether care is received in a long-term care facility, an assisted living facility, an adult day care center, or in the home. Some policies do offer reduced percentages for home health care versus nursing home care, but it’s a better idea to keep full percentages on home health care benefits since most people would rather stay in their homes.

What’s the record of particular companies in this business? Over the past generation, more companies have gotten involved in the LTC insurance business, and it makes sense to see not only who the leaders are at the time you’re buying and what they’re offering, but how financially healthy these companies are and have been over the course of time. You’ve probably heard of insurance companies that have gone out of business and stranded customers. There’s no restriction on that happening with LTC providers, so check their ratings and financial history very carefully.


April 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

How Not To Go Broke If Your Kids Move Back After Graduation

The after-college reality is much different from a generation ago. Two thirds of college graduates owe significant money after graduation. According to the Project on Student Debt, debt levels for graduating seniors with student loans from 1997 to 2007 more than doubled from $9,250 to $19,200 – a 108 percent increase.

That’s why it’s now very common for graduating seniors to move back to the family manse for some time after graduation. For those who don’t have ready employment, it’s probably a necessity. For those with jobs, moving back in with the folks is a way to save for a down payment on a car or possibly a home.

It’s absolutely fine to welcome family back home, particularly if it means you really have an opportunity to help your kids. But it’s not a terribly good idea to welcome home what the experts are calling “boomerang kids” if you’ve put your own retirement savings on the back burner and you’re also facing both expense and strain from taking care of elders.

Like all family transitions, this one requires some planning, and it may not be a bad idea to get some advice. A Certified Financial Planner ™ professional can give you advice not only how to manage the financial aspects of your relationship with your grown child, but how to make sure the other aspects of your financial life are healthy.

Here are some steps:

• Promise not to overextend yourself. Don’t let the return of the prodigal son or daughter derail your own retirement or debt repayment plans. Parents may also have some challenging financial problems to solve, and your child should understand that you should be helping each other.
• Still your house, still your rules: Granted, your kid’s now an adult, not an 11-year-old. But if your child is moving back in, you need to set specific rules for the way you want him operating under your roof. If you want him to pay rent (it’s probably a good idea), set those terms in writing. Set terms for household expenses if you prefer. And to make sure there are no misunderstandings, make sure you both understand where you stand with non-financial issues – how much of their stuff you’ll want them to move in, overnight guests, checking in when away, etc.
• Set an endpoint: If your child needs a year to start paying off credit card bills or tuition debt or is hoping to scrape together enough for a down payment on a condo, discuss it and figure out how long that’s going to take. Deadlines enforce goals.
• Chores are necessary: You may charge rent or demand payment in kind, but a mixture of both is best. You’re not running a B&B. You might insist that your child handles laundry, makes (not buys) dinner a few times a week or helps with a major home renovation project if they have those skills.
• Supervise their financial planning: Some parents bail out their kids entirely. Instead, work with them to build better financial habits. Help them set a budget after you both figure out their net worth – a real eye-opener for many young adults. You might consider, however, matching the amount that they’re putting toward debt or a home down payment each month. If you don’t want to take full responsibility for that training, you might set up one or a series of meetings with a CFP® professional to get them started the right way. Consider it a graduation present.
• Keep records. Even if you never share these with your kid, make sure you keep track of payments, chores and other in-kind efforts made by your “tenant” during the term of his or her stay. It’s a way to look back and see what’s gone on during this phase in your relationship.
• What about the rent? If you are in a relatively good financial position and you don’t need your child’s rent to pay your own bills, you might consider investing those amounts on behalf of your child to chip in for his or her home down payment or possibly a wedding.
  
  
  
  April 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

With the Market So Uncertain, Are Immediate Annuities A Good Way To Preserve Your Retirement Savings?

One day, the market is up 400 points. The next day, down 300. Stocks in 2008 haven’t won any points for stability. In periods of market uncertainty, you’ll hear a lot about safe harbor investments that will supposedly guarantee income for life. One of these alternatives is an immediate annuity.

Here’s how they work. Any annuity is a contract offered by an insurance company that promises you a set amount of annual income for life. An immediate annuity is an insurance contract you put money into and soon after starts paying a portion of the agreed-to amount on a set schedule. Retirees who use this option successfully are not pouring their whole retirement savings into an annuity – optimally, they are breaking off only a piece of their retirement savings to place in this option. For example, a 65-ear-old individual might buy an annuity with $100,000 or more that will come back to her in predictable form – maybe $6,000 or $7,000 a year for the rest of her life.

This option is a good one if you luck out and buy one at age 65 and live past 90 – that way, you’ll pull out more money than you put in. But depending on how the annuity contract is written, if you die before your principal is paid out, that money may go into the pocket of the insurance company.

As with other aspects of your retirement strategy, it’s a good idea to discuss such a move with trusted financial experts such as a certified public accountant or a financial planner such as a Certified Financial Planner™ professional. It makes sense to ask the following questions of your own financial circumstances and the annuity product you’re considering:

Before you lock up money in an annuity, how well are your other retirement assets working for you? Perhaps you plan to work a significant number of years in retirement if your health and your will hold out. Those are two big “if’s.” But if you want a part of your retirement money to be “secure,” you still need to have a substantial portion of your assets continuing to grow for you as your life continues. A visit to a CFP® practitioner before you retire can help you balance how you invest your assets as you age.

Does the immediate annuity have inflation protection? It’s not a big surprise to know that $6,000 today won’t be worth $6,000 five years from now. See if the immediate annuity product you’re considering automatically increases your payout each year in accordance with inflation.

Does it make sense to ladder annuities based on your age? If annuity products make sense for you and you have the financial freedom to purchase more than one, it might make sense to buy them in staggered form with amounts and terms that allow you to get larger payouts as you age. That could keep other assets more liquid to invest for your heirs or for other purposes. It’s also a good idea to go with more than one AA-rated (or higher) insurer since the fortunes of such companies may be great now but can change later. Also, remember that immediate annuities can be bought with specific terms such as 10 or 15 years that would allow your estate to recoup unspent assets if you die before the end of that payment term. It’s very important to seek advice here.

Have you projected what your actual income needs will be? Again, you need to ask yourself whether you choose to work or not, and then what your living expenses might be in retirement. This is why an annuity decision should be discussed from both a tax and general financial planning standpoint.

Are your long-term care needs covered? Before you start talking about locking up assets in annuity products, make sure you have money in reserve or long-term care insurance in place should you need to pay for temporary disability or end-of-life care.

Are you fully informed about all the fees? Keep in mind that inflation protection and other features added on to an immediate annuity cost more money than those without. Compare the costs.


April 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

During the Real Estate Freeze, Vacation Homes Might Be a Warm Spot

Many of us have taken a vacation and found an idyllic spot where we’d love to retire, spend the weekend or telecommute. Some people have actually bought property spontaneously while on vacation – and while that’s not always a horrible idea, it is better to have a strategy.

Finding a relative bargain on vacation property involves research and a solid knowledge of your own finances. It involves knowing something about the market, too. Some thoughts:

Who else is buying? Any real estate purchase involves a market analysis. Don’t assume that just because the residential market’s in trouble that vacation real estate necessarily follows where you’re looking. Keep in mind that in some areas of the country that foreign buyers are a factor thanks to our wheezing dollar. If you like the area and the property, talk to real estate agents, residents and other people who know the town well to see if you can be ahead of the curve in making a purchase.

Know where your money’s coming from. There are plenty of people who finance second homes out of the equity from their first home, but given today’s slow real estate market, it’s a risky option. Before you even start looking for a property, think about what a second home purchase will do to your overall financial picture. First determine the impact on your long-term financial plan. Will you still be able to retire at the same age? Will you have enough money to educate the kids? Then look at your lending options. Many lenders require buyers to put down at least 20 percent on a second home. Keep in mind that your primary home lender may not want to tackle a vacation home mortgage. While you’re planning, clean up your credit first, shop your lending options and get pre-approved first. Above all, get some advice from an expert like a Certified Financial Planner™ professional.

Understand what you’re buying. Even if you haven’t pinpointed a specific home or condo, you need to understand all the cost and environmental issues of owning property in that community. You need to know appreciation rates on similar properties and if there are plenty of sale signs nearby (do people want out?). You need to know about all the potential environmental risks to your property from hurricanes to mold.

Plan for upkeep: An unattended structure is subject to crime as well as wear and tear that can accelerate when owners aren’t present daily. Talk to your insurance agent about insuring out-of-town property. Also, while there are often qualified paid caretakers in vacation communities to help protect and maintain your property, they can be expensive and you need to make sure they’re bonded. Think of anything terrible that can happen to a property and then plan solutions – before you buy. And don’t forget the cost of utilities, telephone, cable, property taxes, etc. All these upkeep costs often add up to a surprising amount.

Is it a fixer-upper? Keep in mind that in some resort or vacation areas, property may be landmarked or otherwise legally protected even if it looks like it’s falling down. Before you become convinced you’ve snagged a bargain and you’re dialing a contractor, check with local real estate agents and City Hall to investigate all the possible protections and restrictions on the property you’re examining.

Are you going to rent or occupy? Renting out a vacation home is a good way to cover some of the cost, but lenders often factor in a 25 percent vacancy rate when determining your qualification for the loan. Plus, you have to play landlord with people you may never meet, and that can be risky. Rental property is a business, so treat it as such.

Talk with your tax advisor. Vacation homes may or may not offer some tax benefits to you depending on your overall tax situation. Ask your tax advisor to run the numbers for you. But don’t make the move for tax reasons alone. If your dream vacation home fits into your financial plan and life and you’ve done your research, it may be time to buy.


March 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

Get A Head Start On Tax Planning For 2008

It’s still a month until most of us will file our 2007 tax returns, but it’s a good idea to keep in mind key tax changes that will affect our 2008 returns. Here are some of the highlights:

Wider tax brackets: In one of the rare cases in life where inflation looks like a good thing, all tax-bracket thresholds will be increasing. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $65,100, up from $63,700 in 2007.

Personal exemption: The personal exemption – which you’re allowed to claim for yourself and each dependent you have -- will go up $100 to $3,500 for 2008.

Standard deduction: Single filers will see this deduction increase $100 from 2007 levels to $5,450. Married couples filing jointly will see their standard deduction rise to $10,950, $200 more, and the amount for heads of households who don’t itemize will be $8,000, up $150. For married taxpayers age 65 and older, they’ll be allowed to add $1,050 to the regular standard deduction – unchanged from 2007, and singles will get an extra $1,350 compared to $1,300 in tax year 2007.

Phase-out of itemized deductions: Taxpayers will start to see the value of their itemized deductions go down after their taxable income exceeds $159,950 in 2008. That’s $3,550 higher than in 2007.

Retirement plan contributions: The contribution amount allowed for Roth IRAs begins to phase out for joint filers with incomes exceeding $159,000 (up from $156,000 in 2007) and $101,000 (up from $99,000) for singles and heads of household. For contributions to a traditional IRA, the deduction phase-out range for an individual covered by a retirement plan at work begins at income of $85,000 for joint filers (up from $83,000) and $53,000 for a single person or head of household (up from $52,000). The annual contribution limit for most defined contribution plans rises to $46,000, up from $45,000 in 2007.

Hope education credit: The maximum Hope credit, available for the first two years of post-secondary education, is $1,800, up from $1,650 in 2007.

Energy breaks: The federal government extended its credit on 30 percent of qualified solar generators for residential use.

The Kiddie Tax: The amount of investment income a child under age 19 -- or a full-time student under 24 -- can earn before excess earnings are taxed at his or her parents' rate will go up $100 to $1,800 in 2008.

Tax-free parking and transit passes: Employers will be allowed to give employees parking valued at $220 a month as a tax-free fringe benefit in 2008, up $5 from 2007.


March 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

Getting Today’s Best Returns from a Home Renovation

It’s a much different picture renovating a home in 2007 than in 1997. Fueled by huge gains in the price of real estate, homeowners a decade ago were tapping home equity with little care since prices were expected to keep climbing, more than covering the cost of such improvements.

Today, with the slowdown in real estate and the widening damage in the subprime loan market, home prices aren’t rising much – and falling in some places. And lenders tend to be a lot choosier these days about who to do business with. So before considering a home renovation, it makes sense to make sure your financial house is in order:

Start with your credit report: If you’re considering borrowing, make sure your credit report and payment records are in the best possible shape. As in most economic crises, lenders go from being permissive to squeamish in an instant, so even people with good credit behavior are going to be under the microscope. Start by checking your credit report -- you have the right to get all three of your credit reports – from Experian, TransUnion and Equifax – once a year for free. You can do so by ordering them at www.annualcreditreport.com, but do so at staggered times throughout the year so you can catch potential errors in your report as they happen. Also, if you need to clean up any bad behavior – late bills, heavy credit card debt, clean it up before you wander back into the real estate market. Remember that a bad credit score can raise the total cost of your mortgage.

See what kind of payoff your chosen renovation will have: During the housing boom, people thought virtually any renovation would offer big returns. That wasn’t true then, and it’s particularly untrue now. Take the time to figure out what renovations have the best chance for return on investment now – go to Remodeling magazine’s annual Cost vs. Value report online (http://www.remodeling.hw.net/content/CvsV/CostvsValue-project.asp?articleID=381305&sectionID=173) and check 2006 project cost averages for your region of the country. In this market, renovate because it’s going to bring you comfort or pleasure, not because you’re expecting immediate profits.

Know how long you’ll need to stick around: When you sell, remember that most married couples can exclude from their taxable income up to $500,000 of gain and most individuals filing single or married filing separately can exclude up to $250,000. It’s required that you must have owned and used your home as your principal residence for two out of five years before the sale. The exclusion is generally applicable once every two years. However, if you are unable to meet the two-year ownership and use requirements because of a change in employment, health reasons or unforeseen circumstances, then your exclusion may be prorated.

Beware the bump in property taxes: The great thing about a more valuable home is the potential higher value when you sell. The bad thing is a visit from the county assessor – more valuable property tends to lead to higher tax assessments. Make sure you cannot only afford the cost of renovation, but what you’ll need to pay higher taxes if your home is reassessed.


Don’t forget to deduct applicable sales tax: If sales tax was imposed on a major renovation or if your state or locality imposes a general sales tax on the sale of a home or the cost of a substantial addition or major renovation, you might be able to deduct it. This alternative is particularly valuable in low-tax states, and the sales tax paid on the purchase of some large items including the purchase of a home or major addition can be added to the table amounts.

Make sure your renovation makes your home salable: A discussion with a real estate agent or someone familiar with the value of improvements in your immediate neighborhood can tell you what will add to value or take it away. For instance, a big addition can take away from the value of a home if it’s not aesthetically in tune with the rest of the neighborhood. Obviously, any renovation that keeps your house on the market longer better be worth it now because it might damage your sales prospects later.



January 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

It’s Time to Start Thinking About the Estate Tax Again

Back in 2001, the Economic Growth and Tax Relief Reconciliation Act triggered a gradual increase in the dollar threshold of estates subject to the estate tax. In tax years 2007 and 2008, estates valued at more than $2 million may be taxed as much as 45 percent, while in tax year 2009, the threshold will increase to $3.5 million. The year after that, the tax will be repealed for a year.

However, in 2011, unless Congress acts, the party’s over. The estate tax will be reset at up to 55 percent on estates at a significantly lower threshold – $1 million.

While bills continue to swirl around Congress and many expect a Band-Aid of some sort before 2011, no one seems to believe that the so-called “death tax” is likely to be eliminated altogether. That makes it tough for individuals to set a clear course for their own estate planning. If you suspect your estate or the estate of relatives you might inherit from may fall prey to the estate tax, it makes sense right now to enlist the help of experts. Assets may be expected to grow over time, and your estate may turn out to be larger than you may think. You should be talking to estate and tax specialists as well as financial advisors such as Certified Financial Planner™ professionals.

Here are some things to keep in mind as you plan those conversations:

Think about a life insurance trust: Whether you need it for estate liquidity or for other purposes, an irrevocable life insurance trust can be created to keep the proceeds of the insurance out of your taxable estate. An added benefit is that such trusts may permit spousal access to the cash value of the policy. Yet note the word “irrevocable” – it means a decision that cannot be changed.

If your assets are expected to increase: A grantor-retained annuity trust, or GRAT, is an irrevocable trust that is popular among families with assets that are expected to increase, because such appreciation can be passed on to heirs with minimal tax consequences.

Prepare a gifting strategy: Under current law, unlimited amounts can be left to a spouse or to charity free of federal estate tax. Other heirs can receive a total of $2 million, tax-free, when deaths occur in 2007 or 2008. If your assets are over the estate tax limit, it might make sense to devise a gifting strategy that spends down your total taxable estate while still allowing you a comfortable lifestyle. You might, for instance, consider making direct payments for someone else’s medical bills or education tuition. No gift tax applies for these items, so payments can be unlimited.



January 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

Say Goodbeye to 2007 with Some Smart Tax Moves

December’s a busy month, but it’s not too late to focus on last-minute tax savings. Consult a tax or financial advisor such as a Certified Financial Planner™ professional to see if these might work for you:

Do an AMT sweep: One of the reasons why it’s wise to consult a tax adviser before you start accelerating deductions is that certain people over $75,000 find themselves more susceptible to the alternative minimum tax if they proceed. The AMT is an alternative taxation process that’s figured separately from your regular tax liability and you have to pay whichever tax is higher. State and local income taxes and property taxes, for example, are not deductible when figuring the AMT. Under the regular rules, medical expenses that exceed 7.5 percent of adjusted gross income can be deducted under the regular rules, but under the AMT, that threshold is 10 percent. Also, under regular rules, interest on up to $100,000 of home-equity loan debt is deductible no matter how the money is used, but under the AMT, the deduction holds only if the money was used to buy or improve a primary or second home. It pays to check your AMT risk before you execute any end-of-the-year tax-savings strategy.

Check investment gains and losses: If you have some capital losses in your taxable investment accounts, see if it makes sense to sell and offset them against any capital gains you've realized this year. Such losses can offset 100 percent of capital gains plus up to another $3,000 in ordinary income. Any losses in excess of that number can be carried forward to the next tax year.

Prepay property taxes: If it makes sense to accelerate that deduction, pay those early 2008 taxes before the end of the month.

Prepay state taxes: Again, if it makes sense based on your tax situation, consider making a fourth-quarter estimated state tax payment due in January this month to accelerate the deduction.

Defer income if possible: Self-employed people and some business owners might elect to invoice customers in January so they don’t have to include that income on their 2007 return. Keep in mind that it only makes sense to defer income if you think you will be in the same or lower tax bracket next year.

Got time to go green? December isn’t exactly everyone’s favorite month for home renovations, but if you are inclined to replace windows, insulation or heating/air conditioning systems that meet particular energy conservation standards, you might qualify for a credit up to $500.

Consider the sales tax/income tax tradeoff: Taxpayers in 2007 will again have the option of claiming either state income tax paid or state sales taxes paid as itemized Schedule A deductions. If your state doesn’t have an income tax, definitely start totaling all the sales taxes you’ve paid. However, if you do pay a state income tax but have purchased such big-ticket items as cars, boats or construction supplies and equipment during the year, run the numbers anyway. The total sales tax deduction is figured on an amount from the IRS state sales tax tables in addition to the actual sales tax amounts paid on the major purchase items. The alternative is to ignore the IRS Tables, and simply add up all sales tax payments.

Plan a stock donation to charity: If you have stock with a large unrealized capital gain that you’ve held longer than a year, you can give that stock to a qualified charity and claim a deduction for the current fair market value of the security. If you have a stock with an unrealized capital loss, do the opposite – sell the stock, claim the capital loss, then donate the resulting cash proceeds to charity. This is actually better than just donating cash, because you get the same deduction and never have to pay the capital gains taxes from the appreciated security.

Make sure donations are documented: As of January 1 this year, you now must have a either a receipt or a canceled check to back up any contribution, regardless of the amount. If you don't have such a written record, the IRS will reject the write-off if the lack of proper record keeping is discovered in an audit.



December 2007 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.

A Family Mission Statement Can Keep Family Goals First and Money Squabbles at Bay

When rich families squabble over the family legacy, it becomes headline news. Witness the recent battle over the ownership of the Wall Street Journal between members of the Bancroft family. When approached by media titan Rupert Murdoch, various family members fought over whether to preserve the family legacy at the legendary daily business paper or take the money and run. Money eventually won.

For most average Americans, such stories are an illustration not only of how money doesn’t buy happiness, but how it breeds dissention and distance between people who could be enjoying their wealth and moving in concert. With all that money, how can people be so unhappy and contentious?

Families with substantial assets – or the promise of substantial assets as a business grows – might consider creating a family mission statement. While the end product should produce a document built from discussion, argument and consensus, it’s not so much about the piece of paper as the process. When a family sits down to discuss what is really important to them, it’s an opportunity to take the machine apart and see how it works. Many families start the process as a way to build consensus about long-term financial, business, estate and philanthropic goals, but to their surprise, money can take a back seat. Families discover particular strengths, weaknesses and unexpected courses of action within their ranks. The process might identify future leaders of the family.

Trained financial advisors, such as Certified Financial Planner ™ professionals, can explain and guide the process. Some planners may be trained to facilitate such discussion based on the size and goals of the family involved.

The general creation of a family financial mission statement should have four key touchpoints: estate issues, philanthropy, business direction and family dynamics.

Here are some questions that should be asked of everyone in preparing the family’s financial mission statement. They should focus on relationship issues first, and then move into business and money matters.

• What’s most important about our family?
• What do you think our goals should be?
• When do you feel most connected to the rest of us?
• How should we relate to one another?
• What are our strengths as a family?
• Where do you think we’ll be as individuals in 5, 10 and 15 years?
• In order, what are the five things you value most in life?
• How should we behave toward each other?
• How should we resolve our disputes?
• How important is the family business to you?
• What should we be doing differently with our family money as well as our assets inside the business?
• What’s the best way for us to be building our wealth?
• What do you think the role of our family should be in helping the community?
• What should we be doing individually and as a family with regard to philanthropy?

Structurally, the written mission statement can be whatever you agree it should be – a few paragraphs or a page or two. And it needn’t be set in stone – a family should have a meeting every year or two to revise or approve its mission. The family mission statement helps your family establish its identity and the variety of voices within. It can help set goals and diffuse tensions later. It can also be used to moderate discussions that inevitably happen after major changes within the family – death, divorce or happily, an increase in the number of heirs and participants.

As for the age of the participants, it can start in very basic form with younger children and the process can mature as they age. It’s actually a good idea to bring young members into a customized version of the process for youngsters so they can comfortably adjust to working as adults with the older members of the family.

For a handy resource on writing a family mission statement, go to this site: http://www.nightingale.com/mission_select.aspx?from=homepage&element=missiontitle


November 2007 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.