How to Help Aging Parents

Financial capacity – the ability to manage your finances in your own best interest – involves everything from paying bills to reading a brokerage statement and weighing an investment’s potential risks and rewards. And preparing for the potential decline of that capacity is as important as planning for long-term-care expenses or keeping your estate plan up to date. Declining financial abilities may not only result in a few unpaid bills but also leave you vulnerable to financial abuse and exploitation, drain your nest egg, and place heavy burdens on your loved ones. Nobody likes to think about financial decision-making ability declining with age. Yet “it’s extremely common. In fact, I might say it’s inevitable,” says Daniel Marson, a neurology professor at the University of Alabama at Birmingham. While many people assume they’ll only need help to manage their finances if they develop dementia, the normal aging process can adversely affect faculties such as short-term memory and “fluid” intelligence, or the ability to process new information, Marson says. “Just the fact that you’re 70 or 80 years old may be impacting your financial skills,” he says, “quite apart from the fact of whether you have Alzheimer’s or any cognitive disorder of aging.” To be sure, many people remain perfectly capable of managing their own money as they age. Indeed, among people ages 18 to 86, credit scores increase by an average of 13 points for each decade lived, according to a recent study by researchers at the University of California Riverside and Columbia University. Yet all older adults should consider organizing and simplifying their finances to make their money easier to manage at an advanced age and prepare for the possibility

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Refinancing Your Mortgage

When you refinance your mortgage, you take out a new home loan and use some or all of the proceeds to pay off the existing one. Why refinance your mortgage? There are a variety of reasons why you may want to consider refinancing your mortgage, such as: Lowering your monthly mortgage payment by refinancing to a lower interest rate Shortening the length of your loan (e.g., from a 30-year mortgage to a 15-year mortgage) to potentially reduce interest charges over time Accessing extra cash through a cash-out refinancing to pay for home improvements, pay for college, or consolidate debt Refinancing your adjustable rate mortgage (ARM) to a fixed rate mortgage or to a new ARM with better terms When should you refinance? It used to be said that you shouldn’t refinance unless interest rates were at least 2 percent lower than the interest rate on your current mortgage. However, even a 1 to 1.5 percent differential may be worthwhile to some homeowners. In addition to interest rates, you should also consider the length of time you plan to stay in your current home, the costs associated with getting a new loan, and the amount of equity you have in your home. Ultimately, it may make sense to refinance if you’re certain that you’ll be able to recoup the cost of refinancing during the time you own the home. So, it’s important to do the math ahead of time and calculate your break-even point (the point at which you’ll begin to save money after paying fees for closing costs). Ideally you should be able to recover your refinancing costs within one year or less. No cash-out versus cash-out refinancing No cash-out

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When’s the Right Time to Retire?

Retirement is inevitable, but knowing exactly when to do so is often unclear. No matter when you actually begin your retirement, you’ll benefit from planning your post-work life as early as possible. According to Gallup, the percentage of Americans who expect to retire at age 66 or older has risen dramatically, from 21% in 2002 to 41% in 2018. People expect to live and work longer than ever, so it’s never been more important to know when to stop working and how to carefully plan for the big event. The Social Security full retirement age. For people born in 1960 or later, the Social Security full retirement age is 67. You will receive 70% of your monthly benefit if you retire at age 62, and 86.7% at age 65. However, you’ll get the maximum monthly benefit if you wait till age 70. These milestones might be an important consideration if your Social Security benefit will be a sizable portion of your retirement income. Separate financial considerations from emotional ones. If you’ve successfully executed your long-term investment plan, you might be financially prepared to retire well before you are emotionally ready. Facing lifestyle changes at retirement might cause anxiety about how your life will evolve and how you’ll spend your time. It’s important to objectively evaluate your financial condition to support your decision-making, even as you contend with your feelings about retirement. Many folks need more money than they think. It’s virtually certain that life will offer you one or more surprises along the way. You might find you will need more money than anticipated to fund a comfortable retirement. Creating a post-retirement budget can give you a general idea if

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High Net-Worth Individuals: Are You Missing Opportunities in Your Financial Planning?

High Net-Worth executives and those that have been self-employed, can experience common problems in their financial planning journey. Often, they have missed opportunities in their financial planning because they haven’t planned adequately for their retirement even though they make a high income. It’s easy to think that everything will work out with their retirement plan, and it can, but a high-income often masks the reality of having a deficit once a career ends. Just like average income earners, failing to save in the early working years can lead to a retirement savings shortfall. Retirement today means independence for many Americans. Flexible retirements are desirable when retirees can work, volunteer, golf, or do anything they choose because they have saved enough to decide when to retire and on their own terms. Many high-income, self-employed executives often focus on the business being their retirement nest egg to get them financially through the rest of their lives. The sale of their business funding their entire retirement is an unknown until the liquidation event actually happens. Financial planning for the ‘what-ifs’ can put the executive in a better position if they take the opportunity to save through these retirement savings options: Creating Your Own Deferred Comp Plan (DCP) allows you to defer a much larger portion of your compensation to supplement your retirement later on.  A strategically planned DCP creates beneficial options when it comes to choosing between the employer’s corporate lower tax bracket and the employee’s higher personal tax bracket. Maximizing Your Own Solo 401(k) or SEP IRA each year allows you to save more than a traditional 401(k), with some additional requirements. For the self-employed, these retirement plan options are an obvious

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College Funding: Planning Ahead for Financial Security

In recent years, the cost of higher education has risen well ahead of inflation. At some private colleges and universities, the net cost for one year’s full-time education, including tuition, fees, and room and board, tops $40,000 (Trends in College Pricing—2013, The College Board). At these prices, the final cost of a bachelor’s degree from a private institution could exceed $160,000. In addition, with many professions requiring graduate degrees, it quickly becomes apparent that very few families may be able to cover education expenses with their current incomes. With only one child, the costs can be prohibitive; for families with three or more children, college and graduate school costs could easily be hundreds of thousands of dollars. How can parents and grandparents build a fund for college? They need to look ahead and prepare a “blueprint” as early as possible, and there are a number of ways to do this. The best method will depend on the age of the child, the family’s resources and cash needs, and a number of other considerations. No matter what the age of the child, there are legal techniques for placing money and property in a child’s name. Since it is generally inadvisable for minors to own property or have large bank accounts in their own names, gifts to minor children are usually made either to a custodian or to a trust. The Custodial Account While some of the tax advantages of a custodial arrang­ement have been affected by tax law changes, the technique is still worth investigating. It is the simplest method to give money or property to a child, involving very little paperwork, hassle, and legal fees. All states have adopted either the Uniform Gift to

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What Should Grandparents Know About 529 Savings Accounts?

Grandparents can often find themselves in a better financial position to save for their grandchildren’s education than their own children are. The parents of prospective students may still be contending with competing priorities like their own student loans, high-interest credit card debt, or a hefty mortgage. One way to help save for a grandchild’s college education is by contributing money to a 529 savings account, an account where funds can be saved or invested and are withdrawn to be used exclusively for college-related expenses.[1] What else should grandparents know about 529 college savings accounts? Grandparent-Held 529 Accounts Won’t Increase the Expected Family Contribution Every family who fills out the Free Application for Federal Student Aid (FAFSA) receives an “expected family contribution” (EFC) calculation. The EFC is designed to measure how much the family can afford to pay per year for the child’s college education; the lower the EFC, the more need-based aid may be available. While parent-held 529 college savings accounts will count as an asset for EFC purposes, grandparent-held 529 accounts don’t; this may allow the child to be eligible for more financial aid than they would be if the account was held by a parent.1 An Income Tax Deduction May Be Available More than 30 states (and the District of Columbia) offer a state income tax deduction or credit for contributions to a 529 account (even one that is owned by someone else, such as the child’s parent).2 This means that if a grandparent contributes $5,000 to their grandchild’s 529 in a given tax year, they can receive a tax credit of anywhere from a few hundred dollars to $1,000 or more, depending on the state’s tax treatment. For

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10 Tips for Small Business Owners

Small business owners should conduct an annual assessment of their personal finances. Owners of small businesses have much the same concerns as everyone else, except they are personally responsible for the fortunes of their enterprise. In a sense, a small business is like a family. And these are important families in American economic life. After all, small business is vital to the U.S. economy, employing half of private-sector workers and creating two-thirds of net new jobs, according to federal data. Here are 10 tips to follow in weighing a small business owner’s financial plan: Budget/Saving. The general financial planning rule is that you should save AT LEAST 10% of your income on an annual basis. You should also review short-term and long-term goals to ensure you are saving enough to meet your objectives. Maximize Contributions to Retirement Plans. Depending on the size of the company and number of employees, there are many different methods to save for retirement. On an annual basis, business owners should work with their accountants and financial professionals to determine the most appropriate savings vehicle. Retirement plans include: 401(k)s, individual 401(k)s, individual retirement accounts, Simplified Employee Pension (SEP) IRAs, Roth IRAs, defined benefit and defined contribution plans. This will not only help achieve the goal of saving 10% of your income, but it also can help minimize taxes. Create/Review Estate Planning Documents. It is important to create wills, living wills, medical and financial power of attorney documents. These documents should be reviewed annually as your personal goals and estate laws change. Life Insurance. Various types of life insurance are available, including whole life, variable life, universal life, universal variable life and term policies. They provide a

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4 Reasons to Consider a Life Insurance Policy

Buying a life insurance policy is something that many people push off, sometimes until it is too late. For many people, the thought of buying life insurance means thinking about their death, which is something that most people wish to avoid. Life insurance is not about death, but instead about the future and security of your loved ones. If you have not yet made the jump to purchase your life insurance policy, below are four reasons you should consider one.[1] It Assists With Your Income If your family members are dependent on the income that you bring to the household, a sudden loss of it may add intense stress to their grief. Life insurance can typically cover your income at least long enough for your loved ones to gain stability or make up for the loss of monthly funds.[2] It Will Help With Funeral Expenses Funeral arrangements can cost thousands of dollars for even simple services. Your life insurance policy may help your loved ones to cover these expenses without placing any extra financial burden on them.[3] It Will Help With Your Debt There is a common misconception that all your debt will be erased in the event of your death. While this may be true for some debts, it is not true for all; most of the time, it tends to not be true of the largest debts like anything left to pay on a home. If you have a spouse for is a co-signer on your mortgages or other loans, they may become responsible for the entire debt. Debtors may also come after the assets in your estate, which can significantly reduce the amount of estate that will

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Key Considerations as You Start Receiving Social Security Benefits

As your retirement draws closer, you will probably start to have lots of questions such as: How much Social Security will I receive? When should I retire? How will I know when to retire? Do I have enough saved? What will I need to do to maintain health insurance after I retire? The answers to these questions can vary widely depending on your income, your job duties, and your assets. However, there are a few factors that everyone should keep in mind when you begin making your retirement decisions. Keep reading to learn more about three key considerations relating to your future Social Security benefits. Your Full Retirement Age (FRA) If, like many, you are planning to rely on Social Security benefits as a key component of your retirement income, your FRA may dictate your retirement age. Those born in 1954 and earlier can reach FRA at age 66, while those born 1960 and after will not reach FRA until age 67.1 Claiming your Social Security benefits before you reach FRA will lower your monthly benefit for life, so it’s not a decision that should be entered into lightly. If you like your job and can keep it through your FRA, it may make sense to do so. Not only will it increase your monthly retirement benefit, but it will also provide you with a longer earnings history and allow you to save more and/or pay off debt before you retire. Your Health and Projected Lifespan Your decision on when to retire (and when to begin claiming Social Security retirement benefits) can often depend on how long you expect to receive these benefits. If you have a family history of longevity,

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Retirement Planning: To Roth or Not to Roth?

When saving for retirement, it often makes sense to contribute to employer-sponsored retirement plans to take advantage of any available employer match opportunities. However, not everyone has access to an employer-sponsored plan. Even if you do, there are reasons you may want to consider using Traditional and/or Roth IRAs to supplement your retirement savings. There are important differences between the two types of accounts.[i] Understanding the potential benefits and drawbacks of each type of IRA can help you make more informed decisions. Potential Benefits and Considerations Regardless which type of IRA you choose, the contribution limits are the same, although Roth IRAs contributions are subject to income limits.[ii] Traditional IRA contributions are not limited by income levels unless you or a spouse was covered by an employer-sponsored plan during the year of the contribution. In 2021, the total amount you can contribute to your Traditional and Roth IRA accounts is the lesser of your taxable compensation for the year or $6,000 ($7,000 for those age 50 or older.)[iii] However, there are important differences in tax treatment for these accounts. If your income is below certain thresholds, you may be able to deduct some or all of your contributions to traditional IRAs, reducing your taxable income in the year of the contributions.[iv] Taxes on contributions and any growth are deferred until you begin withdrawing them. So, if your tax bracket in retirement is lower than in your earning years, you may pay less in taxes on your retirement dollars. In contrast, you cannot deduct contributions to a Roth IRA – those are after-tax contributions.[v] However, qualified distributions from Roth IRAs are not subject to federal income taxes, potentially lowering your tax

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