Lakeside Financial Planning – Advisor Insights

5 New Year’s Resolutions for 2017

MONEY TALKS – Lakeside Financial Planning was fortunate enough to be featured in a recent article on Investopedia’s advisor insights platform. The article is published below or you can view the original source by clicking here.

1. Pay off Consumer Debt
Credit cards can have interest rates well into the double digits. Paying off credit card debt is a great way to free up cash flow for the future. Credit card purchases are generally for short term items that have no lasting value. Putting away your credit cards and learning to live within your means can go a long way towards financial independence. If you are prone to consumer debt, try consolidating your credits cards down to one and using cash for everyday purchases.

2. Build an Emergency Reserve
Wage earners should have a minimum of 10% of their gross annual income in a long term savings account. An additional 20% should be saved as an emergency reserve. The best place for your emergency reserve is within your 401(k) or other tax sheltered accounts because the interest earned is tax deferred. Self-employed and retired individuals should build their cash/emergency reserves to an even greater level. As an additional test, the combined value of cash and emergency reserves should be at least 20% of your mortgage balance.

A Home Equity Line of Credit or HELOC is loan where a homeowner can borrow against the equity they have in their home. Unlike a conventional home equity loan where the borrower is advanced the entire lump sum up front, a HELOC is different in that the borrower only draws on the line of credit if needed. A HELOC could be used to cover a variety of expenses including unforeseen outlays for home improvements or medical bills. Homeowners should consider getting a HELOC as a supplement to their cash/emergency reserves as an added security blanket.

3. Purchase Long Term Disability Insurance
For most workers, the ability to earn a living is their most significant financial resource. A disabling illness or injury stops income, often leads to additional medical costs, and prevents savings for key goals such as education and retirement. Despite these facts, employees are more likely to have dental insurance than long term disability. The reason for this is most people associate disability with serious accidents. Since very few employees have high risk jobs, the general inclination in the workforce is to say, “I don’t need it” when it comes to disability insurance. In reality this couldn’t be further from the truth as 90% of disability claims are due to illness not injury. Even people who don’t have high risk jobs are still at risk of disability from cancer, cardiovascular, muscular, or other illnesses. A disabling illness or injury can have a devastating effect on you and your family. Purchase long term disability insurance now to protect you and your family’s financial security.

4. Increase Retirement Savings
Most company retirement plans allow you to enroll in a plan where your contributions are automatically deducted from your paycheck and directly deposited into the retirement plan. The beauty of automatic deductions is, since you never see the money, it’s nearly impossible for you to spend it. The only problem with this out-of-sight, out-of-mind enrollment process is most people set up a standard contribution rate when they enroll in their plan and never think to increase it. Lots of employers now offer an auto increase plan where your contribution percentage will increase by 1% per year. If your employer offers an auto increase plan be sure to enroll, if not then be sure to increase your contribution percentage manually each year. Consider investing in an Individual Retirement Account (IRA) if your employer does not offer a retirement plan.

5. Create an Estate Plan
Approximately 55 percent of American adults do not have a will or other estate plan in place. The primary reason for this staggering statistic is twofold; one being that no one wants to think about their own demise. The other; more alarming reason, is because many Americans are ill-informed on benefits of an estate plan. The most common excuses I hear are; “I don’t have children so I don’t need an estate plan” and “estate plans are only for wealthy families.” Both of these statements couldn’t be further from the truth. Most people don’t know that one of the primary purposes of an estate plan is to give guidance while you are still living. Questions such as, whom do you want to make medical decisions on your behalf or what are your wishes concerning life-prolonging procedures are typically addressed in a comprehensive estate plan. Regardless of your wealth or family situation an estate plan is beneficial for everyone involved.

Why You Need an Estate Plan

MONEY TALKS – There are three common misperceptions in our society regarding the need for an estate plan. A general failure to understand what an estate plan can do for you while you are still living; believing you are not wealthy enough to need an estate plan; and the third, perhaps most prevalent misconception, is that only the elderly need an estate plan. Unfortunately, more often than not, these false impressions, along with a lack of understanding, lead many people into believing they don’t need an estate plan. In fact, according to the American Bar Association, 55% of Americans die without a will or estate plan.

Failure to Understand

Most people recognize that an estate plan allows for the transfer of property at death. However, what many fail to understand is that an estate plan also focuses on the control and decision making of your affairs while living. A comprehensive estate plan will address who will make medical decisions on your behalf if you are unable to make your own decisions. It will also allow you to name a trusted person to manage your financial affairs. These important medical and financial decisions could be temporary, such as if you were recovering from a car accident, or permanent in nature if you were to develop a life changing medical condition.

Wealth is not a Factor

Another common belief among Americans is that they are not wealthy enough to warrant an estate plan. But an estate plan isn’t all about wealth. Do you know who decides where your assets go? Who will take ownership of your house? Who will be granted guardianship of your children? Without a plan in place, you are taking the control out of your hands, leaving your loved ones to handle the burden and subjecting them to the rules of the state, even if those rules may not be aligned with your wishes. This could result in your children being cared for by someone other than who you had imagined or a lifetime of hard earned dollars going into the pocket of an estranged relative.

Age is Irrelevant

The notion that estate planning is only for the elderly is another fallacy in our society. In fact, I recently had a conversation with a woman who recalled feeling insulted when an attorney brought up the topic of estate planning. She felt that she was too young to need an estate plan, and the attorney in question must have overestimated her age. While this may seem farfetched, the numbers don’t lie; 92% of people under 35 have no will or estate plan. Unfortunately accidents happen every day, and we cannot pick or choose when they will occur. The premise behind any good estate plan is to put it in place before you need it. Unfortunately when it comes to estate planning, if you wait until you need it, then it is probably too late!

Three Core Documents

Regardless of your financial status or age, here are three core estate planning documents that every adult should have.

  • A Healthcare Proxy is a legal document that allows you to name someone you trust to make important health and medical decisions on your behalf should you become incapacitated or are unable to speak for yourself. This person, known as your “Heath Care Agent,” can be a relative, friend, co-worker, neighbor or anyone else you choose as long as they are eighteen years of age. In addition to traditional medical decisions, your Agent also makes decisions on “life-sustaining” procedures. It is important for you to communicate your wishes with your Heath Care Agent so they understand your preferences from a medical, moral, and religious stand point. A Health Insurance Portability and Accountability Act (HIPAA) Release should also be included in your estate plan either as a separate document or incorporated into your Healthcare Proxy. The HIPAA language is what authorizes your Agent access to your medical records.
  • A Durable Power of Attorney is a legal document that allows for a trusted friend or relative to make financial and business decisions for you in the event you are incapable of managing your own affairs. Your appointed Agent can then handle important matters such as paying bills, managing investments, and accessing online accounts. The DPOA is most commonly used due to incapacitation relating to old age or a medical condition such as Alzheimer’s. However, they can also be quite useful in other circumstances such as managing your affairs while you are traveling abroad.
  • The Last Will and Testament is a legal document that states your final wishes in terms of who you want to inherit your assets. This includes giving your beneficiaries anything from your home to your investments to your family heirlooms, and can even include your pets! Additionally, and often more importantly, you can name guardians for your children. A named guardian prevents your family from fighting the state (or one another) in probate court and guarantees your children are being cared for by the person(s) of your choosing.

Plan Now

Creating an estate plan now can have a tremendous impact on your own life as well as that of your family. A basic estate plan that is customized for your individual needs can be drafted by a local attorney and shouldn’t break the bank. Don’t leave your health, finances, and children in the fate of someone other than your choosing. Put a plan in place now, before it’s too late!

Need an Estate Planning Attorney?

Mention this newsletter and receive a free consultation ($125 value) and 20% off a basic estate plan package at Levine-Piro Law.* Basic estate plans include: Health Care Proxy, Living Will, HIPAA release, Durable Power of Attorney, Last Will and Testament, and final disposition instructions.*

Levine-Piro Law, P.C.
63 Great Rd #101, Maynard, MA 01754
(978) 637-2048

*Price before discount: $900/individual; $1500/couple