Welcome to the September 2012 issue of The Wealth Chronicle!
WELCOMING A BABY, YOUR FIRST FINANCIAL STEPS
Having a baby is a life changing event. In addition to the joys and excitement of a new baby, there are also some steps with respect to your finances that make sense to take.
Now my wife and I are going through the checklist for our family as we welcomed our first child, Charlotte Madison Bautis, on September 11, 2012.
The following are the set of steps I recommend you take a look at to help put together a secure financial future for your family:
New Baby Financial Checklist
- Adjust budget for higher expenses and possibly lower expenses, depending on the category
- Be sure to obtain your baby's Social Security number and card
- Adjust or obtain coverage for:
- Life Insurance
- Medical insurance (you usually have 30 days after life-changing event to update Medical Insurance)
- Disability insurance
There is now an additional person dependent on your income. Insure that it is protected by obtaining the appropriate amount of insurance
- Adjust beneficiaries for:
- Retirement Plans
- Bank accounts
- Any other financial accounts
There are some instances where you would want to name your baby as a beneficiary and some instances when you would not.
- Set up a college savings plan and start setting money aside
Putting a child through college is extremely expensive. Especially when you project what the costs are 18 years from now. There are tax advantages for setting up a college savings plan that could save in the tens of thousands of dollars.
- Revisit your emergency fund in order to ensure your baby's expenses are accommodated
- Create a will and name guardian(s) for your baby
Not having a will means the State decides what happens to your assets and who becomes the guardian of your child/children. If that's not enough incentive to create a will as soon as possible, I'm not sure what is.
- Check and claim for applicable tax credits and deductions
The IRS does not allow many situations to obtain a credit or deduction especially if you are a high income earner. Take advantage of it when they do allow for it.
I have made the checklist available as a downloadable, easily printable PDF - see it here.
SETTING & ACHIEVING GOALS
Giants NFL rookie running back David Wilson made headlines before the football season started for announcing his goals for the season. Wilson's goals include:
- Average 5.0 yards per carry
- Score at least 10 touchdowns
- Have at least six 100-yard games
- Allow no sacks on his behalf
- No fumbles
- Have at least one play of 20 yards (per game)
The goals are lofty and Wilson is off to a slow start, but you have to admire and appreciate his confidence. He said he sets goals every preseason and it has helped him achieve success as he usually attains 75% of his goals. Setting goals is not just for athletes, but can be used by anyone looking to achieve success in anything.
Every year I set my own goals, professionally and personally. And as an advisor I also help people set and reach their financial goals. Here is an example of how someone can go from setting a financial goal to putting together a plan on how to achieve it:
Goal: James and Jane would like to generate $50,000 a year of passive income.
Background: James and Jane would like to have their investments generating the $50,000 in 10 years timeframe as that is when they are planning on retiring. The extra $50,000 per year would supplement their IRA's and Social Security benefits to give them a secure, comfortable retirement, and help them finance another goal of buying a beach house. They are starting with $100,000 in their account. They definitely have a head start with $100,000 already in their account, but a plan can be implemented starting from scratch. The hardest part for most people is getting started.
The investments that we are going to add to their plan are going to include dividend paying stocks, bonds, real estate, and private equity (this is investing in a private business).
They start off with the $100,000 split amongst the five asset classes in the table below. Each year they add $5,000 a year to each of the five classes. At the end of 10 years they will be generating $50,000 per year in income and will never have to touch the principal in their accounts which in this case is over $500,000.
The example is simplified and the returns have to equal what is in the return rate column in the table, but it goes to show how you can start with setting a goal, put together an action plan, and finally achieve your goal.
LIFE INSURANCE MADE SIMPLE
September is Life Insurance Awareness Month and I wanted to use this article as a way of simplifying the questions that most people have about obtaining a policy. Deciding to buy life insurance and then actually purchasing it can be a complicated process and potentially a difficult reality check. There are three basic questions that most people have about life insurance; they are as follows:
Question 1 - Do I need life insurance?
The answer to this question is pretty straightforward. If someone depends on your income, then most likely you need life insurance. The visualization is simple: imagine if your paycheck did not exist. Can your family make the mortgage payments, pay the monthly bills? Will your kids be able to go to college?
If you decide that you need life insurance proceed to question 2.
Question 2 - How much life insurance do I need?
I've seen people determine how much insurance they need by multiplying their yearly income by a certain number to just plain guessing on an amount. Every family is different so the best way to determine how much insurance you need is to conduct an individual needs analysis. Needs usually fall into three categories:
- Income Replacement Including Debt Repayment - Help maintain a dependant's current standard of living which can include funds to apply toward bills that are outstanding at the time of the insured's death, such as daily living expenses, mortgages, taxes, auto loans, and leases, credit card debt, personal loans, student loans, and small business loans.
- Family Financial Goals - Death benefit proceeds help your loved ones reach financial goals including future college costs, supplements a surviving spouse's current or future retirement income and savings, leaving a legacy, business succession planning (business debt, partner buyout, stock redemption, etc.)
- Final Expenses and Estate Settlement Costs - Proceeds help prevent the insured's heirs from using their inheritance, personal income, or savings for estate costs, including funeral and burial costs, federal estate taxes, state estate taxes, probate costs, attorney's fees, executor's fees.
There are online calculators that can help you run the actual analysis and determine how much you need.
Question 3 - What type of life insurance do I need?
There are three major types of life insurance (Whole Life, Universal Life, and Term Life). Life Insurance in general has gotten to be fairly reasonably priced. Term Insurance has gotten extreme cheap based on competition amongst life insurance carriers and rising life expectancies. Whole Life and Universal Life are considered permanent insurance and is insurance that will last the rest of your life. Some of the features they can offer include flexibility, tax advantages, and guaranteed income. However you have to consider the fact that they are more costly than a term policy.
A lot of times it makes sense to cover a big chunk of your insurance needs through term insurance, but have a small permanent policy to take advantage of the benefits that they offer.
Is Your Life Policy Keeping Up with Your Life? Even if you currently have a life insurance policy you may want to have a policy review to ensure your life insurance is up-to-date. Your current coverage may not be enough if:
- You added a new member to the family
- You recently made a big purchase (especially a new house)
- You changed jobs or received a promotion
- You recently got married
- You started or continue to grow a small business
- You have children in college
- You have an elderly parent who is now dependent on you
- You recently retired and want to plan your estate
If you would like to discuss whether a new policy makes sense for you or if your current policy is providing you with the appropriate amount of coverage, I am happy to talk with you.
"Sell in May and Go Away"
There is an old saying in the investing world called "Sell in May and Go Away". It means that you should sell all of your investments in May and go back into the market the following January. If you followed that adage this year, you probably didn't have such a good summer. The S&P 500 is up over 12% since May 31st. It goes to show that most times the markets have a mind of their own and trying to time them can be a losing battle.
R.A Dickey and his $1 million insurance policy
The one bright spot for the Mets this year has been the pitching of R.A. Dickey. Dickey has a shot of winning 20 games this year which would have been impressive enough, is monumental considering how bad the Mets are this year. How Dickey got to where he is now is a great story and almost never happened.
Dickey was drafted in the first round in 1996 by the Texas Rangers and was originally offered an $825,000 contract. But after it was discovered that he was missing the ulnar collateral ligament in his elbow, the Rangers dropped the offer to a measly $75,000. Doctors were amazed that he could twist a doorknob never mind throw a baseball. As a sophomore in college, Dickey had taken out a $1 million insurance policy on his right arm - and so, at 21 he faced a momentous decision: cash in on the policy - which would have then barred him for life from playing professionally ever again or pursue his dream. Dickey chose to pitch and it's been a rough road to where he is now, he is making $4.75 million this year and is due for a big payday in the near future.
$1.015 Trillion is the total amount of U.S student debt - 24% greater than outstanding consumer credit card debt. I always tell people to ensure that your retirement is secure before you start saving for your child's or grandchild's college education. The reasoning is simple: one cannot take a loan out for retirement expenses but for college, there are many loan options available. It's not such a slam dunk answer anymore as I am seeing lots of cases with people coming out of college with mortgage size monthly loan payments and not such good prospects for jobs. Not saying that all the focus should be on retirement planning but it definitely makes sense to find a balance between retirement and education planning.
Gold and Bronze Medalist declares Bankruptcy
As a wrestler, Gardner competed in the 286-pound class when he won Olympic gold in 2000, then the Olympic bronze in 2004. Last year, he weighed in at 474 pounds as a contestant on NBC's "The Biggest Loser." He left the show early after dropping nearly 200 pounds. It from this more recent brush wiith "fame" that people know of Rulon Gardner. I remember watching him triumph in the 2000 Olympic games beating the
previously undefeated Russian Alexander Karelin.
| I was lucky enough to meet Rulon in March 2006 at the Arnold Classic in Columbus, Ohio.|
Unfortunately Rulon has some hard times and has had to declare bankruptcy, as per a recent USA Today articleUSA Today article. He passed up on some big paydays from the WWE and from Pride (an MMA organization). It goes to show that bankruptcy can happen to anyone if proper planning is not established. I am confident Rulon will bounce back. Not only is he a gold medalist but he survived a couple of days buried in avalanche as well as a plane crash in a lake.
Please contact me if you have any questions about the articles above or about your personal or business finances.
Retirement Income Planning
I am pleased to offer FREE workshops to the public covering critical areas of Retirement Planning. Each of these FREE workshops are designed for guests to come away with valuable tools to begin planning for the financial future.
Retirement Fitness Challenge: Shape Up Your Finances
and Make Your Money Last a Lifetime
After a lifetime of saving, building a strategy for income in retirement is a whole new challenge. The Retirement Income Planning Workshop will help you determine if you are on track for retirement with your savings and how to convert your savings to an income stream that will cover your expenses during retirement. You might not be close to retiring, but you may know a friend, colleague, or family member that is and could benefit from attending the workshop.
In the workshop you will learn strategies to:
- Prevent outliving your money
- Minimize your expenses during retirement
- Combat Inflation and Rising Health Care Expenses
- How to optimize your withdrawals
- Manage market volatility
- Maximize your Social Security income
- Create a stream of guaranteed income
Date: Tuesday, October 2nd, 2012
Location: Lodi Memorial Library, One Memorial Drive, Lodi, NJ 07644
Date: Thursday, November 8th, 2012
Location: Cresskill Public Library, 53 Union Ave, Cresskill NJ 07626
|Disclaimer:The information contained in this newsletter is for information purposes only and may not be suitable for your specific financial situation. You should consult a financial advisor before making any investment decisions relating to the information contained in this newsletter||
|MEET MARC |
Marc Bautis is a Wealth Manager specializing in working with young families as well as retirees and those nearing retirement. He understands that everyone wants to not only protect their principal, but also be sure that their money lasts. He is committed and proud to deliver independent advice, always in the interest of his clients.
Marc is the creator of the Retirement Fitness Challenge™, a program designed to be sure his clients enjoy the retirement years as they have always envisioned them. Marc's program is designed to prevent outliving your money but also to minimize expenses during retirement and find the best time to start taking Social Security benefits. Marc is also the author of a recent book The Retirement Fitness Challenge: Shape Up Your Finances and Make Your Money Last a Lifetime, which is available on Amazon.com.
Marc is a graduate of Seton Hall University. He is a Bergen County native, from Lyndhurst, where much of his extended family still resides. He currently lives in Hasbrouck Heights with his wife Katie, new daughter Charlotte and Old English Bulldog, Winnie.