Archive for the ‘Short Term Goals’ Category

Using Life Insurance to Fill Gaps In Your Financial Plan

Life Ring1 300x225 Using Life Insurance to Fill Gaps In Your Financial PlanTraditionally, life insurance has been viewed as a safety net in the event the family breadwinner dies. To be sure, life insurance in the pre-retirement years can help cover the needs of your survivors, which may include replacing lost income and funding education costs or other financial goals. Yet for those near or in retirement, the need to replace income may become less pressing, while the desire to preserve and protect wealth for retirement needs and pass wealth efficiently to the next generation gains greater importance. There are a variety of innovative insurance solutions that can help meet your needs and also provide a way to help you achieve some of life’s extras, including taking steps to ensure a family legacy.

Keep your legacy intact with life insurance solutions

You may not realize it, but retirement plan income from an inheritance may trigger a tax bill for your heirs that can significantly eat into the amount you leave behind. If you should die, the distributions your beneficiaries take from certain retirement assets such as Traditional IRAs, 401(k)s, non-qualified annuities, and non-qualified deferred compensation is considered Income in Respect of Decedent (IRD) and subject to income tax.  The tax on IRD assets is in addition to estate taxation and thus can result in double taxation. Unlike estate taxes, these taxes are typically paid by the beneficiary and not by the estate. Additional taxable income from an inheritance can cause a host of potential income tax problems, from bumping the beneficiary into a higher tax bracket, to phasing out personal exemptions and itemized deductions and erasing certain tax credits.

One way to make up for the IRD tax bite is to take out a life insurance policy with a value equivalent to the anticipated tax bill. With beneficiary proceeds that are generally exempt from estate and income taxation, the life insurance policy can help replace the amount of your legacy that is lost due to income taxation on IRD assets.

Diversify with a variation on traditional life insurance

A traditional life insurance policy provides an income-tax free benefit, often with limited growth opportunity and flexibility. There are other life insurance options that offer the potential for growth and an income-tax free benefit. These options also build “cash value” and have the added benefit of flexibility to access cash for unforeseen events. These policies can contain fixed rate investments, or provide access to a range of variable rate investments.

For example, Variable Universal Life (VUL) is a type of policy that offers the opportunity to build cash values. A VUL policy can add diversification to your retirement portfolio. As a form of permanent life insurance, VUL provides financial protection against unexpected events. Because the cash value within the policy can be invested in separate accounts, a VUL introduces investment diversification. A VUL also offers some flexibility regarding taxes. You can use after-tax dollars to pay premiums in the VUL now for the potential to accumulate cash value tax-deferred and  receive tax-free supplemental income during retirement. Your financial advisor and tax professional can help you determine whether a VUL would benefit your circumstances.

Ask questions and explore protection options with a financial advisor

Take time to review your financial plan with a qualified financial advisor to help assess whether a life insurance product can help you achieve your financial goals in retirement. To determine what kind of policy would best suit your needs, and the amount of the policy, ask yourself:

  • How much of your present living expenses will remain after death?
  • Will survivor Social Security benefits offset these expenses?
  • Will your tax rate change?
  • Will the investment risk tolerance of your surviving spouse change?
  • What is the life expectancy of the survivor?

An important consideration when purchasing life insurance is cost. Most policy premiums increase with the policyholder’s age, and variable products may have other flexible premium options that affect their cash value. Review your cash flow to ensure you will have sufficient funds to pay your premiums for the duration of the policy. Your life insurance needs will fluctuate over the course of your lifetime as your needs, goals and circumstances change and should be reviewed annually.

####

This information is being provided only as a general source of information and is not intended to be used as a primary basis for investment decisions, nor should it be construed as advice designed to meet the particular needs of an individual investor. Please seek the advice of your advisor regarding your particular financial concerns.

Neither Ameriprise Financial nor its affiliates may provide tax or legal advice. Consult with your tax advisor or attorney regarding specific tax issues.

Variable life insurance is a complex investment vehicle that is subject to market risk, including the potential loss of principal invested. Before you invest, be sure to ask your financial advisor about the variable life insurance policy’s features, benefits, risks and fees, and whether the variable life insurance is appropriate for you, based on your financial situation and objectives.

Financial planning services and investments offered through Ameriprise Financial Services, Inc. Member FINRA & SIPC.

VN:F [1.5.3_794]

Rating: 0.0/5 (0 votes cast)
VN:F [1.5.3_794]
Rating: 0 (from 0 votes)
Share and Enjoy:
  • Digg
  • del.icio.us
  • Facebook
  • Google
  • blogmarks Using Life Insurance to Fill Gaps In Your Financial Plan
  • E-mail this story to a friend!
  • LinkedIn
  • Ping.fm
  • StumbleUpon
  • Technorati

Protecting Your Money

The stock market has prompted many Americans to seek safer quarters for at least some of their life savings. But, instead of stuffing a mattress with dollar bills, some find security in money market accounts, certificates of deposit or fixed annuities. Each of these saving alternatives has unique features, benefits and drawbacks.

Money market account

People typically house surplus cash in a money market account when they want to earn a slightly higher rate of interest than a checking or savings account. A money market account may restrict cash withdrawals each month, but in general, it usually offers enough liquidity to ensure access to your money when needed. Some money market accounts issue checks to facilitate withdrawals.

Before you open an account, check bankrate.com for the best money market rates. It’s not enough to simply compare the Annual Percentage Yield (APY); you need to consider the frequency of compounding interest. For example, interest that is compounded daily will grow more quickly than interest that is compounded monthly, quarterly or annually, so your yield will be higher as a result.

The FDIC has temporarily increased insurance on FDIC-insurable funds, including money market accounts, from $100,000 to $250,000 per depositor, per insured bank until December 31, 2013. After that date, the amount will revert back to $100,000.

Certificate of deposit

A certificate of deposit (CD) is a savings vehicle that ties up your money for a set period of time, ranging from three months to six years. In exchange for “lending” your money for the fixed period, you earn a fixed or variable amount of interest. When you purchase a CD with a fixed rate, you have the advantage of knowing exactly how much money you will earn when the CD matures.

In general, the more you invest in a CD and the longer the timeframe, the higher the earned interest rate. Bankrate.com publishes rates to help you sort through your options. Before you buy, check out the frequency of compounding and whether the interest earned is rolled into the CD or paid to you by check during the holding period.

You can buy CDs directly from a bank or credit union, or you can buy them from a brokerage. Note that a CD purchased from a brokerage may be considered “callable,” meaning the issuing bank can drop the CD if interest rates fall.

Help increase your interest earnings and keep at least some of your savings accessible with “laddering,” a strategy that involves purchasing multiple CDs with staggered maturity dates. As each CD expires, roll the money into a new CD of the longest duration. Eventually, you will own continually maturing CDs that also earn the best rates.

Like money market accounts, CDs are covered by FDIC insurance. If you withdraw from a CD before the maturity date, you may be subject to a penalty.

Fixed annuity

A fixed annuity is another savings option that offers principal protection. A fixed annuity provides a set amount of interest income at regular intervals. It is usually purchased in a lump sum, which is forfeited by the buyer in exchange for guaranteed income over a predetermined interval. For example, you can purchase an annuity that provides payments for the rest of your life or until a certain dollar amount is reached.

A fixed annuity is a tax-deferred investment, meaning you pay no taxes on the income until your money is withdrawn. However, earnings from an annuity are subject to ordinary income tax, which tends to be higher than the capital gains tax applied to other forms of investment income.

Annuities are sold on commission and can be costly because of the variety of fees attached to them. If you expire before the annuity does, the money is gone unless you purchased a special death benefit rider. If you decide to cancel your annuity after purchase, you may be hit with a stiff surrender fee. Because of the complexity of annuities, make sure you understand all the fees and restrictions of the product before you sign on the dotted line.

As an insurance contract, an annuity is not guaranteed by the FDIC. You can check the strength of the issuing insurance company with a rating agency such as Moody’s or Standard & Poor’s.

Save trouble by seeking expert advice

If you need a safe place to put your money outside of the stock market, talk to a qualified financial advisor for professional advice. A financial advisor can help you evaluate your savings options and make decisions that support your overall financial plan.

###

This column is for informational purposes only. The information may not be suitable for every situation and should not be relied on without the advice of your tax, legal and/or financial advisors. Neither Ameriprise Financial nor its financial advisors provide tax or legal advice. Consult with qualified tax and legal advisors about your tax and legal situation. This column was prepared by Ameriprise Financial.

Fixed annuities are long-term insurance products.  Before you purchase, be sure to ask your financial professional about the annuity’s features, benefits, and fees, and whether the annuity is appropriate for you, based on your financial situation and objectives.

Financial planning services and investments offered through Ameriprise Financial Services, Inc., Member FINRA & SIPC.

© 2009 Ameriprise Financial, Inc. All rights reserved.

VN:F [1.5.3_794]

Rating: 4.0/5 (4 votes cast)
VN:F [1.5.3_794]
Rating: +2 (from 2 votes)
Share and Enjoy:
  • Digg
  • del.icio.us
  • Facebook
  • Google
  • blogmarks Protecting Your Money
  • E-mail this story to a friend!
  • LinkedIn
  • Ping.fm
  • StumbleUpon
  • Technorati

The Home Stretch: What to do When You Graduate DMB

Home StretchWow, it is almost over. The months of budgeting, saving and living a frugal lifestyle will soon leave you debt free. It wasn’t that long ago that you thought your financial situation was hopeless, but you have successfully fought back against unfair credit card practices and taken control of your finances. Now that you are in the home stretch of your debt settlement program, the trick is to remain focused. Continue saving your required monthly settlement amount, and if possible increase your savings amount in order to complete your program ahead of schedule.

But just because you will soon become debt free doesn’t mean all the hard work is over. Becoming debt free is merely the first step on the road to financial success. There is still some work to be done in order to guarantee a prosperous future. Here’s what you need to do:

  1. Remember What You’ve Learned: Be sure you don’t slide back into your old spending habits. Remember that credit cards have as many negative attributes as they do positive, and make sure you use them responsibly.
  2. Continue to Budget Your Finances: Continue to map out your monthly finances and savings amount. Use the money you were placing towards your debt settlements to begin building up your savings or start looking into investments. Start small and contribute every month. You will be surprised at how quickly your money will grow.
  3. Start Rebuilding Your Credit: The years of credit abuse and your debt settlements have most likely left you with a poor credit score. Consider consulting with a reputable credit repair company to begin rebuilding your credit.
  4. Treat Yourself: After so many months of living a frugal existence, it is time to treat yourself, your spouse, and your kids to a weekend getaway or a nice dinner at your favorite restaurant. You deserve it. Just remember to pay cash and leave the credit cards at home!
VN:F [1.5.3_794]

Rating: 3.0/5 (3 votes cast)
VN:F [1.5.3_794]
Rating: 0 (from 0 votes)
Share and Enjoy:
  • Digg
  • del.icio.us
  • Facebook
  • Google
  • blogmarks The Home Stretch: What to do When You Graduate DMB
  • E-mail this story to a friend!
  • LinkedIn
  • Ping.fm
  • StumbleUpon
  • Technorati

Vacationing on a Shoestring

Summer will be here before you know it. There’s no better time of year to reward yourself and your family with an exciting week or two away from the stresses of everyday life. And although paying off the bills from that vacation may not be quite so exciting, you can keep the budget pain to a minimum through careful planning. Some tips for the thrifty vacationer:

 

·     Don’t take a vacation you know you can’t afford. That warning may seem obvious enough, but it’s amazing how many people blithely commit themselves to a trip or a destination that’s going to end up clobbering them in the wallet. Even worse, many pay for their expenses with a credit-card cash advance—then, months or even years after that vacation is only a dim memory, they’re still repaying that advance at exorbitant interest rates.

 

·     Don’t be so smitten with your destination that you overlook how you’ll get there. The economy resort that looks like a pretty good deal may not be quite so good if your airfare ends up costing more than the accommodations. A vacation spot you can drive to may not be quite so exotic, but it could spare you from a major dent in your bank account.

 

·     Think about roughing it in the great outdoors. Do you really need the fancy amenities of a costly hotel? Instead, stay at a campground for as little as $20 per night. Most campgrounds offer all the basics: electricity, bathrooms, and showers. And the kids will love it! (Well, they might complain about the lack of a TV unless you bring one along.)

 

·     Consider a motel as a lodging alternative. If camping out isn’t to your taste, check out some motels near your destination. You should be able to find at least one with a weekly rate—and after all, why spend a big chunk of your vacation cash on a place to sleep? Save it for the fun activities you’ll be enjoying while you’re awake.

 

·     Don’t eat every meal at a restaurant. Eating at restaurants is convenient, but it can really add up. Try to vary the Denny’s routine with some home cooking. If you’re going to camp out, find out if your campground has a grill. If you’ve decided to stay at a motel, look for one with a kitchenette—or at least a microwave and a refrigerator.

 

·     Try not to overload your days. It’s natural to want to see and do it all, but trying to cram too much into every day can lead to exhaustion. Better to start with your top-of-the-list places and events, then move on to a few others only if time permits and the kids aren’t too cranky by then.

 

So enjoy your well-deserved summer vacation. Come back refreshed and rested—but preferably not broke.

VN:F [1.5.3_794]

Rating: 5.0/5 (1 vote cast)
VN:F [1.5.3_794]
Rating: 0 (from 0 votes)
Share and Enjoy:
  • Digg
  • del.icio.us
  • Facebook
  • Google
  • blogmarks Vacationing on a Shoestring
  • E-mail this story to a friend!
  • LinkedIn
  • Ping.fm
  • StumbleUpon
  • Technorati

Oaks from Acorns

Nobody needs to tell you that times are tough everywhere. Wouldn’t it be nice if you could just wave a magic wand and fix everything that’s wrong with the world’s economy!


A practical, if not very idealistic, suggestion is to “tend your own garden” by starting to save in little ways that can add up over time. You’re familiar with the old saying, “Great oaks from little acorns grow.” Well, that’s the principle we’re advocating here on a modest scale: taking a small sum – perhaps the equivalent of lunch at a fast-food restaurant – on a regular basis, stashing it away, and letting it grow. Think of it as paying yourself first.


Every week on the same day of the week, take a certain amount – say, $5 – out of your pocket and put it away in a container of some sort. Five bucks each and every week. No cheating! No skipping a week on any pretext. Put it away, out of sight, and leave it there. Pretend it doesn’t exist. At the end of a year, you’ll have $260 that almost certainly would have vanished otherwise.


Oak_tree


But hold on! Don’t go right out and celebrate by blowing your little fund on cabernet sauvignon or filet mignon. Instead, stick that $260 in a savings account, which might pay something like .75% interest. Granted, that isn’t a whole lot, but by the end of the following year you’ll have $261.95 that you didn’t spend. And over the course of that year, you’ve been busy saving another $260. Grand total: $521.95. Still not a fortune, but an amount that’s beginning to gain respectability.


Now, if you continue to put away that weekly $5 for another couple of years, your modest nest egg will have grown to more than $1,000. You can take a thousand bucks and put it in a CD (Certificate of Deposit), leaving the remainder in your savings account. The CD will pay higher interest than the savings account. In the meantime, of course, you’re still socking away the weekly five-spot.


Although your savings won’t grow by leaps and bounds, the money you regularly stash away is money you aren’t spending. Good things can eventually happen because you had the foresight and self-discipline to put away $5 each and every week and leave it untouched. You paid yourself first.


We certainly don’t claim that you’ll end up with great oaks, but you will have a few sturdy saplings where nothing much had been growing before.


VN:F [1.5.3_794]

Rating: 4.0/5 (1 vote cast)
VN:F [1.5.3_794]
Rating: 0 (from 0 votes)
Share and Enjoy:
  • Digg
  • del.icio.us
  • Facebook
  • Google
  • blogmarks Oaks from Acorns
  • E-mail this story to a friend!
  • LinkedIn
  • Ping.fm
  • StumbleUpon
  • Technorati

This article is for informational and educational purposes only.  It is not intended to provide legal, tax or financial analysis.  Please consult your attorney, accountant or tax advisor if you have legal, financial planning, or tax-related questions.