From CFP Board's Consumer Advocate, Eleanor Blayney, CFP®
Whether you’ve landed your dream job, are changing careers or getting back into the work force, you need a plan—and the advice only a CERTIFIED FINANCIAL PLANNER™
professional can provide—to help make sure all the pieces of your financial life work together.
Even in an uncertain economy, people are still moving forward, and moving on to that new job. With it, comes many decisions one has to make about compensation and benefits. And in today’s economy you are more responsible than ever for your own financial future. Sitting down with a CFP®
professional who can help you make key financial choices—and lay out a financial road map—will give you peace of mind, so you can focus on your new job and impress your new employer.
While each person is different, here are five things job changers should keep in mind:
- Know Before You Go: Before you land that new job, do the math. Make sure that your compensation—not just your salary—provides a benefit to your personal bottom line. Consider everything from the 401k match to the amount your employers (current and new) will pay for benefits like health insurance. Consider, too, those benefits that can be purchased by you pre-tax. Money is money, whether it comes as more “take-home” pay or lower expenses for needed benefits. Base your decision on which job leaves you better off, when taking all these factors into consideration.
- Max the Match: It seems so obvious: don’t leave money on the table when it’s offered. But unfortunately many people don’t contribute up to the match offered by their employers’ 401k or similar retirement plan. Not taking full advantage of this match is like walking away from free money. Do what you must to make sure you are getting this match, and if you can, max out your contribution for the year ($17,000 for 2012, $22,500 for those 50 or older).
- Make a Move – Or Not? One of the reasons people first see a CFP® professional is because they have built up a nest egg in an employer retirement plan. They want to know how to manage it: where to invest contributions, how to take withdrawals. When changing jobs you will be faced with this decision: do you keep the money in the plan of a former employer or do you move it to your new employer’s plan?; Or should you open a new IRA and roll it over? A CFP® professional can help you understand your options and recommend which one is best for you and your family.
- A Taxing Situation: Hopefully when you change jobs you will be increasing your income. This may put you into a new, higher tax bracket and/or limit some of your deductions. Make sure you understand the implications of how your new income impacts what you owe Uncle Sam, your state and your locality. A CFP® professional or qualified tax adviser can help you with this analysis.
- Ensure You’re Insured: Often overlooked when making a decision about changing jobs is one’s insurance coverage. Evaluate what your new employer offers in terms of life, disability and health coverage compared to what you have now. If it’s not as comprehensive as your current coverage, are there other benefits, such as higher pay or better work location that would more than compensate and leave you better off? Don’t forget to consider the amount of life insurance you would need at your new salary. And don’t overlook long-term care insurance. If it’s offered and costs less than a private policy, get it.
As any CFP®
professional will tell you, each person’s situation is different. But these general guidelines can help you make important decisions about you and your family’s financial health and security. Of course, make sure to find a CFP® professional in your area
who can help you meet your financial goals as you embark on your new job.
From CFP Board Ambassador Laura McMahon, CFP®
Expect the Unexpected
Everyone likes to think about the good things in life. We dream about an amazing vacation. We envision the day when our child heads off to college. We focus on a comfortable retirement.
Don’t get me wrong. Planning for the good things in life is crucial. Saving money for your child’s education or investing for your retirement are major life goals that will only happen if you think carefully about them, construct a plan and remain dedicated to that plan.
But what about the bad things? What happens when life takes you off course? A health problem or disability in the family. A job loss. A major car or home repair. The list can go on and on. Would you be prepared?
Often people find themselves in financial trouble because they don’t expect the unexpected. If there’s anything you can count on in life, it’s that rainy days will come. Sometimes it’s just a little shower, other times it’s a downpour. You may not always know when a storm is coming but if you’ve taken a few simple steps you should be able to weather it nonetheless.
- Live within your means. Translation: don’t spend more than you make.
- Save 3-6 months worth of expenses in cash (i.e., in a savings account). An emergency fund can be a lifesaver in the event of a job loss, disability or large unexpected expense. It can help you to avoid accruing debt or tapping other financial resources (such as retirement assets) when you find yourself in need. If you do have to tap your emergency fund, be sure to replace what you used once you are back on your feet.
- Make systematic saving a habit. It’s a good idea to deposit a certain portion of your paycheck directly into a savings account. This helps you to live within your means by forcing you to save a part of every paycheck; it will also help you to build or maintain your emergency fund.
- Don’t take on excess debt. Work to pay down or pay off any debts that you already have (e.g., car loans, student loans, etc.). Fewer monthly financial obligations will always be helpful, but especially during times of financial stress.
- Pay cash in full whenever possible. Think carefully before making a major purchase that will involve new debt and a monthly payment. For example, if you decide to move into a more expensive home, make sure you can comfortably afford a larger payment.
- Record and regularly evaluate your expenses and budget. Particularly during times of financial strain, this will help you to readily identify expenses that could be reduced or eliminated.
- Evaluate your insurance coverage (auto, home, life, disability, health, etc.) to ensure it’s adequate and appropriate. Since insurance is intended for large, catastrophic or traumatic, often unexpected events, you want to make sure you’ll have coverage when it’s needed. You also want to make sure you can satisfy your portion of the expenses such as deductibles, co-insurance or waiting periods.
Financial planning is not just about planning for the good things in life; it’s equally important to consider and plan for the not-so-good things. You will be very thankful you did so when life hits a bumpy road.
Many Americans don’t take the time or employ the discipline necessary to accomplish their financial goals and prepare for possible tough times. If the money is there – and sometimes even if it’s not, except through credit cards and other loans – people are eager to spend it for instant gratification. In reality, delaying that gratification and developing a plan to ensure a measure of financial security will give you the power of choice. You will have options that others don’t. You can cover expenses that arise without having to sacrifice other goals or avoid paying other bills. A job loss may end up representing an opportunity for positive change in your life rather than an event that will financially devastate your family. A car repair becomes just another task to complete this week rather than something that will set you back for months.
The ability to choose and make the best of life’s challenges, after all, will be far more valuable than the newest smart phone, designer clothes or car on the market. Make your own choice today. Plan. Prepare. Expect the unexpected.
From CFP Board Ambassador Constance A. Stone, CFP®
Make a Plan with Your Parents for their Future
Many of us come from families where discussions about family finances were taboo. Mine was one of them. After decades of not talking about money, it may be hard to break the ice when you become concerned about your aging parents' future.
Waiting until a crisis occurs is the worst approach. Sticking your head in the sand doesn't make the tough choices evaporate. In fact, it only makes them harder when something happens. It will lead to more confusion, frustration, tension and anxiety. Making important life-changing decisions in the midst of an emergency limits your options and heightens stress. Family members may hotly disagree about the best course of action. Preferred senior communities, nursing homes and assisted living facilities may not have openings when you need them. Major sibling arguments can erupt and hard feelings set in. Yikes! You don't need discord on top of dealing with your parents' futures and health issues.
I asked my parents all sorts of questions after my grandmother passed away. It was a good time to bring up the subject. My father was an only child, responsible for all of my grandmother's needs. When she suddenly went blind and needed shoulder surgery, she wasn't able to return to the home she never wanted to leave.
My father didn't like any of the nursing home options offered by the hospital social worker. So I helped my father gain immediate admission for my grandmother to a nearby private nursing home that had a very long waiting list. I made an appointment to visit the director with Dad. I subtly reminded her that I volunteered and worked there as a teen, and that my family went to Mass in the chapel, contributing to their coffers for several years. Grandma got in!
With Grandma's experience fresh in mind, I spoke with my parents. I explained that I wanted to know what they preferred so I could help make it happen. The alternative was making on-the-spot decisions that they might not like. Fortunately, my parents were willing to talk with me. Planning ahead didn't eliminate all the concern and heartache of watching my parents age, but it went a long way toward making it a smoother process for all concerned.
What are some questions you might ask your parents and how do you ask them? Consider starting by helping your parents see that sharing information now gives them the power of choice later, when they might need it. Chances are that some or all of their walls will come down. You can then imagine different scenarios together and ask what if "this" or "that" happens?
For example, where do you want to live if you can't stay at home by yourselves anymore? Do you want someone to come in to help or do you want to move? Would that change if one of you dies? Have you looked at any retirement communities or put your name on a waiting list?
Where are the wills, medical directives and other important documents stored? Have you updated your documents recently? (If not, they might need to do so if 2013 brings changes to estate taxes.) Have you told anyone where to find the safe deposit box key or safe combination?
If your parents simply don't want to discuss these issues with you, then you could ask them to write down answers to questions and leave them somewhere or with someone to be easily found when the time comes. Here are some other topics you might want to explore through discussion or in writing:
- Names and phone numbers of doctors, attorney, financial advisor, neighbors who check on them, etc.
- What are your sources of income? How might income change if one spouse passes?
- What kinds of health insurance and prescription coverage do you have? What happens to it if one spouse dies?
- What are your funeral and burial wishes? What about pre-paid burial or cremation?
- What do you want your children to know about your lives, values, money, and hopes for the family?
Talk with an experienced Certified Financial Planner™
professional or find books at your library, bookstore or the Internet that can expand the abbreviated list above and facilitate the conversation. In any case, you'll be doing yourself, your parents, and your family a favor by broaching this subject. I wish you luck in getting the answers you need!
Financial Planning for Your Life Now
How to Get Free Financial Advice
Americans will be able to get sound advice on money matters from financial advisers as part of the third annual Financial Planning Days in October. The advisers won't be selling anything or soliciting business. They'll simply be providing classroom-style presentations on personal finance topics and one-on-one counseling sessions – for free. The Financial Planning Days events are offered by Certified Financial Planner Board of Standards, Financial Planning Association, Foundation for Financial Planning and the U.S. Conference of Mayors. Kiplinger's Personal Finance is the official media sponsor. Visit FinancialPlanningDays.org
for a list of cities where events will be held. Use the Find an Event page to get more information about an event in your area and to register. You can also learn more about how to prepare for the events. Although walk-ins are welcome, admission will be granted first to those who have registered online or by calling 877-861-7826.
With the Year More Than Half Over, Now Is a Good Time to Update Your Financial 'To Do' List
As summer winds down, several CERTIFIED FINANCIAL PLANNER™ professionals offer suggestions to help get household finances in order. Paul Jarvis, CFP®
recommends updating wills and estate plans regularly, not just following big life events, such as the birth of a new child. Even smaller changes, like opening a new bank account or refinancing a mortgage, merit an update to an estate plan. It’s also important to get a financial power of attorney and medical power of attorney, or if you already have them, make sure the designees are still up to the task. Looking toward the end of the year and charitable gifts, Certified Financial Planner Board of Standards Consumer Advocate Eleanor Blayney, CFP®
recommends considering low-basis stock options – shares purchased for much less than current price – for this year’s donations. This option allows nonprofits to cash in the stocks at full price while the giver is free from paying capital gains taxes. Blayney goes on to suggest that, with the potential expiration of the Bush tax cuts in 2013, it might be worth delaying some tax deductions until 2013 to offset higher tax rates.
Should You Pay Off Your Mortgage Now?
In this edition of "Ask the Expert," Walt Romatowski, CFP®
answers readers’ questions on when to pay off a mortgage. One reader with 13 years left on her mortgage will receive about $80,000 in cash from the sale of a property, and wants to know whether to invest the money or pay off the $70,500 remaining in principal on her mortgage. Romatowski suggests using a portion of the cash to make needed repairs to the home, reserving the remainder for any taxes due from the sale. He notes that the decision to invest or pay down the mortgage should be based on the interest rate of the mortgage; expected investment earnings, based on risk tolerance and investment horizon; and income tax bracket. The reader also should think about any upcoming large purchases, and the amount of money she already has saved for emergencies and retirement. "Not having a mortgage in retirement can be a real comfort, but you need to make sure that you have funds available for more short-term needs, such as an emergency fund, planned large purchases or repairs, and the inevitable unexpected expenses," writes Romatowski. Another reader about to retire is pleased with her investment company, but wants to know if it is safe to put pension funds in the same "bucket" as a 401(k). Would it be better to look for a separate company altogether? "Assuming your firm has adequate SIPC (Securities Investor Protection Corporation) coverage, there is no real risk with leaving all your assets with one investment management company," according to Romatowski.
The Investing Gender Gap
In his weekly personal finance column, Wes Moss, CFP®
draws on research and his own experience to suggest women may be better equipped to make investment decisions than men due to their tendency toward risk-aversion and their greater emotional attunement and trust in their own intuition. Men, meanwhile, have a predisposition to make risky decisions that carry a potential for greater payoffs but also greater losses. Moss notes that depending on the market situation, one gender could fair better than the other. Men making bold, risky decisions would have done well in the bull market of the 1990s, whereas women making more conservative decisions would be better off in the stagnant market of the past 12 years. But when it comes down to it, Moss says good investors, irrespective of gender, have two particular traits: patience and discipline. Moss recommends all investors always seek balance by investing in multiple vehicles, bonds and stocks; set a realistic and achievable investment goal so they have something to aim for; always keep incurred costs and fees in mind when making investments; and remain patient even if money only seems to trickle in at first. And remember: most people who make money investing do not make all of it overnight.
Hiring a CERTIFIED FINANCIAL PLANNER™ Professional
Your CERTIFIED FINANCIAL PLANNER™ Professional Must Meet Education, Examination, Experience, and Ethics Requirements
Today's wide variety of financial services titles and designations can create confusion for consumers. Knowing the different distinctions helps consumers decide which adviser will best help them. At the most basic level, there is a difference between a designation and a license. Some sales activities in the securities and insurance industries, for instance, require both state and federal licensing. Financial professional designations include the CERTIFIED FINANCIAL PLANNER™ professional designation from the Certified Financial Planner Board of Standards. The CFP Board requires candidates to meet "the four Es": Education, Examination, Experience, and Ethics. Prospective CFP®
professionals must demonstrate a number of abilities under these rigorous standards, including the ability to create, deliver, and monitor a comprehensive financial plan; passing a 10-hour exam given over a day and a half; having three years of full-time, relevant personal financial planning experience; and disclosing any criminal, civil, governmental, or self-regulatory agency proceeding or inquiry. And as part of their ethical compliance, CERTIFIED FINANCIAL PLANNER™ professionals must follow the fiduciary standard – serving their clients’ interests before their own.
CFP Board Demands Standards for Financial Designations to Protect You
In a letter dated August 21st
, the Certified Financial Planner Board of Standards urged the Consumer Financial Protection Bureau to adopt a new set of standards for financial planning designations to distinguish which titles mean a planner has proper training and which are meaningless or deceptive. In their 2012 Senior Americans Financial Exploitation Survey, released on the same day, CFP Board found that 56 percent of CERTIFIED FINANCIAL PLANNER™ professional respondents had worked with a senior who had been treated unfairly, deceptively, or abusively by someone selling financial products, and that an additional 32 percent of respondents personally knew of someone who had been subject to these practices. According to CFP Board, navigating a selection of nearly 140 different designations for financial planners can be a difficult task, especially with no consistent state or federal definitions or standards to clarify which designations have actual weight and merit. "Americans, especially seniors, are left on their own to sort through the alphabet soup of letters at the end of a financial professional's name," the board said. The CFP Board hopes that more transparent designations will help protect the elderly from further fraud and abuse.
Your CERTIFIED FINANCIAL PLANNER™ Professional Is Required to Complete Continuing Education Requirements During Every Renewal Period
The Certified Financial Planner Board of Standards has proposed new rules for the continuing education (CE) requirements pertaining to CERTIFIED FINANCIAL PLANNER™ professionals. The proposal recommends requiring 40 hours of CE each renewal period rather than 30; awarding CE credit for practice management programs and/or pro bono work, up to four hours per renewal period; boosting the ethics CE requirement from two hours to four hours; and instituting a "50% cap rule," which will “limit CE credit for any single topic area or professional activity to 50% of total required CE hours.” The proposed changes now enter a public comment period, before being submitted to CFP Board’s Board of Directors for approval in November.
Follow These Six Steps to Create Your Financial Plan
Financial planning involves helping a person appropriately manage his or her financial resources. The process gets easier when divided into six steps: gathering relevant financial information, setting financial goals, determining a person's existing status, forming a plan to help the person reach his or her goals, implementing the plan, and continually fine-tuning and monitoring the plan. A plan can help consumers better understand how each financial decision impacts other financial areas. For instance, an investment or purchase could help improve retirement objectives or, alternatively, cause a delay. A plan, by taking unknowns into consideration, can help consumers deal more easily with unexpected events. While financial planners offer a range of services, such as investments, retirement, taxes, budgeting, saving, insurance, and estate planning, they are regulated based on the specific service they provide. A licensed insurance agent in Virginia, for instance, is regulated by the Bureau of Insurance at the State Corporation Commission, while planners who offer to buy and sell securities are regulated by the Securities and Exchange Commission or the Financial Industry Regulatory Authority. Consumers can ensure they are dealing with a qualified professional by contacting the Certified Financial Planner Board of Standards or visiting www.CFP.net/learn
for a free brochure called, "Consumer Guide to Financial Planning."
Financial Planning for Your Retirement
Don't Be a Victim: As You Approach Retirement, Beware of Fraudulent Sales Pitches
A recent survey of financial planners conducted by the Certified Financial Planner Board of Standards found that senior citizens lose an average of $140,500 to misleading and deceptive financial practices. One such practice is luring seniors to misleading or fraudulent sales pitches with the promise of a free meal, a cash prize, or high-yield investments. "It's a very typical mechanism used to lure people in and put them in a situation where they are given a hard sell for products that aren't suitable for them," said Marilyn Mohrman-Gillis, managing director of public policy and communications at the CFP Board. "And it's hard when you're in a situation like that where you've accepted a free meal and you're feeling a lot of pressure to buy." The survey found 73 percent of planners knew someone who was invited to such a presentation. The survey also found 83 percent of financial planners personally knew someone who had been duped by their financial adviser, often through providing misleading information to their client about indexed and variable annuities. "These instruments are very complicated, they are often sold without disclosing the risks associated with them or the benefits to the salesperson who sells them, they are often front-loaded with very high commission rates, and you can't liquidate them without a significant penalty," said Mohrman-Gillis. "This often puts seniors in a situation where they don't have access to liquid assets in retirement." The scams and resultant losses are usually unreported, with only about 16 percent of seniors alerting authorities when they occur. The survey highlights not only the need for seniors to be wary of “too good to be true” sales pitches but the necessity of picking a licensed CERTIFIED FINANCIAL PLANNER™ professional.
Long-Term Care Insurance Is a Purchase You May Want to Consider
The Department of Health and Human Services estimates that upwards of 70 percent of people nationwide will need some type of long-term care. Additionally, 40 percent will require nursing home or assisted living care. John Fawaz, CFP®
says many people take Medicare for granted, assuming it will cover costs when they are elderly and in need of care. However, that is not the always the case because of limitations on what Medicare will pay. And to qualify for Medicaid, a person would need to have extremely low assets. Fawaz recommends long-term health insurance for the majority of people who qualify.
Financial Planning for Women
Single Women, Make the Effort to Responsibly Manage Your Finances
Being a single woman and managing finances can be a freeing but difficult experience, especially as the cost of living continues to rise. "You have flexibility to be selfish because you’re only focusing on yourself," says Certified Financial Planner Board ambassador Paul Jarvis, CFP®
. "You can spend your money endlessly on cars and clothes. Or you can start building your budget around your cash flow." Building a budget requires comparing your income against your expenses and avoiding credit card debt and living paycheck to paycheck. For example, cutting spending by 25 percent for non-essentials such as eating out and entertainment can help save for future financial goals. After your expenses are in order, the next step is to save money for larger periodic expenses and to start planning for retirement. Single women should have about six months of expenses in an emergency fund and should aim to save about five to 10 percent of their income for retirement. For those who find themselves suddenly single and having trouble balancing their finances on their own, Jarvis recommends finding a trusted financial adviser to help get finances in order.
Financial Planning for Your Children
Parents, You Need to Teach Your Children About Money
John Fawaz, CFP®
encourages parents to teach their children about saving money and spending wisely. Fawaz notes that many banks and credit unions offer special savings programs designed for kids and often pay higher interest rates on those accounts. He also says parents should consider matching the amount their children set aside in a savings account, as well as playing money games with them.
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