Welcome to today's Jump-Start Your Financial Plan live chat! We have four NAPFA advisors with us this afternoon: David John Marotta and Matthew Illian of Marotta Wealth Management in Charlottesville, VA, Danielle Seurkamp, of Foster & Motley, Inc. in Cincinnati, OH, and Bobbie Munroe Bobbie Munroe of Fraser Financial in Atlanta, GA. Thanks for joining us all!
For those of you who are joining us for the first time, let me explain a little about how the live chat works: your questions will be submitted and held for moderation. We received many questions in advance, so your question may not necessarily be approved right away. However, we will do our best to answer your question as quickly and thoroughly as possible!
Hi everyone! Danielle here from Foster & Motley (www.fosterandmotley.com). I look forward to chatting with you all today.
Alright, let's get started with our first question.
Greetings! This is Matthew from Marotta Wealth Management, Inc. at www.emarotta.com.
Welcome, Matt! Bobbie Munroe will be joining us a bit later.
ICS, since you don't have heirs at this point, it seems to me that the main focus of a life insurance policy is to protect your insurability. Meaning, if you had some health event, you might not get insured later or it might cost alot more.
@ICS: The amount of life insurance you new depends on several factors: what are the funds needed at death to pay for the funeral or pay off any debt? how much income will your heirs need to meet their living needs and for how long will they need the money? will they invest the funds and what will the rate of return on the investments be? Without knowing the answer to those questions, it is difficult to determine whether you are over - or perhaps under-insured. I guess my suggestion would be to ask yourself if $300k going to be enough to meet their needs for the number of years that they will live in the house? And if you are assuming that they will sell the house at some point and live on that money, have you factored in that they will incur a cost of a new place to live?
Some good questions to think about. Thanks, Danielle.
$550k is more than I typically recommend to protect insurability.
Our next question comes from Bob.
@Bob: Since your wife won't have taxes withheld from a paycheck, you can do one of two things to avoid incurring underpayment penalties to the IRS. You can estimate her income and pay the expected tax in quarterly installments to the IRS (due 4/15,6/15,9/15 and 1/15 of the following year) or you could increase your withholding from your paycheck to cover the difference.
@Bob, lots of good quesitons. I'll take a stab at the 401k. She can and probably should roll her 401k into a low-cost IRA without having to pay any taxes. If your income has dropped this year because of the job change, she may want to consider a Roth IRA.
@Bob: As a self-employed individual, your wife could also set up either a SEP-IRA or a SIMPLE IRA which would most likley allow her to defer more of her employment income than she will be able to with an IRA or Roth.
Here's our next question from Liz.
@Bob: The IRS requires that you make tax payments throughout the year. That means making quarterly tax payments. These can be done electronically and they can even be scheduled to be done automatically. For most people their tax preparer tells them how much to make each quarter based on last year's taxes. You must make at least 100% of last year or what you actually owe (whichever is less). It is 110% if you have a high income.
@Liz: The variable annuity route gives me pause. There can be a lot of hidden fees inside those types of products.
@Liz: My motto is when you hear certain words, run. Among those words are "annuity". They are laden with fees and you can almost always craft a better financial strategy.
@Liz: I understand that the stock market can cause anxiety for some. Remember though, you are not risk-free in a money market. The impact of inflation will decrease the overall value of your money over time, which is why it is advisable to have at least some of your funds in growth oriented assets like stocks. If you have a well-diversified portfolio, you can mitigate a lot of the risk of a declining market.
It's definitely a buyer's market right now!
And always a seller's market for the annuity salesmen!
Since we're on the topic of real estate and rental properties, here's our next question from Kathy.
And, while we're talking about annuities, here's another one from Ann.
@Kathy: There are times when rental property can be great. If you don't mind the work (and they can be a lot of work) then now is probably a good time.
Maintaining your financial well-being isn’t always easy, and that’s why we’re here to help. Three certified financial planners from the National Association of Personal Finance Advisors (NAPFA) will take your questions about retirement, investments, taxes, insurance, saving for college and more on Thursday, May 17 from 1 p.m. - 3 p.m. ET.
Greetings! This is David John Marotta, CFP®, AIF®, President of Marotta Wealth Management, Inc. of Charlottesville providing fee-only financial planning and wealth management at www.emarotta.com and blogging at www.marottaonmoney.com.
I'm a 36 yo single male, no kids. Last year, I purchased two life insurance policies (250K/25 yrs and 300K/30 yrs) paying $45/mo total, thinking that if I die today, my heirs can use one policy to pay off the mortgage and funeral expenses and use the other policy to pay for the ongoing home expenses until they sell or rent the home. Am I over-insuring myself?
