Thanks Bobbie! You beat me to it. ;)
Search for the article Health Care Reform: 13 Tax Changes on the Way. Kiplinger, you are such a good resource for people.
Great, thanks everyone. Are we ready to move back into some more granular question? Advisors, Trice would like all of you to weigh in on life insurance.
We recommend term insurance to our clients vs permanent because 1) it is less expensive. 2) we feel investing should be done in other accounts where you will have a larger universe of investing options. 3) if you need life insurance, thats what term is. Pure life insurance. You can invest in better and
We believe that insurance is just that, insurance against something bad happening to you, your family or property. When companies begin adding on investments, death benefit charges and the like, it ceases to be the vehicle you bought it for. Having said that, a permanent policy would be used for a life insurance trust for estate purposes. We recommend select quote, a 20 year guaranteed period (which gets most folks through children't needs)
I don't really see permanent life insurance as an investment vehicle. Its primary purpose is to replace lost future income due the premature death. Permanent life insurance is really a term policy with a savings account attached to it. So what type of policy necessary depends on the circumstances at hand.
My father got started investing back in the early 1960s after reading a book entitled, "Buy Term and Invest the Difference". He gradually invested and each time his investment had grown to a unit of his term life insurance he would drop that unit of term life insurance. He went on to become an investment advisor and then my mentor in the business. Investments can be used for anything and invested anywhere with greater choice and lower fees and expenses. There are a few specialized uses of whole life in estate planning. For the rest of us, term insurance
is usually better.
Correction: the primary purpose of life insurance (all types) is to replace lost future income.
Trice, IMHO, there are few good uses for whole life insurance. For those with taxable estates (very large net worth if they keep the limits at $5 million per person and allow spouses to use the dead spouse's unused amount), it can be a great way to pay estate taxes. Usually term is no longer available after age 65 or 70 so traditional life insurance is the only thing you can use. Another reason might be that you have saved absolutely all the money you can in retirement accounts or other tax advantaged investments and you want to protect some of the growth of your money during your high income years from taxation until retirement. Both of these are VERY RARE. So think term.
Alright Trice, that sounds pretty unanimous! Here's one more question for everyone, from Sam.
I'm going to open it up and ask the advisors to tell us their favorite budgeting tools, regardless of whether Sam mentioned them. I know David touched on this earlier.
I actually have to run, but thank you Kiplinger for hosting and to everyone for their questions!!
No worries, Rich! Thanks very much for your help.
Bobbie is correct. If your goal is to deal with estate taxes, then you want to have a policy that is going to be there your whole life. As Rich stated insurance is expensive. So it's important to understand the need and to also find the right product. There are "low load" permanent life policies that are quite cost effective compared to full load products most insurance agents promote. The low load route can save $1,000's in unnecessary premiums.
Good point Bill. Even if you do want whole life insurance, low load policies will prevent higher costs because of higher sales commissions.
We use Quicken, but have clients using Mint and the old-fashioned envelope method. The "advantage" of the envelope method is that the negative feedback of counting out money and handing it to someone overcomes the brain's tendancy to spend with a credit card without thinking. If you are having money troubles, the envelope method ensures you can't overspend.
Envelope method! That's interesting, David, thank you. Any other thoughts?
Budgeting is an interesting topic. The key here is to always "PAY YOURSELF FIRST" - this is a no exceptions rule. This may sound like heresy, but whether or not you keep track of things, which is a GOOD thing to do, it's really secondary. If you're saving enough, and not going into debt, buying the right size house, using a 30 year fixed rate mortgage, diversifying your investments, keeping investment cost low, etc. - you're going to be FINE.
We use Quicken as well, but many of our clients find it too complicated for budgeting. One of our clients has a simple spreadsheet where she inputs all of her banking transactions each month. She finds that easy. Budgeting is like dieting, you can't change if you don't know what you are spending (eating), so a journal is a must. Even just for a few months.
Great, thanks all. Bobbie, I'm going to send you this question from Chuck.
For those that simply cannot control their spending, the ENVELOPE method is the best. It gets us back in touch with our money AND it automatically tells us when were done for the month! The problem with all the use of plastic these days, is there really is no feedback loop!
Budgeting can be very complicated. Drawing up the initial numbers on paper really isn't the hard part....sticking with it is. Now I love numbers and have used Quicken since it was DOS based in the early 90s (boy do I have a wealth of information on hand to include every expense on the car which I've had for over 12 years). But not everyone is suited to Quicken or mint.com. One advisor that I know created a workbook that you can see at www.financialkarma.com. It will help you translate your long term goals into daily behaviors. Finally, what has happened in the past can help you identify problems areas but what is important is the future. If you do draw up a budget based on your income, be sure to include saving for you future. Then decide how you will divide what is left for discretionary items. I have clients take that in cash and when it is gone it is gone. You won't overspend with that method.
Some great ideas here. Maybe Mint and company aren't always the best way to go!
Debbie, here's a question for you from LadeyDi.
Bill, clients who use the cash method often use envelopes so that they will sure to have money for the expenses that don't come up all the time. There is a great site on this: www.mvelopes.com
And Bill, I have a question from "Rainwater_et_al" for you.
Yep: mvelopes is a great digital variation of the original physical envelopes practice.
Congratulations on the low mortgage balance, but it sounds like it came with some expense. I would ratchet down the mortgage, just paying the monthly amount necessary and begin saving for college for your child. Be realistic with your child about how much college you can reasonably afford. I know it is a tough conversaton, but there are terrific state schools in most states that will educate even the smartest child.
Oops, think we got mixed up there. No worries. Bobbie, would you mind fielding LadeyDi's credit question?
David, I have a question for you from "gee."
Chuck, I certainly love for people to have a paid off home in retirement but you are a long way from that. So I might back off on the accelerated payments for now. Now the next thing on your list is saving for YOU and your retirement. This comes before your child's college as you can borrow for that but not for retirement. (BTW, I do suggest that parents do have some student loans in the child's name as it makes the value of the education more meaningful...if they do well you can help pay it off when they are finished).