We have three NAPFA advisors with us this afternoon: Bobbie Munroe Bobbie Munroe of Fraser Financial in Atlanta, GA; Debbie Frazier of Frazier Financial Consultants in Chapel Hill, NC; and David John Marotta of Marotta Wealth Management in Charlottesville, VA. Welcome, all!
Alright, let's not waste any time, I'm sure Bobbie and Debbie will be here shortly. David, here's our first question from Jay.
@Jay: Those wanting to plan for this technique (Roth conversions in the gap years)
must have enough taxable savings to live and pay the tax during age 65-70. This is the primary reason why adequate taxable savings is needed in retirement planning.
Thanks, David. Here's another one from Joe.
@Joe: Loans in general and business loans in particular have become much more difficult in recent years. I'm not sure if 100% financing is possible. I think it will probably depend on the collateral you could provide. I do not know the answer definitively on way or the other.
@Joe: Loans are one of the difficulties for small businesses who want to keep more of there money in order to start new ventures. Such ventures can't be expensed and hence must be paid with after tax dollars. This is certainly a hot topic in the presidential debates.
A hot topic indeed, David. Would it be worthwhile for Joe to wait until after the election to take out a loan, when we'll have a better idea of where tax policy is headed?
@Joe: When we work with small business owners we try to avoid the loan process and figure out how to finance it ourselves if possible, either by reducing the costs, doing it gradually, or taking a loan out against another asset. Money isn't always as necessary for a small business as they think. Sometimes they just need to think outside of the box.
@Joe: The most successful small businesses did not require loans and capital, or if they did they had a partner with the financing.
Deborah Frazier is online
Welcome, Debbie. Thanks for joining us.
Judy, this is happening all over with our clients. With all insurance, you should be able to "self insure" somewhat, which means take over some of the risk. If you can choose a longer waiting period or a lower per day amount, I would recommend it. Without knowing your financial situation or employment, see if your employer has a group policy. You might also try to find another LTC policy, but do not let your current coverage lapse.
@Judy: Most of our clients choose to self insure. Long-term care insurance is expensive, and they save the money and keep about $250,000 or more to self-insure.
Most LTCI need is at age 85 for the last six months of life. Most policies have a maximum benefit in years and don't adjust for inflation.
The LTCI policy I would want would start *after* 3-5 YEARS of out of pocket care and run for the rest of life with inflation adjustments. That policy would be inexpensive. Unfortunately they don't offer that policy.
Having said all that some lawyers take out billboards suggesting if your financial advisor did not recommend long term care insurance you should sue them. So we are careful to leave the decision completely in our client's hands.
Judy, I agree with David regarding self insurance, however if you don't have $250,000 to dedicate to LTC expense, I would try to keep some sort of LTC plan in place.
David, I just noticed a follow-up question for you from Jay (the first questioner who asked about a Roth conversion during his gap years).
Alright, ready for the next one, Debbie and David? Here's one from Larry.
Larry, a terrific question. The first step is to decide what your allocations should be. Allocations mean what percentage to different catagories such as stocks, bonds, etc. Once you are comfortable with the allocations, you will want them to stay roughly the same, keeping in mind that most people want to be more conservative as they get older. When the market changes, your allocations will automatically get out of whack. We reallocate quarterly and I would recommend doing that. The process is to add up all of the equity funds balance and divide by the total amount in your account. If the percentage is where you started, then you are good to go. Within the equity funds, try to make sure that you have a variety of stock types such as large cap, small cap, international, etc.
I'm sure many of us could use a lesson or two in rebalancing. Great advice, David and Debbie.
David, are you up for a question about estate planning?
Alright, here's one from Brigitte.
@Brigitte: We recommend putting money into investments as the fastest way to get out of student loan debt for X reasons:
(1) If you have savings and lose your job you can continue to live and pay the minimum
(2) The interest rates for student loans are less than the average market returns
So pay the minimum and aggressively save and invest.
Brigitte, Harvard, Yale??? That is a ton of debt for both of them to be starting their marriage with. The President signed a college loan forgiveness program that they can look into. It caps payback amounts at 10% of earned income. The interest is capped at 3.4%. I would look into this option. Once you have set up a payment plan (agree on the minimum) begin to save at least 6 months of expenses plus adding some for lump sum payments in the future.
Thanks, Debbie. I'm actually in a similar situation as KD1984, and have been following a pretty similar plan to the one you just recommended.
I should add that it's been working well!
Great, it makes lots of sense and is a pretty easy to get a plan going.
Did you see the news today that the average student debt burden rose again -- to $26,600?
Yes, saw that this morning, jobs for graduates of college at 50%, very tough out there for our young people
Absolutely, Debbie. While we're on the topic, here's another question relating to student loans from a young reader.