Wealth Management Blog

Posts published in March 2012

Getting a Life Insurance Check-Up

By JJ Burns

March 26, 2012

Do you need to update your life insurance protection? You may be surprised to learn that your existing policies are no longer sufficient to meet your needs.

If you’re like many people, you probably took care of your life insurance years ago. You bought as much coverage as you felt you needed, and then you stashed the contract in a drawer or safe somewhere and pretty much forgot about it. But it would be unusual if your family financial situation hadn’t changed significantly since then. For example, you might now have too little insurance if you’ve added another child or two to your brood. But it could also work the other way. If your children have left the family nest or you’ve retired, you may be able to cut the amount of your coverage.

Now is as good a time as any to dust off that old policy and review it. You may find it doesn’t reflect one or several major life events you’ve experienced since you acquired the coverage. Those might include:

  • You have married, divorced, or separated;
  • There has been a birth, death, disability, marriage, or divorce involving someone else in your family;
  • One or more of your children has completed college or graduate school;
  • You bought or sold your principal residence, a vacation home, or investment real estate;
  • You switched jobs, started your own business, or retired; or
  • There has been a big shift in your financial or business circumstances.

Other family changes could also have an impact. For instance, you may have taken on the care of an elderly or disabled relative, thus adding to your financial commitments and increasing the amount of replacement income that would be needed if you died. Meanwhile, if you’ve paid off your mortgage, you may be able to reduce your coverage.

When you review your policy, examine it as if you were buying life insurance for the first time. It’s your projections for the future that are the crucial factors—not the way things were a few years earlier. And don’t forget to review all of your life insurance policies, including any group coverage you get through your employer (or your spouse’s employer), taking into account recent estate tax law changes.

The amount of coverage you need is likely to drop as you get older, and you may eventually decide you can do without life insurance, though it could also play a role in your estate plan. Also, consider the return you may receive on cash value, especially with whole life policies. What’s certain is that your financial situation will continue to evolve, so it makes sense to make an insurance review a regular event—if you mark it on your calendar each year, you won't forget to conduct this important checkup.

Six Disability Facts to Consider

By JJ Burns

March 21, 2012

You probably already understand the importance of having life insurance. The proceeds from a life policy can help cover your family’s current expenses and may provide a cushion for the future if you die prematurely. But another kind of coverage—disability income (DI) insurance—is often ignored or neglected. And that’s a mistake, because DI insurance can be even more vital than life insurance in maintaining a family’s financial well-being. A new white paper from the Council for Disability Awareness, an independent nonprofit group, provides these six startling facts.

1. More than one in four of today’s 20-year-olds will become disabled before they retire. (Source: Social Security Administration, Fact Sheet, March 18, 2011)

2. Some 8.5 million disabled U.S. wage earners were receiving Social Security Disability Insurance (SSDI) benefits at the end of September 2011. (Source: Social Security Administration, Office of Disability and Income Security Programs)

3. Ninety percent of new long-term disability claims are the result of an illness, not an accident, and fewer than 5% of claims are work-related. (Source: 2011 Council for Disability Awareness Long-Term Disability Claims Study)

4. The average long-term disability claim lasts 31.2 months. (Source: 2010 GenRe Disability Fact Book)

5. New applications for Social Security Disability Insurance (SSDI) benefits increased 27% from 2008 to 2010. (Source: Social Security Administration, Office of Disability and Income Security Programs)

6. About 100 million workers lack private disability income insurance. (Source: Social Security Administration, Fact Sheet, March 18, 2011)

If you don’t have DI insurance, either through a policy from your employer or one you’ve bought on your own, you can choose from among a wide array of products whose costs and benefits vary widely. Here are several factors you’ll need to take into account.

  • How a policy defines “disability” is crucial. The best policies pay benefits if you can’t work in your chosen profession, and they don’t consider the nature of an injury.
  • DI insurance policies generally require a waiting period before paying benefits, and a shorter waiting period normally translates into higher premiums.
  • Typically, a policy will state how long and under what circumstances it will pay disability income benefits. It could, for example, provide benefits only until you qualify to receive Social Security retirement benefits.
  • If you opt for a noncancellable policy, the insurer can’t drop you off its rolls if your health declines.

Finally, don’t be seduced by the low costs of a fly-by-night operation. You’ll be better off opting for an experienced company with a good reputation.

Tips on Long-Term Care Insurance

By JJ Burns

March 21, 2012

The cost of an extended nursing home stay can be frightening. In some parts of the country, annual expenses may run to $100,000 or even more. At that rate, it doesn’t take long for a lifetime’s savings to be depleted. That’s why most long-term care ends up on the tab of Medicaid, the joint federal-state health plan for the poor. But your family will qualify for help only after you’ve exhausted most of your assets.

Advance planning can help you avoid dire financial consequences. For instance, you could purchase a long-term care insurance (LTCI) policy for yourself or a relative to defray some or all of the nursing home costs. That can help preserve family funds and put off panic sales of investments. Still, premiums for LTCI are based on several factors, including the health of the person who’s being insured, and can be pricey. And the older you are when you get this insurance, the more you’ll pay.

What do you know about long-term care insurance? This brief quiz can test your knowledge.

1) Benefits under an LTCI policy will begin to be paid:

  1. Once the insured becomes ill or disabled.
  2. Once the insured applies for benefits.
  3. When the policy’s lifetime amount is fully paid up.
  4. After a waiting period has been satisfied.

2) Which of the following does NOT affect premium cost?

  1. The age of the insured
  2. The value of the insured’s retirement assets 
  3. The length of the benefit period
  4. The amount of the daily benefit

3) To qualify to receive LTCI benefits:

  1. The insured must sell any primary residence.
  2. The insured must need assistance with basic daily activities.
  3. The family must elect to begin coverage.
  4. The family must obtain permission from a nursing home.  

4) What is the tax treatment of LTCI policies?

  1. Premiums are fully tax-deductible.
  2. Premiums are tax-deductible only by retirees.
  3. Premiums may be partly tax-deductible.
  4. Premiums are never tax-deductible.

5) The amount that can be used to defray nursing home costs:

  1. Depends on the daily benefit.
  2. Depends on the insured’s age.
  3. Depends on the retirement assets owned by the insured.
  4. Is limited by state law.

6) A policy that is “guaranteed renewable” for life means that:

  1. It can’t be voided if the insured’s health changes.
  2. It can’t be voided whether or not the premiums are paid.
  3. It will still pay benefits after the lifetime limit has been exceeded.
  4. Premiums can never increase.

7) LTCI policies are generally offered by:

  1. Banks.
  2. Estate planning attorneys.
  3. Medical practitioners.
  4. Financial services firms.

Answers: 1-d; 2-b; 3-b; 4-c; 5-a; 6-a; 7-d

Knowhow on Year-End Tax Planning

By JJ Burns

March 12, 2012

There’s no time like the end of the year for tax planning. By making a few small adjustments, you may be able to cut your tax bill for the current year by hundreds or even thousands of dollars. Sometimes, simply pushing up a payment or postponing income by just a few days could make all the difference.

Of course, every situation is different and there are no right or wrong strategies to use across the board. For instance, if you expect to be in a higher tax bracket in 2012 than you are in 2011, you might defy conventional wisdom and accelerate taxable income into the current year.

To further complicate matters, there is a possibility—admittedly remote—that Congress might reform the tax code by the end of 2011, and your best-laid plans could be thwarted. Still, you shouldn’t hesitate to implement fundamental tax strategies. Typically, individuals may benefit from shifting charitable deductions, medical expenses, and the like, while small business owners might purchase equipment or supplies at year-end to boost deductions for 2011.

Do you think you know the basics? Here’s a brief quiz to test your knowledge.

1) If you install qualified energy-saving improvements in your home in 2011:

  1. You may qualify for a 10% credit.
  2. You may qualify for a 30% credit.
  3. You may deduct the full cost.
  4. You may depreciate the cost over time.

2) For 2011, unreimbursed medical and dental expenses:

  1. Are completely deductible
  2. Are completely nondeductible
  3. Are deductible only in excess of 7.5% of adjusted gross income (AGI)
  4. Are deductible only in excess of 10% of AGI

3) If you donate used clothing to charity, you can generally deduct:

  1. The amount you paid for the clothing
  2. The amount that charity receives for selling the clothing
  3. The fair market value of the clothing
  4. Zero

4) If you charge a charitable gift of $100 in December 2011 and you pay the credit card bill in January 2012, how much can you deduct in 2011?

  1. Zero
  2. $25
  3. $50
  4. $100

5) The alternative minimum tax (AMT) may be triggered by:

  1. An overabundance of “tax preference” items
  2. Failure to pay sufficient estimated tax
  3. Filing separate tax returns, if married
  4. Excess expenses in the last quarter of the year

6) Which of the following is not deductible by individuals in 2011?

  1. State and local income taxes
  2. Credit card interest
  3. Miscellaneous expenses (subject to limits)     
  4. Casualty losses (subject to limits)

7) Which of the following is true about a holiday party for all employees?

  1. A small business can deduct none of the cost
  2. A small business can deduct 25% of the cost
  3. A small business can deduct 50% of the cost
  4. A small business can deduct 100% of the cost

Answers: 1-a; 2-c; 3-c; 4-d; 5-a; 6-b; 7-d

More Celebration: Congress Extends Payroll Tax Holiday

By JJ Burns

March 10, 2012

Get out the party hats and streamers: After an acrimonious debate in Congress, our nation’s lawmakers have extended the “payroll tax holiday” for the remainder of 2012.

The tax cut was first enacted as a one-shot deal for 2011. Under a provision in the 2010 Tax Relief Act, the usual 6.2% Social Security tax rate for employees was reduced by two percentage points to an effective?4.2% rate on wages up to the?Social Security ceiling ($106,800 in 2011). The self-employed got a comparable tax break. The usual 1.45% Medicare portion of the payroll tax (2.9% for the self-employed) continued to apply to all wages.

In a last-ditch effort at the end of 2011, Congress enacted compromise legislation that kept the payroll tax holiday in effect through February 2012. And now, after weeks of wrangling and political grandstanding, Congress has approved a further extension through the end of the year on amounts up to this year’s wage base of $110,100.

For example, if earn $100,000?in 2012, you will save $2,000 in payroll tax (2% of $100,000). The maximum tax savings is $2,202?(2% of $110,100).

Glad to have more money in your pocket? Don’t squander your tax savings on frivolities or extravagances you don’t really need. A better move is to use this extra cash for a sound investment or to bolster your retirement savings.