Disability insurance – do you need it? How much? What kind? Is it better to pay for it individually or through a group disability plan. What are some of the common features?

No one likes to think about needing disability insurance. We all think it is just for older people but statistics show that the younger people are affected.  It might be assumed that the aging of the workforce may be a factor in the increasing numbers of disabled workers. Disability, after all, rises with increased age. But the average age of disabled workers is actually falling. In 1970 the average age of a disabled worker was 52 years. In 2000 it had fallen to 49 years.

A qualified person with a disability has a 1 out of 100 chance of getting a job when compared to people with similar qualifications.

Note that only a minority of people with disabilities would actually qualify for SSI or SSDI (disability income) since “total disability” or inability to work is a requirement to qualify for such income.

Hear this podcast by John Ryan CFP® to learn all about disability insurance.

The 7 Questions You Must Ask Your  Regarding DI Insurance

You know I am not a big fan of personal finance journalists, but I have high regards for the work of Christine Benz. Christine is Morningstar’s Director of personal finance and senior columnist for Morningstar.com. She gets it about the financial planning process and it’s role in building wealth for people. This interview is packed with valuable information to help you with your portfolio no matter how small or large.

Build Wealth

Christine wrote the book, 30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances

Do-It-Yourself Financial Plan step #4 is goals. Now that you have a strong financial foundation we can build wealth according to your time frame, your return needs, and your risk tolerance. Notice I didn’t say the markets. That is an important point. Most of the market swings have nothing to do you but rather factors that are out of your control.

I had a friend that said he is so glad that he was in an all cash position during the crash because all of his friends lost money. After that he asked me how he can invest for better returns.

First of all no one loses money unless they sell. If you sell every time the market moves up or down- that’s gambling not investing. To invest for larger returns than what you can get in cash or bonds, you need to be a long term player. That means leaving it alone for 5 to 10 years. Are you up for that? (If not, that’s okay but you will need to stay in cash and accept low returns for the low risk you are taking.)

Great! Now let’s figure out how to invest by asking yourself these questions:

What am I investing for? (retirement, college, boat, first or second home,)

How long do I have to invest for this goal?  (10 years or 25 or what?)

How much risk am I will to take to reach this goal? (more risk means more volatility and more long term type investments)

How much money can I invest now and in the future to reach this goal? (What are you will to do to make your goals a reality?)

Am I willing to commit to this over the long term to achieve my goal? (Although goals can be modified, you still need to commit to meeting your target)

Investing is easy but answering the above questions is the hard part. But the answers above are an essential part of what you will need to be a successful investor. Why? Because if you don’t know what you are aiming for -you won’t hit it. If you don’t know what it will take to achieve your goal, you won’t contribute to it’s success.  If you don’t have a goal and just want the maximum return, you will surely lose your money.

My clients who know what they want, and how to get and are willing to do what it takes to achieve that are successful in accomplishing their financial goals. Are you?

Retirement Planning is step 6 of 7 in your do it yourself financial plan. Everyone would like to retire early and retire rich. But what does that look like to you? Some people think of old folks in rocking chairs while some think of the freedom to do whatever they want. You need to have a retirement plan for success that includes how you will pay for all that freedom however you define retirement. Those that take the time to look into the future and see what potential lies ahead will have a head start of a very successful retirement. Take these 7 tips into consideration for your own personal early retirement strategy:

1) Get the spouse or significant other on board. While your wife will be thinking a cottage close to her mother in Maine, you may be thinking downsizing and living near the beach in Florida . Don’t think about the money and how you will afford anything. Just talk and brainstorm ideas together of what you both would like.

2) If you plan on retiring before age 59 ½, then you will need savings and investments to draw on before you are able to take retirement plan money . The more you have saved up, the earlier you can retire. That doesn’t mean that you should also stop contributing to your retirement plan. It means that you will have to contribute to both.

3) At age 59 ½ and older you can draw on money from both retirement plans and savings and investments until social security kicks in. Many people may find themselves in a high tax bracket while doing this. If so, one option is to rollover your retirement plan from an IRA to a Roth IRA so you can eventually draw some money tax free. Sell shares that have long term capital gains so that you get the favorable tax treatment on the trade and create money to live on is another option .

4) At age 62 you can start taking social security . If you are fortunate enough to have enough assets to wait to take social security later, then do it. It will be approximately 20% more income if you can wait to the later date.

5) If you find that after all this your income will be less than what you expected, don’t panic. Studies have shown that retirees will spend more in the first five years after retirement and then expenses taper off. You can put yourself on an income plan that decreases as you get older and are less active.

6) Downsizing is another way to increase income after retirement is to downsize . Many people fail to realize how much money it takes to maintain a large home after all the kids have left. Downsize to a smaller home, and move to a less expensive area, and you will feel like you are living the high life with all that extra cash.

7) Even though you are retired, you have to watch your taxes . It’s not how much income you gross but how much you get to spend after tax. Instead of drawing down on one account at a time, take a little income from each account. Interest, dividends, capital gains, and a tax free income combination will keep your income high and taxes low.

Now matter what age you are, financial independence and retirement starts before you hand in your resignation. With these 7 planning tips, you can retire early and retire rich.

The cost of an education will increase about twice of the general inflation rate.  Students are finding that their parents make too much money for some financial aid and not enough for others.

Listen to this half hour interview with Fred Amrein,  a fee-only NAPFA Financial Advisor with Amrein Financial who specializes in financial aid, college education funding and investment management. Fred teaches us the ins and out of the financial aid process and how to pay for college without going broke or spending our life savings.

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Learn the ins and outs of the Financial Aid Process and how to pay for college without Going Broke or Spending Your Life Savings.

• College is an Investment-Focus on the Outcome of the Education
• College Financial Aide officers are limited to what they can tell you
• Saving Money is not just the financial aid process
• Be careful of Financial Advisors specializing in College Financial Aid

The financial aid process and your special family financial circumstances can be complex and confusing- get answers from a professional on this call.

What you will learn:
• Understand the Financial Aid Process and your positioning
• Risks to avoid in College Funding
• The Interaction of financial aid, educational tax credits and college saving plans

1. Save
2. Keep track of money
3. get paid what you are worth
4. spend wisely
5. talk about money
6. live on a budget
7. invest
8. exercise an entrepreneurial spirit
9. handle credit
10. use money to change the world

Source: Raising Financially Fit Kids- Joline Godfrey

Have you worked with or been approached by a financial advisor who offered you free financial planning services? It sure seems hard to beat free and is pretty easy to agree to that type of service. Compare that to the financial advisor asking you to pay for financial planning service and it’s almost a no-brainer, right? It’s a great sales pitch, but could actually cost you more while delivering poor financial advice. Consider the following scenario as explanation to why this is the case.

You walk into a hospital and can work with one of doctors. Each is given a few minutes to speak with you and explain how they offer their medical services, after which you have to choose whom to work with. Each doctor attended the same medical school, completed residency at the same hospital and seems nearly identical to the other in training and skill. The only difference you can discern from the conversation is how you will have to pay each doctor.

The first doctor discusses that he will charge you an appointment fee each time you meet. The only services included with that fee are his diagnostic services, physical examinations and treatment recommendations based on these examinations. The fee does not include any laboratory services or medication prescriptions under the treatment recommendations. All expenses beyond the appointment with the doctor will require additional payment by you. To fill medication prescriptions, you will have to select a pharmacy and pay for the drugs at that pharmacy.

Then you meet with the second doctor to discuss his services and fees. The doctor explains that you will be able to meet with him any time you wish with no cost to you. He will provide diagnostic services, examinations and laboratory services as required without any cost to you. Come for a cold, come for a broken bone…you will never be charged a penny for diagnostic work and treatment recommendations. All this doctor asks in return for his service is that if he prescribes you a treatment plan that includes medication, you visit with him in his pharmacy and purchase medication prescribed to you from him. Next he discloses that, while he is able to sell drugs from most major pharmaceutical brands, he gets paid a significantly larger commission by some brands than others. He goes on to tell you he is actually employed by one pharmaceutical company as a salesperson. He makes it clear that you are under no requirement to use his pharmacy, but that it is extremely convenient for you to do so. As you mull over your choice, you may begin to think that the first doctor sounds like he could become very expensive. After all, you have to pay for his services and then pay for any other services as well. The second doctor does not ask for a penny, but would like you to buy your medication from him. Is there a problem with this?

That free financial plan you have been offered is very similar to the free medical advice the second doctor offered. The deal sounds pretty nice and it sure is easy to say yes to free. That free financial plan being offered is not in reality quite so free, however. As might be the case with doctor number two when providing medication treatments, a financial advisor offering a free plan will be inclined to recommend financial products for you to purchase. This is, after all, how he gets paid. If you do not purchase products, you do get a free financial plan (albeit one with recommendations that may be questionable or skewed toward a product sale.) Moreover, the products recommended under the free financial plan may end up costing you more than it would have cost to pay for planning services and products separately!  You have been told that the commissions by some brands are higher than others…which do you think the financial advisor is likely to recommend? And you pay that commission. It may not be outright in the form of a check directly to the financial advisor, but it comes out of your premium payments or money being invested. It is NOT free.
Assume now you meet with two financial advisors. One works for a large investment brokerage, and the second for an independent fee-only financial planning firm. The following comparison is simplified, but offers a representative model of the type of fees you might pay.

Assume the first financial advisor recommends a mutual fund with a 3% commission and a 1.5% annual expense. You could invest $100,000 dollars with this advisor, who then receives $3,000 of your money from the mutual fund company. Additionally, you pay an expense to the mutual fund company of $1,500 every year. If the value of your investment goes up, this figure will rise. So, the total expense for the advice the financial advisor provides and his treatment plan recommended is $4,500. If your advisor recommends changing your investment in the future, he could receive another commission at that point, as well.

Compare this to the second financial advisor who charges you a fee for his financial plan. He charges you $1,500 for the financial planning work and 1% annually to provide ongoing financial advice and manage your investments. Then he recommends you invest in several no-load (no commission) index funds with an average annual expense of .6%.  Again you invest $100,000 with this advisor. Now your total out of pocket expense is $3,100. The financial advisor receives $2,500 total and the fund companies receive $600. AND in future years, you only pay the advisor $1,000 for ongoing financial advice and financial planning services plus the $600 mutual fund company fees (which could increase or decrease depending on how your investments perform.) There are no future commissions charged to you and the advisor is under no compulsion to recommend you change your investment plan in order for him to get paid again.

Think twice about that free financial plan. It’s really not so free and it carries with it a lot of conflicted advice. Would you choose the pharmaceutical representative who is also a doctor? Do you think the treatment plans this doctor offers might be a bit skewed? That free financial plan is very similar. I know I do not want my medication advice coming from a pharmaceutical representative and equally do not want my financial advice coming from a financial product salesperson. How about you?

Nathaniel G. Gehring CFP® -Living Financially Aware

The First Simple Truth About Money was about procrastination and financial fuzziness. The idea is that your non-actions around money can lead to bigger difficulties down the road. If you read the post, I hope that it caused you to make some behavioral changes. (Please write a comment and let me know if it did!)

Do You Know You Have a Money Personality?

Here’s a related question for you. Ever wonder why you procrastinate about financial matters? It may be due to your deep-seated money personality. We’ve all developed money habitudes and attitudes over the years – learned from our parents, our teachers and our peers.

Some of the information we absorbed about money may not be serving us so well now. For example, if you were raised in an atmosphere of scarcity, you may spend your whole life craving things you can’t afford and you now overspend to get them. On the other hand, if you grew up with abundance, you may expect things will always come easily to you. If your mom was a spendthrift, you may become one too or, you may overcompensate by becoming a miser.  If your dad procrastinated about important money decisions and took the attitude “things will work themselves out”, you may find yourself taking the same approach.

My Money Story

My mother and father were extremely frugal, especially my father. He didn’t want anything. Buying him a gift was torture because it was impossible to figure out what he would like – except peanuts, he loved peanuts.  So my siblings and I would end up buying him canisters of planter’s nuts for any occasion that required a gift.  His frugality rubbed off on my mom. Going out to eat with her is challenging. She’ll look at a menu and always order the cheapest thing on it – or a side salad.  Not a comfortable experience when you’ve just ordered filet mignon.

We kids would only get the “necessities” – food, clothing (thankfully we wore school uniforms!) and shelter. So, I learned early on that if I wanted the “extras”, I needed to find a way to buy them myself. This was probably a good thing, as I became self-sufficient at a very early age. But I also rejected the frugality of my parents and have been known to indulge myself on occasion. I’ve worked hard to find a good balance between being frugal and being extravagant.

Can you change your money personality?

Like anything with psychological or emotional roots, it’s possible but it takes work.  Deborah Price is the author of Money Magic, Unleashing Your True Potential For Prosperity and Fulfillment. She is the founder of the Money Coaching Institute based in Petaluma, California and she has developed a money coaching curriculum with the aim to “combine both practical financial guidance with sound psychological principles to help you transform your relationship with money and lead a more purposeful and prosperous life.”

In my own financial planning practice, I find that the more I know about my client’s money type or personality, the better I can serve them. To that end I have each client fill out a money personality questionnaire, which seeks answers to such questions as:

• What messages did your receive about money as a child growing up?
• How did you parents handle money?
• Did you feel like you got an adequate financial education growing up?

Most people are perfectly willing to do this exercise and seem to find the opportunity to explore the emotional and psychological aspects of money cathartic. If I interview a potential client who is in financial trouble and I sense a pattern in his/her life, I will often suggest they work with a money coach first as a precursor to the more technical financial planning work.

If you think that you may be acting in ways that sabotage your chance of financial success and it’s become a pattern  - read, sign up for a workshop, talk to trusted friends or advisors, or engage a Wealth Coach.

-Cathy Curtis CFP, Curtis Financial Planning