As an adult child who happens to be in the field of family finance, I knew it was necessary to start the conversation with my parents about their end-of-life wishes. I also needed to know where the essential papers were located in case of a crisis.
Essential papers include:
- Insurance policies
- Durable powers of attorney for finances and health care
- Burial plans
- Where the safety deposit box is, who has the right to open it, and the location of the key
- Where the birth and marriage certificates are kept, along with…
- Military service and Social Security records
- Usernames/passwords to online accounts
- Names of financial advisors
- Retirement benefits
- And investment and banking accounts
Whew! That is quite a list! It may take a while to have a conversation about and to gather all these items, but doing so helps adult children know their parents’ wishes and what is expected when you have to step into a decision making role.
To start today, sign up for a Finances of Caregiving series near you. Or call your county ISU extension office and ask for the publication “Legal Issues in Later Life.” You could use it to start a family conversation. Whatever you do, get the conversation started today.
Guest Blogger: Sandra McKinnon, Human Sciences Specialist
It is wise to plan ahead and anticipate situations our aging parents may face. As an adult child, it may be emotionally difficult to talk to our parents about death, disability, chronic illness and incapacity, but making financial decisions before a crisis has benefits:
- There is less emotion
- Disagreements among siblings may be reduced
- You are not making decisions in the middle of financial upheaval
It’s a good idea to start the conversation before our parents are 60 years old. If you are an aging parent, start the conversation now with your adult children.
Three ways to start the conversation:
- Raise the issue when an event occurs: a neighbor or friend is in the nursing home or has been hospitalized.
- Share your own wishes and then ask your family what they want.
- Organize a family meeting
Ideally, in a family meeting, everyone in the immediate family participates, even if joining in by phone or online. It is important to respect your parents’ privacy. Parents can decide how much detail they want to share but the goal is to know their wishes and where the essential papers are should a crisis arise.
Guest Blogger: Sandra McKinnon, Human Sciences Specialist, Family Finance
If your employer matches your contributions to a retirement plan, then it is smart to contribute at least that much. For example, if your employer matches your contributions up to 3%, then it’s smart to contribute at least 3% of your income. If you don’t, you’re turning down part of your paycheck.
Does that mean that if you’re maximizing your employer match, you’re saving enough for retirement? Not necessarily.
Your employer’s decision about how much they’ll match is not based on how much investment is needed to keep you secure. That decision is up to you.
Only you can decide how much to save toward your future. Only you can decide to give up certain spending now, in order to have a more secure lifestyle in the future. Our earlier post describes tools for assessing your progress toward a secure retirement.
Employers who offer a match typically match employee contributions up to 3-5% of income. If it is a dollar-for-dollar match, then making full use of a 3% match means a total of 6% of your income is being put toward retirement (3% from you plus 3% from your employer).
Based on typical life expectancy and investment returns, experts now estimate that lifelong savings of approximately 15% of income is needed in order to provide retirement income equivalent to pre-retirement income. Of course, workers who will have other sources of retirement income (such as rental income or a traditional pension like IPERS) can achieve full income replacement with lower savings rates. On the flip side, some workers may decide they don’t need full income replacement, and will be satisfied with a lower retirement income; a lower savings rate may work for those workers as well.
Bottom line? Planning for a secure retirement is up to you. Don’t rely on your employer’s match to determine how much you will save!
If stepping up your retirement planning is part of your new year’s resolution, one key is to understand the pros and cons of traditional tax-deferred accounts in comparison with Roth accounts. Individual Retirement Accounts (IRAs) come in both “flavors,” and many employer accounts have both options as well.
The differences between Traditional and Roth affect your retirement in two main ways:
- How much money you’ll be able to spend in retirement after taxes; and
- Flexibility of withdrawals in retirement (this is affected in a couple of different ways).
Whether you are saving for retirement or are already retired and need to decide when to withdraw from which account, understanding the differences matters. To better understand how those differences play out and how you might put them to work for you, ISU Extension and Outreach has a new on-line mini-lesson (20 min). It’s part of our collection of retirement resources, which includes mini-lessons on five other topics and sixteen printable publications.
In the last ten days I have received year-end statements from all three of my retirement accounts. The arrival of these financial statements presents great reminder to do a retirement check-up. Now is the time to do a calculation to see whether your retirement investments are on track to give you a comfortable retirement.
There are many retirement calculators on-line; most investment firms have them. They’re not all the same; different calculators present information in different ways, using different assumptions and perhaps emphasizing different aspects of the situation.
Calculators often have built-in assumptions about things like inflation, life expectancy, or investment return. With that in mind:
- Try to identify the key assumptions built into each calculator.
- Use a variety of on-line calculators, rather than sticking with just one. Looking at the different responses you are given by different tools will make you familiar with a wider range of possibilities.
Most on-line calculators are commercial; they are posted by companies that have products or services to sell. Keep that sales motive in mind as you review the information you receive. Occasionally, a tool will subtly steer consumers toward a particular type of product. By being aware, you can avoid making decisions based on biased information.
Fortunately, there are free non-commercial retirement calculators available on-line as well. Here are two provided by non-commercial organizations:
- Ballpark E$timate – This tool is, as its name suggests, a ballpark estimate. It doesn’t go into great detail. It is especially appropriate for people who are a long way from retirement, don’t have detailed retirement goals, but just want to be sure they’re on track.
- Department of Labor Retirement Calculator – This tool provides detailed on-line worksheets for examining retirement expenses as well as your income. It is particularly useful for those who are fairly close to retirement and ready for more detailed planning.
If you work with a financial adviser, he or she plays a key role in your retirement planning; even then, however, it is wise to take an active role in the planning. Your adviser will be the first one to tell you that you must be the one to make the final decisions.
I think it’s safe to say we will make it through 2016 without any significant financial upsets. The shared responsibility payment, if you didn’t have health insurance, reaches 2.5% and will catch some individuals by surprise when they file their taxes. Social Security removed “file and suspend”, an option available for married couples. Apologies were issued by one large bank for creating accounts customers did not request. Unless you live in the United Kingdom, it was a pretty quiet year.
The biggest changes in your finances were probably the result of your own actions. Maybe you put more money into your retirement accounts, payed off a debt, sold or bought a home, sent a child to college, or changed your employment status resulting in an income/benefits change.
Our next 12 months aren’t looking as quiet as 2016. Newly elected officials have promised to make major changes in health insurance. Social Security is getting its fair share of attention. Interest rates are going up after many years of being at rock bottom. Inflation is slowly entering into financial discussions.
What can consumers do?
- Keep good financial records and pay bills on time
- Don’t spend more than you earn
- Use credit wisely and focus on repaying debt
- Develop an emergency account
- Find money to set aside for tomorrow
Whatever 2017 brings, I wish you all good financial health!
The Consumer Financial Protection Bureau released a report this month designed to help people who are “credit invisible” – meaning they have little or no credit history. According to a 2015 CFPB report, approximately 26 million Americans fit in that “invisible” category, with no history on file with the major credit reporting agencies. An additional 19 million Americans have files so thin that they are considered “unscorable;” there is so little information about their credit history that a lender would be unable to evaluate a loan application. The total, 45 million, equals nearly 20 percent of American adults!
Why does it matter? Not having access to credit can limit your financial opportunities, of course; you would be unable to get a loan for a home or a car or a small business, and might also find it difficult to travel or shop on-line. In addition, you would be unable to use credit to deal with emergencies.
Beyond the obvious financial issues, having little or no credit history can also limit your opportunities for employment, rental housing, and insurance. It can also increase your costs for utility service (a larger security deposit might be required), increase insurance premiums, and even make it hard to get cell phone service.
What to do? Fortunately there are financial tools designed especially for those with limited credit history; they can also be helpful to people with a negative credit history. These products, including secured credit cards and credit-builder loans, reduce the risk which lenders take in issuing a loan to someone with no track record. A short checklist from the CFPB describes these tools, as well as other steps people can take to build credit from scratch.
My daughter and her husband are extremely frugal. They have “delayed gratification” down to a science. A walk through their Military Base apartment early on AND their now, newly purchased home in rural Iowa reflects their desire to live green and unattached to STUFF.
Their first major purchase upon returning to the U.S.A., was a car. They purchased a USED Prius. In recent weeks, they have had to jump-start it four times. Most cars have a trickle-drain of power from the car battery…the clock is just one example. It appears, they are SO green in their driving (or lack of driving) habits, that they do not drive the car enough to keep a charge on their battery. Her husband put snow tires on his BIKE and peddles the 6-blocks to work every day. My daughter purchased a “flat-bed” trailer for her bike for the 3-block trip home with groceries. So, for the most part, their car leaves the garage only on Sundays for a 6-block drive to church.
Awareness of my daughter’s car issues got me to thinking about the complicated role VALUES play in the purchase of a vehicle. On the one hand, hybrid cars save gas but, only if you drive it. In the case of my daughter who rarely drives their Prius, I wonder if they will own the car long enough to realize a financial savings. Will the gas savings surpass the additional cost of purchasing a more expensive hybrid car…regardless of the fact that it was used? Share your stories of how your personal values effect your shopping habits when considering a big-ticket item such as a car?
Thanksgiving is an incredibly important holiday.
Many (or most?) of us go through life always focused on a long list of things we need to do, things we want to have, places we want to go, and so on. We go through our days focused on meeting the needs or challenges ahead. Even if what we’re focused on is generous or happy (such as getting the children to piano lessons or calling a friend on his birthday), it is still something we want to check off our list. It’s almost like we’re always dissatisfied…We’re always striving, seeking, reaching.
Thanksgiving helps us stop and focus on the good things that are already present in our lives.
That’s important. Everyone has good things present in their lives; taking time to pause, breathe, and enjoy those good things helps us to feel satisfaction. Why does that matter? Why would the MoneyTip$ blog bother to devote space to Thanksgiving? Because there’s a constant risk that dis-satisfaction will govern our attitude. Scarcity is a fact of life that means everyone, even the richest person around, will always be able to think of something more they might want to have or to do. That ever-present scarcity and dissatisfaction can lead us to give up on managing our money, our time, and our other resources. We might ask ourselves, “What’s the point of even trying? I’ll never have everything I want.”
If you’re reading this, there’s a good chance you’re a person who tries to manage money well. In order to continue trying, you need to see that it does pay off. Your effort has led to good things in your life. Focusing on the positive is the best way to pave the way for more positive movement in the future. This week, stop and be thankful – to yourself and to all the others who have contributed to what’s positive in your life. The goal of managing money is to bring satisfaction, so bask in that satisfaction for a while.
In May of 2013, I talked about the creative way some parents manage chores and allowances, using technology and PayPal. At that time, there was an age requirement in order to have an account; this eliminated the youngest kids from that kind of reward system.
Since then, two new virtual systems have arrived on the scene. Ourly.help allows kids to be assigned tasks with deadlines. Before and after photos prove the chore was completed to your standards and once you approve the job, the pre-determined dollar amount is transferred to your child’s Gift Card. The child can then use the gift card to purchase things. The free program has a one-time processing fee for uploading funds to your kid’s account. Plan upgrades (for a yearly fee) include a savings account for managing the earnings and teaching money management skills.
Chore Monster, a totally free program, allows parents to schedule chores with point values. When you approve the job-well-done, the child receives the points. Kids can then “purchase” predetermined rewards such as money, pizza party or camping trip.
Both apps allow kids to review the assigned chores, possible rewards and how much they need to save to “purchase” the reward.
It is always important to set kids up for success: assign age appropriate jobs, teach responsibility and follow through, and help them understand that pride in a job well done is more important than money. For more tips on managing chores and children, check out The Science of Parenting blog.