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Bridging the Gap

Resolving Projected Income Shortfalls: Bridging the Gap  1

What is a projected income shortfall?

When you determine your retirement income needs, you make your projections based on the type of lifestyle you plan to have and the desired timing of your retirement. However, you may find that reality is not in sync with your projections and it looks like your retirement income will be insufficient for the rate you plan to spend it. This is called a projected income shortfall. If you find yourself in such a situation, finding the best solution will depend on several factors, including the following:

  • The severity of your projected shortfall
  • The length of time remaining before retirement
  • How long you need your retirement income to last

Several methods of coping with projected income shortfalls are described in the following sections.

Delay retirement

One way of dealing with a projected income shortfall is to stay in the workforce longer than you had planned. This will allow you to continue supporting yourself with a salary rather than dipping into your retirement savings.

What it means

Delaying your retirement could mean that you continue to work longer than you had originally planned. Or it might mean finding a new full- or part-time job and living off the income from this job. By doing so, you can delay taking Social Security benefits or distributions from retirement accounts. The longer you delay tapping into these sources, the longer the money will last when you do begin taking it.

While you might hesitate to start on a new career path late in life, there may actually be certain unique opportunities that would not have been available earlier in life. For example, you might consider entering the consulting field, based on the expertise you have gained through a lifetime of employment. This decision may involve tax issues, so it may be beneficial to review its tax impact with a tax professional.

Effect on Social Security benefits

The Social Security Administration has set a "normal retirement age" which varies between 65 and 67, depending on your date of birth. You can elect to receive Social Security retirement benefits as early as age 62, but if you begin receiving benefits before your normal retirement age, your benefits will be decreased. Conversely, if you elect to delay retirement, you can increase your annual Social Security benefits. There are two reasons for this. First, each additional year that you work adds an additional year of earnings to your Social Security record, resulting in potentially higher retirement benefits. Second, the Social Security Administration gives you a credit for each month you delay retirement, up to age 70.

Effect on IRA and employer-sponsored retirement plan distributions

The longer you delay retirement, the longer you can contribute to your IRA or employer-sponsored retirement plan. However, if you have a traditional IRA, you must start taking required minimum distributions (and stop contributing) when you reach age 70½. If you fail to take the minimum distribution, you will be subject to a 50 percent penalty on the amount that should have been distributed. If you have a Roth IRA, you are not required to take any distributions while you are alive, and you can continue to make contributions after age 70½ if you are still working. Minimum distribution rules do not apply to money in qualified retirement plans until you reach age 70½ or retire (whichever occurs later), unless you own 5 percent or more of your employer. >

Save more money

You may be able to deal with projected retirement income shortfalls by adjusting your spending habits, thus allowing you to save more money for retirement. Depending on how many years you have before retirement, you may be able to get by with only minor changes to your spending habits. However, if retirement is fast approaching, drastic changes may be needed.

Make major changes to your spending pattern

If you expect to fall far short of your retirement income needs or if retirement is only a few years away, you may need to change your spending patterns drastically to save enough to cover the shortfall.

You should create a written budget so you can easily see where your money goes and where you can reduce your spending. The following are some suggested changes you may choose to implement:

  • Consolidate your loans to reduce your interest rate and/or monthly payment. Consider using home equity financing for this purpose.
  • Reduce your housing expenses by moving to a less expensive home or apartment.
  • Sell your second car, especially if it is only used occasionally.

Make minor changes to your spending patterns

Minor changes can also make a difference. You'd be surprised how quickly your savings add up when you implement several small changes to your spending patterns. The following are several areas you might consider when adjusting your spending patterns:

  • Consider buying a well-maintained used car instead of a new car.
  • Get books and movies from your local library instead of buying or renting them.
  • Plan your expenditures and avoid impulse buying.

Continue saving during your retirement

Don't think of your retirement date as your deadline for saving. Instead, continue to save money throughout your retirement years. Saving may become more difficult after retirement as a result of reduced income and potentially increased medical expenses. Putting away just a little each month can make a significant difference in how long your money will last.

Note that some of the powerful tax-deferred savings vehicles you took advantage of while working may no longer be available to you during retirement. To participate in a 401(k), for example, you must be employed by a company that offers such a plan and must meet the employer's eligibility requirements (e.g., length of service). IRAs only allow you to contribute earned income (i.e., job earnings) and generally don't permit any contributions after age 70½ (except in the case of Roth IRAs).

Re-evaluate your standard of living in retirement

If your projected income shortfall is severe enough or if time is too tight, you may realize that no matter what measures you take, you will not be able to afford the lifestyle you want during your retirement years. You may simply have to accept the fact that your retirement will not be the jet-setting, luxurious, permanent vacation you had envisioned. Recognize the difference between the things you want and the things you need and you'll have an easier time deciding where you can make adjustments. Here are a few suggestions:

  • Reduce your housing expectations
  • Cut down on travel plans
  • Consider a less expensive automobile
  • Lower household expenses

How much money should I keep in a savings account for emergencies?

Answer: You might consider putting away three to six months' worth of living expenses for emergencies. If you lose your job, or become disabled and don't have adequate disability insurance, you'll need that money to pay your regular monthly expenses, such as mortgage payments, insurance premiums, groceries, and car payments, until you can find another job. Similarly, if your car breaks down or your spouse has a medical emergency, you'll want to have the necessary cash to pay the bills. You don't want to be faced with an immediate need for cash, only to discover that you don't have any.

You may have already set up an emergency fund. Did you put the cash in a five-year certificate of deposit (CD) or other long-term investment? In an emergency, you will need to get at those funds immediately. You can certainly pull your money out of the CD early, but you'll pay a penalty. It's better to keep some funds more liquid, in a traditional savings account, a money market deposit account, or a six-month CD, for example. That way, the cash will be readily available when you need it.

Finally, keep your emergency fund separate from your everyday accounts. You might even want to use a different bank. Unless you are extremely disciplined, you'll be tempted to spend those extra funds if you keep them in your checking account. Remember, if you can put off an expense until next week, it is probably not an emergency.5


1 3Broadridge Investor Communication Solutions, Inc. Copyright 2015. 2 http://www.womansday.com/home/organizing-cleaning/tips/a109/100-ways-to-get-organized 4 http://www.foodnetwork.com/recipes/quinoa-salad-recipe0.html  5 gradientfinancialgroup.com Newsletter  Insurance products and services are offered through Craig Colley | Coliday and is not affiliated with Gradient Securities, LLC. Some of these materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

 

Which Birthdays Are Financial Milestones?

Quiz: Which Birthdays Are Financial Milestones?  4

When it comes to your finances, some birthdays are more important than others. Take this quiz to see if you can identify the ages that might trigger financial changes.

Questions

1. Eligibility for Medicare coverage begins at what age?

a. 62

b. 65

c. 66

2. A child can stay on a parent's health insurance plan until what age?

a. 18

b. 21

c. 26

3. At this age individuals who are making contributions to a traditional or Roth IRA or an employer-sponsored retirement plan can begin making "catch-up" contributions.

a. 50

b. 55

c. 60

d. 66

4. This age is most often associated with drops in auto insurance premiums.

a. 18

b. 25

c. 40

d. 50

5. Individuals who have contributed enough to Social Security to qualify for retirement benefits become eligible to begin collecting reduced benefits starting at what age?

a. 62

b. 65

c. 66

d. 70

Quiz Answers

1. b. 65. Medicare eligibility begins at age 65, although people with certain conditions or disabilities may be able to enroll at a younger age. You'll be automatically enrolled in Medicare when you turn 65 if you're already receiving Social Security benefits, or you can sign up on your own if you meet eligibility requirements.

2. c. 26. Under the Affordable Care Act, a child may retain his or her status as a dependent on a parent's health insurance plan until age 26. If your child is covered by your employer-based plan, coverage will typically end during the month of your child's 26th birthday. Check with the plan or your employer to find out exactly when coverage ends.

3. a. 50. If you're 50 or older, you may be able to make contributions to your IRA or employer-sponsored retirement plan above the normal contribution limit. These "catch-up" contributions are designed to help you make up a retirement savings shortfall by bumping up the amount you can save in the years leading up to retirement. If you participate in an employer-sponsored retirement plan, check plan rules--not all plans allow catch-up contributions.

4. b. 25. By age 25, drivers generally see their premiums decrease because, statistically, drivers younger than this age have higher accident rates. Gaining experience and maintaining a clean driving record should lead to lower premiums over time. However, there's no age when auto insurance rates automatically drop because rates are based on many factors, including type of vehicle and claims history, and vary by state and insurer; each individual's situation is unique.

5. a. 62. You can begin receiving Social Security retirement benefits as early as age 62. However, your benefits will be reduced by as much as 30% below what you would have received if you had waited until your full retirement age (66 to 67, depending on your year of birth).5


1 3 4Broadridge Investor Communication Solutions, Inc. Copyright 2015. 5 gradientfinancialgroup.com Newsletter  Insurance products and services are offered through Craig Colley | Coliday and is not affiliated with Gradient Securities, LLC. Some of these materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Protect Yourself Against Identity Theft

Protect Yourself Against Identity Theft  1

Whether they're snatching your purse, diving into your dumpster, stealing your mail, or hacking into your computer, they're out to get you. Who are they? Identity thieves.

Identity thieves can empty your bank account, max out your credit cards, open new accounts in your name, and purchase furniture, cars, and even homes using your credit history. If they give your personal information to the police during an arrest and then don't show up for a court date, you may be subsequently arrested and jailed.

And what will you get for their efforts? You'll get the headache and expense of cleaning up the mess they leave behind.

You may never be able to completely prevent your identity from being stolen, but here are some steps you can take to help protect yourself from becoming a victim.

Check yourself out
It's important to review your credit report periodically. Check to make sure that all the information contained in it is correct, and be on the lookout for any fraudulent activity.

You may get your credit report for free once a year. To do so, visit www.annualcreditreport.com.

If you need to correct any information or dispute any entries, contact the three national credit reporting agencies: Equifax, Experian, and TransUnion.

Secure your number
Your most important personal identifier is your Social Security number (SSN). Guard it carefully. Never carry your Social Security card with you unless you'll need it. The same goes for other forms of identification (for example, health insurance cards) that display your SSN. If your state uses your SSN as your driver's license number, request an alternate number. Don't have your SSN preprinted on your checks, and don't let merchants write it on your checks.

Don't give it out over the phone unless you initiate the call to an organization you trust. Ask the three major credit reporting agencies to truncate it on your credit reports. Try to avoid listing it on employment applications; offer instead to provide it during a job interview.

Don't leave home with it

Most of us carry our checkbooks and credit cards, debit cards, and telephone cards with us all the time. That's a bad idea; if your wallet or purse is stolen, the thief will have a treasure chest of new toys to play with.

Carry only the cards and/or checks you'll need for any one trip. And keep a written record of all your account numbers, credit card expiration dates, and the telephone numbers of the customer service and fraud departments in a secure place--at home.

Keep your receipts

When you make a purchase with a credit or debit card, you're given a receipt. Don't throw it away or leave it behind; it may contain your credit or debit card number. And don't leave it in the shopping bag inside your car while you continue shopping; if your car is broken into and the item you bought is stolen, your identity may be as well.

Save your receipts until you can check them against your monthly credit card and bank statements and watch your statements for purchases you didn't make.

When you toss it, shred it

Before you throw out any financial records such as credit or debit card receipts and statements, cancelled checks, or even offers for credit you receive in the mail, shred the documents, preferably with a cross-cut shredder. If you don't, you may find the panhandler going through your dumpster was looking for more than discarded leftovers.

Keep a low profile

The more your personal information is available to others, the more likely you are to be victimized by identity theft. While you don't need to become a hermit in a cave, there are steps you can take to help minimize your exposure:

  • To stop telephone calls from national telemarketers, list your telephone number with the Federal Trade Commission's National Do Not Call Registry by registering online at www.donotcall.gov
  • To remove your name from most national mailing and e-mailing lists, as well as most telemarketing lists register online with the Direct Marketing Association at www.dmachoice.org
  • To remove your name from marketing lists prepared by the three national consumer reporting agencies, register online at www.optoutprescreen.com
  • When given the opportunity to do so by your bank, investment firm, insurance company, and credit card companies, opt out of allowing them to share your financial information with other organizations
  • You may even want to consider having your name and address removed from the telephone book and reverse directories

Take a byte out of crime

Whatever else you may want your computer to do, you don't want it to inadvertently reveal your personal information to others. Take steps to help assure that this won't happen.

Install a firewall to prevent hackers from obtaining information from your hard drive or hijacking your computer to use it for committing other crimes. This is especially important if you use a high-speed connection that leaves you continuously connected to the Internet. Moreover, install virus protection software and update it on a regular basis.

Try to avoid storing personal and financial information on a laptop; if it's stolen, the thief may obtain more than your computer. If you must store such information on your laptop, make things as difficult as possible for a thief by protecting these files with a strong password--one that's six to eight characters long, and that contains letters (upper and lower case), numbers, and symbols.

"If a stranger calls don't answer." Opening e-mails from people you don't know, especially if you download attached files or click on hyperlinks within the message, can expose you to viruses, infect your computer with "spyware" that captures information by recording your keystrokes, or lead you to "spoofs" (websites that replicate legitimate business sites) designed to trick you into revealing personal information that can be used to steal your identity.

If you wish to visit a business's legitimate website, use your stored bookmark or type the URL address directly into the browser. If you provide personal or financial information about yourself over the Internet, do so only at secure websites; to determine if a site is secure, look for a URL that begins with "https" (instead of "http") or a lock icon on the browser's status bar.


And when it comes time to upgrade to a new computer, remove all your personal information from the old one before you dispose of it. Using the "delete" function isn't sufficient to do the job; overwrite the hard drive by using a "wipe" utility program. The minimal cost of investing in this software may save you from being wiped out later by an identity thief.5

1 3Broadridge Investor Communication Solutions, Inc. Copyright 2015.
2http://www.newsday.com/news/nation/top-10-new-year-s-resolutions-for-2015-and-how-to-keep-them-1.9753461 
5 gradientfinancialgroup.com Newsletter  
Insurance products and services are offered through Craig Colley | Coliday and is not affiliated with Gradient Securities, LLC.

Handling Market Volatility

Conventional wisdom says that what goes up must come down. But even if you view market volatility as a normal occurrence, it can be tough to handle when your money is at stake. Though there's no foolproof way to handle the ups and downs of the stock market, the following common-sense tips can help.

Don't put your eggs all in one basket

Diversifying your investment portfolio is one of the key tools for trying to manage market volatility. Because asset classes often perform differently under different market conditions, spreading your assets across a variety of investments such as stocks, bonds, and cash alternatives has the potential to help reduce your overall risk. Ideally, a decline in one type of asset will be balanced out by a gain in another, though diversification can't eliminate the possibility of market loss. One way to diversify your portfolio is through asset allocation. Asset allocation involves identifying the asset classes that are appropriate for you and allocating a certain percentage of your investment dollars to each class (e.g., 70% to stocks, 20% to bonds, 10% to cash alternatives).

Focus on the forest, not on the trees

As the market goes up and down, it's easy to become too focused on day-to-day returns. Instead, keep your eyes on your long-term investing goals and your overall portfolio. Although only you can decide how much investment risk you can handle, if you still have years to invest, don't overestimate the effect of short-term price fluctuations on your portfolio.

Look before you leap

When the market goes down and investment losses pile up, you may be tempted to pull out of the stock market altogether and look for less volatile investments. The modest returns that typically accompany low-risk investments may seem attractive when more risky investments are posting negative returns. But before you leap into a different investment strategy, make sure you're doing it for the right reasons. How you choose to invest your money should be consistent with your goals and time horizon.

For instance, putting a larger percentage of your investment dollars into vehicles that offer asset preservation and liquidity (the opportunity to easily access your funds) may be the right strategy for you if your investment goals are short term and you'll need the money soon, or if you're growing close to reaching a long-term goal such as retirement. But if you still have years to invest, keep in mind that stocks have historically outperformed stable-value investments over time, although past performance is no guarantee of future results. If you move most or all of your investment dollars into conservative investments, you've not only locked in any losses you might have, but you've also sacrificed the potential for higher returns. Investments seeking to achieve higher rates of return also involve a higher degree of risk.

Look for the silver lining

A down market, like every cloud, has a silver lining. The silver lining of a down market is the opportunity to buy shares of stock at lower prices. One of the ways you can do this is by using dollar-cost averaging. With dollar-cost averaging, you don't try to "time the market" by buying shares at the moment when the price is lowest. In fact, you don't worry about price at all. Instead, you invest a specific amount of money at regular intervals over time. When the price is higher, your investment dollars buy fewer shares of an investment, but when the price is lower, the same dollar amount will buy you more shares. A workplace savings plan, such as a 401(k) plan in which the same amount is deducted from each paycheck and invested through the plan, is one of the most well-known examples of dollar cost averaging in action. For example, let's say that you decided to invest $300 each month. As the illustration shows, your regular monthly investment of $300 bought more shares when the price was low and fewer shares when the price was high:

(This hypothetical example is for illustrative purposes only and does not represent the performance of any particular investment. Actual results will vary.)

Although dollar-cost averaging can't guarantee you a profit or avoid a loss, a regular fixed dollar investment may result in a lower average price per share over time, assuming you continue to invest through all types of market conditions.

Making dollar-cost averaging work for you
  • Get started as soon as possible. The longer you have to ride out the ups and downs of the market, the more opportunity you have to build a sizable investment account over time.
  • Stick with it. Dollar-cost averaging is a long-term investment strategy. Make sure you have the financial resources and the discipline to invest continuously through all types of market conditions, regardless of price fluctuations.
  • Take advantage of automatic deductions. Having your investment contributions deducted and invested automatically makes the process easy and convenient.
Don't stick your head in the sand

While focusing too much on short-term gains or losses is unwise, so is ignoring your investments. You should check your portfolio at least once a year--more frequently if the market is particularly volatile or when there have been significant changes in your life. You may need to rebalance your portfolio to bring it back in line with your investment goals and risk tolerance. Rebalancing involves selling some investments in order to buy others. Investors should keep in mind that selling investments could result in a tax liability. Don't hesitate to get expert help if you need it to decide which investment options are right for you.

Don't count your chickens before they hatch
As the market recovers from a down cycle,elation quickly sets in. If the upswing lasts long enough, it's easy to believe that investing in the stock market is a sure thing. But, of course, it never is. As many investors have learned the hard way, becoming overly optimistic about investing during the good times can be as detrimental as worrying too much during the bad times. The right approach during all kinds of markets is to be realistic. Have a plan, stick with it, and strike a comfortable balance between risk and return. 

5 Article content

Insurance products and services are offered through Craig Colley | Coliday and is not affiliated with Gradient Securities, LLC.

Alternatives to Low Paying Bank CD’s

Guaranteed-income-Graph-1-400pxIn a time when many financial experts are predicting another major correction in the stock market, there is a safe alternative to seriously consider; Fixed-Indexed Annuities. Now before you make a snap judgement (as many do when they see the word annuity) take a moment and find out just how much this program can provide in retirement. If you are like most retiree’s, you probably share the number one fear which is running out of money. So let’s look at what a fixed-indexed annuity is and how it can benefit you.  

What is a fixed-index annuity?

A relatively new financial option offered by insurance companies, the fixed-index annuity was created in 1994 as an alternative financial product to CD’s, mutual funds, and stocks. Participating in a fixed-index annuity offers tax deferred growth and a guarantee against loss of principal and options for gains when the market does well.

Safe Money

Many life insurance companies that only offered variable annuities are now offering fixed-index annuities as a very attractive and safer option to their clients. Unlike variable annuities that invest in different mutual funds, the performance of fixed-index annuities are tied and mirror the performance of a single index such as the S&P 500.

CD alternative

A safe investment, but with today’s all time low interest rates certificates of deposit are paying less than half the amount of a percent 10-year Treasury Bills which is less than 3 percent. With a fixed-index annuity, there is usually a guaranteed minimum rate of return. You can also earn a substantially higher return if the index does well.

Mutual fund alternative

Diversifying through mutual funds does not protect you when the market declines. Mutual funds may be less risky than individual stocks but you can still lose money in a bear market as 401K plans dropped by more than 30% in 2008.

Stock market alternative

Older individuals do not have time on their side in a volatile stock market to recover from losses and are hesitant to put their hard earned retirement savings into the market. The bear market that existed from the end of 2007 and into early 2009 may have also affected those who are younger to think about other options.

Preserve capital

The goal is to preserve capital and a fixed-index annuity is an alternative to a risky stock market or mutual funds for anyone who cannot afford to lose money. Upon the purchase of this type of annuity the contractual agreement will guarantee that you will not lose any of your principal (and potential interest credits) and will usually have a minimum interest rate earned for every year while you hold the investment.

Looking for extra money you want and need?

An excellent feature of a fixed-index annuity (if you are tied to the S&P 500) is if the stock market and/or index should fall you do not lose any money in that year. Similar to a CD in a retirement account, a fixed-index annuity will not only earn you a base interest rate but also allows you to participate in the positive index returns.

Typically, you only receive approximately 75% of an increase on an annual basis, starting from the purchase date of the annuity, but a substantial difference in earnings can still be made in that year. Based on the performance of the index, there may be a cap on the maximum amount of extra interest earned.

Guaranteed income for life

Another great option of some fixed-indexed annuities are the Guaranteed Income for Life riders. For those individuals looking for income for life (similar to how social security benefits work), many programs offer a separate income growth option that is different from the cash value of the annuity, which can have a guaranteed interest rate of 7 to 10% on your initial premium or principle payment for up to 10 years. You then draw a guaranteed amount from that income growth (based on your age and if you have an individual or joint account) based on the percentage determined in your policy.

Market performance is always unknown

A fixed-interest annuity makes sense for people who want to participate at a lower level of risk in the stock market without  investing directly in the market.  You will not earn as much as an index fund outside of an annuity in good markets but your money will be safe if the markets turn bad or bearish.

In conclusion fixed-indexed annuities might be the best fit for anyone who is looking for financial gains from the upside of the market and cannot afford to lose a dime if the market has another major down turn (which many experts predict will happen). Life time income benefits are also very attractive in providing peace of mind in retirement.

Finding a reputable and trusted partner to assist you with your financial & insurance needs is of vital importance.  I will work hard to find the best programs, coverage and rates that fits your budget and your needs. Contact me at 949-495-2016 or ccolley@coliday.com

 

Focus on Women’s Needs

How different are we?
Studies reveal stark differences when making financial decisions.

women-1

Women have different needs than men when it comes to making financial, insurance and retirement decisions. A 2011 study from Prudential, "Financial Experience and Behaviors Among Women," revealed that some 95 percent of women are directly involved in their households’ financial decisions and 25 percent stated that they were the primary decision-maker.

While an increasing number of women are making the financial decisions, many are doing so uneasily. Roughly 82 percent of those surveyed by Prudential said they needed “some” or “a lot of” help in making those decisions, and nine out of 10 weren’t confident they knew how to choose the appropriate financial products needed to meet their needs.

When making an investment decision, women are most likely to gather information from their spouse (64 percent), printed materials (62 percent) and the Internet (42 percent).

InvestDecision

Only one-third of women stated that they had a detailed financial plan in place. Why so few? The most common barriers cited include: lack of time, the pull to meet shorter-term financial obligations, lack of knowledge and an unmet desire for assistance.

What’s their top priority? Some 74 percent of women rank "concern about their children, grandchildren" as their top financial planning priority. Reuters reports this frames their financial discussions in terms of the end goal.

"They don’t want to hear about the growth or comparative performance of different funds; they want information about reaching their long-term goals, like putting a kid through college," a recent article from The Wall Street Journal said.

A study from Hearts and Wallets found that women demand more than men from their financial services firms. Some important qualities women look for are that the advisor "explains things in understandable terms" and "clearly and understandably presented fees." They also prefer to have a collaborative relationship with their advisor.

At Coliday we offer free consultation (women to women if desired) to help identify those concerns and strategies to help. Statistics show a national average of women out-living men by 2 to 7 years with many living 10 to 20 years longer. Having a solid plan for retirement is crucial. So whether you're single, married, separated or widowed, we can help. Call us at (949) 216-8459 or email at ccolley@coliday.com