Get Financially Fit!
by Eric Heckman
Understanding Social Security
Apr 22nd
by Eric Heckman
The Social Security retirement program has been a basic part of American life since 1940. The program is the foundation of many people’s retirement income. It’s unlike any other income because you can’t outlive Social Security benefits and benefits won’t lose their value. Social Security can’t lose its value because it’s always adjusted to keep up with inflation. The amount of your retirement benefits are based on three things: how much time you spent in the workforce, how much money you made and the age you start receiving benefits.
Most people understand the basics of Social Security, but many are surprised by one thing or another when they start receiving it. And it’s usually not a pleasant surprise. There is a lot of speculation of what will happen to the future of Social Security and a lot of talk can be confusing.
Many believe the Social Security program will be unable to provide benefits for those who have contributed to it over the years. The fact is Social Security funds are solvent and they’re taking in more revenue annually than they need to pay out in benefits. According to AARP, Social Security will be able to pay 100 percent of promised benefits until 2042. At that point, incoming tax revenue could still cover more than 70 percent of promised benefits.
Although many people aren’t aware of this, Social Security can also provide benefits when someone retires, becomes disabled or dies. A spouse or children may receive benefits based upon the eligibility of the deceased person. Widows and widowers who collect survivor benefits can switch to their own retirement benefits as early as age 62. In many cases, they can begin receiving one benefit at a reduced rate and then switch to the other benefit at an unreduced rate at full retirement age. However, they will only be paid the higher of the two benefits, not both.
Another fact that’s not widely known is some people have to pay federal income taxes on benefits. This usually happens only if you have other substantial income. This is based on rules set by the Internal Revenue Service (IRS).
It’s important to understand more than just the basics of Social Security. Besides learning more about the benefits, you can also take measures to ensure you get everything you deserve. The following are five tips that will help you prepare for the largest source of retirement income:
1. Make sure you get full credit – As you read your statement, double-check the years you have worked. If you think there is a mistake, check your own records or contact a former employer for information.
2. Compare figures – Look at the amount of benefits you will receive at age 62 compared to your full retirement age.
3. Know what you will receive – Understand that you don’t necessarily get out of Social Security what you put into it. The system places a percentage of your average lifetime earnings that were subject to Social Security tax. And ironically, the less you contribute to the system, the better the investment is and the greater the replacement percentage may be.
4. Don’t forget about Medicare – If you’re getting Social Security benefits when you turn 65, your Medicare Hospital Benefits start automatically. If you’re not getting benefits at that age, you should sign up for Medicare close to your 65th birthday.
5. Research – Visit the Social Security Administration Web site for publications and online resources to help you understand your benefits, how to apply for benefits and the history of the Social Security program. You can also apply for benefits online at http://www.ssa.gov.
About Eric Heckman
Eric Heckman is president of Heckman Financial & Ins. Services, Inc. Eric is a CFP®, ChFC, CLU brings a wealth of knowledge and over 13 years of experience to the field of financial planning. Contact him at (408) 297-9800.
10 Ways to Get Off the Investment Roller Coaster
Apr 16th
By Eric Heckman
Remember your first ride on an amusement park roller coaster? I will never forget mine. The painfully slow climb, the anxiety-building wait at the top and the inevitable terrifying plunge into the abyss. The exhilarating speed and the unexpected turns that flung me headlong into that black tunnel of unknown length was the worst part. The rushing highs and lows, the fun, the fear and the panic, all of these emotions are all created by a complex structure under the control of someone else.
Today’s stock market is a lot like that roller coaster ride, the same ups and downs, the same terror. The difference is the stock market ride never ends and the stakes are far greater. Many retirees have lost a portion of their retirement savings in the stock market during the past few years. In the aftermath of Sept. 11, many took a swift ride they’ll never forget and for some, may never recover from. We all remember the Fed’s eleven interest rate cuts in 2002, which reduced some retiree’s incomes by as much as 90 percent. Interest rates on savings and CD accounts have never been lower.
The good news is it’s possible to get off that financial roller coaster and enjoy the confidence that comes from stepping back onto solid financial ground. It’s not difficult and it’s a lot less risky than staying in the “you never know” stock market game. Here are 10 simple steps for getting off that roller coaster quickly and regaining control:
1. Assess your situation. What are your assets? Gather all your financial documents including: your stock certificates, bank statements, brokerage statements, tax returns, social security information and insurance statements and documentation on all other assets you may have. Make a list of each asset.
2. Evaluate your investments. Review and determine the true rate of return on each investment in your portfolio. Rate the return for each asset as high, medium or low.
3. Determine your state of risk. Review how risky your investments are. What percentage of your overall savings is in conservative investments and what percentage is at risk? Rate the risk factor for each asset as high, medium or low.
4. Review your needs. Are you already retired, close to it or far away? Do you have sufficient monthly income? Rate each asset as yes or no.
5. Investigate other investments that would better support your goals and help provide the security you need. If your portfolio over-emphasizes high risk investments, consider balancing it with conservative alternatives.
6. Reallocate. If you find better options, then act. Don’t be afraid to make adjustments.
7. Establish or update your estate plan. If you have a plan, review and update it. If you don’t, then evaluate your need for one. Anyone with any assets should protect them through an estate plan.
8. Activate your estate plan. Ensure you have the proper estate planning tools in place and utilize them. Your assets should be protected from probate taxes, estate taxes and other taxes that can reduce their value.
9. Remain “savvy” and avoid scams. The fact is financial scammers are everywhere. Remember the following points whenever approached: Reputable financial firms don’t solicit you. Companies should always have available references. Banks don’t send representatives door-to-door. Credible financial professionals have no vested interest in a particular product. And if it sounds too good to be true – it is!
10. Check in regularly with a financial advisor you trust.
The worst move you can make is to wait. The stock market rollercoaster is unpredictable. Yes, it will go up and come down, but no one knows when. If you’re like most retirees, you don’t have the time or money to make that gamble. Retirement is about enjoying life. Besides, the only roller coasters you should be on are the ones at Disneyland.
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Bonus: Financial Fitness Pro Readers can now request a free CD ROM on financial planning or a free consultation. In addition, Heckman Financial is also offering 60% off ($600 savings) a year of planning between now and June 30, 2006.
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Eric Heckman is president of Heckman Financial & Ins. Services, Inc. Eric is a CFP®, ChFC, CLU brings a wealth of knowledge and over 13 years of experience to the field of financial planning. You can contact Eric at (408) 297-9800.
How to Discuss Finances with Aging Parents
Apr 12th
by Eric Heckman
Growing up, many of us were taught by our parents to never talk about money. The subject is viewed as being taboo, like discussing your political or religious beliefs. Adult children who grew up with this mindset typically feel uncomfortable broaching this difficult subject with their aging parents. Many adults are in denial about their parents’ mortality and avoid asking questions about their estates and wills. Oftentimes they do not want to appear greedy about their inheritance or controlling of their parents’ personal matters. However, not discussing this vital issue can lead to significant and irreversible problems in the future.
Today we live in an age where planning ahead makes all the difference. The older generation who was taught to save every penny is now experiencing considerable wealth due to burgeoning real estate and smart investments. In turn, they need to preserve those assets to plan for future life changes.
Adult children can play an important role in making sure their parents’ estate is in order, as well as ensuring they are financially capable to take care of themselves for the remainder of their lives.
The American Health Care Association estimates that the cost of a nursing home can exceed $50,000 a year, while assisted-living facilities average $24,000 annually. If elderly parents are not prepared financially for that care, the burden may rest on their children. According to the 2001 “Retirement Reality Check” survey by Allstate Financial, one in six (16 percent) baby boomers currently assists elderly parents or in-laws financially.
The following tips should help to make that conversation easier and more productive.
1. Pick the right time to talk. You want to make sure to have the conversation when you won’t be interrupted and when everyone is relaxed.
2. Maintain a sensitive stance. Remember, this is a difficult subject for them to discuss. You may not agree with their decisions, but keep in mind they are competent adults. A good way to set the right tone is by saying, “It’s important for me to understand your finances in case I need to help you in the future.”
3. Involve an expert if needed. There are many resources available, such as financial planners and certified public accountants, that can help manage later life decisions and financial issues for families.
4. Make a list of assets and liabilities. This is an important place to begin once the conversation starts. You’ll want to note the date and cost of assets, as this information will be needed for tax purposes if any assets are sold.
5. Establish arrangements for financial management. Your parents will want to consider establishing a durable power of attorney.
6. Know where important documents are kept. Make a list of all important documents, including birth and marriage certificates, wills and trust agreements, Social Security records, burial instructions, insurance policies, bank and investment statements, mortgage and real estate deeds and auto ownership records.
7. Review estate planning and investments. If they haven’t done so already, encourage your parents to develop a plan to maximize their legacy for their heirs. Also be sure to discuss their investment strategy so you have an understanding of their financial well-being.
8. Understand your parents’ healthcare wishes. You’ll need to know where your parents stand on healthcare issues should they ever become incapacitated.
It’s difficult thinking of the possibility of needing care in our elder years – not only when thinking of parents, but also when thinking of ourselves. What is most important to think about is how to plan ahead to avoid disagreements over care and finances. The rewards are endless and the experience will help you prepare for your own future.
About the Author
Eric Heckman is president of Heckman Financial & Ins. Services, Inc. Eric is a CFP®, ChFC, CLU and brings over 13 years of experience to the field of financial planning. You can contact Eric at (408) 297-9800.
Facts Every Couple Should Know
Apr 9th
By Eric Heckman
When couples decide they want to get married, often one topic of discussion is finances. How will the wedding be paid for? How will the honeymoon be paid for? Who will pay for what? After the honeymoon is over, many couples realize that they failed to discuss many other important financial details.
It’s hard to think about what you would do if something happened to you or your spouse, or worse, both. What’s even scarier is what could happen if you don’t discuss your finances while you’re together. The harsh reality is every marriage eventually ends in divorce or death.
You and your spouse should be able to answer these 10 questions about your finances. If there are questions you can’t answer, take the time to sit down as a couple and figure out where you stand.
1. How much do you have coming in and going out? The story for many couples is that more money is going out than coming in, but the first step to overcoming overspending is to recognize it.
2. Do you have a set budget? After you realize exactly how much is coming in and going out, create a budget. Start by listing all the fixed expenses you have, like your mortgage, car payments, credit card bills, utilities, etc. After you deduct all the fixed expenses from your income, take a hard look at what’s left. You should not be spending more than this on unfixed expenses, like entertainment, shopping, vacations, etc.
3. Where do you rank on the credit scale? Your credit history is one of the most important aspects of your finances. There are three primary credit-reporting agencies: Equifax, Experian and TransUnion. You should regularly request a copy of your credit report to see where you stand and make sure you haven’t become a victim of identity fraud.
4. What assets do you own? If your car is only half paid off, you do not fully own it. Don’t forget about long-lost investments you might have made before you were married. Keep all documents together in a file.
5. How much debt do you have? At least once a year you should assess how much you owe to creditors. Are you leaving your loved ones with enough to cover your expenses or a huge financial headache?
6. What future expenses do you face? Make two separate lists of needs and wants with estimated costs. Now look at your budget and this list of possible future expenses and try to determine how much you can afford without going into future debt.
7. Whose name is on what? Review all of the assets you own and do a status check on all that require a beneficiary, such as life insurance policies, pensions and other retirement savings. If an ex-spouse is still listed, they will receive the benefits even if you are remarried.
8. Do you have a will and/or power of attorney documents? If you have small children, you should have a guardian and trustee named for them as well. You should also look into establishing powers of attorney for healthcare and finances. A living will is necessary to ensure that your family and doctors know your wishes should you become incapacitated.
9. Where are all financial documents kept? Being able to find these critical documents quickly can make difficult times a bit easier. Of course your spouse should know where these documents are kept, but it’s also a good idea to let children or other family know as well.
10. Who are your financial advisors? Trusted advisors who are familiar with your finances can steer you through difficult times. Make sure he or she is one that makes an effort to contact you on a regular basis.
These questions cover topics that are not easy to discuss. Making an appointment with a financial advisor might help you and your spouse discuss these topics. The topics that are the least fun to discuss are often the most necessary.
About the Author
Eric Heckman is president of Heckman Financial & Ins. Services, Inc. Eric is a CFP®, ChFC, CLU and brings over 13 years of experience to the field of financial planning. You can contact Eric at (408) 297-9800.
Five Financial Myths that Affect Women
Apr 7th
From time to time, we will have special financial guests contributing their thoughts to this blog. This latest article is provided to you courtesy of Eric Heckman, President of Heckman Financial and Insurance Services, Inc.
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Saving for retirement is important and it’s something you should start doing at a young age so you can enjoy your golden years. Knowing this, it’s surprising how few women are prepared for retirement. Many women do not have the same knowledge and expectations as men do when it comes to their finances. There are many reasons why.
The following are five common financial myths along with effective strategies to help women take control of their finances.
No. 1: The Fairytale Princess Syndrome. This is the idea that your knight in shining armor will be the answer to all your financial needs. It doesn’t matter whether a woman is married, divorced, widowed, or single; some still think they don’t need to know about finances because a man will take care of them.
The flaw in this thinking? First off, according to the National Center for Health Statistics, half of all marriages end in divorce, and this percentage is even higher for people who remarry. Even if you never get divorced, women typically live longer than men. According to the National Center for Research, 75 percent of women will be widowed at the average age of 56. The reality is that 90 percent of women will be responsible for managing their money at some point.
No. 2: If I work hard, I’ll be rewarded. Unfortunately, this isn’t always true. Typically, women make less money in their lifetimes than men, even if they’re doing the same work. According to the Women Employed Institute, for every dollar a man earns, a woman earns 77 cents.
If you’re working and your employer offers a retirement plan such as a 401(k), you should consider contributing as much as you can, particularly if your employer makes matching contributions.
No. 3: The Caregiver Syndrome. “I took care of my children, now I’m taking care of my parents, and when the time comes, my children will take care of me.” These women are called “The Sandwich Generation.” These missing years in the workplace translate into missing salaries, promotions, 401(k) contributions, pensions, Social Security and other benefits. According to the National Endowment for Financial Education, for every year you stay out of the workforce, it will take you five years to recover that lost income.
No. 4: Men are better at that type of thing, so I’ll let my husband (or son) handle my finances. Many women think they’re not as good with “numbers” as their husbands, so they let their spouses handle their finances. The problem with this is that it leaves women in a position where they know very little about their savings, such as where their spouse keeps all the important financial documents. Women should have a basic understanding of budgeting and cash flow and should know the basics of investing.
You can begin by taking an inventory of your financial portfolio to learn about the different investments you own. Also, be sure to take the time to read your financial and brokerage statements. You may want to consider joining an investment club for women or taking a class on finances.
No. 5: The Scarlett O’Hara Syndrome. “I’ll think about it tomorrow.” We procrastinate about a lot of things in life. We’ve all seen the examples of money growing over time, showing us how, if we started investing in our 20s, our investment would have grown to many times its initial value by now. But that can’t happen until we put a financial plan in place, which is why it’s important for women to stop procrastinating and start planning now.
These are just some ideas on how you can confront these myths and take control of your finances. Maybe you’ve never been affected by any of these myths, but either way, it’s still important to start saving now for retirement. A good place to start would be to talk to a trusted professional who can help you become more financially independent, no matter if you’re single, married, divorced, widowed or retired. Every woman should take an active role in securing her financial future.
About the Author
Eric Heckman is president of Heckman Financial & Ins. Services, Inc. Eric is a CFP®, ChFC, CLU and brings over 13 years of experience to the field of financial planning. You can contact Eric at (408) 297-9800.