protect yourself and if necessary recover faster from a weather disaster.

With the devastation of Hurricane Harvey and Hurricane Irma we thought it was a good idea to review steps that you should take to protect yourself and if necessary recover faster from a disaster.

During a disaster, liquidity is king. It is a good idea to have a few thousand dollars in cash on hand and to make sure that you have extra money in your checking account as well. This way, if you can't get access to your bank for a while, you can buy supplies and if possible pay bills. 

It is important to understand homeowner’s insurance. Most homeowner’s policies have a separate hurricane deductible. A standard homeowner's insurance policy deductible is typically $500 or $1,000. Hurricane deductibles are calculated as a percentage of the insured value of the house. That percentage, along with details about a policy's hurricane deductible, usually appears on the declaration page. States that let insurers tack hurricane deductibles onto homeowner's policies are Alabama, Connecticut, Delaware, Florida, Georgia, Hawaii, Louisiana, Maine, Maryland, Massachusetts, Mississippi, New Jersey, New York, North Carolina, Rhode Island, South Carolina, Texas, Virginia as well as the District of Columbia. Hurricane deductibles apply only to damage caused by hurricanes, and typically range from 1 % to 5 % of the insured value of a house, according to the Insurance Information Institute. For example, a policyholder whose house is insured for $200,000 with a 2 % hurricane deductible would have to pay the first $4,000 needed to repair the home if a hurricane caused the damage.

Damage caused by flooding is generally not covered by a standard homeowner’s insurance policy. A flood typically involves external water rising onto the land from an overflowing river, hurricane, tsunami, mudslide or even heavy rains. You may want to consider buying flood insurance. Many people are surprised by the limitations to these policies. For example, they do not cover damage to contents stored in basements. If you buy this coverage, learn about all of the exclusions so you can plan accordingly.

One of the byproducts of water damage is mold and mildew. Besides being potentially hazardous for your health, mold can reduce the value of the house by discoloring the walls and/or ceilings, rotting wood or ductwork, and creating a foul odor. Most basic homeowner’s insurance policies exclude coverage due to damage caused by mold, fungi, and bacteria.

Many homeowners may not realize that they are responsible for the maintenance and repair of the pipeline between the city sewer main, usually located in the street, and their house. Sewage backup coverage is available from most insurers as a rider to a homeowner’s insurance policy. It costs very little and should be obtained if your home is connected to a sewer.

Most automobile insurance policies do cover flooding. Most standard automobile policies with collision and comprehensive coverage replace flood damaged cars after the deductible.

It is important to store financial documents such as deeds, title insurance, auto ownership documents, insurance policies and estate planning documents remotely.

Photos and/or videos should be made of the contents of the house and stored electronically. This way, when it comes time to submitting a claim to the insurance company, there will be an accurate record and proof of what was damaged or lost. 

Periodically review life insurance and disability policies. Confirm the beneficiaries. 

Check the title to the house. This is a required part of the application process for a mortgage and it is protection in the event of a claim. Without an accurate title it is difficult to prove ownership or eligibility to submit a claim for insurance benefits or government assistance.

By following these steps, you will be in a better position to weather the storm.

If you have additional questions, please feel free to call my office at 201-843-0044 or check out our website at:

www.wattersfinancial.com

How Do You Survive The Inevitable Storms of Life?

How Do You Survive The Inevitable Storms of Life?

Over the last thirty years of being a CERTIFIED FINANCIAL PLANNER ™, I have helped many clients survive a crisis in their lives. Here are some tips I recommend.

Whether the crisis is an illness, loss of a job or the death of a spouse or loved one, there are things you can do to minimize the trauma for you and your loved ones. Here are a few tips that can help:

·       Create an advisory board and make sure your loved ones know who is on the board. This board could include your CERTIFIED FINANCIAL PLANNER ™, your Lawyer and your tax advisor. Make sure your spouse meets with each of them periodically.

·       Review who has what job in your estate planning and make sure they are still the right people.

·       Review your Estate documents with your Attorney at least every 5 years and make sure you follow your Attorney’s advice on Beneficiary assignments.

·       Review all of your insurance coverage annually to make sure the pricing is competitive and you have adequate coverage.

·       Get Disability Insurance if your employer does not provide it. If your employer does provide it, thank them! It is hard to get it privately and it can be expensive.

·       If you own a business, please do not wing it. If you have partners, get a Buy sell Agreement and fund it so that in the event of a disability or a death, it pays out the money. I have assisted two widows in this process so far. It can be ugly without a funded Buy Sell Agreement.

·       If you own a business and have no partners, buy life insurance to protect your family. Your business will probably be worthless unless your family can sell it within 30 days.

·       Build a liquid reserve fund for emergencies. They will happen. It can take months to find a job if you lose one. If you lose one during an economic downturn, your investments may be worth considerably less at that time.  It is a bad idea to rely solely on a 401(k) plan or IRA at that time. Anything you take out will be subject to tax (and penalties if you are under 59.5 and do not qualify for one of the exceptions).

·       Accept that denial is not a planning strategy. Long Term Care is an inevitable part of aging. Be realistic and consider getting Long Term Care Insurance.

·       Only invest in stock related investments if you plan to keep invested for ten years or more. If you need the money back in the next few years- stay in an online savings account instead. You have to be prepared to ride out an extended (3 years or more) downturn without selling.

I always tell my clients to plan for the worst but hope for the best. Following some of these tips can help you, and your loved ones, weather the inevitable storm.

If you have additional questions, please feel free to call my office at 201-843-0044 or check out our website at:

www.wattersfinancial.com

Is it time for a lifeboat drill for your Life Insurance and Estate Planning?

Is it time for a lifeboat drill for your Life Insurance and Estate Planning?

Cruise ships often have lifeboat drills, which are a little bit sobering when you are in the middle of the North Atlantic. However, they help you prepare for a potential emergency that could happen. I find that it's a good idea to do the same thing with your life insurance and your estate planning. I often have these types of “drills” with my clients and I'm often surprised to see how poorly prepared people are.

Many times people think that they have life insurance when they don't. Also, I have found that they don’t know who the policy insures and may think that the policy covers the husband when it really only covers the wife or visa versa. Often, they don't have the actual insurance policies, merely some old statements from several years ago. This creates a mess for your family.

Insurance companies love to not pay claims.  There are often media stories about the many life insurance policies that could have been paid out that don't get paid out because the families didn’t even know the policy existed. Everybody should have a copy of their current life insurance policy stored in a safe place. With that policy, they should keep the most recent statements for the policies as well. 

I am often surprised to find that many small business owners have a cavalier attitude about “what if” planning. They often have no succession plan or Buy-Sell Agreement for their business.  Many times, they haven't even given their spouse access to their business files or business financials. It doesn't do you much good if your wife can’t sign checks on your behalf if you are disabled or die. I have been there for several clients who have died and have counseled many widows over the last 30 years. One Attorney I respect, Frank Brunetti, Esq, often says “you only die once, you might as well do it right”. I know it's an obvious point but, everybody should have a Last Will and Testament, a Durable Power of Attorney and Health Care Proxy document on file and you should know where those documents are stored.  Sometimes people store estate documents directly with their attorneys. Another option is to store them in your home. If you don't have the originals, it can add thousands of dollars to the estate process.

I am also not a fan of self-made estate planning documents. The ones I have seen were not done correctly; with scratch outs, no signatures, no witness affidavits etc. Would you self-diagnose and operate on your own Appendectomy?  The cost of getting your documents created should be viewed as a cost that is spread out over many years. It is a comfort to know that they have been done right.

Are your beneficiaries up to date? This is also an area that needs to be addressed. I recommend reviewing the beneficiaries every two years to make sure that they still match your wishes. Many people do not realize that the Last Will and Testament does not govern assets that have beneficiaries (retirement accounts, life insurance, annuities) unless you mention your Last Will and Testament in the beneficiary assignment.

Finally, I often recommend clients create short Voice Memos on their cell phone to cover different estate topics that are important for this type of planning. Here are some examples of short voice memo topics:

·       Who to call and how to deal with short term cash flow after death.

·       Where are the estate documents and life insurance policies stored

·       Where you have banking and investment accounts.

These memos should be updated periodically to make it as easy as possible for your loved ones to access.

If you have additional questions, please feel free to call my office at 201-843-0044 or check out our website at:

www.wattersfinancial.com

for additional information concerning Financial Planning and Wealth Management topics.

How Much Do You Know About Social Security Retirement Benefits?

Quiz: How Much Do You Know About Social Security Retirement Benefits?

Social Security is an important source of retirement income for millions of Americans, but how much do you know about this program? Test your knowledge, and learn more about your retirement benefits, by answering the following questions.

Questions

1. Do you have to be retired to collect Social Security retirement benefits?

a. Yes

b. No

2. How much is the average monthly Social Security benefit for a retired worker?

a. $1,360

b. $1,493

c. $1,585

d. $1,723

3. For each year you wait past your full retirement age to collect Social Security, how much will your retirement benefit increase?

a. 5%

b. 6%

c. 7%

d. 8%

4. How far in advance should you apply for Social Security retirement benefits?

a. One month before you want your benefits to start.

b. Two months before you want your benefits to start.

c. Three months before you want your benefits to start.

5. Is it possible for your retirement benefit to increase once you start receiving Social Security?

a. Yes

b. No

Answers

1. b. You don't need to stop working in order to claim Social Security retirement benefits. However, if you plan to continue working and you have not yet reached full retirement age (66 to 67, depending on your year of birth), your Social Security retirement benefit may be reduced if you earn more than a certain annual amount. In 2017, $1 in benefits will be deducted for every $2 you earn above $16,920. In the calendar year in which you reach your full retirement age, a higher limit applies. In 2017, $1 in benefits will be deducted for every $3 you earn above $44,880. Once you reach full retirement age, your earnings will not affect your Social Security benefit.

2. a. Your benefit will depend on your earnings history and other factors, but according to the Social Security Administration, the average estimated monthly Social Security benefit for a retired worker (as of January 2017) is $1,360.¹

3. d. Starting at full retirement age, you will earn delayed retirement credits that will increase your benefit by 8% per year up to age 70. For example, if your full retirement age is 66, you can earn credits for a maximum of four years. At age 70, your benefit will then be 32% higher than it would have been at full retirement age.

4. c. According to the Social Security Administration, you should ideally apply three months before you want your benefits to start. You can generally apply online.

5. a. There are several reasons why your benefit might increase after you begin receiving it. First, you'll generally receive annual cost-of-living adjustments (COLAs). Second, your benefit is recalculated every year to account for new earnings, so it might increase if you continue working. Your benefit might also be adjusted if you qualify for a higher spousal benefit once your spouse files for Social Security.

For more information, visit the Social Security Administration website, ssa.gov.

How can you save for retirement even if you don't have a 401(k) plan?

How can you save for retirement even if you don't have a 401(k) plan?

A company’s 401(k) plan is a great savings tool. An employer’s 401(k) plan that offers a match can jumpstart your savings. Having a savings plan at work makes it easier to stay committed to saving money on a regular basis. Hopefully, your employer has done the due diligence necessary and has chosen an optimal mix of investments at a reasonable fee structure.

If you do not have a 401(k) plan at work or you are self-employed, you can still save money for your retirement. I recommend a 15% savings goal. You can start with incremental goals. If you are saving nothing, I recommend saving 5%. If you are already saving 5%, I recommend that you increase it to 10%. If you are saving 10% that is great and perhaps you can increase it to 15%. Reviewing cash flow and budgeting helps identify where the funds are that can possibly be redirected to savings.

Once you decide on the monetary amount you want to save on a regular basis, the next decision is where to put the money. If you do not have a 401(k) at work and are self-employed, you have a range of retirement plan options to choose from. You can consider the SEP IRA, the Profit Sharing Plan, the Money Purchase Plan, the Simple IRA, the Defined Benefit Plan or the 401(k). All have their own pros and cons to consider. You can check out the IRS Publication 560 for more information on these plans.

If you do not have a 401(k) plan at work and are not self-employed, you can consider the following options:

·       Fund the IRA of your choice; Traditional IRA or Nondeductible IRA. If you are not covered by a retirement plan, you can fund a Traditional IRA up to $5,500 per year or $6,500 if you are over age 50. If you are covered by a retirement plan and your income is below the income guidelines, you can still contribute to the Traditional IRA. For the 2017 tax year, below are the adjusted gross income (AGI) limits to take a Traditional IRA deduction if you are covered by an employer's retirement plan. If your AGI is less than the lower end of the range, you are entitled to a full deduction of your Traditional IRA contributions. If your AGI is above the higher limit, you cannot deduct any Traditional IRA contributions. Finally, if your AGI falls within the range, you are allowed a partial deduction. If your income is over these amounts and you are covered by an employer's retirement plan, you can still contribute to a Nondeductible IRA instead.

Tax Filing Status	2016 Tax Year	2017 Tax Year
Single or Head of Household	$61,000-$71,000	$62,000-$72,000
Married Filing Jointly	$98,000-$118,000	$99,000-$119,000
Married Filing Separately	$0-$10,000	$0-$10,000

·     Fund a Roth IRA. Not everyone is allowed to directly contribute to a Roth IRA. In order to make a contribution, your AGI must be below a certain threshold that depends on your filing status.

 

Tax Filing Status	2016 Tax Year	2017 Tax Year
Single	$117,000-$132,000	$118,000-$133,000
Married Filing Jointly	$184,000-$194,000	$186,000-$196,000
Married Filing Separately	$0-$10,000	$0-$10,000

·       Consider using a Variable Annuity. Variable Annuities offer similar benefits to a Nondeductible IRA but usually limit the investment choices offered. Also, some Variable Annuities have very high expense and surrender charges so be sure to take that under consideration.

• If you have a home with a 30 year mortgage, consider converting it to a 15 year mortgage. Not only will you pay off your loan faster but you will also qualify for a lower interest rate. Typically, a 15 year mortgage is 15% to 20% more than a 30 year mortgage. This is not because it is a bad deal. Instead it is because you are paying off more principal each month. It is truly amazing to see how much interest you will save overtime by paying the loan off in 15 years instead of 30 years. If you can't afford to go for a 15 year mortgage then consider paying one extra payment per year. On a 30 year mortgage, this can save you six to seven years of payments. If you can't afford to do that, consider rounding up your payment by an extra $100 a month. Paying down extra principal is another form of saving. By paying off the loan faster, you are paying substantially less interest.

• Consider funding a brokerage account made up of stock index funds and municipal bond funds. This is a very tax efficient way to invest and you have liquidity on the money. You can sell the investments at any time if you need the money. 

If you have additional questions, please feel free to call my office at 201-843-0044 or check out our website at www.wattersfinancial.com for additional information concerning Financial Planning and Wealth Management topics.

Timothy Watters, CFP®

Saving money is always a challenge. Find Out How to do it

Saving money is always a challenge. The first step to setting up a savings program is to find out how you are currently spending your money. To start, I would encourage you to use Quicken or mint.com which will help you get a better handle on where your money is going. Once you know what you are spending your money on, you are in a better position to redirect some of that money towards savings.

A great exercise I use is to have couples look at each item as essential or discretionary. Once you decide which items are discretionary, I recommend that each person separately look at the discretionary items and rank them in importance from 1 to 3. Then, I recommend that they go to a public place like Starbucks or a restaurant and look at each other's list (everything stays more civil if you meet in a public place). The ground rules are that if an item is ranked 1 in importance for one person but a 3 in importance for the other partner, it is off-limits. However, if there is an item that is a 2 or 3 for either person, you can definitely consider redirecting that money towards savings.

Another recommendation is to open multiple online savings accounts for different purposes. Looking at your last year credit card bills will give you a great idea of what short term spending items are recurring yearly. For example, consider setting up a slush fund for vacations, holiday spending, etc. An automatic monthly savings plan that you can fund regularly can help you be more disciplined in your savings activity. Paying for items or occasions in advance will help you avoid building up credit card debt and less likely to sabotage your long-term savings plans.

Another recommendation is to switch to a 15 year mortgage instead of a 30 year mortgage. I recommend this with clients who have already had a mortgage for a few years. Often by then, they have a lower amount of principal on their loan and it may not be a substantial difference to pay. This is a great move for clients to make when interest rates have come down since they first took out the mortgage.

I also advise you to round up your mortgage payment to the next round number. If you can afford to, I encourage you to pay one extra payment per year on a 30 year mortgage. It is surprising how quickly you can make a difference if you pay one extra payment per year on a 30 year mortgage. Paying an extra principal each year can reduce the time it takes to pay off the mortgage considerably.

If you would like to discuss this further, please feel free to call my office at 201-843-0044. Also, I recommend you check out our website at:

www.wattersfinancial.com for further information concerning financial planning and wealth management topics.

Timothy Watters, CFP

Should you rollover a 401(K) plan into an IRA and should you rollover old 401(K) s into your new employer’s 401(k) plan?

Should you rollover a 401(K) plan into an IRA and should you rollover old 401(K) s into your new employer’s 401(k) plan?

Many people have 401(k) plan accounts from previous employers and they are not sure whether they should roll these funds over to their new employer’s 401(k) plan or to rollover these funds to an IRA account. When trying to decide which option to choose, I recommend looking at the quality of the investments that are held within your new employer’s 401(k) plan and the fees associated with the plan.

Generally, if the employee works for a very large company, they will probably have a good selection of investments available. However, if the employee has left a big company and is now working for a small company, they may be better off leaving their 401(k) plan assets within the former employer’s 401(K) plan.  

Small companies often charge their employees for record-keeping expenses in addition to mutual fund management fees. Small company plans may also not qualify for institutional pricing on the mutual funds held in the plan. Also, on some plans, the employees may pay sales charges on purchases as well.

Assuming that the current plan has good investment choices and reasonable fees, it is often easier to have one custodian holding all of the former retirement assets from previous employers. It can make asset allocation easier as well. However, some people do not want to roll the funds together because they are worried about the viability of the custodians after the 2008 credit crisis and may want to keep the assets separated for that reason. This is a personal decision.

In addition, the employee may not have enough money in the new plan to qualify for the maximum loan amount. By consolidating the previous 401(k) balances into the plan, they may be able to take advantage of the maximum loan amount of 50% of the account value (up to $50,000).

Employees must use caution when a broker recommends that they roll over their 401(k) assets into an IRA. Their incentive may only be to free up the assets to invest. Again, if the employee is with a large employer plan, it probably has institutional pricing and the funds inside the plan have probably been vetted by an investment committee. Moving the money to the IRA may result in higher fees and less desirable investments that may not necessarily be in the employee’s best interest.

The bulk of my practice is working with clients on either an hourly fee basis or through advisory fees. While I still maintain an insurance license, I rarely use it any longer after 30 years of being in this business.

If you have additional questions, please feel free to call my office at 201-843-0044. Also, check out our website at:

www.wattersfinancial.com

Timothy Watters, CFP