An Abney Associates Ameriprise Financial Advisor: Ymmärtäminen vaara

An Abney Associates Ameriprise Financial Advisor Ymmärtäminen vaara

Henkilökohtainen rahoittaa muutamia termejä ovat yhtä tärkeitä tai käyttäämahdollisimman usein, "riski." Kuitenkin muutamia ehtoja kuin epätäsmällisestimääritellään. Yleensä kun Sijoitusneuvonta tai tiedotusvälineiden puhua sijoitusriskin,niiden painopiste on historiallinen hintojen vaihtelua tai investointi käsiteltävänä.

Neuvonantajat etiketti aggressiivinen tai riskialtis investointi, joka on altis hinta kaarteetaiemmin. Oletettu epävarmuus ja ennakoimattomuus tämän investoinnin tulevastanähdään riski. Ominaista hintoja, jotka on suppeampi valikoima huippujen ja laaksojenhistoriallisesti siirtänyt varat pidetään enemmän konservatiivinen. Valitettavasti tämäselitys on harvoin tarjolla, niin ei usein ole selvää, että volatiliteetti mittapuu käytetäänmittaamaan riskit.

Ennen kuin tutustut riski enemmän muodollisesti, elliptinen on hyviä. Käytännön tasollavoimme sanoa, että riski on mahdollisuus sijoituksesi tarjoavat alhaisemmat tuototodotettua tai jopa menetys koko sijoituksen. Olet luultavasti myös ovat huolissaanmahdollisuudet eivät täytä oman investoinnin tavoitteet. Loppujen lopuksi oletinvestoivat nyt niin voit tehdä jotain myöhemmin (esimerkiksi maksaa college taieläkkeelle mukavasti). Jokainen investointi kantaa jonkin verran riskeistä, rehtori,menettämisen ja ei ole mitään takeita, että investointistrategia on onnistunut. Siksi onjärkevää ymmärtää erilaisia riskejä sekä määrin riski, että haluat ottaa ja oppia tapojahallita sitä.

MITÄ TODENNÄKÖISESTI JO TIEDÄT RISKI

Vaikka olet ehkä koskaan ajatellut tästä aiheesta, olet luultavasti jo perehtynytmonenlaisia riski elämänkokemusta. Esimerkiksi on järkevää että skandaaleja taioikeusjuttu, joka liittyy tietty yritys todennäköisesti aiheuttaa lasku hinta yhtiönvarastossa, ainakin väliaikaisesti. Jos yhden auton yrityksen osuu kotiin ajaa uusi malli,joka voi olla huono uutinen kilpailevien autonvalmistajat. Sen sijaan yleisen taloudellisentaantuman ja osakemarkkinoiden lasku saattaa vahingoittaa useimmat yritykset janiiden osakkeiden hinnat paitsi teollisuudessa.

On kuitenkin monia erilaisia riski on tietoinen. Volatiliteetti on hyvä paikka aloittaa, kuntarkastelemme riskitekijöitä tarkemmin.

MITÄ TEKEE VOLATILITEETTI VAARALLISTA?

Oletetaan että olisi sijoittanut $10000 kussakin kaksi rahastot 20 vuotta sitten ja ettämolemmat rahastot tuotettu keskimääräinen vuotuinen tuotto on 10 prosenttia.Kuvittele että yksi hypoteettinen varat tasaisesti Freddy, palannut juuri 10 prosenttiajoka vuosi. Vuosittaisen palauttaa toisen rahaston Jekyll & Hyde vuorotellen--5prosenttia vuodessa, 15 prosenttia Toiseksi 5 prosenttia jälleen kolmantena vuonna janiin edelleen. Mitä nämä kaksi investointia kannattaisi 20 vuoden lopussa?

On ilmeistä, jos keskimääräinen vuotuinen tuotto kaksi investoinnit ovat identtiset,lopullisten arvojen olevan, liian. Mutta tämä on tapaus, jossa intuitio on väärin. Jos olettontti 20 vuotta investointien tuoton tässä esimerkissä kaavion, näet tasainen Freddylopullinen arvo on yli 2000 dollaria enemmän muuttujan palauttaa Jekyll & Hyde. Vajesaa paljon pahempi, jos sinun laajentaa vuosittaista vaihtelua (esimerkiksi plus tai miinus 15 prosenttia, plus tai miinus 5 prosentin sijaan). Tässä esimerkissä kuvataanyksi investointeja hintavaihtelut vaikutuksia: lyhyellä aikavälillä saatavien tuottojen ovatvedä pitkän aikavälin kasvua. (Huomautus: Tämä on hypoteettinen esimerkki ja eivastaa mitään erityisiä investointeja suorituskyky. Tässä esimerkissä oletetaansijoitetaan kaikki tulot ja ei pidä veroja tai transaktiokustannuksia.)

Vaikka historiallinen tuotto ei ole tae tulevasta, historiallisesti lyhyen aikavälinhintavaihtelujen negatiivinen vaikutus on vähennetty pitämällä investointien ansiosta.Mutta luottaa pitempi pitoaika tarkoittaa, että lisää suunnittelua kutsutaan. Sinun eipitäisi sijoittaa varoja, joita tarvitaan pian haihtuvien investoinniksi. Muussatapauksessa voit joutua myymään Investointi nostaa käteistä sijoituksen ollessatappiolla.

529 plannen: de ins en outs van bijdragen en uitbetalingen

 Sectie 529 plannen krachtige college besparingen instrumenten kunnen zijn, maar je moet begrijpen hoe uw plan werkt voordat u van het profiteren kunt. Dit betekent onder andere dingen, zich vertrouwd te maken met de finesses van bijdragen en uitbetalingen. Een beetje kennis kan u geld besparen en uw kansen op het bereiken van de educatieve doelen die u hebt ingesteld voor uw kinderen te maximaliseren. Maar houd in gedachten dat alle investeren risico's houdt, met inbegrip van het mogelijke verlies van hoofdsom, en kan er geen garantie dat elke investeringsstrategie succesvol zal zijn.

HOEVEEL KUNT U BIJDRAGEN?

Om te kwalificeren als een 529 plan onder federale regels, moet een programma staat bijdragen boven de verwachte kosten van een begunstigde gekwalificeerde onderwijs kosten niet accepteren. In één keer, betekende dit vijf jaar van collegegeld, vergoedingen en kamer en karton aan het duurste college onder het plan, uit hoofde van de federale overheid "safe harbor" richtsnoer. Nu, echter, Staten interpreteren deze richtlijn meer in het algemeen, herziening van hun grenzen om weer te geven van de kosten van het bijwonen van de duurste scholen in het land en met inbegrip van de kosten van de graduate school. Dientengevolge, de meeste staten hebben bijdrage grenzen van 300.000 dollar en up (en de meeste staten zal verhogen hun grenzen elk jaar te houden met stijgende studiekosten).

Een staat limiet geldt voor beide soorten 529 plan: prepaid collegegeld plan of college spaarplan. Voor een prepaid collegegeld plan is de Braziliaanse limiet een beperking van de totale bijdragen. Bijvoorbeeld, als de Braziliaanse grens $300.000 is, kan niet u bijdragen meer dan 300.000 dollar. Aan de andere kant, beperkt een spaarplan college de waarde van de account voor een begunstigde. Wanneer de waarde van de account (met inbegrip van bijdragen en beleggingsopbrengsten) van de staat limiet bereikt, kunnen geen meer bijdragen geaccepteerd worden. Bijvoorbeeld, veronderstel dat de Braziliaanse grens is $300.000. Als u een bijdrage 250.000 dollar leveren en de account $50.000 van inkomsten is, u zal niet zitten kundig bijdragen meer--de totale waarde van de account de 300.000 dollar limiet heeft bereikt.

Deze grenzen zijn per begunstigde, dus als u en uw moeder elk een account voor uw kind in het hetzelfde plan instellen, uw gecombineerde bijdragen de limiet van plan kunnen niet overschrijden. Als u accounts in meer dan één staat hebt, vraagt elk plan beheerder als bijdragen aan andere plannen tegen de staat maximaal tellen. Sommige plannen wellicht ook een bijdrage te beperken, zowel in eerste instantie en elk jaar.

Opmerking: In het algemeen, bijdrage grenzen niet staat lijnen oversteken. Bijdragen aan een lidstaat 529 plan niet tellen mee voor de levensduur bijdrage limiet in een andere staat. Maar check de regels van uw wettelijke pensioenregeling om erachter te komen als dat plan bijdragen van andere lidstaten plannen in aanmerking neemt bij het vaststellen van als de levenslange bijdrage limiet heeft bereikt.

HOE WEINIG KUNT U BEGINNEN MET?

Sommige plannen hebben minimumbijdrage eisen. Dit zou kunnen betekenen een of meer van de volgende handelingen uit: (1) u moet maken een minimum storting openen wanneer u uw account opent, (2) elk van uw bijdragen moet ten minste een bepaald bedrag, of (3) u moet ten minste een bepaalde bedrag jaarlijks bij te dragen. Maar sommige plannen kunnen afzien of lager hun minima (bijvoorbeeld de opening borg) als u uw account voor automatische loonlijst aftrek of bankrekening afschrijvingen ingesteld. Sommige zal ook afzien van vergoedingen als u een dergelijke regeling ingesteld. (Een groeiend aantal bedrijven laten hun werknemers bijdragen aan college spaarplannen via loonlijst aftrek.) Net als bijdrage grenzen, minima variëren van plan, dus zorg ervoor dat de beheerder van uw plan vragen.

 

 

An Abney Associates Ameriprise Financial Advisor on Qualified and Nonqualified Annuities

Finance

You may have heard that IRAs and employer-sponsored plans (e.g., 401(k)s) are the best ways to invest for retirement. That's true for many people, but what if you've maxed out your contributions to those accounts and want to save more? An annuity may be a good investment to look into.

GET THE LAY OF THE LAND

An annuity is a tax-deferred investment contract. The details on how it works vary, but here's the general idea. You invest your money (either a lump sum or a series of contributions) with a life insurance company that sells annuities (the annuity issuer). The period when you are funding the annuity is known as the accumulation phase. In exchange for your investment, the annuity issuer promises to make payments to you or a named beneficiary at some point in the future. The period when you are receiving payments from the annuity is known as the distribution phase. Chances are, you'll start receiving payments after you retire.

UNDERSTAND YOUR PAYOUT OPTIONS

Understanding your annuity payout options is very important. Keep in mind that payments are based on the claims-paying ability of the issuer. You want to be sure that the payments you receive will meet your income needs during retirement. Here are some of the most common payout options:

-          You surrender the annuity and receive a lump-sum payment of all of the money you have accumulated.

-          You receive payments from the annuity over a specific number of years, typically between 5 and 20. If you die before this "period certain" is up, your beneficiary will receive the remaining payments.

-          You receive payments from the annuity for your entire lifetime. You can't outlive the payments (no matter how long you live), but there will typically be no survivor payments after you die.

-          You combine a lifetime annuity with a period certain annuity. This means that you receive payments for the longer of your lifetime or the time period chosen. Again, if you die before the period certain is up, your beneficiary will receive the remaining payments.

-          You elect a joint and survivor annuity so that payments last for the combined life of you and another person, usually your spouse. When one of you dies, the survivor receives payments for the rest of his or her life.

When you surrender the annuity for a lump sum, your tax bill on the investment earnings will be due all in one year. The other options on this list provide you with a guaranteed stream of income (subject to the claims-paying ability of the issuer). They're known as annuitization options because you've elected to spread payments over a period of years. Part of each payment is a return of your principal investment. The other part is taxable investment earnings. You typically receive payments at regular intervals throughout the year (usually monthly, but sometimes quarterly or yearly). The amount of each payment depends on the amount of your principal investment, the particular type of annuity, the length of the payout period, your age if payments for lifetime payments, and other factors.

CONSIDER THE PROS AND CONS

An annuity can often be a great addition to your retirement portfolio. Here are some reasons to consider investing in an annuity:

-          Your investment earnings are tax deferred as long as they remain in the annuity. You don't pay income tax on those earnings until they are paid out to you.

-          An annuity may be free from the claims of your creditors in some states.

-          If you die with an annuity, the annuity's death benefit will pass to your beneficiary without having to go through probate.

-          Your annuity can be a reliable source of retirement income, and you have some freedom to decide how you'll receive that income.

-          You don't have to meet income tests or other criteria to invest in an annuity.

-          You're not subject to an annual contribution limit, unlike IRAs and employer-sponsored plans. You can contribute as much or as little as you like in any given year.

-          You're not required to start taking distributions from an annuity at age 70½ (the required minimum distribution age for IRAs and employer-sponsored plans). You can typically postpone payments until you need the income.

But annuities aren't for everyone. Here are some potential drawbacks:

-          Contributions to nonqualified annuities are made with after-tax dollars and are not tax deductible.

-          Once you've elected to annuitize payments, you usually can't change them, but there are some exceptions.

-          You can take your money from an annuity before you start receiving payments, but your annuity issuer may impose a surrender charge if you withdraw your money within a certain number of years (e.g., seven) after your original investment.

-          You may have to pay other costs when you invest in an annuity (e.g., annual fees, investment management fees, insurance expenses).

-          You may be subject to a 10 percent federal penalty tax (in addition to any regular income tax) if you withdraw your money from an annuity before age 59½, unless you meet one of the exceptions to this rule.

-          Investment gains are taxed as ordinary income tax rates, not at the lower capital gains rate.

CHOOSE THE RIGHT TYPE OF ANNUITY

If you think that an annuity is right for you, your next step is to decide which type of annuity. Overwhelmed by all of the annuity products on the market today? Don't be. In fact, most annuities fit into a small handful of categories. Your choices basically revolve around two key questions.

First, how soon would you like annuity payments to begin? That probably depends on how close you are to retiring. If you're near retirement or already retired, an immediate annuity may be your best bet. This type of annuity starts making payments to you shortly after you buy the annuity, typically within a year or less. But what if you're younger, and retirement is still a long-term goal? Then you're probably better off with a deferred annuity. As the name suggests, this type of annuity lets you postpone payments until a later time, even if that's many years down the road.

Second, how would you like your money invested? With a fixed annuity, the annuity issuer determines an interest rate to credit to your investment account. An immediate fixed annuity guarantees a particular rate, and your payment amount never varies. A deferred fixed annuity guarantees your rate for a certain number of years; your rate then fluctuates from year to year as market interest rates change. A variable annuity, whether immediate or deferred, gives you more control and the chance to earn a better rate of return (although with a greater potential for gain comes a greater potential for loss). You select your own investments from the subaccounts that the annuity issuer offers. Your payment amount will vary based on how your investments perform.

Note: Variable annuities are sold by prospectus. You should consider the investment objectives, risk, charges and expenses carefully before investing. The prospectus, which contains this and other information about the variable annuity, can be obtained from the insurance company issuing the variable annuity or from your financial professional. You should read the prospectus carefully before you invest.

SHOP AROUND

It pays to shop around for the right annuity. In fact, doing a little homework could save you hundreds of dollars a year or more. Why? Rates of return and costs can vary widely between different annuities. You'll also want to shop around for a reputable, financially sound annuity issuer. There are firms that make a business of rating insurance companies based on their financial strength, investment performance, and other factors. Consider checking out these ratings.

An Abney Associates Ameriprise Financial Advisor on How Student Loans Impact your Credit

Finance

If you've finished college within the last few years, chances are you're paying off your student loans. What happens with your student loans now that they've entered repayment status will have a significant impact--positive or negative--on your credit history and credit score.

IT'S PAYBACK TIME

When you left school, you enjoyed a grace period of six to nine months before you had to begin repaying your student loans. But they were there all along, sleeping like an 800-pound gorilla in the corner of the room. Once the grace period was over, the gorilla woke up. How is he now affecting your ability to get other credit?

One way to find out is to pull a copy of your credit report. There are three major credit reporting agencies, or credit bureaus--Experian, Equifax, and Trans Union--and you should get a copy of your credit report from each one. Keep in mind, though, that while institutions making student loans are required to report the date of disbursement, balance due, and current status of your loans to a credit bureau, they're not currently required to report the information to all three, although many do.

If you're repaying your student loans on time, then the gorilla is behaving nicely, and is actually helping you establish a good credit history. But if you're seriously delinquent or in default on your loans, the gorilla will turn into King Kong, terrorizing the neighborhood and seriously undermining your efforts to get other credit.

WHAT'S YOUR CREDIT SCORE?

Your credit report contains information about any credit you have, including credit cards, car loans, and student loans. The credit bureau (or any prospective creditor) may use this information to generate a credit score, which statistically compares information about you to the credit performance of a base sample of consumers with similar profiles. The higher your credit score, the more likely you are to be a good credit risk, and the better your chances of obtaining credit at a favorable interest rate.

Many different factors are used to determine your credit score. Some of these factors carry more weight than others. Significant weight is given to factors describing:

  • Your payment history, including whether you've paid your obligations on time, and how long any delinquencies have lasted
  • Your outstanding debt, including the amounts you owe on your accounts, the different types of accounts you have (e.g., credit cards, installment loans), and how close your balances are to the account limits
  • Your credit history, including how long you've had credit, how long specific accounts have been open, and how long it has been since you've used each account
  • New credit, including how many inquires or applications for credit you've made, and how recently you've made them

STUDENT LOANS AND YOUR CREDIT SCORE

Always make your student loan payments on time. Otherwise, your credit score will be negatively affected. To improve your credit score, it's also important to make sure that any positive repayment history is correctly reported by all three credit bureaus, especially if your credit history is sparse. If you find that your student loans aren't being reported correctly to all three major credit bureaus, ask your lender to do so.

But even when it's there for all to see, a large student loan debt may impact a factor prospective creditors scrutinize closely: your debt-to-income ratio. A large student loan debt may especially hurt your chances of getting new credit if you're in a low-paying job, and a prospective creditor feels your budget is stretched too thin to make room for the payments any new credit will require.

Moreover, if your principal balances haven't changed much (and they don't in the early years of loans with long repayment terms) or if they're getting larger (because you've taken a forbearance on your student loans and the accruing interest is adding to your outstanding balance), it may look to a prospective lender like you're not making much progress on paying down the debt you already have.

GETTING THE MONKEY OFF YOUR BACK

Like many people, you may have put off buying a house or a car because you're overburdened with student loan debt. So what can you do to improve your situation? Here are some suggestions to consider:

  • Pay off your student loan debt as fast as possible. Doing so will reduce your debt-to-income ratio, even if your income doesn't increase.
  • If you're struggling to repay your student loans and are considering asking for forbearance, ask your lender instead to allow you to make interest-only payments. Your principal balance may not go down, but it won't go up, either.
  • Ask your lender about a graduated repayment option. In this arrangement, the term of your student loan remains the same, but your payments are smaller in the beginning years and larger in the later years. Lowering your payments in the early years may improve your debt-to-income ratio, and larger payments later may not adversely affect you if your income increases as well.
  • If you're really strapped, explore extended or income-sensitive repayment options. Extended repayment options extend the term you have to repay your loans. Over the longer term, you'll pay a greater amount of interest, but your monthly payments will be smaller, thus improving your debt-to-income ratio. Income-sensitive plans tie your monthly payment to your level of income; the lower your income, the lower your payment. This also may improve your debt-to-income ratio.
  • If you have several student loans, consider consolidating them through a student loan consolidation program. This won't reduce your total debt, but a larger loan may offer a longer repayment term or a better interest rate. While you'll pay more total interest over the course of a longer term, you'll also lower your monthly payment, which in turn will lower your debt-to-income ratio.
  • If you're in default on your student loans, don't ignore them--they aren't going to go away. Student loans generally cannot be discharged even in bankruptcy. Ask your lender about loan rehabilitation programs; successful completion of such programs can remove default status notations on your credit reports.

An Abney Associates Ameriprise Financial Advisor on Understanding Long-Term Care Insurance

Finance

IT'S A FACT: People today are living longer. Although that's good news, the odds of requiring some sort of long-term care increase as you get older. And as the costs of home care, nursing homes, and assisted living escalate, you probably wonder how you're ever going to be able to afford long-term care. One solution that is gaining in popularity is long-term care insurance (LTCI).

WHAT IS LONG-TERM CARE?

Most people associate long-term care with the elderly. But it applies to the ongoing care of individuals of all ages who can no longer independently perform basic activities of daily living (ADLs)--such as bathing, dressing, or eating--due to an illness, injury, or cognitive disorder. This care can be provided in a number of settings, including private homes, assisted-living facilities, adult day-care centers, hospices, and nursing homes.

WHY YOU NEED LONG-TERM CARE INSURANCE (LTCI)

Even though you may never need long-term care, you'll want to be prepared in case you ever do, because long-term care is often very expensive. Although Medicaid does cover some of the costs of long-term care, it has strict financial eligibility requirements--you would have to exhaust a large portion of your life savings to become eligible for it. And since HMOs, Medicare, and Medigap don't pay for most long-term care expenses, you're going to need to find alternative ways to pay for long-term care. One option you have is to purchase an LTCI policy.

However, LTCI is not for everyone. Whether or not you should buy it depends on a number of factors, such as your age and financial circumstances. Consider purchasing an LTCI policy if some or all of the following apply:

  • You are between the ages of 40 and 84
  • You have significant assets that you would like to protect
  • You can afford to pay the premiums now and in the future
  • You are in good health and are insurable

HOW DOES LTCI WORK?

Typically, an LTCI policy works like this: You pay a premium, and when benefits are triggered, the policy pays a selected dollar amount per day (for a set period of time) for the type of long-term care outlined in the policy.

Most policies provide that certain physical and/or mental impairments trigger benefits. The most common method for determining when benefits are payable is based on your inability to perform certain activities of daily living (ADLs), such as eating, bathing, dressing, continence, toileting (moving on and off the toilet), and transferring (moving in and out of bed). Typically, benefits are payable when you're unable to perform a certain number of ADLs (e.g., two or three).

Some policies, however, will begin paying benefits only if your doctor certifies that the care is medically necessary. Others will also offer benefits for cognitive or mental incapacity, demonstrated by your inability to pass certain tests.

COMPARING LTCI POLICIES

Before you buy LTCI, it's important to shop around and compare several policies. Read the Outline of Coverage portion of each policy carefully, and make sure you understand all of the benefits, exclusions, and provisions. Once you find a policy you like, be sure to check insurance company ratings from services such as A. M. Best, Moody's, and Standard & Poor's to make sure that the company is financially stable.

When comparing policies, you'll want to pay close attention to these common features and provisions:

  • Elimination period: The period of time before the insurance policy will begin paying benefits (typical options range from 20 to 100 days). Also known as the waiting period.
  • Duration of benefits: The limitations placed on the benefits you can receive (e.g., a dollar amount such as $150,000 or a time limit such as two years).
  • Daily benefit: The amount of coverage you select as your daily benefit (typical options range from $50 to $350).
  • Optional inflation rider: Protection against inflation.
  • Range of care: Coverage for different levels of care (skilled, intermediate, and/or custodial) in care settings specified in policy (e.g., nursing home, assisted living facility, at home).
  • Pre-existing conditions: The waiting period (e.g., six months) imposed before coverage will go into effect regarding treatment for pre-existing conditions.
  • Other exclusions: Whether or not certain conditions are covered (e.g., Alzheimer's or Parkinson's disease).
  • Premium increases: Whether or not your premiums will increase during the policy period.
  • Guaranteed renewability: The opportunity for you to renew the policy and maintain your coverage despite any changes in your health.
  • Grace period for late payment: The period during which the policy will remain in effect if you are late paying the premium.
  • Return of premium: Return of premium or nonforfeiture benefits if you cancel your policy after paying premiums for a number of years.
  • Prior hospitalization: Whether or not a hospital stay is required before you can qualify for LTCI benefits.
  • When comparing LTCI policies, you may wish to seek assistance. Consult a financial professional, attorney, or accountant for more information.

WHAT'S IT GOING TO COST?

There's no doubt about it: LTCI is often expensive. Still, the cost of LTCI depends on many factors, including the type of policy that you purchase (e.g., size of benefit, length of benefit period, care options, optional riders). Premium cost is also based in large part on your age at the time you purchase the policy. The younger you are when you purchase a policy, the lower your premiums will be.

An Abney Associates Ameriprise Financial Advisor: Asset Protection in Estate Planning

You're beginning to accumulate substantial wealth, but you worry about protecting it from future potential creditors. Whether your concern is for your personal assets or your business, various tools exist to keep your property safe from tax collectors, accident victims, health-care providers, credit card issuers, business creditors, and creditors of others.

To insulate your property from such claims, you'll have to evaluate each tool in terms of your own situation. You may decide that insurance and a Declaration of Homestead may be sufficient protection for your home because your exposure to a claim is low. For high exposure, you may want to create a business entity or an offshore trust to shield your assets. Remember, no asset protection tool is guaranteed to work, and you may have to adjust your asset protection strategies as your situation or the laws change.

LIABILITY INSURANCE IS YOUR FIRST AND BEST LINE OF DEFENSE

Liability insurance is at the top of any plan for asset protection. You should consider purchasing or increasing umbrella coverage on your homeowner’s policy. For business-related liability, purchase or increase your liability coverage under your business insurance policy. Generally, the cost of the premiums for this type of coverage is minimal compared to what you might be required to pay under a court judgment should you ever be sued.

A DECLARATION OF HOMESTEAD PROTECTS THE FAMILY RESIDENCE

Your primary residence may be your most significant asset. State law determines the creditor and judgment protection afforded a residence by way of a Declaration of Homestead, which varies greatly from state to state. For example, a state may provide a complete exemption for a residence (i.e., its entire value), a limited exemption (e.g., up to $100,000), or an exemption under certain circumstances (e.g., a judgment for medical bills). A Declaration of Homestead is easy to file. You pay a small fee, fill out a simple form, and file it at the registry where your deed is recorded.

DIVIDING ASSETS BETWEEN SPOUSES CAN LIMIT EXPOSURE TO POTENTIAL LIABILITY

Perhaps you work in an occupation or business that exposes you to greater potential liability than your spouse's job does. If so, it may be a good idea to divide assets between you so that you keep only the income and assets from your job, while your spouse takes sole ownership of your investments and other valuable assets. Generally, your creditors can reach only those assets that are in your name.

BUSINESS ENTITIES CAN PROVIDE TWO TYPES OF PROTECTION--SHIELDING YOUR PERSONAL ASSETS FROM YOUR BUSINESS CREDITORS AND SHIELDING BUSINESS ASSETS FROM YOUR PERSONAL CREDITORS

Consider using a corporation, limited partnership, or limited liability company (LLC) to operate the business. Such business entities shield the personal assets of the shareholders, limited partners, or LLC members from liabilities that arise from the business. The liability of these owners will be limited to the assets of the business.

Conversely, corporations, limited partnerships, and LLCs provide some protection from the personal creditors of a shareholder, limited partner, or member. In a corporation, a creditor of an individual owner is able to place a lien on, and eventually acquire, the shares of the debtor/shareholder, but would not have any rights greater than the rights conferred by the shares. In limited partnerships or LLCs, under most state laws, a creditor of a partner or member is entitled to obtain only a charging order with respect to the partner or member's interest. The charging order gives the creditor the right to receive any distributions with respect to the interest. In all respects, the creditor is treated as a mere assignee and is not entitled to exercise any voting rights or other rights that the partner or member possessed.

CERTAIN TRUSTS CAN PRESERVE TRUST ASSETS FROM CLAIMS

People have used trusts to protect their assets for generations. The key to using a trust as an asset protection tool is that the trust must be irrevocable and become the owner of your property. Once given away, these assets are no longer yours and are not available to satisfy claims against you. To properly establish an asset protection trust, you must not keep any interest in the trust assets or control over the trust.

Trusts can also protect trust assets from potential creditors of the beneficiaries of the trust. The extent to which a beneficiary's creditors can reach trust property depends on how much access the beneficiary has to the trust property. The more access the beneficiary has to the trust property, the more access the beneficiary's creditors will have. Thus, the terms of the trust are critical.

There are many types of asset protection trusts, each having its own benefits and drawbacks. These trusts include:

  • Spendthrift trusts
  • Discretionary trusts
  • Support trusts
  • Blend trusts
  • Personal trusts
  • Self-settled trusts

Since certain claims can pierce domestic protective trusts (e.g., claims by a spouse or child for support and state or federal claims), you can bolster your protection by placing the trust in a foreign jurisdiction. Offshore or foreign trusts are established under, or made subject to, the laws of another country (e.g., the Bahamas, the Cayman Islands, Bermuda, Belize, Jersey, Liechtenstein, and the Cook Islands) that does not generally honor judgments made in the United States.

A WORD ABOUT FRAUDULENT TRANSFERS

The court will ignore transfers to an asset protection trust if:

  • A creditor's claim arose before you made the transfer
  • You made the transfer with the intent to defraud a creditor
  • You incurred debts without a reasonable expectation of paying them

 

 

Abney Associates Ameriprise: Saving for Retirement and a Child's Education

Saving for retirement and a child's education at the same time

You want to retire comfortably when the time comes. You also want to help your child go to college. So how do you juggle the two? The truth is, saving for your retirement and your child's education at the same time can be a challenge. But take heart--you may be able to reach both goals if you make some smart choices now.

KNOW WHAT YOUR FINANCIAL NEEDS ARE

The first step is to determine what your financial needs are for each goal. Answering the following questions can help you get started:

For retirement:

  • How many years until you retire?
  • Does your company offer an employer-sponsored retirement plan or a pension plan? Do you participate? If so, what's your balance? Can you estimate what your balance will be when you retire?
  • How much do you expect to receive in Social Security benefits? (You can estimate this amount by using your Personal Earnings and Benefit Statement, now mailed every year by the Social Security Administration.)
  • What standard of living do you hope to have in retirement? For example, do you want to travel extensively, or will you be happy to stay in one place and live more simply?
  • Do you or your spouse expect to work part-time in retirement?

For college:

  • How many years until your child start college?
  • Will your child attend a public or private college? What's the expected cost?
  • Do you have more than one child whom you'll be saving for?
  • Does your child have any special academic, athletic, or artistic skills that could lead to a scholarship?
  • Do you expect your child to qualify for financial aid?

Many on-line calculators are available to help you predict your retirement income needs and your child's college funding needs.

FIGURE OUT WHAT YOU CAN AFFORD TO PUT ASIDE EACH MONTH

After you know what your financial needs are, the next step is to determine what you can afford to put aside each month. To do so, you'll need to prepare a detailed family budget that lists all of your income and expenses. Keep in mind, though, that the amount you can afford may change from time to time as your circumstances change. Once you've come up with a dollar amount, you'll need to decide how to divvy up your funds.

RETIREMENT TAKES PRIORITY

Though college is certainly an important goal, you should probably focus on your retirement if you have limited funds. With generous corporate pensions mostly a thing of the past, the burden is primarily on you to fund your retirement. But if you wait until your child is in college to start saving, you'll miss out on years of tax-deferred growth and compounding of your money. Remember, your child can always attend college by taking out loans (or maybe even with scholarships), but there's no such thing as a retirement loan!

IF POSSIBLE, SAVE FOR YOUR RETIREMENT AND YOUR CHILD'S COLLEGE AT THE SAME TIME

Ideally, you'll want to try to pursue both goals at the same time. The more money you can squirrel away for college bills now, the less money you or your child will need to borrow later. Even if you can allocate only a small amount to your child's college fund, say $50 or $100 a month, you might be surprised at how much you can accumulate over many years. For example, if you saved $100 every month and earned 8 percent, you'd have $18,415 in your child's college fund after 10 years. (This example is for illustrative purposes only and does not represent a specific investment.)

If you're unsure how to allocate your funds between retirement and college, a professional financial planner may be able to help you. This person can also help you select the best investments for each goal. Remember, just because you're pursuing both goals at the same time doesn't necessarily mean that the same investments will be appropriate. Each goal should be treated independently.

HELP! I CAN'T MEET BOTH GOALS

If the numbers say that you can't afford to educate your child or retire with the lifestyle you expected, you'll have to make some sacrifices. Here are some things you can do:

  • Defer retirement: The longer you work the more money you'll earn and the later you'll need to dip into your retirement savings.
  • Work part-time during retirement.
  • Reduce your standard of living now or in retirement: You might be able to adjust your spending habits now in order to have money later. Or, you may want to consider cutting back in retirement.
  • Increase your earnings now: You might consider increasing your hours at your current job, finding another job with better pay, taking a second job, or having a previously stay-at-home spouse return to the workforce.
  • Invest more aggressively: If you have several years until retirement or college, you might be able to earn more money by investing more aggressively (but remember that aggressive investments mean a greater risk of loss).
  • Expect your child to contribute more money to college: Despite your best efforts, your child may need to take out student loans or work part-time to earn money for college.
  • Send your child to a less expensive school: You may have dreamed your child would follow in your footsteps and attend an Ivy League school. However, unless your child is awarded a scholarship, you may need to lower your expectations. Don't feel guilty--a lesser-known liberal arts college or a state university may provide your child with a similar quality education at a far lower cost.
  • Think of other creative ways to reduce education costs: Your child could attend a local college and live at home to save on room and board, enroll in an accelerated program to graduate in three years instead for four, take advantage of a cooperative education where paid internships alternate with course work, or defer college for a year or two and work to earn money for college.

CAN RETIREMENT ACCOUNTS BE USED TO SAVE FOR COLLEGE?

Yes. Should they be? Probably not, most financial planners discourage paying for college with funds from a retirement account; they also discourage using retirement funds for a child's college education if doing so will leave you with no funds in your retirement years. However, you can certainly tap your retirement accounts to help pay the college bills if you need to. With IRAs, you can withdraw money penalty free for college expenses, even if you're under age 59½ (though there may be income tax consequences for the money you withdraw). But with an employer-sponsored retirement plan like a 401(k) or 403(b), you'll generally pay a 10 percent penalty on any withdrawals made before you reach age 59½ (age 55 in some cases), even if the money is used for college expenses. You may also be subject to a six month suspension if you make a hardship withdrawal. There may be income tax consequences, as well. (Check with your plan administrator to see what withdrawal options are available to you in your employer-sponsored retirement plan.)