ISAKOV Planning Group Blog
Thursday, May 21 2020
Owning life insurance gives you the peace of mind knowing that your family will be financially protected if something happened to you. But your policy isn’t a set it and forget it product and it’s important to give your life insurance policy a review once in a while. It’s not something you are thinking about on a regular basis, so it can be easy to forget. Out of sight, out of mind, right?
It’s important to perform life insurance policy reviews because as your life changes, your insurance needs may change as well. Life insurance policies should be reviewed every few years and especially after any major life changing events.
1) Marriage or Divorce
Getting married soon? Now that your family is growing and you will be sharing finances with another person, your life insurance needs may change. Many couples rely on two incomes to pay day-to-day expenses. If you died unexpectedly, your spouse would quickly feel financial struggle in addition to the emotional and physical devastation from losing you. Term life insurance will provide income replacement in the event of your spouse’s death.
Tip: Use the individual’s legal name, as in “Elizabeth Marie Bennett,” rather than “wife.” In case of a second marriage, “wife” could be interpreted either as your wife when you bought the policy or your current wife.
Are you contemplating a divorce? There are a number of financial issues to think about and life insurance should be on this list. Update your beneficiaries if necessary. There have been horror stories of people dying and never removing their ex-spouse as the primary beneficiary. If you remarry, this is also a time to review your policy.
2) Home Purchase
Did you and your partner decide to buy a new home together? Review your policy to see if your coverage amount is enough to also pay off a mortgage. Again, paying expenses is manageable with two incomes, but could your partner afford to pay for the house all alone? Especially if you have children, ensuring they can stay in the home they are familiar with can mean a lot when dealing with the death of a parent.
Maybe you’re purchasing a second home; a vacation home in Florida, for example. With all the excitement going on, don’t forget to review your life insurance. Any time your housing status changes, it’s time to review.
3) Child or Dependent
We all know that raising a child is a huge expense and making sure they are financially taken care of is a must. Anytime you add a child to your family, you want to look at your coverage. There’s always an option of purchasing an additional term life insurance policy that will carry you through your kids’ college years.
If you buy a new life insurance policy, consider adding a child rider. A child rider is an “add on” you can purchase with an individual life insurance policy that not only covers the life of your children, but it can be converted into a permanent policy later on in life without the child being required to show evidence of insurability.
Tip: If you want your minor children to receive your life insurance proceeds, you need to designate a trust as the beneficiary or name a trusted adult who will make proper decisions about the care and welfare of your children. Life insurance companies will not pay death benefit proceeds directly to minors. As your children mature, make beneficiary changes as necessary.
4) Employment Change
Did you get a promotion? Along with a big promotion, maybe you decided to get a nicer car or bigger home. Maybe this means you are now sending your children to the best private school money can buy. Do you need more life insurance coverage?
Maybe you got a new job at a different company. Did you have a group life insurance plan with your old job? What benefits does your new job offer? If life insurance isn’t one of them, you need to re-evaluate your life insurance situation.
If your new job does offer group life insurance options, find out if it’s portable—in other words, if you can bring the coverage with you if you left the company. In any case, most group life insurance policies don’t provide enough coverage that individuals with families need and owning a separate life insurance policy is a good idea.
5) New Loan
Taking out a loan means more debt. If the loan is large enough to cause financial stress to your loved ones if you die, think about modifying your policy. A car loan is a good example of an instance where you may consider reviewing your life insurance. You don’t want this debt passed on to your loved ones.
6) Beneficiary Changes
Another instance where you want to think about changing beneficiaries (besides marriage, divorce and dependents) is if your main beneficiary passes away. Many people buy life insurance while they are single and name their parents or even grandparents as beneficiaries. Or, perhaps you named someone a beneficiary because they co-signed a loan for you. Once that loan is paid off you may want to change your beneficiary designation.
7) Health or Lifestyle Changes
Have you been on a new health regime? Eating healthier and working out 30 minutes a day? Congratulations, you may qualify for new life insurance rates and it may benefit you to re-apply. Quitting smoking or lowering your cholesterol or blood pressure are just a few examples of when a health change can affect your rates for the better.
If your health declines you do not need to worry if you already have life insurance. If you have been paying your premiums and your policy is in force, a negative change in your health will not affect your rates. This is one of the most important reasons why buying life insurance sooner than later is best.
If you changed jobs or hobbies that previously were considered risky, this is another reason to consider reapplying for life insurance. Life insurance companies do require higher premiums from individuals who participate in dangerous hobbies or jobs. The company may be willing to lower your premiums if you can prove these risks no longer apply to you.
If you previously were declined or were required to pay expensive premiums because of a criminal history, this is another situation in which reapplying may be helpful. After enough time has passed since the violation, you may be able to qualify for better life insurance rates.
These aren’t the only events that could cause you to review your policy, but some of the more common ones. By actively reviewing your policy every few years, you can ensure that you have adequate coverage to meet your needs and lifestyle.
If you currently don't have any life coverage or have any additional questions about it, please don't hesitate to contact us.
Friday, May 01 2020
The Importance of Financial Literacy in the COVID-19 Pandemic
As highlighted in my recent Facebook post, April is Financial Literacy Month, and the topic of financial literacy is critical to everyone concerned about their financial security and future in the era of COVID-19.
Financial literacy can be defined as an individual’s ability to understand his or her personal finances and make informed decisions about their money. In other words, can you adequately identify the strengths and weaknesses of your financial actions and planning? Have you set financial goals and set out on a path to reach (or surpass) them? Experts estimate that only one fifth of American adults are financially literate.
Granted, there is vast uncertainty with regard to income, security, and of course, health during the COVID-19 outbreak. But getting a grip on your financial situation today could not be more important. Don’t let fear in today’s climate stop you from taking the first steps towards understanding how your finances today will hold up during and after the crisis.
For so many people, the economic downturn from COVID-19 has directly reduced their income and ability to pay their bills. Improving your financial literacy today will enable you to determine whether an existing “emergency fund” will help you through the crisis, or perhaps you will need to tap into this money in the coming weeks to pay the mortgage or rent. It certainly raises once again the importance for this type of savings.
Improving your financial literacy will enable you to quickly review unnecessary charges related to your credit cards or bank accounts. It encourages you to requote your insurance policies to see if you can obtain better rates. This is very important today, as auto insurance companies are currently calculating rebates for existing customers, because so many fewer drivers are on the road as part of sheltering in place.
With so many people living paycheck to paycheck (or today, from unemployment or stimulus check to the next one), the ability to budget, take charge of debt, and to save for the future could not be more important. Financial literacy is the road out of the crisis for many Americans.
Here’s a quick set of questions to test your own financial literacy:
Improving your financial literacy will bolster your ability to weather the COVID-19 crisis, and any other challenging scenario that may happen in the future. We’re here to help. Contact the Isakov Planning Group to learn how to increase your financial literacy and take action in this difficult time.
Wednesday, April 01 2020
Getting a Big Refund Check: What’s not to Like?
Actually, the US Treasury check you received last April and paid for your 2-week summer vacation may not be the best approach.
Think of it another way: instead of saving, investing, or pocketing all that money yourself, you are giving the federal government (and possibly the state government as well) interest-free loan.
There is no benefit to this, except perhaps that it is a form of “forced savings.” With a little discipline, you can save this money yourself throughout the year.
Here’s another way of thinking about that unintended loan to Uncle Sam. Not only do you not get any interest back, but the value of that sum you got back is actually less than what you gave them during the course of the year. That’s how inflation works. If you overpaid your income tax in 2019 to the tune of $5,000, the refund check that you receive in 2020 is actually only worth $4,936.92 because of inflation, according to the Bureau of Labor Statistics’ inflation calculator.
Isn’t this money much better in your hands week after week? For some people, it could make the difference between living with far less stress and worry about paying their bills.
At Isakov Planning Group, our advice is to change the amount of your withholding (the W-4 form) so that more of your money is in your wallet and less needlessly goes to the IRS and state treasuries. Next year’s refund will no doubt be smaller, but you will have control over how that money grows throughout the year.
Maybe that summer vacation is still the goal. If you are careful about setting aside savings automatically, you may still be able to pay for it, and have some extra money left over that would have been in the government’s hands.
If you received an unusually large tax refund from the IRS, contact me at the Isakov Planning Group. We’ll make it easy for you to keep that money every paycheck and make it work for you.
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Tuesday, March 03 2020
The Double-Tax Free Benefits of 529 College Savings Plans
The 529 college savings plan is an attractive way to save for a child’s or grandchild’s education for a number of reasons. However, one of the best arguments for opening a plan is that it is double-tax free. In some states, it may even have an additional tax benefit. Here’s why: (1) When you withdraw money from a 529 plan, the money cannot be taxed by the federal government, as long as the withdrawn money is spent on expenses associated with higher education (e.g., college tuition, books). (2) As the money grows, interest earned is not taxable. (3) In several states, the money you contribute to a 529 college savings plan may be deducted from taxable income.
However, fewer than 3% of households in the US had an active 529 account in 2018, according to government surveys, which is a bit lower than the amount in 2019. Of the wealthiest households, only 16% had a 529 account in 2018. The average amount of money in the account was $55,900 at that timenot an insignificant figure.
Although the main reason more people don’t take advantage of 529 college plans is that they are simply unaware of them, other people decide against them because of other concerns, which are mostly unjustified.
Contact an Isakov Planning Group Financial Advisor to find out more about opening a 529 college plan for your children’s education.
Monday, February 03 2020
How Do You Choose Among 401K Plans?
Whether you’re an individual in a small, midsize, or large company or small business owner, choosing how your long-term savings will meet your retirement needs is one of most important decisions you’ll make (for yourself and/or your employees). Investing in retirement plans like IRAs and 401Ks can not only help you secure your financial future, but they play a key role in creating tax savings each year you invest.
In this post, we discuss several of the notable 401K providers, each of which have significant differences. You and your financial advisor should consider these in your choice of 401K provider, but this can only be done if you’re working with an independent financial advisor. This is a very important point: As an independent entity that is not affiliated with any investment firm, Isakov Planning Group is your fiduciary. We work with each of these 401K providers, but it is our responsibility to help you choose which is the best fit for your particular situation.
All investors want an administrator with a good track record. With national name recognition and low operating costs, it becomes clear why Charles Schwab is one of the largest 401K providers in the US. In fact, many people seeking a 401K plan put low operating costs as their top priority. The company emphasizes plans with no annual fees, and other plans have very low administrative costs. In addition, participants enjoy access to all of Charles Schwab’s brokerage and banking services.
Sometimes, employers seek simplicity above everything else. One way to simplify is to have your payroll service administer your 401K plan. Paychex and ADP can provide this combined service, coordinating with 401K providers. These nationally known payroll service companies are an excellent, affordable alternative to some of the more expensive 401K providers. They also offer human resources, insurance, and tax filing services.
Though not a plan administrator, Vanguard is one of the largest mutual fund companies. With low-cost 401K investment options, including professionally-managed mutual funds and ETFs, most investors can find a Vanguard fund or ETF that matches their needs. This includes cost-effective “target date funds,” which automatically adjust the investment portfolio with an approaching retirement date. The downside is that Vanguard does not provide customer service; instead, it is handled by a 401K administrator. In other words, if your business already has a plan administrator, most of Vanguard’s services are easily integrated. That makes it one of the least costly choices for 401K investments.
Fidelity Investments is a solid choice for companies with at least 20 employees, offering a full assortment of services, including plan administration, record-keeping, and transparent mutual fund expense ratios. Fidelity’s wide range of investment choices include ETFs, mutual funds, stocks, target date funds, and bonds. And Fidelity specializes in communicating and educating investors in making each person’s best 401K choice.
If you’re looking for flexibility, American Funds would be a good place to start your search. They offer more than 360,000 401K vehicles, including growth funds, growth-and-income funds, equity-income funds, bond funds, and balanced funds.
As you can see, there are several characteristics that distinguish these excellent 401K providers. The Isakov Planning Group works with each of these 401K providers and more. Our responsibility to you is to assess your individual situation and help you find the right 401K plan provider among the very best available. It is our job as fiduciary to do this. We are not affiliated with or owned by any of these investment institutions.
We can help you decide not only on the 401K plan provider but the approach your 401K investment should take—either as your principal retirement savings vehicle or integrated with other growing retirement assets. And don’t forget about the tax savings these investment vehicles provide!
Contact the Isakov Planning Group now to help set up a new 401K plan for 2020.
Thursday, January 02 2020
Review Your 2019 Income and Tax Obligations Now!
You work hard to put away as much money as possible for your retirement, a child’s education, or other long-term goals. But taxes can eat away at those savings, right away, in the future, or even both! Tax planning is essential to keep more of what you earned and saved. And that means looking at your 2019 income before the end of the year and calculating what your tax obligation will be now. This way, you can plan to be more efficient in 2020 and beyond, creating a strategy that you can benefit from for many years.
A Common Tax Planning Mistake: Don’t Rely on Your Accountant
Many professionals, business owners, and real-estate investors learned this lesson long ago: If they wanted to optimally retain the money they earned, they needed to heed the expert advice of financial planners.
A mistake in planning for taxes could prevent businessmen and investors from being able to reinvest, adding to their accumulated wealth, and saving for the future. One common error is to rely on their accounting professionals for tax advice. This may suffice for businesspersons with great understanding of the tax code and knowledge of how it applies to their field of business or investing. However, unless the accounting group has a good deal of experience in their specific field, they could be led astray. A critical mistake in tax planning could mean you pay the US government much more than you should, setting back your financial plan a number of years.
The average investor may not understand the benefits of reinvesting or converting from a standard IRA to a Roth IRA. Any accountant can advise you to reduce your tax liability by contributing to an IRA, but that person may not be a registered investment adviser—and able to counsel you regarding the type of IRA investment that makes the most sense.
A Financial Adviser Is Your Tax Planning Resource
A financial adviser is better trained and equipped to assist with your tax planning. The reason is that financial and investment advice must consider tax implications of virtually any monetary decision. In other words, we’re talking about going beyond recommending expense deductions: Financial planners provide comprehensive tax planning strategies! This invaluable advice will help keep your taxes low into the future and address any changes in the tax law that can alter your savings strategy. Your tax advice and financial advice should go hand in hand.
Learn how a retirement savings account can be an asset to reduce taxes by $5,000, $18,000, or even $52,000. But to gain these tax advantages, contact Isakov Planning Group before December 31st. There is still time to review your financial and tax planning status and provide options to keep more of your earnings today and into the future.
Contact us today!
Tuesday, September 03 2019
Dedicated employees of a small, growing business need the security of knowing they are helping to finance their retirement. This is a key reason why some employees join one company over another. Starting a retirement plan not only helps finance your future, but it is probably the only way your employees can fund their own. Additionally, retirement fund contributions are tax-deductible as a business expense. This can mean considerable tax bill savings at the end of the year.
Small business owners have several valuable options in setting up retirement programs. Much of the choices boil down to, (1) who will be eligible for the retirement program, (2) will eligible employees be able to contribute their own money to the plan? and (3) which is most important to you, the business owner—maximizing contributions or simplifying administration of the retirement plan?
Four types of retirement plans are at the center of small business discussions:
Each of these plan types offer the potential for tax-deferred savings growth and the possibility of deducting your company contributions as a business expense. In addition, your business will be entitled to a tax credit for start-up expenses associated with setting up your first retirement plan.
In order to decide which is best for your small business, you’ll need to lay out all of the costs of administration, contribution limits, and the tax benefits of each type. Don’t make the mistake of choosing a plan that fails to deliver the best combination of costs and benefits. The US Department of Labor has published a detailed paper that compares each type of plan and is available free of charge.
Here is a basic description for each option:
Speak with our financial planning professionals at Isakov Planning Group about why a small-business retirement program is important and how the options stack up for your specific business.
Contact us for a free consultation.