part 5: life cycle issues

PART 5:LIFE CYCLE ISSUES

Chapter 18Chapter 18

Fitting the Pieces TogetherFitting the Pieces Together

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The Ingredients of The Ingredients of SuccessSuccess

It is impossible to succeed It is impossible to succeed financially unless you:financially unless you: Evaluate your financial health.Evaluate your financial health. Plan and budget.Plan and budget. Manage your cash and credit.Manage your cash and credit. Control your debt.Control your debt. Make knowledgeable consumer Make knowledgeable consumer

decisions.decisions.

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The Ingredients of The Ingredients of SuccessSuccess

It is impossible to succeed financially It is impossible to succeed financially unless you:unless you: Have adequate health, life, property, and Have adequate health, life, property, and

liability insurance.liability insurance. Understand investing principles.Understand investing principles. Make investment decisions that reflect Make investment decisions that reflect

your goals.your goals. Plan for retirement.Plan for retirement. Plan for what happens to your Plan for what happens to your

accumulated wealth and your dependents accumulated wealth and your dependents after your die.after your die.

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The Financial Life CycleThe Financial Life Cycle Recent graduates make many financial Recent graduates make many financial

decisions after leaving college. They:decisions after leaving college. They: May purchase a car and possibly a home.May purchase a car and possibly a home. Will establish credit and pay taxes.Will establish credit and pay taxes. May get married and begin a family.May get married and begin a family.

Set up an emergency fund, start saving Set up an emergency fund, start saving for your goals, and begin a retirement for your goals, and begin a retirement account.account.

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The Financial Life CycleThe Financial Life Cycle At age 19, put away $2000 at the end of At age 19, put away $2000 at the end of

each year for 7 years in an IRA that each year for 7 years in an IRA that earns 11%, and then nothing thereafter; earns 11%, and then nothing thereafter; at age 65 you will have more than $1.2 at age 65 you will have more than $1.2 million.million.

If you wait until you are 25 to start that If you wait until you are 25 to start that IRA and make payments every year for IRA and make payments every year for 40 years, you still won’t catch up (you’ll 40 years, you still won’t catch up (you’ll have $1.164 million).have $1.164 million).

Start at 30, make 35 payments, and end Start at 30, make 35 payments, and end up with less than $700,000.up with less than $700,000.

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Women and Personal Women and Personal FinanceFinance

While the basic principles of personal While the basic principles of personal finance don’t change whether you’re finance don’t change whether you’re a man or a woman, it is tougher for a man or a woman, it is tougher for women to achieve financial security. women to achieve financial security.

Women:Women: Generally earn less Generally earn less Are less likely to have pensionsAre less likely to have pensions Qualify for less Social SecurityQualify for less Social Security Live longer than menLive longer than men

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Consider these facts:Consider these facts: Over 90% of all women take sole Over 90% of all women take sole

responsibility for their financial decisions at responsibility for their financial decisions at some point.some point.

Nearly half of all women over 65 get 90% of Nearly half of all women over 65 get 90% of their income from Social Security, their income from Social Security, compared to 35% of comparable men.compared to 35% of comparable men.

75% of women don’t know how much they 75% of women don’t know how much they need to save for retirement.need to save for retirement.

Women tend to be more conservative in Women tend to be more conservative in their investments, so they earn less. their investments, so they earn less.

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Consider these facts:Consider these facts: Only 28% of women over 65 receive pension Only 28% of women over 65 receive pension

benefits, compared to 45% of men, and the benefits, compared to 45% of men, and the average men’s pension was twice that of average men’s pension was twice that of women.women.

At age 65, women outnumber men 3 to 2, by At age 65, women outnumber men 3 to 2, by 85 they outnumber them 5 to 2.85 they outnumber them 5 to 2.

While 12% of the elderly live in poverty, 75% While 12% of the elderly live in poverty, 75% of them are women.of them are women.

In 2001, median personal income for 65 year-In 2001, median personal income for 65 year-old women was $11,313, while for 65 year-old old women was $11,313, while for 65 year-old men it was $19,668.men it was $19,668.

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How does a woman start to take How does a woman start to take charge?charge? Acquire knowledge.Acquire knowledge. Make things happen – create a Make things happen – create a

plan.plan. See a financial planner about See a financial planner about

specific concerns.specific concerns.

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Financial Life EventsFinancial Life Events

Life Event 1: Getting StartedLife Event 1: Getting Started Lay the groundwork – understand Lay the groundwork – understand

investments and personal finance and assess investments and personal finance and assess current finances with planning for the current finances with planning for the future:future: Expenses and a budgetExpenses and a budget Control debtControl debt Establish an emergency fundEstablish an emergency fund Insure yourselfInsure yourself Control your credit scoreControl your credit score Keep current on personal financeKeep current on personal finance

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Life Event 1: Getting StartedLife Event 1: Getting Started Identify your goals:Identify your goals:

Identify and prioritize financial goals.Identify and prioritize financial goals. Set a time frame.Set a time frame. Identify the costs of your goals.Identify the costs of your goals.

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Financial Life EventsFinancial Life EventsLife Event 1: Getting StartedLife Event 1: Getting Started

Begin saving for your goals:Begin saving for your goals: Save more than you think you can.Save more than you think you can. Make savings automatic.Make savings automatic. Don’t procrastinate.Don’t procrastinate. Catch your matches.Catch your matches. ROTH.ROTH. How much risk can you tolerate?How much risk can you tolerate? Put together a strategy.Put together a strategy. Control your spending.Control your spending.

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Financial Life EventsFinancial Life EventsLife Event 2: MarriageLife Event 2: Marriage

Get Organized – review and reorganize Get Organized – review and reorganize finances.finances. Work together – discuss approaches to Work together – discuss approaches to

handling money.handling money. Update financial records.Update financial records. Gain control of your debt and your credit Gain control of your debt and your credit

score – clear up debt issues to work score – clear up debt issues to work towards getting a mortgage.towards getting a mortgage.

Merge finances to make good decisions.Merge finances to make good decisions.

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Revisit Your Financial Goals – revisit both Revisit Your Financial Goals – revisit both long- and short-term goalslong- and short-term goals Reexamine your financial goals.Reexamine your financial goals. Begin saving for new goals.Begin saving for new goals. Make saving automatic.Make saving automatic. Make sure you have an emergency fund.Make sure you have an emergency fund. Begin working towards retirement.Begin working towards retirement.

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Reexamine your insurance and Reexamine your insurance and benefits: may change beneficiaries, benefits: may change beneficiaries, buy additional insurance, and buy additional insurance, and coordinate benefits.coordinate benefits. Review your beneficiaries.Review your beneficiaries. Include all family members.Include all family members. Review your insurance.Review your insurance. Coordinate your benefits.Coordinate your benefits.

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Reexamine your taxes: your tax status Reexamine your taxes: your tax status and the tax-advantaged benefits from and the tax-advantaged benefits from your employer may change.your employer may change. Update W-4 form.Update W-4 form. Take advantage of tax breaks.Take advantage of tax breaks.

Make a will.Make a will. Review your beneficiaries.Review your beneficiaries.

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Financial Life EventsFinancial Life EventsLife Event 3: Buying a HomeLife Event 3: Buying a Home

Does the purchase fit your financial plan?Does the purchase fit your financial plan? Keep track of your credit score.Keep track of your credit score.

Consider the tax implications.Consider the tax implications. Take advantage of tax benefits.Take advantage of tax benefits. Build tax benefits into your budget.Build tax benefits into your budget. Reexamine your investments.Reexamine your investments. Update your employer records.Update your employer records. Know your state.Know your state.

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Life Event 4: Having a ChildLife Event 4: Having a Child Survey your finances.Survey your finances.

Assess your current financial situation. Assess your current financial situation. Reexamine your financial goals.Reexamine your financial goals. Revise your budget.Revise your budget.

Plan for college.Plan for college. Estimate costs.Estimate costs. Automate your savings.Automate your savings.

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Life Event 4: Having a ChildLife Event 4: Having a Child Reconsider your insurance needs.Reconsider your insurance needs.

Review and update insurance.Review and update insurance. Update wills and trusts.Update wills and trusts.

Update or make a will.Update or make a will. Update your retirement account beneficiary.Update your retirement account beneficiary.

Take advantage of tax savings.Take advantage of tax savings. Apply for Social Security number.Apply for Social Security number. Update W-4.Update W-4.

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Life Event 5: Inheritances, Bonuses,Life Event 5: Inheritances, Bonuses,or Unexpected Moneyor Unexpected Money

Examine the priorities of your goals.Examine the priorities of your goals. Reexamine your goals.Reexamine your goals. Consider estate planning.Consider estate planning. Examine the tax implications.Examine the tax implications.

Plan for tax implications.Plan for tax implications. Consider estate taxes.Consider estate taxes.

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Life Event 6: A Major IllnessLife Event 6: A Major Illness Reexamine your finances.Reexamine your finances.

Assess current financial situation.Assess current financial situation. Emergency fund – adequate liquidity.Emergency fund – adequate liquidity. Reexamine financial goals.Reexamine financial goals. Reexamine investment strategy.Reexamine investment strategy. Revise budget.Revise budget.

Take advantage of tax breaks.Take advantage of tax breaks. Understand the tax implications.Understand the tax implications. Explore flexible spending accounts (FSAs).Explore flexible spending accounts (FSAs).

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Life Event 6: A Major IllnessLife Event 6: A Major Illness Alternatives to Finance Your Illness.Alternatives to Finance Your Illness.

Reverse mortgageReverse mortgage Life insuranceLife insurance Disability insurance Disability insurance

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Life Event 7: Caring for an Elderly ParentLife Event 7: Caring for an Elderly Parent Health care and estate planning concerns.Health care and estate planning concerns.

Talk to your parents.Talk to your parents. Oversee your parents’ financial affairs.Oversee your parents’ financial affairs.

Understand their goals and budget.Understand their goals and budget. Discuss long-term health care options.Discuss long-term health care options.

Long-term health care insurance.Long-term health care insurance. Estate planning.Estate planning.

Discuss estate planning. Discuss estate planning.

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Life Event 8: RetiringLife Event 8: Retiring Develop a retirement income plan.Develop a retirement income plan.

Mental and financial preparation.Mental and financial preparation. Plan how to use your retirement savings.Plan how to use your retirement savings.

Manage your income in retirement.Manage your income in retirement. Withdrawal strategy.Withdrawal strategy. Monitor your investments.Monitor your investments. Emergency fund. Emergency fund.

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Life Event 8: RetiringLife Event 8: Retiring Review your insurance coverage and your Review your insurance coverage and your

will.will. Employer retiree health care.Employer retiree health care. Medicare and Medicare supplemental insurance.Medicare and Medicare supplemental insurance. Long-term health care insurance.Long-term health care insurance. Homeowner’s insurance.Homeowner’s insurance. Review your will.Review your will.

Keep track of important retirement Keep track of important retirement planning dates. planning dates.

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Life Event 9: Death of a SpouseLife Event 9: Death of a Spouse Organize financial material.Organize financial material. Contact sources of survivor benefits.Contact sources of survivor benefits.

Insurers.Insurers. Social Security.Social Security. Past Employers. Past Employers.

If you are the executor, carry out your If you are the executor, carry out your responsibilities.responsibilities. Distribution of assets.Distribution of assets.

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Life Event 9: Death of a SpouseLife Event 9: Death of a Spouse Change ownership or title to assets.Change ownership or title to assets.

Insurance policies.Insurance policies. Automobiles.Automobiles. Bank accounts, stocks, bonds, and safe Bank accounts, stocks, bonds, and safe

deposit boxes.deposit boxes. Credit cards. Credit cards. Determine if your benefits change.Determine if your benefits change. Review your insurance.Review your insurance.

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Life Event 10: DivorceLife Event 10: Divorce Nearly ½ of all marriages end in divorce Nearly ½ of all marriages end in divorce

and money problems are a main cause.and money problems are a main cause. Prepare for divorce.Prepare for divorce.

Pay down debt.Pay down debt. Keep the costs down.Keep the costs down. Protect yourself with the help of a financial Protect yourself with the help of a financial

planner.planner. Consider a prenuptial agreement.Consider a prenuptial agreement.

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Life Event 10: DivorceLife Event 10: Divorce Avoid Credit Damage.Avoid Credit Damage.

Late payments and your credit report.Late payments and your credit report. Have your account re-aged.Have your account re-aged.

Revisit your financial goals.Revisit your financial goals. Insurance coverage.Insurance coverage. Child support and alimony.Child support and alimony.

Rework your budget.Rework your budget. Retirement savings.Retirement savings. Reexamine your expenses.Reexamine your expenses.

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Making Financial Making Financial Success HappenSuccess Happen

Wealthy Americans:Wealthy Americans: Net worth from $1 million-$5 million, Net worth from $1 million-$5 million,

not inherited.not inherited. Most have incomes less than $100,000.Most have incomes less than $100,000. They own a home valued at $278,000.They own a home valued at $278,000. They are self-employed or a partner.They are self-employed or a partner. In their original marriage, have 3 kids.In their original marriage, have 3 kids. They are frugal – clip coupons, buy on They are frugal – clip coupons, buy on

sale or do without.sale or do without.

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The Keys to Success: The Keys to Success: A Dozen DecisionsA Dozen Decisions

Number 1: Become Knowledgeable – Number 1: Become Knowledgeable – avoid financial pitfalls and bad advice, avoid financial pitfalls and bad advice, handle unwanted financial surprises.handle unwanted financial surprises.

Number 2: Don’t Procrastinate - your Number 2: Don’t Procrastinate - your financial future starts now.financial future starts now.

Number 3: Live below your means – Number 3: Live below your means – don’t spend at your level or earning.don’t spend at your level or earning.

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The Keys to Success:The Keys to Success:A Dozen DecisionsA Dozen Decisions

Number 4: Realize You Aren’t Number 4: Realize You Aren’t Indestructible - consider life and Indestructible - consider life and health insurance, stay healthy.health insurance, stay healthy.

Number 5: Protect Your Stuff – have Number 5: Protect Your Stuff – have insurance to protect you from financial insurance to protect you from financial ruin.ruin.

Number 6: Embrace the “B” Word Number 6: Embrace the “B” Word (Budget) – the budget is a means to (Budget) – the budget is a means to reach your goals.reach your goals.

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Number 7: Reinvent and Upgrade Number 7: Reinvent and Upgrade Your Skills – prepare for job insecurity Your Skills – prepare for job insecurity by having the right skills.by having the right skills.

Number 8: Hide Your Plastic – credit Number 8: Hide Your Plastic – credit cards are a dangerous threat to your cards are a dangerous threat to your financial well-being. financial well-being.

Number 9: Stocks Are Risky, But Not Number 9: Stocks Are Risky, But Not as Risky as Not Investing in Them – as Risky as Not Investing in Them – invest long-term in stocks and keep up invest long-term in stocks and keep up with inflation.with inflation.

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Number 10: Exploit Tax-Favored Number 10: Exploit Tax-Favored Retirement Plans to the Fullest. Retirement Plans to the Fullest.

Number 11: Plan for the Number of Number 11: Plan for the Number of Children You Want. Children You Want.

Number 12: Stay Married. Number 12: Stay Married.

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Successful Debt Successful Debt ManagementManagement

Key #1: The Obvious: Spend less Key #1: The Obvious: Spend less than you earn and budget your than you earn and budget your money.money.

Key #2: Know the costs.Key #2: Know the costs. Key #3: Understand the difference Key #3: Understand the difference

between good and bad debt.between good and bad debt.

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Successful Debt Successful Debt ManagementManagement

Key #4: Make sure you can repay what Key #4: Make sure you can repay what you borrow – set your own standards. you borrow – set your own standards.

Key #5: Keep your credit score strong Key #5: Keep your credit score strong – it keeps costs down and is a source of – it keeps costs down and is a source of emergency money.emergency money.

Key #6: Don’t live with bad (and Key #6: Don’t live with bad (and expensive) debt.expensive) debt.

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Getting Started: Just Do Getting Started: Just Do ItIt

Start today – don’t procrastinate.Start today – don’t procrastinate. Begin with budgeting and planning.Begin with budgeting and planning. Pay attention to managing your Pay attention to managing your

cash.cash. Rid yourself of bad debt.Rid yourself of bad debt. Your safety net should be in order.Your safety net should be in order. Start investing.Start investing.

part 5: life cycle issues

Economy & Finance

financial decisions

financial security

financial health

financial records

financial planner

financial goals revisit

current financial situation

women dont