Many of the requests for assistance we receive each year at COPE involve employees who are under stress because of a financial situation. The problem may be short-term, like getting your taxes filed by April 15, or a chronic, longer-term financial problem, like divorce or credit-card debt. But few of life's challenges affect our thoughts and by extension, our physical well-being as powerfully as financial troubles.
One of the best ways to avoid financial stress is good planning: to take necessary, incremental steps that can limit your anxiety when a financial issue comes calling, and to review your finances at least once a year. What follows are a few suggestions.
Get Organized. How easy is it for you to find your financial, insurance, or medical documents when you need them? If your credit cards were lost or stolen tomorrow, would you have all the information needed to report the loss to the credit card companies? According to the Financial Planning Association (FPA), any individual with assets should create an easy-to-find, easy-to-understand file of must-have information. Doing so will make it easier to keep track of your finances, plan for the future and respond to the unexpected. READ MORE
Review Your Beneficiary Forms. Increasingly, investors have the option of naming beneficiaries directly on a wide range of financial products. These include retirement accounts like a 401K and pension (by using a beneficiary designation), bank accounts (with a pay on death or POD designation) and brokerage accounts (with a transfer on death or TOD designation). The appeal: When the account owner dies, the assets go directly to the beneficiaries named, bypassing the sometimes long and costly probate process. The problem: Because these beneficiary designations override your will, they need to be carefully coordinated with your overall estate plan. Here are several articles that address the topic:
• Why Avoid Probate?
• How to Avoid Probate
• When a POD Makes Sense and When Not
• Who You Should and Shouldn't Name as Beneficiary
• Avoiding Probate: The Small Estate
Get Your Annual Free Credit Report. A credit file disclosure, commonly called a credit report, is a report compiled by one or more of the three major American credit bureaus--Equifax, TransUnion and Experian. The credit report tells you and potential lenders which companies have examined your credit history, the dates when credit accounts were opened and closed, the amount of credit extended to you as well as your on-time or late-payment behavior. Each legal resident of the United States is entitled to one free credit report each year. It's easy and fast, especially if you order it online. It can also help you spot signs of identity theft or mistakes that are adversely affecting your credit.
Social Security: A Base on Which to Build Retirement. For all the doomsday talk about Social Security, the social welfare and insurance programs created by it are--for the foreseeable future--a valuable base on which to build your retirement.
The risk of running out of money during your lifetime depends in large part on the size of your future Social Security payments. Benefits are based on lifetime earnings and are adjusted over time to reflect your 35 highest earning years. If you stop work to go back to school or to raise a family, a zero is assigned for each year without earnings. Even if you have a full 35 years of earnings, some of those years may be low earnings years. Low earnings years are averaged in, creating a lower benefit. Your average will improve, however, as you replace the lowest earning years by working longer and/or earning more later in your career. To find out what your estimated benefits will be, create an online account at SSA.gov and check it periodically.
Ask Larry, The Social Security Guy. Featured regularly in The New York Times, The Wall Street Journal and on PBS, Larry Kotlikoff answers many questions about Social Security benefits such as and why you shouldn't take social security early.
Why Get Help. Most of us lack the expertise to manage our long-term finances. Even those who have the expertise often lack the time or the desire to do the specialized work required to stay on top of regulations, to follow the markets and monitor major family expenses. But there is little doubt that all of us can benefit periodically from an objective third-party perspective on what are often emotional and stressful decisions. But how to begin?
Find Someone Who Doesn't Sell Products. Be aware that many financial advisors are compensated through commissions on the products they sell, often giving them an incentive to steer you to the products that pay them more. Ask them directly,"How are you paid for your time and advice?" While they deserve to be compensated, make sure you understand the arrangement. Look for a fee-only adviser. Most charge a flat fee, an hourly rate, or a fee based on a percentage of assets. The Financial Planning Association (FPA) recommends a Certified Financial Planner (CFP) because it requires financial planning study, planning work experience and passage of a grueling 2 day national exam. To learn more about choosing a financial planner click here.
Here are some other practical tips:
• Go to the office of the planner instead of having him or her come to you. This is a good way to determine if the professional is neat and organized, a prerequisite for a good financial planner.
• Be clear about the meaning of the word "Fees." Some advisors are fee-only (no product sales; flat fees, hourly fees or a percentage of assets managed). Other advisors are fee-based, which means they DO sell products as well as billing on a flat fee basis.