Prepare for Life

 

Being prepared looks different across all phases of life so it is important to have a strategy that has the flexibility to change with you. We break down typical planning ideas for people at the different phases we call

GROWING YOUR SALARY, GROWING YOUR FAMILY or PLANNING FOR RETIREMENT.

At Hoffman Insurance Group, we help create a personalized strategy for each client based on their life,  goals, and needs but for educational purposes, we understand that no life is typical, that we will be in several phases at one time and that life often throws a curveball and our focus will change completely. 

GROWING YOUR SALARY

We call this your accumulation years. It is the time when you are focused on climbing up the financial mountain by growing your income and saving money for retirement, all the while making sure you are enjoying the ride.

Whether you are at the beginning of this journey, in the middle or retirement is just around the corner, there are few things that you should be thinking about.

Establishing a Budget

“If you don’t know where you are going, you’ll end up someplace else.”  Yogi Berra

It is essential that you know where your money is going and creating a budget is the only way to truly know.

Use a budget worksheet to help create a budget. It does not need to be perfect to be useful. First, focus on tracking your income and expenses, creating a 90-day emergency fund, managing credit cards, and any loans.

Here are the basics you can do for money management:

  • Create a reliable budget.  Develop a game plan to eliminate credit card debt and manage student loans.  Build a 90-day rainy day emergency fund.
  • If credit card balances are increasing instead of decreasing STOP and revamp budget. 
  • Look at your pay stub to determine your net take home.  Remember that whatever you aren’t deliberately saving each month you are spending.  If you are not deliberately determined to save each month, you are destined to spend.
  • As part of the budget, it is important to define and write down your financial goals, whether you want a new house, you want to save for your children’s education, a vacation, etc., This part should be fun.

We like to remind clients to dream in color, the more detailed you are with your goal the better we can plan for it. Consider, when you want it, how much money it will cost and what you can start to do to get there.

PROTECTION PLAN

“If you had a money tree in your backyard that grew $20,000 a month in cash, while it would be wise to insure the things you bought with that money, it would be essential that you insured the tree. You are your family’s tree.” Dan Hoffman

Your greatest asset is your ability to earn future income.

A 30-year-old earning $200,000 a year, assuming a 3% a year increase in salary, will have earned just over $15,400,000 by the time they are 70.

Income Protection covers you if something happens to you that stops you from working.

There are three ways that income stops, disability, death, and retirement. A balanced income protection plan should continue your income in the event of illness or injury, should complete your plan financially for your loved ones in case of death and do it in a way that helps you in retirement assuming neither of those occur.

Disability:

  • 1 in 4 of today’s 20-year-olds will become disabled before they retire*
  • 95% of disabling accidents and illness is not work-related, so Worker’s Compensation doesn’t cover them**
  • Group benefits coverage is not as comprehensive as individual

*Source: Social Security Administration, Fact Sheet February 7, 2013

**Source: Council of Disability Awareness, Long-Term Disability Claims Review

Disability income insurance pays you a monthly benefit if you are sick or injured and unable to work in your occupation. The benefits you get through a group long-term disability plan are typical taxable, the policy is usually not portable and requires you to be unable to work in any field, not just your current occupation. The benefits you get through an individual plan are typically tax-free, the policy is portable, and it can be set to cover you in case you can not work in your own occupation.

A couple of policy riders you want to look for in a plan, different companies may have slightly different names for them but here is what they do:

  • Future Insurability Option- but it allows you to increase your coverage without a new medical exam and with no regard for your current health.
  • Inflation Coverage- This increases the benefit by 3% every year you are on claim. This is incredibly important because the purchasing power of money goes down over time. Think about how much a movie cost when you were a child vs how much it costs now.
  • Own Occupation- This makes the policy specific to your job. If you can’t be a doctor anymore because your hands start to shake you would get paid. If then you decided to teach medicine at a hospital, you would continue to get paid because you insured the specific job.

GROWING YOUR FAMILY

“I sustain myself with the love of my family” Maya Angelou

With an expanding family comes new financial responsibilities. When a family is expanding, there are a few financial significances that parents should consider.

Life Insurance is an act of selfless love. It is protecting the financial security of the people or causes that you love after you’re gone. A simplistic method of determining your coverage amount is to 10-20 times income depending on your circumstances.

There are many types of life insurance policies out there but here is a quick description of the three categories:

Term Insurance is the most basic type of life insurance. A simple example, you promise to pay an insurance company a premium of $1 a year, for 20 years, and if you die inside of that 20 years, the insurance company promises to pay your beneficiary, the people you designated, a benefit of $1,000. At the end of 20 years, assuming you're alive, both you and the insurance company win, you win because you’re alive and they win because they keep your $20 and don’t pay the $1,000, they were at risk for and the policy typically goes away. 

  • Provides coverage for a specified period
  • No cash value accumulation
  • Like renting a home

Universal Life Insurance is permanent term insurance. This type of policy is often used for estate tax purposes. It is rare for young people to buy because the over too long a period, the value of the benefit if lowered by inflation.

  • Provides coverage for your entire lifetime
  • No cash value accumulation
  • Permanent rental

Whole Life Insurance provides lifetime protection along with an important way to accumulate assets for future needs, through growing cash value. Your cash value grows over time, tax-deferred, and it can be accessed for future expenses, like paying for college, home improvements, or creating additional income in retirement. Some of the benefits include:

  • Provides coverage for your entire life
  • Accumulates cash value, Like owning a home

Another priority for parents is creating a savings plan, which requires focus because expenses tend to increase as your family grows in size. Childcare, clothes, food, doctors, toys, etc., can significantly increase your expenses. However, prioritizing saving for the future early allows compound interest to take care of some of the work, like putting your kid through college.

There are different investment products that can be used to save for the future. For example, a 529 plan can be used for your child's future education. They are tax-advantaged plans designed to help with long-term savings.

PLANNING FOR RETIREMENT

“Retirement is like a long vacation in Las Vegas. The goal is to enjoy it the fullest and not run out of money before it’s over” Bill Waterson, Calvin & Hobbes

Everyone has different goals for retirement, but the most common one is a reliable income so you can live the life you want independently without being a burden on your family.

Ensuring you have a consistent source of income will allow you to maintain your lifestyle in the future. Retirement is when you turn the switch from accumulating money to distributing money. Building a portfolio of tools now that will generate mailbox money is the most important part of retirement planning. Mailbox money shows up every month, covers all your expenses and is guaranteed for the rest of your life. Social Security is a form of mailbox money, it’s reliable and steady regardless of short-term fluctuations in the marketplace.

Guaranteed income annuities are another reliable way to create recurring and consistent paychecks after you stop working. An annuity can be like your parents’ pension, a stream of income for the rest of your life. When you have one, you get a steady "paycheck" for the rest of your life which allows you to spend less time focused on managing your money and more time focus more on living your life and hopefully grandchildren.

Long Term Care Insurance is the next piece of the retirement puzzle. Like in the other phases of life you want to ensure that illness or injury doesn’t put a hole in your financial bucket, long term care insurance covers that bucket in retirement. You may not realize that 70% of people over 65 years old will need help with the activities of daily living, things like getting dressed, bathing or going to the doctor. Health insurance doesn’t typically cover that type of care. Medicare doesn’t cover assisted living facilities or home care and almost half of the people who need long term care spend over $100,000 a year and that cost keeps rising.

It’s good to consider purchasing long term care insurance while you’re still healthy because you might not qualify for it if your health changes. There are even life insurance/long term care insurance hybrid policies that give you long term care coverage if you need it, life insurance if you don’t or a little of both.