When do you need a will?
The answer is easy: Right Now.
You may be wondering if it’s time to draw up a will. Even if you don’t have a large net worth.
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As a parent, you of course want to give your child the best opportunity for success, and for many, attending the “right” university or college is that opportunity. Unfortunately, being accepted to the college of one’s choice may not be as easy as it once was. Additionally, the earlier you consider how you expect to pay for college costs, the better. Today, the average college graduate owes $37,172 in debt, while the average salary for a recent graduate is $50,944.1,2
Preparing for college means setting goals, staying focused, and tackling a few key milestones along the way — starting in the first year of high school.
Freshman Year
Before the school year begins, you and your child should have at least a handful of colleges picked out. A lot can change during high school, so remaining flexible, but focused on your shared goals, is crucial. It may be helpful to meet with your child’s guidance counselor or homeroom teacher for any advice they may have. You may want to encourage your child to choose challenging classes as they navigate high school. Many universities look for students who push themselves when it comes to learning. However, a balance between difficult coursework and excellent grades is important. Keeping an eye on grades should be a priority for you and your child as well.
Sophomore Year
During their sophomore year, some students may have the opportunity to take a practice SAT. Even though they won’t be required to take the actual SAT for roughly a year, a practice exam is a good way to get a feel for what the test entails.
Sophomore year is also a good time to explore extracurricular activities. Colleges are looking for the well-rounded student, so encouraging your child to explore their passions now may help their application later. Summer may also be a good time for sophomores to get a part-time job, secure an internship, or travel abroad to help bolster their experiences.
Junior Year
Your child’s junior year is all about standardized testing. Every October, third-year high-school students are able to take the Preliminary SAT (PSAT), also known as the National Merit Scholarship Qualifying Test (NMSQT). Even if they won’t need to take the SAT for college, taking the PSAT/NMSQT is required for many scholarships, such as the National Merit Scholarship.3
Top colleges look for applicants who are future leaders. Encourage your child to take a leadership role in an extracurricular activity. This doesn’t mean they have to be a drum major or captain of the football team. Leading may involve helping an organization with fundraising, marketing, or community outreach.
In the spring of their junior year, your child will want to take the SAT or ACT. An early test date may allow time for repeating tests their senior year, if necessary. No matter how many times your child takes the test, most colleges will only look at the best score.
Senior Year
For many students, senior year is the most exciting time of high school. Seniors will finally begin to reap the benefits of their efforts during the last three years. Once you and your child have firmly decided on which schools apply, make sure you keep on top of deadlines. Applying early can increase your student’s chance of acceptance.
Now is also the time to apply for scholarships. Consulting your child’s guidance counselor can help you continue to identify scholarships within reach. Billions in free federal grant money goes unclaimed each year, simply because students fail to fill out the free application. Make sure your child has submitted their FAFSA (Free Application for Federal Student Aid) to avoid missing out on any financial assistance available.4
Finally, talk to your child about living away from home. Help make sure they know how to manage money wisely and pay bills on time. You may also want to talk to them about social pressures some college freshmen face for the first time when they move away from home.
For many people, college sets the stage for life. Making sure your children have options when it comes to choosing a university can help shape their future. Work with them today to make goals and develop habits that will help ensure their success.
1. Forbes.com, 2020
2. TheBalance.com, 2020
3. PrincetonReview.com, 2021
4. SavingForCollege.com, 2020
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2023 FMG Suite.
Have you ever had one of those months? The water heater stops heating, the dishwasher stops washing, and your family ends up on a first-name basis with the nurse at urgent care. Then, as you’re driving to work, you see smoke coming from under your hood.
Bad things happen to the best of us, and sometimes it seems like they come in waves. That’s when an emergency cash fund can come in handy.
One survey found that nearly 25% of Americans have no emergency savings. Another survey found that 40% of Americans said they wouldn’t be able to comfortably handle an unexpected $1,000 expense.1,2
How Much Money?
How large should an emergency fund be? There is no “one-size-fits-all” answer. The ideal amount may depend on your financial situation and lifestyle. For example, if you own a home or have dependents, you may be more likely to face financial emergencies. And if a job loss affects your income, you may need emergency funds for months.
Coming Up with Cash
If saving several months of income seems unreasonable, don’t despair. Start with a more modest goal, such as saving $1,000, and build your savings a bit at a time. Consider setting up automatic monthly transfers into the fund.
Once your savings begin to build, you may be tempted to use the money in the account for something other than an emergency. Try to avoid that. Instead, budget and prepare separately for bigger expenses you know are coming.
Where Do I Put It?
Many people open traditional savings accounts to hold emergency funds. They typically offer modest rates of return.
The Federal Deposit Insurance Corporation (FDIC) insures bank accounts for up to $250,000 per depositor, per institution, in principal and interest.3
Others turn to money market accounts or money market funds in emergencies. While money market accounts are savings accounts, money market funds are considered low-risk securities. Money market funds are not backed by any government institution, which means they can lose money. Depending on your particular goals and the amount you have saved, some combination of lower-risk investments may be your best choice.
Money held in money market funds is not insured or guaranteed by the FDIC or any other government agency. Money market funds seek to preserve the value of your investment at $1.00 a share. However, it is possible to lose money by investing in a money market fund.4
Money market mutual funds are sold by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.
The only thing you can know about unexpected expenses is that they’re coming. Having an emergency fund may help to alleviate stress and worry that can come with them. If you lack emergency savings now, consider taking steps to create a cushion for the future.
- MarketWatch.com, 2020
- Bankrate.com, 2021
- FDIC.gov, 2022
- Investopedia.com, 2021
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2023 FMG Suite.
Divorce is a painful process in many ways. It’s not a topic many want to discuss or think about, but it happens. One of the major areas of focus throughout the process is the division of finances. While marriage is ideally a matter of the heart, if it ends in divorce, it quickly becomes also a matter of assets and debts.
From the date of a legal marriage through divorce, any property, income, assets, money, possessions and debts accrued are considered part of the marital property. In Iowa, that means everything may considered 50/50 equal ownership by the married couple.
How, then, is the equal division of assets and liabilities determined? It certainly would be easy if we could just take the current value of each item amassed during a marriage and divide it equally in half. For obvious reasons, that’s not always possible. Most couples have shared many years together, collecting mutually meaningful memories in the form of items as well as valuable accounts. Even when both parties want to keep the process simple, emotions run deep and can cause angst amidst the details.
Here are some of the financial complexities we often deal with in divorces:
Values that may change over time
The longer divorce proceedings are drawn out, the more it is possible that the value of certain items or accounts may change.For values that may change quickly, find an agreeable date on which you start the conversation about property’s value. This provides a mutually agreed upon starting point for both parties to gather value statements.It can be tempting to withhold or make it difficult for the other party to receive information, but in the end, that just results in more attorney fees and it definitely prolongs the divorce process. Remember, the slower everyone gets needed value information, the more time and opportunity for the value to change.
No current value
When there are assets subject to a variety of variables, such as vesting schedules, contingencies on continued employment, and future retirement income streams, there are methods for calculating the potential value using a complex list of assumptions.While some investments or accounts may be worth more in the future, valuations will only be based on today’s value. It’s important not to focus on the largest cash value available now, but instead to consider the future when child support or alimony payments cease or retirement living becomes a reality.
Division of finances in divorce is incredibly complicated. As difficult as it is to see the next hour or day, it brings to light the importance of having a trusted advisor to help guide you through the fog while keeping an eye on your future.
In the next article, I will discuss tax implications in the division of property among divorcing couples.
Until next month, be wealthy and wise!
As an independent financial planning firm, we help people in all stages of their life plan for, grow and enjoy their finances. Recently I have noticed an interesting new trend among the clients we help through tough divorce decisions — approximately 60 percent are in what is being called “grey divorces.”
Grey divorces are among couples who are nearing or at retirement age. While divorce rates in younger couples have leveled off, couples who have weathered the storms of marriage for twenty or more years are increasingly making the tough decision to live their lives apart.
There are specific things senior adults can do to avoid making big mistakes during divorce at this stage of life:
- 1) Fix, don’t fight. There is a very positive, mutually beneficial divorce practice called the collaborative divorce process. Collaborative divorce brings both spouses, their attorneys, a Certified Divorce Financial Analysts (CDFA) and other specialists to the same table to discuss areas of importance. CDFAs help divorcing couples explore various financial choices before final decisions are made. Seeing the short and long impacts of financial decisions helps each side better understand the implications; in some cases, we’ve even seen couples decide to stay together!
- 2) Pay attention to pension plans. Pensions are different because they are defined benefit plans, not defined contributions. While defined contribution plans, such as 401(k) accounts and 403(b) accounts, provide the values on their statements, pension plans, such as IPERS and FERS, are future income streams for retirement.
There are two ways to value pensions plans. A “Benson Formula,” splits monthly benefits during retirement. Present-day valuation is offset with assets. Both of these options should be assessed by an attorney and financial team.
If there is a plan to split monthly pension benefits between spouses during retirement, it is important to protect the ex-spouse of the worker (the person who has the pension plan) in case of death before retirement and after retirement benefits begin.
- 3) Create a life insurance strategy. Most attorneys will only value life insurance policies for the cash value in the event it exists. However, some policies allow change of ownership so one spouse is the beneficiary on the other spouse’s life insurance policy even after divorce. In this case, the death benefit can be of value to replace income (child or spousal support or pension income) or to pass assets to heirs through estate planning. And don’t forget — life insurance death benefits are not taxable under current law.
- 4) Don’t overlook tax filing strategies for the year of the divorce. Couples should file individual returns for the year the divorce is finalized. Be careful of items that can cause unaccounted for tax implications such as spousal support, temporary orders, sale of investments, charitable contributions, withdraws from retirement accounts and child deductions, among others. Be sure to ask your CPA to review your divorce decree or settlement prior to signing.
- 5) Couples married for 10 or more years may qualify for ex-spousal Social Security benefits (which does not affect the working ex-spouse’s benefits). There are two basic benefits an ex-spouse may receive: spousal benefits and survivorship spousal benefit.
Spousal benefits apply when the spouse with social security is still living and their ex-spouse is retirement age and/or disabled. The maximum available spousal benefit is 50 percent of the primary insurance amount.
If the spouse with social security is deceased, an ex-spouse of retirement age and/or who is disabled may be eligible for up to 100 percent of the survivor benefit, even when receiving social security benefits of their own.
Overall, it’s important to address your own intentions and expectations of divorce. Will you have the resources and means to maintain the lifestyle you want? Too often I see individuals who believe their lives will be much improved with divorce — emotionally, physically, financially and mentally. However, sometimes the financial realities don’t match expectations when there has been very little — or no — earning income years.
As with any major life transition, your finances need to be part of the plan. Find a professional you trust, and don’t be afraid to ask questions. In cases of divorce, a Certified Divorce Financial Analyst (CDFA) can be a major source of support and comfort throughout the planning process.
