The major events in your life—from starting your career to becoming a parent to preparing for that first day of retirement—all present opportunities to take action toward your financial goals. We explore the financial implications of milestone life events and provide practical suggestions for each step of the way to enhance your wealth.
Navigating Life’s Financial Milestones
Throughout the year we will provide you with practical financial suggestions to consider as you or your family anticipate life’s milestones.
Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Egestas purus viverra accumsan in. Feugiat in fermentum posuere urna nec tincidunt praesent semper. Tellus elementum sagittis vitae et leo. Adipiscing diam donec adipiscing tristique. Tincidunt praesent semper feugiat nibh. Nunc consequat interdum varius sit. Odio eu feugiat pretium nibh ipsum consequat. Penatibus et magnis dis parturient montes nascetur ridiculus mus mauris. Sed felis eget velit aliquet sagittis id consectetur. Ipsum dolor sit amet consectetur adipiscing. Rhoncus urna neque viverra justo nec ultrices. Amet justo donec enim diam vulputate ut pharetra sit amet. Donec enim diam vulputate ut pharetra sit. Gravida in fermentum et sollicitudin ac. Tellus molestie nunc non blandit massa enim nec dui. Vestibulum lorem sed risus ultricies tristique nulla. Vulputate enim nulla aliquet porttitor lacus luctus. In dictum non consectetur a erat nam. Nisi scelerisque eu ultrices vitae auctor eu augue. Neque egestas congue quisque egestas diam in. Convallis convallis tellus id interdum velit laoreet id donec ultrices. Vulputate ut pharetra sit amet aliquam id diam maecenas ultricies. Sit amet dictum sit amet justo donec enim diam. Vitae ultricies leo integer malesuada nunc vel. Sit amet est placerat in egestas erat imperdiet. Nunc faucibus a pellentesque sit amet porttitor eget dolor. Blandit turpis cursus in hac habitasse platea dictumst. Eu nisl nunc mi ipsum faucibus vitae aliquet nec ullamcorper. Porta nibh venenatis cras sed felis eget velit aliquet sagittis. Fermentum odio eu feugiat pretium nibh ipsum consequat nisl vel. Elit at imperdiet dui accumsan sit amet nulla facilisi. Dui ut ornare lectus sit. Eu tincidunt tortor aliquam nulla facilisi. At urna condimentum mattis pellentesque id nibh tortor id aliquet. Amet commodo nulla facilisi nullam vehicula ipsum. Maecenas volutpat blandit aliquam etiam erat velit scelerisque in. Sed odio morbi quis commodo odio aenean sed adipiscing diam. Non arcu risus quis varius quam quisque. Nibh nisl condimentum id venenatis a condimentum. Nulla facilisi cras fermentum odio eu feugiat pretium nibh ipsum. Semper feugiat nibh sed pulvinar. Fusce ut placerat orci nulla pellentesque dignissim. Justo eget magna fermentum iaculis eu non diam phasellus. At erat pellentesque adipiscing commodo elit at. Nec nam aliquam sem et tortor. Interdum consectetur libero id faucibus nisl tincidunt eget nullam non. Pharetra sit amet aliquam id diam maecenas ultricies. Sed faucibus turpis in eu mi. Velit aliquet sagittis id consectetur purus ut faucibus. Tristique senectus et netus et. Dui sapien eget mi proin sed libero enim sed. Sodales ut etiam sit amet. Vulputate ut pharetra sit amet aliquam id. Eget egestas purus viverra accumsan in nisl nisi. Tortor at auctor urna nunc. Vestibulum mattis ullamcorper velit sed ullamcorper morbi tincidunt. Posuere lorem ipsum dolor sit amet consectetur adipiscing elit duis. Pharetra massa massa ultricies mi quis. Sit amet risus nullam eget felis eget nunc lobortis. Odio ut sem nulla pharetra diam. Duis at tellus at urna condimentum mattis pellentesque id. Nam aliquam sem et tortor consequat id porta. Eget nulla facilisi etiam dignissim. Habitant morbi tristique senectus et netus et. Enim sed faucibus turpis in eu mi bibendum. Imperdiet proin fermentum leo vel orci porta non pulvinar neque. Dignissim diam quis enim lobortis scelerisque fermentum dui faucibus in. Donec adipiscing tristique risus nec feugiat in fermentum posuere urna. Eget nullam non nisi est. Fusce id velit ut tortor pretium viverra. Vel facilisis volutpat est velit egestas dui id ornare arcu. Maecenas volutpat blandit aliquam etiam erat velit scelerisque in. Tempor commodo ullamcorper a lacus vestibulum sed arcu non. Et netus et malesuada fames ac turpis egestas. Varius duis at consectetur lorem donec massa sapien faucibus et. Posuere ac ut consequat semper viverra nam libero justo laoreet. Nullam eget felis eget nunc lobortis mattis aliquam. Eleifend mi in nulla posuere sollicitudin aliquam ultrices. Lectus vestibulum mattis ullamcorper velit sed. Tristique et egestas quis ipsum suspendisse ultrices gravida dictum fusce.
Becoming a Parent: 10 Steps to Help You Financially Prepare for a Growing Family
See the steps
Start your journey
Growing Families
Read the tips
Beginning Your Career and Understanding Your Finances
Starting Out
See what to consider
Getting Married: 5 Financial Considerations
View the lessons
Your Child Receives Birthday Money
On Your Way
Get the tips
Financial Tips for Making a Major Purchase
Review the options
Financing a College Education: Options to Consider
Cash-Flow Planning for Retirement
In Transition
Planning Your Assets in Case of a Divorce
7 Financial Considerations When You’re Starting a New Job
View what to know
Social Security and Medicare: What Seniors Need to Know About Two Big Decisions
Creating Security
See the five steps
Helping Aging Parents Get the Support They Need
View the five steps
Managing Risk Through Life’s Milestones
View the key steps
Managing Affairs After Losing a Loved One
Tips for making sure your loved ones are protected
Becoming a Parent: 10 Steps to Financially Prepare for a Growing Family
YOUR WEALTH JOURNEY — NAVIGATING LIFE’S FINANCIAL MILESTONES
Welcoming a new child is one of the most exciting and transformative events anyone can experience. It can also have significant, long-term implications on your finances. It is worth considering how your financial needs and goals will change once your child arrives and ways you can protect and strengthen your growing family financially. If you or a loved one are preparing to welcome a child, here are 10 financial steps to consider.
Forecast Your Expenses Review Your Emergency Savings Needs Evaluate Life and Disability Insurance Needs Update Your Beneficiaries Assess Your Health Insurance Coverage Look Into Employer Benefits Review Your Estate Plans Consider Whether a Trust Makes Sense Start Saving for Education Research Tax Breaks for Parents
Your ongoing expenses may rise considerably once your new child arrives—both in the near term and over the next several decades potentially. It is important to understand how a child will affect your overall financial picture, so you can adjust your budget and financial strategies accordingly. Questions to ask as you consider how having a child could affect your family finances include:
■ ■ ■
Do you and/or your partner expect to keep working and generate the same amount of income as you did before the child’s arrival? Will you be paying for childcare either in or outside of the home? As the child gets older, will other expenses—such as education or extracurricular activities—become a major cost?
It is generally advised to keep at least three to six months of living expenses in a low-risk, very accessible account, such as a money-market deposit account or savings account, in case of an unexpected event such as a job loss or health issue. Recalculate how much you will need to set aside for emergencies based on how your spending patterns will change after factoring in the additional expenses described above. Doing so will help you continue to have an adequate emergency fund once the child arrives.
Forecast Your Expenses
Consider Whether a Trust Makes Sense
Review Your Emergency Savings Needs
Evaluate Life and Disability Insurance Needs
Update Your Beneficiaries
Assess Your Health Insurance Coverage
Look Into Employer Benefits
Review Your Estate Plans
Start Saving for Education
Research Tax Breaks for Parents
You may already have life and disability coverage, but you may want or need greater protection once a new child is in the picture. Your or your co-parent’s employer may let you add or increase your coverage to account for a child, but it often makes sense to get a policy that is independent from your employer so you can find a policy that fits your needs and you do not risk losing your coverage if you leave your job. A wealth advisor can help you review your insurance needs by asking questions such as:
How much income would your family need to maintain your living expenses and other spending needs if one (or both) parents were to become temporarily or permanently disabled and not be able to work or pass away? Over what time period do you need coverage? (Many new parents, for example, want to ensure that they are at least covered until their child turns 18 or graduates from college.) What future expenses would you want coverage for? For example, do you want enough coverage to ensure that your child’s college tuition would be paid for or to pay off a mortgage?
Many financial accounts, including retirement accounts, and insurance policies have designated beneficiaries—the people you elect to receive those assets when you pass away. It is critical to review and update those beneficiary designations after major life events, including after having a child, to ensure that your assets go to the intended people in the most efficient way possible. Note that beneficiary designations supersede your will or other estate planning documents.
You will want to make sure that you have the right level of healthcare coverage—both for yourself and for your child. If you are newly pregnant—or ideally before you become pregnant—check whether your current health plan offers maternity care and labor and delivery coverage. It is also a good time to coordinate coverage with your spouse or co-parent to determine whether to have all family members on one parent’s health plan and which plan will provide the best coverage for your child.
■ ■ ■ ■
Health Savings Account (HSA): This lets you set aside pre-tax income to pay for your family’s healthcare. The funds do not have to be used in the year in which the contributions are made, so the money can accumulate year after year. The money remains tax-free if you spend it on qualified healthcare expenses. And once you reach age 65, you can use the savings to pay for nonhealthcare expenses penalty-free, but those distributions are subject to income tax (similar to distributions from an IRA). Keep in mind that you must have a qualified high-deductible health plan to contribute to an HSA. Medical Flexible Savings Account (FSA): Similar to an HSA, an FSA allows you to save pre-tax money for qualified healthcare expenses. Unlike an HSA, though, you typically must spend most or all FSA contributions in the plan year you made them—or you may have to forfeit them. Dependent Care FSA: This type of FSA allows you to set aside pre-tax money for childcare expenses, such as paying for daycare, a nanny, summer camp, or before- and after-school care. Generally, you must spend the contributions in the year that you make them. Adoption Assistance: Some employers will help their employees cover the costs of adoption, such as agency fees, legal fees, and travel costs.
Many employers offer benefits that can help reduce the costs of caring for a child. Check to see if your or your partner’s employer offers the following benefits:
In some cases, you may want to set up a trust to control how the assets are distributed to your child if you were to pass away. A trust allows you to set the conditions and timing for when your beneficiaries receives access to your money and assets, and for what uses. For that reason, trusts can be ideal for parents who want to set some parameters around how their money is transferred to the next generation.
Your estate plans become more important when you have kids, as you want to make sure your assets are transferred efficiently to the right people upon your death. Make sure these documents are updated to reflect additions to your family. The foundation of a carefully constructed estate plan would include wills, possibly trusts, powers of attorney for healthcare and property, and a living will (advance healthcare directives). You will also want to select a legal guardian for your child and a trusted individual or family member to serve as the custodian of the assets the child could inherit in the unfortunate event that you and/or your partner pass away while the child is a minor.
■ ■
529 College Savings Account: This account lets parents set aside money for a child’s future education expenses and make tax-free withdrawals for qualified expenses. The savings can be invested in mutual funds or savings accounts. If all the funds in the account are not used by the original beneficiary, the account can be transferred to another child or family member. Some states allow you to deduct contributions from your state taxes. Coverdell Education Savings Account: This account also lets you make tax-free withdrawals for eligible education expenses. The annual contribution limits, however, are much lower than 529 plans, and there are income limitations on who can contribute.
Saving enough for your retirement is priority number one, but if you have extra money to set aside, you may want to start putting away money for your child’s future education needs. The average cost of college attendance today ranges from about $20,000 (two-year public college) to $55,000 (private four-year college) annually, according to The College Board. The organization recommends assuming that those costs could rise 5% annually. There are two types of tax-advantaged accounts that can help you save more effectively for college.
Child tax credit Adoption tax credit Self-employed health insurance deduction
While children are expensive, there is one financial silver lining to having a child. You may qualify for some tax breaks. These include:
Download Becoming a Parent: 10 Steps to Financially Prepare for a Growing Family
Becoming a parent creates immense responsibilities. Among all the other duties you have as a parent, it only makes sense to do all in your power to make sure that your family is financially protected. Creating a solid financial foundation at home can help alleviate stress and free up energy to focus on caring for your growing family.
Tips for managing your money as you start your career
Entering today’s workforce may mean navigating a hybrid environment and an uncertain economy. While headlines of “the great resignation” continue, there is much to be hopeful for in your career. As you start your job, here are some important steps you can take to continue focusing on your financial future.
Budget and Spend Wisely Pay Down Debt Build Your Credit Check Your Credit Score Understand Your Company’s Benefits Save for Retirement
Developing a monthly budget can help keep expenses under control. Even if you have significant debt, consider “paying yourself first”—saving a portion of your income so you have money in the future for large purchases or emergencies. Signing up for direct deposit allows you to automatically deposit a portion of your paycheck into an interest-bearing savings account.
Whether it is student loans or credit card debt, build a payment plan into your monthly budget. Note: If you borrowed money for school, your first bill is due six months after graduation. If those payments are high relative to your income, opt for a manageable repayment plan that includes schedules and options for federal loans.
Budget and Spend Wisely
Pay Down Debt
Build Your Credit
Check Your Credit Score
Understand Your Company’s Benefits
Save for Retirement
It is best to begin building your credit slowly by paying monthly bills, such as rent and utilities, and starting to pay off any debt you may have, such as student loans or auto loans. In some cases, you may need to create a credit history before getting approved for a traditional bank card. If so, begin with a store credit card, which is often easier to get approved for because of lower spending limits. But be mindful of the higher interest rates on store cards. Once you build a payment history, it will be easier to transition to a bank card. Do not miss or be late with payments. Just one past due payment can lead to exorbitant fees and affect your credit score. Charge only what you can pay off each month. Carrying a credit card balance is an expensive way to borrow. Remember a credit card is more than just plastic—it is money.
A credit score is essentially a report card of your credit history expressed as a number. It follows you throughout your life and determines your access to credit as well as the interest rate you will pay on large purchases such as a car or home. Checking your credit report periodically will give you an idea of how your credit is building and help flag if your financial accounts were hacked or your identity was stolen. Scores range between 300 and 850, with most falling between 600 and 750. A credit score of 700 or more is considered good. Knowing your credit history and score can be especially helpful if you are applying for a loan or rental lease. You can access your credit score by contacting a credit reporting agency. The three largest are Equifax, Experian, and TransUnion. AnnualCreditReport.com also offers a free copy of your credit report every 12 months from each credit reporting company. To keep up with changes to your credit report, credit reporting agencies and credit card companies offer fraud alerts. Check with your provider on how to sign up for alerts.
Learning what benefits are offered may help you make a decision when considering a job offer. Thoroughly explore and understand your company’s benefits, including its retirement plan, insurance options, tuition reimbursement, student loan repayment assistance, stock options, and profit-sharing. Two of the most popular savings plans companies offer are a 401(k) and a health savings account (HSA), both of which can stay with you throughout your career even if you change employers. A 401(k) or 403(b) is a retirement savings plan. You can enroll and have automatic deductions of pretax dollars taken from your paycheck, thus lowering your taxable income. Most companies will match a portion of your contribution. Your savings plus the company match can grow quickly and you benefit from the power of compound earnings. Most 401(k) plans offer a variety of investment options, including mutual funds of stocks, bonds, and money market treasuries. An HSA is like a personal savings account that can only be used for qualified healthcare expenses. To enroll, you must choose a high-deductible health insurance plan through your employer. HSA contributions are pretax and tax-deductible, so the money grows tax-free. Withdrawals for eligible health expenses are not taxed and contributions can be invested in mutual funds, stocks, and other investment vehicles. That money can grow throughout your career for medical expenses. There is no minimum required distribution at 72 as with other retirement accounts.
Contributing to your company’s retirement plan as soon as you begin your first job is a fantastic way to set up your financial future for success. Even saving an extra $50 a month can add up over time: Over the course of 10 years at 6.5% return, that contribution could grow to approximately $8,500. There are several calculators online that calculate compound earnings. A 401(k) is just one type of retirement savings plan. If you max out your 401(k) contributions and would like to make additional contributions to tax-advantaged retirement accounts, consider contributing into a traditional IRA or Roth IRA.
Thinking about your financial health today will help lay the foundation for a successful future. If you are interested in learning more, contact a William Blair wealth advisor.
Download Beginning Your Career and Understanding Your Finances
How to successfully merge financial lives with your partner
Getting married or entering a legal civil union with your significant other is one of the most exciting times of your life. Yet, it is important to recognize that you and your partner will also be merging some or all aspects of your finances—legally and logistically. Make sure to consider and discuss the financial implications of your union and get to know your partner financially. Of course you know the person you are marrying, but have you fully discussed your financial situation, behaviors, goals, and values? Having candid conversations about financial matters can help ensure you are on the same page when it comes to how you will manage money together. It can help prevent future misunderstandings and ultimately allow you to make better decisions about how you will operate financially as a team. Here are important steps to prepare for marriage from a financial perspective.
Talk About Spending and Saving Habits Know Your Debt Understand Your Assets Discuss Future Financial Decisions Protect Yourself Financially
It is important to understand how your partner thinks about the value of money and spending versus saving it—and to share your own views. You do not have to approach spending and saving in the same way, and some couples have very different expectations. But you should be comfortable with each other’s approach and talk through how you will accommodate or address any differences. Talking about it openly can help you make decisions such as:
Whether or not a budget will be needed and, if so, how you will work together to create one Should you have joint and/or separate checking and savings accounts Who will be responsible for managing specific bills and expenses
Likewise, you should understand how much debt your spouse has and how they are paying it off—and vice versa. You both need to be clear, transparent, and specific about your debt situation. If your spouse has significant college debt, for example, how might that affect your ability to spend and meet financial goals? And how will any debt be paid off once you are married—by the one who took out the debt originally or by both of you? Other types of debt that you or your spouse could be bringing to the union include mortgages, car loans, credit card debt, or financial obligations such as child support and alimony if this is a second marriage.
Talk About Spending and Saving Habits
Know Your Debt
Understand Your Assets
Discuss Future Financial Decisions
Protect Yourself Financially
You should understand how your full financial situation will change once you are married, including knowing the assets you will continue to own individually and assets you will own and be responsible for managing jointly. This includes:
■ ■ ■ ■ ■
Checking and savings accounts Brokerage accounts Retirement accounts Insurance policies Property, such as a house or condo (If you both own homes, will you sell one or keep both and turn one into a rental?)
It also helps to discuss how you and your spouse think about other future financial matters such as:
There are a number of steps to take to ensure you protect yourself financially once you are married. For example, make sure to update the beneficiaries on your 401(k)s, IRAs, insurance policies, and other assets to ensure they reflect your union. If you have a will or other estate-planning documents, update those as well. This will help ensure your assets are directed properly. You should also consider establishing or updating your power of attorney and any healthcare directives you might have or want. Finally, consider whether you need a prenuptial agreement. Prenups are used for a variety of reasons, including one or both spouses having children or businesses they want to financially protect. A “prenup” is a legally binding contract you must set up before you get married that states each partner’s rights and responsibilities around premarital and marital assets and debts. It also lays out what would happen should the marriage end in divorce. A prenup should be coupled with estate documents such as a living trust to ensure assets are distributed to the appropriate parties rather than having state laws dictate the distribution of assets.
Charitable giving—and how important that is to both of you Kids (if you plan to have them) and how you intend to pay for their expenses, ranging from childcare to higher education Potential future financial obligations, such as aging parents who may need financial support later in life Expected inheritances of assets from extended family that you might need to plan for or manage in the future
Talking in-depth about your financial situations, values, and priorities before you get married or form a civil union can only help make your journey together stronger. If you are interested in learning more, contact a William Blair wealth advisor.
Download Getting Married: 5 Financial Considerations
How to turn gifts into financial lessons that pay a lifetime of dividends
When your children or grandchildren receive money for their birthday—or any special occasion—it is an opportunity to start teaching them about investing and smart financial habits. This is true whether the gift is a $20 bill folded inside a birthday card or a check for $2,000 presented as a gift for graduating from middle school or another milestone. Here are four ways to put that gift toward teaching children financial lessons that will benefit them their entire lives.
Let Them Spend It Help Them Save—And Set Goals Teach Them How to Invest Show Them the Power of Giving and Values
Depending on how big the gift is, you may or may not be comfortable letting the child spend the full sum immediately. But giving children free rein over at least part of the gift allows you to start conversations about financial values and how spending relates to those priorities. Questions you can use to spark conversations with your child about money, spending, and values include:
How would you like to spend this money? Do you have something in mind such as a video game or an activity? Would you like to spend it right away or wait until you have more money saved up, so you can spend it on something more expensive? Do you know how other people in your family decide what to spend money on? Do you know how people earn money? Do you know what your family members do for work and how we earn money? Would you like to hear about ways you could use this money to help people who don’t have as much as you?
Encouraging your child to put the money aside for the future can lead to conversations about the importance of setting financial goals. Discuss how much money they need to save to reach specific goals and then help establish incremental steps for achieving them—whether that involves getting a job and saving a portion of every paycheck or creating a budget. Examples of financial goals for children:
Let Them Spend It
Help Them Save—And Set Goals
Teach Them How to Invest
Show Them the Power of Giving and Values
What is the best type of vehicle to establish for your child? The decision typically comes down to the amount of money you plan to put into the account, the degree to which you want to restrict the child’s access to the money, and the need to protect the assets. These can be complicated questions, so it’s usually best to work with your wealth advisor, accountant, or attorney to determine the best choice. Alternatively, there are online tools that let you set up a mock portfolio—so you and your child can talk about investing and make investment decisions without putting in real money.
You may want to use the birthday gift as an opportunity to not just talk about managing money, but also share with them the family’s financial values. This can include giving to charity—plus the organizations or causes your family supports and what has led you to make those decisions. You can encourage children to donate a portion of their birthday gift to an organization of their choice. This act of giving can have a powerful effect in building a spirit of philanthropy in young ones. Another approach is to set up a donor-advised fund—and potentially match the child’s gift. This allows children to learn about many different charities and be involved in making decisions about allocating money to various causes.
Recognize the power of talking with your child about financial values, money management, and investing while your child is young. It is never too early to start teaching children the importance of being thoughtful about money and building sound financial habits. The check or cash tucked inside a birthday card might just be the perfect chance to do that.
Download Your Child Receives Birthday Money
Short-term goal: Buying a video game console in 6 months Midterm goal: Buying a first car or studying abroad in 5 or 10 years Long-term goal: Buying a house in 20 years
The best place to hold those savings will depend on the specific need and when you will need it. For short-term goals, you may want to set up a custodial savings account (governed by the Uniform Transfer to Minors Act, or UTMA) on their behalf—so they can see how bank accounts work. For long-term goals, consider showing them the value of investing money and the potential to generate returns over many years.
Individual stocks and pooled funds (whether mutual funds or exchange-traded funds) each have their own advantages and disadvantages when it comes to being a teaching tool for kids.
Your child may have companies they like or have heard of that they would be excited to invest in. Tracking the performance of individual companies is simpler and more intuitive than following a fund’s performance.
Funds
Individual stocks
Pro
Achieving diversification through individual stocks can be challenging with small dollar amounts. The stock of some of the most well-known companies costs more than $1,000 per share.
Con
The child will get access to the full account value once they reach the age of majority in your state, which is typically 18 or 21 years old. Note that money in an UTMA account could reduce the amount of a student’s aid reward, since the student is considered the owner of the account, not the custodian.
These accounts are easy to set up and have low account maintenance costs. It is important to consider investment fees in addition to the maintenance costs.
Trust
UTMA brokerage account
The two most likely vehicles to consider for investing a child’s money for general purposes are an UTMA brokerage account and a trust. If the money is for a specific goal, such as education and healthcare, there are other vehicles to consider. Each vehicle has its own pros and cons.
While children cannot open their own brokerage account until they turn 18, you can still put the money in an account and invest it on their behalf. This allows you and your child to track the account’s performance over time, and it gives you ample opportunity to explain the fundamentals of investing—such as how stocks and funds work and the value of diversification. How detailed you get, of course, will depend on the child’s age and interest level, but even when children are young, understanding the basics of investing can help prepare them for saving and investing when they are older. Before you help your child invest their money, there are a few important questions to answer.
Another bonus of letting children invest the money is that it’s an opportunity to start teaching them about taxes. You can explain how they may have to pay capital gains on the growth of the investment as well as tax on dividends or interest.
Trusts can be more complex and costly to set up, and they can be difficult to change once they have been established.
You have greater control over when and how the child gets access to the money. A trust allows you to release the funds slowly or put in other conditions that must be met before the child receives the money. This can be especially helpful for large sums.
Understanding how a fund works can be confusing for a child. It will likely be hard for children to connect the dots between news they hear about a company and how that relates to the fund’s overall performance.
Investing in funds shows your child the value of diversification. This helps children learn how to manage the risks of investing while still generating returns.
Address these financial considerations when purchasing a new vehicle or home
When it comes to making a major purchase—such as buying a new vehicle or investing in a second home—you want to take your finances into consideration. From a budgeting perspective to how the cost will impact your long-term financial stability, there is a lot to think about. We have five tips to help you make that next big purchase.
Review Your Budget Know the True Cost Determine Timing of Purchase Funding the Purchase Long-Term Financial Goals
What are your monthly expenses? How much are you putting into savings each month? The 50/30/20 rule is an easy budgeting strategy that can help you manage your money effectively. It means spending 50% of your income on needs (think monthly expenses, such as housing, utilities, insurance, childcare, etc.), spending 30% on wants (such as a luxury car or vacation home), and putting 20% in savings. Before you make a major purchase, review your budget to determine how your purchase will affect your lifestyle spending and ability to save. You do not want a short-term purchase to affect your retirement goals. Make sure you are able to maintain retirement plan contributions after making the purchase. And if you plan to use emergency reserves to cover the cost, consider how long it will be before you can replenish that money.
When making a major purchase, you need to determine the true cost of the item. That means accounting for the actual price along with any ongoing expenses. There are considerable costs that come with buying a second home or a luxury vehicle, and not budgeting for expenses can impact your long-term financial stability. For example:
Review Your Budget
Know the True Cost
Determine Timing of Purchase
Funding the Purchase
Long-Term Financial Goals
The more time you have to plan for a big purchase, the more time you have to do it in an efficient manner. For example, if you are going to liquidate some of your portfolio rather than assume more debt, you may be able to extend the capital gains, and taxes associated with those gains, over several years. In the case of purchasing a home that you will use as your primary residence, align your mortgage or long-term debt obligations with the time you plan to be employed and bringing in an income. It’s probably not ideal to take out a mortgage at age 70 and have only your retirement funds available to pay it off.
Home equity loans: Home equity loans often carry a considerable amount of refinance costs and upfront costs. However, this offers you the opportunity to get a fixed rate, so you are locked in at a lower rate over a long period. Cash-out refinancing: This may give you the opportunity to decrease your monthly payment or negotiate a lower interest rate; however, make sure to consider the added costs and fees associated with refinancing. Personal loan from bank: While interest rates and fees associated with personal loans may be higher than other lending options, you may find that banks offer more flexibility and higher borrowing limits. Margin loan: If you are making a short-term purchase, margin loans come with no upfront costs and can bridge a gap for longer- term debt. Margin loan rates are not fixed, so remember that they will fluctuate and could increase. Financing options offered by seller (i.e., dealership financing): If you are purchasing a vehicle, you might have an opportunity to get 0% financing for a specified number of years, which is appealing because it gives you time to produce the funds you need and to generate the liquidity in a more efficient manner.
Major purchases can threaten your financial goals if you do not prioritize appropriately. Your initial focus should be on emergency funds and retirement funds, which are high priorities that you don’t want to compromise for a major purchase. In addition, rather than focusing solely on how you are going to pay for the purchase now, also consider how it will affect your long-term goals, such as retiring at a certain age or having a sufficient nest egg built to live the retirement lifestyle you worked hard to afford. While it may be easy to recognize the initial impact on your finances—namely purchase price and increased ongoing expenses—it’s generally more challenging to assess the longer-term financial implications of a major purchase.
It’s often helpful to work with a wealth advisor who can run a holistic financial plan to help quantify the long-term impact and ensure you’re not compromising your long-term financial stability and goals.
Download Financial Tips for Making a Major Purchase
When purchasing a new vehicle, you will have to cover the cost of repairs, maintenance, insurance, licensing, and registration. Maintenance of a domestic car can be a fraction of what it is on a high-end luxury car. Buying a house comes with the added expenses of utilities, property taxes, insurance, repairs, and maintenance. If you are purchasing a vacation home, think about not just where property taxes are today, but where they will likely be in 10 years.
Decide whether you plan to use existing cash you have accumulated or debt to make the purchase. This is largely a question of risk tolerance. Using cash is a more conservative approach, while loans carry risk since you are taking on debt burden. When purchasing a primary residence, you may want to be a little more aggressive, as this falls into the “need” category of your budget rather than the “want.” As for a second home, make sure not to overextend yourself. When it comes to taking on debt to make the purchase, there is a lot to consider. You will want to understand the terms (interest rate, amortization period, fixed versus variable rate, monthly payment) you can expect based on the type of loan and the total interest you will be paying over the life of the loan. Options to consider include:
Tips for developing the best strategy while keeping your financial goals intact
Among its many benefits, a college education can have a significant impact on future earning potential. It is an important investment. It is also becoming a more expensive one as increases in college costs continue to outpace inflation. Fortunately, if you want to help pay for your child’s or grandchild’s education expenses, numerous financing options are available.
Savings Vehicles Alternative Sources of Funding Begin Planning Today
The cost of college education has risen faster than inflation nearly every year over the past four decades. And while colleges costs have risen more slowly over the past 10 years, they remain above the rate of inflation. According to the College Board Trends in College Pricing 2021, the published inflation-adjusted (real) costs of tuition, fees, and room and board have risen on average about 2.5% over this time frame, reaching nearly $52,000 a year at private schools by 2021 and $23,000 at public schools. Whether you need to build up assets to finance your children’s or grandchildren’s education or you expect to pay their education costs out-of-pocket, you may benefit from using one or more savings vehicles. The earlier you begin, the greater the potential benefits.
It is wonderful to save to help a child with his or her education costs but you should not sacrifice saving for your own retirement. Alternative education-funding sources are available, whereas there are fewer options for funding retirement expenses. Financial aid comes in a variety of ways, from grants and scholarships to work-study and loans. Often aid is needs-based, but a multitude of merit-based scholarships are available as well as student loans regardless of financial need. If you have a child in college or graduate school now, your family may be able to benefit from one of the various tax credits and deductions available for certain education expenses or student-loan interest. These breaks generally phase out based on income. If your income is too high to qualify, your child might be eligible. A deduction for student loan interest is also available.
Savings Vehicles
Alternative Sources of Funding
Begin Planning Today
Wherever you are on the timeline, begin planning for education expenses today. You will want to compare your options, fees, and tax implications of the various education savings plans available.
William Blair has extensive experience with comprehensive financial planning. We can help you determine how education financing should fit in with your overall financial plan and how to best achieve your goals. If you are interested in learning more, contact your William Blair wealth advisor.
Download Financing a College Education: Options to Consider
529 College Savings Plan A 529 savings plan allows parents and grandparents to set aside money for a child’s college education, offering tax- deferred growth and tax-free distributions for qualified education expenses such as tuition, fees, books, room and board. Since 529s are state-sponsored saving plans, some states will offer an income tax deduction or tax credit. Contributions are not federally tax deductible. You can contribute only cash, not securities, to any state plan you select. Each state sets the contribution limits and offers investment options, varying in type, risk, and time frame. You have the ability to reallocate assets twice a year. You retain control of the investment account and name the beneficiary. Additional restrictions and limits may apply. A 529 plan also comes in the form of a prepaid tuition plan, allowing you to pay for future tuition at today’s prices. However, if the beneficiary chooses a school not included in the plan, there may be uncertainty about how the value of the prepaid tuition plan will be determined. Additionally, if the selected school is private, the value may fall well short of tuition costs. Among the advantages of a 529 plan is the ability to front- load the plan by using up to five years of your gift tax annual exclusion ($16,000 for 2022). That adds up to an $80,000 immediate contribution—$160,000 for a married couple splitting the gift. The contribution is removed from your taxable estate, yet you keep control over the 529 plan. Be mindful that there could be estate tax consequences if you accelerate your annual exclusions and die before the five years have passed. Also, any distributions attributable to growth that are not used for qualified education expenses will be subject to income taxes and a 10% penalty. Contributions beyond the annual exclusion will be applied toward your lifetime gift and estate tax exclusion of $12.06 million for 2022. You are able to change the beneficiary to certain family members in the same generation, such as a sibling or first cousin of the beneficiary or yourself if you are considering going back to school. This will allow you to avoid taxes and penalties if the initial beneficiary decides not to pursue a college education or does not use all the plan funds on qualified expenses. Keep in mind that changing the beneficiary to someone in a lower generation than the current beneficiary, such as his or her child, could trigger gift and generation-skipping transfer (GST) tax consequences. Note: Federally tax-free withdrawals are allowed to pay for up to $10,000 of K-12 tuition. State tax benefits are available for expenses that the state deems as “qualified,” which may or may not include K-12 tuition. Uniform Transfers to Minors Accounts (UTMAs) An UTMA allows you to transfer assets to a minor by opening a custodial account for them. The assets can be used not only for education expenses, but for any purpose that will benefit the child with the exception of basic support expenses such as food and clothing. Assets transferred are removed from your taxable estate, yet you maintain control over how the assets are invested and distributed until the beneficiary reaches the age of majority (18 or 21, depending on the state). There is no limit on how much you can transfer to an UTMA. Transfers are eligible for the annual gift tax exclusion ($16,000, or $32,000 for married couples splitting gifts in 2022). Those in excess of your exclusion will use up part of your lifetime gift tax exemption or be subject to gift taxes. If the beneficiary is your grandchild or someone else more than one generation below you, a transfer beyond your annual exclusion generally will also use up some of your GST tax exemption or be subject to GST tax. The minor is subject to income tax on a UTMA account. If income is above $2,300 (for 2022) the “kiddie tax” applies. Trusts Creating a trust is a way to transfer an unlimited amount of assets that can be used to fund a child’s or grandchild’s college education while maintaining some control over investments and distributions. A wide variety of options are able, each offering various advantages and disadvantages. With an irrevocable trust, for example, assets transferred to the trust are removed from your taxable estate. The trustee, named by you, maintains control over how the assets are invested and when they are distributed to the beneficiary. Since the annual gift tax exclusion does not apply to gifts made to irrevocable trusts, often a “Crummey” provision is added, thus allowing the gift tax exclusion. Trust income (in non-grantor trusts) that is not distributed is subject to income taxes — based on special tax brackets for trusts, where the rates climb much more rapidly than for individuals. Trust income distributed to the beneficiary could be subject to the kiddie tax. Coverdell Education Savings Accounts (ESAs) Similar to IRAs, Coverdell Education Savings Accounts allow you nearly unlimited investment options and the ability to reallocate assets at almost any time. Similar to 529 plans, distributions used for qualified education expenses are tax free. Unfortunately, the annual contribution limit is just $2,000, and that limit is gradually phased out down to $0 based on relatively low income-based limitations. So, an ESA likely will not be sufficient to finance all of your child’s or grandchild’s education expenses. However, it can supplement other saving vehicles. Direct Tuition Payments If you would like to avoid the various limitations that apply to 529s, UTMAs, trusts, and ESAs but still want to help finance your child’s or grandchild’s education, another option is making tuition payments directly to the school, rather than giving money to the child to pay the tuition. Direct tuition payments are not subject to gift or GST taxes and therefore do not use up any of your annual gift tax exclusion, lifetime gift tax exemption, or GST tax exemption. Direct tuition payment is also available for elementary and high school tuition.
UTMA (Custodial Account)
Tax-free earnings and distributions No income limits for making contributions Contributions may be deductible for state income tax Assets generally excluded from owner’s estate Beneficiary can be changed to another family member Varying levels of control of investments
529 Savings Plan
Advantages
A five-step guide to generating retirement income efficiently and effectively
Once you retire, you need to look at financial management in a whole new light. No longer is the goal just earning and saving money and increasing your net worth—it is now about generating income (“paying yourself”) from the assets you have spent years accumulating while also maximizing the other retirement income sources available to you. Before you start drawing down your accounts, consider taking steps to ensure that you are generating income as efficiently and effectively as possible. Here is a five-step roadmap for cash-flow planning in retirement.
Before you determine how you can generate an income stream in retirement, think about your long-term goals. This includes asking questions such as:
Look at how your spending patterns are likely to shift in retirement. Many people have ambitious goals for retirement, such as traveling the world or pursuing a hobby or passion. These activities can cause many people to see a spike in their spending after they stop working. In fact, retirees often have a U-shaped spending curve over the course of retirement. They spend more in the early years of retirement when they are still active, but spending declines as they get older and less active. Spending may then rise again near the end of their lives as a result of increased healthcare and long-term-care costs. Consider compiling a list of your anticipated expenses so you have a realistic picture of how much money you will need to pay for both your major plans and any ongoing expenses. And do not forget to factor in two potentially big-ticket items:
Think Big Picture—Your Goals and Plans
Plan How You Will Tap Your Retirement Income Sources
Be Ready to Shift Your Mindset
Your William Blair wealth advisor can guide you through the regulations and tax considerations that govern different types of retirement income sources.
Keep in mind that many of these topics involve complicated tax and legal considerations, so working with your William Blair wealth advisor can be helpful as you plan for your retirement.
Download Cash-Flow Planning for Retirement
What do your retirement plans look like? How much income will you need to generate to support those goals? How will your housing costs shift? Do you plan to buy a second home? Will you be downsizing from your current home? How much do you hope to leave behind to heirs as a legacy? And how important is this to you? What are your philanthropic goals? Do you want to support those charities while you are alive, or do you want to wait until your death to make most of those contributions?
The answers to questions like these will help you determine how much of your assets you should allow yourself to spend during your retirement, and how much you want to preserve for your heirs.
Healthcare It makes sense to factor healthcare into your income- generation needs and perhaps even set aside additional money to cover large, unexpected healthcare costs. Starting at age 65, you can enroll in Medicare. You will have access to several different kinds of Medicare plans, and your William Blair wealth advisor can help you identify which plan will best meet your needs while looking at how it will affect your out-of-pocket expenses. Note: you could face a penalty if you do not enroll when you first become eligible. Long-term care You will also want to factor in the potential future need for long-term care and other related expenses later in life. The median monthly cost of a room in an assisted living facility was about $4,300 (or about $52,000 annually) and the cost of a home health aide was about $4,600 (or about $55,000 annually), according to Genworth Financial; a private room in a nursing home costs more than $8,800 a month (or $106,000 annually).
1
1 Genworth “Cost of Care Survey.”
Tax-deferred retirement plans generally require you to start taking required minimum distributions (RMDs) by age 72 You can start taking Social Security at age 62, or you can delay claiming it until age 70 to increase your monthly benefit amount (you cannot delay beyond age 70)
■ ■ ■ ■ ■ ■
Taxable investment accounts Tax-deferred retirement accounts, such as 401(k) plans or traditional IRAs Roth IRAs Social Security Deferred compensation, restricted stock, or other forms of incentive-based compensation for corporate executives Defined benefit plans(traditional pensions)
You will likely have several different potential sources of income in retirement. These can include:
Each type of retirement income is subject to different regulations and tax implications. For example:
Many retirees are not fully prepared for the realities of retirement income planning. As you move out of the accumulation phase and into the draw-down phase, you will likely see your account balances drop. This may be unsettling for those who have spent years watching their nest egg grow. Moreover, you may need to lower your risk exposure during retirement to reduce volatility or the possibility that a major market downturn will affect your income. Remember, as your investment time frame shortens, you generally have less capacity to absorb market losses. Retirement is an exciting life event for many people, and how effectively you manage your assets and cash flow can have a major impact on your lifestyle and your peace of mind. Careful planning can help ensure that you spend this next chapter of life focused on pursuing your dreams rather than worrying about funding them.
Once you understand the rules and tax consequences of each income source, create a plan for the order in which you will draw them down. Many retirees first draw from their taxable brokerage accounts in retirement, because they typically want to continue receiving benefits from their tax-deferred and Roth accounts for as long as possible. RMDs mandate that you begin drawing down from your tax-deferred accounts by age 72. Roth IRAs require no withdrawals during the original account owner’s lifetime and they can be an ideal vehicle for leaving assets to heirs. Many investors tap their Roth IRAs last or never during retirement. Also consider which assets within your accounts make sense to draw down and in which order. This is especially true when withdrawing from taxable brokerage accounts because different holdings can have vastly different capital gains tax implications. You should couple these decisions with your overall asset- allocation strategy and risk tolerance. Reducing your exposure to certain asset classes or types of investments could significantly affect the risk profile of your portfolio. And as you age, your risk tolerance may shift along with your investment timeline.
Take Inventory of Your Retirement Income Sources
Consider How Your Spending Will Change
These steps can help reduce financial risk and preserve your family’s wealth
Most people marry with the intention of a long and happy union and do not expect to get divorced. Yet according to the CDC in 2020, 45% of marriages ended in divorce. While it may seem unromantic or skeptical, acknowledging the possibility of a divorce—and considering how to preserve and protect your family’s assets and property—can help reduce financial risk, preserve your family’s wealth, and ensure that your assets go to the intended family members and recipients. This type of planning can also reduce the potential for family conflict in the event of a divorce, while making the couple’s asset division process overall more straightforward and less stressful. Here are some steps you can take before and during marriage to prepare for the possibility of a divorce.
Before you get married, it’s important to consider strategies that can help preserve wealth and potentially protect certain premarital assets, such as a business, inheritance, a second home, artwork, or jewelry.
Once you’re married, there are ways to continue to protect and preserve wealth and help ensure that your assets are properly directed in the event of a divorce.
Before Marriage
Tailoring Your Approach
If You Get Divorced
Keep in mind that many of these topics involve complicated tax and legal considerations, so working with your William Blair wealth advisor can be helpful as you plan in case of a divorce.
Download Planning Your Assets in Case of a Divorce
Understand your state’s divorce rules Laws regarding how property and assets are distributed after a divorce differ by state. Nine states have “community” property distribution where assets and debts are split 50- 50; the rest use “equitable” distribution. This stipulates that everything beyond certain gifts and inheritance must be split “fairly” but at the judge’s discretion based on factors such as each person’s income and job status. These marital property rules have major implications for what each spouse will receive in a divorce—unless other measures are taken that preempt them. Consider a prenup A prenuptial agreement is a document that must be signed before marriage that lays out how assets and debts will be divided should you divorce. Its terms will generally override your state’s asset and property division laws. A prenup can be especially useful when one or both spouses bring considerable assets or debt to a marriage or have children from a previous marriage. If you own a business or expect to inherit shares of a family business, a prenup may include terms that prevent you from having to forfeit a share of ownership in the business or cause major disruption to your business in the event of divorce.
Gather your records. During the divorce proceedings, you will need documentation of your financial accounts and other important records, including any wills, powers of attorney, insurance policies, tax returns (personal and business), and investment statements. It’s a good idea to start organizing these once you decide to divorce. If you have kids, you’ll need records of their accounts as well. Determine ownership. Review all your accounts, loans, property documents, and insurance policies and determine whose name is attached to what. Review beneficiaries on accounts and policies—as those may need to be changed. Keep in mind that many states prohibit couples from making any changes to accounts, property ownership, assets, and debts during the divorce proceedings. You may want to hold off making changes, including updating beneficiaries, until the court authorizes you to do so. Track income and expenses. Keeping an ongoing record of your income and expenses can help make the divorce process more efficient and ensure that you have the information readily available when it is needed.
Evaluating ways to protect and preserve wealth in the event of a divorce is prudent for many families, but it can be especially important for blended families due to remarriage where one or both spouses have children from previous marriages. Because there are so many facets to consider before, during, and after marriage, it’s important to work closely with your William Blair wealth advisor to develop a strategy that’s tailored to your individual situation.
Family Gifting
During Marriage
Consider keeping accounts and assets separate Commingling accounts and retitling assets to create joint ownership will generally cause those assets to be considered marital property—and thus split in a divorce, following the state’s distribution rules. While you may want, for example, your joint checking account commingled for practical reasons, consider keeping any account separate that you hope to maintain full ownership of should the marriage end in divorce. Preserve the business When one spouse owns a business or is part of a family business, special consideration should be made to minimize disruption in case of a divorce—which can compromise a business’s operation. Most importantly, make sure to keep business assets separate from any personal assets; this includes not using the non-owner spouse’s income or assets to pay for anything business-related. Putting the business in a trust or securing whole life insurance that can be liquidated to pay out the non- owning spouse in event of a divorce are other common strategies used to protect a business or provide cash to buy out a spouse.
Explore effective giving strategies How assets and money are gifted to a married couple or their child can affect whether those gifts become marital property. For example, grandparents who want to help pay for their grandchildren’s education and want to protect those gifts in the case of a divorce may want to consider paying for expenses directly to the educational institution since gifts made to a 529 college-savings plan or a custodial account, such as a UTMA or UGMA, are technically marital assets. When transferring business-ownership shares to the next generation, older family members may want to consider gifting strategies that reduce the risk of those shares being treated as marital property in case of a divorce. There are ways to gift or sell shares, such as by setting up a buy-sell agreement that creates rules for who can own those shares. Look at a postnuptial agreement A postnuptial agreement is signed after a couple is married to protect certain large financial gifts. For example, parents who provide funds for their daughter and son-in-law to buy a home can choose to do so on the condition that the home is titled in their daughter’s name only. Keep in mind that courts often apply more scrutiny to postnuptial agreements than to prenups, due to concern that one spouse may have been coerced into signing it. Consider setting up trusts When executed properly, trusts can be very effective tools for providing gifts to younger generations and preventing those gifts from becoming marital property. It’s important that any income from a trust not be commingled with a spouse’s assets.
Extended family and others who make significant gifts or are planning to leave an inheritance may also want to take steps to ensure that those gifts are directed to the intended recipients.
If you’ve decided to end your marriage, the court will determine how and when your assets will be divided—based on your state’s marital property rules and any steps you and your spouse have taken. There are ways, however, to make the property and asset division process easier and more straightforward. These three steps will help you prepare and get organized:
7 financial considerations when you’re starting a new job
Changing Jobs?
When you change employers—which some people do many times over the course of their career—it’s important to address all the financial implications that come with that transition. Here are seven of the most important financial decisions to consider when starting a job with a new organization.
There are generally three main options to handle the retirement savings you’ve accumulated in a 401(k), 403(b), 457, or other qualified retirement plan with the employer you’re leaving:
Make sure you don’t have any gap in health coverage between when you leave an employer and start at a new one. Determine the exact date of when your old coverage ends and your new coverage—assuming you have it—begins. If your new health coverage doesn’t begin right away, consider whether to take advantage of COBRA—a federal law that allows you and your immediate family members to continue receiving your existing employer-based health coverage for at least 18 months after you leave that employer. Be aware, however, that you will likely have to pay both the employer and the employee portion of the premium for the months you’re on COBRA, which can be quite expensive. As an alternative to COBRA, you might be eligible to sign up for a plan through your state’s health insurance marketplace or, if you’re married and your spouse has employer-sponsored coverage, get added to your spouse’s health plan. Each of the options for securing health insurance to bridge a gap can have pros or cons, so make sure to evaluate them carefully, considering both the cost and coverage implications.
There are many financial decisions you’ll want to consider as you evaluate job opportunities, wind down your current job, and onboard at your new employer. It may make sense to carve out time to talk through these considerations with your William Blair wealth advisor to ensure that you’re maximizing this opportunity to strengthen your financial life.
Download 7 Financial Considerations When You’re Starting a New Job
While leaving the savings in your former employer’s plan may seem like the easiest option, there can be significant advantages to either rolling it into an IRA or moving it to your new employer’s plan. You may consider keeping all your retirement savings together for ease of investment management. It can be less complex to allocate your savings among various investments when they all live in one account. In addition, it is easier to track assets when they are consolidated. Another, longer-term benefit is it can be easier for you to strategically draw down your savings in retirement if you’ve consolidated them. Other factors to keep in mind as you make this decision:
Your new employer may offer health savings accounts (HSAs) or flexible spending accounts (FSAs), which let you set aside pretax income for specific expenses, such as commuting, medical care, or childcare. Those enrolled in a high-deductible healthcare plan can make tax-free contributions to an HSA, grow earnings tax free, and use tax-free distributions for qualified medical expenses. Savings in an HSA can be kept in cash or investments, do not expire, and can move with you if you switch jobs. FSAs can save you money if you have those expenses, but understand that you will typically forfeit any funds contributed to an FSA that aren’t used by the annual deadline. If you have funds leftover in an FSA when you leave an employer, you will typically still have access to those funds if eligible expenses were made prior to you leaving your job (such as a doctor’s appointment you’ve yet to be billed for). However, you will forfeit any remaining funds beyond those expenses, unless you are eligible for and choose COBRA continuation coverage of your FSA.
Your new employer may offer health insurance and may even give you multiple options. If you’re married and your spouse has employer-sponsored health insurance, you may want to determine whether to join your spouse’s plan instead of your new employer’s plan (you’ll want to make sure any children are put on the appropriate spouse’s plan as well). Here are some considerations when lining up the right coverage:
Transfer your savings into an individual retirement account (rollover IRA); Keep them in the former employer’s retirement plan; or Move them to your new employer’s plan
Moving the savings to an IRA may give you a wider array of investment options than you will find in an employer-sponsored retirement plan. For example, you may have access to a greater array of funds and exchange traded funds (ETFs), as well as less-common investments such as municipal bonds or real estate investment trusts (REITs). It’s worth comparing what investment options your former and new employers’ retirement plans offer with what you can find in an IRA. The investment and administrative fees participants pay in an employer-sponsored plan can be higher than the fees charged by an IRA—compare the total all-in fees when deciding where to keep your retirement savings.
Are your current doctors, including any specialists, considered in-network in your new employer’s health plan? If an important doctor is not in the network, assess how that will affect your out-of-pocket costs for seeing that doctor. Does your new health insurance offer a health plan option that allows you to contribute to a health savings account (HSA)?
About 60% of U.S. workers have access to life insurance coverage, and nearly 40% have access to short- and long- term disability plans through work, according to the Bureau of Labor Statistics. Find out whether your new employer offers such coverage and, if it does, what your cost would be. Your William Blair wealth advisor can help you determine whether you should sign up for life or disability coverage through your work, or get coverage outside of work. Keep in mind that you may lose your employer-offered life and disability insurance coverage if you leave the job, so there can be benefits to securing that coverage separately.
You may have received equity compensation, such as restricted stock, stock options, or phantom stock, as well as severance or other types of non-salary compensation from the company you’re leaving. The tax implications and rules related to these forms of compensation can be complex, so it’s wise to read the fine print of any agreements and discuss next steps, options, and opportunities with your advisors. Also, if the company you’re joining offers any equity compensation packages, make sure you understand the rules and tax implications so you can take full advantage of these benefits.
Your salary or overall compensation mix—such as how much you depend on commissions or bonuses—may change significantly when you switch jobs. It’s worth looking at how your take-home pay could be affected by the job change and whether you need to make any changes in your spending habits or lifestyle.
Consider Life and Disability Insurance Coverage
Look at Health Savings and Flexible Spending Accounts
Line Up the Right Health Insurance Coverage
Bridge Any Health Insurance Gap
Decide What to Do With Your Retirement Savings
Evaluate Your Equity Compensation Packages and Understand the Tax Implications
As your parents or other relatives get older, they may need help with everything from managing their daily care to performing tasks such as grocery shopping, paying bills, and getting to appointments. In addition to these everyday activities, they will often need help making significant decisions about their finances and living arrangements.
Making these decisions and providing ongoing support can be stressful for you, your parents, and other family members. Here are five steps for helping your aging relatives and other loved ones get the support they need and for navigating what can be a challenging—yet also rewarding—time of life.
There’s often a progression: Early on, your parents may need light support, such as a housecleaning service or a caregiver (family or otherwise) who comes occasionally to help with basic care and needs. At some point, those needs will likely be more complicated, and a decision must be made about future care and a possible move, whether into a family member’s home or a long-term-care facility. It’s a good idea to discuss care needs and wishes with your parents sooner rather than later, so everyone can plan for this progression. If you have siblings, you’ll want to bring them into these conversations early on so you can coordinate and make decisions and arrangements together. Topics to discuss include:
As you discuss and evaluate your parents’ care needs, you’ll want to have a complete picture of the financial resources available to pay for them. This may include Social Security payments, retirement savings, former employer pension payments, Medicare plan benefits, and long-term-care or life insurance policies. It’s important to understand your parents’ financial situation so you can help them find care options they can afford and maximize the resources they have. Because financial conversations can be sensitive, consider meeting with your lawyer or William Blair wealth advisor who can help guide the discussion and provide expertise.
Download Helping Aging Parents Get the Support They Need
Keep in mind that as you’re exploring current or future care needs, most communities offer free eldercare resources to help aging people and their family members get information about services available to them. The U.S. Administration on Aging offers a database for finding these resources locally at eldercare.acl.gov.
Documents and accounts to review include:
At some point, aging parents may become incapable of making financial, legal, and medical decisions on their own. Before that happens, they should appoint a highly trusted individual (whether an adult family member or a professional advisor) to serve as their durable power of attorney. A power of attorney can become effective immediately (even while individuals still have full capacity) or it may be effective only if they become incapacitated. The designated agent can sign legal and medical documents and make financial decisions on their behalf, conducting any financial transaction that they could have conducted themselves. A lawyer can help set up power of attorney in a way that best fits your parents’ needs.
Where do your parents envision living as they get older and no longer can fully care for themselves? Do they plan to move into a senior apartment or assisted-living facility, or do they prefer to have in-home care? Who will provide them with the different types of support they need? Can family members provide it, or does it make sense to hire a caregiver? What financial resources are available to help cover the costs of future care? Where can important documents, such as insurance policies, financial account statements, a will, and healthcare directives, be found?
Beyond designating a power of attorney, it’s worth deciding how financial decisions and transactions will be managed when your parents can no longer manage them for themselves. This can include making sure bills and taxes are paid on time, making investment decisions on their behalf, and providing financial gifts to either family members or charitable organizations. Many banks offer “convenience accounts” that let the account holder authorize another person, such as an adult child, to write checks, pay bills, and make withdrawals on their behalf. Even before your parents are ready to give up making their own financial decisions, it may be a good idea for someone to monitor their account transactions to reduce the risk of errors or theft. Some banks will set up “view only” access to their accounts.
Because there are so many facets to supporting aging parents—from helping them get care to ensuring their finances are well-managed—it makes sense to turn to trusted advisors to help you along the way. The sooner you have these conversations, the more prepared your entire family will be when the time comes.
Determine How Finances Will Be Managed
Update Important Documents
Consider Setting Up Power of Attorney
Understand Available Resources
Discuss Current and Future Care Needs
Start the Conversations and Planning Before They Are Needed
Wills and any trusts that have been established Healthcare directives Power of attorney Property titles Insurance and long-term-care policies Financial accounts, including bank and investment accounts
As you review your parents’ resources, also ensure that their important documents and accounts are up to date, reflecting their current address and contact information, beneficiaries, and goals. For example, a will that hasn’t been updated for years may include beneficiaries who are deceased or estate distribution instructions that do not reflect their current wishes. Likewise, beneficiary designations on retirement plans or insurance policies may also be outdated.
As you review these documents, aim to keep them organized and in one place so they are easy to find when you need them. Sometimes a trusted family member or advisor will store a copy for safekeeping, and there are now apps that make sharing and storing such documents electronically more convenient and secure.
Social Security and Medicare What Seniors Need to Know About Two Big Decisions
As you enter your 60s and reach retirement age, you have some big decisions to make that can significantly affect your finances and quality of life. Two of those decisions concern your access to Social Security and Medicare. Here’s what you need to know about navigating these important government benefit programs.
Many people have paid into the Social Security system at some point over their lifetime and can claim a benefit starting in their 60s. Two important questions are: What is the best age to start taking benefits? And if you’re married, divorced, or widowed, how can you maximize your monthly benefit amount?
Download Social Security and Medicare. What Seniors Need to Know About Two Big Decisions
At What Age Do I Claim Benefits?
Medicare
Social Security
Most Americans are eligible to enroll in the federal Medicare health insurance program at age 65. However, you generally can delay enrolling in Medicare Parts A and B if you have group health insurance through a company with 20 or more employees where either you or your spouse works. Once you lose that coverage, you have up to eight months to enroll in Medicare without facing a penalty. When you sign up, it’s important to be aware of the coverage options and gaps. Below are key considerations when enrolling in Medicare:
You can enroll in Medicare Parts A and B—also called original Medicare —once you turn age 65. This “initial enrollment period” begins three months before the month you turn 65 and runs until three months after. Part A (hospital coverage) covers inpatient care and is free for most people if they or their spouse paid Medicare taxes long enough while working—generally at least 10 years. Part B (outpatient coverage) charges a monthly premium, and you will pay a penalty if you don’t sign up when you become eligible. Most Medicare participants will want to secure additional Medicare coverage beyond Medicare Parts A and B since the government’s original Medicare Parts A and B have coverage gaps. Medicare participants have two basic options: a Medicare Advantage plan or a Medicare Supplement Plan. A Medicare Advantage plan is a private health plan similar to employer-sponsored health insurance that charges one monthly premium and often bundles prescription drug coverage, dental care, vision, and hearing benefits. These plans will generally limit you to a specific network of health providers. Some Advantage plans are “zero premium”— meaning you don’t pay a premium for them—but you still must pay the Part B premium charged by original Medicare. A Medicare Supplement plan—also called Medigap—covers your healthcare where original Medicare leaves off. These plans are also sold through private insurers, but they are standardized with letters A through N—with each lettered plan offering the same types of coverage. Unlike Medicare Advantage, a Supplement plan can be used with any provider that accepts original Medicare—meaning it can cover you with a much wider pool of health providers. Supplement plans do not include prescription drug coverage; you’ll need to buy a separate stand-alone Part D prescription drug plan (also sold through private insurers). They also often don’t include dental, hearing, or vision coverage‚ so you may want to buy that coverage separately as well. If you want to sign up for a Supplement plan, it can be a good idea to do so when you first sign up for Medicare. At that point, you can buy any Medigap policy in your state regardless of your current health status. However, if you wait to sign up for a Supplement plan until after your initial enrollment period, you may be denied coverage depending on your health status. Most Medicare Advantage plans include prescription drug coverage, but if you don’t have that coverage, you will generally want to sign up for a Part D stand-alone drug plan. You can compare your Medicare Advantage and Medicare Supplement plans available in your area, as well as Part D stand-alone plans, at medicare.gov/plan-compare/.
The earliest you can begin receiving Social Security benefits is age 62, but your payment will be 30% lower if you claim benefits before your full retirement age (FRA)—which is 66 if you were born between 1943 and 1954 and incrementally rises to 67 for those born in 1960 and after. Furthermore, if you delay your benefits beyond your FRA, your monthly benefit amount will increase 8% annually until you reach age 70—when you reach the maximum benefit amount and the latest age at which you must start taking benefits. This essentially means that your benefit amount will rise by approximately 75% if you wait until age 70, compared to what your benefit would be at 62. Deciding what age is best to start claiming benefits is something of an actuarial guessing game based on how long you live. It may make sense to wait at least until your FRA so you receive the full benefit amount, unless you have a compelling reason to begin receiving benefits sooner. It’s also worth considering that you may have to pay federal income tax on your benefit amount if you are receiving additional income from other sources.
The federal government gives married couples and people who are divorced or widowed some options when it comes to taking Social Security:
Married? Divorced? Widowed?
Married: If you’re married, you have the option of either taking a benefit based on your own lifetime earnings or claiming a benefit valued at up to 50% of your spouse’s Social Security benefit amount, though if you begin taking those benefits before your own FRA, the amount will be less. If your spouse earned significantly more than you, it’s worth evaluating which option provides you with the larger monthly payment. Regardless, your spouse still receives his or her full monthly benefit amount. Divorced: If you are divorced but were married to someone for at least 10 years, you can claim a benefit valued up to 50% of your ex-spouse’s benefit amount rather than taking a benefit based on your own earning history—assuming your own benefit amount is lower. This is not an option if you are remarried. Widowed: You can be eligible to receive up to 100% of the Social Security benefit your deceased spouse would have been entitled to based on his or her earnings record up to that point. Conversely, if the spouse died after his or her FRA, the surviving spouse would receive what the deceased would have collected had he/she claimed benefits the month he/she died. If you remarry before age 60, you are not entitled to claim benefits on the deceased spouse, however, you are entitled to the benefits if you remarry after age 60.
You can sign up for Social Security online, by calling 1-800-772-1213, or by visiting your local Social Security office. You can enroll up to four months before you want to receive benefits, but it’s recommended to sign up at least a month in advance since it can take several months for your application to process. This online calculator provided by the Social Security Administration can help you understand your monthly benefit amount based on your personal earnings history and the age at which you start claiming benefits.
Medicare Coverage
People who enroll in Social Security before they turn age 65 can sign up for original Medicare (Parts A and B) at the same time. Otherwise, if you’re not yet signed up for Social Security, you can enroll in Medicare separately online at ssa.gov/benefits/medicare/ or by visiting or calling your local Social Security Office. To sign up for a Medicare Advantage or Medicare Supplement plan, you’ll need to select the plan you want and apply with that insurer.
Sign Up for Medicare
Medicare open enrollment occurs each fall from October 15 through December 7. This is an annual opportunity to change or sign up for new Medicare coverage, such as switching Medicare Advantage plans or Plan D prescription drug plans. You also may be eligible for a special enrollment period if you move and lose coverage or for another qualifying reason. It’s a good idea to at least evaluate your current Medicare coverage each year before open enrollment and decide whether to continue with your current plan or research another option. Your Medicare plan should send you a Plan Annual Notice of Change each fall that includes any changes in cost or coverage for the upcoming year. That can help you decide whether to keep your current plan or select a new one.
Change Medicare Plans
Your William Blair wealth advisor can help you navigate decisions regarding Social Security and Medicare or point you to other resources that can help. Because these are such important decisions, it is wise to start thinking about Social Security and Medicare well in advance and explore your options.
Maintaining financial well-being and security throughout your lifetime isn’t just about growing your assets; it’s also about managing various financial risks. Life insurance can be a valuable piece of your wealth management plan. Not only can life insurance help you minimize risks, but there are also ways to use policies to help you more efficiently and effectively attain certain financial goals, such as passing wealth to future generations, funding a succession plan for your business, or giving to charity. But like all aspects of your financial plan, life insurance isn’t a set-it-and-forget-it proposition. As market conditions and your personal situation change, you should periodically work with your wealth advisory team and insurance specialists to review your policies to ensure that they continue to serve your intended goals and needs. Here are five key steps to reviewing your insurance coverage.
Before assessing whether your current insurance is meeting your and your family’s needs, take inventory of your current policies. For some people, this may be a simple exercise. For others, this may require evaluating multiple policies with several different insurance companies.
Download Managing Risk Through Life’s Milestones
Ensure That Your Policies Align With Your Estate Planning Goals
Know What You Have
Check the beneficiary designations on every policy since those determine who will receive the proceeds once the policyholder dies. You’ll want to make sure the beneficiaries reflect your current wishes and that their information is up to date. You’ll also want to review the owner of each policy, such as whether it is held individually or in trust. The policy owner may surrender the policy, make certain changes, or gift the policy if desired. You’ll also want to confirm whose life is insured by the policy. Reviewing the owner, insured, and beneficiary of the policies will help assess and ensure that the policies continue to align with your overall estate plans.
Once you’ve organized the documents, here are some important questions:
What type of policies do you have—and for what reason or purpose? There are different types of life insurance—from term to permanent life insurance—each with its own structure and rules. Do you fully understand how your policies are structured? You should have at least a basic understanding of the policy’s terms and provisions so you can determine whether each one continues to suit your needs and goals. What’s the status of each policy? For example, are there current contractual options that are expiring soon?
Five steps to ensuring your life insurance continues to serve your needs
Marriage or divorce Birth of children, grandchildren, or other heirs Retirement Business ownership Health status Risk tolerance Net worth Cash flow needs Charitable priorities
Changes in Your Personal Situation and Goals
Interest rates Valuations of underlying investments Insurance product offerings Ownership, rating, or financial stability of insurance company Estate tax laws
Changes in Market Conditions
You’ll also want to consider the current market conditions and whether those conditions have impacted your policies. This includes:
Has the interest-rate environment changed, such as significant rate increases that may be affecting performance? Have general tax laws or other government regulations changed?
Structural considerations include: Can the performance of your current policies be improved upon? Can policy funding be deferred or suspended into the future? Are dividends providing the same or better return than the base policy?
You should look at your variable life insurance policies like other investments in your portfolio. They have an investment component with underlying market risk and return.
Whether the insurance companies you’re working with have changed ownership and remain stable with strong financial ratings. Whether new products have been introduced with lower pricing or features that may better serve you.
You’ll want to make sure you have the right policies for your needs. Occasionally comparing your options and determining whether it makes sense to switch policies or insurers is a good idea. This includes considering:
If you own a business, life insurance can fill other valuable roles. These include providing a nonqualified benefit that can help you attract, retain, and motivate employees and generating liquidity to support succession planning in the event of the death of a partner. Because the economy, the markets, and your life are always changing, it’s important to review your life insurance at least every few years. Your William Blair wealth advisor can guide you through the review process by considering your current policies as part of your overall financial situation, asking the right questions, and helping you assess your long-term goals and needs.
Transferring wealth to the next generation in a tax-efficient manner Satisfying charitable giving goals either during your lifetime or upon death in a tax-efficient way Reducing the taxable value of your estate Generating liquidity to pay for potential estate taxes due on illiquid assets Protecting assets from potential future creditors
Life insurance may benefit your financial planning in various ways over your lifetime, from helping protect you and your loved ones’ income in case of an untimely death to reducing the impact of estate taxes for your beneficiaries. In addition to protecting your family from an adverse financial situation in the event of death, other common reasons to have life insurance include:
Vehicle to transfer wealth and avoid gift transfer tax
Gifting
Policy to attract, retain, and motivate key employees
Business Value
A hedge against estate taxes
Estate Tax Mitigation
Asset that receives a step-up at death
Income Tax Mitigation
A complement to existing asset allocation
Asset Class
A hedge against unexpected death
Risk Mitigation
Reassess Your Goals and Needs
Evaluate Policy Performance
Consider Alternatives
Check the beneficiary designations on every policy since those determine who will receive the proceeds once the policyholder dies. You’ll want to make sure the beneficiaries reflect your current wishes and that their information is up to date. You’ll also want to ensure that those policies and beneficiaries continue to align with your overall estate plans. You’ll also want to review the owner of each policy, such as whether it is held individually or in trust. The policy owner may surrender the policy, make certain changes, or gift the policy if desired. You’ll also want to confirm whose life is insured by the policy. Reviewing the owner, insured, and beneficiary of the policies will help assess and ensure that the policies continue to align with your overall estate plans.
Before assessing whether your current insurance is meeting your and your family’s needs, take inventory of your current policies. For some people, this may be a simple exercise. For others, this may require evaluating multiple policies with several different insurance companies. Once you’ve organized the documents, here are some important questions:
Experiencing the death of someone close to you—whether a spouse, longtime partner, or family member—can be difficult. Yet, there are actions to take in the days and weeks after their death to ensure their finances and the legal aspects of settling their estate are properly handled. Here is a high-level look at several of the key steps involved.
The executor is responsible for sorting out the finances of the deceased person, including filing the will with the court and making sure outstanding debts and taxes are paid. Because it’s such an important job, the executor should be someone with the time, competence, trustworthiness—and some degree of financial acumen—to ably manage the role. Ideally, your loved one had designated an executor of their estate before they passed away. If they didn’t have a will (or didn’t name an executor in it), the probate court—which oversees the legal aspects of settling the estate—will appoint an administrator to handle the executor duties. When the court chooses the executor, it will generally first turn to any surviving spouse or domestic partner—who can either serve in the role or appoint someone else—and then to any adult children or other heirs. It may also appoint a professional with legal and financial knowledge when the deceased’s estate matters are particularly complex.
Locate Important Papers
Identify the Executor
Keep in mind that you’ll also need to know the person’s Social Security number, which will likely be needed on various forms and estate-related documents.
The executor and others assisting with the estate settlement process will want to work closely with the probate court to ensure that the necessary documents—such as the will—are filed on time and that the other necessary steps are taken in orderly fashion. Keep in mind that not all assets are handled through probate. Regardless of what the will says, property that is jointly owned with someone else who has “right of survivorship” gets automatically passed along to that co-owner. Insurance policies or financial accounts with beneficiary designations are distributed to those beneficiaries directly as well.
Depending on the complexity of the estate settlement process, you may want to bring in professional advisors such as an attorney or accountant to help navigate more complicated or technical issues. For example, you may need to file estate taxes both to the federal government and your state, or you may have assets with complex valuations.
Your loved one likely had outstanding bills, whether for healthcare services, utilities, credit card purchases, or a mortgage. You’ll want to keep tabs on these bills and any other correspondence by forwarding the deceased person’s mail to whomever is handling their affairs, such as the executor. It’s also important to contact any service providers or lenders to notify them of the person’s death (so they can stop billing) and update the delivery address to make sure whoever is overseeing the settling of those bills is getting them. Keep in mind that heirs generally don’t have to pay the deceased person’s bills—and any such payments should come out of the estate. Other types of accounts to manage include:
Forward Mail — and Manage Bills and Accounts
Work With the Probate Court
Consider Your Need for Professional Help
■ ■ ■ ■ ■ ■ ■
Death certificate Will and trust Marriage certificate Birth certificates of dependent children Insurancepolicies Recent tax return and financial statements Veteran discharge papers
You’ll want to locate your loved one’s important documents; these will be critical during the estate settlement process. Hopefully, the deceased person kept their personal documents organized in a safe place—such as in a security box or with a trusted individual—but you may have to make inquires for them. Key documents include:
Department of motor vehicles and election board.
If your loved one was still driving, contact the DMV to cancel their driver’s license, and contact the election board to cease their voter registration.
Notify the three major credit bureaus of your loved one’s passing to protect against identity theft.
Credit bureaus.
Look for any accounts your loved one may have had and consider updating them or canceling those that are no longer needed—especially those that charge fees. (You may need a death certificate.)
Social media and other online accounts.
Real estate titles and home mortgage documents Credit cards Bank accounts Insurance policies Automobile titles Stocks, bonds, and non-retirement investment accounts
After a loved one’s death, you may need to change the title of ownership on property or modify documents—and certain accounts may need to be closed or cashed out. If you plan to open an account for the estate, the estate will need its own tax identification number. An attorney can help, or you can apply online at www.irs.gov. Each type of account is likely to have its own process and rules around transferring ownership or closing it. Some of the accounts and documents that you may need to amend include:
Veteran benefits: As with Social Security, you will need to notify the Veterans Administration if your loved one was receiving monthly benefits
Social Security: If your loved one was receiving monthly Social Security benefits, you need to contact the Social Security Administration to stop payments to avoid a complicated repayment process
Life insurance, whether purchased individually or provided through an employer or professional group
Certain types of accounts—such as employer-sponsored retirement plans and life insurance policies—name beneficiaries, and you may be eligible to claim benefits from those accounts. It’s important to review them individually, checking the beneficiaries listed and determining whether you qualify for any benefits. Accounts to review include:
Once you settle your loved one’s estate, you’ll want to look more closely at your personal situation and make plans tailored to your needs. Consider working with a wealth advisor who can review your situation and help you develop an investment strategy and cohesive financial plan that considers your future needs and goals. The death of a loved one is a sad time—even without having to manage their estate and related matters. Professional advisors can help guide you through the more-complex aspects of settling the estate and navigating this stressful time. For more detailed information about these recommendations, download, Settling the Affairs of a Loved One and A Record of Personal Financial and Family Information.
Retirement plans, including employer-sponsored plans, such as a 401(k) or pension, and Individual Retirement Accounts (IRAs)
Employee benefits, such as insurance and unused vacation and sick leave
Plan For Your Own Future
Review Benefits and Beneficiaries
Change Name on Key Accounts
Download Managing Affairs After Losing a Loved One