The Bull Pen: January 2009

Did you know that January is National "Get Organized" month?

If one of your New Year's resolutions was to get organized why not start with a home inventory? 

Now that the cork's officially been popped on holiday festivities, millions of Americans are eager to get a head start on all those well-intentioned resolutions they made. Getting organized is often one of the top five goals people aspire to at the start of a new year.

For those who are looking for a more orderly 2009, making a comprehensive home inventory is a vital first step. If you already have a home inventory, the New Year is a great reason to update - especially since many families recently received expensive new Holiday gifts. The home inventory can be a vital tool in the event disaster strikes, such as fire or theft. 

Tornadoes, hail, fire and theft can impact area homeowners without any notice and with devastating consequences. An accurate and up-to-date home inventory can not only help you organize your home right now, but also help make the recovery process easier on you and your family should disaster strike.

Six Steps to a Home Inventory

•1.      Whenever possible, make sure your home inventory list includes photographs or videotape of belongings. If you have a home video camera, take periodic videos of each room in your house. Focus on individual items in each room. Take additional video of smaller items like jewelry, silver, and related valuables or keepsakes. The same recommendations apply if you're using a conventional camera. Be sure to be thorough when taking pictures of your belongings.  

•2.      Include with any picture or video home inventory list, a detailed, written account of what you own. Be specific in your written inventory. Whenever possible include make, model, serial numbers, receipts and date of purchase for all items in your home inventory.   

•3.      If you don't have pictures, a written home inventory list is better than no inventory, but make sure you are as detailed as possible.   

•4.      Store your home inventory list somewhere away from your home. If you have a bank safety deposit box, keep your list there. If you don't have a safety deposit box, ask a friend or relative to keep your inventory list in a safe place. Lists and information in an electronic format can also be emailed to trusted friends or relatives for safekeeping. Allstate recommends, wherever you store your home inventory list, make sure the location is far enough away from your home it won't be lost in the same event that may destroy your house. However, make sure your home inventory list is kept close enough so that it is easily accessible to you when you need it.   

•5.      Be sure to update your home inventory after any major purchase or gift. You should be updating your home inventory periodically anyway, but make special effort to do so after any major purchase, holidays, or birthdays.  

•6.      If time permits, share your home inventory with your insurance agent so that he or she can help you decide if your coverage meets your needs.

I can tell you first hand that having a home inventory can save you quite a bit of work should you experience a loss.  I have worked with clients who have lost everything and the process of trying to reconstruct what possessions you have accumulated over many years is very difficult?  Do you know how many shoes, screwdrivers and Christmas ornaments you have?

If you aren't ready to itemize everything I also suggest walking thru your house with a video camera and tape everything.   An ounce of prevention is worth a pound of cure so why not get organized today.  

So where is the free home inventory software?  Here you go...   If you would like to learn more please drop me a note at deanakey@allstate.com or give me a call at 877-232-9899.

It sounds easy. Debt resolution companies offer to get creditors to settle for far less than you owe. All you have to do is give them a couple of thousand dollars up front and make a reasonable monthly payment after that.

But this is what could happen:

* They make no payments on credit cards and other loans for several months, if ever. Your credit card and loan balances explode with late-payment and interest charges.

* You could be plagued with calls from creditors and collection agencies. You could be sued and your wages could be garnished.

* Your credit score plunges. Even if they manage to make a settlement for less money than you owe on an account, the arrangement makes your credit score fall even more.

* By the time you realize they have not kept their promises, you could owe thousands of dollars more than when you signed on to the plan, and they still have your up-front money.

* If you take them to court, you discover that the debt resolution company has no assets. There is no way to recover any of the money you have paid them.

Some non-profit companies do help, but a recent IRS investigation shows that many are not non-profit at all. They send their profits to an associated for-profit debt resolution company. When circumstances have put you into a difficult financial situation, you are far better off to contact creditors personally and try to make a payment schedule you can afford.

Be cautious as if it sounds too good to be true it probably is.  If you would like to learn more about this or other personal finance topics please give me a call at 630-232-9811 or drop me a note at deanakey@allstate.com

As we all age, I sometimes find that the owner of a large life insurance policy no longer wants or needs life insurance. And sometimes the policy premiums have risen to the point where the owner can't comfortably pay them.

In either case, an agent for a company that buys life insurance policies will offer to buy the policy and give the owner a "life settlement."  You have probably seen commercials on TV like JG Wentworth who advertise this service. 

Recently, Business Week studied one such situation where the insured was a 72-year-old retired man. He has had a heart bypass and a stint procedure and is expected to live eight years. He has a $1 million policy. The premium began 20 years ago at $14,000 a year, but now premiums are $37,000 a year. Here's what he could do.

* Cash in the policy with the insurance company for $100,000.

* Sell the policy to a life settlement firm for about $275,000.

* Reduce the death benefit to $375,000 which will allow him to keep the policy in force for 12 years without paying additional premiums.

* Stop paying premiums but not reduce the death benefit. That will run the cash value down to near zero in about five years.

At that point, if he is in about the same state of health, a life settlement company would be willing to pay about $475,000 for the policy because his life expectancy is now only three years. (If he dies during the five years he isn't paying premiums, his beneficiaries still get $1 million.)

Not many people have a $1 million life insurance policy, but the percentages would be about the same for policies of lesser amounts.

When you or a member of your family considers selling a life insurance policy, please consult with your financial planner, CPA or attorney prior to making any decisions.  

If you would like to learn more regarding preparing for your retirement please give me a call at 630-232-9811 or drop me a note at deanakey@allstate.com. 

With so many ways to spend your income, it can be difficult to set priorities. Here are a few tips to help get you started with your financial plan.   

Pay off high-cost consumer debt first. Paying off an 18 percent credit card is like getting a tax-free 18 percent rate of interest on your money. Pay off the card with the highest rate first.

After that, save enough cash to live on for three to six months in case of emergency or job loss. And save at least something for retirement.

With a cash cushion in place, invest in your retirement 401(k). Invest at least as much as the company will match.

Put retirement savings before saving for your kids' college expenses. You can borrow for college costs, but you can't borrow for retirement.

Don't prepay your mortgage unless you are saving 15 percent of your income for retirement.

Insurance: Make sure homeowner and auto insurance are up-to-date. A full-time worker should have life insurance equal to six to 10 times their income. Consider long-term care insurance which will help pay for time spent in nursing or assisted living care.

Make a will to ensure that your wishes are carried out. Have a durable power of attorney and a health-care power of attorney.

If you would like to learn more regarding preparing for your retirement or a free review of your insurance policies please call me at 630-232-9811 or drop me a note at deanakey@allstate.com

Only about 5 percent of retirees wait until full retirement age to claim Social Security benefits.

Retiring early can cost dearly, according to the Social Security Administration (SSA), especially if you live a long time.

The SSA calculates that retirees who live to age 90 would lose $39,000 in benefits if they retire at age 62.

Some financial analysts say retiring early would cost far more because of the cost-of-living increases that boost Social Security checks. They figure the loss would be $83,000 for those who take benefits at 62 and live to age 90 and nearly $149,000 for those who live to age 95. The reason: Cost-of-living adjustments would apply to larger sums if a person retires at age 66.

Age 77 is the SSA's estimated break even point. If you think you will die before age 77, retire early. If you think you will live past age 77, delay retirement as long as possible.

People are, in fact, living longer. There is a 41 percent chance that a 62-year-old woman will live to age 90. A 62-year-old man has a 29 percent chance.

For a married couple, there's a 58 percent chance that one of them will live to age 90, and a 29 percent chance that one will reach 95. If you don't think you'll live very long, taking benefits early could hurt your spouse. A married beneficiary can continue receiving his or her own benefits or the deceased's benefit, whichever is more. So spouses who take benefits early also reduce the amount the surviving spouse could receive.

People who want to retire early and can afford to live on their retirement savings until age 66 may also save on income tax.

Married couples with $32,000 in combined income face income tax on half of their Social Security benefits.

If you would like to learn more regarding preparing for your retirement please call me at 630-232-9811 or drop me a note at deanakey@allstate.com

If you want to retire early, but don't want to pay the 10 percent early withdrawal penalty on your IRA, here's how to do it.

You can apply for 72(t) distributions to avoid the penalty. Under that plan, you agree to make equal periodic withdrawals for five years or until you reach age 59 1/2, whichever comes later.

If your retirement savings are in a 401(k), you would have to roll them over into an IRA in order to take advantage of the 72(t) options.

There are three methods for calculating the monthly distribution amounts that are approved by the Internal Revenue Service. Your tax professional will help you determine which plan to choose. Annual payments are set up for a 29.6 year life expectancy for 55-year-olds.

Here is an example of the withdrawal for a 55-year-old who has $250,000 in an IRA and wants to set up a 72(t). Under the Minimum Distribution Method, the monthly check would be about $703, which would be the least you could take. Under the Amortization and Annuitization Methods, it would be about $500 to $600 a month more than that.

Distribution amounts also vary according to the interest rate used in the calculations, which was 4.3 percent in this example.

If you would like to learn more about preparing for your retirement please call me at 630-232-9811 or drop me a note at deanakey@allstate.com

From time to time I am asked which banks are safe places to stash your cash.  I share with my clients that their deposits are insured via the FDIC for up to $250,000 but also offer the suggestion to investigate community banks and credit unions.   

While the biggest banks are suffering from a subprime mortgage fallout, community banks and credit unions haven't had big losses. They never made risky loans.

Credit unions are different from other financial institutions because they are not-for-profit cooperatives. They are owned by the members and often operated by volunteer boards.

One financial analyst interviewed on Fox Business says the shareholders and board members in credit unions know their own money is at risk when they make a loan, so they are more conservative.

The capital in credit unions is at an all-time high, according to the Credit Unions National Association, Inc., in Madison, Wis. It's a safety cushion that protects them against loss and that allows them to continue in spite of recessions or turbulent financial markets.

They are known for share accounts, which may pay a little more interest than bank savings accounts, and for their auto loans, which may cost a little less. Most also offer mortgages.

The lifeline of credit union funds is particularly important now because big banks have tightened their lending standards and may only make loans to people with the highest credit scores.

Some credit unions can refinance subprime mortgages, and offer banking products no longer available from other lenders, including a five-year adjustable-rate mortgage. One reason: They don't pay dividends to shareholders. The money is reinvested in loans to meet the needs of their members.

The American Bankers Association encourages consumers trying to consolidate debt or refinance mortgages to contact community banks. While they are typically conservative, according to The Wall Street Journal, they have plenty of money to lend.

I have had a longstanding relationship with my credit union and a local bank and recommend these institutions to all of my clients. 

If you would like to learn more about how to prepare for your retirement please give me a call at 630-232-9811 or drop me a note at deanakey@allstate.com

As a financial planner, I am often asked about reverse mortgages.  In certain scenarios a reverse mortgage can be a useful tool in making your retirement work. 

The Housing and Economic Recovery Act of 2008 made changes to reverse mortgages effective October 1, 2008. They include higher borrowing limits and protections from aggressive marketing.

A homeowner who is at least 62 years old can use a reverse mortgage to access home equity. It doesn't have to be repaid until the owner moves permanently, sells or dies.

The act raises the maximum amount for a reverse mortgage to $417,000 (or $625,500 in areas of high housing costs) from the previous limits of $200,160 and $362,790.

The amount that can be borrowed depends on the value of the home, its location, current interest rates and the borrower's age.

Loan origination fees may not exceed two percent of the initial $200,000 and one percent of the remaining balance up to a maximum fee of $6,000.

The loan originator's duties include all arrangements related to the loan until the loan is granted.

Lenders are prevented from requiring borrowers to purchase insurance, annuities, and other products as a condition for obtaining the mortgage, or allowing others to attempt to sell financial products as part of the closing process.

If you would like to learn more about how to prepare for your retirement please give me a call at 630-232-9811 or drop me a note at deanakey@allstate.com

Even before the recent colapse of our financial markets clients would ask me where to put their emergency fund monies. 

Financial planners quoted in Readers Digest suggest placing your just-in-case money in a series of short-term CDs that continuously come due. This provides a higher rate of return without tying up a lot of money and gives the option of using it when needed, penalty free.

If you have $10,000 to invest, put $2,500 in a one-year CD in September, then $2,500 in a one-year in December and March. You'll have $2,500 plus interest coming in every three months. You can roll it into new CDs or invest more each time it matures.

To shop for CDs, check with you bank or Bankrate.com which lists the best CD rates from banks nationwide. There are no fees when you buy a CD. The penalty for removing money prior to maturity can be up to six months interest.

While interest rates are low, this is a secure way to have your emergency fund available when you need it. 

The whole point of life insurance is that you never know when you'll need it. So even though your policy might be long-term, you need to make sure it offers the right amount of benefits for your current situation.

A good rule of thumb is to recalculate your life insurance needs once a year, or more often if there's a major change in your life. Here are some examples:

The Things You Own

Whether you're married or single, it's good to know that your finances will be resolved if you should die unexpectedly. That could mean paying off loans or a mortgage, and it's especially important if you have a lot of debt or want your family to keep living in your home.

Take another look at your policy when:

•·         You buy or sell a home

•·         You take on new debt

Family Matters

You'll want to know that your family's financial needs will be covered if you're no longer able to provide for them. You'll need the most life insurance when your kids are growing-enough to last them until they become adults and cover their college education. This is even more important if you're the main breadwinner.

Consider raising or lowering your coverage when:

•·         You get married or divorced

•·         You have a baby

•·         Your children become financially independent

•·         Your children finish college

•·         Your long-term goals change

Work Life

The general rule for life insurance is that your policy's "death benefit" (the amount that gets paid to your beneficiaries if you die) should pay seven times your annual salary. The idea is that as your salary changes, your family's lifestyle changes to match. If you're self-employed or own a business, you might also have business-related expenses to cover.

Think about adjusting your policy when:

•·         Your salary changes

•·         You start or sell a business

•·         Your spouse's job changes

Life rates are at historically low prices.  Recently I was able to provide a 45 year old male client $100,000 worth of term coverage for $199 a year.  If you would like to learn more about how life insurance can help protect your family please call me at 630-232-9811 or drop me a note at deanakey@allstate.com