Financial Planning

Your road map to financial security.

Women face many unique challenges when it comes to personal finance and investing.

• Physical and emotional – longevity, more subject to elder abuse, more likely to struggle after divorce or death of partner.
• Workplace – lower salary over fewer earning years, out of workforce caring for family.
• Behavioral – less confident about investing skills, more likely to start investing later, invest in less risky assets, less likely to participate in workplace retirement plans.

What does freedom mean to you – starting your own business, going part-time or leaving the workforce, moving abroad, leaving a relationship or job that isn’t right for you, living without debt hanging over your head?

Draw a persuasive picture.

• Imagine yourself in the future.
• Anticipate your emotional reaction when future self is able to retire without stress.
• Visualize reaching your goals.
• Positive reinforcement about good things your past self has done.
• Remove obstacles such as inertia.
• Put decisions on automatic pilot

Where do you want to be?

• When do you want to retire?
• What does retirement look like to you?
• How much will that retirement cost?
• Do you have flexibility?
• Do you have short-term goals that also need to be funded?
• What is your time horizon?
• Do you know how much your Social Security Benefit will be?
• How much do you need to save?
• How will you bridge the gap?

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Reading List

Lean In by Sheryl Sandberg

Don’t Ask by Linda Babcock and Sara Laschever

The Marshmallow Experiment

4% Rule by Bill Bengen

Action Plan

Now is the time to review your accounts, to check for diversification, and to make sure your asset allocation matches your risk tolerance.

Would you like to know your risk tolerance score?

 

We invite you to complete our online risk tolerance questionnaire. You will receive a personalized and comprehensive risk report. Once you have an idea of your risk number, you can give us a call and we will be happy to review the results and look over your investments to make sure your allocations are aligned with your risk profile

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

In the consumer economy, credit is pretty easy to obtain. That often leads to problems for those who don’t know how to use it wisely. At the other end of the spectrum, some people avoid using credit altogether. Smart people use smart credit strategies to maximize their financial position.

Credit provides leverage to help consumers build assets and wealth. In honor of March being National Credit Month, here’s the lowdown.

Why do most Americans need credit?

Now that credit scores are national, standardized, and organized by the three credit-reporting bureaus, it’s become a popular measuring tool. Before 1989, credit scores were localized affairs and used mainly for just obtaining loans or credit cards. 

Today that’s no longer the case because credit scores aren’t just for lenders anymore. It’s essential to monitor your score since there can be a lot riding on it. In today’s world, it’s necessary to have one in the first place. 

Americans who don’t have at least one credit card will likely find themselves disadvantaged in various financial situations. Not only when it comes to arranging for a mortgage to buy their house but also in finding a job and renting an apartment. 

Landlords and employers often request a check on the applicant’s credit history. Some consider the lack of a credit score even worse than a bad one. Good landlords may not rent to someone with no credit at all.

Most Americans must build a retirement nest egg through contributions to a retirement plan. Still, a significant source of household wealth remains the family home. Buying a house for cash is beyond most people’s means, so financing through a mortgage is critical. A history of good credit means a much lower interest rate added to the principal cost than a higher rate for someone with poor or no credit at all.

That’s why young adults need a credit card and learn to use it responsibly by paying off the balance every month to avoid interest charges. That’s the best way to start a history of good credit, as well as avoiding the pitfalls of having too much revolving debt.

Maximizing the use of credit cards

As long as you pay off the card balance each month, the amount due doesn’t continuously increase with interest payments. Using credit cards can help consumers build wealth. 

In addition to making money, wealth depends on not losing money or giving up too many gains. If someone gains unauthorized access to your card, it’s easier to dispute a transaction compared to a debit card.

Make money with your credit by finding cards that provide rewards that match your lifestyle. If you do a lot of traveling (and will resume after the coronavirus pandemic), then a card that offers travel rewards makes a lot of sense as long as the annual fee doesn’t wipe out the reward. 

When you have good credit, it’s easy to find a credit card with low or no fees that give you rewards on your purchases. Cashback is a great reward, but many cards these days offer points instead. You can still benefit from the points rewards because you can exchange points for various merchandise and gift cards. Now you’ve got presents for birthdays and holidays covered.

Smart credit as leverage

While credit cards are one example of credit, they don’t provide you with any leverage because you pay the balance every month. Using different credit types to buy assets gives you the ability to invest more without paying the entire amount upfront.

What kinds of assets does credit help you leverage? Technically vehicles are listed as assets on the balance sheet, but they depreciate quickly. Taking out a loan to buy a car doesn’t provide you with an asset. 

However, taking out a loan (mortgage) to buy a property or taking out a loan (student loans) to increase your human capital will help you accumulate wealth when used correctly. 

Being smart about leverage allows you to invest in something that you can’t afford to pay for entirely right now but will be able to in the future (given some reasonable assumptions). Using leverage to buy an asset (or capital) that you won’t be able to maintain in the future sets you up for potential disaster. Keeping it reasonable helps ensure the loan amount won’t wreck your finances down the line.

Using credit for smart timing

For example, initially, interest-only (IO) mortgages were used for people who logically expected enough income in the near future that would then allow them to pay down the principal. A typical example (at least here in California) is a Hollywood director who could expect millions from one film released after nine months. The IO loan helped them buy a decent house now rather than wait a year for the money to come in. 

These loans weren’t intended to finance too much house for people who didn’t expect they’d be able to afford the payments. Of course, IO loans aren’t the only ones that can be misused. You’ve probably heard of the phenomenon known as being “house-poor,” where the housing and associated payments eat up most of the homeowner’s income. 

Sometimes that’s due to something unexpected like job loss. But sometimes, it’s due to a mortgage that’s larger than the homeowner can reasonably expect to carry for 15 or 30 years. While layoffs and recessions aren’t predictable, the amount of income you need to sustain a mortgage and associated housing payments is. 

Using smart credit for better returns

Home equity loans make sense when you’re making improvements to the home that will increase its value. They make less sense when you’re taking the money out to buy something. 

Similarly, refinancing a mortgage is a great idea when either rates have dropped or your credit has improved to the point where you can substantially save on payments. It’s a bad one when you’re trying to take money out for a purchase because you don’t have any other cash available. Especially an investment that doesn’t result in ownership of an asset.

If you’re building a business that’s likely to grow and prosper, taking out a business loan to get through those first lean years is an excellent use of leverage. It works with investment real estate, too. Many lenders will allow you to use the property’s expected rental income to increase the loan principal. 

Making sure that the amount is within reason applies to student loans as well. Taking out a 6-figure loan to pay for school may make sense when you’re entering a field, like medicine, where you’ll be richly rewarded with hundreds of thousands of dollars a year. But it’s way too much for a job where the average income is only in the five figures annually.

Using credit wisely and as leverage to accumulate capital and build assets is an integral part of a smart financial plan. Debt isn’t necessarily a bad thing, as long as you manage your credit exposure and avoid incurring unnecessary interest charges.

Good credit is necessary for the modern world, so having at least one credit card paid off monthly is helpful for many financial decisions.

Are you thinking about refinancing a mortgage or investing in property? Feel free to give us a call at 619.255.9554 or send us an email to set up an appointment.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

There are many misconceptions and misunderstandings about long-term care (LTC), including who needs it and how to pay for it. It’s essential to break down the main components of long-term care insurance to find what is right for you.

What does long-term care mean?

If you’re already on Medicare or researching it, you know that Part A covers in-patient hospitalizations and skilled nursing. You might be wondering why people buy policies to cover LTC if Medicare already pays for it.

But Medicare does not pay for LTC, which is not skilled nursing. It’s home help for someone who can’t perform several of the Activities of Daily Living (ADLs) for themselves: toileting, transferring (for example, from bed to chair), dressing, bathing, feeding, and walking or ambulating. You might also see these referred to as the Basic Activities of Daily Living or BADLs.

Patients can receive LTC in a facility such as a nursing home or their own homes.

Why should I consider setting aside funds to cover long-term care?

According to the US Department of Health and Human Services, if you’re approximately retirement age now, you have a 70% chance of needing some LTC. About 1 in 5 of those who will end up receiving long-term care will need it for more than five years.

Depending on how long you need it, the expenses quickly add up. LTC’s costs range from $3,600 per month for someone who is mostly independent in a facility to about $7,700 in a nursing home. 

Home health care aides cost approximately $21 per hour on average. The average American who needs this help during the day would spend roughly $5,000 a month. Whether in a facility or at home, typically, women need care for a more extended period than men do.

It costs a little bit more than average here in California to receive LTC in a facility. The median cost for help with assisted living is about $4,500 and goes up to over $10,600 in a nursing home.

Some families are willing to self-insure or pay out of pocket should they ever need this kind of assistance. Family members can also provide care, which reduces the cost as well.

However, some people would prefer to be independent for as long as possible. They’d rather hire someone outside the family to help them go to the bathroom or get dressed.

Those who choose to hire for this type of care often want to set aside funds for this purpose. They don’t want to be a burden on their loved ones. 

Long-term care insurance (LTCI)

These policies pay a certain amount for a specified period if a doctor diagnoses the insured as unable to perform two or three ADLs, depending on the policy. 

Unlike life insurance, there is no medical exam for LTCI. However, the companies use questionnaires, and you may respond with answers that disqualify you. For example, they will typically reject people who are already showing symptoms of cognitive issues such as Alzheimer’s and dementia.

Although LTCI has been around here in the US since the 1970s, Americans started to purchase them in the 1980s. The insurers at that time made two significant errors in their pricing.

They didn’t know how fast the cost of health care would accelerate (faster than CPI inflation) and didn’t realize how much longer people would live. These factors led to substantial underpricing on the policies, and in some cases, the insurers even refused to pay for legitimate claims.

As a result, fewer insurance companies are in the market for LTCI today. However, policies still are being sold.

The contracts usually stipulate limits on lifetime benefits paid out, the monthly maximum, and potentially a deductible. They also offer inflation riders for additional fees. Most policies today don’t discriminate between facility or in-home care. 

Ways to purchase LTCI

The original policies were usually use-it-or-lose-it. If you paid for the policy and never required the care, you couldn’t get a refund. Though so much of the population is likely to need it these days, it might not be such an issue for potential buyers. 

Anecdotally the “sweet spot” for purchasing such a policy was around 55 years old. You wouldn’t have too many years of payments if it turned out you didn’t need it, and you were still young enough that some of the disqualifying medical conditions probably hadn’t appeared.

These contracts are still available, though their popularity has dropped sharply. Premiums can undergo rate hikes at any time in the future. 

The insurance company can’t increase the amount you pay just on your policy, but it can raise the premiums on the entire class of people who purchased the same insurance as you. They now have other premium payment options, so you don’t continue to pay for life. 

Rather than take a use-it-or-lose-it policy with the potential for future premium hikes, some LTCI users purchase a hybrid product. These can be life insurance or annuity products that also allow you to use the money for long-term care.

In the hybrid with life insurance contracts, typically, the cost of whatever care you use is deducted from the face amount that’s payable at death. Different companies offer different ways to structure the policy.

When you combine LTCI with an annuity, you usually need to purchase the annuity with a lump sum. There are no premiums for the LTCI, and what you’ll receive is based on how your insurer sets up your contract.

Although the hybrid products are often more expensive than a plain-vanilla life insurance or annuity policy, they can be a good alternative. Especially for someone who suspects they may need the care but is not interested in a stand-alone policy they might not use.

No matter what type of long-term care insurance you buy, make sure that you understand what triggers a claim and what the policy promises to pay. 

If you’re considering LTCI, make sure you check with your company, associations, and groups. Some offer group LTCI plans with relatively attractive premiums.

If you want help determining whether you need to buy some LTCI, give us a call at 619.255.9554 or email us to set up an appointment.