There is nothing more invigorating than sitting around a dinner table with guests and talking about life insurance.

Okay, just kidding.

It might not be invigorating, but it is something that I wish people would talk about more.

Why is that?

Because far too many people still don’t have any life insurance at all, and if they do, they don’t nearly have enough.

Often times, I see people that have $50,000 to $100,000 of term life insurance either through their employer or that they purchased themselves and they think that is enough.

Newsflash: It ain’t!

If you have a family, with kids, if you have a mortgage, if you have consumer debt, student loan debt, I promise you that $100,000 is not nearly enough, and I will even be bold to say that $500,000 of term life insurance isn’t enough either.

I have shared my story about the progressions of me buying more life insurance as my family grew.

After I got married, $250,000 at the time I thought was more than enough, and it probably was. After our first child, I added an additional $500,000 and after our second child, I really ramped it and purchased another 1.5 million dollar 30-year term life insurance policy, for a grand total of 2.25 million dollars.

For the longest time, I thought that that was enough, even after the arrival of our third child I still felt that my family would be protected in the event that something were to happen to me. I’m not really sure what triggered it, but I started to get the life insurance itch again, thinking man, do I really need to buy more?

With my wife and I starting the adoption process for our fourth child, I thought it at least wouldn’t hurt to look into it. We have other assets, retirement accounts, savings, equity in my business that my wife could always liquidate, so I know there is other assets there, but I thought it wouldn’t hurt to at least shop around and see if I could get more life insurance; I didn’t expect that I would also be able to save a pretty penny.

By using the quote engine like you see here on the site, I was able to find out that I can actually get a 2.5 million 30-year policy and save over $400 a year for doing so.

The previous policies had been purchased over an eight year period and apparently life insurance rates have gone down enough and by consolidating, I was able to save a decent amount.

Here is my challenge to you; do you really think you have enough life insurance?

If you are the breadwinner in your family and something happened to you, is the amount of coverage you have going to take care of your family? Will it help pay off the debt? Will it help ease the financial burden that your spouse may have when she is forced to take care of the bills, take care of the children and help pay for their college?

There is so many other things that people don’t realize that occur after your passing. If you have got the itch, use the life insurance quote engine below to see how inexpensive it is to get more life insurance coverage today.

Over 90,000 Ford Employees are facing a major decision: What to do with their pension.

Should they “play it safe” and continue to take the monthly distributions?

Or they take control of the money by rolling their pension into an IRA?

Lately, I’ve had several clients that are faced with the same dilemma.

When you retire and you have a 401k, then the choice is usually pretty simple- roll the 401k over into an IRA.

There are some exceptions to the rule -under age 59 1/2 and if they hold employer stock- but usually that’s the way to go.

What happens if a pension is involved?

Pensions will typically pay you an income for the rest of your life and then pay your spouse half of the amount for the rest of her life.   If you don’t choose the annuity option, then the only other choice is to take the the lump sum option.

The lump sum option will allow you to take a big chunk up front and then roll that over to an IRA.  You then are in control of how much you take per month as your retirement income.

Let’s take a look to see if it makes sense to roll over your pension into an IRA.

Before I continue, I should say that not all pensions are allowed to take the lump sum option.  One quick example that comes to mind (at least in my region) are teachers.  Most teachers only option is to take the monthly annuity benefit.

1. Financial Strength of Your Company

Deciding on whether to choose the lifetime income option vs. the lump sum might be as easy as evaluating the overall financial strength of the company you work for.  As I have mentioned before in a previous post “Company is Going Bankrupt, What About My Pension“, your pension is insured by the PBGC (Pension Benefit Guaranty Corporation) , but it’s only up to $54,000 and that’s only if you retire at 65.  Over and above that, then you are out of luck.  Any pension amount that is over the $54,000 limit will make the decision to take the lump sum more attractive.

2.  How is Your Health?

photo credit: prudencebrown121

Does your family have a history of illness?  If so, then taking the lump sum and rolling it to an IRA might be the most viable option.  What’s the point of having a income for the rest of your retirement if you are only in retirement for a few short years?

I have a client whose never married friend had worked for a company for almost 30 years.  When that person retired, they optioned to take the the annuity option and receive monthly payments.  Just after three months of receiving their checks they unexpectedly passed away.

Guess what happened to the remainder of the pension benefit?  It all went back to the company since they didn’t have a spouse to pass it on to.   If they had rolled the pension into an IRA, they could have elected another family member to receive it or at least donated it to a charity or their church.

3. Beneficiary Minded

Most pensions work in that you (the employee) will receive an income stream for the remainder of your life.   When you pass, your surviving spouse will receive half of the amount you received.  (Some pensions do allow for your spouse to receive the full benefit, but typically you would have had to take a lesser amount in the beginning).

If your spouse predeceases you, then there’s no more to be paid.  Same when your spouse passes- the payment stops with him or her.  If you have surviving children, they will not receive a dime from the pension.

By opting to roll over your pension into an IRA, you will at least have the option to pass the remainder (if any) to your heirs.  Also, if done effectively, they might be able to stretch the IRA over their lifetime.

4. Lump Sum Pension Payment Vs. Monthly Benefit

photo credit: stacya

The last determinant is just like formerly called Puff Daddy’s song says, “It’s All About the Benjamin’s“.  You need to closely analyze how much the lump sum pension benefit option vs. the monthly benefit.  Let me highlight two situations where it the choice was fairly obvious.

Example 1

I had one client who was offered an early buyout on his pension.   He was almost 55 yet so he could start taking the payments immediately.  The monthly benefit that they were offering was approximately $3000 per month.  He had elected to choose a lower amount (the $3000) so that his spouse would receive the same amount for her lifetime.   That wasn’t a bad option, but just to be sure, let’s look at the lump sum amount.

The pension was an older one that was more beneficial to tenured employees so the lump sum amount was only around $250,000.   I say “only” because assuming no growth on the dollar amount, then the client would have completely exhausted his pension in just under 7 years right before he turned 62.   In this case it was a no brainer to elect the guaranteed monthly benefit.

Example 2

Another client had just turned 62 and her company was offering her a lump sum amount of $600,000.   Not to bad, but let’s look at the monthly benefit.   The monthly benefit amounted to $4,000 per month ($48,000) per year.   Thus far it’s not such a clear cut decision.   What made it crystal clear was that the client has had a 401k with the same employer for just over $200,000 and had a sufficient emergency fund plus minimal debt.  On top of that, they had 3 kids in which they desired to pass an inheritance to.   Believing that they would never outlive their retirement nest egg, it may complete sense to roll over the pension into an IRA.

Before 59 1/2- In Service Distribution

One last point that I should mention is that you don’t have to wait until you officially retire to roll your pension over.   Once you reach the IRS’s magic age of 59 1/2, you can elect to do what’s called an In Service Distribution.  Even if you plan to continue to work, you can elect to roll over your pension amount into an IRA.  Your pension will then to continue to accrue with your employer and you have complete control of your money outside of your employers hands.  This also works with 401k plans as well.

Deciding on the fate of your pension is a very important decision. Review your options more than once and seek council from different parties. I suggest meeting with a Certified Financial Planner and a CPA to help decide which option is best for you.

I was at lunch the other day with a friend that I hadn’t spoken with in years.

During the lunchtime conversation, he made the comment, “Man, how did you get so successful?”

At first, I dismissed it, as often I get embarrassed by such complimentary remarks.

But when I started driving back to the office after the meeting, I got wondering – wow, am I really that successful? 

One of the biggest obstacles to overcome as an entrepreneur is constantly shortchanging yourself; always having doubts that you could have done a little more, made a little more, put a little more time in.

Essentially, we, entrepreneurs,  are never satisfied.

I’ve often had to take a step back and ask myself what my personal definition of success was, and I realize it’s not always about the money.

In my industry, I talk to a lot of young gun financial advisors who are all about making the quick buck, as that is their only metric of success; and, ultimately, it’s sad because at the end of the day, money does not rule the roost.

So, if somebody asks me, “Jeff, do you think you’re successful?“  My answer is an unequivocal, “Yes“.  But it might not be for why you think.  Let’s take a look at my personal definition of success:

I’ve got the love of family and friends.

Having come from a divorced family growing up, I’ve never been super close to my family.

Yes, we did Christmas; yes, we did Thanksgiving, but when I compared myself to other families and how they got together for certain birthdays and various traditions, I always felt that my growing up was a bit different.

Now that I have three sons of my own, family is everything.

In addition to that, I have several friends that I met in sixth grade that remain some of my best friends today.

It’s amazing that our friendship has been that close, and even though we don’t get together as much as we would like, each time we do, it’s picked me up as if no time had passed at all.

In addition to family and childhood friends, we’ve also gained new friendships within our church.  We’ve been able to connect with many couples that have young kids just like us and able to share and relate in several ways.  Having a close-knit group of family and friends is such a huge blessing and is definitely a part of my success.

I love what I do.

Recently, I was talking with a guy who had switched careers and ended up becoming a dental hygienist in his early 30’s.  In his previous career of mechanical engineering, he had experienced four layoffs over a two-year period.  He chose the dental profession as he felt that it was a safer industry that would prevent him from going through any more layoff experiences.

He made good money and he seemed very content in his job.  When I asked him how he liked it, his response is something I’ll never forget.  He referred to his job as just that,

“It’s work. I go to work, I get paid, and call it a day.”

In his case, he didn’t love his job; it was just a means to an end.  While I can definitely respect somebody who makes the sacrifice to provide for himself and for his family, I feel very fortunate to truthfully say I love my job.  I love helping people making sense of their financial life.

Obviously, my job has challenges; remember the financial crisis in 2008?  Trust me, I haven’t forgotten.

But despite those challenges, every day I get the opportunity to help people, whether it’s in my office or on my blog.  There is no greater feeling than really helping somebody out and giving a solution to their problems and satisfying their needs.

Freedom to pursue other passions.

If you’re reading this article, then obviously you’re reading it on my blog.  Having founded my own investment firm, it gives me the flexibility to pursue my blog and other business ventures if and when they arise. You can follow some of these ventures on other blog Dollars and Roses that I started with my wife.

I’ve talked to so many people that have a job that doesn’t allow them to get on Facebook or on Twitter while they’re at work, which might sound trivial, but it’s those little freedoms that I love.

If I hadn’t gone the route in creating my own firm, I never could have grown my blog to what it is today.

If you remember the Roth IRA movement, that never would have happened in my prior arrangement.

Having the freedom to pick and choose what you want to do is so powerful, and it is definitely an ingredient in my recipe for the personal definition of success.

What is your personal definition of success?

What is it about what you do each and every day that makes you feel satisfied?  Everybody has their own definition of success, but you may be surprised at what you’ll find if you take the time to clarify what success really means to you.

Car insurance- check.

Health insurance-check.

Life insurance-check.

Mortgage protection life insurance–wait.. what?

With so many different types of insurance you can purchase nowadays, it’s very easy to get insurance poor.

Buying coverage on your home with mortgage life insurance teeters on the fence of being a bit too much.

Before I get ahead of myself, let’s look exactly what mortgage life insurance really is, then we’ll look to see if it’s worth buying.  Finally, we’ll look at what other alternatives you can consider instead– such as buying a term life insurance policy.

What Mortgage Protection Life Insurance Is Not

First, I wanted to clarify what mortgage life insurance is not. Don’t get this confused with PMI (Private Mortgage Life Insurance).  PMI is what is required by your bank or lender if you aren’t able to make a downpayment (typically 20%) when purchasing or building new home.  I know in our case of the home we’re building, are bank is requiring the 20% to avoid the PMI insurance. For a more official definition, let’s look at what Wikipedia says:

Private mortgage insurance (PMI) in the US, is insurance payable to a lender or trustee for a pool of securities that may be required when taking out a mortgage loan. It is insurance to offset losses in the case where a mortgagor is not able to repay the loan and the lender is not able to recover its costs after foreclosure and sale of the mortgaged property. Typical rates are $55/mo. per $100,000 financed, or as high as $1,500/yr. for a typical $200,000 loan.

What is Mortgage Protection Life Insurance

Mortgage protection life insurance is an insurance plan that will not be offered by your insurance agent- most likely it will be offered by your bank.  If you have recently bought a new home or refinanced, chances are your mailbox has been flooded with offers to insure your home.  Before you decide to buy it or not, let’s find out what it exactly is.

Mortgage life insurance is insurance that is typically bought through the financial institution that has your mortgage (like your bank).  

The amount of coverage that is purchased is the amount of your loan where if something happened to you the bank would be the beneficiary and pay off the loan.  In most cases, the policy is a decreasing term where as the years go by the amount reduces as you’re paying your home loan down although the premium you pay stays the same.

Curious to find more information, I set out to the web to see what I could find.  After Googling “Mortgage Life Insurance“, I came across the  website below .  I really was hoping to get a true cost comparison between Mortgage Life Insurance and level term life insurance (since that’s what I see it compared to), and this site seemed to have the answer.   The website had notified me that if I entered some basic information and agreed that I was okay with 3 insurance agents calling me, then I could get the quote I desired.  In the name of research, I went ahead with it.

Immediately after filling out the form and hitting “enter” on my keyboard, my office phone rang and it was a rep calling me from the online company.  Wow, that’s was quick.  I explained to them that I was a licensed financial advisor and that I was just doing research trying to compare mortgage life insurance.   She was fine with it, but to give me a comparison using me as the example; I had to give some information about my medical history.  Sure, no problem.   After answering a series of questions, she started rattling me off quotes for term insurance.  Wait a minute…I know term insurance.  I’m trying to find out about mortgage life insurance. I then inquired how what she was quoting me compared to term life insurance?   Her response,

“Oh.  Well, we don’t recommend mortgage life insurance.  We think it’s overpriced and feel that term is much more suitable for most folks”.

Doh!   That’s fine, but didn’t answer my question.  Turns out even though the site clear reads, “FREE Mortgage Protection Life Insurance Quote“, they don’t even offer it.   I have to sheepishly admit that I was duped.  And now for the past few weeks my phone has been ringing with insurance agents trying to sell me something I can buy off myself.

When In Doubt Ask Your Banker

One minor roadblock wasn’t going to prevent me from finding the answer I was seeking.  Since I’m currently in the process of building a home, I thought what not a better way to get some more information that go directly to my banker.  I emailed him inquiring if they do offer mortgage life insurance and how it compares to term life.   Here was his response:

We do offer it with our mortgage loans.  Premiums vary on a wide range based on loan amount, age of borrowers, and use of tobacco products.  One advantage is obtaining life insurance with few questions to answer and almost no underwriting.  Disadvantage is the cost is marginally higher  than level term, but mortgage life is decreasing term and pays no benefits to the borrower.  It pays the benefit to the borrower and the bank to pay off the mortgage.

I recommend to borrowers to look into level term before deciding on either one to compare the cost and benefits.  I would prefer to have the benefits paid to the beneficiary and then they can decide how to use those funds.  A good example is within the rate environment we have right now.  If I have a interest rate below 5%, it may be in my spouse’s interest to take the life insurance funds and pay them out in a monthly benefit or invest the whole amount, rather than paying off a low interest mortgage.  With mortgage life you don’t have that option.

Finally, something more concrete.  It was good to hear my banker say that he preferred term life insurance but he did bring up some good points on when buying mortgage life insurance insurance might make sense.

When Buying Mortgage Life Insurance Makes Sense (Maybe)

Mortgage Life Insurance is considered to be a simplified issue product meaning that you don’t have to go through a series of medical screens and blood work to get approved.   For somebody that has pre-existing conditions, it could make sense.

Also, if somebody doesn’t want to go through the hassle of filling additional tons of forms and having a nurse come to your home, it could make sense.  Please note:  There are term insurance products  that are called “No Exam Life Insurance” that might be a suitable option compared to mortgage life insurance.

Still Wanting More

photo credit: Kevin McShane

Still not completely satisfied with the information I had found thus far, I sought counsel from insurance expert Aaron Pinkston.  I asked Aaron the following questions hoping to shed some light more on mortgage life insurance and how it compares to term.

How Does the Premiums on Mortgage Life Protection Insurance Compare to Level Term? (Assuming good health)

Mortgage protection life insurance is sold out of convenience. That extra convenience means the cost tends to be higher because the underwriting process can’t be as precise. With a more precise underwriting process, most level term life policies will tend to be less expensive than a comparable mortgage life policy.

Can you clarify the notion that anytime you refinance, you have to reapply for new a mortgage life policy?

Life insurance is designed to protect your family from financial catastrophe in the event of your untimely death (this is different than PMI). Even if you apply for a life insurance policy that requires your mortgage documents as part of the financial underwriting process, once you accept the life policy, it’s yours. As long as you don’t get your life insurance policy through false pretenses (aka. lying), the insurance company can’t take it away from you. They also can’t require you to re-qualify for coverage just because of a financial or health change. I think that’s great news.

What would you suggest on someone shopping between the two?

If convenience and speed is your number one priority, consider mortgage life insurance policies along with other simplified issue policies. If other things like price, company quality, and so on are more important to you, another life insurance option might work better. We’re all different – there’s no one right answer for everyone.

Should You Buy Mortgage Life Insurance or Term Life Insurance?

To truly answer that questions depends on many questions:

• What’s your age?
• How is your health?
• Are you a smoker?
• How much insurance do you need?
• Is your primary conern paying off the mortgage? or
• Providing an income stream for your family after your passing?

I think it’s safe to say that in most situations purchasing term life insurance makes more sense than purchasing life insurance.  In case you missed it, I had wrote a post that talked about how much term life insurance I bought.  The purpose for my life insurance coverage was to pay off our mortgage and to take care of my family if I wasn’t here. If you have a similar desire, then take a serious look at term life insurance.

When you do go to get quotes,  be sure to shop around.   Your age and health, among other factors, will determine which insurance carrier will have the best rate for you.

photo credit: Truthout.org

Would You Like Pie With That?

Don’t let an appetite for the finer things ruin your shot at financial freedom

If you can’t find a way to save, you’ll never find a way to relieve the stress that comes with financial security.

But those of us living on a fixed income have an even harder time finding corners to cut and fat to trim.

And without some organization, it’s nearly impossible.

That is where a few simple tools will help. One of the most effective is a pie chart. And creating one doesn’t require loads of time or a degree in computer science. You could, of course, create one by hand, but there are easy options that require little more than turning on a PC, opening a Web browser and stroking a few keys.

But first, you need to get organized. Take a few minutes to gather six months of old bank statements or, better yet, log into your bank account online. Use a budgeting site like Mint.com to create spending categories based on your purchases, or simply write them down on a piece of paper.

A site like Mint will create a chart for you, but if that’s too complicated, go to a site like Yellowpipe.com or Chartpart.com, which are dedicated to creating simple charts. All you need to do is enter data into a few fields and the site will return a customized pie chart detailing all of your spending.

The results are often eye opening.

You may think going to the movies every weekend is harmless fun, but the $10 tickets and $8 bucket of popcorn may be eating up money that could go to retirement, pay down credit cards or simply cover your everyday bills. Better to cut the nights out to once a month, pay for an $8 monthly subscription for a DVD service like Netflix. The popcorn may not taste as good, but you’ll remember your stress free days much more than those few squirts of fake butter.

There’s often little you can do about fixed expenses like rent and heat, but making a sustained effort to cut down on discretionary spending is the only sure path to getting your piece of the, well, pie.

Matthew Malone writes for the leading Roth IRA and online retirement planning resource, RothIRA.com. He is a CBS SmartPlanet contributing writer whose work has appeared in The New York Times, Cosmopolitan, Smartmoney.com, Fortune.com, Forbes.com, and other publications.

Many investors are becoming more interested in applying the “do-it-yourself” approach to managing their portfolios.

But let’s be clear: Managing your own investments is not easy.

Good investment management practices are complex and time consuming, requiring discipline, patience, and consistency of application.

Some investors can handle it.  Let’s just say that I’ve met my fair share that can’t.  At all.

Too many investors fail to follow some simple, time-tested tenets that improve the odds of achieving success and, at the same time, reduce the anxiety naturally associated with an uncertain undertaking.

Portfolio Monkey has made a solution to help the self directed individual achieve just that.

Portfoliomonkey.com is a free site that can help you manage your portfolio.
You did catch I said “FREE”, right?   Just checking…..

“Portfolio Monkey is a social venture whose mission is to educate and provide self-directed investors the most simple-to-use and sophisticated investment portfolio management tools available.”

This site is also a perfect way to review your portfolio or 401k and the options inside of it. You can run tests to see if you can develop a portfolio with better returns and lower volatility. Portfolio Monkey has designed the site to help you analyzes and better allocate your portfolio. They have developed a tool to help you optimize your allocations within your portfolio.

“So how do I use this awesome site?” you say.   Well, I am here to show you how!

Why Portfolio Monkey?

First, you’re probably wondering, “Why am I writing about Portfolio Monkey?”  Good question.

I’ve been searching for an easy web based tool that the average investor could easily use to do a portfolio review on their 401k (and other investments).   There’s paid services like Morningstar, which is great, by the way.  But Morningstar is better suited for more experienced investors.  For newbie investors, it can be very overwhelming.

By blind luck I stumbled across Portfolio Monkey and was blown away on how simplistic their site was to use.  And the best part?   It’s free!

Okay, let’s take a look at Portfolio Monkey and see how it works.

Step 1: Sign Up

The first step is getting signed up for the site at www.portfoliomonkey.com.

After you have signed up, it will take you to your HOME page. This is where you can see any portfolios that you have created, as well as some sample portfolios from Portfolio Monkey. Each portfolio will have an expected return and volatility percentage, along with an efficiency score and Portfolio Monkey rating. These ratings will help you determine how efficient your portfolio really is.

Step 2: Creating Your Portfolio

To add or create a portfolio, click the analyze button on the top right tool bar. From there click the New Portfolio button on the bottom left.

To add a new stock or mutual fund to your portfolio, type in the ticker, or symbol. The only thing i didn’t like about this process was that you have to enter your total shares, instead of dollar or percentage amount.

This makes it hard when you are trying to find the best allocation for your portfolio or 401K before you begin investing. If you need to find how much individual shares cost go to Yahoo Finance or another financial site to get this needed information.

After you have entered your desired stocks or mutual funds, it will take you to the second step in the process which is your investment horizon. For someone that is going to retire in the near future, 5 years or sooner, it is best to select the short term time horizon. For everyone else it is best to select the long term.

Step 3: Merge or New

The third step is deciding if you want to merge this portfolio with another one you have created, or just make a new one. For this situation we will be making a new portfolio.

Step 4: Data Entry

The fourth step is entering your transaction data. If you have your purchase dates and costs you can enter it in here to see what your gain or loss percentage is. If you do not have this information or are just trying to determine if this portfolio is right for you, select the maybe later button.

Your Portfolio Details

Now that you have done all the steps, it is time to see if this portfolio is the right fit for you. The portfolio will give you an expected return and volatility, as well as an efficiency ratio. At the bottom it breaks down the portfolio into the expected return and volatility for each holding. This may show you that a particular stock or mutual fund may not be the right fit for your portfolio, such as a mutual fund with too much risk for the return it is expected to earn.

Up in the top right it gives you the statistical probability of how much your portfolio will return in a given year. As you can see with this portfolio my expected return is $850. I also have a 80% chance that my return will be between $1,300 to $3,001.

If you want to dig deeper into your portfolio, you can also check out the optimize section, which shows you how much of each stock or mutual fund you should be holding at any given time. This optimization tool follows each stock or mutual fund and will try to optimize your portfolio instead of a buy and hold strategy.

For the self directed investor, the tools for allowing you to manage your portfolio keep getting better and better. Portfolio Monkey is a great way to help you manage and analyze your portfolio.

One of the most important aspects of your finances is your credit history.

Your credit report is a record of your financial life as it relates to borrowing money.

It is, essentially, your financial reputation. When your credit report looks good, you look good — and like a good financial risk.

Lenders are more likely to approve your application, and give you competitive interest rates. On the flip side, negative information in your credit report can indicate that you might not be as solid as a lender would like.

In order to offset some of that risk, the lender can charge you higher interest rates, costing you hundreds, or even thousands, of dollars more over the life of a loan.

The information in your credit report is used to form your credit score. Not only is the information in your credit report used by lenders, but it might also be used by insurers, landlords, and potential employers. All of these people are making decisions about you based on what’s in your credit report.

If there are mistakes in your credit report, it could lead to negative consequences for you.

It’s important that you check your credit report, and when you find an error, you should fix it.

Checking Your Credit Report for Errors

Your first step is to check your credit report for mistakes. Indications are that most credit reports have some sort of error, so there is a good chance that your history contains at least one. You always have the option to pay for your credit report from any of the three bureaus. However, you can receive a free copy of your credit report by visiting AnnualCreditReport.com, where you are entitled to a free report from each of the three bureaus each year. It is also possible to see a free TransUnion credit report when you are a member of Credit Karma, and get a free copy of your Experian report with Quizzle or with Credit Sesame.

If your credit report was used as a reason to deny you credit or prompt an increase in an insurance premium, or if your credit report was used to deny you a job, you have the right to a free copy of the report used. You must write the credit agency involved within 60 days, however.

Once you have a copy of your credit report, look through it, and verify the information. Some common errors to look for include:

All of those errors can have, to varying degrees, a negative impact on your credit history. You will want these errors fixed. Fortunately, the law is on your side, and the Fair Credit Reporting Act requires that credit bureaus fix errors in a timely manner — usually within 30 days.

Disputing an Item on Your Credit Report

You are entitled to dispute items on your credit report free of charge, and the credit bureau must investigate the item. Understand, though, that if the item is accurate, the credit agency doesn’t have to change it. The credit agency only has to fix actual errors. Here are the steps to take as you work to clear your financial name:

1. Locate errors on your credit report: Note the errors on your credit report, and determine what action needs to be taken to fix the errors. Some people like to make a copy of the credit report, and then highlight the errors on each copy for easy reference. (One copy can go to the credit bureau, and the other you can keep.)
2. Find documentation supporting your claims: If you have documentation that supports your claims, make a copy. You should never send original documents anywhere; always keep originals for your own records. If you paid on time, a copy of your bank statement, with a date highlighted showing the on-time payment, can serve as documentation. If you don’t have documentation, such as in the case of a fraudulent account, it might be more difficult. But you can still request the information be removed (although you should call first and possibly put a credit freeze on your report).
3. Write a letter to the credit bureau: Next, write a letter to the credit bureau. All disputes need to take place in writing. You must send a letter to each bureau with mistaken information. Sending your dispute to one bureau will not fix the information on other reports. Your dispute letter should include your full name and address, and describe each item you are disputing. Be sure to keep a copy of the letter for your records. You can see a sample dispute letter at the end of this post.
4. Send the letter, and enclosures, certified mail: Once your letter is finished, enclose your credit report copy with highlighted disputed items, and supporting documentation. You should send your dispute using certified mail, and request a receipt. This is important, since it will provide proof that the credit bureau actually received your request.
5. Consider sending copies to your creditor: The process can be speeded if you send the same information to the company that made the report to the credit bureau. Send only copies, and send via certified mail.

The credit bureau must investigate your claim as quickly as possible. If it is found that the information is, indeed, inaccurate, it must be removed from your credit report. Additionally, the creditor isn’t allowed to report the information to the credit bureau again. After the completion of the investigation, the credit bureau

You can request that a corrected copy of your credit report be sent to anyone who requested your credit report in the last six months. For employment purposes, you can have it sent to those who requested your credit report up to two years ago. You are also allowed to ask that your dispute information be included with your credit report, and you can also include your own statement with your credit report.

Sample Dispute Letter

If you are interested in disputing information on your credit report, you need to write a letter, stating your claims. Below is a sample letter, based on a template provided by the FTC, that you can use as a model to craft your own dispute letter:

I was quickly on the path to becoming a loser all because of a stupid parking ticket.

That parking ticket made me initially lose hope and give up on myself.

It’s one of the few times in my life where I can remember saying out loud, “F*** it.  I quit!“.

You’re probably wondering how a trivial parking ticket could have such a drastic impact on my life.

Let me explain…..

******

My father was a college dropout and spent most of his life trying to make things work.

I knew that he was disappointed in his choices, and he didn’t want to see me follow suit.

He constantly encouraged me to go to school and get my degree. I had just enrolled in Santa Monica Community College, and was looking forward to making my dad proud.

When it came time to pay for tuition and fees, I handed the school’s cashier my mom’s credit card. To my surprise and disappointment, they didn’t accept it because it wasn’t my card, it was my mothers.

I figured I’d just come back another day and pay.

A few days passed and I returned to the same cashier to pay, this time with a check. I was ready to get this over with. I just about puked when the lady told me that I had missed the deadline to pay and the classes had been closed.

I had been dropped for all of the classes I enrolled in.

Are you freaking kidding me? Did I really just allow this to happen?

I could not believe it. I was in denial and disbelief, and I just felt like crap.

I asked the cashier what my options were, and she said that I would have to go around to each class and talk to each teacher individually to see if there was any room in the class. She also gave me a warning that many classes now had waiting lists, so it would be even more difficult for me to get in.

Not Giving Up…Yet

At this time, I was still determined that I was going to school and I was going to get the degree that my father desperately wanted for me. So, I went around to each of the teachers to beg them to let me back in.

The first two teachers I visited gave me some disheartening news. The classes were full and the waiting list was already ten people deep in each class. They told me there was little hope for getting into the classes this semester.

Once again, I felt sick. I couldn’t believe that I allowed this to happen to me. I still had some hope that maybe some of the other classes would allow me in, and that maybe I wouldn’t be full time this semester, but I would at least have some credits to my name to get things started.

I had this hope until I walked back to my car and found the $75 parking ticket that was on the windshield.

I found myself in another state of disbelief.

Of all the crap that I had gone through the past few days to now have a $75 parking ticket on top of it!

It was a low blow. At that exact moment, I remember saying out loud “<see expletive above>”

A $75 parking ticket took all the wind out of my sails, took all the motivation that I once had for getting my degree and threw it out the window.

When I think about the $75 parking ticket and how I let it control me and potentially sabotage my life and career.

I think about how stupid I was to let something so minuscule have such a large impact on my life.

Luckily, I did go back to college. I did finish my degree and because of that, and many other factors, I have proven to be very successful.

I think it’s easily understood that without my degree I wouldn’t have attained nearly the success that I’ve had. I never would have gotten an internship to A.G. Edwards & Sons, Inc, which turned into becoming a junior broker, which then led to me becoming a financial advisor, which then led to me breaking off and co-founding my own independent firm, and then subsequently, creating my own RIA, Alliance Wealth Management, LLC.

None of that would have happened if I had not gone back to school and reapplied myself – and to think that I almost let a $75 parking ticket, a piece of paper about the size of a number ten envelope, dictate my future!

What little things in your life have you let get to you that have stopped you from pursuing your dreams and your passion?

When you take a look at them in the big picture of your life, are they minuscule?

Is it ridiculous that you’ve allowed something so trivial to have such a tremendous impact on your life? If so, it’s not too late.

Do what I should have done (I should have taken that $75 parking ticket and paid it off and told them to shove it) and then get on with your life and pursue your dreams.

Ask any financial advisor about 72t and I’ll bet you’ll see them cringe.

It’s not a popular planning method, mostly because it comes with lengthy restrictions that, if violated, can you lead to severe penalties.

Clients don’t like paying penalties.   Advisors don’t like when their clients pay penalties.   72(t) has the potential, if done wrong, for the clients to pay a huge chunk of penalties.   See why we cringe about 72(t)?

Some of you may have no clue what 72(t) is.   If you are not planning on retiring early (before the age of 60), then skip this post and come back another day. 

If you are in the financial position to retire early, and have a bulk of your assets in retirement accounts, then 72(t) may be of help to you. Let’s take a look at the 72(t) early distribution rules.

What in the Heck is 72(t)?

Most often when you take money of your retirement account before you turn 59 ½, you are assessed a 10% penalty on the top of ordinary income tax. One exception (others include: first-time home purchase, college tuition payments, disability) to that is a 72(t) distribution that is a “substantially equal periodic payments”.

Clear as mud?   I thought so.  Moving on……

Read more on How to Withdraw From Your IRA Penalty Free

How Does the IRS Consider 72(t)?

The IRS calculates  your “substantially equal periodic payments” by using one of the three methods that the IRS has determined and then take your payment on a set schedule for a specific time period.

It is required that you take those payments for either 5 years or when you turn 59 1/2 , whichever comes later.

For example, if you start taking your payments at the age of 52, then you must do so for 8 years. Someone who starts at 57, must do so till the age of 62.

72t tables

72(t) Real Life Example

In the 10 years I’ve been a financial planner, I’ve only executed 72(t) a handful of times.   The concern is having to lock in your withdrawal rate for a minimum of 5 years is longer than most advisors are comfortable with- me included.

Recently, I had a potential new client that was getting an early buyout from his job and was considering using 72(t) for a portion of his IRA.    Here’s are some of the details (name and some of the data have been changed for privacy concerns).

Paul born 8/21/55 and  $720,000 that he will receive in a lump sum distribution from his employer. He would like to do a 72(t) from age 57.3-62.3. He needs about $2,000 a month until 63.5 where he will have the remainder in an IRA.   Paul also had $140k in his 401k.

How 72(t) Distributions Work

The 72(t) plan must not be modified until 5 years has passed from the date of the first distribution for those who will reach 59.5 before the 5 year period is completed. However, it is not clear whether Paul plans to take the 72t distributions from the employer plan or from a rollover IRA.

If the 72(t) plan is needed, the best approach is to do a direct rollover from the plan to a rollover IRA, determine what IRA balance is needed to generate 24k per year using the amortization plan, and then transfer that amount to a second IRA and start the plan.

The original rollover IRA can be used for emergency needs to prevent the 72t plan from being broken if he needs more money. Employer plans do not provide 72(t) support and may not offer flexible distributions. They also will not allow funds to be rolled back in the event too much is taken out due to administrative error.

Note: that if Paul separated from service from the employer sponsoring the qualified plan in the year he would reach 55 or later, distributions taken directly from the plan are not subject to penalty, and a 72t plan could be avoided.

But for that to be practical the plan must allow flexible distributions until the 5 year period ends. If the plan required a lump sum distribution, even though the penalty would not apply, a distribution of 120,000 in a single year would inflate his marginal tax rate and that might well cost more than the 10% penalty. If a lump sum is required, then a direct rollover to an IRA should be done before starting a 72(t) plan.

The Final Call

The verdict is still out whether the client and I are going to do 72(t).   Since he has a good amount in his 401k and his wife has a nominal 401k , as well (not mentioned above); I suggested using that money first.

Since he’s retiring early, he can avoid the 10% early withdrawal penalty so as long as the money is distributed from his 401k.  Once you do a 401k rollover to an IRA, you lose that option.

Out of curiosity, I went to Bankrate.com and used their 72t calculator to see how much we could get with his retirement account.  Below are some of those results.

72t calculator

Here’s a sample amount that one could withdraw from your IRA using 72(t). Note the interest rate of 2.48%. That amount was already entered in on Bankrate’s calculator. You actually have the ability to choose your own interest rate but be careful. You want to choose a rate that is normal and sustainable based on current market and economic conditions.

Fixed Amortization Method

Do I really have to say it? You're fired!

You’ve been working with a financial advisor for some time now, but now you’re starting to have doubts that you hired the right person for the job.

Hopefully, you did a background check on them first, right?

Is that financial planner more interested in helping you achieve your financial dream or just trying to sell you something?

Too often people have handed their money over to a financial advisor without researching whether they were good or not.

Even worse is that when they suspect that they are not getting the service they deserve, they don’t do anything about it.

If you have a suspect financial advisor, here are warning signs that you need use the words of Donald and tell them “You’re Fired” and move on.

1. They Still Don’t Know Your Needs

If your financial advisor doesn’t take the time to get to know your complete story, how can they possible make a proper recommendation? Think if you went to your doctor and before he even did a diagnosis he was already suggesting you have surgery.  Wouldn’t you want a second opinion?  I certainly hope so.  A real financial planner is going to take the time to ask the right questions:

• How much credit card debt do you have?
• How is your health?
• How safe is your job?
• Do you want to buy a home?
• Do you have will or trust?
• Do you have enough in your emergency fund?
• How do you plan to take care of your kids college education?
• When is the last time you checked your beneficiaries?

Your advisor needs to know if it makes sense for you to invest or first take care of any pressing needs.

2. They Don’t Tell You How They’re Paid

There are many different ways that financial planners make money. They may be commission-based, fee-only, fee-based — or a combination of the three. Asking what the planner charges will help you know exactly what you are paying throughout the working relationship.  If even after they explain it to you it doesn’t make sense, have them put in writing.   That way you erase any doubt.

There is a cost associated with any investment that you make. It is most likely that you will pay the advisor’s fee or commission. The advisor needs to be clear on what it’s going to cost you.

3. Don’t Be Rushed Into Anything

If you feel like you are on the receiving end of a Boiler Room type sales pitch, you need to run real fast.  When it comes to investing for your retirement, the last thing you want to be in is some investment that does not meet your needs.

You should never  feel pressured to “Act Now” or else.  If that’s the case, the only thing you need to act on is firing that financial advisor!

4. They Want to Put Everything in One Investment

photo credit: jbelluch

While cliche, the old adage “Don’t put all your eggs in one basket” has a lot of merit. If your advisor is adamant about putting all your money into one investment, be wary.

Diversification is typically the basic fundamental principle of any investment portfolio.  If an advisor is trying to sway you into buying one thing, he or she may have dollar signs (i.e. commissions) in their eyes and not your best interest.

5. They Don’t Inform You of Changes

If there are abrupt changes in the holdings of your portfolio, do you really want to hear about it by watching CNBC?  You want to make sure your financial advisor is on top of your investments and looking out for you.

6. Legitimate Monthly Statements

photo credit: Mr. T in DC

I once had a Madoff-like occurrence in my very own backyard. A client of mine had been investing through his 403b plan at work.  He thought he would investing through a reputable company and later found out that the advisor in charge never invested the funds.  He showed me the statement that was produced and it was one of the best counterfeit statements I’ve ever seen.

Your advisor should send you a monthly statement summarizing all that month’s transactions, including deposits, withdrawals, and current positions held. This statement must come directly from the brokerage firm that’s holding your money, not from your adviser’s office.

They Don’t Send You Quarterly & Annual Reports

At minimum, you should receive quarterly and annual reports from your advisor. Any less than that and I would start asking some questions. These reports explain the return your advisor is getting on your investments, as well as all fees and commissions.

These reports should illustrate all the realized gains or losses (all the money you actually made or lost from selling an investment) and all the unrealized gains and losses (investments you own but have not yet sold and thus that have not yet realized a profit or loss). These reports should also include returns of the overall index. You want to make sure you have a record of everything.

You should also look into getting online access.  That way you can routinely check your account balances to make sure everything is on the up and up.  Don’t get caught up in the day to day fluctuations, though.

7. Advisor Wants a Check Directly Made out to Him/Her

photo credit: dmjarvey

The ultimate warning sign is if the advisor asks you to write a check made out to him/her personally. If the advisor asks you to write him a personal check, that is a clear red flag. Never, never, write out a check directly to the advisor. Especially, if you are purchasing some kind of investment product.

In my home town we had a financial advisor who got was doing just that.  He had been a financial advisor for many years and recently was just charged with financial exploitation of the elderly. In one instance, he had gone to one of his clients and was trying to sell her an annuity. She trusted her advisor and considered him a friend and wrote him a check. A check directly to him, not the insurance company, in the amount for $20,000 and then he disappeared. As it turns out, she was not the only client  that had been taken advantage of.  Every check is to be payable to an institution.

8. They Don’t Return Your Phone Call or Emails

One rule that I practice is that I return all of my clients phone call or emails within 24 hours. It’s challenging at times, but I put myself in their shoes and know I would not want to wait on getting answer.

I received a new client that was frustrated at her previous advisor.  She had called wanting to get some information on her investments and the advisor had yet to return her call….5 days later.

Is there any question why that advisor got fired?