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Which Should Be the Priority: Repay Student Loan, Buy a House, or Save for Retirement?

7/30/2013

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Q. I am just out of school, now I have three financial goals: pay back my student loan, buy a house, and save for my retirement.  Which one should be my priority?

A. Of the three goals, retirement saving should be the top priority, unless your student loan's interest rate is very high.

Here are some steps you can follow:

a. Save at least 10% of your income in your 401(k) account, or at least get your employer's match.  Invest fully in Roth IRA account ($5500 in 2013).

b. Develop a plan to repay student loan.  Average Stafford loan's interest rate is about 6.8%, far less than credit card's interest rate of average 13%, so make sure pay off your other higher rate loan before start paying off student loan.

c. Instead of saving to buy a house, save for 3 months emergency fund first.

d. When the above is done, save for the down payment of your first house!

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Some Less Known Credit Card Churning Strategies

7/28/2013

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Q. I have friends who were able to fly free with bonus points from credit card companies, but also some friends' credit scores were hurt by opening multiple credit cards to take advantage of those promotional offers.  What's the best strategy to play the credit card churning game?

A. There are two reasons opening new credit cards will bring down your credit score:

1. Hard inquiries to your credit history will stay on your credit report for 24 months, and they will impact your credit score during the first 12 months.

2. Opening a new credit card will bring down your average credit length and 15% of your credit score depends on the length of your credit history.

Is it possible to take advantage of the promotional offers from credit cards without hurting your credit score?

Yes, here is the trick -

Study the credit card offers in the market, open 2-4 new credit cards at the same day, do this every 2 years, do not cancel any existing card unless you want to avoid the annual fee.

The reason to open new credit cards at the same day is a credit card company won't know you are applying for another company's offer until one day after the hard inquiry from that company.  After 2 years, such hard pulls will disappear from your credit report.

What are the best credit cards on the market today?  Here are the top ones from Daily Markets' report:

  • United Mileage Plus Explorer
  • US Airways Premier World Mastercard
  • Chase Sapphire Preferred
  • Gold Delta Sky Miles
  • Blue Sky Preferred
  • Premier Rewards Gold
  • Gold Delta SkyMiles Business




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3 Questions You Should Ask Any Financial Advisor

7/27/2013

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Q. What questions should I ask my financial adviser?

A.
When you open a new account with a financial adviser, you will typically receive a stack of documents that explain, among other details, how the adviser gets paid.  


But it seems few people understand this information.

A recent study by research firm Cerulli Associates found that investors, when asked what pay model their financial adviser uses, rarely knew.  One-third of those surveyed said they weren't sure how they paid for the advice they received, and 29% said the services were free, which is rarely the case.

In my opinion, you should ask the following three question to any financial adviser you are meeting with:


1. How are you registered?

The distinction in how advisers are paid could affect the advice they give you. Regulations require financial advisers who charge commissions to make sure a product is appropriate for an investor before selling it; fee-only advisers are paid only by their clients, which means they have no incentive to sell you particular financial products.

2. What am I paying you and your firm directly?

3. What payments are built into the products I may buy from you?



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What Happens if Both Parents Pass Away?

7/26/2013

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Q. If both parents pass away in an accident, would my life insurance company send a check to my minor child who is the beneficiary of my life insurance policy?

A. Insurance companies will NOT send a check to a minor!

This is why it is very important every family should have a Will and designate the guardian to minor child(ren) if such unfortunate event happens.  Otherwise, the insurance company will hold the check until the court appoints one, which will take time.

Please refer to our prior blog on what is a Will and how to create a Will free.

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What is a Will and How to Write a Will Free?

7/25/2013

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A will is a document that states what you want to have happen after you die:
  • Who you want to finish raising your minor children.
  • Who will get your money and things.
  • Who will be in charge of making sure your wishes are carried out.

Many young people agonize over the child custody decision and put off writing a will because of it.  No one is going to be the perfect guardian, and no one is going to be able to take your place.  That said, you owe it to your children to get over the agonizing, and get on with the business of writing the will.  If you and your spouse die without a will, your child's destiny will be in the hands of the state. 

Basic rules for making a will
  • Put it in writing and make it letter perfect, which is to say no whiteout or erasing allowed.
  • Change it as often as your life circumstances change; it's not written in stone.
  • State what the document is: your last will and testament, prepared by you while you were of sound mind and body. Also state that it supersedes any prior wills you may have made.
  • Name a guardian for your children and for their money and possessions.
  • Stipulate where the money to pay taxes, debts and your funeral should come from.
  • Have it signed by two witnesses. Make sure the witnesses are not included as beneficiaries in the will. By signing the will, they could lose what you wanted them to inherit.
  • You don't have to put dollar amounts in a will, in fact you shouldn't. Percentages are fine.
  • Name an executor, someone who will make sure your wishes as stated in the will are carried out


How to Write Your Own Will - Free!

There are some free websites to help you write your own Will, fee free to Google them, and below is one for your convenience -

DoYourOwnWill.com

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5 Tips for Senior to Save on Travel Expenses

7/18/2013

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Studies show that retirees spend a higher than expected amount on travel related expenses. If you want to save on trip related costs, below are some tips you can use:
  • Don't travel during the "hot" season, which is typically May through September.  Why compete with couples with young kids and pay a premium on almost any travel related services in the "hot" season?  You have plenty of time to do that in the off season!
  • Use senior coupons. You can join AARP to enjoy discounts on hotel, car rental, etc.  Many parks and museums also offer senior discounts - if you are 55 years or older.
  • Book last minute flights or hotel rooms.  Again, you have plenty of time, your flexibility could be converted to money!
  • Try home swapping.  Just Google and you will find a few websites allow you to swap your home with someone else's home in the place you want to travel.
  • Rent a place with kitchen.  You can obviously save a lot of money on eating out, and more importantly, you can control your diet and eat healthy food!
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Which One to Choose: Term or Whole Life Insurance

7/16/2013

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Q: I thought there were only two different types of life insurance policies, term and whole. What types of life insurance are available and how do they differ from one another?

A:
There are two basic categories of life insurance, term and permanent. Term may be appropriate if you only need protection for a limited time, such as the life of a mortgage or the time leading up to and the completion of a college education. Permanent may be appropriate if you need lifetime coverage.  However, between the two, the life insurance industry has also created a myriad of solutions for different needs. 



Below I will describe the types of life insurance products, based on the order of premium costs from low to high.


Traditional Term

As its name implies, Traditional Term life insurance covers you for a specified term, with 10, 20 and 30 years being the most common. Premiums are fixed over the term of the policy. It provides the greatest amount of coverage for the lowest premium.

Return of Premium Term

As its names implies, Return of Premium (ROP) Term life insurance covers you for a specified term, but then returns all of your premiums if you outlive the policy. Premiums are fixed over the term of the policy. It provides the second greatest amount of coverage for the second lowest premium.

Guaranteed Universal Life

Guaranteed Universal Life is a type of permanent life insurance that offers fixed premiums over your lifetime. Unlike most types of permanent life insurance, this type of policy is not designed to build up cash value. It provides the third greatest amount of coverage for the third lowest premium, but is the lowest priced permanent life insurance.

Variable Universal Life

Variable Universal Life (VUL) is a type of permanent life insurance that offers flexible premiums based on how underlying investments inside the policy perform. Unfortunately the investments inside the VUL can drop, decreasing the policy’s cash value and death benefit. Combining something that is intended to be your safest financial instrument (life insurance) with risky investments (stocks and bonds) can be a recipe for disaster. It provides the second least amount of permanent coverage for the second highest premium.


Index Universal Life

Index Universal Life (IUL) is a relatively new type of permanent life insurance that offers flexible premiums based on how stock market indexes perform.  It provides a floor (typically 0%) so your policy's cash value will not drop even the market index might drop, but at the same time it also imposes a cap so if the market index soars your upside is limited.  IUL is more expensive than VUL from cost perspective and is not suitable for ordinary families.

Whole Life

Whole Life is a type of permanent life insurance that can offer fixed premiums. As the insurance company generally charges significantly higher premiums than the actual life insurance costs in the early years of the policy, cash value builds in this type of policy. The accumulated cash value can be used to pay future premiums. It provides the least amount of permanent coverage for the highest premium.

Get the Right Type of Life Insurance

Purchase the right life insurance product reduces the financial and psychological burdens that can cause hardship when the need for the proceeds arrives. Establishing the right amount and right type of insurance allows you to control what you want to protect in the most cost effective matter. Like most insurance, the earlier you start your policy the lower the cost of the policy. Premiums for the same level of coverage can vary greatly between carriers.
  

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How to Insure Your Stock Market Gain Against a Crash

7/15/2013

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Q. So far this year I have had a sizable gain in my individual brokerage account, and I am increasingly concerned the stock market might enter a major correction phase soon.  How to protect my gain from a a market crash?

A.
A right options strategy could provide an effective and low cost way to insure your stock market gain.

Options are typically described as risky investment.  But the right option strategy could actually minimize your risk.

Strategy 1. Buy Put Options
For example, you want to hedge against your large cap stocks gain, you can purchase put options on the SPY which is an ETF that tracks the S&P 500's performance.

On July 15, 2013, SPY was traded at $168.  If you want to limit your downside to 10% in the next 6 months, you can purchase a put that lets you sell 100 SPY shares for $142 per share during anytime in the next 6 months for $280.  You are protected if it drops below $142.

The cost of this put option - $280 is just 1.7% of the amount you insured against the drop ($280/$16800). 

Strategy 2. Buy Put and Sell Call

If you are OK to give up some upside, you can insure your gain cost-free, or even with a little gain.  To do this, you will buy a put option and sell a call option at the same time, a strategy called a Collar.

For example, in addition to purchasing the put option mentioned in strategy 1, you sell a call option at the same time (which will limit your upside if the market keeps going up, but you are OK with it because your view is the market might be losing some steams in the near future).  You can sell a SPY Jan 2014 $175 call for $3.30.  You will gain $330 per 100 SPY shares.  Your will net $50 gain in this Collar strategy.

If the SPY traded above $175 anytime before the expiration date in Jan 2014, you would be obligated to sell the shares at $175, a gain of 4%.

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Clients vs. Customers

7/15/2013

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You need to choose.

Customers hear you say, "here, I made this," and they buy or they don't buy.

Clients say to you, "I need this," and if you want to get paid, you make it.

The customer, ironically, doesn't get something custom. The key distinction is who goes first, who gets to decide when it's done.

The provider is rarely better than the clients he is able to attract. On the other hand, the creator often gets the customers she deserves.

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5 Places to Put Your Emergency Fund

7/14/2013

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Q. Other than the normal checking and saving account, where can I put my emergency fund so I can keep it liquid and still earn good interest income?

A. Every family should set aside some rainy day fund to cover 3-6 months expenses in case anything happens.  For such emergency fund, liquidity and safety are top concerns.

The following 5 places are good choices if you are not happy with your bank's checking and saving accounts' interest rates.

1. Online Banks
Online banks have lower cost structure therefore they can afford a little bit higher interest rates.  Check out Ally Bank or Capital One 360.  All online banks offer debit card, so it's easy to use fund in the online bank accounts.

2. Mango Money Card Savings Account
Mango Money Card's savings account has very attractive interest rate - for balance under $5,000, if you set up direct deposit, you can earn 6%, even you don't set up direct deposit, you can still get 2% interest rate.

3. CD accounts
CD accounts tend to have higher interest rates than traditional checking or savings accounts, but the drawbacks are there are typically Terms associated with CD accounts and if you take money earlier, you might incur penalty.  However, there are CD accounts with no early withdrawal penalty, look for those product in your banks.

4. Money market funds
This is really an investment account and you could end up losing money (although the chance is very small).  It has better rate, but tends to impose high minimum balance requirements.

5. Pay down HELOC
If you still own your bank home equity line of credit (HELOC), it's a good idea to use the emergency fund to pay it down, because HELOC typically has higher rates than any interest rates you can get from any savings accounts.  You can pay it down (but keep the account open).  If you need rainy day funds, just write a check from your HELOC account.


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How to Find 55+ Communities

7/12/2013

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Q. I am planning to retire in a few years.  How to do research to find a good 55+ retirement community?

A. I recommend this website: www.55places.com.

You can do a search and comparison about all the available 55+ retirement communities all in one place.




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How to Earn Tax Free Income - Part II

7/11/2013

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We talked about one of the best know tax-free gain in this post, now we will discuss another well known method to get tax free gain - Roth IRA.

Roth accounts have two big tax advantages.

1st Big Advantage: Tax-Free Withdrawals

Unlike traditional IRA withdrawals, qualified Roth IRA withdrawals are federal-income-tax-free (and usually state-income-tax-free too). What is a qualified withdrawal? In general it is one that is taken after the Roth account owner has met both of the following requirements:

  1. You had at least one Roth IRA open for over five years.
  2. You reached age 59 1/2, are disabled, or dead.

2nd Big Advantage: Exemption from Required Minimum Distribution Rules

Unlike with a traditional IRA, the original owner of a Roth account (the person for whom the account is originally set up) isn't burdened with the obligation to start taking required minimum distributions (RMDs) after age 70 1/2 or face a stiff 50% penalty. Therefore, you can leave a Roth account untouched for as long you live. This important privilege makes the Roth IRA a great asset to leave to your heirs (to the extent you don’t need the Roth IRA money to help cover your own retirement-age living expenses).

Making Annual Roth Contributions

The idea of making annual Roth IRA contributions makes the most sense for those who believe they will pay the same or higher tax rates during retirement. Higher future taxes can be avoided on Roth account earnings because qualified Roth withdrawals are federal-income-tax-free (and usually state-income-tax-free too).


The downside is you get no deductions for Roth contributions.

So if you expect to pay lower tax rates during retirement, you might be better off making deductible traditional IRA contributions (assuming your income is low enough to permit deductible contributions), because the current deductions may be worth more to you than tax-free withdrawals later on.

The absolute maximum amount you can contribute for any tax year to a Roth IRA is the lesser of (1) your earned income for that year or (2) the annual contribution limit for that year.

Basically, earned income means wage and salary income (including bonuses), alimony received (believe it or not), and self-employment income. For 2013, the Roth contribution limit is $5,500 or $6,500 if you’ll be age 50 or older as of year-end. This assumes you’re unaffected by the AGI-based phaseout rule explained immediately below.
  • For 2013, eligibility to make annual Roth contributions is phased out between modified adjusted gross income (MAGI) of $112,000 and $127,000 for unmarried individuals.
  • For married joint filers, the 2013 phaseout range is between joint MAGI of $178,000 and $188,000.

Key Point: If your MAGI is too high for annual Roth contributions, consider converting a traditional IRA into a Roth account, as explained below.

Making Roth Conversions

A few years ago, an income restriction made individuals with MAGI above $100,000 ineligible for Roth conversions. The restriction ceased to exist in 2010. Now, even billionaires are eligible for Roth conversions. That is an important break, because conversion contributions are the only way to quickly get large amounts of money into a Roth IRA. However, it is important to keep in mind that a conversion will trigger taxable income. So you need to consider the federal income tax hit that will accompany a conversion. There may be a state income tax hit too. Consult your tax adviser before pulling the trigger on a conversion.


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An Unique Feature Only Available by Banner Life Insurance

7/10/2013

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Compared with other Term life insurance providers, Banner has a unique free feature - MediGuide Medical Second Opinion.

In approved jurisdictions, it’s free with every policy they issue.
 
When the policy insured is facing a serious illness, the feeling is nothing short of overwhelming. MediGuide provides the easiest and most comprehensive review with no out-of-pocket costs in just ten business days. 


The medical second opinion program is administered by MediGuide America, an international leader in second opinion services. If you’re diagnosed with a life threatening illness you can have that diagnosis, its prognosis and treatment plan evaluated by disease specialists at world leading medical centers. The comprehensive information and advice can help you make important decisions about your health. 

Legal & General America (Banner) is the only life insurance company that gives customers this valuable extra. In fact, it’s probably more than you bargained for!

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How to Earn Tax Free Income?

7/10/2013

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Q. Is it possible to earn tax-free income?

A. Yes, despite the old saying - you can't avoid tax and death in this world, there are some ways to avoid tax, today we will discuss one of the best known ones:

Own and House

This is probably the best known method to get tax free gain - buy a house, live in there for a few years, then sell it for a profit, for no tax owed!

Specifically, an unmarried seller of a principal residence can exclude (pay no federal income tax on) up to $250,000 of gain, and a married joint-filing couple can exclude up to $500,000 of gain. 

There are some limitations. You must pass the following tests to qualify.
  1. Ownership Test: You must have owned the property for at least two years during the five-year period ending on the sale date.
  2. Use Test: You must have used the property as a principal residence for at least two years during the same five-year period (periods of ownership and use need not overlap).
  3. Joint-Filer $500,000 Exclusion Test: To be eligible for the maximum $500,000 joint-filer exclusion, at least one spouse must pass the ownership test, and both spouses must pass the use test.
  4. Previous Sale Test: If you excluded gain from an earlier principal residence sale, you generally must wait at least two years before taking advantage of the gain exclusion deal again. If you are a married joint filer, the larger $500,000 exclusion is only available if neither you nor your spouse claimed the exclusion privilege for an earlier sale within two years of the later sale.

Prorated Exclusion

If you don’t qualify for the maximum $250,000/$500,000 gain exclusion due to failure to pass all the preceding tests, you may still qualify for a prorated exclusion (reduced) amount if you had to sell your home for job-related or health reasons or for certain other IRS-approved reasons. For instance, say you’re a married joint filer. You and your spouse used a home as your principal residence for only one year before having to move for health reasons. You would qualify for a prorated exclusion of $250,000 (half the $500,000 maximum allowance for a joint-filing couple).



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Strategies to Retire With Lower Tax?

7/9/2013

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Q. I heard that after my retirement, my income tax will be lower, is that true?  If not, what strategies can help me lower my post-retirement taxes?

A. The sad fact is, after your retirement, while your income maybe lower, your tax deductible items are less too, making it harder to get tax benefits.

Because of the importance of tax, for retirees, the goal should be to maximize after-tax income!  

What tools and strategies are available to maximize after-tax retirement income?  Below are few popular ones.

1. Max Roth IRA.
Maximize your contribution to Roth IRA each year, if you are still eligible!

Any withdrawal from Roth IRA is tax free, so if you are taking both social security income and Roth IRA income, only your SSI part counts towards your tax.

2. Consider Annuity.
If you purchase an immediate fixed annuity with Roth IRA money, you will have lifetime tax-free income!

Even you use money from your non-IRA account to purchase annuity, you only need to pay tax on the gain, not the entire annuity income, because your principal is after-tax contribution.

3. Make Tax-efficient Asset Allocation.
Even before your retirement, incorporate tax planning into your asset management strategies.  For example, you have two accounts: IRA account and individual brokerage account, now you want to invest in some growth stocks and some high dividend stocks, which account should hold these growth stocks and which account should hold the high dividend stocks?

Put the growth stocks in your individual brokerage account and high dividend stocks in your IRA account!

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Contribute to Which Account First: 401(K) or Roth IRA?

7/8/2013

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Q. My company doesn't provide a match to 401(K) saving, and I don't have enough money to fund both accounts to maximum allowed amount, which account should I fund first?

A.
If your company doesn't provide a match to 401(K) contribution, you should focus on maxing out on your Roth IRA first.

And make sure you invest your Roth IRA money in no-load low cost mutual funds or ETFs.  Don't invest in funds with annual expense exceeding 0.5%.

Many people don't realize how significant the small annual expense could eat into their retirement money, let's see the following hypothetical example:

Example
You invest $5,500 per year in Roth IRA with annual return of 6%.

Scenario 1. Your annual expense is 0.1%
In 30 years, you will have $452,450, free of tax!

Scenario 2. Your annual expense is 0.5%
In 30 years, you will have $420,307, free of tax, this is $32,143, or 7% less than scenario 1!

Paying attention to fees is a good way to make more money in the long term.

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Is 529 Plan's Money Treated as Student's Asset?

7/7/2013

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Q. I heard the money I put in 529 plan account will be counted as my child's asset which will hurt her chance of getting financial aid big way.  Is it true?

A. It's true that 529 accounts may affect a beneficiary’s ability to qualify for federal need-based financial aid. 

A 529 account is regarded as an asset of the student if the student is an independent student and an asset of the parent if the student is a dependent student. 

An independent student generally includes an individual who:
  • is age 24 by December 31 of the award year,
  • is an orphan, in foster care or a ward of the court (other rules may apply),
  • is an emancipated minor,
  • is a war veteran,
  • is a graduate or professional student,
  • is married,
  • has legal dependents other than a spouse,
  • is homeless (other rules may apply), or
  • has special and unusual circumstances which can be documented to his or her financial aid administrator.

As you can tell now, in most of the situations, 529 asset will be viewed as parents' assets and it has limited impact on the student's financial aid eligibility.  Its benefits far outweigh the potential drawbacks.

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Do Young People Need Life Insurance?

7/6/2013

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Q. I am 27 years old and still in graduate school.  I have a girl friend but not married yet.  I heard life insurance premium is dirty cheap for my age, should I get one?

A. You need to keep a cool mind!

Life insurance premium is certainly very low for a young and healthy person like you, but you need to understand the reason one needs life insurance - to protect their loved ones when accidents happen to them.

If no one relies on your to live, it's best for you to put your money into your retirement account instead of a life insurance account.

Some insurance companies try to sell life insurance to students who have student loans.  The premise is if anything happens to the student, the parents who co-sign the student loan will be forced to pay back the student loan.  With the student's life insurance policy in effect, the parents won't have the burden to pay back the student loan.  But this is a complicated matter, a student loan holder should find out what's the provision of the Federal financial aid, especially if the student dies, will the parents be forced to carry the loan or the loan will automatically dissolve with the student's death?

The only time I recommend a young person to consider a life insurance is for someone who is healthy but with family medical histories which means the insurance premium will likely to jump if such person applies for life insurance later.

In any case, just get a low cost Term life, don't over pay for anything else!

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Where Not To Die?

7/5/2013

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Federal estate tax exemption is $5.25 million per person and $10.5 million per couple in 2013.  However, these are just federal level estate tax thresholds.  There are 17 states and the District of Columbia also impose taxes on smaller estates than does Uncle Sam.  

Which states have NO state level estate taxes?


Forbes has an up-to-date map shows the state-specific information, check the link below for an interactive version:

http://www.forbes.com/special-report/2013/the-states-with-state-death-taxes-for-2013.html


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How To Deal With Jumping Premium of an Old Universal Life Policy?

7/4/2013

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Q. My parents (very old age now) have an old universal life policy bought many years ago.  Now they just received a notice about the premium would jump to an extremely high number.  What to do with it?

A. Universal life policies sold in the 1980s and 1990s were sold with illustrations showing the excess earnings anywhere from 6% to 12% interests.  Now with interest rates so low since 2008, policy holders will soon have a rude awakening that premium would jump to unbelievably high levels.  

What can you do now?  There are some actions you can take and a few options to consider:

First, you can call your insurer and ask for an "in-force" review of your policy to see how the policy's cash value and premiums are expected to change using current interest rates, death benefit costs and other fees.

Depending on how bad the numbers might look like, you can:
  • sit tight
  • reduce the death benefit to make the cash reserve last longer
  • put in more money
  • swap the policy for a different one
  • sell it to a life settlement company

Make sure you get a financial planner involved to evaluate the different scenarios listed above, don't forget tax consequences.  Ask a planner or broker to disclose any commissions he or she will earn from a swap.

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After Leaving a Job, Rollover Retirement Money or Not?

7/4/2013

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Q. I recently left my previous employer, and my financial advisor told me it might be smart to roll over my retirement account, should I do it or not?

A.
When you left a previous job, you have the freedom to pick your own investment, that's why many advisors chase clients like you, because they will earn commissions from your move.

What you should do is to compare the expense ratios and any other fees you are paying to keep your money in your ex-employer's plan to what you could pay if you roll over the money into an IRA at a discount brokerage or fund company.  It's best to work with a fee-based advisor so you get advice that's best for you, not advice that will generate commission for the advisor.




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What To Do After Buying a Home?

7/3/2013

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Q. We just bought our first house, what financial steps we should take now?

A. For young couples who just bought their first home, here are a few actions need to take to ensure a smooth process down the road:

1. Set up automatic payments.
This includes mortgage, utilities, HOA, etc.  So you don't forget any of these payments as any delay carries significant consequences.

2. Budget maintenance costs.
It's wise to budget 1% of home's purchase price each year for upkeep.  So, for a house bought for $300,000, it probably takes $3,000 to cover expenses related air filter replacement, furnace repair, sprinkler system fix, etc.

3. Check your insurance policies.
Make sure you understand what your homeowner's insurance policy covers.  For example, if a tree falls during a storm and takes out the shed in the yard, will your policy cover it?  You need to read all the fine prints in your policy.

Also now it's time to make sure you have adequate life insurance coverage for your current situation.  But don't overbuy life insurance, a simple Term life is more than enough for most families.  Contact us if you want to get the lowest rate from a reputable insurance carrier.

4. Build an emergency fund.

Your emergency fund should cover around 3-6 months' expenses, including mortgage payment, utilities, cable, phone bills, etc.


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