Warren Wealth Article Archive

You’re suddenly rich. Now what?

provided by Jacob Warren
content written by Peter Montoya, Inc

What’s the plan when you have a windfall? Through luck, inheritance, talent, or legal decisions, some people receive “sudden wealth” – a lump sum of money that is at least several times their annual income. Sometimes people think that the money will solve all of their problems. But if they aren’t careful, it can create entirely new ones.

Sudden wealth often comes with emotional baggage attached to it. If you’re suddenly wealthy, you may experience degrees of fear, guilt, anxiety and even paranoia in the months following your good fortune. As Dennis Pearne, Ed.D., author of The Challenges of Wealth notes, sudden wealth “changes what you can do, what you no longer have to do, where you can live” and other aspects of your life that seem set in stone. “So much changes so fast that it can be terribly overwhelming, and some people go into money shock.”1

We’ve all heard stories about people who won the lottery and ended up broke. In fact, you may have seen stories on TV or in magazines or newspapers about people who lost sudden fortunes in a matter of years, or let wealth wreck their families. It seems incredible, but it happens.

So, how does it happen? And how can you avoid it?

Rule #1: find a qualified source. You would think that anyone who receives a six-figure or seven-figure check would immediately talk to a financial professional. But that is not always the case.

Some people put it on their “to-do list” … and then go out and do other things with the money. Some never bother to seek qualified financial opinion at all. Instead, they listen to relatives or neighbors.

The problem is, sometimes these relatives or neighbors
• Have never had great money and do not understand the responsibilities that come with it
• Only see wealth in terms of material things and purchases
• Would like to vicariously live out their fantasies as a byproduct of your good fortune
• Urge you to take chances (risks) with your money
• Assume that you are “set for life”
• Want you to look at wealth from their mentality, or want you to associate with their lifestyle

While your relatives and neighbors may mean well, they are likely not financial professionals. In fact, some financial professionals aren’t well equipped to consult people with sudden wealth either.

Rule #2: find a financial professional familiar with the issues surrounding sudden wealth. Ideally, you want someone who has consulted people in a similar situation. This is because sudden wealth is truly a special circumstance. It’s not just a matter of putting more money in bank accounts or investment accounts. Sudden wealth can mean a whole lifestyle shift – a new address, a new reason to get up in the morning, or maybe new questions about what to do with your life. Your loved ones may not look at the money the same way you do, and there needs to be harmony.

If you come into sudden wealth, do yourself a favor and pause. Find a financial professional who has consulted people who have come into money. Ask him or her to help you put together a team – because you may need one. Many millionaires and quasi-millionaires have financial planners, CPAs, and estate planning attorneys working for them – working in a unified effort to help them manage their money, reduce their taxes, make charitable gifts and arrange inheritances for their heirs.

Any new millionaire, or near-millionaire, should strive to make newfound wealth grow and last. To do that, you need an investment plan that makes sense in the long run and makes you feel comfortable. You also need to plan to defer or reduce taxes and risks to your wealth – and when you are a new millionaire, you’re looking at a level of taxation and potential risk most people will never experience.

So if you find yourself with sudden wealth, plan. Instead of acting on impulse, act with intent and purpose. Meet with a qualified financial advisor to learn about your options and to establish financial priorities.

Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464









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Securities and investment advisory services offered through Woodbury Financial Services, Inc. Member FINRA, SIPC and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services, Inc are not affiliated entities.

These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.


Citations.
1 articles.moneycentral.msn.com/RetirementandWills/EscapeTheRatRace/YoureSuddenlyRichBummer.aspx [8/1/08]





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Why not plan to lighten your financial burden?

provided by Jacob Warren
content provided by Peter Montoya, Inc

Positive moves to counteract negative cash flow. In July, a New York Times article mentioned that half of American families were carrying more than $25,000 in debt. Of course, some of this can be attributed to mortgages. But the borrowing doesn’t stop there.

Every day, people draw on money they don’t actually have – via credit cards, payday loans, home equity lines of credit, and even their 401(k)s. Many of them end up making minimum payments on these high-interest loans – a sure way to stay indebted forever.

If this is your situation, you may be wondering: how do I get out of debt?
Let me give you some ideas.

1) Make a budget. “Where does all the money go?” If you are asking that question, here is where you learn the answer. You might find that you’re spending $80 a month on energy drinks, or $100 a week on lousy movies. Cable, eating out, buying retail – costs like these can really eat at your finances. Set a budget, and you can stop frivolous expenses and redirect the money you save to pay down debt.

2) Get another job. I know, this doesn’t sound like fun. But having more money will aid you to reduce debt more quickly. A family member who isn’t working can work to help reduce a shared family problem.

3) Sell stuff. The Internet has proven that everything is worth something. Go to eBay, craigslist or Kijiji – you’ll be amazed at the market (and the asking prices) for this and that. What people collect, want and buy may surprise you. Don’t be surprised if you have a few hundred dollars – or more – sitting around your house or in your garage. You might be able to pay off a couple of credit cards – or even a loan – with what you sell.

4) Ditch the big car payment and drive a cheaper car that gets good MPG. Say goodbye to the monster SUV (or the overpriced sports coupe). Get a car that makes sense instead of a statement. Your wallet will thank you.

5) Pay off all debts smallest to largest. The benefits are psychological as well as financial. Knock off even a small debt, and you have an accomplishment to build on – encouragement to erase bigger debts. Also, every debt you have incurs its own interest charge. One less debt means one less interest charge you have to pay.

6) Or, pay off your highest-interest debts first. Take a minute to figure out which of your debts hits you with the highest interest rate. Pay the minimum amounts toward each of your other debts, and apply all the extra money you can toward paying off the debt with the highest interest. This will have a cumulative effect. Your highest-interest debt will become smaller, meaning you will be saving some dollars on interest charges on the balance because the balance is lower. If the balance is lower, you should be able to pay off the debt faster. When you say goodbye to that debt, you can start paying down the debt with the next highest interest, and so on.

Keep the real goal in mind. Building wealth, not reducing debt, should be your ultimate objective. Some debt reduction and debt consolidation planners obsess on getting you out of debt, but that is only half the story. Minimizing debt is great, but maximizing wealth is even better.


Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464








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Securities and investment advisory services offered through Woodbury Financial Services, Inc. Member FINRA, SIPC and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services Inc are not affiliated entities.

These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.


Citations.
1 nytimes.com/2008/07/20/business/20debt.html [7/20/08]






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30 … 40 … 50 … as time goes by, make sure you accelerate your planning.

Presented by Jacob Warren
Written by Peter Montoya, Inc

When should you start saving for retirement? When do you really need to get serious about planning your retirement transition? Well, it depends on many factors. But along the timeline of life, there are certain things you might consider doing at certain ages. Your retirement planning can begin early in life, and remember that today is never too late.

In your thirties. Hopefully, you joined the retirement plan at your workplace right after you were hired, and you’ve contributed to that plan consistently. If not, you can start doing so. If your employer matches employee contributions, then contribute enough to trigger that match. Think about contributing slightly higher percentages of your income to the plan each year. This is also a good time to think ahead and adopt a long-range investment strategy, with defined goals in mind.

In your forties. This is a time when too many people go on autopilot when it comes to saving and planning for the future. At some point in your forties, it will be wise to confer with a qualified financial professional to measure your retirement planning progress. You may not be saving enough, and you may need to catch up.

In your fifties. Of course, the federal government will let you “catch up” when you hit 50 – at least in terms of IRA contributions. At 50, you can not only contribute the maximum annual amount to your IRA ($5,000 for 2008, with an April 15 postmark deadline to earmark your contribution for tax year 2007), you can add $1,000 more each year in “catch up” contributions.1 If you choose to retire in your fifties, you can pull penalty-free distributions out of your 401(k) beginning at age 55 if you really need the liquidity (but those withdrawals are subject to income tax).2 At age 59½, you can tap into your IRA and other retirement accounts without a 10% early withdrawal penalty (if you have a traditional IRA, your withdrawal will generally be subject to tax unless you are using the money to buy a first home or fund education expenses).3

In your sixties. At 62, you can receive early Social Security benefits, but your SSI will be correspondingly cut by 25% or greater for the duration of your lifetime.4 You can receive full benefits between 65 and 67. You may also choose to review and modify your portfolio at this point, adjusting for risk. A retirement plan rollover will encourage further tax-deferred growth of your accumulated assets.

In your seventies. At 70, even those who work have to sign up for Social Security benefits. At 70½ comes the first mandatory IRA distribution. At this stage of life, you should also have a relationship with a retirement professional you trust.

Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464








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Securities and investment advisory services offered through Woodbury Financial Services, Inc. Member FINRA, SIPC and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services are not affiliated entities.

These are the views of Peter Montoya, Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.

Citations. 1 investopedia.com/articles/retirement/04/111004.asp
2 kiplinger.com/columns/starting/archive/2007/st1003.htm
3 bankrate.com/brm/itax/tips/20030410a1.asp
4 money.cnn.com/2007/06/06/pf/retirement/social_security_early/index.htm


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Create a pool of healthcare dollars that will grow in any market.

presented by Jacob Warren
content provided by Peter Montoya, Inc.

How will you pay for long term care? The sad fact is that most people don’t know the answer to that question. But a solution is available.

As baby boomers leave their careers behind, long term care insurance will become very important in their financial strategies. The reasons to get an LTC policy after age 50 are very compelling.

Your premium payments buy you access to a large pool of money which can be used to pay for long term care costs. By paying for LTC out of that pool of money, you can preserve your retirement savings and income.

The cost of assisted living or nursing home care alone could motivate you to pay the premiums. AARP and Genworth Financial conduct an annual Cost of Care Survey to gauge the price of long term care. The 2008 survey found that

• The national average annual cost of a private room in a nursing home is $76,460 - $209 per day, and 17% higher than it was in 2004.
• A private one-bedroom unit in an assisted living facility averages $36,090 annually – and that is 25% higher than it was in 2004.
• The average annual payments to a non-Medicare certified, state-licensed home health aide are $43,884.1

Can you imagine spending an extra $30-80K out of your retirement savings in a year? What if you had to do it for more than one year?

AARP notes that approximately 60% of people over age 65 will require some kind of long term care during their lifetimes.2

Why procrastinate? The earlier you opt for LTC coverage, the cheaper the premiums. This is why many people purchase it before they retire. Those in poor health or over the age of 80 are frequently ineligible for coverage.

What it pays for. Some people think LTC coverage just pays for nursing home care. Not true: it can pay for a wide variety of nursing, social, and rehabilitative services at home and away from home, for people with a chronic illness or disability or people who just need assistance bathing, eating or dressing.3

Choosing a DBA. That stands for Daily Benefit Amount, which is the maximum amount your LTC plan will pay for one day’s care in a nursing home facility. You can choose a Daily Benefit Amount when you pay for your LTC coverage, and you can also choose the length of time that you may receive the full DBA every day. The DBA typically ranges from a few dozen dollars to hundreds of dollars. Some of these plans offer you “inflation protection” at enrollment, meaning that every few years, you will have the chance to buy additional coverage and get compounding - so your pool of money can grow.

The Medicare misconception. Too many people think Medicare will pick up the cost of long term care. Medicare is not long term care insurance. Medicare will only pay for the first 100 days of nursing home care, and only if 1) you are receiving skilled care and 2) you go into the nursing home right after a hospital stay of at least 3 days. Medicare also covers limited home visits for skilled care, and some hospice services for the terminally ill. That’s all.2
Now, Medicaid can actually pay for long term care – if you are destitute. Are you willing to wait until you are broke for a way to fund long term care? Of course not. LTC insurance provides a way to do it.

Why not look into this? You may have heard that LTC insurance is expensive compared with some other forms of policies. But the annual premiums (about as much as you’d spend on a used car from the mid-1990s) are nothing compared to real-world LTC costs.4 Ask your insurance advisor or financial professional about some of the LTC choices you can explore – while many Americans have life, health and disability insurance, that’s not the same thing as long term care coverage.



Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464






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Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC, and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services, Inc. are unaffiliated entiti


These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.


Citations.
1 aarp.org/states/nj/articles/genworth_releases_2008_cost_of_care_survey_results.html [4/29/08]
2 aarp.org/families/caregiving/caring_help/what_does_long_term_care_cost.html [11/11/08]
3 pbs.org/nbr/site/features/special/article/long-term-care-insurance_SP/ [11/11/08]
4 aarp.org/research/health/privinsurance/fs7r_ltc.html [6/07]


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