Best Financial Planner Award 2010
August 25, 2010 by Jean Keener, CRPC, CFDP · Leave a Comment
Thank you Keller Citizen readers for voting Keener Financial Planning Best Financial Planner again for 2010! The Keller Best of the Best issue for 2010 publishes September 22, and I was delighted to find out yesterday that, through your votes, Keener Financial Planning was selected for the second year in a row.
Keener Financial Planning’s mission is to provide objective financial advice on an as-needed advice to residents of Keller and surrounding areas for retirement planning, investments, college planning, and other financial decisions. Thank you to all of you who voted. Your support is greatly appreciated.
August 2010 Personal Finance Newsletter
August 13, 2010 by Jean Keener, CRPC, CFDP · Leave a Comment
The August 2010 personal finance newsletter is now available. It includes information on how college scholarships are taxed, how the new healthcare law affects Medicare drug plans, and, as always, an investment market update. Enjoy! Click here to view the newsletter.
Interviewed by Wall Street Journal on keeping investing costs low
June 22, 2010 by Jean Keener, CRPC, CFDP · Leave a Comment
I was recently interviewed for the Wall Street Journal’s website about the importance of keeping investing costs low and how costs affect your long-term investment returns. You can read the article at WSJ.com.
Should you pay off the mortgage?
May 18, 2010 by Jean Keener, CRPC, CFDP · 1 Comment
One of the best financially freeing moments in life is the day you compare your savings and mortgage principal balances and realize that you could pay off your mortgage if you wanted to. If you’re at that point, congratulations! If you’re not there yet, keep saving; it can come sooner than you think.
Of course, immediately following the discovery of being able to pay off the mortgage comes a question: should I? Here’s how you decide:
First, consider what you would do with the money if you didn’t pay off the mortgage.
Would it sit in savings, be invested for long-term retirement goals, or something else? Based on your plans if you didn’t pay off the mortgage, you can estimate a rate of return you expect to receive. From this rate of return, you’ll need to subtract taxes paid on the earnings (15% if capital gains, your income tax rate if regular interest).
Second, figure out what your mortgage is costing you.
Look at your interest rate, calculate the annual interest expense, and subtract any income tax savings you’re receiving. Be sure to avoid over-estimating the benefits of tax savings. For example, if your mortgage interest is $5,000 and you have another $8,000 of itemized deductions, your total itemized deductions are $13,000. If you’re married filing jointly, the standard deduction is $11,400 this year. So the mortgage interest is only increasing your deductions by $1,600. If you’re in the 28% tax bracket, this equates to a $448 tax savings.
Third, compare your answer in step 1 with your answer in step 2.
If it’s costing you more to keep your mortgage than you would earn with the money invested or in the bank, then you should generally pay off the mortgage. If you can get a greater return on your investments than what your mortgage is costing you, then you should generally keep the money invested and wait to pay off the mortgage.
Of course there are exceptions and other considerations including:
If you would be taking the pay-off money out of a pre-tax IRA or deferred compensation in a lump sum, take a really close look at the tax consequences of that lump sum withdrawal! They can often totally cancel out any savings on the mortgage interest.
If you would be using “retirement” savings funds to pay off the mortgage, you really need to look at your retirement projections and ensure that they still work with the funds withdrawn. If your projections rely on you beginning to save what you’re currently paying on the mortgage, know yourself. Will you stick with this savings program? If not, probably best to just keep your retirement funds intact and continue paying the mortgage.
If paying off the mortgage would take your emergency funds dangerously low or short-change funds for other important goals, it’s likely not a good idea.
Making your decision
While it seems like a fairly straight-forward question, when you think about the whole picture, you realize there are lots of what-ifs and options to consider. The important thing is to take time to do your homework, complete the analysis, and seek professional assistance if needed.
Even if the process reveals you’re better off with the mortgage, you might still want to go ahead and pay it off because of the peace-of-mind benefit that comes from not having any debt. If that’s the case, by going through the process thoughtfully and thoroughly, you will know what you’re giving up financially for that peace of mind so you can make an informed decision about whether it’s worth it to you.
And if the process does show that you would be better off getting rid of that mortgage, you can move forward with confidence.
Of course, everyone’s situation is different. While the process described above addresses many considerations, you may have some issues not addressed here or that are unique to you. Make sure you fully consider your own situation before making any decision.
Who should consider Roth conversion
September 18, 2009 by Jean Keener, CRPC, CFDP · 2 Comments
Given the historic opportunity of 2010 to spread the tax payment over 2 years in 2011 and 2012, everyone with a traditional IRA should take at least one look at Roth IRA conversion for next year.
It is most beneficial to you when all of these apply:
- You’ll pay the resulting “conversion” tax with non-IRA funds
- You have 10 years or more before you will be taking distributions from the Roth IRA
- You will be in the same or a higher tax bracket when you start taking those distributions.
But even if only some or none of these apply, it doesn’t mean you should rule conversion out.
There are still many times where it can make sense, and some that don’t. It’s easiest to discuss these by looking at few examples.
I did an analysis for a 64-year-old who didn’t have the money to pay the tax with non-IRA funds, so the taxes were going to come out of his IRA. He also only had 6 years until he planned to start taking distributions. He was going to be in the same tax bracket in 2011-2012 and in retirement. In his situation, he still came out ahead with conversion – having over $1,000 more in after-tax retirement income by converting. He won’t be subject to the 10% penalty on the amount withdrawn to pay the tax because he is over 59 ½. His situation was also helped by not planning to take social security until age 70. If he was already receiving social security benefits, we would have needed to consider any additional income tax implications on his social security benefits for the years he claimed the conversion income.
Another analysis was for a 32-year-old woman. She has a pre-tax employer
401k and was also trying to decide if conversion made sense. She also does not have the funds to pay the taxes with non-401k money, and she would be subject to the 10% penalty by withdrawing funds from the 401k before age 59 ½ to pay the taxes. We estimated her tax bracket in 2011-2012 and in retirement as the same. In her case, conversion did not make sense. But it was quite close. If she believed that her tax rates were going to be higher by the time she retired by even 1%, the conversion would have significantly increased her after-tax income.
One last example – 44 year old. He had a traditional IRA and had money to pay the taxes from a non-IRA account. However, we estimated that his tax bracket in retirement would likely be lower than it is now, by about 3%. In his case, conversion was still a great deal even with the projected lower retirement tax rate. Having all those years of after-tax growth more than off-set the potential for a slightly lower rate in retirement.
If you have a traditional IRA, an analysis is in order.
The above examples illustrate that even when your situation doesn’t meet the “ideal conversion” criteria, it still may make a significant difference in your after-tax retirement income. If you’d like to see the specific calculations on any of the examples listed above, please feel free to contact me and I’d be happy to send them to you.
A few other considerations to keep in mind
If your estate is potentially subject to the estate tax, a Roth conversion can be a powerful planning tool.
The market’s relative “high” or “low” value when you convert is also a factor in how good a deal conversion is – low values mean you pay tax on a lower amount.
There are also opportunities to convert in early 2010 and undo the conversion later based on circumstances or market performance. We’ll discuss this in future posts.
Roth IRA Conversion Overview
September 14, 2009 by Jean Keener, CRPC, CFDP · 2 Comments
Through 2009, converting an IRA from a traditional IRA to Roth is only available for those with household incomes under $100,000. Beginning next year, that changes. However, a lot of people aren’t aware of the upcoming changes — according to Financial Planning magazine, only 42% of advisor clients were aware of the new Roth IRA conversion opportunity. I will be doing a series of blog posts over the next couple of weeks giving you the details on this opportunity and some examples of who should consider this strategy. Of course, everyone’s situation is unique and these posts are for informational purposes only, so you should only make the decision after consulting with your own financial advisor.
First, why would you want to convert?
Funds withdrawn from a traditional IRA are subject to regular income tax. Funds withdrawn from a Roth IRA (both contributions and earnings) after age 59 1/2 and after you’ve owned the IRA for 5 years are federal income tax-free. By converting from a traditional to Roth IRA, you are paying taxes sooner rather than later on your IRA balance. This strategy allows your post-conversion earnings to avoid taxation altogether and to have potential tax savings on the contributions if your tax rate goes is higher in the future. It also gives you greater flexibility on when you use the funds because Roth IRAs do not have required minimum distributions. For some people, using this strategy can create a larger pool of after-tax retirement income and help with estate planning.
If you’d rather watch a video than read about the Roth IRA changes, this video comes from a service I subscribe to and provides a good overview of the conversion opportunity. Let me know what you think!
Roth IRA Conversion VideoFree Financial Advice in Keller
September 8, 2009 by Jean Keener, CRPC, CFDP · 1 Comment
Free financial advice will be available to residents of Keller, TX for Financial Planning Week October 5-12, 2009. Many individuals and families are facing financial challenges or uncertainty right now. Retirement plans are shifting. Investments are volatile. Jobs are less secure. And debt is a bigger issue than ever. In this environment, people are hungry for reliable, objective financial advice.
Keener Financial Planning has partnered with the Greater Keller Chamber of Commerce to provide two informational
financial workshops at Keller Town Hall on Tuesday and Thursday evening, October 6 and 8 from 5 to 6:30 pm. Both workshops are free and open to the public. Tuesday evening’s topic is Financial Tranquility: Get Back to the Basics for a Stress-Free Financial Life. Thursday’s topic is 7 Mistakes Smart Investors Make and How to Avoid Them. There is limited space available, so attendees are encouraged to RSVP to info@keenerfinancial.com to reserve their seat. Light refreshments and door prizes will be provided.
Keener Financial Planning will also be offering Free Financial Advice Friday on October 9. I will be providing pro bono financial advice and coaching sessions all day at my office in Keller. Times will be by appointment on a first-come, first-serve basis. To participate in Free Financial Advice Friday, email info@keenerfinancial.com to request a time.
The purpose of Financial Planning Week is to raise awareness of the importance of financial planning in all of our lives and the value of getting objective advice to help you achieve your financial goals and dreams. Please join me for one of these events and help spread the word about how a solid financial plan helps create a secure future. Thank you!
New Texas Teacher Long-Term Care Insurance Option
September 4, 2009 by Jean Keener, CRPC, CFDP · 1 Comment
Beginning on September 1 this year, the new long-term care insurance provider for the Texas Teacher Retirement System (TRS) switched from Aetna to Genworth. During open enrollment from September 15 – November 15 this year, teachers will have the option to sign up for this insurance. If you’re thinking about getting long-term care insurance anytime soon, now is the time to take action while you have the greatest number of options.
How do you know if the TRS Genworth group option is right for you?
The first thing to do is to get a quote for the TRS group policy through the Genworth website. To do this, go to www.genworth.com/groupltc For active employees, the group ID is TRS. For retirees, the group ID is TRSRetiree. The access code for both is groupltc.
After you’ve received your quote, you’ll want to go out and shop for individual quotes. Some of the companies in addition to Genworth offering long-term care insurance are John Hancock, MetLife, Prudential, Mass Mutual, Berkshire, and New York Life. You’ll want to make sure you’re comparing apples to apples, so print out the options you selected for the Genworth TRS policy to show to your insurance agent.
If you want an objective second opinion on when you should get long-term care insurance or the “right” amount of long-term care coverage to purchase for your situation, that’s something an independent financial planner like myself can help with.
If you find that the Genworth group TRS program is providing the best pricing and benefits for you, then it’s easy. You’ll want to go ahead and sign up if you’ve decided now is the right time for you to get long-term care insurance.
If you find an individual option could provide superior benefits at the same cost or comparable benefits at a lower cost, you’ll have some additional work to do. You need to go through under-writing and make sure you qualify. You will need to answer some health questions and possibly have an exam. This process can take some time, so you should start now. Only after you’ve been offered coverage through the other company can you really make a decision about which option to choose.
If you’re declined by the other company — good news — you still have the TRS group option. During the initial enrollment period, Genworth is providing a coverage guarantee to active employees. The coverage guarantee is why it’s so important to investigate this group option now if you have any health issues that may prevent coverage on an individual policy. According to the Genworth website, “During your enrollment period, if you are an actively at work employee on the day you apply, and on the day your coverage becomes effective, your coverage is guaranteed without answering any health questions. Also, during this time your spouse will have streamlined underwriting which limits the health questions they´ll have to answer. If you decide to apply after the enrollment period, you will be required to complete a full health questionnaire and go through underwriting. There is a chance that a health condition may prevent you from qualifying for coverage.”
Just to give you one example of this process, I compared the TRS group option for one couple. In this couple’s particular situation, the couple’s group coverage through TRS was going to cost slightly more than purchasing a comparable individual policy through Genworth directly, about the same as through MetLife, and a little less than through John Hancock.
Also of note, in the 3 individual quotes received, the prices were based on 100% of the maximum daily benefit being available for home healthcare vs. 75% for the Genworth group policy. 75% may be enough because home healthcare can be less costly than skilled nursing care. But if you can get 100% for the same or less premium — all other things being equal – it’s definitely the smart move.
In addition to price and features, it’s important to look at the ratings of the insurer, claims-paying experience of policyholders, and length of time the company has been in the long-term care arena. For this couple, it made more sense to go with one of the individual options. However, if they had health issues that would have kept them from qualifying for the individual policy, taking advantage of the TRS group policy during this initial enrollment period would have been a wonderful opportunity. It’s also important to note that everyone’s situation is different, so you need to complete this process for yourself.
Bottom line: if you’re thinking about getting long-term care insurance anytime soon, now is the time to take action while you have the greatest number of options.
For more information on making this decision, you can visit these links:
TRS long-term care information
U.S. Department of Health and Human Services site on long-term care information
Medicare’s site on long-term care
My blog post on 5 claims to watch out for in Long Term Care Insurance
My blog post Long Term Care is a Women’s Issue
September 2009 Newsletter
September 2, 2009 by Jean Keener, CRPC, CFDP · Leave a Comment
The September 2009 newsletter is now available. It includes information on 2010 retirement plan contribution limits, health insurance protection for college students, KFP’s new Dallas office, and more. To read it, click here.
How to Choose a Financial Planner
August 31, 2009 by Jean Keener, CRPC, CFDP · Leave a Comment
You may be considering seeking some professional financial advice. Or, if you already have a financial advisor, you may be wondering if they’re doing a good job for you.
You’re likely juggling 2 sets of questions as you consider this decision:
The first set is personal:
- Do I like the advisor enough to spend significant amounts of time in their office?
- Do I feel comfortable sharing all of my personal financial information, dreams, and goals?
- Do I feel like the advisor understands and respects my lifestyle and goals and can help me achieve them?
With this first set, the answers are truly personal, and you should feel comfortable trusting your gut instinct after meeting the advisor and doing an initial interview.
Unfortunately, this is sometimes as far as selection process goes and the advisor choice is based exclusively on these personal connections. This can lead to a lot of regret later on.
The second set of questions is fundamental and every bit as important as the first set.
- Can I trust this person?
- Are they competent?
- Do I understand their fees and feel confident they’re a good value?
Answering these 3 fundamental questions requires some digging.
To determine the trust factor, I suggest interviewing the advisor using this Comprehensive Advisor Checklist. In addition, you should receive a copy of their privacy policy and form ADV part II for Registered Investment Advisors. You should also check their regulatory history to ensure it’s clean. For Registered Investment Advisory firms, go to http://www.adviserinfo.sec.gov/. For broker-dealer representatives, go to FINRA’s Broker Check. It also doesn’t hurt to do a google search of the advisor.
To determine competence, you want to understand what education and experience they have in the financial areas important to your situation. Be aware that many training programs provided by broker-dealer firms are essentially sales training programs, not financial planning programs. You want to identify their specific financial planning education. The Comprehensive Advisor Checklist also provides some very good guidance in this area. In addition, you want to be sure they can explain their investing approach in clear, down-to-earth terms. If it’s too complex to understand, at best it’s more complexity than you need. At worst, you could be walking into a scam or sky-high fees that will seriously damage your returns.
Fees are the last area. The Comprehensive Advisor Checklist also provides some solid guidance here. The financial services industry is not known for transparency of fees, so you may have to be persistent to get the answers you need. If the advisor is not forthcoming, you need to walk away. Once you get the information, you will want to weigh any potential conflicts of interest in compensation model, the quality and customization of the advice to be received, and the scope of the advice (is it just investing or does it also cover other financial areas?).
Only after you’ve looked at both the personal and fundamental questions should you make a decision about who to work with.
I provide fee-only advice to individuals at all financial levels, and would be honored to be included in your consideration of financial advisors. I invite you to conduct a thorough review of Keener Financial Planning using the resources suggested above. You may wish to start with the Interview Jean, About Us, and Schedule of Service pages, and then call 817-993-0401 to schedule a complimentary initial consultation.