ITINERIS FINANCIAL ADVISORS WORKBOOK: HOW TO KEEP YOUR FINANCIAL BOAT
ITINERIS FINANCIAL ADVISORS WORKBOOK: HOW TO KEEP YOUR FINANCIAL BOAT AFLOAT DURING A CAREER CHANGE Bill Pollak Founder, Itineris Financial Advisors Registered Representative LPL Financial LLC 1350 Treat Boulevard Suite 390 Walnut Creek, CA 94597 (925) 301-4086 Phone (925) 937-6377 Fax Email: [email protected] Website: www.yourmoneyjourney.com LinkedIn: www.linkedin.com/in/wepollak Facebook: www.facebook.com/yourmoneyjourney Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 1 TABLE OF CONTENTS 1. WHY THINK ABOUT YOUR FINANCES DURING A CAREER TRANSITION?....................... 3 2. INTRODUCTION TO CAREER TRANSITION AND YOUR FINANCES .................................... 5 3. USING THIS GUIDE TO KEEP YOUR FINANCIAL BOAT AFLOAT ......................................... 6 4. THE ITINERIS “TOP TEN” TRANSITION TIPS ............................................................................. 7 5. CONGRATULATIONS AND TAKE THE NEXT STEP ON YOUR JOURNEY! ........................ 29 ) Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 2 1. WHY THINK ABOUT YOUR FINANCES DURING A CAREER TRANSITION? Congratulations on taking this important first step in securing your financial future! After counseling and helping hundreds of people in the midst of professional change, I know that looking at your finances during this time may not be on your “top ten” list! Your wise decision to download this booklet shows diligence and the desire to pay attention to your financial welfare. Nonetheless, I feel compelled to answer an important question that I am asked very frequently: “Why look at my finances now? Should I not apply my entire focus on finding the next professional opportunity or on starting that new venture I have been thinking about?” It seems to me that this question is important and quite valid, and by not answering it, you might not obtain as much benefit from this workbook. Interestingly enough, my philosophy about career transition is rooted in my personal experience in changing professions to become ) a financial advisor many years ago. One of the best things I did was to use that time to get perspective and bring back into balance the many priorities that lead to a happy and healthy existence. As is true for many ambitious people building their careers, my life had gotten seriously out of balance when I worked in my former occupation as an executive in the enterprise software industry. Euripides, the renowned ancient Greek poet and author, once said, “The best and safest thing is to keep a balance in your life, acknowledge the great powers around us and in us. If you can do that, and live that way, you are really a wise man.” Although you should maintain the focus that you have toward your professional and/or business endeavors, I know from personal experience that the transition process provides abundant opportunities to look at and review many aspects of your life, including your finances. Your professional aspirations are certainly important, but there are many other facets of our life that continue to need care and attention! In my opinion, that is one aspect of the “balance” that Euripides was writing about thousands of years ago. I have always thought the best and most sustainable financial strategies are the ones that simultaneously consider how you can live a better life while making good financial decisions. After all, money is important, but your ultimate goal is to enjoy yourself! Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 3 It is very natural to experience anxiety about money during transition. The uncertainty of your situation creates an understandable tendency to not pay any attention to your finances. I know this to be true after having worked with so many people through the transition process. But, counter intuitively, a career transition often provides a great moment to look at your financial picture. In fact, there are actually many opportunities to not only avoid financial pitfalls but to enhance your long-term financial position. Waiting until “things settle down” may feel comfortable, but a wide range of regrettable decisions may be made and some may be impossible to unwind. Stepping back and looking at your situation can not only lead to better financial outcomes, but also reduce anxiety and increase confidence in your short term and long) term financial outlook. In many respects, the time in between career assignment provides you with the most precious commodity – time – to take a look at these areas of your life. So, take advantage of this opportunity to connect with those who are important to you, set up that appointment for your physical exam, and take advantage of the information I have provided on the following pages - Euripides would be proud of you! Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 4 2. INTRODUCTION TO CAREER TRANSITION AND YOUR FINANCES Changes in mid-life represent an important inflection point – personally, professionally and financially. You have important short-term goals such as keeping your short-term finances on track as you embark on your career strategy. And don’t forget other goals which may include helping fund your children’s higher education and/or graduate school, or any other important objectives. You also should think about your eventual retirement, but this is a hard thing for most people to do. The word “retirement” may create all kinds of images like days on the Golf course, traveling, or just plain relaxing! Although these are wonderful thoughts, they are hard to relate to because you may not yet be approaching that point in your life. That being said, mid-life professionals need to think about retirement because their lives are moving closer to a future time when they will lack the physical or mental capacity to work, regardless of their financial situation or personal preferences. Becoming informed about) how to prepare for that time can help frame important financial AND career decisions that you will make in the months and years ahead. There is a surprising aspect about retirement that can actually help your planning. More people now actually work during some of the years they are “retired”, which means they really have two “retirements”. The first one may include consulting in your current field, pursuing a professional passion, or even working in a new occupation. The “second” retirement then includes the retirement we often think about – the time when we really have no earned income and are pursuing interests/activities not at all related to work. More people are choosing this two-phased approach to retirement planning. With the recent challenges in the economy, most surveys indicate there are more people not financially ready for retirement. However, the decision to keep working may not be at all related to financial considerations. Many people, even those who can afford to retire, want to continue making professional contributions and remaining active in their work! But you might now want to work in a way that is different from what you did in the past, while still generating income to preserve your financial resources until you decide to retire or can no longer perform work. The purpose of this guide is to help you think about many parts of your life, figure out your goals (even retirement!), and provide actionable steps to help you not only navigate your career transition, but to just as importantly, integrate your life goals with all of the financial decisions that you need to review. Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 5 3. USING THIS GUIDE TO KEEP YOUR FINANCIAL BOAT AFLOAT You have now reached the part of this guide that is really the “main event”. It includes ten sections that are intended to help you think about your life goals, your finances and many transition-related considerations. You can review each part of the guide, start working on the activities we have outlined, and further consider matters that you are not quite sure about. Each of the “top ten transition tips”, as I call them, provides questions for you to answer and potential action steps to follow. My goal is to make it easy for you to determine what you should do now and to monitor your progress! There are no strict rules about how to use this workbook, but I do recommend that you read the guide in sequential order the first time. The exercises in each section build upon each other, and you will get the full benefit of the workbook by completing each section as best you can, in the order presented. I have also provided additional space in each section to make notes based on what is ) important to you. I think this workbook can act as your financial “journal” so that you can refer back to it to understand your previous decisions and situation. Those notes will be inspirational as you see your progress and will help you in making the inevitable adjustments that will occur on your new journey! Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 6 4. THE ITINERIS “TOP TEN” TRANSITION TIPS Tip #1 - Finalize Any Loose Ends from Your Previous Employment If you will soon leave or have recently left your employment, be sure to remember a variety of important financial matters that should get your immediate attention: If you are offered a severance package, don't sign without reading it first, and consider having a lawyer review it as well. Be sure you understand the terms. Are you giving up any rights? Are you signing a non-compete clause? There are important laws both at the State and Federal level designed to protect your rights so make sure you get advice about how to best protect your interests. ) Determine when your insurance benefits will end. Some employers will continue coverage through the end of the month. Others will terminate the insurance immediately. If your coverage continues through the end of the month, make arrangements to get your prescriptions filled and see your providers before your coverage ends. ➾ Action Item: Contact your former employer to determine coverage ending date File for unemployment insurance. ➾ Action Item: Submit application for unemployment insurance Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 7 Most companies provide COBRA coverage so take advantage of these rights. COBRA is a federal law that allows you to continue your health care coverage, under most circumstances, after you leave your job for up to 18 months. The employer must send coverage information to you within 30 days and you have up to 60 days to decide whether to elect COBRA coverage. ➾ Action Item: Contact your former employer and enroll. However, if your spouse is employed and has medical coverage through work, enrolling in your spouse’s medical plan will likely be more cost effective than COBRA. Make sure to review your spouse’s plan and determine if you are eligible. Compare the expenses of the COBRA plan to your spouse’s plan by looking at both the premium and your projected out-of-pocket medical expenses for both. If your spouse’s plan offers ) good coverage, provides access to your current doctors and is more costeffective, you should strongly consider using that plan in lieu of COBRA coverage. If you want to retain life insurance or disability coverage provided from your previous employer, contact your benefits department to find out whether you will be offered “portable” coverage. Portable insurance would allow you to retain these types of insurance at your own expense, but taking advantage of lower “group” rates negotiated by your employer. This is a great option if you still need the coverage but are unsure whether these benefits will be available at your next career destination. By taking advantage of portability, you would also not have to worry about qualifying for new coverage – very important if your health situation might make it hard for you to qualify for individual insurance. ➾ Action Item: Contact HR department and review portability information if available Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 8 Tip #2 - Think about Your Career Transition, Life Goals and Your Desired Lifestyle Your financial plans and decision-making should be framed by where you have been both personally and professionally, and where you want to go in the future. When you are in transition, you should keep in mind that what is important to you now may be different than how you thought about things in the past. In particular, consider the following: Career transitions occur due to a variety of circumstances. Although we often think of transition as occurring as part of an organization’s restructuring or downsizing event, there are other types of transitions. Some may have voluntarily left their employment because their companies offered financial incentives to do so as part of a voluntary downsizing program. And other individuals may have decided on their own accord to move away from traditional employment, pursue a professional passion and start a new venture or even an entirely new profession. You should think about the nature of your specific) transition, as well as your future career goals, as you approach your financial decision-making. As you begin to consider your finances, it is also important that you think about you and your family’s lifestyle and qualitative objectives. What goals are important to you and your family, as you think about your new circumstances? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ Are there certain aspects of your lifestyle that are important to you or that you want to change? __________________________________________________________________ __________________________________________________________________ Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 9 __________________________________________________________________ __________________________________________________________________ Are there new goals or objectives that you want to consider? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ ___________________________________________________________________ Are there goals that are no longer important? __________________________________________________________________ ) __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ ___________________________________________________________________ These questions are the most important because the money is nothing more than the enabler for the life you want to lead! Remember, your time of change is a great opportunity to think about a new chapter in your life and what is important to you and your family members (if you are married or have children). Knowing what you and your spouse want for your life now and in the future sets the context for your finances and your decisions about money. Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 10 Tip #3 - Take Stock of Your Current Financial Situation It is now time to take a quick inventory of your finances! This will help you understand you where you stand today and to think about what you might change. First, take a close look at your short term finances. Add up all of your monthly expenses and compare that figure to the total of your monthly income sources such as unemployment, severance pay and/or any other income available to you. Don’t be surprised if your expenses are greater than your income – you can use this exercise and the next chapter to begin to think about how you can fund that difference. Income Sources: Severance Unemployment Insurance Investment Income Rental Income Income from Spouse Part-time Employment Income Consulting/Self-Employment Income Amount $ __ $ __ $ __ $ __ $ __ $ __ $ Projected $ __ $ __ $ __ $ __ $ __ $ __ $ __ Total Income $______ $ __ Lifestyle Expenses: Mortgage/Rent Insurance Property Taxes Utilities Automobile Expenses Medical Expenses Food Clothing Education Leisure Personal $______ $______ $______ $______ $______ $______ $______ $______ $______ $______ $ $ $ $ $ $ $ $ $ $ $ $ __ __ __ __ __ __ __ __ __ __ __ Total Lifestyle Expenses $______ $ __ Net Surplus/ (Deficit) $______ $ __ Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 11 ➾ Action Plan: Notes about anything that you want to change __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ List and calculate the total of all of your financial assets such as checking and savings accounts, investment accounts, and any retirement plans, including employer-sponsored plans such as 401(k)s and pension plans. Similarly, you should list your liabilities which will include mortgage debt, loans, and credit card balances. After you calculate your total liabilities, you can calculate your net financial position. ) Assets: Financial Assets -Checking Accounts -Savings Accounts -Mutual Fund Accounts -Education Accounts -Investment Accounts (Non-Retirement) -IRA Accounts -401(k) Accounts Real Estate Assets -Primary Residence -Second Home Rental Properties Total Assets $______ $ __ $______ Liabilities: -Mortgage -Home Equity Line/Second Mortgage -Credit Card Debt -Student Loans -Other Debt Total $______ $______ $______ $______ $ __ $______ Net Worth $______ Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Amount $______ $______ $______ $______ $______ $______ $______ Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 12 ➾ Action Plan: Make notes about anything that you want to change regarding your assets and liabilities __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ ) Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 13 Tip #4 - Develop Your Transitional Financial Plan Now that you have a clearer picture of your current financial status, you can decide what changes, if any, you want to make in your financial life. Your time in transition may lead you to consider a new set of financial strategies, such as suspending savings goals, drawing income from real estate or financial investments, or relying on your savings to sustain your lifestyle expenses. As you look at your situation and your options, write down how you will be financially impacted in the short-term, medium-term and long-term finances. Think about the extent to which your transition will make it difficult to meet your financial goals or for you to remain on a sustainable path. __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ ) __________________________________________________________________ ___________________________________________________________________ Is there a different way you can balance your financial outlook with the various goals and lifestyle you want to lead? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ ___________________________________________________________________ If you want to pursue an entirely new field or starting a new business, you will need to consider the likelihood that you will need more time to attain the income level you Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 14 previously earned. How could a combination of lifestyle changes and/or new, alternative income help until your income returns approaches normal levels? __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ ___________________________________________________________________ Adjust career strategies or professional choices depending on your circumstances. If you have adequate savings that will sustain your short-term and long-term financial position, then it probably makes good sense to pursue that new venture or profession. Conversely, if you will require several months, or perhaps years, to earn sufficient income, you will likely need to find a way to earn enough money while you try pursuing your career aspirations. ) __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ A potential pitfall is underestimating the time required to move through your change. Be realistic by considering that your career plans might require more time than you think. Make prudent income projections and err on the side of having a more conservative plan. Remember, if you do better than what you have projected, it is always easy to make changes. On the other hand, if you are too optimistic, you might compromise your situation at a most difficult time. __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 15 Tip #5 - Look at Ways to Make Your Money Work Harder for You Unless you have attained financial independence, you will probably make adjustments in order to bridge the gap from today’s situation to the time when your income returns to a more typical level. Making changes to your finances and spending does not have to feel scary when approached with the right mindset. Look at the process in terms of making your money work harder from you, as opposed to immediately considering radical or difficult changes in your lifestyle which may not be appropriate or necessary. First, take a look at your financial and real estate assets and assess whether they can help produce income for you. Did you know that there are investments which can generate investment income? Look at your portfolio (see Section 10 of this guide for a comprehensive discussion about how to approach your investments) and consider the possibility of owning stocks that pay dividends or purchasing fixed income instruments which produce interest income. ) Many people are not aware that such investments exist, but they actually do! You can research these investments yourself (if you have the time and interest) or work with a financial advisor to help you. Always remember to become informed about the risks of investing and what level of fluctuation you would be comfortable with before you decide that incomeproducing stocks and bonds are appropriate for you. Note: General risks of stock investments include the fluctuation of market prices and the possibility that the price of a stock may be more or less than the initial cost. In addition, changes in the price of a stock may be exacerbated due to potential illiquidity of the investment in a falling market. Even though dividends may be scheduled to be paid on a certain interval, there are no guarantees that dividends are always paid on time, if at all. Bonds are subject to market and interest rate risk if sold prior to maturity. Selling bonds prior to maturity may make the actual yield differ from their advertised yield and may involve a loss or a gain. Bond values will decline as interest rates rise and are subject to availability and change in price. __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 16 Second, take a close look at all of the products and services you buy. You might discover that there are items you are not fully utilizing and that can be reduced or eliminated without changing your lifestyle. This is particularly common if months or years have gone by since you last took a look at how you spend money. Most of us are pretty busy so it is very easy for many parts of your financial life to go on “automatic pilot.” __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ Use this opportunity as a time to look at both big expenses and small. For example, how many of us have the time to have reviewed our homeowner’s/ renters and automobile insurance? Combining coverage with a single carrier and/or increasing deductibles can sometime) lead to substantial savings. Take to your insurance agent about what’s appropriate for your situation! Insurance is one example, but be sure to look at all of your expenses to find more of these opportunities. Mobile phone plans and cable TV with unused options are other potential areas where you might be able to reduce costs without really changing your lifestyle. __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ Try to reduce the cost of your debt by refinancing. This may not be an easy goal to accomplish while your income is lower, but you should review the interest rates you are paying on your mortgage or on credit card debt. In today’s environment, you may not qualify for a refinance, but it is worth looking when you consider today’s historic rates. A mortgage professional can advise you about whether you would qualify and on whether a refinance is appropriate for your situation. Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 17 If you have credit card debt for which you pay high interest, make sure to explore reducing or re-financing this debt. You can try to negotiate with your current credit company or seek out alternative credit card companies that offer low rates. Use the internet to shop for attractive rates. If you think it will become difficult to pay back this debt, refer to the consumer section of the US Federal Trade Commission website (http://ftc.gov/bcp/menus/consumer/credit.shtm) for helpful information about your rights, credit card counseling and other helpful options. __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ ) ___________________________________________________________________ Whatever you decide, make sure your plans keep your financial situation on a sustainable path. You want to make sure you consider the possibility that your transition may require more time than you anticipate. Depending on your situation, you might need to be very cautious about discretionary spending and consider spending less on non-essential items. __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ __________________________________________________________________ Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 18 Tip # 6 - Review Your Health Insurance Coverage Options No matter how challenging your particular cash flow situation, you should never let your medical insurance lapse. Keeping this coverage is vital and will protect you and your family from a financial catastrophe in the event of an unexpected serious illness or injury that could be very expensive. In addition, you are more likely to be able to access routine and preventive care if you have health insurance. COBRA coverage, almost always available to you from your former employer, is the most common option that people use. But if COBRA coverage is not subsidized by your former employer, the premiums are usually very expensive. You should consider the following options: If your spouse is employed and has medical coverage through work, enrolling in your spouse’s medical plan will likely be more cost effective than COBRA. Make ) sure to review your spouse’s plan and determine if you are eligible. ➾ Action Item: Compare the expenses of the COBRA plan to your spouse’s plan by looking at both the premium and your projected out-of-pocket medical expenses for both. If your spouse’s plan offers good coverage, provides access to your current doctors, and is more cost-effective, you should strongly consider using that plan in lieu of COBRA coverage. As a second alternative, you can explore other coverage options such as “High Deductible Health Plans” (HDHP) which are sometimes less costly, perhaps substantially so, than COBRA coverage. ➾ Action Item: Obtain quotes for High Deductible Health Plans and compare to COBRA coverage There are many factors to consider before deciding to change to such a plan, because the high deductible means that you could incur significant out-of-pocket expenses before you use up your deductible. But sometimes these plans can Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 19 make a great deal of sense and can save you money, especially if you are in good health. A Financial Advisor or Life/Health Agent can help you decide. ➾ Action Item: Factor into your decision the potential of higher “out-of-pocket” expenses if you were to switch from your COBRA coverage to a “HDHP” plan. If you decide to pursue self-employment, you can augment this type of medical plan with a Health Savings Account (“HSA”), which is a tax-advantaged savings account. The money you put in tax-deductible, and withdrawals are tax free when used to pay for qualified medical expenses. Some of these tax benefits are more generous than a 401(k) plan which requires you to pay taxes on all distributions. If you are interested in this account, remember that you can only get the tax advantages of an HSA by enrolling in a “High Deductible Health Plan (“HDHP”). ) ➾ Action Item: Talk to your tax advisor about whether you may benefit from a Health Savings Account (HSA). Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 20 Tip #7 - Set Goals and Periodically Monitor Your Progress By its nature, career transition is often a journey, so you will need to make sure you stay on course. You will probably come upon twists and turns along the way, but you want to make sure you do not veer too far off the itinerary you have planned! I recommend that you first create realistic and quantifiable goals. Just as if you were going on a trip, you want to establish sign posts so that you can feel secure that you are moving safely toward your destination. Create goals for each of the following components of your financial life: Quarter 1 Monthly Income: Severance Unemployment Ins Investment Income Rental Income Spouse Income Part-time Work Consulting Income Total Income $_____ $_____ $_____ $_____ $_____ $_____ $ $_____ Monthly Expenses: Mortgage/Rent Insurance Property Taxes Utilities Automobile Expenses Medical Expenses Food Clothing Education Leisure Personal Total Expenses $_____ $_____ $_____ $_____ $_____ $_____ $_____ $_____ $_____ $_____ $ $_____ Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Quarter 2 Quarter 3BB $_____ $_____ $_____ $_____ $_____ $ $_____ $______ $______ $______ $______ $______ $______ $ $______ $_____ $_____ $_____ $_____ $_____ $_____ $_____ $_____ $_____ $_____ $ $_____ $______ $______ $______ $______ $______ $______ $______ $______ $______ $______ $ $______ Ӥ 矠$_____ Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 21 In addition to setting the above-referenced goals for your income and spending, you should also consider establishing goals for your cash reserve balances, the money you want to maintain in your investments accounts, and your debts and liabilities. You will want to make sure that the amounts in these categories are progressing in a way that is consistent with your goals. You can use a chart like the one below to track your progress: Assets/Liabilities: Cash Reserve: Remaining Assets: Debts/Liabilities: Quarter 1 Quarter 2 Quarter 3BB $_____ $_____ $_____ $_____ $_____ $_____ $______ $______ $______ Decide how you often you should monitor your progress. I recommend that you check to see where you stand versus your goals on no less than a quarterly basis. If you feel more anxious or if you think your financial situation is very challenging, you should monitor the above goals on a monthly basis. Once your income 螀 returns to a level that Ӥ will sustain your lifestyle expenses, you can choose to review these goals on a less frequent basis, perhaps one or two times per year. It is also not uncommon that your objectives or goals can change as you pursue your career plans. So, you should factor in those changes and consider their impact as you see how things are coming along. Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 22 Tip # 8 - Consider a “Direct Rollover” of Your 401(k) Plan Assets Over the years, many studies have shown that a significant percentage of Americans leave a large portion of their retirement assets in the 401(k) plans of their former employers. By not consolidating your retirement funds, you may be missing out on important benefits such as simplified record-keeping, a more straightforward way to monitor investment performance, and a streamlined mechanism for considering and implementing on-going changes to your investment portfolio. To take advantage of these benefits, you should consider requesting a “Direct 401(k) Rollover” to move money from your existing 401(k) plan into another retirement account. The money is transferred from one financial institution to another, and you should not have錐Ӥ to worry about withholding rules, taxes, or penalties. But, as with many things financial, the direct rollover decision may require further analysis, especially for mid-life professionals who are in career transition. If you are in this demographic, you should become informed about your options if you find yourself in one or both of the following situations: a) You have company stock in your 401(k) plan and/or b) You are considering taking money from your 401(k) plan before attaining age 59½. For people in these situations, a direct 401(k) rollover may not be the best immediate strategy, depending on your circumstances. The factors that you should consider are too detailed to discuss in this workbook, but a financial advisor and a tax advisor can inform you about these considerations and help you decide on whether a rollover will make sense. Always remember to get advice from your tax advisor and financial advisor about your specific situation. Consider distributing some of the assets in your 401(k) plan account to a Roth IRA account. The money you distribute from your 401(k) will be subject to income Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 23 taxes, but future distributions from the Roth IRA account are usually tax free after a five year holding period, unlike distributions from a 401(k) plan or a Traditional IRA account, which are subject to income taxes. A tax professional can help you decide whether you qualify for a Roth IRA and whether it would make sense to convert some of your retirement assets to a Roth IRA. You should only consider a taxable distribution from your 401(k) plan as a last resort. You will usually pay income taxes and penalties for distributions that occur before age 59½ and lose the potential future investment growth of that retirement plan money. Furthermore, since there are annual limits to the amount you can contribute to a 401(k) plan, you can’t make up for a previous withdrawal later, when you are on more solid financial ground. ➾ Action Item: Consider consolidating your retirement assets in an IRA account ➾ Action Item: If you are approaching age 55 and/or you have company stock ӣ in a 401(k) plan, talk to a financial advisor and tax advisor before you proceed with a “Direct 401(k) Rollover”. ➾ Action Item: If you need to withdraw money from a 401(k) plan or an IRA account AND if you are under age 59½, make sure to consult with a tax advisor. Although such withdrawals are usually subject to taxes AND penalties, you might be able to able to avoid the penalties under certain circumstances (but you would usually need to pay income taxes). The following withdrawals might not be subject to penalties if taken before you attain age 59½: -Payments for qualified higher education expenses -Payments for deductible medical expenses -Payments for health insurance premiums -Payments if you are totally and permanently disabled -Unpaid taxes to the IRS -First time homebuyers -Income distributions – you may be able to take substantially equal periodic payments over time. Consult with your tax advisor or financial advisor to learn about the specific rules for any of these provisions from which you might benefit. Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 24 Tip #9 - Don’t Forget About Taxes We would all love to forget about income taxes, but I strongly recommend that you actually pay close attention to taxes during a transition! Check in with your tax advisor, or if you do not have one, consider looking for help. You may likely be in a different tax bracket and need to plan accordingly. Between the receipt of lump-sum severance payments and receiving unemployment compensation (for which there may not be income tax withholding), there are plenty of opportunities to receive an unpleasant surprise when you file your income tax return in the following year. Reviewing your tax situation now will allow you to estimate what you will owe at tax time so that you will not be caught short. Another benefit: there may be opportunities to reduce income taxes while you are in transition. If you consider going back潀to Ӭ school as part of your career change, did you know that you might be eligible for a tax credit? There are many opportunities such as this one that might apply to you depending on your tax situation – talk to a tax professional now to learn how you could use tax code to your benefit! Finally, if you are considering self-employment or starting a business, there are a number of valuable planning opportunities that a tax advisor can help you understand and benefit from. ➾ Action Item: Set up an appointment to meet with your tax advisor ➾ Action Item: If you have withdrawn money from a retirement account, make sure that your tax advisor is aware of the withdrawal, and the amounts, if any, that were withheld for income taxes. ➾ Action Item: Update the transitional financial plan you developed in Section 4 to reflect any taxes that may be due when you file your income taxes. Make sure you have cash set aside to pay that future tax bill. Notes: _____________________________________________________________ __________________________________________________________________ __________________________________________________________________ Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 25 Tip #10 - Review Your Investments and Asset Allocation Like other aspects of your finances, a career transition provides a good chance to think about your investments. You have worked hard over the years and have put money away into a retirement plan at work, IRA accounts, company stock purchase plans, investment accounts, money market funds, or other types of saving vehicles. Very well done! While you were working, you may not have been as focused on monitoring your portfolio or keeping track of your investments. Now that your situation is changing (or has already changed), it is important that you immediately review your 轰Ӥfollowing items: investments. Make sure you evaluate the Project your cash needs over the next 12 to 18 months and enter the amount here $_________. Whether you use 12 or 18 months, you can estimate your cash reserve by referring to Section 3 of the workbook where you estimated the difference between your sources of income and your lifestyle expenses. Make sure that this figure includes any estimated income taxes that may be due – see Section 9 of the workbook for additional information. Review the money you have outside of retirement accounts and see if you have sufficient assets to pay for those expenses. Fill in this amount here $_______. ➾ Action Item: If you do not have enough money in non-retirement accounts and you have no other sources of non-retirement funds or assets from which to draw upon, meet with a tax advisor. He/she will help determine the most tax-efficient ways to withdraw money from your retirement accounts. You will need to withdraw sufficient money for both your cash reserve and any taxes that will be due for the distribution itself. Make sure that the money you will need over the next 12 to 18 months is fully invested in cash or cash-equivalents. The money that you need for lifestyle expenses during the next year should NOT be invested in stocks, bonds (also called fixed income) or in any other financial products that will fluctuate in value. Estimate Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 26 the dollar amount of stock and fixed income investments you will need to sell in order to establish your cash reserve of $_________. Review the asset allocation for the money you have left over after establishing your cash reserve. Your situation is now different and your current allocation may no longer be right for you. Your investment allocation should reflect your specific goal(s). Use the following chart to quantify the goals in terms of how much money you will need to meet the goal and when you will need that money: Goal 1:_________ Amount: _________ Date: _________ Goal 2:_________ Amount: _________ Date: _________ Goal 3:_________ Amount: _________ Date: _________ Goal 4:_________ Amount: _________ Date: _________ These goals and timeframes will help you approach your investment decisions and how you decide to allocate your money across the broadg asset classes of stocks, bonds and cash. Years of academic research have proven that that the asset allocation decision is the most important one and will have the greatest impact on the potential risk and return of your portfolio. Stocks offer the greatest potential for growth, but also come along with the most risk. Bonds are generally income producing investments which have less risk than stocks, but they do not typically offer the same opportunity for capital appreciation as stocks. Select an asset allocation for each goal: Goal 1: Stocks ___% Bonds ___% Cash ___% Goal 2: Stocks ___% Bonds ___% Cash ___% Goal 3: Stocks ___% Bonds ___% Cash ___% Goal 4: Stocks ___% Bonds ___% Cash ___% Combined Allocation – All Goals: Stocks ___% Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Bonds ___% Cash ___% Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 27 If your new allocation is different from your current portfolio, you should determine the necessary investment purchases and sales you will need to make in order to bring your portfolio to the allocation you now want. Use the chart to below to document the changes you want to make: Investment Sales: Investment #1 $_______ Investment #2 $_______ Investment 3, 4, 5T.. Asset Class Asset Class Investment Purchases: Investment #1 $_______ Investment #2 $_______ Investment 3, 4, 5T.. Asset Class Asset Class As mentioned in Section 5 of this chapter, consider allocating a portion of your portfolio to generate income which can ӥ pay for some of your lifestyle expenses. Potential choices include owning stocks that pay dividends or purchasing fixed income instruments which produce interest income. Design your allocation so that a portion of your portfolio is invested in lower volatility investments such as certain types of Short Term Bonds. You want to be able to easily convert a portion of your portfolio into cash at a later time in the event you need to replenish your cash reserve. The amount invested in these lower volatility investments should be approximately equal to your cash reserve. This approach would give you more flexibility if your career transition requires additional time beyond the 12 to 18 months assumed in this guide. You can do your own research and make investments if you have the time and interest to understand investing. There are many free or low cost sources of investment research. If you are not inclined to make your own investment decisions, if you don’t have the time or if you have difficultly remaining objective about these decisions, seek out the services of a financial advisor to help you. Always remember to become informed about the risks of investing and what level of fluctuation you would be comfortable with before you decide whether any investment is appropriate for you. Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 28 5. CONGRATULATIONS AND TAKE THE NEXT STEP ON YOUR JOURNEY! Congratulations for reviewing this guide and utilizing the exercises. Most importantly, I hope that the guide has empowered you to more thoughtfully approach your finances during this time of change and that you feel more confident about your ability to stay on track. Ultimately, my goal is to help you experience less anxiety about money and to provide tools and knowledge that can help you navigate this next chapter of your life. As a valued member of the Itineris community, I also invite you to sign up for a complimentary consultation in the next step of your money journey. If you need assistance, I can conduct a no-cost review of your situation. Specifically, I will review the exercises you have completed in the guide, answer any ofөyour financial questions and help resolve any uncertainties you may feel. I conduct these consultations without any cost, obligation, or expectations. ➾ Action Item: Contact Bill at [email protected] to schedule your session and move forward confidently, or visit us at: Website: www.yourmoneyjourney.com LinkedIn: www.linkedin.com/in/wepollak Facebook: www.facebook.com/yourmoneyjourney Copyright 2012 Itineris Financial Advisors 1350 Treat Blvd, Suite 390 Walnut Creek, CA 94597 (925) 301-4086 www.yourmoneyjourney.com Securities offered through LPL Financial Registered Investment Advisor and Member FINRA/SIPC Page 29
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