Plan Your Financial Future (eBook)

Keith R. Fevurly is currently an investment advisor with Integra Financial, Inc., and a senior lecturer in finance at Metropolitan State University of Denver. He also conducts a private practice in estate planning in Centennial, Colorado. Previously, he served as the vice president of education at the College for Financial Planning, Denver, Colorado and also served as the executive director of Kaplan Financial’s financial planning program. Dr. Fevurly has assisted in the financial education of approximately 50,000 financial planners and authored more than 20 refereed articles on financial planning. He was a member of the Editorial Review Board of the Journal of Financial Planning, which is the major academic and professional journal for personal financial planners for over 20 years; and he has written proprietary textbooks on investment planning, income-tax planning, and estate planning for Kaplan University. He is a licensed attorney in the states of Colorado and Kansas and has been a CFP certificant since 1986.

Contents 5
About the Author 7
Foreword to the First Edition 8
Acknowledgments 10
Preface 11
Part I: The Financial-Planning Process 12
Chapter 1: Understanding the Challenge: The Need to Begin 13
Wealth and the PADD Approach 14
Steps in the Financial-Planning Process 15
Determine Where You Are Now 17
Creating a Personal Balance Sheet 18
Creating a Cash-Flow Statement 21
Budgeting 23
Cash Flow and Debt Management 24
Monitor Your Progress and Life-Cycle Planning 26
Chapter 2: Do You Need a Financial Planner? 29
A Word About Self-Help 30
Types of Financial Planners 31
The Certified Financial Planner Professional and Other Financial-Planning Designations 32
Questions to Ask a Financial Planner 34
Chapter 3: Elements of Personal Financial Planning and the Wealth-Management Process 40
Personal Financial Planning and Wealth Management 41
The Need for an Investment Policy Statement 43
Statement of the Investor’s Objectives 43
Statement of Investment Constraints or Limitations 44
Meeting the Investor’s Objectives and Allocation of Investment Resources 45
Monitoring the Performance of the Investment Plan 46
The Basics of a Diversified Portfolio 46
The Basics of Rebalancing 47
Investment Strategies 48
Dollar-Cost Averaging and Share Averaging 48
Averaging Down 50
Dividend Reinvestment Programs 51
Laddering 51
Buy and Hold 52
Market Timing 52
Value vs. Growth Investing 53
Investing in Real Estate 54
Part II: Protecting Yourself, Your Family, and Your Property 55
Chapter 4: Insuring Yourself and Your Family 56
Do I Need Life Insurance? How Much? 57
Term vs. Cash Value Insurance 59
Types of Term Insurance 60
Types of Cash Value Insurance 61
Insurance Company Selection and Ratings 63
Chapter 5: Insuring Your Health and Long-Term Care 65
Considerations in Selecting a Health Insurance Policy 66
Consider Participating in Your Employer’s Plan 67
Carefully Review Plan Details 67
Flexibility Costs Money 68
Know Your Rights 68
Patient Protection and Affordable Care Act of 2010 69
Types of Health Insurance Policies 70
Indemnity (Fee-for-Service) Policies 71
Managed Care Policies 71
Health Savings Accounts 72
Continuation of Health Insurance Coverage After You Have Left Your Job 73
Portability of Health Insurance Coverage 74
Medicare and Medigap 74
The Importance of Long-Term Care Insurance in Protecting Your Wealth 77
Alternatives to Long-Term Care Insurance 81
Chapter 6: Insuring Your Earning Power 84
Is the Loss of Your Earning Power Already Adequately Covered? 85
Definitions of Disability 86
Additional Important Provisions in an Individual Disability Policy 87
Policy Continuation Provisions 89
Additional Policy Benefits to Consider 89
Policy Exclusions 90
Questions to Ask Before Purchasing an Individual Disability Income Policy 91
Chapter 7: Insuring Your Property 92
What to Consider When Insuring Your Home 93
Coverage A: Dwelling 93
Coverage B: Other Structures 94
Coverage C: Contents or Personal Property 94
Coverage D: Loss of Use 95
Coverage E: Personal Liability 95
Coverage F: Medical Payments to Others 96
Types of Homeowner’s Policies (and the One You Want) 96
What to Consider When Insuring Your Automobile 99
Coverage A: Personal Liability 99
Coverage B: Medical Payments 100
Coverage C: Uninsured Motorist’s Coverage 101
Coverage D: Physical Damage or Loss Coverage 101
No-Fault Insurance 102
Umbrella Liability Insurance 102
Business Property Insurance 103
Chapter 8: Optimizing Your Employment Benefits 105
Group Medical and Dental Insurance 106
Group Life Insurance 107
Group Disability Insurance 108
Group Long-Term Care Insurance 109
Dependent Care Assistance 110
Employer Educational Assistance 111
Saving for Retirement Through Employer-Sponsored Plans 112
Section 401(k) Retirement Plans 113
Section 403(b) Retirement Plans 114
Other Retirement Plans 115
Company Stock Purchase Plans 116
Stock Options and Other Forms of Incentive Compensation 117
Restricted Stock 119
Nonqualified Deferred Compensation 120
Part III: Accumulating Wealth 121
Chapter 9: Investing in Financial Assets 122
Cash Investments and When to Use Them 123
Bank Deposits 123
Money Market Deposits 124
Bonds and When to Use Them 126
Corporate Bonds 127
Government Bonds 128
Municipal Bonds 130
Bonds as a Part of Your Portfolio 131
Stocks and When to Use Them 132
Stocks as a Part of Your Portfolio 134
Mutual Funds and When to Use Them 135
Index Funds 136
Exchange Traded Funds 137
Mutual Funds as a Part of Your Portfolio 137
International Investing 138
Chapter 10: Investing in Real Assets 140
Direct Investments in Real Estate 140
Vacation Homes 141
Rental Homes 142
Commercial Real Estate 143
Raw or Unimproved Land 144
Indirect Investments in Real Estate 145
Real Estate Investment Trusts 145
Real Estate Limited Partnerships 146
The Use of Leverage in Real-Estate Investing 147
Correlation 148
Financial or Real Assets: Which Are Better? 149
Chapter 11: Investing in Use Assets 150
Your Home as an Investment 150
Buying vs. Renting a Home 154
Selling Your Home 156
Automobiles: Do You Really Need That New Lamborghini? 158
Tangible Personal Property and Collectibles 159
Part IV: Defending Wealth 161
Chapter 12: Income-Tax Planning and Management 162
Basics of Income-Tax Rates, Withholding, and Estimated Taxes 163
Social Security and Medicare Taxes 165
Regular Income Tax vs. Individual Alternative Minimum Tax 165
Basic Tax-Planning Technique #1: Tax Avoidance 166
Tax Avoidance vs. Tax Evasion 168
Basic Tax-Planning Technique #2: Tax Deferral 169
Basic Tax-Planning Technique #3: Conversion of Income 170
Tax-Smart Investing 171
What You Can Learn From Your Own Tax Return 172
Chapter 13: Transfer-Tax Planning and Management 175
The Advantages of Lifetime Gifting 176
Gifts to Minors 178
A Basic Primer on the Use of Trusts 178
Revocable Trusts 179
Irrevocable Trusts 180
Components and Valuation of the Gross Estate 181
Deductions and Credits Available to the Estate 182
Tax Rates and the Possible Repeal of the Death Tax 184
Do I Really Want to Leave It All to My Spouse or Charity? 184
The Unintended Danger of Generation-Skipping Transfers 186
Chapter 14: Life Events that Endanger Wealth 188
Divorce 188
Alimony 189
Child Support 191
Property Settlements 192
Principal Residence 194
Loss of Employment 195
Death of a Spouse or Life Partner 196
Titling Assets Jointly 198
Using Beneficiary Designations 198
Establishing and Funding a Revocable Living Trust 199
Dependent Parents 200
Claiming Your Parent as a Dependent for Income-Tax Purposes 202
A Developmentally Disabled Child 202
Your Own Physical or Mental Incapacity 203
Part V: Distributing Wealth During Your Lifetime 206
Chapter 15: Planning for Your Child’s Higher Education 207
How Much Will I Need? 208
In Whose Name Do I Save? 210
Types of Financial Aid 213
How Do I Save? 214
Custodial Accounts 214
Education Savings Accounts 216
Section 529 Savings Plans 217
Other Methods of Saving for College 220
Tax Deductions and Credits Available for Paying for College 221
Deduction for Student Loan Interest 221
Qualified Higher-Education Tuition and Fees Deduction 221
Higher-Education Tax Credits 222
American Opportunity Tax Credit 222
Lifetime Learning Credit 223
The Tax-Coordination Rules: Why Can’t I Do That? 223
Using a Roth IRA in College Funding 224
Chapter 16: Planning for the Financial Aspects of Retirement 226
How Much Will I Need? 227
Other Questions to Ask When Planning for Retirement 229
Mortgage Expenses 229
Health Care Expenses 230
The Financial Risks of Retirement 231
The “Three-Legged Stool” of Retirement Savings 233
Employer-Sponsored Retirement Plans 233
Personal Savings Plans 235
Social Security 237
When Should I Elect to Begin Receiving Social Security Retirement Benefits? 239
Understanding Distribution Options from an Employer-Sponsored Retirement Plan 240
Required Minimum Distributions 242
No Loopholes 244
IRA Rollovers and Conversions 245
IRA Conversions 247
The Use of Annuities in Retirement Planning 248
How Much Should I Withdraw Annually During Retirement? 249
Chapter 17: Planning for the Lifestyle Needs of Retirement 251
Housing Options for Retirees 252
Single-Family Dwellings 252
Town Homes 253
Condominiums 253
Apartments 254
Living with One or More of Your Children 254
Independent-Living Communities 254
Assisted-Living Communities 255
Continuing-Care Retirement Communities 256
Skilled Nursing-Care Facilities 256
Nursing-Home Care 257
Using Your Home to Fund Retirement: Reverse Mortgages 258
Do I Need Life Insurance During Retirement? 259
Retiree Health Insurance 261
Medicare and Medicare Supplemental Insurance (Medigap) 263
So, I am Retired! Now What? 263
Future Work 263
Education 265
Travel and Recreation 265
Accommodating Change 266
Chapter 18: Planning for Other Lifetime Financial Goals 268
Starting Your Own Business 268
Begin a Business with What You Already Know 269
Write a Business Plan 270
Consider the Form of Business Operation 271
Possibility of Personal Liability 272
Ease of Formation and Ability to Raise Capital 272
Income-Tax Consequences 273
Recruit Individuals with Different Strengths 274
Plan for Business Succession 274
Buying a Personal Residence 275
Saving for a Home 275
Understanding Types of Mortgages 275
Purchasing and Using a Vacation Home 276
Like-Kind Exchanges 277
QPRT 278
Investing a Windfall: So You Won the Lottery! 279
Part VI: Distributing Wealth at Death 280
Chapter 19: Estate Planning 281
Do I Need a Will? 282
Leaving Property via Beneficiary Designations 284
Titling Property 285
Should I Avoid the Probate Process at Death? 286
Estate Taxes 287
The Importance of Durable Powers of Attorney 290
Living Wills 292
Personal Letter of Instructions 294
When Should I Change My Estate Plan? 294
Chapter 20: Philanthropy 296
Choosing a Charity to Benefit 296
Public Charities 297
Private Charities 299
Substantiation Requirements 301
Gifts to Charity Using Trusts and Annuities 301
Charitable Trusts 301
Charitable Gift Annuities 303
Hail, Hail to Your Dear Old Alma Mater 303
Private Foundations 304
Donor-Advised Funds 305
Part VII: Summarizing the Personal Financial-Planning Process 309
Chapter 21: Reaping the Rewards 310
Appendix A: Sample Data-Gathering Form 312
Appendix B: Sample Budget 323
Appendix C: Power of Attorney 325
Durable General and Financial Power of Attorney 325
Section 1: Designation of Attorney-in-Fact 325
Section 2: Effective Date of Power of Attorney 326
Section 3: Powers 326
Section 4: Ratification Use of Photocopy
Appendix D: Declaration as to Medical or Surgical Treatment and Medical Durable Power of Attorney 330
Declaration as to Medical or Surgical Treatment 331
Life-Sustaining Procedures 331
Artificial Nourishment 331
Other Specific Requests: 331
Medical Durable Power of Attorney 332
Designation of Health Care Agent 332
Creation of Medical Durable Power of Attorney 332
General Statement of Authority Granted 332
Access to Medical Records 333
Advance Medical Directive 333
Autopsy, Anatomical Gifts, Disposition of Remains 333
Designation of Alternate Agent 333
Nomination of Guardian and Conservator 334
General Provisions 334
Hold Harmless and Third-Party Reliance 334
Severability 334
Statement of Intentions 334
Inconsistency in Provisions 334
Revocation of Prior Powers 335
Applicable Law 335
Statement of Witness 335
Appendix E: Sample Personal Letter of Instruction 337
Glossary 339
A 339
B 340
C 340
D 342
E 343
F 343
G 344
H 344
I 344
J 344
L 345
M 345
N 345
O 346
P 346
Q 347
R 347
S 348
T 349
U 350
V 350
W 351
Index 352