Prepared your financial future with Stephen Cagnassola
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Stephen Cagnassola expertise in advising retirees and those about to retire on how to protect their principal and ensure their money lasts. His clients come to him because Stephen can help him to reduce their taxes by as much as 50%, prevent taxation on social security income, avoid and significantly reduce estate taxes, and protect their life savings from stock market risk.
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Prepared your financial future with Stephen Cagnassola
- 2. Pinpoint your specific problem areas Highlight steps to turn things around
- 3. More than half (54 percent) of Americans have not been able to save any of their income in the past year 70 percent of workers plan to work for pay in their retirement How long will your savings last? What can you do to fix the problem if your savings are nowhere near what they need to be?
- 4. Think SMALL and Do It REGULARLY Thinking small can bring big rewards Pay Yourself First Have a “Don’t Touch” Account The only wrong thing to do is to do nothing about protecting your financial future.
- 5. How can I avoid the credit card debt squeeze? If I’m already there, how do I push my way out?
- 6. Avoid the credit card squeeze… Limit the number of credit cards you use Pay the total amount due to avoid paying interest rates Work your way out… Stop using your credit cards Talk to a financial planner Work with your creditors
- 7. Parenting College Jobs/Career Home ownership Unexpected crisis/disaster Caring for sick or elderly parents Retirement Estate Planning
- 8. Right time to buy? Financing Monthly mortgage payments Real estate attorney Future marketability Home-owners insurance
- 9. Teach your children about money Manager your finances so your kids will have every opportunity to become productive, responsible adults You will have to plan for the contingencies that come with parenting
- 10. For 5-8 year olds: Start an allowance, comparison shop For 9-12 year olds: Money to supplement their allowance For teens: Money management skills For college students: Staying within a budget
- 11. Financial Aid Scholarships and sponsorships Part-time jobs Delayed admission
- 12. 401K plans Automatic deposit Retirement plans Disability and life insurance Health insurance Unemployment insurance
- 13. Divorce Do you make enough to support yourself? Which assets do you want? Can you afford to keep the family house? Are you better off selling and dividing up the proceeds? Fires Floods Earthquakes Prolonged health issue Death of a spouse
- 14. “The Sandwich Generation” is caught in the middle between raising and educating their kids and tending to the needs of aging parents Learn about your parents ailments to make a realistic budget assessment Know and understand your parents financial situation and their wishes
- 15. Start early Take full advantage of every retirement option Invest the maximum allowed in an IRA
- 16. Be sure you have a will Formulate a strategy
- 17. Hope for the best. Expect the worst. Think small and do it regularly.
Editor's Notes
- I’d like to start by asking you to keep one question in mind throughout this presentation: How prepared are you to handle your financial future…whatever that future holds?
- Centering on that question, I have three goals for the time we have together today: to help you realistically answer the question to help you pinpoint your own specific problem areas…and… to highlight steps you can take to turn things around. It’s a tall order. So let’s get started. As individuals and as a country, we are in the throes of a huge problem with likely consequences for our families, our communities and our entire nation. I’m referring to financial illiteracy. It takes many forms and guises. You can be affluent and have financial blind spots or serious setbacks that cause you to lose it all. You can be middle class. You can be a college student….a single mom, or an average Joe. Your rank and station in life doesn’t matter. Statistics show that the majority of Americans do not understand their finances sufficiently to protect themselves and their families. Let me give you a few examples of the magnitude of the problem and invite you—urge you—to be honest with yourself. My purpose is to go beyond defining the problems and put you on the road to solutions. To do that, you must take the first step and honestly assess if any of the following statistics apply to you.
- In 2010 the AICPA conducted a survey with Harris Interactive. It showed these troubling statistics: While one of the outcomes of the current economic downturn has been higher national savings rates, this outcome is not shared by all Americans. In fact, more than half (54 percent) of Americans have NOT been able to save any of their income in the past year. Also, from the Employee Benefit Research Institute (EBRI)’s 2010 Retirement Confidence Survey: The percentage of workers planning to work for pay in retirement now stands at 70 percent. Ninety percent identify at least one financial reason for having worked, such as wanting to buy extras (72 percent), a decrease in the value of their savings or investments (62 percent), needing money to make ends meet (59 percent), or keeping health insurance or other benefits (40 percent). How would you pay your bills and go on with life if you or another breadwinner in the family had a major financial setback like getting fired or being laid off? How long would your savings last? Are you at the recommended level of six months to a year of income put aside for a rainy day? What can you do to fix the problem if your savings are nowhere near what they need to be? Let’s focus on the last question. What can you do to fix the problem?
- Ladies and gentlemen, the answer is so easy and so promising. You can begin immediately. I mean today, not tomorrow. You just have to do two things. THINK SMALL and DO IT REGULARLY. Yes. Think small. Psychologists and financial experts agree that we most often fail to save because: We believe we don’t have any extra money…AND… We believe we need to save huge amounts for it to matter. WRONG on both counts. Thinking small can bring big rewards. If today you begin to put aside just $2.50 a day—the equivalent of that designer cup of coffee—you’d be saving $17.50 a week. That’s $78.50 a month…almost $1000 a year. That’s what I mean by thinking small. If you don’t want to do it on a daily basis, then do it weekly. Put aside $20 a week. That’s $1080 a year. But, if I told you to find $1080 at the end of the year to save, you’d likely—and probably accurately—say to me: “I don’t have $1000 to put away.” Let’s take this example a bit further. If you save $201 dollars a month for 25 years, at the end of that time, at a 6.5 percent after-tax return rate, you’ll have saved $150,000. If you need advice once your money starts to accumulate, talk to a financial adviser, such as a CPA or qualified financial planner. There are many safe investment vehicles that require no more than a $500 initial investment. But remember to be wary of an adviser who has a vested interest in steering you to a particular investment product. That’s why “Think Small and Do It Regularly” works. That’s why “Pay Yourself First” works. One of the surest ways to stay consistent is to have money automatically taken out of your paycheck and put in a special “DON’T TOUCH” account.
- Another example of our country’s financial literacy problem is the staggering amount of credit card debt we carry as individuals. Credit card debt is sapping us both individually and as a country. For example: The average American household owes $7,394 on their credit cards (according to website: MyBankTracker.com). That’s down from the 2008 household average of $8,188, but it’s still very high. The average college student has an average credit card balance of over $3,000 (Source: www.creditcards.com) and 21 percent of undergraduates have balances of between $3,000 and $7,000, (Source: Sallie Mae, “How Undergraduate Students Use Credit Cards,” April 2009). If you have a credit card with an average balance of $1,500 and you pay only 2 percent of the balance each month at an interest rate of 18.9 percent, it will take you over 49 years to get the balance down to under $50. In 2009, 1.4 million Americans filed for bankruptcy (American Bankruptcy Institute). I’m not talking about companies or corporations; I’m talking about everyday Americans who have had to declare bankruptcy and become ineligible for credit—including mortgages—for 10 years. That’s how long it takes for that black mark to get off your credit rating. You remember that scene in “Indiana Jones” where the walls keep closing in from all sides? That reminds me of the predicament of credit card debt. The more money we need…the more we use credit cards…the more interest we incur…and the more our financial walls close in on us, until we are so squeezed we can hardly take a breath. One of the questions I hope you’re asking yourself right now—and they are totally linked to that original question: “How prepared am I to handle my financial future?” How do I avoid the credit card debt squeeze? If I’m already there, how do I push my way out?
- You will avoid the credit card squeeze by limiting the number of credit cards you use…by paying the total due—never just the minimum— every month…by never incurring the exorbitant 18 percent—or higher—interest rates credit card companies charge. And remember department store rates can often be as high as 21.99 percent or even higher. If you already are in a credit card bind, how do you start to work yourself out of it? First and foremost, stop using your credit cards…talk to a financial planner and pick a reputable one. Secondly, work with your creditors and talk to them. Remember, they don’t want you to declare bankruptcy. They’d rather get their money slowly, than not at all. Avoid declaring bankruptcy unless you absolutely have to; and only after you’ve consulted with experts. Make sure you have exhausted all your other options including a second mortgage or home equity loan if you are a property owner…but remember that these options put your home at risk if you fall behind or cannot make payments. Or, you might ask family or friends for a loan on absolute business terms. O.K. We’ve taken a look at a number of possibilities for easing the two biggest financial problems individual Americans face: too little savings and too much debt.
- Life events require financial planning: parenting, college, jobs/career, home ownership, unexpected crises/disaster, caring for sick or elderly parents, retirement and estate planning. We are going to pinpoint strategies that will help keep you financially healthy during each of these life cycles. In other words, wherever you are in the “Financial Circle of Life,” I’ll offer you ideas and suggestions for staying on solid financial footing. I can only cover the tip of the iceberg today…my hope is to stimulate your thinking and your desire to financially protect yourself and your family. You can follow up on your own…or with a financial adviser. The only wrong thing to do is to do nothing about protecting your financial future.
- Let’s start with homeownership. Here are some tips that will keep the dream of owning a home from turning into a nightmare: Decide if this is the right time to buy—both personally and based on the real estate market in which you are interested. Investigate financing early on. Shop around for the best rates and terms. Be sure you can afford the monthly mortgage payments. A rule of thumb: Generally, your monthly housing expenses (mortgage principal and interest, real estate taxes, and homeowners insurance) should not exceed 25 to 30 percent of your gross monthly income. Use a real estate attorney—at least for the closing. Always consider the future marketability of your home. You never know when you’ll have to sell. Make sure you have enough home-owner’s insurance…and comparison shop for the best premiums, starting with companies who currently insure you in other areas. Consider how you will pay for needed repairs. Avoid charging high-ticket items in advance of your purchase. It might detrimentally impact your credit rating.
- How many here are parents? As a parent, you face two challenges: teaching your children about money and managing your finances so your kids will have every opportunity to become productive, responsible adults. Educating your children about money management is rated G—good for any age. Here are a few tips for various age groups.
- For 5 to 8 year olds: This is a great time to start with an allowance. Monthly is better than weekly for this age group, so they can learn a bit about planning ahead. Also teach kids how to comparison shop. For example: let them select two kinds of orange juice from the supermarket. A name brand and a store brand and do a blind taste test. If they see no difference, they’ll learn it’s pointless to pay more. Also teach them to wait for sales and specials on items like clothes and electronics—whether they’re spending your money or theirs. For 9 to12 year olds: This is the ideal time for kids to start earning money to supplement their allowance. Lots of possibilities: lemonade stand, dog walking, fence painting, leaf raking and snow shoveling are all terrific options. For teens: A critical time for kids to learn money management skills. During their high school years, they should become progressively more versed in keeping a job, budgeting what’s earned, learning the do’s and don’ts of spending and overspending. Teens should have a checking account and/or a debit card, but absolutely no credit card. For college students: Staying within budget needs to be part and parcel of the lessons college students learn. Bailing themselves out, curbing their spending lust and foregoing nonessential items are absolute musts. As much as you would like to help, you have to stay out of the financial messes they may get themselves into. Too often parents with the best intentions, enable the worst financial behavior. In addition to teaching your children sound financial management principles, as a parent you also have to plan for the contingencies that come with parenting. Here’s a sobering thought. In 2009, an average middle-income family spent about $222,360 to raise a child to age 17 (Source: United Press International, Inc.). That number does not include college. You can see how critical it is to plan for your kids’ financial future in good times and bad. Forget the dolls. The no-occasion presents. Forget the umpteenth video game. Save the money. Put it aside instead. The best gift you can give your children is financial security. r children is financial security.
- Now let’s talk for a moment about college. The price tag is staggering. Of course, you should be putting money aside—from the day your child is born, but most of us don’t…many of us can’t. When we do, funds earmarked for college can get used for unexpected emergencies. Does that mean your child can’t go to college? ABSOLUTELY NOT. You have a number of options available that can keep the door to higher education wide open, such as: Financial aid—There are so many more opportunities available in the public and private sectors that most parents don’t know about. Scholarships and sponsorships—Many schools, organizations, communities and companies offer fellowships or scholarships for both academically and financially deserving students. Check them out. Part time jobs—Either on or off campus, students can earn needed tuition and spending money. Just about every college is set up to help students find work. Delayed admission—Many colleges will accept a student and then let him or her defer attendance for a year. During that time, both you and your child can put away funds to help finance college. Or, consider a less expensive junior college for two years, followed by a transfer to a four year program for the balance.
- Another key area on our “Financial Circle of Life” is the workplace…our jobs. Of course, you want to earn a good salary. We all do. It goes without saying…but that’s the beginning, not the end of what you should be looking for financially from your job. Let’s take a look at some specifics. One third of Americans fail to take advantage of a 401-k or other investment options offered by their company. They may spend weeks or months deliberating on an effective strategy to get a 5 percent or 10 percent raise, and then turn their backs on the chance to have hundreds of thousands of dollars for their future security. Ladies and gentlemen, please tell me you’re not one of them. If you are, please start participating the minute you can. A few other ways to use your job to improve your long-term financial picture: As I mentioned earlier, if automatic deposit is available, use it to keep you honest about your savings. It’s also amazingly convenient. Also: Find out about retirement plans…how they work…when you’re eligible…when you’re vested Check out what your company offers in terms of disability and life insurance. They may make better rates available than if you found a carrier on your own. Investigate your company’s health plan carefully. Don’t take too much or too little insurance. Don’t go for options that can be costly but that you are unlikely to use. Consider deductibles, prescription plans, and other add-ons. If you are faced with the awful reality of being fired or laid off, make sure you understand 100 percent of what you are entitled to get. Unemployment insurance. Severance Pay. Outplacement Services. Use of office space. There is no better time to make a pest of yourself…you have absolutely nothing to lose. Don’t stop asking questions until you are totally satisfied that you have all the answers you need…and all the benefits you deserve. Unfortunately, bad things do happen to good people, and job loss is not the only crisis that can rain down financial havoc. That’s why you need to follow that old piece of advice: “Hope for the best. Expect the worst.”
- In the event of a divorce…and remember over 50 percent of marriages today do end that way…ask yourself: Do I make enough to support myself? Which assets do I want? Can I afford to keep the family house?...or…Are we better off selling and dividing up the proceeds? If there are children, be sure you spell out your wishes regarding custody, visitation and child support. Whether or not you hire counsel, you need to be totally clear on your rights. Most importantly, you need to park your anger at the door when it comes to making financial decisions. Disasters can also derail us emotionally and financially. Fires. Floods. Earthquakes. A prolonged health issue. The death of a spouse. Whatever the specific disaster, there are common financial strategies that can help you weather the crisis. For example: Get advice from professionals such as insurance agents, financial advisers, CPAs and/or lawyers. Locate important documents and financial records. Always make sure you keep them in a safe, fireproof place either at home or at a financial institution. Evaluate short-term income and expenses to determine the immediate magnitude of the problem. You may actually discover you’re better off than you thought if you separate what must be handled right away from what can wait until the dust settles. Avoid making hasty decisions. If you are so inclined, use a trusted family member or friend as a sounding board.
- Another life stage, becoming more and more common, is what’s come to be called the “sandwich generation.” That’s the term coined for those caught in the middle between raising and educating their kids and tending to the needs of aging parents. The load can be oppressive. It’s important to learn about your parents’ ailments so you can make a realistic budgeting assessment. Of course, it is always easier if you can have an open, honest dialogue with your parents about their financial situation and their wishes in advance of their illness. As you work at prioritizing your emotional and financial resources and theirs, an elder care specialist can provide enormous advice and support for the entire family.
- And what about your own “golden years?” How will they shake out? Are you preparing for them adequately? Most people seriously underestimate the cost of retirement. Remember, it’s getting more and more likely you’ll live to be a 100…and less and less likely you’ll be able to afford it. You’ll need about 70 percent of your current income to finance your retirement. Social Security generally covers less than 30 percent. That’s why it is so important to start early and take full advantage of every retirement option your employer offers. Also, invest the maximum allowed in an IRA…and do it every year. Let me give you a little dollars-and-cents proof of what a difference starting early can make. $2000 a year invested at age 25 in a tax-deferred account, earning a 10 percent average annual return will become $885,000 by age 65. Start at 35, and the nest egg would total only $329,000. The $20,000 NOT invested during those 10 years cost you $556,000.
- Finally, and this is truly the final thing you can do for your loved ones…be sure you have a will—one that clearly spells out your wishes. A will is one of the most important documents you will ever prepare. It guarantees that your assets are handled according to your specific wishes. It allows you to formulate a strategy that preserves—from taxes—the greatest amount for your heirs. And, it spells out who will be guardian of your minor children. Don’t try to draft a will on your own. Use the services of a lawyer and financial planner. It’s too important to get wrong.
- Using these simple ideas as your basis, you can be confident that you will be able to enjoy the good times and work your way through the tough ones. With care and planning, you can use these two mantras: Hope for the best. Expect the worst. Think Small and Do It Regularly! So when you ask yourself that all-important question: “How prepared am I to handle my financial future whatever that future holds?” I hope you will soon be able to honestly answer: “Totally prepared.”
- Thank you for your time today. I would be happy to answer any questions now.