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Are You Underinsured?

Are You Underinsured?

For some, insurance is just one more item on their financial checklist. Whether you mortgage a home, buy a car or start a business, some type of insurance is usually required. But what if, despite paying all your premiums on time, your coverage comes up short when you encounter a loss? 

There are at least three ways you might be underinsured: 

  • Not carrying insurance for new risks as your life circumstances change.  
  • Having a policy with coverage limits that are too low to cover a potential loss. 
  • Failing to notice policy exclusions that dont protect all your assets. 

To avoid finding yourself in one of these situations, its important to understand where your coverage may be insufficient or lacking altogether.  

The Home Valuation Problem 

Prices, especially on homes, can rise and fall dramatically. In most cases, the insurer will pay for damage to your home up to the limit set in the policy. But what if that upper limit is no longer enough to replace your home when prices for materials and labor go up due to inflation or other causes?  

Some policies include extendedor guaranteedreplacement coverage. Its not uncommon to see materials and labor jump in price following a natural disaster that damages multiple homes. Extended coverage will increase the maximum amount the insurer will pay, adding a percentage 20%, for example to the stated policy limit. Guaranteed replacement is just that: You are guaranteed to get enough money to rebuild your home no matter what it costs. Naturally, both options will add to the cost of your premium. 

The Value of Valuables 

The valuation problem also applies to your possessions. For personal property coverage, you can choose between replacement cost and actual cash value. Replacement value means the insurer pays to replace your belongings with new comparable items up to your policy limits. If you lose your home in a fire and you had an older iMac sitting on your desk, youll get enough to purchase a new iMac. However, if you choose the actual cash value option, youll get the current cash value of that computer as determined by the insurer meaning purchase cost minus depreciation, which is going to be less than the cost of a new comparable model.  

Change in Circumstances 

If you previously had no one financially dependent on you and then get married or have a child, you may be underinsured as a family if you have no life insurance to replace your income should something happen to you. Your children or other family members may develop conditions or needs that your existing coverage is insufficient for. Or perhaps there are now grandchildren you want to include as beneficiaries. Think through all the people in your life who you might want to provide for in the event youre no longer around.  

Get Help from an Expert 

As with all things related to insurance, seek out a knowledgeable agent or speak to a financial professional for advice to get the coverage you need at the best price and terms. Be sure to read part two of this discussion, where well examine policy exclusions, protection against lawsuit risk and the importance of understanding your health insurance deductibles.  


Inflation and Your Retirement Plan

Inflation and Your Retirement Plan

Lately, it seems we’ve all had to learn more about global economics than we’d like. Thanks to the COVID-19 pandemic, extreme weather in essential manufacturing regions and a container ship mishap in the Suez Canal that wreaked havoc on deliveries for months, there’s no shortage of reasons for soaring prices and low-stocked shelves. With so much uncertainty in the world and all around, you may feel like holding onto cash is a safer bet. But if inflation is on the rise, a dollar today could have less buying power than a dollar tomorrow.  

You may have had to adjust your budget to compensate for rising prices, but have you considered shoring up your retirement savings against the risk of inflation 

Inflation and Your Buying Power in Retirement 

Inflation impacts the “real value” of investments in your retirement plan because the same amount of money may give you less spending power later. If your expenses are $2,000 per month now, you might need $3,500 during retirement, just to maintain the same quality of life — all thanks to inflation. 

Countering Inflation in Your Retirement Portfolio 

If you’re worried about how inflation may impact your 401(k) performance and retirement plan, there are some things you can do to compensate, increasing the chances that you will have more spending power in your golden years. 

  • Look for investment products that yield the same returns as the rate of inflation, or greater. When inflation is historically 2% to 3% annually, keeping most of your money in a bank account or CDs may not cut it. Look for investments likely to have higher annualized returns than inflation. 
  • Diversify your 401(k) portfolio between stocks, bonds and mutual funds. Not all asset classes and individual investments are equally impacted by inflation. Diversifying can help you manage your risk tolerance while still staying ahead of inflation. 
  • Look at treasury inflation-protected securities (TIPS). If you’re concerned about risk, TIPS can help. These are treasuries that offer returns designed to keep pace with inflation, allowing you to at least see returns that preserve your buying power. 
  • Consider investing in gold. Even though gold is sometimes thought of as a hedge against inflation because it traditionally moves opposite to the U.S. dollar, this isn’t always the case. When diversifying your assets, consider gold, but be wary of relying too heavily on it. 
  • Identify sectors with superior performance. Some sectors, like energy and commodities, often beat inflation. Including funds or stocks in these sectors in your portfolio can sometimes help mitigate inflation risk. 

Impact on Retirees  

Inflation can be more of an issue when you’re on a fixed income or close to retirement. Speak to your financial professional about strategies to deal with inflation, especially if youre planning on leaving the workforce soon. 

Enrolling in Your First 401(k)

Enrolling in Your First 401(k)

Youre probably aware of 401(k) plans and may have even heard how they can give you a leg up on your retirement goals. If you have a 401(k) available to you through your job, however, you might still want to know more. Lets look at some answers to frequently asked questions about your employer-sponsored retirement plan. 

Q: Why is a 401(k) better than a savings account? 

A: For the most part, a traditional savings account doesnt offer tax advantages. A 401(k), though, allows you to put money aside for the future before you pay taxes on it. You also dont have to pay taxes on investment earnings from the account as they come. Instead, you only pay taxes when you withdraw from your 401(k) during retirement. By then, youll hopefully be in a lower tax bracket. 

Q: How can a 401(k) improve your retirement readiness? 

A: Since your 401(k) is an investment account, you can take advantage of the considerable benefits of compounding returns, which can allow your money to grow at a faster pace than it would in a traditional savings account. This can help put you in an accelerated position to achieve your retirement dreams. Plus, having the money deducted from your paycheck automatically makes it easier to stay consistent with your investment goals over time you can build wealth without having to think about it as much. 

Q: What are the risks of participating? 

A: Market volatility is always a possibility, so its important to understand your personal risk tolerance and create an investment plan that works for you. Its also why its critical to review your retirement plan regularly and rebalance your asset allocation as needed. 

Q: Are there other advantages? 

A: Your employer might offer a match, providing you with a way to put even more money into your retirement account. Additionally, your employer might give you the option of a Roth 401(k), which can result in lower taxes during retirement. Carefully consider your tax situation and individual needs when deciding if a Roth 401(k) makes sense for you. 

Q: What if I quit my job? 

A: Money you put in, plus your investment earnings, stay with you no matter what. Money your company puts in becomes yours based on a vesting schedule. You can roll your 401(k) over to a new employer-sponsored retirement account or an IRA if you leave your job. 

Q: How much do I need to contribute? 

A: Work with your qualified financial professional to figure out how much you need to meet your specific retirement goals. You decide how much you put in from 1% of your salary up to the annual contribution limit. Some retirement plans also allow you to automatically increase your contributions each year, or you can bump up your deferral rate when you receive a promotion or bonus. Consider what you should set aside each paycheck to help you achieve your long-term goals. 

Q: When is a good time to join? 

A: Sign up for your 401(k) as soon as you can. Put time on your side when it comes to reaping the benefits of compounding returns. There can be significant opportunity costs by sitting on the sidelines too long, which can hamper your retirement readiness over the long term. 

Q: How do I sign up? 

A: Contact your companys HR department for help opening your account and setting up payroll deductions. Enrolling isnt hard at all and it can be one of the most important items to check off on your to-do list in order to help ensure a more secure financial future. The specifics of 401(k) plans can vary from company to company, and theres more to know than what weve covered here.  

Contact your qualified financial professional if you have additional questions or to learn more. 

I’ve Depleted My Emergency Fund. Now What?

I’ve Depleted My Emergency Fund. Now What?

Perhaps you’ve lost a job, faced an illness or have been dealt a family crisis that emptied out your emergency fund. What are your next steps?

Take stock of your situation. First of all, stay calm. It’s much harder to make difficult decisions when you’re upset. Try not to panic and seek the support of friends and family — and the advice of a financial advisor. Every situation is different, so there are no hard and fast rules that apply to everyone, but here are some general points to consider as you navigate stormy seas.

If possible, stay current with bills and try not to use credit cards to bail yourself out. And if you must use credit, use the one with the lowest interest rate and try to negotiate an even lower rate with your creditor than what you currently have.

Hit the pause button on spending. Next, enact a short-term spending freeze. No restaurants, no new clothes and no vacation. Nothing non-essential until the crisis passes and you have some money back in your emergency account. Review your budget. Go through every single line item and see what you can reduce, pause or eliminate.


Downgrade cell service, drop online subscriptions and reduce extracurricular activities for kids and yourself. Place your gym membership on hold if you can, and work out at home or outdoors. Plan your meals to lower food costs and use coupons at the grocery (and anywhere else you can). If you have services for your house, pool or lawn put them on hold and go the DIY route when possible.


Talk to your lenders and see if you can negotiate a temporary reduction in payments for your house, car and personal loans. Especially now, many banks and creditors are extending a helping hand to pandemic-impacted clients. You may be able to get a forbearance on your mortgage while you recover financially.


Earn extra money. Sell your surplus clutter to raise some emergency cash fast. If you have extra TVs, furniture, electronics, kids toys, exercise equipment or anything else, post it on letgo, eBay or Facebook Marketplace. Put your proceeds right in the bank.


Can you pick up a side hustle? Sell your writing or graphic design services on Fiverr. You might also find part-time work with one of the companies that are still performing well during COVID-19.


Avoid this if possible. Raiding your 401(k) might sound tempting right about now, but avoid this drastic course of action if you can. While briefly pausing contributions may make sense, taking out large sums can set your retirement goals back for years. And there’s the opportunity cost of not remaining fully invested.


As soon as you’re right side up and paying all your bills again, begin rebuilding your emergency fund — and feel proud of yourself for having prepared for the unexpected in the first place.

Did You Know These 8 Things Are Taxable?

Did You Know These 8 Things Are Taxable?

Every April, Americans face the often-dreaded ritual of filing their taxes. The prospect of a larger-than-expected tax bill is one common source of anxiety, but so is the possibility of making a mistake that runs the taxpayer afoul of the IRS. Here are some things that many people don’t realize are taxable.

1. Unemployment income. Yes, the unemployment income you receive after a job loss is taxable. And unfortunately, this is one issue that will affect many 2020 taxpayers. You can elect to withhold taxes from your benefits, but if you didn’t realize your unemployment was taxable, you might be in for an unpleasant surprise when you go to file.

2. Gambling winnings. Even when Lady Luck shines upon you, Uncle Sam still wants a piece of the action. Whether your earnings are from online fantasy football or the racetrack, those earnings are, in fact, taxable.

3. Forgiven debt. You may be fortunate to have a creditor forgive your debt, but that goodwill also triggers a tax liability. From the point of view of the IRS (the only one that matters when it comes to taxes), you received income when that debt was forgiven. Therefore, that amount is taxable except under certain conditions, such as a bankruptcy ruling.

4. Social Security. Social Security benefits can be taxable depending on your level of income from other sources. If you want a smaller tax bill, you can elect to withhold taxes from your Social Security or make estimated payments on a quarterly basis.

5. Severance pay. After losing a job, you might be in for a little more bad news. If you receive a compensation package after separating from a job, your severance pay — just like the income you received from your employer — is taxable.

6. Freelance income. If you work a side hustle on Fiver or Upwork to help make ends meet, you’re responsible for taxes on that income just as you are for the money in your company paycheck. However, since most people have taxes withheld from their employee compensation, but not from freelance earnings, you may end up owing more than you expected on this type of income.

7. Profits on a sale. If you sell your rare Claude the Crab Beanie Baby for a profit, then you may be surprised to learn that you owe taxes on the profit you made — even if the sale was to a friend or family member.

8. Awards, prizes and contest winnings. Did you hit the Powerball jackpot or draw the winning ticket at the church raffle? You guessed it — those winnings are taxable in the eyes of the IRS.

Your individual circumstances may impact your tax liabilities, so always consult a qualified tax professional to see what qualifies as income in your case and what tax deductions you might be entitled to.



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