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Finances and special needs children

When you have a special needs child in your life it's important to address the financial steps you may want to consider to help ensure that these children are taken care of.

When you have a special needs child in your life it’s important to address the financial steps you may want to consider to help ensure that these children are taken care of.

Headlines about special needs children make me cringe. One out of every 68 children has an Autism Spectrum Disorder according to the Centers for Disease Control. How did the numbers rise so quickly? Wasn’t it just last month it was one in 150? When are we going to figure out what’s going on? That is a question best left to the researchers, I suppose. But that means it’s important to address the financial steps you may want to consider to help ensure that these children are taken care of.

Most people I know have at least one special needs kid in their life. For me, that child is my nephew, Ben, whose autism is so severe it is a certainty that he will need care for the rest of his life. For Ben, as for so many other children with special needs, planning the financial scenario is complicated. But here, essentially, is how it works.

For most special needs children, government programs such as Medicaid and Social Security Income (SSI) are vital for long-term support. Medicaid and SSI are federal programs, but states regulate and administer the benefits. The rules vary by state, but most states require your child–at age 18–to have assets below a specified amount, not including a home or car, to qualify for programs.

If you leave money or assets to your child directly through a will, when he turns 18 that money will generally be counted against him when it comes to determining his eligibility.

Enter the “special needs trust.”

A special needs trust is a special account that the tax code allows you to create for special needs kids. You can fund it with any assets you’d like to pass on to your child, including real estate and paper investments such as stocks or bonds. But because this account is managed and the proceeds used for your child’s needs, rather than owned by and managed by your child for his own wants and needs, anything in this trust is not counted against your son or daughter for Medicaid or SSI purposes.

If you have a special needs kid, and you are planning to create a special needs trust, you will probably want to establish it sooner rather than later. Why? Because it needs to be in place to receive your assets in the awful case that something happens to you and your spouse. The good news is that the process is simple provided you have some help from an estate planning attorney. You will need to appoint a trustee to manage the account in the event you and your spouse are no longer around. Your best bet is finding a planner or estate planning attorney who specializes in these trusts. One option to locate someone is through either the Special Needs Alliance or the Academy of Special Needs Planners.

What is one of the best ways to fund a special needs trust? The vast majority of parents use life insurance. In fact, according to MetLife, many of these trusts for special needs children are funded by life insurance settlements. Survivorship life insurance, which allows you and your spouse to buy coverage under one policy that doesn’t pay out until the second spouse dies (it’s cheaper than a policy written on a single life), can cover costs such as estate taxes. It can be a great way for grandparents to pass money along for your son’s future. They will just need to designate the trust as the beneficiary. Keep in mind that this option only works if you have enough money not only to support yourself after the death of a spouse without the help of life insurance benefits, but also to continue paying the premiums on the policy until you yourself pass away.

Please consult your accountant, tax advisor and/or legal advisor to see if a special needs trust is suitable for your personal situation.

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Take advantage of being empty nesters

My husband and I are dealing with empty nesters' syndrome.

My husband and I are dealing with empty nesters’ syndrome.

In previous posts, I’ve mentioned that my husband and I are dealing with empty nesters’ syndrome. We have more free time now that our kids are out of the house, but struggle with what we should actually do with it. We still have two kids in college, so we need to be thrifty about our expenditures. And our oldest– who just got her first “real job” after college – still needs us to supplement her $12/hour job. So, what have we done with our free time while staying within our means?

We can decide on moment’s notice to go to a movie. My budget mode still kicks in so we are usually using a movie coupon or going before the evening rates start. We are also following some of our passions. My husband loves to sail and has been sailing quite a lot on his NACRA sailboat. It’s about 25 years old but well maintained.

One of my passions is cooking so I took a cooking class this summer. Learning new things seemed important, and I needed some one thing to get me out of my empty nester rut. A cooking class was the perfect thing. A couple fun things I learned: to cut up basil, roll a few leaves together and then slice. Sounds simple (and it is), but it works really well. Don’t crack an egg on an edge. This was quite hard for me – heck, I learned to crack an egg on the edge of a bowl or counter top about 44 years ago – but I did try the suggested technique of hitting the egg on a flat surface, using your two thumbs to pull apart the shell where you hit it on the flat surface. The advantage is no shells get in with the egg. Voila! It was true.

I was pretty proud about learning something new. Who said you can’t teach an old dog new tricks? When you and your spouse find yourselves as empty nesters with extra free time, follow your passions, you’ll be surprised how fast the time will fly.

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Be prepared financially for life-changing events

When you go through a life-changing event – a divorce or separation, the death of a spouse, a layoff, a major move – it can feel like your finances are in free fall. But often, getting to the point where you feel financially secure, can help you feel better about the chaos around you. I know that when I was going through my divorce, socking away every penny I could to provide the security blanket I needed.

Lisa felt the same way. Her year-and-half-journey to divorce (that many of you have followed on our blog) forced big financial decisions and events: buying a new house and a new car. All of a sudden, life was moving very, very fast. I know many of you are likely in similar situations. Let’s outline how to make a financial plan for yourself and be prepared:

Build a reserve. Having cash on hand really makes all the difference. It means you can move if you need to, put a down payment on a house, or buy a car as Lisa did. It means you have money in the bank, if you’re newly living on one income, in case you lose your job or suffer a major emergency. All of that goes a long way to helping you sleep at night after life-changing events, so put your head down and focus on building up your savings account balance. Then check it every month or so. Watching that growth will make you feel better.

Tackle the unknown. Often, no decision is the worst decision. But if you’re suddenly in charge of your complete financial picture, when previously you were sharing that burden, it can feel a bit paralyzing. Do a little research to boost your confidence, then make a decision. It may not be the perfect choice, but at least you’re moving forward. If you mess up, or change your mind, you can do something else.

Get financial help. Major life changes are a good signal that it’s time to consult with a financial advisor. He or she can look at where you stand and hold your hand as you make the aforementioned decisions. A good advisor will help you figure out how much home you can afford, if you’re moving, whether you should buy or rent; and what you can do with your assets to make you feel more secure.

Don’t be rash. In a case where you’ve received a windfall – a divorce settlement or inheritance, for instance – my best piece of advice is to sit on your hands for a while. Put it in the bank. I know it won’t earn much – barely any – interest, but it will give you time to think about what you want to do with that money, and it will keep it liquid during this tumultuous time while you’re making major decisions. Once you’ve thought it through, and perhaps met with a financial advisor, you can move it into an investment that will earn more of a return.

The most important thing is to be prepared for these life-changing events. Often times they can’t be avoided and can come out of nowhere.

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Cooking up Your Financial Future

Planning a dinner starts with a first step and so does planning your financial future.

Planning a dinner starts with a first step and so does planning your financial future.

As a millennial I know how frustrating thinking about your financial future can be, especially when we’re struggling to get our financial present figured out. My brother, Morgan Castner, a Wells Fargo Advisors Financial Advisor, once said to me, “Chelsea, you can’t afford not to pay yourself first.” Okay, okay, I get it, but how do I start?

Getting clear about your retirement goal is the first step that sets the tone for all subsequent moves in planning your financial future, but this could very well be the step that’s tripping you up. It’s difficult to set a goal today for a change that’s likely 40 years away, especially since your future situation is unpredictable.

A strange analogy came to me while I was thinking about the retirement planning process. Every year for Thanksgiving dinner my mom buys the most gigantic Butterball turkey, unsure of how many guests will actually be sitting around our table. She’s already determined that her goal is to minimize her stress so she can enjoy the day, so buying a bigger bird is her action step to avoid the worry there won’t be enough. The results? Grateful, stuffed guests and enough leftovers to give her a break from the kitchen for the next few days.

If your retirement plan was your turkey, wouldn’t you want to be prepared for the extra guests who might show up unannounced to your retirement party dinner? It could be your spontaneous friend named Vacation or your dreaded second cousin Medical Bill. Unfortunately, life doesn’t come with a recipe that tells how long you have to cook your savings in order to enjoy a happy retirement meal, but what you can do is determine how you want to feel when you hit retirement.

As to not over complicate it, I would suggest simply writing down this sentence: “When I’m living in retirement I’m going to feel _______.” Use words like comfortable, free, liberated, spontaneous, calm, joyful, reassured, whatever comes to you. Then, ask yourself what will it take to feel that way. Will that mean trips all over the world? A second home at the beach? Having enough money to cover unexpected emergencies?

Next, play around with Wells Fargo’s online tool, My Retirement Plan, to figure out a ballpark figure to shoot for. It makes it easy, clear and fun (yes, I actually said fun) to calculate how much money you would need to be saving now in order to have your retirement dreams become reality.

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Family Finances: What I Learned from My Mother

Discussing finances with your family can get complicated, but it's worth the effort.

Discussing finances with your family can get complicated, but it’s worth the effort.

My mother, Elaine Sherman, and I participated in a webcast about talking to your parents about family finances. It was part of a series of conversations moderated by More magazine and sponsored by Wells Fargo. We were interviewed, together, by Jennifer Braunschweiger, More’s Deputy Editor. I hope our web audience learned at least a few things. But as I always do when listening to my mother, I did as well.Among them:

Family meetings are a fraught concept: Sometimes when families are faced with a crisis – an older parent lacking funds to cover healthcare bills or escalating living expenses – an adult sibling decides to call a meeting to sort it all out. Having everyone in the same place to talking about money and marshalling resources seems like it would be a great idea. But my mother pointed out that siblings who don’t have the resources of others may feel put on the spot. Another option? A series of sequential conversations to get everyone on the same page. Group emails can also be particularly helpful.

Parents may not mind being asked for help getting out of debt. Parents who have the resources to help may, in fact, be very willing, particularly if the debt was incurred as a result of a job loss or some other event not in the adult child’s control. That said, my mother suggested parents not to take on the full responsibility for paying down the debts. She’d want to see the child making headway on his/her own as well and noted that perhaps their contributions could be matched ala 401(k).

A financial advisor can be a partner for a parent whose lost a spouse. My parents always managed the family finances on their own while they were married – with occasional help from their accountants and attorneys. They never had a financial advisor. But when my father died, my mother lost her financial sounding board. Truth be told, she always managed the money more than my father did. But she’d bring big decisions to him and they’d hash through them together. Without him, she was on her own and not comfortable with that. She has found a financial advisor stepped into that role quite nicely. She’s comfortable talking to him about big money issues. He’s both manager – for things she doesn’t want to do anymore – and sounding board. In other words, a partner for hire.

Even when they’re adults, you can still talk to your kids in the car. One of the big problems with conversation in general is that technology stifles it. It’s rare to have a conversation these days over the phone without the computer or smart phone doing its attention-grabbing thing in the background. The truly important conversations, like ones about family finances, my mom suggested should be tackled where technology is not in the way – doing the dishes after a family dinner, perhaps. Or, as you did when they were teenagers, on a radioless drive in the car.

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Keeping Your Financial Goal in Your Mind’s Eye

Much like sailing, you must keep your destination in your mind's eye when planning financial goals.

Much like sailing, you must keep your destination in your mind’s eye when planning financial goals.

Planning for retirement and investing is a lot like sailing and the markets can be unpredictable like the wind. But no matter how choppy the water or how off course you may find yourself, you must continue with confidence and always with your financial goal in your mind’s eye.

I recently spent a few days on a sailboat on Lake Superior with a group of five friends. Lake Superior is the largest fresh water body of water in the world. When you are out on a sailboat, you hear the wind and water but otherwise it’s remarkably quiet. Once you leave the mainland, you no longer have cell coverage so it forces you to disconnect from the day to day chatter and enjoy your surroundings and friends.

We were sailing in the Apostle Islands which is a national park with over 20 islands and almost no development. On day one, we set sail with hope of sailing from Bayfield, Wisconsin to Stockton Island. Typically, this route would take five to seven hours, however that day, the wind was really blowing and we arrived in less than four hours. The next day, we wanted to sail from Stockton Island to Devil’s Island but found ourselves nowhere near our destination after six hours due to heavy winds of 15 to 20 mph. We were sailing directly into heavy wind and serious swells. We changed course and set anchor at Rocky Island, the location of the photo to the left.

Charting a course is vital when sailing, but adjustments may be required depending on wind and waves. This is very different than driving in a car or even a motorboat, where you can typically go directly from point A to point B.

This financial year, the wind is at our back and the equity markets have moved significantly upward. Yet, like my sailing trip, there are years when we would be tacking back and forth and not moving quickly or directly toward our destination. Patience is required. Keeping the destination in your mind’s eye is imperative. Charting a course is important but I‘ve come to recognize it won’t be a straight line to get there.

Have you charted a course for a key financial goal? How do you respond when the winds shift and your progress is slowed? Feel free to post your comments below.

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Your retirement needs are a numbers game

Those of us who understand that retirement is a numbers game and therefore calculate our retirement needs are more likely to meet them.

However, according to a Deloitte Center for Financial Services report from earlier this year, 58% of pre-retirees don’t have a retirement plan. This, as you might imagine, is a problem.

Why? Because those of us who face things head-on by calculating our retirement needs are more likely to meet them. This report was the result of an Employee Benefit Research Institute study, which found that the use of online retirement calculators and seeking the advice of financial advisors resulted in an increased probability of retirement income adequacy.

I don’t know about you, but that seems like a no-brainer to me. If you want to reach a goal, you have to first outline what, exactly, that goal is. Taking a shot in the dark isn’t going to get you there. Here’s how to win at the retirement numbers game:

Brace yourself. Just a word about this: The number given to you by a calculator or financial advisor might scare you. But it merely is something to work toward. Keep in mind that Social Security will factor in, too—and you’re likely to get raises in the future that will allow you to increase your savings percentage (in fact, you should do so every time you get a raise). Finally, matching dollars from your employer, count, too—you’re not in this alone.

Use an online tool. There are many, and they use varying algorithms, so I like to suggest running the numbers through a few and then comparing. Wells Fargo has one, and you can find many more with a simple Google search.

Break it down. People avoid running the numbers on retirement because it is daunting; it’s a classic head in the sand situation. But knowing where you stand and where you should be headed can be a powerful motivator. If staring at that big figure scares you, break it down into how much you need to save per week, month, or year. And then keep in mind the power of investing—you could earn more on your money, and when compounded, that adds a great deal to your bottom line.

Understand there are other options. If you find that you are approaching retirement and haven’t saved enough, there are strategies that can help give you a bit more wiggle room. One is to work longer—just a few more years in the workforce means your savings stays intact (and continues to grow), and you can continue to add to it. If full-time work isn’t an option, aim to find something part time that you enjoy. And then remember that you can always downsize—a smaller home will save you money, and it can make easing into your later years more of a seamless process.

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Ways to save money

One unfortunate fact of our psychological make-up is that humans, by nature, aren’t exactly wired to save. Still, we’re constantly looking for the best ways to save or, should I say, the easiest ways to save. Blame our caveman ancestors – we prioritize the here and now instead of saving for the future. Why pass up a current opportunity in favor of planning for retirement in 10, 15, even 20 years?

That’s why, instead of looking for ways to save money, many of us will buy the new shoes or the new handbag or the new television today, rather than put that money away as a rainy day fund. Deep down, you know that you should be saving. It’s just a matter of forcing yourself to save money do.

Luckily, there are strategies – money saving tricks, gimmicks, mind-games (call them whatever you like) – that can help you. These are ways to bypass buying on impulse and get money in the bank in spite of your instincts to do otherwise:

Make it automatic. If you have a 401(k) at work, you know how this works – money is pulled out of your paycheck before it ever lands in your bank account. You’re not given the opportunity to spend it instead. Jan says this is how she saves, because, in her words, she’s “very much like a dog.” If she sees the money, it’s there for the taking. If she doesn’t, she doesn’t think about it. You can mimic this 401(k) strategy with your other savings accounts by setting up automatic transfers every single month or every single pay period – have your savings account reach into your checking and swipe a set amount of money, before you can spend it instead. Most banks have an automatic savings plan that you can easily set up. Just ask them.

Lock it up. This goes hand in hand with the first point, and is again one of the reasons why saving in a 401(k) or even an IRA is so successful. That money is barricaded until retirement, and if you want to pull it out earlier, you’ll be penalized – heavily. There’s a 10% fee for tapping the money early, plus income taxes. Put it together and you might lose 30% to 40% of your money. It’s just not worth it. You can again mimic these barricades with other accounts – CDs, 529s, and other savings accounts to name a few.

Visualize the future. This tip sounds a bit kooky, but it works: You have to put a picture on your goals. You’re not saving for retirement; you’re saving for a three-bedroom house on the beach with a hot tub and swimming pool. Cut out magazine pictures. Then tape one to your fridge and wrap one around your credit card. Making the goal concrete means you’re more likely to get there.

Finally, small steps are the way to save. Struggling to start? Just do a little bit – put away 2% of your income for a few months. I promise you won’t notice it’s gone. Then, once you realize that I’m right, you’re not missing it, bump up your savings a bit more. Add more every time you get a raise, or receive a windfall (like a tax return) and you’ll be well on your way to a hefty nest egg.

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Taking steps to retirement isn’t always easy

Don't stick out your tongue at taking steps to retirement.

Don’t stick out your tongue at taking steps to retirement.

Taking action toward any long-term goal can be daunting. The results can seem intangible and the rewards seemingly non-existent. However, taking steps to retirement in order to build a sizable nest egg should be a top financial priority for anyone working today.

Did your mother ever say to you should do something because “It’s good for you”? I know I’ve said that on more than a few occasions to my three kids. Whether it was “Eat your vegetables,” “Get some exercise,” or “Do your homework,” getting them to move from acknowledgement (“Ok, Mom we’ve heard that before”) to taking action wasn’t easy or automatic. Sometimes I even got the eye roll.

When I reviewed the results of our Wells Fargo retirement survey of middle-class Americans, I noticed a similar theme. Most agree that saving for retirement is important, but doing something about it doesn’t happen easily.

More than half of those between ages 40-60 explained that they should be taking steps to fund retirement, but they didn’t know how to start. Maybe that’s why nearly four in 10 of that age group said, “I’ll never be able to retire. I will be working until I die or am too sick to work.” So they know that saving is good for them but their picture of retirement sure is depressing. How can they move from acknowledgement to action? They need a plan! Our survey had some encouraging findings for those who said they have a written plan for retirement. While only three in 10 said they have a plan, that group had saved three times more toward their retirement goal than those without a plan. Those results were across income levels—for those making $25,000 as well as those at $100,000. Think of this plan as a retirement roadmap on how to reach your retirement goal. If you don’t have a plan, what’s your reason? The top two reasons our survey respondents gave for not having a plan were, “I have too few assets” and “I don’t know how.” So if we know a plan makes a big difference (read – it’s good for you), let’s address those two obstacles. Don’t have enough assets? Everyone can benefit from a plan, whatever your income. The sooner you start saving, the better. Don’t know how? Go online and spend a few minutes using a simple tool like the Wells Fargo My Retirement Plan to start your plan and get retirement tips from financial experts.

Need further proof a plan is good for you? Those survey respondents in their 30s were most likely of all the age groups to have a plan- and they were savings 6% annually versus other ages saving an average of 5%. In addition, the 30-somethings estimated they would need a nest egg of $500,000 versus those ages 40 and older, who estimated needing $200,000. The 30-somethings are more realistic and get it.

So do you have any examples of advice you’ve received or given around steps you’re taking to retirement?

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