3 Common Types of Life Insurance
September is Life Insurance Awareness month and we’re taking time to review three common types of insurance and how you can benefit from them. When deciding to purchase insurance, ask yourself what do I need it to do? Is it going to be used for yourself or to help others when you pass away? These are important questions as they will help guide your decision on the best insurance option for your circumstance.
Term Life provides the lowest cost but it is only utilized when you pass away. This type of insurance is granted to people based on a simple questionnaire or given through a group rate. Term Life is common when getting it through your employer.
Long Term Care (LTC) is moderately expensive and can only be utilized when you are unable to perform activities of daily living. Most LTC is a use it or lose it type of insurance. Meaning the unused value of the policy doesn’t pass to your heirs. I usually recommend finding insurance that offers a cash value payout to your dependents or one serves a dual purpose.
Universal Life is the most expensive but allows you to utilize the cash value of the insurance and depending on how you structure the distribution it has the potential to be tax-free. These accounts are best for people who are trying to put more money away and avoid ongoing taxation. There are two types of universal insurance: variable and fixed. Variable options are tied to market performance and have the opportunity for loss. Fixed options are tied to either a fixed percent or, in some cases, a crediting strategy. These are both options but will not be exposed to loss as is the case with variable insurance.
We’ve outlined some basic information about three different types of life insurance but it’s always important to dig deeper and learn more about your options. Sometimes it helps to reach out to a financial professional and discuss what’s the right fit for you. If you are confused or intrigued by how insurance could be a part of your portfolio, set up an appointment with KJ Dykema, MRFC® and we’ll review what is the best way to move forward with your financial plan.
After two agonizing years of waiting, the big wedding day is finally near. But before you say your “I do’s” there is one more thing you need to check off your list - planning the financial journey you will take as a married couple. With finances being one of the leading causes for arguments and divorce, it is crucial you take this step together before walking down the aisle. Here are the three questions to ask before you get married.
The first question you should ask, will you be signing a prenuptial agreement? For some, the answer is simply “no” and they can move to the next question. But for others this is a complex and delicate process where both parties must seek individual counsel. In these agreements, topics to cover range from establishing a plan for their existing net worth and inheritance to the custody of a shared pet. How comprehensive an agreement is depends on the couple but the best thing to do is find a plan that benefits both parties.
The second question to ask, how will you set up your accounts? Surveys have found that 49% of baby boomers and 48% of Gen Xers join their accounts together (1 Konish). Whereas, the trend for millennials and younger generations are opting for entirely separate accounts. Some things to assess when making a decision to join or separate accounts include saving and spending habits, as well as the joint goals you want to reach together. There are pros and cons to each strategy but your priority should be regularly assessing your spending and savings to ensure it’s in line with your family goals.
The last question to ask, how will you save for large financial expenses? The national average savings for individuals under the age of 35 is $11,200 but the average cost of a wedding in the U.S. is $29,200 (2 McCain). Now, that doesn’t leave much wiggle room for your emergency expenses. As a couple, you will need to discuss your saving and spending habits to gain understanding of each other. Finding the strengths of each partner and utilizing them strategically is essential to get the most out of your conversation.
Teaching couples how to grow together and build wealth is one of the most rewarding parts of being a financial advisor. In fact, the journey I took with my partner started with simple budgeting conversations which grew into acquiring businesses and real estate - none of this would be possible without starting on the same page and consistently reviewing our goals together. If you find these questions are too difficult to ask or want some assistance, we are here to help. To start your financial journey together, use our complimentary Budgeting Workbook and book an appointment with KJ Dykema, MRFC® today.
1 Konish, L. (2022, March 7). Joint vs. separate accounts: How couples choose to handle finances could impact their financial success. CNBC. Retrieved June 28, 2022, from https://www.cnbc.com/2022/03/07/joint-vs-separate-accounts-how-couples-choose-to-handle-money.html#:~:text=Baby%20boomers%20are%20most%20likely,versus%20just%2031%25%20of%20millennials.&text=Meanwhile%2C%2045%25%20of%20younger%20millennial,boomers%20who%20do%20the%20same.
2 McCain, A. (2022, June 7). U.S. Wedding Industry Statistics : Wedding services market trends and facts. Zippia. Retrieved June 28, 2022, from https://www.zippia.com/advice/wedding-industry-statistics/#:~:text=The%20American%20wedding%20industry%20is,of%20over%2062%25%20since%202020.%203%20https://www.sofi.com/learn/content/average-savings-by-age/
In case you haven’t heard, May is Mental Health Awareness month and it comes as no surprise to learn that financial wellness and mental health can be directly related. In fact, “One study found that individuals with depression and anxiety were three times more likely to be in debt. Other studies have even found a link between debt and suicide.” (Morin, 2019) Now, I’m a financial advisor and not a mental health expert but I think it’s important to provide you a way to connect with mental health resources since the search alone can be overwhelming.
First and foremost, if you or someone you know is struggling with suicidal thoughts please use the National Suicide Prevention Lifeline at 1-800-273-TALK (8255) or TTY 1-800-799-4889. The free and confidential Lifeline is available 24 hours every day in the U.S. Sometimes it will take a moment to speak with someone and if you can’t wait, call 911.
Washington state offers 24-Hour Crisis Lines (see numbers below) that provide immediate help to individuals, families, and friends of people in emotional crisis. The Crisis Line will help you determine if you or a loved one needs professional consultation and link you to the appropriate services.
North Central WA
Pierce & Southeast WA
The WA Warm Line at 1-877-500-WARM (9276) offers peer support for people living with emotional and mental health challenges. Their office is open everyday between 12:30 pm and 9:00 pm and helps with people experiencing anxiety, depression, loneliness, problems with family or friends, and other emotional or mental health challenges.
These are only a few of the phone numbers I found online and oftentimes the crisis lines will provide you with more information and additional resources. If you want to learn more about the correlation between financial wellness and mental health read “How Mental Health Affects Your Financial Health”. To start taking control of your financial journey, book your appointment with KJ Dykema, MRFC® today.
Morin, A. (2019, September 10). How Your Mental Health Affects Your Financial Health. Psychology Today. Retrieved May 18, 2022, from https://www.psychologytoday.com/us/blog/what-mentally-strong-people-dont-do/201909/how-your-mental-health-affects-your-financial-health.
We often talk about diversification in your investment portfolios but focusing on different tax treatments in your retirement accounts is equally important. The type of account(s) you can contribute to are based on many factors including income, age, and filing status. Each investment account type (i.e., Roth, Traditional, Brokerage, etc.) offers unique ways to save with your taxes. Some common account types include:
Traditional 401(k), 403(b), or IRA: A tax deduction at the time you contribute but you will pay taxes when you withdraw funds during retirement.
Roth 401(k), 403(b), or IRA: Funds are taxed when contributions are made, gains are not taxed, and qualified withdrawals are tax-free.
Taxable Savings or Brokerage: Taxes are paid on dividends, interest earned, and capital gains.
As you can see, Roth IRA account contributions are made in after-tax dollars, which means you pay for the taxes upfront. When you reach retirement age and withdraw the funds, it is tax-free. Compared to a tax-deferred Traditional IRAs where distributions are taxed at your ordinary income tax rate during retirement.
In addition to choosing the best account types, it is beneficial to create a strategy for how and when you will withdraw your funds. Distributions are almost always considered income and can bump you into a higher tax rate. By staggering distributions, you can maximize savings by keeping taxable income below the next tax-bracket rate increase.
There are several strategies you can implement to reduce lifetime taxes and our list is certainly not comprehensive. Take some time to consult with your tax professional or book your appointment with KJ Dykema, MRFC® today and find new ways to save.
Put Your Debt Into Perspective
Getting motivated to pay off credit card debt can be a challenge knowing that you only need to make a minimum payment to get by but let’s help put things into perspective. Did you know that consumers can pay off a 30-year mortgage faster than their $5,525 in credit card debt when making only the minimum payments? It’s true - we’ve done the math.
According to Experian, the average balance on consumer credit cards in 2021 was $5,525 and 40.7% of those consumers carry a balance on their cards from month to month. At a quick glance, these numbers don’t seem so bad. In fact, the percentage of consumers who carry over balances each month is at an all-time low. Unfortunately, the truly concerning part is how much these people will pay for this debt without thinking twice about the real cost.
Here’s a riddle, what do the numbers 443, 37, and 10,380 have in common? It will be the approximate 443 months, 37 years, and $10,380 in interest each consumer will pay for their $5,525 in credit card debt. Did you just think how is that even possible? Are they really paying double their principal balance in interest? Let’s take a look at some of the math.
According to the Federal Reserve, the average credit card annual percentage rate (APR) in 2021 was approximately 16%. Most credit card companies require 1%-3% of your principal balance paid down each month plus interest charges - we’ll use 2%. Let’s assume consumers only make the minimum payment and don’t add any additional debt.
To get the daily interest rate, use the APR and divide it by 365 (for the days in a year). Take that figure and multiply it by the current balance to get the daily periodic rate.
(APR / days in year) * current balance = daily periodic rate
(0.16 / 365) * 5,525 = $2.42 daily interest
You can calculate the monthly payment by multiplying the daily periodic rate and the number of days in the billing cycle.
daily periodic rate * number of days in billing cycle = monthly payment
$0.24 * 31 = $75.08
Repeat these steps 442 times to get your total interest paid or use this super easy (and free) online calculator that even provides you with a payment schedule.
Now, if these figures don’t motivate you to pay off your credit cards every month, I always recommend looking at the amount of time it takes you to earn that money. If you make $15/hour, it will take you 692 hours to pay only the interest owed on your credit card. Get help to create better habits and book your appointment with KJ Dykema, MRFC® today to pave your path to financial freedom.
Johnson, A. (2021, September 10). The average credit card balance is $5,525. here's what you need to know. CreditCards.com. Retrieved January 2, 2022, from https://www.creditcards.com/credit-card-news/credit-card-debt-statistics-1276/
What is ESG investing?
We often talk about different ways to invest and the best way to make the “biggest bang for your buck” but what about the people that want to ensure their values align with the company they invest in? Well, ESG investing may be your answer. ESG stands for environmental, social, and governance - the intention of ESG investing is to align finance with long-term value and societal values. In fact, ESG investing has grown in popularity over the past decade and by the end of 2019, the sustainable market size increased more than 30% compared to 2016 with total assets exceeding 30 trillion USD.
Each pillar of ESG signifies a different purpose. For instance, the environmental (E) pillar strives to integrate metrics aligned with environmental performance, climate risk mitigation, and strategies towards renewable energy. A company's carbon footprint is only one metric considered when measuring its environmental impact - others may include waste production, energy use, and water withdrawals. The social (S) pillar values social responsibility ranging from workforce related issues (health, diversity, training) to societal issues as a whole (human rights, data privacy, community engagement). Whereas governance (G) focuses on factors surrounding corporate governance and corporate behaviors, ranging from shareholders’ rights to executive compensations.
Right now, the most difficult part of ESG investing is the quality of information and comparing different companies. Yahoo Finance provides free information on most tickers under the “Sustainability” tab where the lower scores indicate less unmanaged risk within the company. Of course this information is helpful but take time to research the company beyond these simple features or book your appointment with KJ Dykema, MRFC® to help evaluate your investments further.
OECD (2020). OECD Business and Finance Outlook 2020: Sustainable and Resilient Finance, OECD Publishing, Paris, https://doi.org/10.1787/eb61fd29-en.
Cryptocurrency: The Basics
Cryptocurrency (“crypto”) has been around for years but many still don’t understand what it is, how it works, and how you can invest in it.
Let’s start with the question, what is cryptocurrency? According to Frankenfield, “cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend.” Most crypto involves decentralized networks based on blockchain technology where control stays with the user - as compared to centralized where a central authority governs and handles the network. You may be asking, why does it even matter? Well, decentralized networks are less prone to data hacks and data leaks and often have fewer fees than a centralized network. There are many pros and cons to each type of network and if you want to learn more, I suggest reading, Decentralized vs. Centralized Network: A Detailed Comparison.
Investing in crypto may have some complexities but the gist of it includes choosing a platform to trade (a broker or cryptocurrency exchange), funding your account, placing an order, and storing your funds in a cryptocurrency wallet. As far as crypto platforms are concerned, Coinbase and Binance are well-known platforms with an array of crypto options to invest in. The currency that each platform accepts for funding an account may be different but more often than not, US currency is accepted.
Now, choosing a crypto wallet is a bit more tricky because there are different types of wallets available including hot wallets, cold wallets, exchange wallets, and custodial wallets. Right off the bat, I want to point out that I don’t suggest using exchange wallets as your primary wallet since you are really surrendering your assets to a centralized entity. Instead, consider a hot or cold wallet. Hot wallets use keys stored on a device that has access to the internet and can be more susceptible to leaking private key information. Whereas, cold wallets store your information offline and offer a higher level of security. Coinbase Wallet is a well-known wallet provider, especially for beginners.
I’ve covered some basics above but remember that we are here to help you through this process. To learn more about cryptocurrency or talk about your specific needs, simply book your appointment with KJ Dykema, MRFC® today.
Frankenfield, J. (2021, October 25). Cryptocurrency. Investopedia. Retrieved October 27, 2021, from https://www.investopedia.com/terms/c/cryptocurrency.asp.
Having “The Talk” About Death
When I was a young girl, my father had “the talk” with me. No, not about the birds and the bees but he discussed what I should do in the event that he passed away (even though there was no indication his end was near). He showed me exactly where his legal documents were placed and who we should contact to handle any legal matters. Throughout the years - and, especially closer to the end of his life - these conversations transformed to more specific topics ranging from funeral arrangements to making a list of every subscription service he was using. As you can imagine, these conversations can be challenging to have with your loved ones but it is necessary and significant for those making your life/death decisions.
Now, before jumping into “the talk”, I suggest preparing legal documents that express your wishes clearly in writing. A power of attorney (POA) allows you to designate an agent to handle your affairs during life and a Last Will and Testament offers specific instructions on how to distribute your assets after passing. Choosing agents and executors for these legal documents isn’t simply picking the person you are closest to. Instead, you should consider who will uphold your wishes best. Additionally, these documents guide you on the decisions that need to be made and provide discussion points for your end-of-life conversations - and, at the very least, examining these legal documents will get you to consider the decisions you and others will need to make for your end-of-life journey.
Once you have some direction on how you want things carried out, it is crucial that you discuss your plans with whoever will execute your wishes and anyone else you want involved. Even at ten-years-old, I knew the gravity of what my father was telling me and I understood his intention was to protect our family. The National Council for Palliative Care provides a helpful guide on subjects to talk about, how to start the talk, and tips to use during these conversations.
I know that it seems strange to prepare for death when it isn’t something you’re expecting to happen in the near future but studies indicate talking about your plan with loved ones helps to alleviate the fear of death and reduces stress during highly emotional times (i.e., incapacitation, death, etc.). People are often reluctant to talk about death due to its ominous nature; however, by the end of each discussion with my father, I felt more prepared and less anxious about the unknown.. We didn’t have all the answers and even learned some things along the way. We made difficult decisions but felt confident in our choices based on our previous end-of-life conversations. By discussing my dad’s wishes throughout his life, it gave us the freedom to cherish every last moment with him.
If you need assistance with end-of-life planning, book your appointment with KJ Dykema, MRFC® today.
The majority of people use their HSAs to pay for qualified medical expenses but don’t realize you can do so much more. For instance, did you know that most HSAs offer a way for you to invest your funds while you are not using them? How about the fact that your contributions and distributions are tax-free*? HSAs are more than just a way to pay for medical expenses, they are a great solution to help reach your financial goals.
In order to qualify for an HSA you must be covered under a high deductible health plan (HDHP), have no other health coverage**, must not be enrolled in Medicare, and can’t be claimed as a dependent on someone else’s tax return.
One of the best features of an HSA is that contributions can come from just about anyone - this includes you, your spouse, your employer, family members, and more. In fact, the funds contributed by your employer to your HSA are not included in your gross income - free money, yes please. Do keep in mind that there are contribution limits. The amount depends on the type of HDHP coverage you have, your age, the date you become an eligible individual, and the date you cease to be an eligible individual. For 2021, if you have self-only HDHP coverage, you can contribute up to $3,600. If you have a family HDHP coverage, you can contribute up to $7,200. For eligible individuals age 55 or older, contribution limits are increased by $1,000 at the end of your tax year.
You can receive tax-free distributions from your HSA to pay or be reimbursed for qualified medical expenses you incur after you establish the HSA. For more information on qualified medical expenses, review IRS Pub. 502, Medical and Dental Expenses. Did you know that you can’t pay for insurance premiums using an HSA but you can use it to pay for Long-term care insurance? Of course, there are some limitations based on age and the amount is adjusted annually but this can save you some money.
HSAs have a triple-tax advantage. First, many people contribute pre-tax dollars to HSAs through payroll deductions. If you have an HSA outside of your workplace, contributions can be used as a deduction from your taxes. Second, interest or other earnings on the assets are tax-free. Third, when you use the funds for qualified medical expenses the distributions are tax-free.
I could easily have an entire series of articles on the advantages of HSAs but everyone’s situation is different. Let’s talk specifics about how you can use an HSA to boost your financial wellbeing - book your appointment with KJ Dykema, MRFC® today.
* Some exceptions apply. Review IRS Publication 969 to learn more.
** Except what is permitted under IRS Publication 969, Other health coverage.
Publication 969 (2020), Health savings accounts and other tax-favored health plans. Internal Revenue Service. (2021, February 16). https://www.irs.gov/publications/p969.
What is really in your ETF?
An exchange traded fund (ETF) is a type of security that tracks an index, sector, commodity, or other asset, but which can be purchased or sold on a stock exchange the same as a regular stock. ETFs can often be used by investors to diversify your portfolio as they hold multiple underlying assets, rather than only one asset (like stocks).
Like any investment, ETFs come with pros and cons. Some advantages include lower expense ratios, access to more stocks across various industries, and they manage risk through diversification. However, not all ETFs are what they seem. A rise in social media influence has many investors looking at the latest ETFs (often with catchy names) but it is important to truly understand where your money is going. The article “Do You Really Know What Is Inside Your ETF? Probably Not” by Matt Krantz takes a deeper dive into some of these trending ETFs.
The US Vegan Climate ETF (VEGN) is a perfect example of when you should ask yourself, “what am I really investing in?” While most people would believe that VEGN is about a plant-based food future, it is surprising to see 4.6% of its portfolio in Microsoft (MSFT) and 4.8% in chipmaker Nvidia (NVDA). In fact, more than half of VEGNs portfolio involves stock accounts connected to information technology. You could make an argument on why these are beneficial to have in an ETF but they seem like a bit of a far fetch when trying to relate it to a plant-based food future.
There are so many factors to consider when investing and there is an extensive selection of EFTs to choose from that it can become overwhelming. Well, we are here to help you! Let us do the research for you and help you reach your financial goals.
Take the next step today and book your appointment with KJ Dykema, MRFC®.
Chen, J. (2021, July 28). Exchange traded fund – etfs. Investopedia. https://www.investopedia.com/terms/e/etf.asp#advantages-and-disadvantages-of-etfs.
Krantz, M. (2021, July 16). Do you really know what's inside your etf? Probably not. Investor's Business Daily. https://www.investors.com/etfs-and-funds/etfs/best-etfs-do-you-really-know-whats-inside-your-etf-probably-not/.