Stockbrokers are paid on commission, while fiduciaries are paid as clients’ assets grow.

A broker’s income is largely dependent upon the commission he or she earns from selling financial products. Each investment opportunity has a different commission value. As a result, it can be tempting for brokers to build portfolios with investments that will make them the most money, rather than focusing on what is best for the client.

On the contrary, fiduciaries are paid a percentage of their clients’ total assets under management. This means that fiduciaries’ income only grows as their clients’ investments grow. Put simply, fiduciaires don’t make more money unless their clients do. As a result, fiduciaries have even more motivation to build portfolios that work for their clients, which should give clients peace of mind.

Stockbrokers are only allowed to utilize a handful of investment opportunities, while independent fiduciaries have access to an unlimited number of possibilities.

Stockbrokers at large, chain investment advisement firms have a list of investments they can use to build portfolios. Because brokers are not allowed to stray from this list, clients may miss out on their best-suited investment opportunities.

Independent fiduciaries, on the other hand, have access to an unlimited number of investment opportunities, and through careful research and analysis, fiduciaries can find investments that best meet clients’ needs. This allows fiduciaries to build stronger portfolios that reflect clients’ financial goals.

Stockbrokers must meet monthly quotas, while this is not a requirement for fiduciaries.

In addition to being required to stick to a list of investments, most stockbrokers are also required to meet a quota, whether that be a set monetary value or number of financial products. This can cause brokers to act selfishly and push products that aren’t necessarily best suited for their clients.

Fiduciaries are not required to meet monthly quotas. This takes unnecessary stress off of fiduciaries and allows them to focus on helping their clients, rather than worrying about how they are going to please their supervisor.

Stockbrokers abide by the “suitability standard,” while fiduciaries are required by law to put clients’ best interests first.

This is the biggest and most concerning difference between a fiduciary and a stockbroker. Stockbrokers as subject to the “suitability standard,” which means that they are required to give clients “suitable” financial advice. However, stockbrokers are not required to give clients the best advice. This allows stockbrokers to put their firm in front of their clients’ best interests, and as a result, clients’ finances may suffer.

In the meantime, fiduciaries are subject to the Investment Advisors Act of 1940, which legally requires registered investment advisors to offer financial advice that puts the clients’ needs before the firm’s. In other words, fiduciaries must do what is best for the client. We believe this is reason enough to choose a fiduciary over a stockbroker.

Lorenz Financial President Mark Lorenz chose to become a fiduciary, rather than a stockbroker, for these reasons. We believe that fiduciaries are better able to meet investors’ financial goals and are proud to serve as investment advisors in the Lafayette, Indiana area.

Are you interested in receiving market trend updates?

Register for our e-newsletter to receive Lorenz Financial President Mark Lorenz’s thoughts on and analysis of the current market.

Lorenz Financial Services, LLC is a Lafayette, Indiana fiduciary who offers financial planning and portfolio management services. If you have questions about who we are or our services, please contact us at (765) 532-3295 or email us.

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What Should You Bring to the Initial Meeting with Your Financial Advisor

You will probably have several emotions when you meet with your fiduciary for the first time: excitement, anxiousness, etc. You will, however, feel more relaxed and prepared if you know what you should bring to the initial meeting with your financial advisor. By bringing the information listed below, your fiduciary can get a clear pictures of your financial situation and put you on track for the future you’ve always envisioned.

1. Current Income and Savings

You can’t get where you want to be without assessing where you are now. Your fiduciary will need to be aware of any means of financial growth, so bring any relevant information. If you work, bring copies of your paystubs. If you receive assistance through medicare or medicaid, bring that information with the appropriate numbers. If you are the beneficiary of a trust fund or if you receive child support, bring a copy of the appropriate documentation.

Your fiduciary will also need to know what you have in savings and be aware of any other funds you have set aside. Bring copies of your bank statements, preferably at least the last three months.      

2. Current Spending

While your fiduciary needs to understand your income, he or she will also need to understand your expenses, so bring a copy for your budget, whether it be a weekly or monthly budget. If you don’t have a budget, don’t worry. An estimate of your expenses will do for now; however, the more specific you can be, the better your fiduciary will be able to assist you.  

3. Debt

A majority of Americans have debt of some kind, whether it be student loans, credit card bills, medical bills, or a mortgage. Part of creating a financial plan will include determining how you are going to handle the debt. Bring copies of your most recent bills and statements to your initial meeting with your financial advisor.  

4. Insurance Policies

Also bring copies of your your insurance policies, as these may have an effect on your finances. For example, if you and your spouse both have life insurance and something happens to one of you, the other will be compensated through life insurance. This compensation and the loss of the deceased spouse’s income will need to be worked into your financial plan.

5. Retirement Savings and Investments

If you already have a 401(k) or retirement fund established, that’s great. Please bring the most recent balance and any other information you have relating to your retirement savings or investment account(s). If you aren’t currently saving for retirement, don’t worry. Your fiduciary can help with this.  

6. Other Investment and Assets

If you have other investment accounts, shares, mutual funds, bonds, or other investments, bring all relevant information. Your fiduciary will need to be able to understand your current portfolio. If you own property or other valuable assets, bring information about their current value and any debt you may have against them. All of these investments will need to be addressed in your financial plan.

7. Your Financial Goals

Having a thorough understanding of where you stand financially is important, but you also need to decide where you want to go. Before you meet with your financial advisor, make a list of financial goals. For example, do you want to put your kids through college? Are you imagining retiring on the beach? Do you want to take a trip abroad every five years? How often would you like to be able to purchase a new vehicle? Your fiduciary will be able to help you determine which goals are plausible, as well as what adjustments you may need to make.

Knowing what you should bring to the initial meeting with your financial advisor will help you feel prepared for your first consultation and help your advisor get the best picture possible of your financial situation. At Lorenz Financial, we a offer no-cost, no-obligation financial planning consultation because we believe it is important for every individual and family to have a financial compass. Learn more about our financial planning services, and contact us if you have further questions or concerns.

Are you interested in receiving market trend updates?

Register for our e-newsletter to receive Lorenz Financial President Mark Lorenz’s thoughts on and analysis of the current market.

Lorenz Financial Services, LLC is a Lafayette, Indiana fiduciary who offers financial planning and portfolio management services. If you have questions about who we are or our services, please contact us at (765) 532-3295 or email us.

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Whether you’re looking for a financial advisor who can help with your first financial plan or you’re a seasoned investor searching for an investment advisor to manage your portfolio, here are five reasons to choose Lorenz Financial:

1. Lorenz Financial always puts clients’ needs before the firm.

Because we are a fiduciary, not a stockbroker, we are legally required to put our clients’ best interest ahead of our firm. In other words, we always do what is best for our clients, regardless of what this means for Lorenz Financial. Stockbrokers are not subject to this ruling, and we chose to become fiduciaries because we believe our clients deserve to have peace of mind.

What’s the difference between a fiduciary and a stockbroker? Find out here.

2. We have access to an unlimited number of investment opportunities.

Because we are an independent fiduciary, we have access to an unlimited number of investment opportunities. This allows us to utilize investments that best meet our clients’ needs. This isn’t a benefit that all financial advisors can offer. In fact, many financial advisors have a list of investments they can use to build portfolios. Because they are not allowed to stray from this list, their clients may miss out on ideal opportunities. At Lorenz Financial, having access to an unlimited number of investment opportunities allows us to build strong portfolios and doesn’t put restrictions on our clients’ financial success.

3. Our income only increases if our clients’ assets grow.

Many financial advisors work off of commission, but we don’t. Our income only grows if our clients’ assets grow. In other words, we don’t make more money unless our clients’ portfolios are profitable. We believe this is the only fair way to serve as investment advisors.

4. We offer no-cost, no-obligation financial plans.

We believe having a financial plan is so important that we offer truly free financial plans. We take time to get to know our financial planning clients, assess their finances, and understand their financial goals. Then, using a goals-based, probability software, we help individuals and families determine if their goals are plausible. If they aren’t, we will help clients determine what they can change (e.g. delaying retirement, setting more aside, investing, etc.) in order to make the future they’re envisioning possible. After all of this is complete, we help clients get on track to reach their financial goals.

Schedule a no-cost, no-obligation financial planning consultation!

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5. We’re passionate about what we do.

Lorenz Financial President Mark Lorenz became fascinated with the investment and finance industry when he was 13 years old. During his 40-year career as an engineer, Mark managed his own portfolio as a hobby. Lorenz Financial was founded on Mark’s passion for this industry, and this passion drives what we do and how we serve our clients.

If you have further questions about who we are or what we do, please visit our website or contact us. As we said, we are passionate about our industry and are always happy to discuss financial planning and investing.

Are you interested in receiving market trend updates?

Register for our e-newsletter to receive Lorenz Financial President Mark Lorenz’s thoughts on and analysis of the current market.

Lorenz Financial Services, LLC is a Lafayette, Indiana fiduciary who offers financial planning and portfolio management services. If you have questions about who we are or our services, please contact us at (765) 532-3295 or email us.

The post Five Reasons to Choose Lorenz Financial? appeared first on Lorenz Financial Services | Lafayette Indiana.

1. Spend less than you make, even in retirement.

Enjoy retirement, travel, go to the symphony, visit friends and relatives, but everyone has a limited amount of income. Don’t endanger your retirement by depleting your savings through excessive spending.

2. Maintain a healthy emergency fund for retirement.

Unfortunate things will continue to happen in retirement. Your washer or dryer might go out, or the furnace might break down in January. Be prepared with at least three to six months of living expenses in reserve that you can quickly get to, such as an FDIC insured checking account.

3. Only take Social Security when you need it or at age 70, whichever occurs first.

Even though you can begin withdrawing from Social Security at age 62, your monthly benefit will increase approximately 8% per year if you can wait. After age 70, the increases stop, so don’t wait past 70 to collect your benefits. Because of the nearly 8% increase per year in social security benefits after age 62, for those with a full retirement age of 66, the amount you can receive at age 70 is 76% higher than the amount you are eligible for at age 62.

4. Do your Medicare research.

Prior to turning 65, attend a free seminar to learn all about the many decisions that need to be made when signing up for Medicare. In Indiana, Ohio, and Kentucky, contact Medicare Simplified.

5. Make sure your investment portfolio is diversified.

You should put no more than 4% in any one stock and no more than 15% in any one mutual fund. A fiduciary can help you make sure your portfolio is well diversified.

6. Investment costs are important – they reduce your portfolio’s returns.

Be sure you know how much your investment costs you per year and how much your advisor costs you per year.

Because stockbrokers are paid per trade or by commission, working with a stockbroker as a financial advisor can be costly. A fiduciary, on the other hand, is paid a percentage of your total assets under management. This means a fiduciary only makes money if you make money.

What’s the difference between a fiduciary and a stockbroker?  

You want to get the most out of your investment, so be sure that you understand your investment costs.  

7. Don’t withdraw too much of your investment funds in retirement.

If you’re withdrawing funds from your investments for living expenses, do not withdraw more than 4% of your total portfolio per year, or you risk depleting your assets sooner than you planned.

8. Pay off all debt before retirement.

Getting your debt settled is one of the most important money management tips for retirees. An investor cannot build wealth by borrowing. If you do not have a competitive interest rate on your mortgage, refinance it before you retire. If possible, pay off your home mortgage before retirement.

9. Minimize taxes.

Minimize taxes by keeping mostly stocks in your taxable accounts and mostly bonds and real estate investments in your tax-sheltered accounts, like IRAs.

10. Utilize qualified dividends.

If you are receiving dividends in your taxable investment account, make sure they are qualified dividends and not ordinary dividends. Qualified dividends are taxed at only 15%, while ordinary dividends are taxed at higher income tax rates.

11. Don’t move all of your investments to certificates of deposits.  

If you retire at 65, don’t move all your investments to certificates of deposit (CDs) and bonds.  What if you live 30 more years? CDs and bonds will not protect you from inflation. A new Chevy today at $30,000 will cost you $50,000 after 26 years with only 2% inflation.

12. Have a durable power of attorney when you retire.

Almost everyone over 18 years old needs a will and a durable power of attorney, a document that appoints a person or organization to manage your affairs if you are not able to do so yourself. Almost everyone with a home or significant financial assets needs a revocable living trust to avoid probate.

13. Determine a retirement health care plan of action.

Everyone over 18 needs a health care power of attorney, a living will (also called a health care directive) and a HIPAA waiver.

We hope these money management tips for retirees are helping you feel a little more prepared for your financial future. If you’d like more retirement tips, download “Saving for Retirement? Five Tips to Make Sure You’re on the Right Track.”  

Lorenz Financial Services, LLC is a Lafayette, Indiana fiduciary who offers financial planning and portfolio management services. If you have questions about who we are or our services, please contact us at (765) 532-3295 or email us.

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Stocks

Stocks are an investment in a company and are very common in the financial world. If you own a stock, you are a part owner of the business. Stocks are more volatile than bonds, meaning there typically is more risk, but the returns are frequently greater.

The value of stocks fluctuate, meaning at any point, your original investment could be more or less than the stock is worth. In theory, the goal of buying stocks is to sell them at a higher price than you bought them, but doing so is easier said than done. There are many different strategies as to when to buy or sell stocks. A fiduciary can help you develop an investment strategy based on your risk tolerance.

Another way to make money from stocks is by receiving dividends, which are a share of the company’s profits. Not all stocks provide dividends.

Stocks are purchased inside a brokerage account, which is an account that allows you to deposit money that is used by your broker to acquire different investments and stocks. Stocks are sold in whole numbers of shares from one to hundreds of thousands of shares.

Bonds

One of the biggest differences between stocks, bonds, and mutual funds is how each of them allows you to invest your money. For example, bonds are actually a loan to a company or the government.

Each bond has a maturity date, which is when a bond is redeemed at its par or face value. At the time of maturity, you—the bondholder— will receive the original amount of money you invested back plus interest. Though less volatile than stocks, bondholders can lose money if the value of their bonds decrease. This can happen due to higher interest rates or if the credit quality—a criteria that informs investors of the risk of default—of the bond decreases prior to maturity.

Unlike stocks, the commission to buy a bond is hidden inside the price of the bond. Typically, a bond purchaser pays a 2% commission to buy and another 2% to sell a bond. One way to minimize this cost is to buy a bond that you expect to hold to maturity, which is the date the bond officially ends. There is no commission to get your money back when the bond matures.

Mutual Funds

A mutual fund is made up of a pool of money collected from many different investors for the purpose of investing in stocks, bonds, real estate, or money market accounts.

A mutual fund can be a passive investment, meaning that those who invest do not have an active strategy for buying and selling the investments in the fund. Instead, they try to imitate an index, which is the number that refers to the value of the investments. Passive investors follow the stock market indexes to help model their mutual funds. Dow Jones Industrial Average, S&P 500 Index, and Russell 2000 Index are great examples of stock market indexes.

Another kind of mutual fund is referred to as an active fund. Active funds are controlled by a manager who actively strategizes and makes all the buy, hold, and sell decisions. The manager of a mutual fund will design and maintain the fund to match its investment goals as stated in the fund’s prospectus, a legal document that outlines details about the investments. Always read the prospectus before buying a fund.

Some funds are loaded, meaning there is a sales charge to the broker who sold you the fund, and some funds are no-load. Loaded funds do not necessarily perform better than no-load funds, so always take the time to review your options. Funds also have an annual expense ratio that reduces the investor’s return. An annual expense ratio of 0.05% is extremely low and an expense ratio of 1.5% is very high.

We hope this explanation of the difference between stocks, bonds, and mutual funds were able to give you a better idea of the many investment opportunities available to you. Lorenz Financial is happy to sit down and talk with you about your options.

Lorenz Financial Services, LLC is a Lafayette, Indiana fiduciary who offers financial planning and portfolio management services. If you have questions about who we are or our services, please contact us at (765) 532-3295 or email us.

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The Basics

Your Individual Retirement Account (IRA) is a savings account where you keep stocks, bonds, mutual funds, and other assets. There are several types of IRAs: Traditional IRA, Rollover IRA, Simple IRA, SEP-IRA, and Roth IRA. When you opened your IRA, you received great tax benefits and invested in your future: a secure, enjoyable retirement. While you will ideally wait until you’re at least 59 ½ years old to withdraw from your IRA, there may be situations where you need to withdraw early. That said, a penalty may apply.

The Penalty

If you withdraw early from your IRA before you’re 59 ½, you may have to pay a 10 percent tax penalty. Congress put this penalty in place to encourage individuals to save their investment capital for the future, rather than spending it on short-term problems. The good news is that there are exceptions to this rule if you must make an early withdrawal from your IRA.

The Exceptions

That 10 percent tax penalty sounds scary, but it doesn’t have to be. You might even avoid that fee for early withdrawal from your IRA if you’re:

1. Buying a Home for the First Time

If you’re a qualified, first-time homebuyer, that 10 percent tax penalty is waived on up to $10,000 of IRA withdrawals. You can use these funds to buy, build, or remodel a first home for yourself, your spouse, a child or grandchild, or a parent or grandparent. You can see if you meet the IRS definition of a first-time home buyer here.

2. Covering Higher Education Costs

If you’re paying for yourself, your spouse, your kids, or your grandchildren to receive higher education, that money doesn’t grow on trees. But, it has been growing in your retirement account, and an early withdrawal from your IRA will not be penalized if you’re doing so to fund schooling. You can thank the Higher Education Act of 1965 for this exception that allows IRA distributions to cover certain expenses for colleges, universities, and vocational schools.

3. Suddenly and Permanently Disabled

If you become permanently disabled—either physically or mentally—and are no longer capable of working to support yourself, you may make a penalty-free early withdrawal from your IRA. Your doctor must certify that you’re no longer able to work and that your disability will either last a significant amount of time or eventually lead to your death. And, if you do unfortunately pass away before age 59 ½, your beneficiaries can inherit your retirement funds without penalty.

4. Inheriting IRA Assets

If you’re the beneficiary of a parent, grandparent, or other non-spouse who has passed away, you won’t have to pay the tax penalty for early withdrawal from your benefactor’s IRA. There are a few more technicalities when it comes to inheriting an IRA from your deceased spouse. If you treat your inherited IRA as your own, then any amount you withdraw will be subject to the tax penalty. However, if you title this as an “Inherited IRA,” then you will have to pay the 10 percent tax penalty.

5. Going into Active Duty

If you are a military reserve who is called to active duty, you will not be subject to the tax penalty for early withdrawal from your IRA. In this case, your withdrawal is a “qualified reservist distribution” when you meet the following requirements:

• You were called to active duty before September 11, 2001;
• You were called to active duty for a period longer than 179 days, or for an indefinite period of time; and
• The distribution was made after the date you were called to active duty and before the period of active duty ended.

6. Paying Your Medical Insurance Premium

If you lose your job or suddenly must pay your own medical insurance premiums, you can make an early withdrawal from your IRA without paying the tax penalty. Keep in mind that this exception only applies if you’ve been on unemployment for more than 12 weeks. Also, if you become re-employed, you cannot receive your withdrawal more than 60 days after your new employment begins.

7. Paying for Steep Medical Expenses

If you or your children are seriously ill or injured, those medical costs can add up quickly. If they exceed 10 percent of your adjusted gross income, you can make an early withdrawal from your IRA without paying the tax penalty. If you qualify for this exception, make sure that you pay your medical expenses the same calendar year that you are withdrawing those IRA funds.

These exceptions can be confusing, and they might differ depending on which type of IRA you have. That’s why it’s smart to consult with a qualified financial advisor who has your best interests in mind. This will help you understand the ins and outs of early withdrawal from your IRA, giving you peace of mind and security about your financial decisions.

Lorenz Financial Services, LLC is a Lafayette, Indiana fiduciary who offers financial planning and portfolio management services. If you have questions about who we are or our services, please contact us at (765) 532-3295 or email us.

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Here are some questions to ask your company financial advisor.

1. What is your job title, education level, and specialty?

It’s important to know an advisor’s specialty so you can understand the benefits he/she can offer you. Some advisors develop specialties based on their education or past experience. Retirement, taxes, estate planning, and insurance are a few examples of specialties.

2. How do you handle communication with employees?

Communication is an underrated factor in investing. How often would you see yourself talking to your company’s financial advisor? Every year? Every month? There is no wrong answer; your relationship with your advisor is completely dependent on you. But, no matter how often you want to contact your advisor, it’s a good idea to establish contact information, like an email address, for later inquiries. This is one of the first questions to ask your company financial advisor in your initial meeting.

3. Are you paid on commission?

You don’t need to ask for a dollar amount or percentage; the information you’re looking for is simply whether the advisor’s pay is commission-based or not. This is important because it determines whose interests the advisor is serving. If the advisor gets commission pay, that could mean that he/she gets money for selling a specific product or service, whether it’s a good investment for you or not.

4. Can you personalize my investments?

There are several types of work retirement plans. Some operate like a mutual fund, meaning the employee’s contributions are a large pool of investments managed by the sponsor. Other work retirement plans offer each employee an individual account, which can be customized to the employee’s specifications. If your employer offers options, speak to your personal financial advisor, and he/she can help you decide which plan is right for you.  

5. Is there a fee to use your services?

Some company-based financial advisors can charge fees for various services. Be sure to find out if there are fees for setting up meetings or requesting reports.

6. What is the diversification and performance of each investment option?

What investments has the advisor made for your company? Start by discussing the cost of your potential investment, the accounts’ diversification—what different types of investments are included—and the performance of the different investment options.

If you don’t understand the data presented to you, don’t worry. Take the information to your personal financial advisor, and he/she can break the data down for you.

7. What advice do you have for my savings?

Once you get to know your advisor, it’s time to find out what his/her advice is for your portfolio. Many advisors will perform a risk tolerance assessment to determine which types of investments are favorable for you. You can run the advice you receive by your personal financial advisor and see how the strategies compare.

8. Can we meet again after I talk with my financial advisor?

It’s important to make sure that your retirement plan coincides with your financial plan. To do this, you need to communicate with both of your advisors.

After you’ve spoken with your company financial advisor, ask to set up another meeting. In the follow up meeting, you can compare recommendations between your personal financial advisor and ensure everyone is on the same page. If you keep communication constant between both parties, you’ll have a better chance to meet your financial goals. At Lorenz Financial, we’re happy to work with your work-based advisor to help meet your needs.

Your personal financial advisor and your company financial advisor shouldn’t be viewed as two competitors. Using your company financial advisor for your company retirement plan is a good way to take full advantage of the retirement benefits offered to you by your company.

That said, depending solely on your company’s advisor to help you plan for your financial future isn’t wise. This advisor strictly looks at your company retirement plan, not other aspects of your finances (insurance, assets, savings, etc.). Working with a personal financial advisor, on the other hand, is a great way to make sure that all aspects of your finances are working together to help you reach your dream retirement.   

Lorenz Financial Services, LLC is a Lafayette, Indiana fiduciary who offers financial planning and portfolio management services. If you have questions about who we are or our services, please contact us at (765) 532-3295 or email us.

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What type of retirement plan does your company offer?

There are several ways to classify your company’s retirement plan. Your human resources representative or financial officer should be able to tell you which of the following plans the company offers.

Defined Benefit Pension Plan

You, the employee, don’t make any contributions to this plan. Upon retirement, you will receive a monthly benefit, which is determined by your length of employment and income.  

401(k)/Roth 401(k), 403(b), and 457 Plan

A 401(k), Roth 401(k), 403(b), and 457 Plan are all very similar. In these plans, you contribute a portion of your paycheck to your own retirement account. Often, your employer will match a certain percentage of your investment as an incentive.

The Roth 401(k) is not tax-deductible, which means you get taxed when you put money in the account but not when you retire and begin to withdraw.

The 403(b) plan is the same as a 401(k) but for employees of nonprofit organizations.

A 457 plan is also very similar to a 401(k) but for state and government employees.

In 2017, the maximum yearly contribution for each of these plans is $18,000. This includes contributions made by an employer.  

Savings Incentive Match Plan for Employees (SIMPLE)

This plan is an IRA (Individual Retirement Account) usually utilized by smaller companies. You can contribute up to 3% of your income and an employer contribution is required.

Simplified Employee Pension (SEP)

The SEP Plan is another IRA employee retirement plan. It has many of the same benefits of a traditional IRA but the employee can contribute much more money to the account annually.

Does the employer have a matching incentive?

A match means your employer will match a small percentage of the contribution you make to your company retirement account. For example, let’s say your company matches your contribution up to 3%. That means if you contribute 10% of your income to your retirement, your employer will contribute another 3% from the company.

What happens when you leave your job?

What happens when you leave your job or retire? Though each plan differs slightly, most plans allow you to move your money without much trouble. Almost all retirement accounts will penalize you if you try to withdraw before retirement age. However, if you change jobs, you can usually roll your old company retirement plan into another retirement account without a penalty. The details of such an event can be discussed with your financial advisor.

Can you meet with your work-based financial advisor?

Most company retirement savings plans are managed by an advisor. If you’re contributing to your company retirement plan, look into meeting with your company advisor so you can hear his/her strategy for your money. Although your work-based advisor likely has a lot of clients, he/she should be able to set up a time for the two of you to meet and talk about your retirement account and investment options. No matter how your company is set up, it would be unusual for your employer-based financial advisor to decline a meeting with an employee.

Everyone could use more savings. Saving for retirement now will ensure you have a secure future. Use this information about company retirement plans to your advantage by continuing to do research. The more knowledgeable you are about your finances, the better investment decisions you can make. Since you’re reading this blog, you’re already on the right path!

Lorenz Financial Services, LLC is a Lafayette, Indiana fiduciary who offers financial planning and portfolio management services. If you have questions about who we are or our services, please contact us at (765) 532-3295 or email us.

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What is an emergency fund and why is having one important?

An emergency fund is a sum of money reserved for the unexpected curve balls life throws at you. Separate from your savings account that you may dip into for leisure, an emergency fund is something that you don’t touch unless, of course, it’s an emergency.

Why is an emergency fund important? The short answer is that life is unpredictable. Whether it’s medical bills, car troubles, a stock market crash, or job loss, building an emergency fund gives you financial security in a crisis.

How much money should you put in an emergency fund?

How much money should an emergency fund have? It’s different for everyone. The number of dependants you have, your monthly expenses, and the security of your job all play a role in determining the amount of money you need to put aside. Online tools, such as this emergency fund calculator, can assist you in sorting through those factors to decide how much you should save.

Our recommendation is to have at least three to six months of monthly spending in your emergency fund. However, this rule does not apply to retirees who depend on their investments for income. In this case, building an emergency fund with 12 to 24 months of income will prevent a situation where you have to sell stocks and bonds when the market is down.

Will your money be there when you need it to be?

In addition to being adequately funded, your emergency fund needs to be easily accessible. Therefore, the most important aspect of an emergency fund is its liquidity. Liquidity means you can use the money today by writing a check or swiping your debit card. When building an emergency fund, it is important to keep it in a checking account or brokerage money market account with check writing authority.

It’s better to be safe than sorry.

Understanding how to keep your money safe starts with knowing where to put it. You can protect your emergency fund by using an FDIC insured bank account, an NCUA insured credit union account, or a money market mutual fund.

How do you start building an emergency fund?

You understand what an emergency fund is and have calculated how much money you need to set aside. But, how do you go about building an emergency fund?   

Setting a monthly savings goal is one way to steadily put the money you need aside. Treat your emergency fund like it is a bill that must be paid after each pay period. After a few months of doing so, the task of building an emergency fund won’t seem so daunting.

Too many people do not have a sufficient emergency fund to cope with unexpected expenses. Understanding why an emergency fund is important is a start to ensuring financial security for you and your family when a costly surprise occurs.   

Lorenz Financial Services, LLC is a Lafayette, Indiana fiduciary who offers financial planning and portfolio management services. If you have questions about who we are or our services, please contact us at (765) 532-3295 or email us.

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Estate Documents

Your estate documents dictate the fate of both your physical assets and equity. The following documents assure that you stay in control, and that your estate turns over properly upon your death. It is important that you review your estate documents regularly and keep them up to date. Additionally, if you are married, both you and your spouse should have one of each.

Last Will and Testament

Your will is a legal document that defines who will inherit your property upon death, and it is solely held in your name. Furthermore, your will also defines the primary and secondary people that will assume the roles of executor of the estate, the investment advisor for the children’s money who are under 18, and the custodian of the children under 18. Keep in mind that wills do not avoid probate court. This means it can be reviewed by the court in order to analyze its authenticity and reliability.

Revocable Living Trust

A revocable living trust is designed to avoid probate court upon your death. In this case, “revocable” means that you can change any aspect of the trust as many times as you want prior to your death. “Living” implies that the trust can instruct the way in which your assets and bills should be managed should you become unable to do so.

Most importantly, the revocable living trust allows your assets to pass directly to your heirs as you have defined in the trust without the headache, time, or costs of probate court. Court costs can often be 5% of the value of the total assets plus lawyer fees. Even if probate court fees are low in your state, a revocable living trust will save a huge amount of stress and time by avoiding the courts all together.

Durable Power of Attorney

A durable power of attorney (POA) is a document which grants the authorization of someone to represent or act on another person’s behalf in private affairs, business, or any other legal matters — sometimes against the wishes of a another party.

The person authorizing the other to act on their behalf is referred to as the principal, grantor, or donor. The one authorized to act is referred to as the agent or attorney-in-fact. “Durable” in this case means that the agent is allowed to act even if the grantor is incapacitated. The POA terminates upon the grantor’s death or if the grantor revokes the POA in writing.

Medical Documents

Most people focus on their estate documents and overlook one or two of these medical documents. However, these are just as important to set up in your estate planning. Medical documentation helps assure that in the case of your incapacitation or death, important assets, decisions, and information fall into the appropriate hands.

Healthcare Power of Attorney

The healthcare power of attorney informs medical personnel of who has the legal authority to make medical decisions on your behalf should you become unable to do so. This document is important to keep up to date because medical emergencies are often unpredictable and cause high levels of stress on family and friends. A healthcare power of attorney assures that your medical decisions and preferences are in the hands of someone you trust.

Living Will

The living will, also referred to as a health care directive, is a document that defines how you would like to be medically treated in the event that you become unable to communicate, incapacitated, or terminal. This is an opportunity to develop specific instructions to ensure your wishes are carried out correctly.

HIPAA Waiver

Your HIPAA waiver defines with whom a doctor or hospital can share your medical information. Third party individuals are not able to access your private medical information without being mentioned on your HIPAA waiver.

Documents that Override Instructions in a Will or Trust

Beneficiary statements are legal documents that essentially override requests made in a will or trust. This means that if an asset has a beneficiary statement, it already has an inheritor in line, and any statements contradicting that in estate documents are disregarded.

Beneficiary statements that override requests made in estate planning documents can be applied to life insurance, 401K’s, IRA’s, annuities, and other retirement accounts.The following beneficiary statements can override instructions made in a will or trust.

Payable on Death (POD)

A POD is an arrangement between you and your bank or credit union. Should you designate a beneficiary to receive your specified assets upon death, this document will ensure your assets do not go through probate court.

Transfer on Death (TOD)

A TOD is a legal arrangement for brokerage accounts to enable you to transfer your assets to a beneficiary without hassle or the costs of probate court.

For both POD and TOD, you maintain complete control of the assets while you are alive and the beneficiary has no control. However, upon your death, the assets will be transferred to the beneficiaries, regardless of the provisions defined in estate planning documents.

Jointly Held Property

A jointly held property is a property held in more than one person’s name. This dictates that upon the death of one joint owner, the other joint property owner will inherit the asset no matter what is stated in estate planning documents. This means that if you bought a house with a college buddy 30 years ago under a joint ownership, you will inherit the whole house upon his death, despite the fact that he stated in his will that his wife and kids could use 50% of the money from the sale of the house.

If you’re like most people, you probably have a few of these documents already drafted. However, missing even one of these six important estate planning documents can result in significant losses. It is of the utmost importance that you consult an attorney and establish these estate planning documents to ensure the proper transfer of your assets to inheritors!

Lorenz Financial Services, LLC is a Lafayette, Indiana fiduciary who offers financial planning and portfolio management services. If you have questions about who we are or our services, please contact us at (765) 532-3295 or email us.

Lorenz Financial Services, LLC does not provide legal opinions or services. The above information is broad-based information that may or may not apply to everyone or might be incorrect in some states. Always hire a licensed attorney in your state before making any legal decision or taking any legal action.

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